Core Lithium Ltd (CXO) Earnings Call Transcript & Summary

Hello, and welcome to the Finniss Lithium Project Restart Study presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I will now hand the conference over to Core Lithium's CEO, Mr. Paul Brown. Please go ahead.

Thanks for that. Good afternoon, and welcome, everyone. Today, I'm presenting a major strategic reset for our business and for our project out there in the Northern Territory, the Restart study repositions Finniss with a 20-year mine life, a $1.2 billion in free cash flow, cost base in the global lowest quartile build on reserve-backed tonnes, not assumptions. Before we start, I'd just like you to draw you to the usual cautionary -- the cautionary notes. Thanks. So corporate overview, we remain well capitalized with $30 million of cash and importantly, no debt. My experienced team, who will join me here today on the call and be happy to answer any questions at the end of the presentation. But together, we bring a deep understanding of lithium, lithium operations, capital markets and capability, which is crucial for the execution as we move this project forward. Our purpose, which is something we spent a lot of time on initially was really -- it's been a big focus just to build a resilient long-life lithium business. The study supports the strategy by resetting our cost base, simplifying operations and maximizing financial and operational flexibility. So we're really pleased with the outcome of our study. So Finniss has a very unique logistic advantage. And as you'll hear me talk and we move through the slides, you'll see that our project really is quite unique and offers a lot of advantages, which is why we've been able to leverage opportunities throughout our supply chain. So we're only 88 kilometers away from Darwin to Sealed Road offering one of the lowest-cost export chains in Australia. Unlike WA projects, we avoid multi-hundred-kilometer haulage and rail requirements. So a project, its restart ready. We have all major approvals in existing plant and the largest landholding in the Bynoe -- sorry, I'll skip forward. The project sits restart ready. We have all major approvals, an existing client, the largest landholding in the Bynoe pegmatite field. Upside remains through Blackbeard and Carlton and is not yet included in the study. Our resources stand at 48.5 million tonnes at a grade of 1.26 lithium, with significant measured and indicated confidence the study includes just 3 deposits, leaving growth potential from BP33 Deeps and also Blackbeard. So we've been able to update ore reserve. Pleasingly, we're up close to 16% to 10.73 million tonnes. The first 10 years of mining are 94% backed by reserves. This certainly sets us apart in the market where many feasibility cases rely heavily on inferred tonnes. So a bit of an overview of our study. This is a very capital-efficient restart, not a greenfields build. The capital needed we estimate between $175 million and $200 million, which is preproduction CapEx. And we sit well below our peers who require multiples of this to certainly expand and start up, and we've seen that right throughout the industry. Some key drivers of the study. So really, we are -- and will be an underground miner, so switching to an underground mine, delivers lower cost and high-grade consistency. We've also lifted plant throughput by 20%, improved recoveries and reduced both mining and processing unit costs significantly. So some of the key highlights and the outcomes of our study. So we forecast around about $1.2 billion in free cash flow over that 20-year mine life. Our nameplate will increase to 1.2 million tonnes per annum, we'll produce around about 205,000 tonnes of SC6 equivalent. Our operating costs, we estimate between $690 and $785 a tonne FOB, and that's on SC6 equivalent. That puts us in the lowest quartile globally or one of the lowest quartiles globally, and we're able to do this off the back of a very simple mining operation supported by what is very high-quality ore bodies. Sustainability is something we have spent quite a bit of time on. Pleasingly, for the Northern Territory and the area we were operating in, we'll see around about $400 million in royalties across that -- across the mine life. We'll create 400 additional jobs. We'll continue with strong environmental performance just like when we're operating. With the existing site infrastructure, we don't require any new tailings dams and lifts at this point. So we deliver ESG strength alongside really strong economics. So our underground advantage, BP33 and Grants, ore bodies are steeply dipping and of a high grade are perfect for long-haul stoping. Our underground mining reduces the surface footprint and certainly improves our ESG outcomes. Our high-quality ore bodies also allow us to produce what is a very high-quality course grain spodumene concentrate and there's certainly not too many producers that can say that anymore. The BP33 certainly underpins a restart study. It has a 12-year mine life, width of -- well, quite very wide up to 40 meters wide, great depth and certainly highly economic with 89% in measured or indicated. It's our strongest ore body by scale and quality, but we also remain very excited about our Blackbeard prospect. The Grants, which used to be our open pit transitions from open pit to underground, which increases mine life followed by our trade-off analysis. This reduces our mining dilution and certainly will allow the potential to link the nearby Carlton deposit, which is about 1.2 kilometers of underground drive. The flowsheet is where we spent a particular or a considerable amount of time. What I really wanted to be able to do is remain a DMS circuit remain very simple, and that's certainly what we've been able to do off the back of knowing how to operate the plants, reminding everyone that we did operate for a period of time, and we had quite solid recoveries at around about 65%. And that was off the back of processing what was relatively low grade. So we knew our flowsheet worked. We wanted to keep it simple, which has enabled our cost to remain very competitive, but we have been able to increase throughput by 20% from a nameplate of 1 million to 1.2 million tonnes. We've got a dry stack tailings option, which again helps in a number of areas. But we're really pleased with how simple our flowsheet remains and also the upgrades in recoveries, which we'll talk about a little bit more. So we now own the crushing circuit previously, that was not owned by us. So that's basically allowed us to halve the prior costs and removes contractor reliance, certainly helps us add scalability, reduces our OpEx and gives us tighter control over our own performance. So look, I think our logistics chain is really undersold. As I said before, it's -- we're 88 kilometers away from Darwin, and we operate on Sealed roads. We have direct access to Darwin port. We don't require any upgrades. We don't have any bottlenecks. As I said, our peers require costly long haul or rail logistics. So we're certainly export ready and we know how to operate our supply chain very well. So cost comparison, we're benchmarked against the best. Our costs are very competitive compared to our peers, and we outperformed many emerging developers. In this market, cost position is obviously crucial, and we're positioned to weather volatility, which was another key outcome of our study. The capital cost, our restart requires 100 -- close to $200 million, compare that to some of the high $1 million builds, $1 billion builds. We remain very competitive in that sense. I'm pleasing that we've appointed Morgan Stanley to lead our funding strategy, which is focused on value and minimizing dilution. As we take the project forward, front-end engineering and design is certainly underway. Our Blackbeard drilling is planned with the study complete, verification finalized. Our priority is obviously funding and funding work streams, and we're certainly advancing those. But importantly, as I've stated quite a few times before where we will execute with discipline has been a key objective of the team. And I think pleasing we've been able to do that very, very well. Really like this slide. I think if you look to the left, you'll see a bit of a scale there and you'll see our nameplate getting to 1.2 million tonnes. We've based the study on ore reserves, but Carlton and Blackbeard present future optionality. I think infrastructure and flowsheet scalability enable a potential step change, certainly, when justified by margins. So we're pretty excited about the future as well. Just finalizing the Restart study research Finniss is a long-life, low-cost lithium operation. We certainly reduced risk. We have preserved upside and retained flexibility. We're very excited to take the operation towards a final investment decision. Thanks for that. I'll now -- I hand back to the operator.

[Operator Instructions] First, we have Richard Knights from Barrenjoey.

Just wondering if you can go into a bit more detail about the improvement in recoveries and where that's coming from? Previously, obviously, the issue was with overproduction of fines. And I suppose I'm just wondering how much of the improvement that you're envisaging is going to come from a reduction in fines production and how much is to do with sort of managing the fines production that you will produce?

Yes. Thanks. Good question. I think I've talked about this on numerous occasions, and certainly, the experience that I've had in the lithium sector is, if you can't control your mining hygiene, it really doesn't matter the quality of your flowsheet or how you are planning on processing, whether that's through DMS or flotation. We did have quite a lot of, I guess, mining and variability through learning the operation initially when we were operating. And I think that's comparable to most other ramp-ups that you're seeing in the industry. And we did get to 65%. You are right. I think when you talk about fines generally with DMS, a lot of the minus 0.6 ends up going to tails, we've managed to be able to use some pretty simple and well-known off-the-shelf technologies like a reflux classifier, et cetera, to be able to capture some of those fines. But I'll go back to basics. Our ore bodies are high quality, they're high grade. They don't have impurities through them. We don't battle basalt and things like that, like the WA operators. So we've got a very coarse grain, crystal, control our mining hygiene. We now operate the crusher. So there's going to be a lot less variability right through our supply chain. When we were learning how to ramp this thing up, there was a number of modifications, small modifications done to the plant. We've been able to capture all of those and utilize the data set that was left for us, which is very high quality, and we've done a lot more test work and things like that recently that complements -- well, it sets aside -- inside of our study. So we know how to operate this thing, Richard. And certainly, we can capture a lot of the fines and various -- well, fines essentially that went to tail. So there's a big part of that, but back to basics mining hygiene and operating the plant the way it was intended to is other key aspects there.

Yes. Okay. And maybe just one more slightly different question just on how you're thinking about the structure of any potential funding. I mean you've obviously mentioned you're looking to minimize dilution. I mean, does that mean you would consider things like asset level sales or obviously, prepays would be useful, but question how much of the sort of $200 million you could get in a prepay. But yes, just any color you can give us on how you're thinking about the structure of any transaction?

I don't think we're in a really solid position. And the restart and economics underpin that. Clearly, as you saw this week, we've finalized an offtake. So we have a pretty good opportunity there, as you pointed out, around offtake and some optionality there. But look, we remain very open to any structure we've been talking and have a lot of interest in the project, and there's certainly now the restart studies out, we turn our attention and focus to secure funding essentially as we drive towards a final investment decision. But we have optionality. And as I said, we have no debt, and we own the project 100%.

Next, we have Tim Hoff from Canaccord.

I was just wondering around the cost reductions for the mining and processing. Is it fair that the cost reduction in the mining is largely being driven partly out of reducing that strip ratio and transitioning everything to underground. And then on the processing side, is there anything in addition to the -- taking back the crushing contract that's built into that 33% lower processing cost?

Yes. I think if you have a look at our ore bodies, I mean, the geometry of them just really leverage very low-cost underground mining methods, which we've been able to employ through our mine plan. So we're really pleased with the outcome there. And certainly, as I stated before, we've got really good grade and consistent grade through our ore body. So we're really, really confident in our ability to mine this thing incredibly efficiently. And certainly, if you look at year-on-year over a long period of time, we don't have to worry that increase in mining costs with strip ratios and things like that. So the mining method we've selected is very, very complementary when you consider what's in the ground. I think the other thing I would say is we had a largely heavy contractor model in place, which is not uncommon. It's deployed across many operations and commodities when mining operators want to get projects off the ground. But -- it's fair to say that the team that's here understand how to operate very, very well, and that's the team that we've strategically put together. And controlling things like crushing and being in control of the DMS plant all enable us to reduce costs and drive efficiencies through headcount and things like that. So we're really pleased that we have 100% ownership in all of the infrastructure, but we also thank everyone that's helped us get this far as well. So I think that probably should answer your questions there.

And then just around Blackbeard, you've got the exploration target there. It's a decent amount of upside to the current resource reserves. What's the potential time line for bringing that on or getting that through the resource drill out and then potentially bringing it online?

I think if you think about -- it's on a fully approved mining lease. So realistically, the timing is up to us. We've got a really good, solid reserve base that underpins the study. And the wet season is all but finished up there in the Northern Territory. So if we chose to, we could go and drill that out really, really quickly. We do have detailed plans and a plan of attack essentially on how we would drill Blackbeard out. But those options remain open to us again on a fully approved mining lease should that resource convert to reserves and improve, which really underpins that second last slide. I think I talked on just with the optionality around future expansions as well. But really, there's plenty of option there, and it's at our call. We can get it done as quickly or as slowly as we need to.

Next, we have Matthew Friedman from MST Financial.

Can I ask a couple more on the cost and the cost reductions, just following on from Tim. Obviously, the processing costs, I think, have been explained pretty well in the study. You've got a lot of drivers there to bring costs down in terms of throughput and simplifying the flowsheet and recoveries, as you've already talked about as well as owning the infrastructure. But maybe can you expand on that mining cost piece a little bit further. Obviously, stepping down in terms of underground mining costs from $120 a tonne in the prior study to $60 or $70 a tonne, that's a pretty big step down. Can you expand on, I guess, the mining method you've selected as you spoke about and how that's driving cost down? And then also, how you benchmark those costs? What sort of assets have you benchmarked that against?

Yes. I think what's been pleasing is that we've taken the time to reassess every aspect of our mine and certainly, the mining costs are a key part of that. I think what we weren't able to do previously was really refine the mining costs, which were -- the last time we put out mining costs were in -- I think it was last year's ore reserves. And working through that update for our reserves. We knew we had plenty of opportunity, but we needed time to be able to essentially rejig a mine plan and put a bunch of optionality over how we were planning on mining BP33, which subsequently led to the opportunity to get back into Grants as a more transition from an open pit to underground. Mining costs at Grants, for example, the strip ratio was really, really high, like well above what anyone is currently doing. So we've talked about the geometry of the ore body. And I think if you see it on a page there, it really is superior to a lot of other ore bodies that I've assessed and it's allowed us to employ a long-haul stoping underground method, which is really cost effective. And when you consider $120 a tonne versus our study, is that realistic? I mean, absolutely, it is, and we've certainly benched that. I mean, there's only 1 other lithium operation that's currently mining underground and our ore body geometry is fundamentally different to that. But it is very similar to a lot of other gold operators here in Western Australia. So there's some of the benchmarking and some of the assumptions that clearly we've deployed here. But the work is being done and the engineering and mine plan supports the method. And again, the ore body is just a superior ore body, and that's really what matters at the end of the day.

Yes, sure. And then in response to Tim's question, you mentioned, I suppose, the sort of contractor mining model. If we look at those mining costs in the study, again, have they been sort of interpreted based on contractor rates? Or would the intention be to become an owner-operator given, I guess, the 10 or maybe 20-year mine life potentially being an owner-operator would screen is more attractive. So how have you thought about that in terms of, firstly, what's presented in terms of the costs? And then also, is there further upside on that if you move to an owner-operator model?

Yes. So we assessed obviously both options. So you probably find there's a bit of a blend essentially there. But the site will be managed by Core as it always has. I think you'll find the processing infrastructure and those sorts of things, we know how to operate. We've got a team here, and we'll build a team up here specifically for that. We haven't made an ultimate decision on whether we'll be owner-operator or contractor. We'll make those decisions in the future. But the reality is the cost will stand the test of both of those operating models. And we'll make a decision as we get closer to FID. But I'm not expecting in those cost structures to change. I think they're very robust and they're incredibly competitive.

Next question comes from the line of Hugo Nicolaci from Goldman Sachs.

First question from me. Just you've highlighted obviously the unit operating cost estimate in the study. But how should we think about that on an all-in basis? And does that sort of $20 to $22 a tonne sustaining capital include things like your ongoing underground mine development and things like that? And are there other sort of areas of costs that we should be considering here?

No, that's right. That includes our mining development costs and things like that. So that's how you should be thinking about it.

Got it. That's a clear and concise. Excellent. And then one for me -- how we like it. And then just in terms of timing, I appreciate you got to work through the sources of capital. But I guess for the sake of argument, assuming you have access to the capital you need to restart, what lithium price do you think gets you to your investment hurdle on the study? Or I guess more simply, what lithium price would you want to see before you hit the FID button?

Look, I think everyone would like to see a higher lithium price, but as I sort of started it earlier in the slide deck. What we wanted to do is rebuild our cost base to be more resilient. And I think with what we put out today, we've been able to demonstrate that being at the lower end of the cost curve enables us to operate in cycles, and we certainly expect. If we do get to a final investment decision, we've got a 20-year mine life. We want to be operating through any cycle when we get going. So we're exploring a number of options now. What I will say is even the lithium price is depressed, we have no end of inquiries around supplying spodumene. So there's a lot of support for the project. And when we were operating, we did produce a very coarse grain spodumene product, which is really a sought after product. We have offtake and things like that available. So we have a few things to consider and a lot of levers that we can enact on. But I'm not going to sort of say here's where I think we need to be. I think the study speaks for itself and provides good optionality through the cycle, as I said.

Okay. Got it. I mean, maybe if I can just press a little bit more on that. I mean if you have the capital today, spodumene prices depending on which industry you're looking at now have a 6 handle on them. Would you hit the FID button today? Or would you like to see prices a little bit higher?

I think we're in a good position, and we're well funded and we don't need to be -- if we choose to be sitting out longer, we can absolutely do that. But there's a few things to consider, obviously, the structure of obtaining that $200 million and our customer feedback, things like that. So all I'll say is we've got optionality. And I think off the back of a high-quality study and capital and operating numbers, I think there's great support out there. We'll work through those options in the coming months, and we'll keep an eye on what the market ultimately is doing and what our customers are after from us over a particular period. But again, we want to be operating over a 20-year plus period. We don't need to sprint back into production. We've got a great asset. And we've taken a little bit of time to get ourselves organized. And I think off the back of the study, there's a pretty exciting future for us regardless of what cycle we end up reentering the market in.

[Operator Instructions] Next, we have Anthony Barich from [ Platts ].

Yes. So good to see the report out today. I'm just wondering about the Yahua agreement termination there. Was there a reason behind that? So anything around -- from the customer side around the suspension or lithium pricing or anything like that?

No, nothing like that. Thanks for the question. No, not at all. It was an option that suited both parties. And as I said, it creates good optionality for Core moving forward. But yes, certainly, neutral.

I guess one other thing. It was cited previously, I think Pilbara Minerals said on their call around there was some general kind of tariff-related uncertainty, realizing obviously, U.S. doesn't import a lot of lithium compared to China and elsewhere, but -- have you seen that -- that kind of cited as potentially impacting restarts and that kind of thing. Have you -- has that been in your -- just general uncertainty around tariffs just because of trade uncertainty and then whatever. Have you -- does that kind of play into your decision at all? Or are you still thinking about that side of things?

Look, I think we keep a pretty close eye on the market. So I haven't seen what others have said or put out, but I won't speculate. But look, it's a -- the market is always the fact that there are certain things that we do consider and put more emphasis on. I think there's a fair bit of -- there's a fair bit of inconsistency coming out of, I guess, those channels at the moment with tariffs and things like that. But all we do is -- all I say is we keep an eye on the market. But at this point in time, we don't see those. Those are -- that volatility affecting us right now.

Our next question comes from Andrew Harrington from Petra Capital.

My question is around the product and clients, you're going to need customers on board to go FID and who are they likely to be? And I'll have a few more after that.

Yes. So if I understand the question, do we need customers on board to go to FID and how they're likely to be. Look, I think we've got -- we've got a good -- we've always had a good solid relationship with a number of customers, and that certainly hasn't changed. We're not at FID currently, but certainly having a bit of optionality and some unencumbered offtake strengthens our ability to be more attractive and look at securing capital. So I think there's an advantage for us. As far as who that will be, I mean, there's obviously a number of options out there. There's obviously, China, where the capital is, there's other parts of Asia, obviously, that remain attractive, and there's certainly parts of the Middle East that are indicating some strong interest as well. So all I'll say Andrew, there's plenty of optionality out there for us. And over the next several weeks, we'll be pursuing all of them to get the best possible outcome for our organization.

Yes. I guess if you're looking for debt, offtake will probably be one of the CPs.

Yes. I think I think debt whilst we'll be considered certainly not -- it's not leveraged up there as an absolute priority. So it's not a pressing issue for us currently.

Okay. And then sort of my follow-up questions on transport and the port. Is that Fort of Darwin is just there as an option for you to use on or off? Or do you need to resize some offtake? Or is there some reset that needs to happen? And related to that, what are current transport cost to China?

Well, I think I only heard the first part of that. So look, the Darwin port remains absolutely open to us. There's considerable -- well, it's a large operating port. And obviously, the new government is highly motivated at the moment. So getting into Darwin port, it's not like here in WA where it's heavy congestion and a multitude of users. The infrastructure is really solid. There's plenty of room for us and others to operate and also us to expand into the future. So that infrastructure is high quality. It's very simple. Obviously, we've operated there before. If you think about how simple our operation is there at the port, really, it's our supply -- our pad remain a couple of hundred meters away from the ship loader. So it's very cost effective. And certainly, when compared to Western Australia, it's just another advantage that we clearly have in the Northern Territory around cost and operability.

Yes. No, I get that. I guess, the point of the question was, is it just on standby for you to use? Or do you need to reset an agreement with them?

There's plenty of capacity. So that's all I'll say. There's more than enough capacity. And it's not like here in WA where if you don't use it, you lose it. We're not in that position.

Okay. And then the last part of that original question was what are shipping costs to China currently from Darwin?

I think a lot less than anywhere else. If you consider -- I mean, shipping costs do vary and -- but I will say a lot less than I previously had an incredibly competitive. Obviously, we're just on the doorstep of China and Asia. So I'll let you work that one out, but considerably less when you look at the distance.

Our next question comes from Matthew Friedman from MST Financial.

Yes, sure. Just a quick follow-up, if I may. Paul, assuming a successful FID at some point in the future, how quickly would you expect to reach first production? And I'm just looking at that the column chart on Slide 11. Is that the right way to interpret it that potentially within sort of 6 months of an FID you'd be producing?

Yes. I think yes, going on 6 months in that 6- to 12-month period where the sweet spot is for us, yes.

Yes, I understand. And then you have BP33 coming online in sort of 12 to 18 months plus?

Yes, that's right. That's why. Yes, thanks.

Thank you. This concludes today's Q&A session and conference call. Thank you for participating. You may now disconnect.