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After a considerable period marked by challenges, Core Lithium (ASX: CXO) has experienced a notable resurgence, with its share price soaring by 35% in a single day, marking the highest trading volume since 2016. This rally follows the release of the ‘Restart Study’ for its Finniss project located in the Northern Territory, which positions the venture as efficient and economically viable.
Highlights from the Restart Study
The study reveals impressive advancements in both operational efficiency and economic viability:
- Processing Costs Reduced: A dramatic reduction of 33–42%, now ranging between A$40–46 per tonne, down from A$69 per tonne.
- Unit Operating Costs Lowered: Current costs are now between A$690–785 per tonne (FOB, SC6 equivalent, excluding royalties).
- Increased Production: Concentrate production has been elevated by 7%, bringing the total to approximately 205 kilotonnes per annum (SC6 equivalent).
- Extended Mine Life: The project boasts a robust projected mine life of 20 years, with 94% of output in the initial decade backed by ore reserves.
- Capital Expenditure Reduced: Pre-production capital expenditure has been slashed by 29–38%, now anticipated at A$175–200 million, down from A$282 million.
- Promising Cash Flow Potential: Forecasted free cash flow stands at A$1.15 billion over the project’s lifecycle.
- Updated Ore Reserves: Total reserves have increased by 15.9% to 10.73 million tonnes, supporting the projected 20-year mining operation.
Note: The percentage changes reflect the company’s lithium ore reserve update for 2024.
The market has reacted positively to these findings, which underscore substantial cost efficiencies and pave the way for a more robust operation amid a challenging lithium landscape. However, the final investment decision (FID) remains contingent upon board approval.
The Lithium Price Consideration
When evaluating the economics of mining projects, the price of commodities plays a crucial role. The Restart Study assumes a long-term spodumene (SC6) price of US$1,330 per tonne (CIF). In contrast, current spot prices, according to the Shanghai Metals Market, stand at roughly US$687 per tonne, a significant decline from Pilbara Minerals’ average of US$851 per tonne in the most recent quarter.
For the study’s projections to hold true, spodumene prices would need to more than double current levels. While this scenario is feasible considering the rising demand for lithium driven by sectors such as electric vehicles and the push for decarbonisation, current market circumstances suggest that starting the project now would yield considerably less attractive economics.
Funding the Future
With pre-production capital expenditure estimated between A$175–200 million and Core’s reported cash reserves of A$29.8 million at the end of March 2023, securing adequate funding is a pressing concern. CEO Paul Brown has highlighted the firm’s commitment to minimising shareholder dilution while enhancing value, indicating that “Core has identified multiple funding pathways.”
Given the stock’s 95% decline from its peaks in 2022 and the considerable float of 2.1 billion shares, pursuing a capital raise may be unattractive. Alternative funding strategies could involve debt financing, partnerships, asset sales, or offtake agreements.
The Bottom Line
The results from the Restart Study represent a pivotal advancement for Core Lithium, showcasing a more streamlined and competitive Finniss project with promising long-term potential. Ultimately, however, the fate of the project hinges on lithium prices, which have shown a downward trend in recent months.
