Lake Resources N.L. (ASX: LKE) shares had another year to forget in 2023.
During the 12 months, the lithium developer's shares lost a very disappointing 84% of their value.
Image source: Getty Images
Why did Lake Resources shares crash in 2023?
A key driver of this selling was broad weakness in the lithium industry due to falling battery material prices.
In addition, doubts over the viability of the company's Kachi project in Argentina have weighed on sentiment. Late in the year, Lake Resources released the phase one definitive feasibility study (DFS) for the lithium brine project.
That DFS found that the project has a post-tax net present value of US$2.3 billion and an internal rate of return (IRR) of 21%.
While this IRR makes the project just about viable, it is worth highlighting that it is based on questionable lithium price forecasts.
Lake Resources commissioned a bespoke study that found that prices of lithium carbonate will average US$33,000 per tonne for the life of the project. This is more than double the long-term lithium carbonate price estimate of US$15,000 per tonne that Goldman Sachs is forecasting.
And given that the company's sensitivity chart shows that an average lithium carbonate sales price of US$28,100 per tonne would reduce its project net present value by 28%, it doesn't appear to be viable if Goldman's estimates prove accurate.
What about 2024?
Well, now that investors have all the details about the Kachi project, it really will be a case of wait-and-see.
If the lithium carbonate price miraculously rebounds strongly in 2024 and finds itself on a favourable trajectory towards where the company needs it to go, then Lake Resources shares could rally hard.
But based on expectations that the lithium market will remain oversupplied for a couple of years, this looks very unlikely.
In addition, the company still needs to find funding for the project. The initial capital expenditure for phase one is US$1.38 billion, which is more than ten times greater than its market capitalisation of A$185 million.
It would take a brave lender to put up funds for this project in the current environment.
