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
Broader Overview of Core Lithium’s March 2019 Quarter Activities: Core Lithium Ltd (ASX: CXO) is an ASX listed company which had recently published the DFS for development of spodumene concentrate operation at the Finniss Lithium Project. As on June 21, 2019, the market capitalisation of CXO stood at ~A$29.17 million. It had released its quarterly report ended March 31, 2019 in which it recruited Simon Iacopetta to the role of Chief Financial Officer. The company stated that Mr. Iacopetta brought a significant amount of knowledge as well as experience to the new role at Core Lithium, after having served in these types of roles throughout the 15-year career which includes Australian gold developer and miner named Ramelius Resources. In March 2019 quarter, the company focused towards numerous initiatives which were aimed at enhancing the value as well as the potential of wholly owned Finniss Lithium Project which is located near Darwin in Northern Territory. During the quarter ended March 2019, the company had increased global Mineral Resource of Finniss Project to 8.85Mt.
Net Cash Used In Operating Activities (Source: Company Reports)
In the March 2019 quarter, the company’s net cash used in operating activities amounted to $2.69 million and, during the same period, it had made payments amounting to $2.27 million towards exploration & evaluation. The company upgraded global Mineral Resource of Finniss Project multiple times, and this was done via the inclusion of initial Mineral Resource Estimate for Hang Gong Deposit of 1.4Mt @ 1.2% Li2O as well as via upgrading Mineral Resource at Carlton Deposit to 1.1Mt @ 1.3% Li2O.
Moving forward, decent liquidity levels, lower dependency on debt and robust demand for oversubscribed SPP might act as tailwinds and might also attract the attention of shareholders. Additionally, the company aims to increase the mine-life further as well as start mining and construction in 2H FY 2019 and spodumene concentrate production in 2020, subject to the financing and regulatory approvals.
Australia FOB Spodumene 6% Price Forecast (Source: Company Reports)
Top 10 Shareholders: The following chart provides an overview of the top 10 shareholders of Core Lithium Ltd.
Top 10 Shareholders (Source: Thomson Reuters)
Decent Liquidity Levels: The current ratio of Core Lithium stood at 3.20x in 1H FY 2019, which is higher than the industry median of 1.87x that reflects its decent liquidity position as compared to the broader industry and its ability to address the short-term obligations. Also, respectable liquidity levels further strengthen the confidence that the company would be able to make deployments towards its strategic business objectives.
The company’s Assets/Equity ratio stood at 1.06x in 1H FY 2019 which is lower than the industry median of 1.70x and, thus, it looks like that the company is less dependent on debt when it comes to financing the assets. The company possesses debt-free status which landed the company in positive territory.
Current Ratio Trend (Source: Company Reports)
Overview of Exploration, Resource and Reserve Expansion 2019/2020 Strategic Plan: Core Lithium Limited had stated that recently completed a Definitive Feasibility Study (or DFS) clearly reflected that the additional mine life has significant upside impact on the economics of Finniss. It was mentioned that DFS considers only Grants and BP33 Deposits (5Mt combined resource) that have a high proportion of Indicated/Measured resource. Core Lithium global Resource Base witnessed a rise by 500% since the start of 2018 to 9.6Mt at 1.3% Li2O. As per the presentation, the company’s strategy for 2019 primarily revolves around increasing the resources through exploration and convert most of 5-8Mt of ETR to resources and a subset to reserves. However, for 2020, the strategy revolves around increasing resources 2-3 times and extend the reserves as well as mine life to more than 7 years.
Target Mine Life Expansion Plan (Source: Company Reports)
Additional Lithium Product Adds to Finniss Revenue: Core Lithium had recently made an announcement that it had received the expressions of interest from numerous parties for potential sales of fine lithium (or FL) which is a by-product of producing high-quality lithium concentrate from Finniss Lithium Project near Darwin in NT. As mentioned in the release, the company has been targeting production of 175,000tpa of high-quality lithium concentrate from Finniss commencing in 2020. Additionally, between 200,000tpa and 250,000tpa of FL is planned to be sold as by-product of the concentrate process through the company’s Dense Media Separation (or DMS) plant.
It was mentioned that indicative pricing of US$50/t-US$75/t for the sales of 200,000tpa to 250,000tpa of FL might add significant and material additional revenues to Finniss Project for the life of the project.
Announcement of Strategic Investment by Lithium Royalty Corp: Core Lithium Ltd had made an announcement that it has, through the wholly owned subsidiaries, entered into an agreement for sale of private royalty from the Finniss Lithium Project in Northern Territory to Canadian royalty Company named Lithium Royalty Corporation. Under the terms of agreements, Lithium Royalty Corporation would be paying the total consideration amounting to A$8.125 million for the right to receive 2.5% of gross revenue from the sale of products from Finniss Lithium Project. The released pointed out that A$6.875 million of the amount is being paid on execution and held in escrow and released to the company upon transaction receiving the approval from Foreign Investment Review Board (Stage 1). The approval from FIRB is anticipated to be wrapped up within the span of 8 weeks. The balance amount of A$1.25 million is conditional on the company announcing 15 million tonne JORC Mineral Resource for Finniss Lithium Project and the company achieving continuous operation of the processing plant for over 14 consecutive days (Stage 2).
It was also mentioned that the funds received from granting of Royalty would be utilised to progress the company’s flagship Finniss Lithium Project towards the development, near term resource growth and conversion and exploration focussed on improving production profile further and extend the mine life within the broader Finniss Lithium Project area. However, the funds would also be deployed towards working capital purposes.
Brief Overview of Share Purchase Plan: As per the release dated June 5, 2019, Core Lithium Ltd had made an announcement about the offer to all the Core shareholders the ability to participate in the growth plans of the company with the help of a share purchase plan alongside the $8.1 Million strategic investment by Lithium Royalty Corporation. The release stated that Core had announced a share purchase plan in order to raise up to $2 million for all the eligible shareholders involving an issue price amounting to $0.04 (4 cents) per share.
The SPP is partially underwritten up to an amount of $1,000,000 by the sophisticated and institutional investors. The underwriter is entitled to the fees of 5% of the underwritten amount as well as 4,000,000 unquoted options to be issued involving a price $0.00001, exercise price of $0.06 and expiry of June 30, 2022. The company stated that it is offering eligible shareholders with the opportunity to subscribe for up to $15,000 of new fully paid ordinary shares in the company as well as a minimum of $2,500 of new shares, free of brokerage as well as commission, under the share purchase plan.
Delivery of Assessment Report By NTEPA: Core Lithium Ltd stated that The Northern Territory Environment Protection Authority (or NTEPA) had delivered the positive assessment report for development of the Grants Lithium Project. The company would now be submitting a Mining Management Plan (or MMP) to the Department of Primary Industry and Resources (or DPIR) for the assessment. All of NTEPA’s recommendations were within the expectations and would be incorporated into MMP.
CXO Witnessed Robust Demand for Oversubscribed SPP: Recently, Core Lithium had made an announcement that its SPP had received robust support above originally targeted $2 million. As a result, the company would be allowing the shareholders to participate up to until June 24 and it is considering increasing the amount raised in order to minimise the scaling back of SPP as Core Lithium progresses towards the development of Grants Project. Therefore, the issue of new share under SPP timetable would change from June 26, 2019 to June 27, 2019.
What To Expect From CXO: As mentioned in Core Lithium’s March 2019 quarterly report, Core Lithium plans to undertake further exploration and resource drilling results as well as make progress on the additional lithium concentrate offtake in the June quarter. The company stated that the funds garnered from the SPP would be utilised towards progressing the Grants Lithium Project towards production as well as towards exploration and resource drilling on high priority pegmatite targets and lithium projects. However, they would also provide with the working capital to enable it to help its current operations.
Additionally, there are expectations that the company’s decent liquidity levels (as evident from 1H FY 2019 current ratio) and nil debt position might help the company in achieving the growth prospects moving forward.
Moving Toward Production in Early 2020 (Source: Company Reports)
Stock Recommendation: Core Lithium’s Managing Director named Stephen Biggins had reflected favourable views with respect to the support of Lithium Royalty Corporation in form of a Royalty arrangement that contributes towards its plans to transition from developer to miner. He added that significant investment of Lithium Royalty Corporation in the company recognises the current value of the Finniss Lithium Project.
However, it was also mentioned that the Board happens to be committed towards overseeing the low-risk, measured transition to the lithium producer at the Finniss Lithium Project in order to ensure the long-term shareholder value. The company is pursuing numerous well-funded, near-term activities which have the potential to improve the project’s returns further and continue to de-risk the decision to mine.
However, in the span of the previous three months, the company’s stock has delivered the return of -25% while, in the time frame of the past six months, the stock delivered the return of -19.23% and is trading slightly above the average of 52 week high and low prices of around $0.051 with a beta of 0.01x (5-Years, Monthly). Hence, considering the aforesaid facts and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.043 per share (up 2.381% on 21 June 2019).
CXO Daily Chart (Source: Thomson Reuters)
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