Why did the Core Lithium share price just hit a 2-year low?

Top broker Goldman Sachs says falling lithium commodity prices may hit Core Lithium particularly hard.

| More on:
A man sits uncomfortably at his laptop computer in an outdoor location at a table with trees in the background as he clutches the back of his neck with a wincing look on his face.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Core Lithium Ltd (ASX: CXO) share price hit a new two-year low of 32.5 cents on Tuesday.

Core Lithium shares have taken a nosedive in 2023, down 67% in the year to date.

Of course, the stock is not alone.

Many ASX lithium shares have declined this year on the back of a devastating spiral in lithium commodity prices due to various supply and demand factors.

Take a look at this snapshot.

It seems the only thing keeping some stocks elevated this year has been excitement over takeover offers for junior players, such as Azure Minerals Ltd (ASX: AZS) and Liontown Resources Ltd (ASX: LTR).

Besides Pilbara Minerals Ltd (ASX: PLS), they're the only two in this group that are in the green for 2023.

Why has the Core Lithium share price hit a 2-year low?

As mentioned, falling lithium commodity prices are weighing on all ASX lithium shares this year.

A new note from top broker Goldman Sachs documents the major decline from 2022 levels.

It notes a 71.5% decline in the lithium carbonate spot price to US$17,076 per tonne (p/t). The lithium hydroxide price is US$14,663 p/t, down 78.3%; and the spodumene 6% price is US$1,580 p/t, down 64%.

As my Fool colleague James reports, Goldman expects lithium prices will not bottom til 2025.

Next year, Goldman forecasts the lithium carbonate price to fall to US$13,377 p/t, the lithium hydroxide price to fall to US$14,263 p/t, and the spodumene 6% price to fall to US$1,250 p/t.

But in terms of the Core Lithium share price specifically, Goldman says falling lithium prices are likely to have greater impacts.

Another capital raising?

As my Fool colleague James reports, the broker thinks the junior miner is likely to need another capital raise to help it deal with rising costs due to inflation.

Goldman explains:

Given the more rapidly declining lithium pricing environment than we expected when we upgraded the stock to Neutral in Aug, we now see increased risk that funding from existing cash/operating cash flows may be insufficient to fund BP33 development (which may be required to continue spodumene production as Grants pit production ends; FID targeted Mar-24 quarter), particularly with recent underground cost escalations, where, since the DFS in Jul-21, we estimate underground mining costs are up ~40% (on our bottom-up quarterly analysis of >30 listed Australian gold assets).

Goldman has placed a sell rating on Core Lithium with a reduced share price target of 31 cents.

The broker says:

With a [-16%] TSR vs. our covered lithium peer average of +5%, we downgrade CXO to a relative Sell on valuation, where we note that since the start of Sep-23, CXO is down <10%, vs. spodumene down ~40%, and Australian lithium peers down ~25-40%. We sit below Visible Alpha consensus in FY24/25E on our weaker lithium pricing outlook and Finniss ramp up profile.

Motley Fool contributor Bronwyn Allen has positions in Core Lithium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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.

More on Materials Shares

a miner wearing a hard hat smiles as he stands in front of heavy earth moving equipment on a barren mine site.
Materials Shares

Should you buy BHP shares following the miner's half-year results?

Should you be snapping up this mining giant's shares? Here's what this broker thinks.

Read more »

Woman standing in front of a wind farm.
Materials Shares

Rio Tinto shares tumble despite massive renewable power agreement

Rio Tinto will be harnessing the wind to power some of its operations.

Read more »

A businesswoman ponders why her boat is sinking in the ocean.
Materials Shares

Down 7%: What's gone so wrong for Lake Resources shares today?

Lake Resources shares have been put out to dry today.

Read more »

A young man in a blue suit sits on his desk cross-legged with his phone in his hand looking slightly crazed.
Share Fallers

Down 76% in a year, why is the Core Lithium share price getting smashed again today?

Core Lithium and rival ASX 200 lithium miners are deep in the red on Tuesday.

Read more »

Hand with Australian dollar notes handing the money to another hand symbolising ex-dividend date.
Dividend Investing

Here's everything you need to know about the latest BHP dividend

How big is the latest dividend from the mining giant?

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Materials Shares

Liontown shares crash 8% on broker downgrade

This lithium stock has been the victim of a broker downgrade today.

Read more »

Female worker sitting desk with head in hand and looking fed up
Materials Shares

BHP shares fall after disappointing first-half earnings miss

The mining giant failed to deliver the goods during the half.

Read more »

Worker in hard hat looks puzzled with one hand on chin
Materials Shares

BHP share price on watch amid 86% profit decline and dividend cut

Here's how the Big Australian performed during the first half.

Read more »