Core Lithium Ltd

ASX:CXO

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Operator]

Good day, and thank you for standing by. Welcome to Core Lithium June Quarterly Report Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded.

With that, I would now like to turn the call over to Mr. Paul Brown, CEO. Thank you. Please go ahead.

[Paul Brown, executive]

Thank you, and good morning, everyone. Firstly, I'd just like to thank everyone that's called in, specifically our shareholders and long-time supporting analysts. I'm joined with me here at the moment with James Virgo as well. But I'd like to take a few minutes just to introduce myself and give you a bit of history, and then touch on our quarterly and how we're seeing this moving forward.

So I'm a mining engineer, I've had a couple of decades of experience. I've operated in and around lithium for quite a long time and also bulk commodities, mainly iron ore, I guess, over the last 15 years. Most recently, I was CEO of Hastings Technology, which is a rare earth organization. And then I spent 8 years at Mineral Resources as CEO of the Commodities business, which are comprised of iron ore and lithium. And then before that, I spent a good chunk of time at Fortescue Metals with my main responsibility being the development of the greenfield Solomon Hub. And then I guess there's been a, I guess, cut my teeth really early on, with contractors such as HWE Mining, [ Runge Mining ], things like that in the Pilbara. So yes, I've seen a lot and done a lot and very, very excited to be here.

I've had a great deal of, I guess, engagement over the last several weeks of mostly relatively new. I've only been around 5 or 6 weeks. But in a very short time here, what's very obvious to me is we've got a very strong supportive shareholder group. Whilst there's some challenges, and I recognize them, hopefully starting to see some opportunities and some communication that will shape how you think about us and how we think about the business.

I've been to China. I've spent some time with our customers. We have a very supportive customer base. Our product is very welcome in the market. It's a very [ clean concentrate ] spodumene that blends very well through various stages of hydroxide and carbonate manufacturing. So our customers are eager to receive more our product when we get operating. So I just wanted to, I guess, let everybody know that how well our products received in the market. So we're looking forward to continuing good strong relationships with our Chinese customers.

The other thing I've done is on the site, and I'll spend more time on site over the weekend. But what's really obvious to me is just how well the asset is built the processing facility or our DMS plant has been built very well. And although it has been operated in a relatively short time, you can see how dedicated and the asset sort of being put in through our own core team and our contracting partners. Seeing recoveries go from 40% to up to 65% through a DMS circuit in a relatively short time is a very, very strong result. And I guess my experience of operated in a dense media and flotation, we have more opportunity to refine and improve grade and recovery. So I look forward to working on those opportunities.

But back to the asset, we're less than an hour out of Darwin. And so we've got a [ full benchman road ]. We've a great port infrastructure. So we're very well supported by the government, and we operate very well sustainably in that area. So the government and the conversations that I've had a very supportive, they want to support us through this particular pause and obviously, for a restart. So it's great that the team has done a terrific job in maintaining and we're developing and maintaining really strong relationships, not only with the government but with the community that we operate in as well.

So how I see the asset again, the highlight really is our operating costs whilst haven't been terrific. You have to appreciate any mine that starts up from an explorer and into production. It doesn't matter what asset I've been involved in. There's always those challenges. And there's a number of things that you put in place to start an operation. And I think from what I've seen and things have been done, really well. And we look forward to providing more color in the coming months on how we see things, how we see our cost base and certainly where those opportunities.

So I'm excited to be here. I'm not here just to warm a seat. I am an operator. I love operations. I love the people part of operations. I look forward to setting a culture of high performance of really ensuring we don't get our wallet out to solve any problem. We use our brains first, and we have a very different approach in how we look at balance sheet and capital expenditure and things like that. So I look forward to providing, again, more color on how I see things in the coming months. So look, that's a bit about me.

I'll hand over to James. James is a newly appointed CFO, although he's been involved in our business for quite a while. So I was very pleased to join the business and have James accept the position of the full-time CFO. So I'll hand over to you, James.

[James Virgo, executive]

Great. Thank you, Paul. Yes, as Paul has touched on, been with the company for just over 12 months now, been in the CFO role since March and permanently appointed, as Paul mentioned, at the end of June.

I'm a qualified chartered accountant with the background in professional services, but heavily focused on the mining sector. I suppose my most relevant experience is the time that I was at Resolute, I was the General Manager of Finance and Investor Relations. Resolute Mining is an ASX-listed gold miner. It was not without its challenges. So I have a lot of experience around debt and equity funding, managing businesses through challenging financial periods. And obviously, a lot of government relations operating in West Africa.

I will touch on the financials a bit later, but I'll hand back to Paul to start running through the quarterly. Thanks, Paul.

[Paul Brown, executive]

Thanks, James. So look, I'll just start with our Q4 FY '24 highlights in some operations. As I touched on earlier, 63% monthly or month-on-month average recovery, which really is quite remarkable. If you think about the last part of how we operated, we were processing relatively low-grade stockpiles, which again demonstrates just how effective our team is on site of operating that particular dense media circuit. We produced a bit over 20,000 dry tonnes of spodumene at a grade of 4.8% and our cash operating unit cost of $644 a tonne, so a big improvement on Q3, noting that some of the activities like mining, et cetera, we see.

From a sales and marketing perspective, so we had a record quarterly spodumene concentrate shipment of a bit over 33,000 dry metric tonnes. The average provisional price for SC6 that we realized was USD 1,078 a tonne. And we also shipped a bit over 19,000 dry metric tonnes of fines. And pleasingly, and this will be very opportunistic is that we have a bit over 5,000 wet metric tonnes of spodumene, concentrate spodumene on site.

As far as exploration, we had, as per our release, a 58% increase in mineral resources. So we have a bit over 48 million tonnes at a grade of 1.26%, which is really good, and we see further opportunities, which I'll put more color on as we progress.

Corporate and financial, James will certainly touch on this in more detail. We work really hard in ensuring that at the end of Q4, we had $87 million and no debt. So that's where our real opportunity lies. Again, no debt $87 million in the bank. So we are very heavily focused on cost reduction. Every day, there's things that are leaving our business and reoptimizing and how we do things is fundamentally different. So we'll preserve our balance sheet at all costs.

From a sustainability perspective, again, pleasingly, when you're shutting -- closing a site or putting aside on care and maintenance, sometimes those focus can be a bit challenged and lapse, but there are no recordable injuries across the quarter, which is very, very pleasing. And we also updated our risk management plan and submitted to Northern Territory work site that supports the suspension of our operations.

So I guess moving to an operational update. We produced a bit over 20,000 tonnes at 4.8%. Again, Q3 was almost 25 (sic) [ 25,000 tonnes ]. ROM stockpiles are now fully depleted, all processing activities, et cetera, were completed as planned. Light unit operating cost of $644 a tonne reflect the process in ROM stockpiles with no mining costs occurred during that particular period.

Recoveries, again, a bit of a highlight for us, and there's a lot of excitement around how we can continue to optimize and how we look at our recoveries at a record of 63% during the period. A stockpile of 5,178 tonnes of spodumene concentrate is on site, and there's around about 75,000 tonnes of fines available for sale. Again, we'll look at that as opportunistic when the market is right. We'll look to put those tonnes on a boat and maximize the opportunity that is left on site.

So look, we are in a state of operational readiness to restart. We've got a light touch on how we think about care and maintenance. But we do have a dedicated team on site that has shut that team -- that site down very, very well. It looks fantastic, and we look forward to providing updates on how we think about to restart in the coming months.

So improvement on operational consistency for the financial year. I think if you look at what we put out quarter-on-quarter, you will see there has been an increase in a number of areas, especially recovery. That's really what drives unit costs. So that was pleasing and pleasing to see and pleasing for me to really be on site and talk to our team and really understand how they've gone about things, and I can certainly echo some of the challenges in various operations, especially lithium I've operated, but I can see that the sustainable approach that's put in place will really benefit us on a restart.

I think our monthly concentrate production is largely in line with plan. So outside of the impact of planned shutdowns and weather. So the team really got a good handle on how to operate that site. We've operated through a couple of wets now and obviously dry. So maintaining water and managing water is certainly something that the team got very, very good at. And that's one of the key things that we'll continue to focus on is water management through the upcoming wet.

So look, remaining restart ready, I think that's really been the message and is well supported through our organization. Whilst we've obviously suffered the impacts of the decline in commodities market will also maximize the opportunity of a rising commodity market.

Again in record of time, I think we've gone from an explorer to a producer and again, seeing the asset walking in the ground, talking to the team, I've got a really good handle and understanding on how we need to go about a restart and there's certainly something that I've done on several occasions across a number of businesses. So where I will really be focused on is, again, is a light touch care and maintenance strategy. These things can get really expensive if you don't manage them properly. And certainly, whilst we're not in a position to restart today when the market changes, we certainly will be.

So again, capturing significant value when the market conditions stabilize throughout a dedicated saving place to manage Finniss care and maintenance activities. That is a very light touch but a very skilled team that is left over from operations. So we have retained the appropriate skills and experience to ensure the site is maintained and operationally ready for the resumption of work when that becomes a priority.

The focus on preserving the site assets and infrastructure in a restart ready state is critical. And I believe I've got the team to be able to deliver that and certainly will spend some time with that team over the next few days when I hit the site.

Water Management, as I touched on, is a really critical part not only from a sustainability ESG perspective, but our water balance needs to be maintained. We can only discharge when the creeks are running. We certainly don't want to have an influx of water and have issues around being able to move water through the wet and then, of course, in a dry, we need to be able to have the right balance to maintain water levels, et cetera, for operating.

But I'm pleased I've got a very experienced site manager who knows water and water management fit really, really well. And I think with the engineering on development, pumping [ these ], all those things are absolutely rock solid. So our operational restart strategy is being developed, and that will capture the substantial value upon stabilizing market conditions. And something that James, I and all the team is focused on is a detailed bottom-up build of our cost base and not only for Grants but certainly for BP33 as well.

So that's our focus on restart ready. We have, I guess, a highly valuable piece of infrastructure on site. We're well ahead of a lot of other organizations. We've got a great team to maintain the project. Whilst we have got the site down and key objectives of the operational pause is to ensure the plant can be restarted quickly and with limited capital.

A big focus will always be, regardless of whether in care and maintenance or operating, is to ensure we adhere to our license conditions and continue to manage all of those aspects under our management plan. And again, just to touch on in terms of the restart plan because I know there has been a lot of questions and expectations around what we are doing, but we are doing a detailed bottom-up assessment of all of our costs. When we get going, and it's a very good direction from our Board is that we want to be operating in a very sustainable manner and way to avoid any other challenges that no doubt the commodities market will throw at us.

So a review of our operating strategy, again, the culture that will be built here is one of real commitment, drive tenacity and making sure that our costs are well managed, people support it, we operate sustainably and safely. So I look at growing that culture out further.

We've got a lot of learnings. We've operated over the last 18 months. So what the team has done excessively well is really capture all those learnings. They're well documented.

The other advantage we have is people really love operating on-site at Finniss. Everyone I spoke to and certainly, whether it be government officials, people have met and have got introduced to in the Darwin and the people on site, everyone wants to come back. We're very, very close to Darwin.

We're probably one of the only few mines around that can offer to operate -- sorry, offer the drive in, drive out opportunity for people to be home with their families every night. And of course, lithium is quite a unique metals mine and certainly the processes, some interesting challenges right across the spectrum there. So people really enjoy operating there and consistently asking when you're ready, can we come back? So I'm very confident we can attract and retain the right people under this restart scenario.

So look, I think our expectation will deliver some outcomes in the first half of '25. But again, from a reset perspective, we need to do the work. I want to make sure the work is done. This is an area that I've done a lot or have a lot of experience in. I know what would look like. I know what a sustainable model looks like. I know what structures need to look like. So yes, I look forward to providing more color on that in the coming months.

So look, on that, I'll hand over to James just to touch on our financial highlights.

[James Virgo, executive]

Thanks, Paul. Paul has briefly touched on a few of those highlights. So I'll give a bit more color to that in a bit more detail around specifically cash flow performance for the quarter and the financial year.

Firstly, on our revenue. So as Paul mentioned, record shipments for the quarter of 33,000 tonnes. We generated about $41.7 million of revenue from the sale of those tonnes. You'll see in the cash flow statement net receipts was $37.6 million. So that's impacted by some brought-forward QP outflows on previous sales.

For the year, we shipped 97,400 tonnes of concentrate and 66,000 tonnes of fines. Of note, about 12,800 of those tonnes was part of the prepayment arrangement that was brought forward from last financial year. Along with QP adjustments and the impact of those prepaid tonnes, our total receipts from customers was about $108 million for the year, noting that the revenue would be slightly higher given that prepaid arrangements.

Moving on to operating costs. So as Paul touched on as well, the unit cost for the quarter were the lowest of the year of $644 a tonne. It really demonstrates the strict cost control that has commenced at the site, which really came through during this calendar year, focused on rightsizing operations. I think it is important to note that those numbers don't include mining costs for the June quarter.

Full year unit costs were $1,396 a tonne. This is within the revised guidance that was put out in January, again, when mining was suspended. I think it's important to know and Paul touched on, these costs don't necessarily reflect where we think our cost will be once we get to a restart scenario. And Paul mentioned working on multiple areas to reduce expected operating costs.

Regarding our CapEx. So with the rapid implementation of cost control measures during the second half of this financial year, the majority of CapEx and exploration were completed before the June quarter. So you see through the numbers, not a lot sort of capital outlays. Pleasingly, CapEx and exploration costs landed below the low end of our revised guidance that was released in January with the BP33 [ AWAC ] in line with expectations.

So what does this mean? Cash ended the year with a closing balance of $87.6 million, as Paul mentioned, core is debt-free and it's really about taking this forward and working through some of those areas that Paul mentioned. So I'll hand it back to you Paul.

[Paul Brown, executive]

Thanks, James. I'll just briefly touch on exploration. We put out an announcement really Monday last week and subsequently, an announcement specifically for our Shoobridge drilling. But look, how we think about exploration, our budget is around about $8 million or $9 million. We want to build value within the respective landholdings that we do. And we do hold some very interesting tenements.

And whilst we have conducted a lot of drilling in and around Grants and BP33. When I was walking in the ground with our geologists and certainly some of the previous exploration work and other anomalies that are there, past tin and tantalum operations, there are some really good opportunity to build on what we have there in a 30- or 40-kilometer radius of our assets.

So really, again, building value through exploration and there's some other areas down in Central Australia and into South Australia that hold some potential opportunity for us. So I won't touch too much more on exploration. But rest assured that how I think about exploration, it's money out, but it's got to be value through the door. I think our strategy makes a lot of sense. And certainly, we're pretty excited about the prospects and the targets that we have in front of us, but we will certainly be managing our costs and providing further updates as those results come in.

Look, just to summarize, operations, we safely paused and being maintained to enable a fast low capital restart when the market conditions stabilize. We are working through a detailed restart plan. It is currently at the top of my list, including a thorough review of future cost structures, operating models, et cetera, strong cash balance, debt free, $87 million, but we'll be extremely tight on managing our balance sheet because there is some -- I think there's still a few headwinds in front of us. So being in a strong cash position is a great result and certainly something that we'll manage very, very tightly.

Target investment in exploration during FY '25, we're aiming to build the lithium mineral resource to enhance our future operations. So we want to build value from the wider tenement holdings, and we do have a lot of tenements. But again, they're very targeted, very strategic.

Strategic opportunities to be considered which capitalize on the company's value through processing infrastructure at Finniss and our operating skill set. So look, I think I'll probably pause there. Again, thank you so much over the last several weeks of the engagement and welcome. I am absolutely thrilled to be here. And I hear your frustration. I know the challenges, I know what's in front of us. And we will be communicating further. That's certainly a message that we've got loud and clear, and I'm sure you're seeing some of that in front of you at the moment.

On that note, I will hand over to Desmond for Q&A. But thanks again.

[Operator]

[Operator Instructions] Our first question comes from the line of Adam Baker from Macquarie.

[Adam Baker, analyst]

Paul, the spodumene concentrate stockpile of around 5,300 tonnes in addition to the fine stockpile that you've got around 75,000 tonnes, could you talk through the potential sale of these stockpiles into FY '25? Is 5,300 tonnes big enough to build shipments? And what are you likely to see with the sales moving forward?

[Paul Brown, executive]

Yes. Thank you. Good question. An opportunity that I learned well when we restarted, watching it, we had a whole bunch of product on the deck and when that market took an upswing compared to selling it at the end of that particular down cycle, we really maximize the opportunity when the market recovered. You are right, 5,000 tonnes is certainly not enough for a shipment, but how we will do it is a combination of fines and that particular parcel. So we'll manage our shipping costs, et cetera. That's something that we've done pretty well and understand pretty well over the last 18 months.

We do have a lot of interest. We had a group of, I think, 20 or 30 Chinese [ toll traders ] and operators through the office this week actually. And certainly, my experience in China a month or so ago was really was the market, the value of spodumene has certainly declined. The hunger for it through those Chinese manufacturers are still very evident.

So look, we're not in a hurry to sell it. It is in inventory -- it's sitting there. We have full port access, putting later on site for a few days and some trucks is certainly not anything that is going to require a huge amount of effort and cost. But the offers we're getting, we'll review and entertain. But today, we certainly won't be selling any of that product. We'll wait for that right opportunity and structure that we feel confident to sell into.

[Adam Baker, analyst]

That's clear. And just looking at cash outflows heading into FY '25, I think you mentioned [ around $8 million to $9 million ] in exploration. But could you maybe touch on the care and maintenance cost to keep Finniss into care and maintenance? And then other potential cash outflows, but I think you still got a relative dispute underway and demand a QP adjustment.

[Paul Brown, executive]

Yes. Look, I won't touch too much on the dispute. What's a week or so ago is really all we'll touch on. But I will say there's a mechanism that will follow. And again, we have great relationships with anti-government, we're pretty confident in our position on where we sit. Look, the budget isn't quite finalized yet. It will actually go to the Board in a week or two, and we'll provide more color on, I guess, what the overall care and maintenance will be.

The only number we have put out, obviously publicly is our exploration. But again, if you think about our care and maintenance, we've got 3 or 4 key people that will remain on site doing that work. So what I'm big on is making sure we have a very structured plan because we have some very, very experienced people. And what I found over the years is if you've got people that really want to do well and get things done, having the right plan in place just to make sure that we're controlling our spend and what actually really needs to be done in care and maintenance to restart under a light touch is really important. So we'll provide more color on, I guess, what our quarter-on-quarter cash burn looks like, but it's a light touch.

[Operator]

[Operator Instructions] The next question comes from Andrew Harrington from Petra Capital.

[Andrew Harrington, analyst]

The key question, I imagine you're getting from a lot of investors and guys like me is sort of the price level you need to get back into operating and mining. But I guess the two related questions to that is also what kind of resource you need to be comfortable that you're going to be in a sustainable position and where your long-term costs are going to land? So if you can speak to those, that would be wonderful.

[Paul Brown, executive]

Yes. I think I had a little bit trouble to hear you. I think the question was how are we thinking about a restart cost structure and the other one was the resource, sorry. Did I capture that right?

[Andrew Harrington, analyst]

Can you hear me okay now?

[Paul Brown, executive]

Yes, yes.

[Andrew Harrington, analyst]

Let me try here, sorry. The question was related to restarting and I'm assuming many investors and analysts like myself are interested to know what sort of thresholds you need in terms of price and in terms of the resource scale and where your cost is likely to sit amongst that in order to pull the trigger. And if there's anything else that you need to consider on top of those 3 things, if you can speak to that, that would be great.

[Paul Brown, executive]

Yes. I think -- if you think about restart, we do have an open pit at Grants that will be restarted first. And there's a lot of strip and things that have been taken off there. So again, we have to do the work. I won't be, I guess, releasing any detailed costs, but I can certainly give you my thoughts on how I'm thinking about it. So that's one part. There will be a reasonable time that we'll be able to operate in and around Grants pit.

And then the second development we'll have is BP33. And again, we're doing the work on that. There's a great deal of work that had been done previously. But this is my background. This is what I do well. And I want to make sure that when we do get going, we can operate for a long time in a very sustainable state. There's certainly a good resource there at BP33 and one I don't see an issue with, we can operate we can operate that well and for a reasonable period of time.

And then, of course, what we're doing at the moment is we're out there looking for large-scale [indiscernible] structures and systems that add and enhance what we're doing. We are talking to a lot of innovative operators in and around that infrastructure and underground space, we will certainly progress to an underground miner predominantly, I would suggest, unless we find something that makes sense to mine in an open pit environment. So our focus will be ensuring that those underground developments, capital intensity is lower. They make sense. Some of those capital items and things can be transferred.

So again, we have to do the work. You need to give me a bit of time to be able to do that. We're certainly hard at work, rest assured in that environment. Did I cover all your questions? Sorry.

[Andrew Harrington, analyst]

It doesn't need to be a point value, but I guess the crucial element is the price threshold that you need to think that, that's when you want to start mobilizing.

[Paul Brown, executive]

I don't really think that there's -- again, I got to do the work, right, but there'll be a number of factors that we will think about not just the spodumene price that will give our Board and organization confidence to be able to reenter the market. And I mean the position we're in, we've been debt-free and having cash in the bank. These are the things that we need to get right. So we'll take our time and do it in the right way. So when we get going, we'll operate sustainably, but it won't just be one particular industry that we will look at for a restart. There will be a number of them, including how our customers think about our product, when our customers require our product, how all those sorts of things look, U.S. Treasury rate. There's a number of things that will go into how we consider a restart.

[Operator]

[Operator Instructions] The next question comes from the line of Al Harvey from JPMorgan.

[Alistair Harvey, analyst]

Just wanted to check on the headline cost outcome, pretty decent effort. Just wondering if you'd be able to quantify the split of the processing cost. I would have thought there might have been some inventory charge in there and any other charge. But yes, just trying to get a feel for primarily inventory, but yes, just that split overall would be helpful.

[James Virgo, executive]

Thanks, Al. I'll answer that question. Yes. So I suppose we don't provide that split. There's not much inventory charge going through that because of the way we've approached the numbers, it's purely from a cash perspective. So there's not a lot of accounting movements that necessarily impact that figure.

[Alistair Harvey, analyst]

Sure. And apologies, I might have missed it, but just the timing for the operational readiness and potential restart study, when might we get that?

[James Virgo, executive]

Sorry, the line was a bit bad there. Al, could you ask it again?

[Paul Brown, executive]

Sorry, we couldn't hear that one.

[Alistair Harvey, analyst]

Yes. Sorry, guys. Just the timing for the operational readiness and restart study. You're not looking for any metrics, but just roughly when we might see that [ hit are embarked ]?

[Paul Brown, executive]

Yes. Look, obviously, it's all subject to our Board and Board approval. But look, we are doing the work. I want to be in a position in that first half of calendar '25 to be in a position to restart -- to release how we're thinking about a restart, sorry. Certainly, market conditions aren't conducive to that for us at the moment. It doesn't say we couldn't. But right now, that's how we're thinking about it. Obviously, we've been talking to you and a number of other [ hit throws ] and others, customers sophisticated investors. And I think there are some green shoots certainly into next year.

But what we want to do, again, is get the work done, release what -- release the data that gives the market -- our shareholders confidence that when we do operate, we can operate for long time and in a sustainable way. But look, the target and again, I'm a little bit uncomfortable of saying it. We want to be in a position in the first half of next calendar year.

[Alistair Harvey, analyst]

I appreciate that. Just one final one. Mid last year, you guys had flags and potential litigation with Tesla. Just wanted to see if there's any update on proceedings there?

[Paul Brown, executive]

No. Look, Al, there hasn't been anything further. So no update to give on that one.

[Operator]

Thank you for the questions. In the interest of time, that concludes the Q&A session today. With that, allow me to hand the call back to the management for closing remarks.

[Paul Brown, executive]

Thanks so much for the interest and everyone supporting us. It's been, I guess, a great month, month and a half since being in the chair. I really look forward to engaging further and providing more color on how we see things and how we're going to be operating our business. So yes, thanks again, and we'll talk again soon.

[Operator]

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.