One of the worst performers on the Australian share market on Monday has been the AVZ Minerals Ltd (ASX: AVZ) share price.
In afternoon trade the lithium-focused mineral exploration company’s shares are down 12.5% to 12.7 cents. This means AVZ Minerals’ shares have now lost almost half of their value over the last three months.
Why are AVZ Minerals Ltd’s shares sinking lower?
This morning AVZ Minerals released further drilling results from its Manono project in the Democratic Republic of the Congo.
While the grades uncovered in its latest drilling were positive once again, investors have focused more on a comment on infrastructure at the operation.
As I have said numerous times before, I have always had concerns about the viability of the Manono project due to how far away from the coast it is in a relatively dangerous country with poor infrastructure.
Within today’s release, management advised that it is investigating land transport options to ports to establish the most reliable, quickest, and most cost-effective means of moving product from Manono to international customers.
The three potential options include Manono to Dar es Salaam Port in Tanzania, Manono to Lobitu Port in Angola, and Manono to Durban Port in South Africa.
Management warned that the freight costs to port may be a significant operational cost and warrants due consideration of options prior to progressing into the feasibility study stage.
However, it did add at the end that it is “committed to moving ahead with the Manono Lithium Project and will keep the market updated as to the outcome of the transport study.”
Should you buy on this weakness?
I would stay well clear of AVZ Minerals until the completion of the feasibility study stage. Despite the asset being potentially world class, it may yet prove unfeasible.
Because of this I would sooner gain exposure to lithium through proven producers such as Galaxy Resources Limited (ASX: GXY) and Orocobre Limited (ASX: ORE). Though, both these producers are still reasonably high risk investment options.
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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.