Core Lithium Ltd (CXO) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Core Lithium Q2 FY '24 Quarterly Update. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to the company. Thank you. Please go ahead.

Fantastic. Thanks, Desmond, very much. Hello, everyone, and welcome to today's audio webcast. Here with me today are Core Lithium's CEO, Gareth Manderson; and CFO, Doug Warden. We've had a number of questions pre-submitted. So thank you very much for those. And as Desmond said, you've got the ability to type in questions to us as this call proceeds. We did the first one of these webcasts last quarter and had really good participation from investors. So thank you very much, and we're pleased to run another one today. Yesterday, we released our December quarterly report and gave a presentation as part of that. Gareth will go through the highlights of that presentation now as a recap for you, and then we'll go to the Q&A session. So I'll hand over to Gareth, and then we'll come back to questions. Thanks.

Thank you very much, Natalie, and thank you very much for everybody on the call. I appreciate your time today and taking the time to hear a bit more detail around how the Core business is running and some of the changes that we've announced and made in the last couple of months. And also, very importantly, the quarterly and the progress that's been made. Unfortunately, we're coming off the back of a 12-month deterioration in spodumene price by well over 80%, and the majority of which actually occurred in the last quarter, so about a 50% reduction in concentrate prices. We've subsequently made the decision to pause mining, and I'll talk a little bit around the detail of that. But I also want to recognize the excellent work that's been done across the team and on site, in particular, to deliver a very strong -- what I believe is a very strong result operationally with a 20% improvement in recovery, a 40% increase in spodumene production and some excellent work done in preparation for the wet season. So much so that we actually were able to operate successfully throughout the quarter despite nearly double the rainfall in November based on an average basis. So very, very strong performance there. Stockpiles have been built, and we'll actually use those stockpiles to generate cash in the coming months. In terms of the decision to cease mining, it comes, I guess, by taking a look at a series of different options, and we found ourselves in the position of changing the mine plan and modifying that. But every option that we looked at, increase the costs of mining down the track. So essentially, we're deferring waste in one way or another. So we will increase our costs and just push them out. And we also -- by making this particular change, we removed the mining costs from the business. We've got the stockpiles that we can draw on. We can produce concentrate for the next 5 to 6 months. And that actually puts us in the best cash position. We can accommodate any further falls in the price to a reasonable level. And we also are in a position where we've got a customer -- one of the customers is clear around the delivery schedule that's taking the product, continuing to do that. We do have a couple of cargoes that are available outside of that. But we're in a position where we don't necessarily need to sell those if we're not comfortable with the commercial terms associated with those. So it puts us in a really strong position to preserve the cash for the business. And we will continue to develop the options to preserve value for the business as well. So BP33 and others will continue to work on those. We'll take a look at the exploration results as they're starting to come in after the season was completed in 2023 and determine our path forward there. So we're preserving cash for the business, preserving value for the shareholder and making sure that we're in a position that when market conditions improve, we can actually start lifting the -- our development journey at that point. So maybe I'll just talk a little bit about the quarterly results in detail now. So coming out of the -- out of this particular quarter 2, just 28,837 tonnes of spodumene concentrate, so a 39% increase on the previous quarter. We've seen really solid results from the plant performance improvement. So recoveries have moved from about 50% in the prior quarter to 60% in the current quarter. In fact, when you take a look at the detail, you'll see that in the last month or so, we've been comfortably above 60%. I'll talk a little bit about some of those changes shortly to show you the improvement curve for recoveries in the processing facility. Our average realized price was a little over USD 1,400 a tonne. And we have shipped fines. We're now in the wet season, which means that we were not planning on shipping any further fines, firstly. And secondly, the market conditions aren't conducive to further fines sales. During the period, we've announced an upgrade of a measured and indicated components of the resource for BP33. So it's moved to 9.4 million tonnes of the BP33 resource is now measured and indicated at 1.52% grade. Really positive result there, and that enables improved mine planning and provide some optionality in that particular space. And so that's been added to the study. The exploration program for 2023 has completed. The results are starting to come in. The assay work is being done. As those results become available, we will start to release those. But you've already seen some initial information with the work that's been done around Carlton and BP33. So that measured and indicated uplift that I've described, that was the first phase and the first focus of exploration during the period. We have a strong cash balance at the end of December, just under $125 million. You will see that our cost and capital guidance has been lowered. That reflects the suspension in mining, but also a series of cost reduction exercises that have been undertaken. I think it's important to note that we did have 1 injury in the quarter. One of our colleagues received laceration to their arm. He returned to work and is doing well. We did follow up to check on him. But our proactive space in safety is around critical risk management. So what are the risks associated with hospitality, are they clear in people's minds, so as they do each and every task and do we have the right controls in place. Wet season management has been a significant focus with piping pump infrastructure in place and is operating quite well. And we also, in the quarter, issued 8 community grants to local organizations that satisfy that criteria for support in and around the Finniss area and the Darwin local community. The request is fairly modest and will make a difference to those particular organizations. And we've issued -- you should be able to actually have a look at our websites or on the LinkedIn page, for example, but you can actually see a community news later that we've made available to all shareholders as well as the local community. So our focus moving forward is to minimize our cost, preserve cash and ensure that we've got the long-term value established for the business so that when market conditions improve, we're able to access a step forward into those particular projects and activities, BP33 being one of those. We will produce concentrate from stockpiles. We will continue to focus on recovery improvement and stabilization of the plant. The BP33 early work has been paused. The box cut excavation is complete. We've started to do the cement stabilization around the portal face. And we started to put the foundations in place for the tonne lines. That is paused. The site is on care and maintenance. And we're completing the study work for BP33. With a little bit of a shift. So initially, as you're very aware, we were moving very fast and focused on schedule. Hence, complete the early works while doing the feasibility study in parallel. We're now taking a look to say what's the best economic outcome we can achieve for that particular project. So what's the right mine plan? What's the right capital cost? What is the operating costs look like and getting a bit more time in that space while we wait for the market conditions to improve. I'd like just to talk a little bit about recovery. And so you should be able to see on the screen now the recovery improvement trend. We changed the crush size from a [ 6 mil to a 10 mil ]. That's enabled us to, I guess, underpin quite a significant uplift in recoveries. We did reduce grade, but it's not the whole story. I've seen some commentary around that. That increase in particle size is really kind of connected to [indiscernible] to a degree. But some of the other things that we have done is optimize feed and think about presentation of feed from the ROM. We've looked at various different parameters and how to look at throughput rates and things like that, set points across the plant. There's been some debottlenecking work done, some modifications or some screens and some other work. But also quite a significant focus on reliability of plant and stability. And those things all combined have meant that we've seen recovery steadily improve. So you might remember kind of out of the gate with the initial phase or months of production, we were sitting in the mid-40s, around 47% recovery. That was actually around about sort of first, second quarter 2023 calendar year, so early last year. So in 9 months or so, the team has gone up to over 60%, so 63% in December, a really good, steady improvement there. So in summary, before I open for questions, and thank you for those, who have submitted questions ahead of time, and I know Natalie is continuing to take questions for Doug or myself. We have moved quite quickly in market conditions. They did deteriorate quite rapidly with well over 50% reduction in the concentrate price that we were seeing in the quarter that has just been. We've focused on operating costs, capital costs and also corporate costs. We are also making sure that we're investing the cash that we do have in the right areas. So we'll continue with the BP33 study, for example, we'll continue with the Carlton study. And we'll make sure that the site is on care and maintenance for BP33 and that's taken care of and looked after. At Grants, it's maximizing the value of the ore stocks that have been generated through the period that's sitting on the ROM. So optimizing that and ensuring that we're in a position to start mining again once those conditions improve. I think at that point, the only other thing I should add is exploration. So very, very focused in the field up until the end of last year and as the rain started to step in. We're now collecting that data, doing analysis with completing the assay work. And we have, this morning, been able to provide an update on the exploration, which is literally probably just hitting the market around about now. So apologies for that actually happening during the call. The -- but that's -- that exploration was completed in 3 phases. The first phase was around proving up the resource and improving confidence in BP33, which was achieved. The second thing that we have some targets that were identified and doing some infill and extension drilling. And the third thing is to take some of the information that we we're getting from AMT and some of those other tools, and look at our strategy and approach and see what other options might be available at Finniss in the northern part in particular and start to focus on drilling some of those. So we'll provide continued updates during the year as the results start to come in, but we have provided some updates today. So at that point, I will pause and hand it back to Natalie to manage the questions.

Great. Thanks, Gareth. And that was one of the questions that we had come in, when was there going to be an update on the exploration program. So that's very timely. I'll go to one of the questions that came from a number of shareholders first, and that was around BP33 and its status at the moment. We've seen the suspension of the early works program, obviously. And the question is around what does that mean for the time line of being able to bring it on? And what are the plans to complete the study? And what were the timing of an investment decision from the company be?

Yes, that's a fair question. And it's reasonable. We were planning on having an FID, and we're moving towards that by the end of this current quarter that we're in at the moment. I think with market conditions, it wouldn't be prudent to be progressing with that particular project. The lithium price is very low and challenging. Many, many projects in the lithium space and actual current operations, including our own. So we will take a look at the BP33 study in the frame that I've described. So the emphasis is shifting from kind of driving the schedule to capture what was a very good market for lithium prices to actually what's the right capital cost, what's the right operating cost? What's the right project? We are also in conversations with people, who are interested in, say, offtake in funding. So those conversations are still alive. And that's, I think, encouraging in terms of the medium- to long-term outlook, because we've had inbound interest even in the last couple of weeks as people have coming out of the New Year, Christmas period. So we'll work on getting the right project and putting it to the market at the right time.

Okay. We've had a couple of questions around the current market conditions and what that means for the company's strategic focus and if that will change at all. There've been a number of questions about the gold and uranium projects and tenements that Core has, and could they be more forefront of the company's plans going forward?

Yes. So I think in these particular situations, it makes good sense to think about all of your options. So the number one is to focus on the lithium business and make sure that we keep that option live, and we're ready to move. I do notice, and we do have some other tenements and some other commodities. Uranium is one that is interesting. The market is fairly warm for uranium at the moment. So we can consider that at the right time. So we're not -- probably the best way to describe it is we're not unaware of that potential opportunity. In terms of gold, I get asked this occasionally. Look, if we find some decent gold results through the normal process of understanding and analyzing those within the exploration work streams, we'll announce those. We haven't announced any gold results, because there hasn't been anything to announce of any particular interest. When we do explore, we do assay for a range of materials and metals and commodities, and gold is one of those. If we do get some good results, we will announce that.

Thanks. So question -- next question is around the company's contracts that it has for offtake of its product. And there was a question around the price floors and ceilings that might exist in those contracts an understanding, we're not allowed to talk in great detail about them, but how do these work in a low price environment?

Yes. No, that's fine. Look, I think in a low price environment, what usually happens is that you see the floors and the ceilings become less and less sort of material. So -- because you're in that particular range. So at this point, we have a small proportion across our offtake partners agreements. It's not material. That's definitely not material at the current pricing.

Okay. And following on from that, Alan has asked why the average realized price for the December quarter seemed high, in his view. And after [indiscernible] included the adjustments for the quotational periods.

Yes, I'll take that one, Natalie. So it does include the impact of QPs that came from the September quarter, but it doesn't include the QPs that are referenced in the quarterly -- in the December quarterly that would still be required to be settled in January and February in relation to the November and December shipments. It might seem high vis-a-vis others. I know Pilbara announced a lower number yesterday, but I also note that almost 50% of their product in the quarter were shipped in December at much lower prices, where we had a more even spread across the quarter as the price was falling through that period from north of $2,000 a tonne to under $1,000 a tonne by year's end.

Great. Thanks, Doug. Moving on then, we have questions about our views on the lithium market generally and what sort of market conditions we need to see to recommence mining in the pit?

Yes. No, that's a fair question. So I think at the high level, I'm interested to see what happens after Chinese New Year. We're finding that our Chinese colleagues are keen to continue conversation and dialogue, but they're also kind of looking for some clarity and direction. And we've been pulling over in China. A couple of months ago, there was some fair bit of pessimism in the market and I can see reading in the press that there's some focus on in that space. So I'm kind of interested to see what happens in the coming weeks from that perspective. I think from a concentrate -- spodumene concentrate perspective, we need to be ready for sort of a medium- to long-term shift. So in other words, we probably have some time to manage through these -- this more pessimistic market that we're seeing at the moment. In terms of actually going back to mine, there's a series of parameters. Price is one of them. Some comfort that -- or some clarity that actually is going to be reasonably stable or pricing for a period, too. So we can't just sort of have a price that gets up there and then drops off and if we were to start mining in that particular and then have to pause again, that would actually be quite difficult and quite expensive and not a good cash position. But some of the other things to think through around BP33 is when is the right time for that project to come online, how does Grants connect with that and what is the kind of the funding and the interest in further growth and development for Core? And so I think it's all of those parameters need to be considered in terms of when we might start mining again.

Okay. So others are interested in the cost savings that we're looking to achieve now from this -- from the strategic review and the actions we've taken to date. And then wonder where else can we take out costs and in particular, want to know what's happening on the corporate front and on exploration and studies going forward?

Yes. So Core is definitely pitched towards a growth profile and establishing kind of the resources required to do the studies, understand what the mine plan looks like from the exploration work that was done and start to progress and build the business from that perspective. So we've removed the mining cost for the period by pausing mining. We've also gone through all of the capital on site as well. There's a number of areas, for example, where you might have some punch listing on some work that was being completed around the Grants project, for example. A lot of that has subsequently been removed. We've taken a look at the water management infrastructure and the business plan moving forward and rightsizing and making sure we spend enough, so that we can navigate and manage our environmental commitments, make sure that we manage water on site, but also make sure that we don't overlook anything and we're actually providing infrastructure that might be for a different operating strategy at the moment. So that work has been done. From a corporate and overall team perspective, look, the team size will reduce and it has reduced and will continue to reduce. Probably one way to think about it is, by the end of this quarter, we'll probably have about 40% less people, who are focused on kind of building that business. The quarterly there, you'll see that, that means a couple of changes to the senior leadership team as well and some consolidation. But we've also looked at and spent some time. I spent some time talking through the Board and strategy in that space is to make sure we retain the skill sets and the talent that's required for a shift back to growth and development. So you'll see that we're retaining the commercial skill sets. We are combining the development, exploration and operations piece. We are actually combining the sustainability and HR teams, for example. But we're also making sure that we still have the capacity and capability to understand approvals to start thinking forward. And so some of the studies and seeking approvals and doing some of that planning work is relatively low cost, but needs to be done and is a significant enabler to get back up and running on the development pathway. So that's the strategy at the moment. Look, we have office space, for example, just in terms of a practical reality that is a little larger than what we need. So we'll downsize that as well and trim right back to make sure that we can weather this particular period. The intention the plan and what we will do is get the business into a position where we've got a low cash spend by preserving value and we're able to move when the time is right, when the market starts to improve.

Great. And another one here just come through now asks, was excited to hear yesterday that there were a number of parties still interested to talk about offtake and funding around BP33. Can you elaborate a bit more on that for us?

Let me think through that one a little bit. Maybe the way to sort of think about it with BP33 is that with the market for spodumene concentrate and for lithium, most of the battery technologies for EV is, in fact, all of the real battery technologies for EVs require lithium in the cathode. And I was talking with one of the largest super funds last week. And their view is that in the medium to long term, we'll continue to see an uplift in demand for lithium on that basis. And we'll continue to see some challenges in terms of spodumene coming into the market over that period. So I think from that perspective, what we're also seeing is potential customers also taking that particular view, and saying, look, now might not be the right time to kind of do a deal, now might be the time to actually kind of understand the project, but can we take a look at it? And can we understand it? Can we actually think about what funding might be required? Can we think about offtake attached to that? So there's still some general and broad interest and the view that in the medium term, we'll still see a reasonable market for lithium concentrates. Now many of you will be quite familiar with commodity markets. You know that they move around their best. I think in many ways, what we've seen in lithium is a little bit more rapid and more significant than what you often see. But lithium is also a market that's, I guess, is arguably a little less mature than many others. And so as a result, I guess people are trying to figure it out. So you probably do see some changes in sentiment that are a bit greater than in some of the other commodities, albeit, I see some others are going through similar experience at the moment as well.

Okay. And look, I think we've got time for one more, and there has been one more that's just come through on the platform. And [ Nicolas ] asks, how quickly could Core get back into production in the pit after the current pause?

Yes. So we're in conversations with our contract in that space at the moment. So it is paused. It's -- we've sustained in mining. And I guess the purpose of that is so that we can actually move back relatively quickly. So it is just a matter of mobilizing equipment and people in that space.

Got it. Look, that's great. Thank you very much, everybody, for participating, and thanking you very much for the questions that you've sent in. I think we've covered all of the topics. So Gareth I'll just hand over to you to wrap up.

Yes. Thank you, Natalie, and thank you to everybody on the call. I do appreciate your time and taking the time out of your busy day to listen to this call. And I do appreciate all of the questions. We are focused on making sure that Core is in a good cash position. So finishing the quarter at just under $125 million will be a demonstration of that. You can hear the focus from our CFO, Doug, in terms of understanding that cash position and how we manage and navigate this particular period. We will also work to ensure that we preserve the value options for Core, so that we can move forward at the right time. So thank you very much for your support to Core, and I appreciate your time today.

This concludes today's conference call. Thank you for participating. You may now disconnect.