Give Reason to hold or invest in CXO, page-172

There is a very clear thesis for investing in CXO, though there ARE, in fairness, significant risks involved. CXO could easily be a ten bagger from here, or it could go into administration, and some of the most important factors are speculative.

Keeping in mind that mining in general is a highly cyclical industry, and lithium is relatively immature and so even more cyclical, with more significant price swings (in BOTH directions, mind you) than more mature commodities such as Cu or Fe, we can be certain that pricing will not be as flat as “analysts” are predicting. By the end of the year, SC6 could be going for $700 or it could be going for $2,500, and anybody that tells you they KNOW where it will be is lying or self-deluded. I have my opinion, but it’s an OPINION.

Regarding CXO, I see the following significant risks:

1. SC6 prices could stay relatively low for a long time. Most significantly in that regard, I anticipate CXO requiring a price of $1,500/dmt in order to break even immediately after a restart, during which time they will need to restart mining and essentially start the ramp-up process again, albeit with almost a year’s worth of experience with their setup to guide them.

a. GM was never a miner, he was a paper-pusher. Holders will need to hope that PB’s mining experience will allow him to successfully tackle the problems that GM was clearly incapable of solving: Increasing production volume to nameplate and getting recovery rates up to something that is reasonable (from an economic standpoint, 60% recovery means little if it’s at 4.7%). The Finnis DFS originally called for SC5.0 with a 76% recovery rate, which was modified to SC5.5 with a 72% recovery rate, by the time of the final DFS report.

2. Given the mine location, we COULD lose one to three months of operations per year to weather. Yes, we can plan for water management, and we can build-up the ROM stockpile during good weather so that we do not need to mine during the wet season, but in the NT, the weather can get so bad that you can’t even move ore from the ROM to the plant and run the processing plant safely.

3. Getting BP33 developed and producing could take longer than Grants Pit will produce, creating a gap in production. If that gap is significant, we could see another extended period of time with no revenue, which Mr. Market would likely punish mercilessly.

4. Though I do not anticipate this, and was a HUGE critic of Gareth (in the role of CEO), PB could turn-out to be another bust. I like what he’s done in his first week, but for me, one of his first big tests is going to be to release some sort of announcement with guidance for what he sees as CXO’s path forward, with some real details. I’ll give him a few weeks, because he needs to roll-up his sleeves, kick a few tires and understand EXACTLY where CXO is before proclaiming what our future path is, but he needs to announce SOMETHING, soon, even if it includes some “TBDs.”

5. Our Napperby Uranium deposit is likely to take long enough to perform the drilling and testing necessary to develop it as a marketable asset that Uranium prices will likely be on the downswing. As an alternative, we could just sell it, but then. Obviously, it will command a far lower price than a properly resourced asset.

Against all those negatives, here are the reasons I am not only holding, but looking to see where I see what looks like bottom resistance, to invest more:

1. One of the biggest problems with the Grant’s Pit operation has always been the weathering of the ore, which is a significant part of why the recoveries were so low and the fines were so large a portion of the concentrate. The lower we get into the two halves of the pit, the less this will be a problem.

2. As a few posters have explained in some depth, as we get lower into the pits (Grant’s is really two pits), much less overburden requires removal to access ore, so OPEX should be significantly lower for the lower portions of Grant’s Pit than the upper portions of the pit were.

3. Management will have more than a year of operations data and mining/processing experience to understand where their issues were when they re-start, so ramp-up, if and when they DO re-start, should be faster and smoother than starting from scratch.

4. Our resource has already expanded significantly (58% increase announced on 11 April), but there are several prospects that are clearly similar to both Grants and BP33, and which only need to be drilled to confirm the size and quality of the resources, so we can expect the Finnis Resource to continue to grow.
a. On this same topic, it bears noting that our neighbors (Lithium Plus) have their exciting Lei Resource right across the property line from us. If you look at the Finnis site maps (such as the one on Page 11 of the AGM Presentation), you can see that Ah Hoy and Penfolds Resources run parallel to the Lei Resource, and may all, along with Lei and BP33, be part of one very large Spodumene deposit.

b. Further to “a,” there are a few (at least four) potential drilling sites between Ah Hoy/Penfolds and the Lei Resource, to the South of BP33, one of which is Seadog. Seadog just had its’ first drilling results announced in the April announcement, and it is already half the size of Grants Pit. More importantly, it is open downwards and to the East, and the schematics of the drilling results show the best results on the East side of the resource, which happens to be in the direction of the Lithium Plus Lei Resource.

c. Booths and Lees, combined (they’re close to each other, to the North of BP33), are now as large as BP33, which was originally supposed to be “the cornerstone of the Finnis Mine Site.” They also start close to the surface (in fact, there is spodumene in the “weathered zone,” with extractable ore less than 30m below grade), so there’s no need to go underground to exploit these two resources.

5. For all of our problems, there is no debt, A$80M in the bank, and we’re just waiting for the Q4 results to see what we MADE, in terms of free cash flow, from processing the ROM for most of the quarter, sans mining costs.

6. As I’ve said in several posts, we are invested in a highly cyclical industry (mining), and a particularly volatile portion of said industry (lithium). The pendulum WILL swing back, if it isn’t already. I’m patient, and only a winding-up order will kill this investment, IMHO.

I don’t have a crystal ball, and do not know how this turns-out, but at the prices we’re seeing, now, I’m willing to put a little bit of my money where my mouth is, even if I’m putting twice as much of my lithium dollars into both LTR and PLS. We’ll see who’s right in the long run, but understand that my timeline is 3-5 years, and not 3-5 weeks.

Best to all.