Why investors are saying sayonara to Sayona Mining shares this week

Sayona Mining shares have been sold off this week…

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Key points

  • Sayona Mining shares have been sold off this week
  • This follows the release of a disappointing update on its North American Lithium operation
  • Its value came in much lower than many were expecting

The Sayona Mining Ltd (ASX: SYA) share price has come under pressure for a second day in a row.

In afternoon trade, the lithium explorer’s shares sank a further 15% to 20 cents.

When Sayona Mining’s shares hit that level, it meant they were down 28% this week.

Why are investors saying sayonara to Sayona Mining shares?

The catalyst for the weakness in the Sayona Mining share price has been the release of an update on the company’s North American Lithium (NAL) operation in Québec, Canada.

According to the release, the pre‐feasibility study (PFS) found that the operation has a pre‐tax net present value (NPV) of approximately A$1 billion.

This was much lower than many were expecting. And given that Sayona Mining only owns 75% of the operation, with Piedmont Lithium Inc (ASX: PLL) owning the balance, its share of the operation is worth $750 million pre-tax.

Furthermore, on a post-tax basis, the operation is valued at A$844 million, with Sayona Mining’s share worth $633 million.

But it is worth remembering that this is based on a long run lithium spodumene price of US$1,242 per tonne and cash costs per tonne of US$590.

As I have mentioned previously here, Goldman Sachs recently forecast a long run average of US$800 per tonne of lithium spodumene concentrate. This is almost 36% lower than what Sayona Mining has used for its PFS.

And while predicting commodity prices is incredibly difficult, not least for lithium, if Goldman’s forecasts are accurate it paints a very different picture of this operation.

Time will tell, but judging by the Sayona Mining share price performance this week, some investors aren’t willing to wait and find out what happens with this or its other projects.

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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