The Latin Resources Ltd (ASX: LRS) share price has returned from its trading halt and tumbled deep into the red.
In morning trade, the lithium developer's shares were up as much as 7% to 28 cents before giving back those gains and dropping almost 8% to 24 cents.
Why is the Latin Resources share price falling?
Investors have been selling this lithium share on Thursday after the company released key outcomes from a technical and financial study on its 100% owned Colina Lithium Project in Brazil.
According to the release, the preliminary economic assessment (PEA) demonstrates a low-capital, two-phased operation that delivers high-quality 5.5% Li2O spodumene concentrate (SC5.5) and a 3% Li2O (SC3) spodumene tails concentrate product.
The study found that the project had an after-tax net present value (discount rate of 8%) of A$3.6 billion (US$2.5 billion), total life of mine (LOM) revenue of A$12.6 billion (US$8.4 billion), with free cash flow of A$6.8 billion (US$4.7 billion). Average LOM annual production is expected to be 405,000 tonnes per annum of SC5.5.
The phase one capital expenditure is estimated to be US$253 million, with a payback of 7 months.
Why are its shares falling?
While the above looks promising on paper, investors may have concerns about some of the assumptions the company is using.
For example, the study is based on a weighted average LOM spodumene concentrate price (5.5%) of US$1,699 per tonne.
Goldman Sachs, which has been spot on with its lithium price predictions this year, is currently forecasting the following for spodumene 6% prices:
- 2024 – US$1,763 per tonne
- 2025 – US$800 per tonne
- 2026 – US$1,126 per tonne
- LT real – US$1,000 per tonne
So, this means that Latin Resources is forecasting a long term price 70% higher than Goldman's estimate for a product of slightly lesser quality. This calls into question the valuation the company is placing on its project.