Thank you for standing by. Welcome to Core Lithium Q2 FY 2024 Quarterly Update Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. We'll be taking questions via the telephone today. The dialing information to join the teleconference can be found on the stock exchange release yesterday. To ask a question during the session, you will need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I'd now like to hand the call over to the first speaker today, Mr. Gareth Manderson, CEO. Thank you. Please go ahead.
Thank you very much, and thank you very much for those that have taken the time to dial in this morning. Appreciate your interest in Core Lithium. Very solid quarter from an operational perspective, so quite strong results. But we also need to acknowledge the 54% drop in spodumene price during the quarter, which has led to your board and management taking the decision to pause mining operations. And we can talk a little bit about that in detail. As I look at the operational performance for the period, we've seen a 50% increase in ore stocks on the ROM, which was a deliberate strategy to decouple the mining operation from the processing facilities for the upcoming wet season.
And we've seen some really solid performance out of the mining team, with all of the preparations going into the wet season. So we had close to about double the average rainfall in November, and we saw a very smooth mining operation during that period, and as I said, an increase in ore stocks. We've seen a 20% increase in recovery, so 60% recovery average for the quarter, a close to a 40% increase in spodumene production, and a grade of 4.7%. The average realized price $1,418 a tonne. Still subject to a couple of QPs that we've acknowledged in the quarterly report in the early part of this year.
We've also paused lithium fines shipments for two reasons. One is the wet season. We also forecast that we would not be producing and selling fines during the wet season. However, we will also need to see an improvement in market conditions before we would see that as being a reasonable product moving forward. BP33 is progressed very well during the period. We'll talk a little bit about that in some detail shortly. However, we did pause to preserve cash entering into the wet season, as we need to think about timing of that particular project with the current market conditions. But quite pleasingly, we've seen a 35% increase in the Measured and Indicated Resource for BP33.
We've provided an announcement earlier that indicated we've seen 9.4 million tonnes now, at 1.52% of that Measured and Indicated level. The overall exploration program for CY 2023, the results are coming in, and we'll provide an update on that in due course. Cash balance at end of quarter, close to AUD 125 million. You'll see that our capital and cost guidance has been lowered, reflecting the suspension of mining and cost reduction program that's well and truly underway. During the period, we had one recordable injury to an arm, which is provided in detail there, and there's been some strong actions and response from the team in that space.
Required some sutures or stitches to resolve, and the gentleman is doing quite well and returned to work close to after that particular incident. CRM and wet season preparation have been a significant focus in the quarter. We've also provided eight community grants. The decision to cease mining puts us in the best cash and cost position to weather the current market conditions. It preserves value. We looked at a number of different options to keep mining moving forward, but what that ended up doing was increasing the cost to move back into mining. So pausing actually allows us to preserve the value of the ore that's remaining in the Grants Pit.
It also gives us some flexibility from a commercial perspective in terms of placing of any product that's available outside of the resolved agreement with one of our offtake partners. We can spend time now defining our path forward, understanding BP33, and shifting the focus from being schedule driven to actually the best economic outcome for that particular project. As I think through the strategic review of operations, I'll just run through some detail there. The Grants Pit has been temporarily paused. However, we will process stockpiles, and we expect to be able to process stockpiles till around about the middle of this year.
This puts us in the best position to minimize our costs, preserve our cash position, and ensure that we can maintain that long-term business plan for Core Lithium. We've seen a 54% drop in concentrate prices over the quarter, and close to 85% drop since January of 2023. Production is expected to be broadly in line with guidance based on lithium units. We'll continue to process those stockpiles, and we should have sufficient ROM through to the middle of this year. We've reduced our sustaining capital. We've taken a look at all of the study costs, exploration costs, and corporate costs, and made a series of changes in that space, and we'll continue to work on that in the coming months.
That's seen us reduce our unit cash operating costs to $800-$900 a tonne, which actually allows us to sell product based on the shipping schedule that we've agreed with one of our customers. Any additional shipments, we can either sell into the market if we're comfortable with the pricing terms, or we can hold until we are comfortable with the market conditions. I'm really pleased with the progress that the team has made to improve recoveries. We've seen, I guess, since we started commissioning the plant, we've moved from a recovery rate of mid-40s, so around 47%, through to 60%. In fact, over the last month or so, we've actually seen 63% recovery in December.
That's on the basis of the optimization work that was to improve crush size or increase crush size from around 6 mm to 10 mm, optimization of feed and plant parameters, some debottlenecking work, and also, quite importantly, some reliability work to improve the stability of the operation. And you can see there quite a healthy uptick in recovery and great plant performance from that perspective. So our focus is very much on managing the business through the current market conditions, and that's in two levels. One is to get the best cash outcome for the business over the next six months. So reduce concentrates, reduce costs, preserve value, understand the BP33 project, and shift our focus on the project economics and timing for that.
It was schedule driven. You've actually seen us in the quarter complete the box cut excavation. We've also started to complete some of the stabilization at the portal end, and some initial establishment of foundations for the tunnel liners. We could have continued on. That was our plan to complete the box cut. However, when you look at the wet season and some of the risks around cash and cost in that particular perspective, and the fact that actually, when you think about the timing of the BP33 project, actually pausing that and putting it onto care and maintenance is the best cash outcome for the business and preserves the value and doesn't expose us to the risk of additional cash outlay.
So we're focused on cost and production optimization to the middle of the year until we complete those stockpiles. When market conditions improve, we'll take a look at restarting mining operations and continuing to produce concentrate from the ore that's provided in that space. The BP33 study and the Carlton study are still continuing. We have all of the the exploration work complete for the 2023 exploration season. We're in the process of collecting that data. We're waiting on assays, and we'll go through a review to understand what's the process and the plan forward for exploration across Finniss, Shoobridge, and Anningie and Barrow Creek in the coming year. And we'll prepare the business to respond.
So we'll monitor market conditions, and we'll make decisions to suit those market conditions in terms of restarting mining operations, processing, and making decisions around our growth project options and exploration. So at that point, I will pause and give an opportunity for people to ask some questions.
Thank you. We will now begin the question and answer session. If you would like to ask questions on the phone, please press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for the first question. First question comes from the line of Tim Hoff from Canaccord. Please go ahead.
Hey, Gareth. Thanks for the chance to ask a question. Just on that recoveries, it's a good outcome there for the plant. Looking at the material you've got on the ROM, would you expect recoveries to hold close to that 60% moving forward, or is that a structural change? Do you think you've got a better control of the material?
Yeah, no, very good question, Tim. The intention is to maintain that recovery at around the 60% or higher, so we'll continue to work on recovery improvement. I think the... You're probably alluding to potential variability in the stockpile. So we've done our best to make sure we understand that and think about how we actually manage the feed presentation from ROM stocks or ore stocks into the plant.
Excellent. And then, maybe with the cash operating costs, can you, can you just walk us through what's included in that and, and what's excluded?
I'll ask Doug to perhaps respond to that question.
Yeah, sure, Tim. Look, royalties is the only thing not included in that from a site operating cost perspective. It includes freight and all site costs, but royalties of, you know, that, that are guided as well, which is pretty easy to calculate, we've left out of that for people to calculate based on the oil price.
And then, CapEx would be included in that, like sustaining capital?
No, well, sustaining capital going forward or for the next six months anyway, will be effectively zero. It's excluded from that number.
Okay, excellent. I think that's it for me. I'll hand it over. Thank you.
Thank you for the questions. One moment for the next question. Next question comes from the line of Adam Baker from Macquarie. Please go ahead.
Morning, Gareth and team. Just maybe one on the offtake partners and, you know, in light of the curtailment moving forward, just wondering if you could shed some light into the discussions you've had with them and yeah, are they supportive moving forward with your decisions to curtail production?
... Yeah, so the discussions with offtake partners have gone quite well. You might recall that at the last quarterly, we talked about a change in grade and timing. We had very productive conversations, and those have continued in this particular space. The EGM commercial and myself were actually in China in October, November period, and we met with all of our customers and potential customers in that space. They are continuing to engage with us and are comfortable with the approach that we're taking, and we're delivering into the schedule that has been agreed with one of those partners. We've got a number of parties who are interested in the remaining shipments.
Great, thanks. And, maybe just one on royalties. Is there any developments there with the Northern Territory Government? It's been in the press a lot lately on the back of weakening critical metals prices. But, yeah, any developments on that front, with you know developing a more appealing scheme for royalty payments in Northern Territory?
No, look, No, no real update on royalties, from that particular perspective. What I would say, though, is that, you know, upon announcing the pausing of mining, I actually met with a number of parts of the NT Government, including the mining minister. And the NT Government continues to be very supportive of the operations, appreciates the market conditions that we're faced with, and, you know, for us and for the NT Government, they're focused on the medium to long term.
Thanks, Gareth. I'll hand it on.
Thank you for the questions. One moment for the next questions. The next question comes from the line of Jon Bishop from Jarden Group Australia. Please go ahead.
Hi, Gareth. Thanks for taking my question, and well done to the site team for obviously picking up in terms of production and throughput there, which is pleasing to see. Just a couple of questions around sustaining capital. Obviously, you've been able to crimp that a little bit in terms of your full year guidance. What does care and maintenance capital look like, assuming current prices hold for the next 12 months? And if I look at your feasibility, I think sustaining capital was estimated at AUD 69 million. Obviously, that's probably a stale number now, but are you able to give us an idea of what sustaining capital looks like versus care and maintenance?
Yeah, thanks, Jon. It's Doug. I'll take that, and Gareth might want to add, but in the quarterly, on the bottom of page 4, we do have in the fine print a footnote around the operating unit cost. This kind of goes to Tim's question as well, excludes AUD 3-3.5 million for the half, or for the second half, I should say, in care and maintenance and demo costs. Now, that's not envisaging, you know, the whole site goes on care and maintenance, obviously. That's just envisaging, you know, what we've announced, which is that mining is suspended.
And so it's really the cost around demobilization and the costs associated with maintaining, you know, safety and what have you around the pit, and trying to maintain that pit so that we can get back in and mine as best we can. So in terms of ongoing care and maintenance, should things change and the mine or the operation going entirely onto care and maintenance, you know, we haven't guided that. And, you know, we're hoping that doesn't happen, of course. But we'll work through those numbers in due course if, if, if and when it's required.
Okay, no, that's helpful. So for, for my purposes, if I'm to assume somewhere between that care and maintenance number per your footnote of, call it, AUD 7 million a year versus, you know, the 22 that you're guiding to full year, that would be a rough ballpark to, to kind of keep things bubbling along?
Yeah. Bear in mind, the 22 that we're guiding for the full year has, has essentially been spent.
Okay.
So that's, that was, you know, associated with finalizing and finishing off the Finniss project. And mine water dams is a big component of it in the quarter, as we call out in the quarterly. But for the, basically just whatever carryover there is from November and December in terms of cash flow or cash outflow, but we're not planning on spending really anything. So, you know, you shouldn't extrapolate that number going forward. You know, if we get back up and mining, the sustaining capital would, will obviously need to be looked at with a fresh lens and re-guided in for FY 25. So that's- I think it's important to note that most of that is effectively spent in the first half.
Yep. No, that's helpful. So therefore, in terms of your site all-in sustaining cost for the second half of the year, we should take the AUD 800-900 for guidance in treating stockpiles and then add in the AUD 3.5, roughly, for the site care and maintenance and demo costs. Is that about right?
Yeah. Yeah, and the one thing I shouldn't, should have noted with Tim's question is freight to China is not included. It's FOB Darwin.
Yeah
... so as well as royalties, it doesn't include freight to China.
Okay.
CIF equivalent, you need to add a freight estimate.
Yep. That's helpful. So just to take that right the way through, I mean, obviously we're in a fairly bearish environment at the moment. Do you have obligation to deliver and hence continue to treat stockpiles at the moment? Or should prices continue to erode, do you have discretion to suspend treatment of those stockpiles as well if they're diseconomic?
... Well, I think that's a conversation to be had with the offtake partner. They're working quite closely with us. It's been a good relationship. You've seen, as I mentioned earlier, that adjustment to timing and grade. And it's important to also understand that this is an entire market, so the offtake partners are also subject to the supply and demand dynamic that we're seeing at the moment.
Yep. No, understood. That's fine. Look, one final question, if I may. Can you make any comments as to where things are at with the Tesla arbitration or mediation?
Yeah. No real update, Jon, compared to last time. The two companies are in conversations to work through without litigation.
Perfect. All right, thanks for taking my questions, guys.
Thanks, Jon.
Thank you for the questions. One moment for the next questions. Next question comes on the line of Milan Tomic from J.P. Morgan. Please go ahead.
Yeah, thanks. Just on, with the BP33 build paused and the FID deferred, how are you thinking about the potential knock-on effects of project sequencing beyond Grants as a result?
Yeah, so that's a really good question, Milan, and will be a subject of the, I guess, the analysis and planning work that we'll do over the next couple of months. The... I think at the end of the day, the value for Core is in that growth profile, but it's also in timing it appropriately with the market. So, you know, Grants is cash generation. It's also a great lead-in to a project like BP33 in terms of establishing commercial operations, processing operations, et cetera, and de-risking the entry to the mine. So I think that thesis still remains, and we just need to work out the timing in line with the BP33 project.
Yep, and just, I did notice that the older FY 25 production guidance had flagged a three-month gap in the ore supply. I think it was over the wet season. Does the curtailment at the Grants Pit extend or push out this potential gap?
I think it actually changes it in terms of the mining sequence. So, I would say that guidance is now stale, and we need to look at the new ore schedule when we recommence mining.
Great. Thank you very much.
One other thing I could probably just add to that, Milan, is that, there is a fair bit of work that's gone into the BP33 project, schedule and mine plan to see if we can pull tonnes forward. And there's a lot of work that's been done around Grants to see if there's the opportunity to extend the ore body. We know that there's ore underneath the mine plan. It's possible to capture that and close those sorts of gaps. So those levers are still live and available to us.
Great. Thanks for the call.
Thanks, Milan.
Thank you for the questions. Our next question comes from the line of Hugo Nicolaci from Goldman Sachs. Ask your question.
Morning, Gareth, Natalie. Thanks for the update this morning. I'm just starting with a simple question and a complicated answer: What sustainable spodumene price do you think you need to see to naturally restart the mine?
Very good question, Hugo. Look, I think the best way to answer that is, there's a broad range of factors, of which price will, would be one that we would use to make a decision around getting back into mining. And we've talked a little bit about timing of projects. We need to take a look at what the ore schedule looks like. And probably most importantly, is understanding the market dynamic, because, you know, if we see a bump in price, how durable is it and how consistent do we think it will be over time?
Yeah. Got it. So probably more work to do on that one. Fair enough. And then maybe just one around, I guess, how you're seeing balance sheet and funding. I mean, obviously, we've seen Liontown this week around their commercial debt syndicate, reducing the borrowing capacity on falling lithium prices. I mean, Finniss still has major project status with the Australian Government until February. I mean, do you have any options potentially around other sources of capital for the project at this stage?
Yeah. We don't have any debt, and we've got a good, solid cash balance at end of quarter at close to AUD 125 million. The actions that we've taken have been directed towards preserving that cash for the business and the optionality moving forward. In terms of funding for projects, there's a number of parties that actually have even called us in the last couple of weeks just to keep the contacts alive and are still interested in talking to us about, you know, offtake and funding options attached to that in the around BP33. So I think that question is something that we will work on answering, Hugo, when we're a bit clearer on the timing of BP33.
Got it. So just to clarify then, I mean, can you sign offtake for BP33 in the near term, or would any volumes there have to go into your existing offtakes, before new offtakes would start getting filled?
So our current offtake partners in the current plan would actually see us using product from BP33 to fulfill those offtake agreements. And as I said before, we've resolved the offtake agreement with one partner. The other is still open. And so moving forward, that needs to be part of our consideration as well as where and how we place product into that ore schedule. But to answer your question more directly, there's no change to the original thesis around Core Lithium, which is that those offtakes will be serviced by both Grants and material from BP33.
... One more in, if I can. Touched on taking an impairment just around the shutdown. I think you had about AUD 250 million of book value for the asset in June. Do you know what price, in terms of spot spodumene, was used for, for that previous assessment?
For the impairment assessment for the full year, the 30 June 2023, is that what you're asking?
Yeah. Well, I mean, effectively, I mean, just trying to gauge what the size of that impairment is. I appreciate you're probably still working through that, but maybe just as a starting point, you know, what lithium prices did you use when you did your book valuations back at the FY 2023 result?
Yeah, well, off the top of my head, I can't recall, to be honest, but it would effectively have been consensus or Woodmac pricing, or a combination of those, when we did the accounts. So obviously-
Got it. All right.
done a bit from there. But, yeah, we're still working through that with, first of all, internally, and then with our auditors.
Got it. Thanks, guys. For us, probably more I should have passed it on. Cheers.
Sorry, Hugo, what?
Oh, thank you.
Don't have a question. Passing it on. Thank you.
Oh, thanks very much, Hugo.
Thank you for the questions. Our next question comes from Andrew Harrington from Petra Capital. Please go ahead. Mr. Harrington, your line is now open. You may unmute locally.
Sorry about that. Good day, everyone. In terms of remaining capital spending, you've listed out sort of the difference between the original and revised FY 2024. Can we take it that most of that has already been spent, as per your earlier response to a question?
Yeah, that's, that's correct. It'll just be carryover cash outflow in January, largely, potentially a bit in February from work that was done in November, December.
The first half. Yeah. Okay. And a more broad question on pricing: The qualification period really penalizes you while the price is falling, and that 2-month period seems to be open to gaming by the customers. Is there no option or opportunity to sell on FOB, as in the price that they're happy to pay you today is the price that they pay, rather than sailing a ship in circles while the price is falling, so they can maximize the qualification period discount?
Yeah, Andrew, I mean, your observation is absolutely correct. The QP period post-date from shipping actually does favor the customer in a falling market, but it also favors the supplier in a rising market, as well. We have the agreement in place with one of the offtake partners that's resolved on that shipping schedule, and as I alluded to, there are a couple of shipments in the coming half that we can think about some of those sorts of options.
I guess my question is that, you know, in a falling market, they can take their time sailing, and then in a rising market, they'll go as quickly as possible, so they sort of get a benefit both ways. So FOB pricing would be better and common across other commodities, as far as I'm aware. So is nobody doing that, or is it a, you know, something that you're working towards?
Well, we have... With our offtake partner, we have an agreement that where that QP period's been defined. So, it's really just a matter of the shipping schedule positioning in the late end and then delivering against that schedule. The schedule's agreed, and it's set. Was there anything else, Andrew?
Oh, sorry, I think, I think I lost you for the last 30 seconds or so. I don't know if that was across everybody, but, apologies. Could you repeat the very last?
The QP arrangements are established, and the shipping schedule is set with the customer, and we're working with them in terms of delivering in that. So it's kind of set from that perspective, Andrew.
All right. Well, thank you very much.
Thanks, Andrew.
Thank you for the questions. Once again, to ask question, please press star one one and wait for your name to be announced. At this time, there are no further questions from the line. I'd like to hand the call back to management for closing.
Excellent. Well, look, thank you very much, everybody who's on the call. Appreciate your interest in Core. It's unfortunately quite a difficult market to for any spodumene producer to navigate at the moment. We've taken action with the board and management working together to get the best cash and cost position that we can put the business in that will preserve value. And then when market conditions improve we want to position the business to be able to take that opportunity moving forward.
But I do wanna highlight, and I am really pleased with the progress that's been made on site from a mining and processing perspective, to see such a significant improvement in recoveries, up to, you know, 20% higher than where we were last quarter. To see the mining operation enter into the wet season very successfully, above average rainfalls in November, and essentially didn't skip a beat during the quarter. So I'm very, very pleased and proud of what the work has resulted in for the team.
We will continue to work carefully over the coming months to ensure that we do preserve the value for Core so that we can move, we get ourselves in the best cash position, and we make make best use of those stockpiles that we've been able to accumulate in the last quarter. So thanks again for your time on the call. I appreciate the questions. Take care.
That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.