Oct 2, 2023

Sentiment: Bearish

Type of Trade: High Growth

Industry: EV (Electric Vehicles) - Lithium

Sector: Materials

Sector: Critical Materials | Based on FY23 Result

Core Lithium has recently become a successful Australian lithium producer. The company is now well positioned in the lithium markets and continue to expand its Finniss Project, focus in achieve lowest cost spodumene production. The mining is located near Darwin Port in the Northern Territory, Australia.

Core’s 2019 Definitive Feasibility Study (DFS) highlights production of 175,000tpa of high-quality lithium concentrate at a C1 Opex of US$300/t and US$50M Capex through simple and efficient DMS (gravity) processing of some of Australia’s highest-grade lithium Mineral Resources. Latest production results showed the output in Finness early production wasn’t as high grade lithium as per the DFS, which has triggered a sell off on the stock in July 2023, in combination to declining lithium prices.

The Finniss Lithium Project has arguably the best supporting infrastructure and logistics chain to Asia of any Australian lithium project. The Finniss Lithium Project is within 25km of port, power station, gas, rail and 1 hour by sealed road to workforce accommodated in Darwin and importantly to Darwin Port – Australia’s nearest port to Asia.

The company has recently frustrated shareholders with $100m capital raising via SPP, to finance BP33 (Core’s next mine), to be the cornerstone asset for the Company, with Final Investment Decision (FID) in Q1 2024 (March quarter)

The capital raising also allowed Core to progress its near-term growth projects and preserve balance sheet flexibility during Grants ramp-up. The funds also has $45-$50m allocated to complete development of BP33, FY24 plant optimisation works and Finniss sustainable capital ($20-$25m), FY24 explorations & study expenditure ($35-40m) and working capital (up to $5m). We have not indication of further capital raising through the upcoming months, but provided that the company is now well funded and become net profitable, we believe that shareholders can now have a short term relief from any potential capital raising or further dilution on its share value.

BP33 is an underground project located 5km from the Grants open pit, crusher and DMS plant. BBP33 has a current Mineral Resource of 10.1Mt @1.48% Li2O.

To put in perspective, a quick comparison of the Resources.

  • (ASX: SYA) – Sayona’s NAL mineral resources of 58.3Mt.
  • (ASX: CXO) – Core Lithium Finiss Project project 30.6Mt@1.31% Li2O + 10.1Mt@1.48% Li20 at BP22 and
  • (ASX: LRS) – Latin Resources, Colina Project 45.19Mt, at 1.32% Li2O
  • (ASX: AKE) James Bay, 110.2million tonnes (Mt) @1.3% Li2O2 
  • (ASX: LTR) – Kathleen Valley 156Mt@1.4% Li2O + 15mt@1% Li2O
  • (ASX: LKE) – Lithium Carbonate Equivalent via DLE (not comparable at this stage DLE process).

Although the main focus on investing in this company is regarding its exposure to Lithium it is important to know that the company also holds other projects in Copper, Zinc and Lead.

✅ Commercial Agreements and Off Takers – Core Lithium has long-term offtake agreements with lithium industry leaders Sichuan Yhua and Ganfeng Lithium.

✅ FY23 – Maiden Revenue of $50.6m

✅ EBITDA of $14m.

✅ NPAT (Net Profit After Tax) of $10.8m.

✅ Operating cash flow of $90.8m.

Outlook for FY24

✅ FY24 Production guidance of 80Kt to 90Kt of spodumene concentrate sales.

✅ Company continue to explore in Finniss lithium operation to further increase its Ore reserves.

✅ Execute Finniss performance improvement initiatives, including improving lithium recoveries and mining productivity.

✅ Deliver into offtake contracts.

Technical Analysis

(ASX CXO) has been an incredible profitable stock for us during 2021 and 2022, but last trade the stock has fallen into our stop loss around 78c once it has broken out the support level. If you have bought (ASX: CXO) 1 year ago as investment, you would be down by 65%, therefore proven to be a very bad investment, however the stock has swung within very wide trading ranges during the time, and it would be best if bought at technically discounted prices as per BGS 20 Strategy indicators, so liming the market is critical when you are trading or investing in small caps companies as Core Lithium.

(ASX: CXO) has broken 5 hypothetical support as result of combination of very high short trading activity, lower lithium prices, capital raising and poor results.

The recent FY23 result has brought some buying activity back into the stock, since the company has turned around and proven to be Net Profitable for the full year.

🚩 The RSI also does not give a clear reading looking bearish due multiple supports breakouts.

🚩 Lithium prices continue to decline could put further pressure on lithium stocks.

🚩 Core Lithium ore reserves are still relatively small to other players and could be capital intense to increase.

🚩 Stock is still in downtrend.

✅ Favourable fundamentals, since CXO has become a NPAT company, such as result is likely to help decreasing short trading activity and attract some institutional investors back into the stock.

✅ SP (share price) is currently trading at technically discouned price for the short and long term trend.

✅ Green Candle on the Heiken Ashi serves as first signal of reversal.

✅ Bullish intersection level 2 confirmed, serves as second signal of reversal.

Should I Buy (ASX: CXO) Now?

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