Core Lithium (ASX: CXO) (OTCPK: CXOXF) shares are down 17%. CXO shares fell on the results announcement. And, to be fair about it, the results aren't that bad. They've brought Finniss into production, shipped their first parcels of ore and concentrate, been paid. What's not to like? This is exactly what we hope a miner would be doing.
The results are here. A fuller overview here. Lithium is that new white gold, they're producing, are debt free, costs look OK. What's the problem here?
What the market is currently worrying about right now could be anything. Maybe just that knowledge that so many other lithium miners are coming to market. But that would be strange for a 17% drop in the one day. Our problem here has long been that we don't know a specific number. A number that we do really need to know.
As we explained elsewhere about Core Lithium: “Well, the effect of such a contract is that if the price soars after the contract has been signed then the price cap means that it's the processor, not the mine, gaining the value of the soaring price. So, it matters hugely - given the lithium price volatility - what the cap and collar on that offtake contract is. Which is something that Core doesn't tell us but we can have a little guess at likely ranges.
Note this is a guess. An informed one but no more than that at all. The offtake contract - with the cap and collar, recall - was signed in early 2021. When the lithium price, therefore the lithium concentrate price, was at a very low level. And that, I think, is the story of why Core Lithium seems not to have benefitted much from soaring lithium prices. Because much of its production is presold at pre-soaring prices.”
Core Lithium share price from ASXNow, we don't know what are the details of that offtake contract. But that's what we also need to know to be able to evaluate Core Lithium's prospects. Yahua has funded much of the concentrator construction, in return it gets an offtake contract with a cap and collar. So, what's the cap on Core's revenues? “ Ah. So, this shipment isn't part of that agreement that has the cap. For Yahua this doesn't really matter; they're going to be buying some material at market prices anyway. And buying it from Core provides more capital for a company they're very interested in anyway. So, Core is a preferred source, even at full market price.
Yahuya are still going to get their 300k tonnes at the capped price.”
We can't calculate that cap from the current revenues - because those two shipments were sold at market, not as part of the offtake contract. So, what is the number in the offtake contract which limits Core Lithium's revenues?
We can't see that anywhere. And we do think that if Yahua was locked into a high price then we'd be told. Hot diggetty, look at the price we're getting! So, we do assume - rightly or wrongly, we do - that the cap on the concentrate price is low. And that therefore Core isn;t quite as exciting as it looks to be. Simply because they sold the lithium cheap.
