Core Lithium Ltd

ASX:CXO

Earnings Call Analysis

Core Lithium's Growth Strategy and Continued Focus on Lithium Reserves

Core Lithium is navigating a transformative phase after pausing operations at Finniss to enhance its growth strategy. The recent updates showed reserves soaring from 3.9 million to 8.7 million tonnes of spodumene at BP33, supporting a promising 9.5-year mine life. The company, with $61.3 million cash and no debt, is focused on a restart study scheduled for the first half of 2025, expecting a favorable market for lithium prices to exceed $1,200/tonne. With plans for exploration and community engagement, Core aims to optimize operations while remaining sustainable.

Core Lithium's Current Status

In the recent earnings call, Core Lithium CEO Paul Brown highlighted that the company has transitioned to a care and maintenance phase at its Finniss site following the cessation of processing operations. This pause has been strategic, allowing for a stable environment while monitoring market conditions for lithium. Despite these challenges, the company maintains a strong balance sheet, remaining debt-free with cash reserves totaling $61.3 million.

Enhancements in Ore Reserves

A key positive update was the significant increase in the ore reserves of the BP33 deposit, which climbed from 3.9 million tonnes to 8.7 million tonnes at a lithium oxide grade of 1.4%. This increase is critical for the company's future operations and supports a notional operating mine life of approximately 9.5 years. This enhanced reserve strongly positions Core for a subsequent restart, should market conditions improve.

Focus on Growth Strategy

Brown emphasized that the company is committed to its growth strategy, focusing on its lithium core business while acknowledging ongoing exploration activities in gold and other commodities. The exploration at the Shoobridge project has indicated promising gold potential, revealing significant gold intersections along a 4.5-kilometer trend. However, about 80-90% of exploration spending remains primarily directed toward lithium.

Financial Discipline Amidst Transition

James Virgo, the CFO, reported that during the transition phase, they encountered several one-off costs, including redundancy payments and royalty expenses, which were anticipated and aligned with budget expectations. Cash expenditures for the quarter were notably impacted by foreign exchange movements against the Australian dollar and other working capital changes. The company plans a reduction in future expenses, aiming to streamline costs and improve capital management as they progress towards potential operational restart.

Restart Strategy and Market Readiness

Core Lithium is actively undertaking a restart study, expected to be completed in the first half of 2025. This evaluation is set to include detailed analyses of operational and capital expenditure aiming for efficient operations. Brown expressed that a lithium price rebound is necessary, with a ballpark figure of around $1,200 per tonne of spodumene being ideal for reactivation. Those expectations align with emerging signals from major industry players signaling a possible uptick in lithium demand.

Positive Market Signals

Brown noted substantial interest from corporate partners within the lithium sector, particularly referencing RiTinto and Pilbara Minerals’ acquisitions as indicators of market strength. Moreover, General Motors’ recent investments in lithium developments showcase a robust market outlook, enhancing confidence in the recovery of lithium prices. Brown reassured stakeholders about the company's capability to resume operations quickly should conditions favor.

Commitment to Sustainability

In concurrent discussions about sustainability, Core continues to affirm its commitment to environmentally compliant practices and robust community relations, especially as it navigates through the wet season in Northern Territory. Having a fully approved Mine Management Plan assures that the company is prepared to manage operational risks diligently.

Future Engagement and Readiness

The leadership team at Core includes new senior appointments that are expected to drive operational readiness and processing efficiencies as the company strategizes for future development. Maintaining strong relationships with existing partners while exploring new opportunities remains a pivotal goal, ensuring that as market conditions evolve, Core is poised to capitalize effectively.

Earnings Call Transcript 2025-Q1

[Operator]

Hello, and welcome to Core Lithium's September Quarter Investor Call.

Today's call will start with an investor presentation, followed by a question-and-answer session. [Operator Instructions]

I will now hand the call over to Core Lithium's CEO, Mr. Paul Brown. Please go ahead.

[Paul Brown, executive]

Hello, and welcome to Core Lithium's September Quarter Update. I'm Paul Brown, CEO, and joining me is James Virgo, my CFO.

Please note the usual disclaimer, and we'll now hop into our presentation.

So the December quarter was our first quarter since processing operations ceased at Finniss and our site now has transitioned into a full-time care and maintenance phase. As with previously, the site remains in a light touch care and maintenance and should the market uptick, we will be able to restart in a relatively short space of time.

Our focus has been delivering on our growth strategy. We remain fully compliant with all of our environmental obligations at Finniss. And pleasingly, across our business, we haven't recorded any injuries. Our restart studies are progressing really well. And pleasingly, we've managed to update our reserves to incorporate a more up-to-date set of modifying factors.

Our balance sheet remains strong. We remain debt-free. And we're after closing out a number of one-off costs linked to the suspension of the operation.

Drilling at Shoobridge project has revealed exciting gold potential across a 4.5-kilometer prospective trend, and we made an investment into Charger Metals and a conditional offer of 30% of the Bynoe Project.

Moving to sustainability. Sustainability remains critical to us. At the moment, we're preparing for the Northern Territory wet season. We have a fully approved Mine Management Plan from the regulator and a very competent team to manage through the wet.

I've been busy meeting with ministers and members of the Northern Territory government establishing relationships with the new government. We have just had a transition to a new government. But again, thanking the outgoing government and certainly had a very warm welcome and really good engagement with the new government.

We continue to have great support for growing in the region and certainly restarting Finniss from the government. We remain Northern Territory's only lithium mine, and we have great support within the local community also.

So just moving to our ore reserves. We updated our ore reserves in September, seeing strong growth in our BP33 deposit. We've managed to lift that from 3.9 million tonnes to 8.7 million tonnes with a grade of 1.4% Li2O. So really strong positive result. And certainly, this deposit cornerstones our restart strategy.

The open pit at Grants will provide the ramp-up ore feed once operations commence. And combined supports a notional operating mine life of around about 9.5 years. We didn't focus our reserves on the smaller deposits and further work is required, which is ongoing.

I think I'd like to point out that certain assumptions used in the ore reserves were conservative and based on historical data. From the work undertaken to the pit and reserves, a number of opportunities and areas of focus was identified.

These items will underpin the work to be done in the coming months as part of our restart study. So really good level of focus and again, commend the team for what's been delivered there. As a part of our study, we'll also update our life of mine plan.

I'll hand over to James to discuss our balance sheet and financial update.

[James Virgo, executive]

Thanks, Paul, and hello to everyone. I'll briefly add a bit of color to the quarterly's balance sheet and cash flow.

The quarter ended with a cash balance of $61.3 million and Core remains debt-free. I'll walk through a couple of the key movements in the cash flow during the quarter. Given that both Paul and I are new in our roles, we prioritize addressing some legacy matters and the transition to paused operations at site.

It's been a complex quarter regarding cash flow reconciliation, with several one-off and nonrecurring items in the quarter. These were all anticipated and in line with our budget expectations.

One-off nonrecurring payments relating to the transition at site included contractor payments and some termination fees. These relate to the cessation of operations in late June; some staff-related redundancy costs of $1.2 million; royalty payments for the June quarter, which flowed in the September quarter of, $4.8 million. These were in line with expectations. Some nonrecurring CapEx for the purchase of some generators at site. These were purchased to reduce long-term operating costs.

I'd like to reiterate for CapEx, the company has a strict process to review the costs and there's an ongoing effort to reduce operating costs and be disciplined with our capital management. There will be some minor CapEx in the December quarter for water management infrastructure, but that should be minimal.

During the quarter, we did repay approximately $1 million for some unused grant funds received under the Modern Mining Initiative and that closes any payments relating to that initiative for Core. From a recurring perspective, Finniss site care and maintenance was $2.3 million, and there was some exploration, as Paul mentioned, at both Finniss and Shoobridge.

Cash for the quarter was impacted by unfavorable unrealized foreign exchange movements relating to the Aussie dollar versus U.S. dollar, and there were some working capital movements as expected. When these one-off costs are added back and including the unfavorable FX, these accounted for about 75% of the expenditure in the quarter. And we expect the go forward to be reduced significantly compared to September.

We continue to focus on strict compliance with our budget and capital allocation. I would like to note that there is a final quotation price payment that will turn in December quarter, and that's now flowed in October, for $3.5 million.

Last point I'll touch on balance sheet is that we still retain approximately 5,100 tonnes of spodumene concentrate at site and 75,000 tonnes at Finniss, which are available for sale when market conditions are right.

With that, I'll hand back to Paul.

[Paul Brown, executive]

Thanks, James. So let's move to the restart study, and I'll provide an update on how I'm thinking about that. But there's certainly been plenty going on, a lot of work behind the scenes. Our reserve estimate was a really important step. Where we're sort of focusing our time and effort at the moment is a detailed flow sheet.

Evaluation. Now I will say we have a tremendous amount of quality data from operating the site. And if you look at site performance in that sort of last 2, 3, 4 months, we had really good site performance. We had really good recoveries, et cetera.

So we've got a very solid foundation to evaluate our flow sheet and certainly, adding those optimization opportunities, which is currently underway. So the flow sheet will be supported by a bunch more test work, engineering validation and third-party assessment.

The mining study for BP33 is also progressing with a big focus on OpEx and CapEx cost reduction, of course, efficiencies and how we're planning on executing once we get underway.

I've appointed 2 key senior people recently. First is James Bruce. He's our newly appointed Chief Operating Officer. I'm really pleased to be able to have James come and join us. James has a wealth of underground operating experience in his early to mid- career and certainly has progressed and operated on a global scale. He also has -- a very well-known to the market and operated in areas like sustainability, et cetera. So really pleased to be able to attract James and again, welcoming him.

Mike Di Trento is our Head of Processing and Operational Readiness. I touched on Mike briefly, but certainly, he has operated 3 or 4 of the key assets here in WA, lithium assets here in WA. so he knows what works and what doesn't. And again, someone that's very, very practical. He likes to keep things simple, but also backs up things through validation and engineering test work. So we're really pleased to be able to attract those 2 key appointments.

We certainly don't necessarily need to be bringing on too many more people. We've got the right balance of people to deliver on our next steps. But again, welcome to those 2.

We continue to monitor the market conditions. I think, pleasingly, you saw Rio Tinto and Pilbara Minerals acquisitions. They're certainly looking to build their lithium business. That's a positive signal to the market. And a major investment just recently by General Motors in the Thacker Pass, which is a U.S. deposit, clay sediment deposit, is another good signal.

We've also seen some supply starting to come out of the market, which, in time, will have positive implications for price.

Our own external engagement remains really strong. We're always engaging with our customers and potential new customers. There's a lot of interest in our products. As I've previously touched on before, we do have a very high-quality, course-grained spodumene product that is highly sought after.

We've also been talking to current potential investors. So a lot of good engagement and a lot of good solid interest in our organization.

We'll certainly continue to stay close to the market and our offtake partners as study progresses and no doubt, provide market updates when necessary. As far as our study work, we remain on track for release in the first half of 2025.

So just moving to the next slide, so exceptional multi-commodity potential. I get a lot of questions on how I see value through exploration. I think I view exploration as a smaller subset of our main business, but it certainly has to deliver value. We are spending money. So it's a big focus of ours to ensure that, that value is created through smart exploration.

I was out on site this week with James and our geology team at Shoobridge. There's nothing better than walking in the ground and talking to the team and really seeing what's going on out there. Pleasing that we're operating very safely and sustainably, which is critical. We have great relationships with our landowners and certainly access to these areas wouldn't be possible without them. So really strong focus on safety and our relationships.

The majority of our drilling was at Shoobridge this quarter. Shoobridge is prospective for gold and of course, lithium and lithium remains our key focus. The tenement itself is located 160 kilometers south of Finniss by road. It's only 10 kilometers from the Stuart Highway and around about 60 kilometers from auto-processing facilities in that region.

We've reported lithium and tin mineralization in our program. I think the most exciting results. Our gold, though, with shallow high-grade intersections up to 1 kilometers apart, certainly supported by historic results across a 4.5-kilometer trend.

The region itself house 6 multimillion-ounce deposits all within 100 kilometers of where we are. So we are planning -- supported by the results of our original program, we're planning a follow-up 4.5 meter RC and diamond program, which is currently underway and progressing well. And we want to see those results will come through, I guess, the back end of this quarter and into early 2025.

So lithium remains our focus. But certainly, when you're in and around these areas drilling, we were pretty confident there was some potential for gold. So the potential to define a shallow high-grade deposit, gold deposit in the region with processing infrastructure is something we believe we can generate an attractive return on investment for our shareholders.

So summarizing the value proposition. As James touched on, we are both new. Well, certainly, James is new to his role. He's been around in the business for over 12 months. But I'm still relatively new, joining in early June, but I feel really confident.

I've got my feet on the ground. I've met everyone. I understand where our priorities are. We're appointing -- appointed a couple of new strategic positions into our executive structure. So I see things very clearly, and I'm really happy to be here leading Core.

But if you look at us as a whole, we have a very valuable, well-established infrastructure, 80 kilometers away from Darwin. We're 88 kilometers away from Darwin and port infrastructure.

Our logistics chain and things like that are very simple and proven. We know how to operate this asset. We have target exploration, generating good returns on investment. We have a strong balance sheet with no debt.

We have moved through our one-off suspension costs, and they're now behind us. We have a very supportive government and local community.

We are progressing really well with our restart studies, which again have been underpinned by the work we've done with our ore reserves, and they remain on track for the first half of calendar year next year.

Really pleased to build out the team, with a strong executive and well-credentialed supporting Board. I'd just like to thank the shareholders. Your support has been fantastic. I'll continue to engage and provide updates as we progress in the coming months.

I'll now hand back to the moderator to take questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Hugo Nicolaci from Goldman Sachs.

[Hugo Nicolaci, analyst]

I just wanted to initially follow up on the comments you made earlier around being able to restart quickly if lithium prices rebound. And just putting that in the context of the restart study being expected in the second half of FY '25, do you need the study to be finished before you restart? And I guess from the early works, is there any change to the level of spodumene pricing you'd like to see before you restart?

[Paul Brown, executive]

Right. Look, we want to get the work done. I think there's time to be able to do that. We certainly don't see the market sort of rebounding between now and when we get this study work done.

We think there's real value to be driven through the study and certainly when we get going again. I guess what I was thinking around that is we have a really good developed open pit that has all uncovered already.

So it doesn't take too much time and effort to be able to get back in there and mobilize a relatively small mining fleet to deliver ore to the plant. So we are focused on our study work. So that's sort of how we're thinking about it, but certainly do have the ability to get back into the Grants pit and get going relatively easy.

[Hugo Nicolaci, analyst]

Got it. And then just on that price you'd like to see. I mean I appreciate if it's still part of the ongoing study and optimization works, but are we still thinking probably something north of 1,200 spodumene before you'd want to be able to restart?

[Paul Brown, executive]

Look, I think everyone would be happy to see north of 1,200 at the moment. Others have come out and said it's a pretty big struggle at the moment. But look, we haven't got a number. The work is certainly being done and it's going to define how we're thinking about things.

As I briefly touched on, the work we did with BP33 is really, sort of blown the covers back on a number of opportunities that we see. So we're focused on how that looks and how we're going to be operating these assets in the future because when we do get going, we think the market will be there for us.

The world needs operations like Finniss. We are a very high-quality, hard-rock lithium asset in a great region with a relatively simple supply chain. So when we do get going, we want to operate in a sustainable manner. We've got a 9.5-year life in front of us, so that's certainly something we want to look to exploit.

[Hugo Nicolaci, analyst]

And then just one more, if I could, just around, I guess, how you're thinking about funding for the restart, just assuming obviously BP33 development likely tied to that restart to get that mine life. Are you thinking about that from kind of -- is there potential for ongoing government grants there as well and NAIF funding and the like, like some of your peers have historically received? And would you look to start to move some of that stockpile that you're sitting on as well to help fund that restart?

[Paul Brown, executive]

Yes, a good question. And I think what I am finding is that there's a lot of support out there for us and for multiple ways of potentially funding this thing. But what we're really focused on is getting this work done, really understanding strategically how we're going to operate. We're seeing what we can operate it for. And I think that will open up multiple potential pathways of funding.

As you touched on, there is support by NAIF and things like that. So we're very open. We haven't closed the door on any of those things. But the focus right now is to get the work done to enable those conversations to be had at the -- certainly at the right levels. How I think about our stockpile is the market eventually will return and there's value in that spodumene that's sitting at Finniss and certainly value in the Finniss that we're seeing there as well. So when the market is there and the time is right, we'll look to do something with those stockpiles. So that'll feature at our balance sheet at some point.

[Operator]

Next, we have Sam Catalano from Wilsons Advisory.

[Samuel Catalano, analyst]

I have 2 -- sorry, 3 questions, if I could. Firstly, if you could just remind us of the progress of the early works. So obviously, I think it's $40 million or $50 million on early works for BP33 slated to be spent. Just wanted to get an update of exactly where they got to with regards to box cut and any other further infrastructure. I'll leave that there and ask questions subsequent afterwards.

[Paul Brown, executive]

Yes, thanks. Look, if you look at the site holistically, we have -- we have all the infrastructure in place as far as open pit offices, crib workshops, importantly, a DMS plant that's been built incredibly well. And our underground development, yes, there was quite a bit of money spent, so we do have a good head start.

The box cut, I would say, is around about 95% complete. We're not looking to do anything in and around that area at the moment. But again, it sort of indicates how we're thinking about being able to get back into production and certainly progress the likes of BP33.

[Samuel Catalano, analyst]

Okay. Great. And sort of seeing 2 questions related, I guess, is I know the studies aren't done yet, but I wonder if you're in a position to give us any sort of ballpark range on CapEx. And then linked to that and perhaps pushing you a bit on the funding question that was asked earlier, given that you've gone to the effort, time and effort to define 10 years of reserve base, that says to me that you're perhaps trying to open up the avenue of bank debt as a funding tool. Is that a fair comment to make as well?

[Paul Brown, executive]

Yes. Look, I think we have to get the work done. And the key reason why I'm here is I'm an operator, and that's my background and I know how to operate assets. It's something I've done all my life and excitingly been able to have the opportunity to join Core. We have all of these things in place.

We have a supporting government. We have supporting shareholders. We've got a strategic asset located very close to the port infrastructure. We've got an all-weather road. So we have a lot of good ingredients, which is really exciting.

And as far as funding, yes, you're right. I can't be drawn on it because I don't have the answer to that other than there's been a lot of engagement. There's a lot of good constructive engagement externally with us and certainly a lot of eyes on us. Once we get the work done, we'll be able to come out and be a bit more transparent in how we're thinking about funding. So really, that's all I can say at the moment on that stuff, mate.

[Operator]

Next, we have Jon Bishop from Jarden Group.

[Jon Bishop, analyst]

I'm just a little bit interested, and I think I asked you this earlier, Paul, around your restart study. You obviously included a reasonable amount of detail on operating costs and indeed reached out capital with your reserve and resource statement last month. I'm just wondering where the big levers are to reduce those numbers.

[Paul Brown, executive]

Reduced capital and operating costs, sorry, was that the question?

[Jon Bishop, analyst]

Essentially, yes. Yes.

[Paul Brown, executive]

Yes, okay. Well, I think if you look at some assumptions that were previously out in the market about how we were going to operate and certainly some capital that were needed through the processing facility, et cetera, we're looking at all of those avenues. How we're operating previously, we had a lot of help from third-party contractors, et cetera. And of course, when you're operating these assets in their infancy, they're particularly challenging like any asset it is to ramp up. So we have all of those learnings.

We have all of the data that support some of the flow sheet thinking. As I touched on before, we have a coarse-grained spodumene deposit that mends itself really well to DMS processing, and we certainly had pretty strong recoveries as we ceased operating the mine. So we're taking all those things into consideration. There's also a bit of new technology and things out in the market to assist with processing. So all of those things are being considered.

I mean CapEx is something we think about how do we get -- how do we drive the right value through the CapEx that we put into the ground. So return on capital invested is another key indicator that we'll be particularly focusing on. And I think it's fair to say that apart from grants, we have a pretty big future in underground mining and developing underground mines. So that's an area that James and his team are focused on because I don't think this is the last underground development that we'll do in the region. But we have to do the work, but there's certainly a lot of green shoots and a lot of experience around the table that's going to be able to drive the right outcomes.

[Jon Bishop, analyst]

Okay. That's helpful. The other area that I'm sort of interested to explore is, you have offtake agreements in principle with Yahua and Ganfeng. You've obviously noted periodically with your disclosures that there are offtake discussions or contractual discussions around those agreements. And as I understand, it's a volume fulfillment commitment. Respecting that lithium prices aren't fantastic at the moment, nevertheless I would argue that you are contractually on the hook to those counterparties. Can I understand where things are with them and whether you're likely to receive some form of final resolution in the near term?

[Paul Brown, executive]

Yes. Thanks for the question. You're right. They are our partners, and they've certainly been very supportive partners. Ganfeng is an organization I'm particularly familiar with and have great relationships as well. And that's the only contract that we've ever supplied into. But very supportive. They understand the market themselves.

So I have dialogue, regular dialogue, not only them, but others. So when we look to get going again, there's certainly customers that are well known to us and are supportive. But there's certainly no pressure coming from the likes of Ganfeng to do anything at the moment.

[Jon Bishop, analyst]

Yes. I guess what I'm driving at is respecting the Ganfeng have behaved, I feel as a market observer sensibly in recent times. I guess there is a volume commitment there. And if they wanted to play hardball and certainly, Yahua could play hard ball. Is there remedy being explored at the moment? Because as I understand it, the agreements facilitate them stepping into the market and buying externally and you have potentially exposure if there's a differential between benchmark price and price paid. Now it seems unlikely, but I guess it is an exposure that I would have thought that yourselves and the Board would want to nip in the bud as soon as possible.

[Paul Brown, executive]

Yes. I think we're not -- certainly not going to get into the contractual obligations, and that's probably a question for Ganfeng. And as I said, we're comfortable where things are at and the relationships are solid. And I think most parties probably have some of those hooks and various things throughout their structures. And what makes great partners has been able to get around the table and have constructive dialogue when each other require it. And that's certainly something that we've been able to do with both parties.

[Operator]

Our next question comes from the line of Hayden Bairstow from Argonaut.

[Hayden Bairstow, analyst]

Just a final one just on exploration priorities, this whole multi-commodity strategy given where your cash balance is at and likely funding on lithium. Does it wind back a little bit to be more just lithium-focused? Because I mean the business has looked at uranium and now there's gold here as well as well as lithium. Where's your head at with that strategy?

[Paul Brown, executive]

Yes. So I think good question and it's something I spend a lot of time on and certainly our Board is very focused on as well. And as I touched on it, exploration is a mini business inside of our larger business and we want to be able to generate the right outcomes for our shareholders. And Shoobridge is one example of that. We were specifically targeting lithium.

There's hundreds of potential peg and opportunities across that tenement, but we were fortunate enough to strike some pretty interesting gold results, which has led us to progress with a 4,500-meter campaign. And at the end of the day, lithium is our priority. The update I originally gave around our exploration spend was 80% or 90% of that was focused on lithium and that still remains the split.

With regards to Napperby, we do have a uranium resource there. We're not -- we looked -- we still may move into some more exploratory drilling there. But given our focus at Shoobridge and our near-term exploration in that Finniss region, we're certainly are pretty satisfied with our strategy. But we are a lithium miner, and that's our bread and butter. And certainly, that's our focus, Hayden.

[Operator]

I see no further questions on my side. I will now hand back to James.

[James Virgo, executive]

Thanks, Maggie. As we noted in our call details, there is an opportunity for investors to also put questions through to us. So there was a number of questions. We've aggregated those into bucket of questions given the similar themes. So I'll just run through those quickly now.

So the first question, Paul, is we received a few questions regarding the recently announced capital raising from Charger Metals. Could you just share your thoughts on that and the impact on the preemptive for the 30% fine there?

[Paul Brown, executive]

Thanks. Well, we haven't given too much thought. I think that news or the documents just really came out yesterday. I mean the Charger investment for us is relatively small. So look, we'll certainly assess that and what it means and talk through our assessment of that with the Board in the coming weeks.

[James Virgo, executive]

Another question we received was a bit of an update on the Finniss drilling results that are currently -- the exploration that's currently underway.

[Paul Brown, executive]

Yes. Look, still ongoing and pleasingly progressing well, progressing safely, so under budget. But we look to have results out in the next 6 to 8 weeks, assuming that program continues to be on track.

[James Virgo, executive]

I'll answer the next question. So we've received a question about moving our head office from Perth to Adelaide. So the answer is yes. Core moved in the middle of last year to a Perth-based office.

That was all the questions that we had received. So I'll hand back to the operator to conclude the call.

[Operator]

Thank you. Thank you for coming into the conference call today. This concludes the conference call. Thank you for participating. You may now disconnect.