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Core Exploration Ltd: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Core Exploration doubles Grants resource as it prepares PFS with an eye to near-term production

Importantly, the doubling in the Grants resource was at the same high grade of 1.5% lithium.
Photo from Finniss project
INVESTMENT OVERVIEW: CXO The Big Picture
The company's transition from explorer to producer could result in a substantial share price re-rating

Core Exploration Ltd (ASX:CXO) has consistently delivered positive news in 2018 and just this week shareholders were encouraged by additional financial support from a key Chinese investor.

The company is shaping up as a near-term lithium producer with a substantial high-grade resource having been delineated at its Finnis Lithium Project near Darwin.

Core and Ya Hua International Investment and Development Co. Ltd (Yahua) have executed a subscription agreement to increase its investment in Core.

The Chinese entity is wholly-owned by the $2.4 billion Sichuan Yahua Industrial Group (SHE:002497), one of China’s largest lithium hydroxide and carbonate producers.

The placement at 5.3 cents per share is in addition to the initial $2 million placement to Yahua which occurred in August 2017.

An endorsement at the right price

This further demonstrates Yahua’s support for Core’s lithium projects.

Of significance is the fact that the placement was completed at a slight premium to Core’s previous closing price.

This is fairly unique in the mining industry where highly dilutive placements are often done at a steep discount to the share price.

Excellent progress with important news flow imminent

Support for the company isn’t surprising given its strong performance at an operational level, in particular, the outstanding exploration results delivered in the last three months.

However, the other impressive aspect is the fact that prominent newsflow is pending and this could account for the timing of Yahua’s decision to increase its stake.

Indeed, only a day after Yahua increased its stake, Core advised the market that it had more than doubled the size of its Grants resource.

Doubling in Grants’ resource bodes well for the future

Importantly, this was at the same high grade of 1.5% lithium.

More than half of the Grants lithium resource is now in the indicated category.

READ: Core Exploration doubles indicated lithium resource at Grants

This development has increased management’s confidence ahead of the finalisation of its pre-feasibility study (PFS).

From an exploration perspective, this is also important as the company has 400 square kilometres of tenure at Finnis.

Prefeasibility study in final stages

Core is in the final stages of completing a PFS study for the development of a spodumene concentrate and direct shipping ore operation from the Grants lithium deposit.

This is expected to be completed by the end of the June quarter.

The broader Finniss project has substantial infrastructure advantages.

It is close to grid power, gas and rail and within easy trucking distance by sealed road to Darwin Port, Australia’s nearest port to Asia.

Harking back to Yahua increasing its financial stake, it should be noted that the group’s interest in Core extends beyond its position as a shareholder.

A 1 million tonne binding offtake and US$20 million prepayment agreement has been negotiated with Yahua.

Offtake agreements provide for the supply of direct shipping ore from the Finnis Lithium Project.

The US$20 million conditional prepayment facility is to be repaid through the supply of future lithium concentrate with first deliveries targeted for 2019.

Current status

Consequently, Core is likely to relatively quickly transition from explorer to producer, a development that could well trigger a share price re-rating.

Though difficult to fathom, share price re-ratings can come as late as when the ship leaves the port even though all the boxes are ticked ready for the product to be dispatched.

At what stage the rerating occurs remains to be seen, but when it does happen it could be substantial as indicated by the following table.

It shows the market capitalisations of companies in the sector, some of which aren’t in production, and many of which don’t appear to have the quality of product Core can offer.

Even an increase in market capitalisation to around $100 million would result in a share price increase of about 200%.

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Core Exploration Ltd Timeline

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