Why Core Lithium's mine closure was just the tip of the iceberg

Core Lithium's (ASX: CXO) decision to close its Grants mine in the Northern Territory has stoked concerns of more mine closures amid a major downturn in battery metal prices.

An article by the AFR called out those that are most at risk of closure this year, including:

• First Quantum Minerals and POSCO's Ravensthorpe nickel and cobalt mine

• Arcadium Lithium's Mt Cattlin lithium mine

• Consolidated Minerals' Woodie Woodie manganese mine

• Mineral Resources' Bald Hill lithium mine

• Andrew Forrests' Wyloo Metals

• Glencore's Mt Isa zinc, lead, silver and copper project.

But the reality is that the sector has been in deep pain for quite some time, especially for small-to-mid-cap stocks. It just took Core Lithium's fall to grab everyone's attention. In this piece, we'll recap some of the major mine closures, project standstills and strategic reviews from the past 12-24 months (that have probably flown under the radar).

Cobalt

Cobalt prices managed to go full circle in about 18 months, rallying from US$33,000 a tonne in December 2020 to a peak of US$82,000 a tonne by March 2022 and then sub US$30,000 a tonne by May 2023.

Jervois (ASX: JRV) suspended the final construction of its Idaho Cobalt Project on 29 March 2023, citing "continuing low cobalt prices and US inflationary impacts on construction costs."

At the time, the project's resource and reserve was the largest and highest grade confirmed cobalt orebody in the US and when commissioned, will represent the country's only primary cobalt mine supply.

Jervois said it expects prices to recover over the medium term and plans to complete construction when prices improve.

The stock is down 88.8% in the last 12 months.

Rare Earths

Hastings Technology (ASX: HAS) is developing the Yangibana Rare Earths Project in WA. It posses one of the highest concentrations of NdPr globally, with an initial mine life of 17 years.

On 31 May 2023, Hastings announced a staged development strategy to reduce project delivery risk and enable a faster pathway to cash flow. Under the new strategy, the mine will be developed in two stages:

• Stage 1: Develop mine and benefication plant to produce 37,000 tonnes per annum of rare earth concentrate and achieve first concentrate by 1Q25

• Stage 2: Develop hydrometallurgy plant to produce 15,000 tonnes per annum of mixed rare earth carbonate

Over the next two days, the stock sold off almost 30% to two-year lows. The stock is down 80.4% in the last 12 months.

Nickel

Panoramic Resources (ASX: PAN) appointed voluntary administrators on 14 December 2023 and halted mining operations earlier this month. The company's Savannah mine has faced a number of challenges including mounting debt, high overhead costs, weather disruptions and equipment failure.

These challenges forced a rather desperate capital raise back in July 2023. The $40 million raise was held at a 45.7% discount to pre-raise levels.

The stock was down 82.5% in the 12 months to 17 November 2023.

Poseidon Nickel (ASX: POS) deferred the restart of the Black Swan Project due to "project related factors and external market conditions."

"These project related factors together with the continuing tightness in the WA labour market, the lack of the availability of Kalgoorlie FIFO accommodation and the increased volatility in global commodity and equity markets have resulted in us deferring the Black Swan restart decision," Managing Director Peter Harold said back in July 2023.

The stock is down 72.5% in the last 12 months and recently entered into a farm-in agreement for tenements prospective for lithium.

Food for thought

• What do these stocks have in common: The above four stocks are not explorers. They've all moved into project development or production. It's a pretty tough ask for a small-to-mid cap company to develop a project with capex costs in the hundreds of millions of dollars. And when faced with several operational, labour, weather and commodity-related headwinds – they probably wished they were still explorers.

• Pilbara Minerals has held up pretty well: Shares in a low-cost and well-capitalised name like Pilbara Minerals have fallen just 5% in the past 12 months. The company had a cash position of $3.0 billion in the first quarter of FY24.

• Time to revisit old assumptions: There are a lot of stale economic studies (e.g. Pre-Feasibility and Definitive Feasibility Studies) out there. Those that were completed before 2022 could contain rather outdated price and capex assumptions. For example, Hastings Technology phased approach to its Yangibana Project revealed total project capital costs of $948 million, up 40% from 2020-21 estimates.