Ground Breakers: Core smashed on guidance miss, South32 impairs US zinc project
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The best laid plans of mice and men often go awry, a saying pretty much designed for the feasibility studies developed by mining companies.
They are, to be frank, often worth little more than the paper they’re written on, or as Core Lithium (ASX:CXO) managing director Gareth Manderson informed analysts and investors, are a “theoretical construct”.
The full quote, actually, is “I think it’s worth keeping in mind that a feasibility study is a theoretical construct based on the best information that’s available at the time.”
Little solace for Core shareholders, who suffered an 11.5% hit this morning after their company revealed its Finniss lithium mine in the NT would significantly underperform the study that underpinned its investment decision in 2021.
The positives for Core are that it produced 14,685t of spod at C1 costs of $902/t in the June quarter from its Grants open pit, making a first shipment of 5500t of spod in April and second of 13,100t in early July.
$45-50m has already been committed in early works for a maiden underground operation at BP33, where an FID is due early next year.
The bad news is its early forecasts for the next two years come in well below the 175,000tpa run rate envisaged in the original DFS.
Core has set guidance of 90,000-100,000t of spod sales in FY24 at C1 costs of $1165-1250/t, with production of 80,000-90,000t anticipated.
The year after will be lower still owing to a three-month gap in ore supply from the mine and capacity constraints at its plant that will result in the building of a ROM pad stockpile at the end of FY25.
Core has notably adjusted its ambitions after getting a taste of mining in the NT wet season, as well as seeing lower than expected recoveries from its processing plant.
“We’ve had 14 weeks of campaign operations, it’s given us a sense of where we’re at. We know that our recoveries are around sort of 48-50% moving forward,” Manderson said.
“That’s a good baseline to start and to then design a series of pieces of work to enhance and improve this in the early stage of an operation.
“So there’ll be a lot of activity in that space during this period but I’d also say that I’ve worked in quite mature operations that are also continuing to improve and upgrade and something happens in the mine that causes a process upset etc.
“And that’s the nature of of operations and we’re working on moving into that steady operation system space.”
It’s a stark reminder of the supply challenges facing the lithium market, around half of which is supplied from Australian spodumene operations.
Most recent prices for lithium chemicals from Fastmarkets saw slight falls for hydroxide and carbonate in north Asia to US$41,500/t and US$39,000/t respectively.
But talking to customers, Manderson said they appear to remain underfed. Spodumene is currently fetching around US$3550/t on the spot market and Core boosted its bank account from $97.8m to $152.8m through the June quarter despite its ramp up issues.
Revenues from the mine to date have come in at $134.2m against production costs of $28.6m.
“We’re still getting regular engagement from interested customers,” Manderson said.
“So it does appear that the broad kind of conversation in the market around being in a structural deficit is probably true.
“We’re seeing people interested in purchasing the fines, we’re seeing people that are still interested in other products — concentrate, DSO etc.
“So at the moment, we’re enjoying quiet for quite a healthy market from that perspective and it’s hard to see when we talk with some of those customers’ plans, they’re talking about multiyear plans, so it looks like there’ll be demand out into the near future at least.”
In the latest big M & A buy to cop an impairment, South32 (ASX:S32) has lopped US$1.3 billion off the carrying value of its proposed Taylor zinc mine at the Hermosa project in Arizona.
It comes a week after IGO (ASX:IGO) announced an embarrassing write-down on the value of its Western Areas assets and came as S32 flagged higher capex was expected for the development of the new zinc, lead and silver mine.
The project was acquired in the purchase of Arizona Mining in a US$1.3b deal in 2018.
Hermosa now has a book value of US$1.001b, US$482m of that for Taylor. The other US$519m is dedicated to its exploration ground alongside the Clark deposit, where S32 is hoping to develop a standalone high purity battery manganese producer.
Around US$365m will be required for critical path dewatering at Taylor, which today also saw an increase in resources to 153Mt at 3.53% zinc, 3.83% lead, and 77g/t, including a 41% increase in measured resources.
“The Hermosa project has the potential to sustainably produce commodities critical for a low-carbon future, from multiple development options, for decades to come,” S32 MD Graham Kerr said.
“We are disappointed by the delays resulting from the impact of COVID, the significant dewatering requirements and current inflationary market conditions.
“We continue to see substantial opportunity to unlock additional value across Taylor, Clark and our highly prospective regional exploration package and that optionality is not included in today’s impairment assessment.
“The feasibility study for Taylor remains on track, and will benefit from the 41 per cent increase in the Measured Mineral Resource announced today.
“The Taylor deposit remains open in several directions, offering the potential for further growth.”
It came against the backdrop of a strong June quarter, when S32 increased its copper equivalent production by 9% as production and weather issues abated.
Its Illawarra met coal operations delivered a 21% QoQ lift to 1.5Mt, taking full year output to 5.5Mt, a 4% drop.
Silver, lead and zinc production from Cannington rose 42%, 35% and 29% respectively, without FY23 output down 11%, 16% and 8% respectively to 11.81Moz, 101,700t and 59,200t.
Nickel output at Cerro Matoso fell 2% on the year to 40,800t, including 10,200t in the June quarter, while aluminium production rose 14% for FY23 to 1.133Mt, and manganese ore output rose 4% to 5.653Mt, including a 15% lift in the June term to 1.455Mt.
Alumina production fell 4% in FY23 to 5.101Mt, with production up 1% to 1.249Mt in June, while copper output rose 179% to 70,700t, including a 12% lift in the June quarter to 17,300t from the firm’s 45% stake in the Sierra Gorda mine in Chile.