Company Overview: Core Lithium Ltd, formerly Core Exploration Limited, is a lithium exploration company. The Company is engaged in the exploration of lithium, copper (+/- silver and uranium) deposits in Northern Territory and South Australia. Its Lithium Projects include Finniss Lithium Project, which is located in the lithium-rich Bynoe Pegmatite Field, and Anningie and Barrow Creek Project, which encompasses four exploration license applications covering approximately 2,500 square kilometers in and around the Anningie and Barrow Creek Tin-Tantalum-Pegmatite fields. Its zinc projects include Yerelina Project, which hosts a zinc system covering a total area of 1,000 square kilometers in northern South Australia. Its silver, lead, zinc projects include Blueys and Inkheart Prospects. Its copper projects include Jervois Domain, including EL 29579, EL 29580, EL 29581 and EL 29669 tenements. Its uranium projects include Fitton Project, which is located in a uranium-mining region in South Australia.


CXO Details
 

Improving fundamentals aid in gaining traction from investors: Core Lithium Limited (ASX: CXO) is a micro-cap mineral exploration company with the market capitalization of around $39.55 Mn as of 25 January 2019. As of now, the group is focused on targets within prospective geological terrains for copper and uranium in South Australia and Northern Territory. Further, the group has plans to transit to a known minerals producer from the present state of being an explorer by 2019 end. The company ended FY 2018 with total comprehensive loss amounting to $2,094,330 which implies the rise of 8.3% on the YoY basis largely because of the rise in the administrative expenses as well as employee benefits. The expenses rose because of the higher corporate activity which resulted in the labour costs aiding the company’s increased exploration as well as development program. In FY 2018, the company posted interest income amounting to $90,737 which implies the fall from $125,927 generated in the same period of the previous year. However, fall in the impairment expense, which amounted to $381,436, because of lesser value of tenements relinquished during the year partly compensated the higher loss in FY 2018. The company’s return on equity has improved significantly in FY 2018 on the YoY basis which could support it moving forward and might attract investors. In FY 2018, the company’s ROE stood at -10.1% while in the same period of the previous year it was -16.6%. Core Lithium Limited is in the strong position to meet its short-term commitments which might arise moving forward as the company’s current ratio is higher than the industry margin. Current ratio significantly improved from 7.56x in FY17 to 10.26x in FY18, signifying a rise of 35.7% on a YoY basis and above the industry median of 1.72x.
 

However, it is also important to note that the company is also exposed to certain risks with regards to the project development. Amongst the risks, some of them are non-grant of the mineral lease, commodity prices as well as the company’s ability to finance project development. Moreover, non-economical mineral resources are also one of the key risks to which the company is exposed to. As demonstrated by the company’s annual report, Core Lithium Limited has been dealing with environmental as well as sustainability risks like ground disturbance at the time of drilling or sampling activities. However, its strategy of exploration via environmental heritage as well as other clearances tackle these sorts of risks.  

 

FY18 P&L Statement (Source: Company Reports)

Finniss Lithium Project Bags Mineral Lease: Core Lithium Limited had recently made an announcement that its Finnis Lithium Project has been given the Mineral Lease or ML with regards to Grants deposit. The company stated that they have accepted the notification which was from Mr. Nicole Manison (Northern Territory Assistant Minister of Primary Industry and Resources) which contained information about Mineral Lease offer for 20 years term. As a result, the Mineral Lease which has been given happens to be first lithium-focused ML which has been granted in NT. With this grant, NT progresses towards possessing the first operating lithium mine.

Moreover, the company also stated that the ML has been given to the company 3 months prior than expected. The top management of the company reflected favourable views with regards to this and stated that since ML has been awarded for Grants, Core Lithium Limited happens to be on the path which would lead it to become first lithium producer of Northern Territory.


Finnis Lithium Project (Source: Company Report)

Preferred Lead Contractors selected for work related to Finniss Lithium Project: Core Lithium Limited had recently made an announcement relating to the preferred contractor status for 3 important components of Finniss Lithium Project. For this, 3 contractors that happen to be important participants with respect to the development team have been selected as the company is establishing effective operating scheme as it has been given the first Mining Licence. In the above regard, the company stated that Primero Group has been chosen as the preferred EPC (or Engineering Procurement and Construction) contractor and have started work related to FEED (or Front-End Engineering & Design). However, for delivering mining services, Lucas Total Contract Solutions has been chosen as the preferred contractor while Qube has been chosen as a preferred contractor with respect to transport solutions. Further, the management believes that these selected contractors will support the success of the Finniss Lithium Project in years to come. The company has been planning for spodumene concentrate’s first production from the Finniss Lithium Project by 2019 end.

Successful Completion of Placement: Core Lithium Limited had recently made an announcement that it had got $3 million capital. The company also stated that for FY2019, the recommendation for Mineral Resource drilling is also given with regards to the Finniss Lithium Project. The company added that significant help was witnessed from binding offtake partner named Sichuan Yahua as well as the parties which are associated with non-binding offtake partner named Ruifu. These companies have subscribed placement of $1.5 million. The company will use this fund for accelerating Mineral Resource drilling programs of the recently discovered prospects and delivery of the expanded scope of the Definitive Feasibility Study (DFS). We believe that this raised fund will support its ongoing development activities.

Significant achievements Witnessed in September 2018 Quarter: Core Lithium Limited had recently declared the results for the September 2018 quarter. The company stated that, in the September 2018 quarter, the company was largely focused towards the several initiatives. These initiatives revolve around the activities which could enhance Finniss Lithium Project’s potential as well as value. The company managed to identify extensions which were outside of present defined Mineral Resource with regards to Grants Deposit. Core Lithium Limited entered US$35 million pre-payment as well as concentrate offtake term sheet (non-binding) with RuiFu. Moreover, in the September 2018 quarter, the company improved BP33 Prospect’s economics with the wide as well as high-grade lithium assay results. In the September 2018 quarter, the company’s net cash used in the operating activities stood at $2.49 million as the company has made significant payments towards exploration and evaluation, staff costs as well as administration and corporate costs.

 

Cash flow as at September 2018 quarter (Source: Company Reports)

What Could Drive Growth for Core Lithium Limited: The management of Core Lithium Limited reflected favourable views with regards to the outlook of the company. The favourable momentum has been witnessed with regards to Finniss project development and the company stated that, by the end of 2019, the commencement with regards to mine construction can take place. However, this would happen after the hurdles with regards to finance as well as the grant of requisite government approvals are managed. The company’s confidence with regards to Finniss as well as to undertake the activities which would support it in becoming Australia’s net lithium miner is underpinned by the robust momentum being witnessed in the battery storage space, especially electric vehicles.

There are expectations that the lithium demand, as well as prices, would be robust during Grants project’s proposed life. The company added positive views for FY 2019 and stated that they would be moving from lithium explorer to the lithium miner. Core Lithium Limited stated that there are expectations that the exploration activities would be financed with the help of cash reserves, debt or equity finance or with the help of joint venture arrangements. The company’s 2018 annual report depicts that its developments consist of drilling as well as an exploration of Finniss’ key prospects and the time to time exploration at Yerelina, Anningie, Fitton, Jervois as well as other tenements. There are expectations that the company would be evaluating and identifying several other opportunities as well as projects in the upcoming period.


Sustainable Operational Flow Chart (Source: Company Reports)

Stock Recommendation: In the last three months, the stock has risen 11.76% as at January 24, 2019 and is trading close to the higher level. From the technical standpoint, on the daily chart of Core Lithium Limited, Moving Average Convergence Divergence or MACD has been applied and default values were considered for the purposes. After careful observation, it was noticed that the MACD line has crossed the signal line and is trending in the upward direction which signifies bullishness. Therefore, there are expectations that the company might witness bullish momentum moving forward. Moreover, exponential moving average or EMA has been applied by using the default values and it was noticed that the stock price has crossed the EMA and trended upwards after the crossover which signifies an upside momentum. These indicators suggest that the company’s stock price might witness an upward movement. On the other hand, the grant of Mineral Lease reflects the potential with respect to lithium related efforts in the NT which could support the company moving forward. A factor which could act as a tailwind is that the company plans to finance exploration activities via cash reserves, debt or equity finance or with the help of joint venture arrangements. Despite these positive factors, the company also has some sort of risks like those related to commodity prices, non-economical mineral resources etc. Therefore, we give a “Speculative buy” recommendation on the stock at the current market price of A$0.059 per share (up 3.509% on 25 January 2019), considering aforesaid facts, evolving lithium sector landscape and current trading level.


 
CXO Daily Chart (Source: Thomson Reuters)
 

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