BP33, Shoobridge And Blackbeard Drilling Will Improve Lithium Extraction

Key Takeaways

• Optimizing BP33 and enhancing processing efficiencies may boost future revenue and earnings through improved recoveries and reduced operating costs.
  
• Significant cash reserves and no debt allow for strategic investments in exploration, potentially expanding production capacity and enhancing future profitability.
  
• Reliance on the successful Restart Study, maintenance costs, and market volatility create financial risks impacting revenue, margins, and cash flow stability.

Catalysts

Engages in the development of lithium and various metal deposits in Northern Territory and South Australia.

• The development and optimization of BP33, an underground mine with a significant lithium ore resource, is expected to improve efficiencies and returns, potentially impacting future revenue and earnings positively.
  
• Efforts to enhance processing recoveries and minimize operating costs by leveraging past operational learnings and considering new technologies could lead to higher net margins and profitability.
  
• Successful drilling results and resource potential at Blackbeard and Shoobridge indicate the possibility of increased lithium and gold production, which could drive revenue growth and enhance earnings in the future.
  
• Maintaining inventory, such as the 5,000 tonnes of good quality concentrate and 75,000 tonnes of fines, provides flexibility to capitalize on favorable market conditions, potentially boosting future revenue and earnings.
  
• The company's position with significant cash reserves and no debt provides financial stability, enabling further strategic expenditures on exploration and project development, which could enhance future revenue and net margins.

Core Lithium Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Core Lithium's revenue will grow by 18.6% annually over the next 3 years.
• Analysts are not forecasting that Core Lithium will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Core Lithium's profit margin will increase from -108.1% to the average AU Metals and Mining industry of 16.2% in 3 years.
• If Core Lithium's profit margin were to converge on the industry average, you could expect earnings to reach A$14.1 million (and earnings per share of A$0.01) by about August 2028, up from A$-56.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.1x on those 2028 earnings, up from -3.8x today. This future PE is greater than the current PE for the AU Metals and Mining industry at 14.3x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

Core Lithium Future Earnings Per Share Growth

Risks

• The suspension of processing operations at Finniss and the transition to care and maintenance could lead to inconsistent revenue streams, affecting ongoing income and potentially impacting net margins due to ongoing maintenance costs.
  
• The reliance on the successful execution of the Restart Study for future operations introduces risk, as delays or negative outcomes could affect the timeline for resuming production, impacting future revenues and earnings.
  
• Care and maintenance costs during the wet season, as well as potential further expenditures on exploration, add to cash burn, which might decrease available cash reserves and affect financial stability.
  
• The company's need to improve processing recovery rates and operating costs to enhance efficiency indicates potential challenges in maximizing production outputs, impacting earnings and profitability margins if efficiencies cannot be realized as planned.
  
• The uncertainty surrounding the timing and conditions for selling existing spodumene concentrate and lithium fines indicates potential volatility in future cash flow, as market conditions and timing of sales could affect realized revenues.

Valuation

• The analysts have a consensus price target of A$0.108 for Core Lithium based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.15, and the most bearish reporting a price target of just A$0.07.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$87.2 million, earnings will come to A$14.1 million, and it would be trading on a PE ratio of 20.1x, assuming you use a discount rate of 6.9%.
• Given the current share price of A$0.1, the analyst price target of A$0.11 is 7.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.