Why is the Sayona Mining share price crashing 21% today?

Sayona Mining's shares are crashing on Monday. Here's why…

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Key points

  • Sayona Mining's shares have been sold off on Monday
  • This follows the release of a PFS for the North American Lithium operation in Canada
  • The project's net present value appears to have fallen short of expectations

The Sayona Mining Ltd (ASX: SYA) share price has taken a tumble in afternoon trade.

At the time of writing, the lithium explorer's shares are down 21% to 22 cents.

Why is the Sayona Mining share price sinking?

Investors have been selling down the Sayona Mining share price following the release of an update on the company's North American Lithium (NAL) operation in Québec, Canada.

Sayona Mining owns 75% of this operation, with Piedmont Lithium Inc (ASX: PLL) owning the balance.

According to the update, the pre‐feasibility study (PFS) found that the operation has a pre‐tax net present value (NPV) of approximately A$1 billion with a life of mine of 27 years, an internal rate of return (IRR) of 140%, capex of A$100 million, and capital payback within two years.

This NPV appears to have fallen well short of what the market was expecting.

What else?

It is also worth noting that this estimate is based on an 8% discount rate with an average spodumene concentrate price of US$1,242 per tonne, and cash costs per tonne of US$590.

However, the pricing used to underpin the NPV could prove to be a touch on the optimistic side, which could also be weighing on the Sayona Mining share price today.

As I mentioned here recently, Goldman Sachs estimates the following for lithium spodumene concentrate prices:

  • US$1,750 per tonne in 2023
  • US$950 per tonne in 2024
  • US$900 per tonne in 2025
  • Long run average of US$800 per tonne

Goldman's long run average spodumene price is almost 36% lower than what Sayona Mining has used for its PFS despite management calling it "conservative." And while Goldman's forecasts could ultimately prove inaccurate, they do pose a risk to valuations.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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