Core Lithium (ASX:CXO): What’s the big deal about this company?

Core Lithium (ASX: CXO) was one of the hottest ASX stocks post-pandemic.

The company is one of Australia’s newest lithium producers, having begun production at its Finniss Lithium Project in the Northern Territory during April 2023. 

However, the company timed its run pretty poorly. The past year was a volatile one for the company’s share price and it has fallen over 80% from its all-time high. Is it time to buy the dip or are you catching a falling knife?

 

Who is Core Lithium?

Core Lithium’s flagship project is the Finniss Lithium Project covers 500 square kilometres within the NT’s Bynoe Pegamite Field lying 88km trucking distance from Darwin Port.

Lithium was first discovered there in 2016 and the project has grown ever since. The April 2022 Definitive Feasibility Study (DFS) reported a JORC compliant Mineral Resource of 15 million tonnes (Mt) at 1.3% lithium oxide. The study reported a Pre-Tax IRR of 80%, an NPV of $114m and free cash flows of $158m from $501m revenue. A 180,000tpa operation was anticipated.

Production began roughly a year later, in April 2023.

 

 

What’s the big deal with Core Lithium?

Being a lithium company, it was a target for investors wanting exposure to the lithium thematic. There is no other commodity undergoing such a rapid expansion in demand over the next decade.

But in the last three years, the company has transitioned from explorer to producer, something that cannot be said in respect of many other lithium companies.

In April 2022, the company announced the maiden 3,500 tonne shipment of lithium spodumene concentrate was delivered to Darwin port ready for shipping to Yahua.

However, it has not been all smooth sailing. Lithium prices came down from all time highs and may still continue to. Core Lithium pledged to remain profitable for a few years even amidst shrinking margins. By the end of 2023 however, it suspended production and told investors it would just focus on processing stockpiled ore.

 

 

It is said that those who don’t learn from history are doomed to repeat it.

The last lithium boom in 2017 occurred as producers failed to anticipate the demand shock from China’s subsidy-driven roll-out of EVs.

The boom soon turned into a bust as the supply response, especially from hard-rock spodumene producers in Australia, overcame the increased demand. 

As a result, many lithium projects were deferred or even terminated, building the base for another lithium boom later on.  

History is repeating itself here.

The demand for lithium once again soared in 2021 and caught producers off-guard. This time the demand surge was led by Western nations’ decision to take more serious steps in the combat against climate change through green energy transition and EVs. 

An influx of investments into global lithium mining in 2020-21 has prepared numerous lithium projects to get into production in the next few years. Lithium prices are amidst a substantial correction and investors fear more is to come. 

 

Some upside to come even if margins shrink

However, we think if Core Lithium can survive the current bear market, it can emerge stronger than ever.

Investors should also remember that it is continuing exploration activities at the project that could have further lithium. Indeed, the company has a second mine (BP33) that was supposed to commence production in 1HCY24 and deliver 1Mtpa, although this is on ice for now. We also think that it is realistic prospect that it could become a takeover target given it has such a high-quality asset.

So overall, we think the company’s share price sell off has been overdone, although shareholders will hope that lithium prices don’t continue to fall.

 

 

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