Why are Core Lithium shares sinking 8% today?

Core Lithium is suspending its mining operations in response to weak lithium prices.

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Core Lithium Ltd (ASX: CXO) shares are sinking on Friday morning.

At the time of writing, the lithium miner's shares are down 8% to 24 cents.

Why are Core Lithium shares sinking?

Investors have been selling the company's shares this morning after it released an update on its strategic review.

Last month, Core Lithium revealed that it had paused its BP33 underground development and was considering the suspension of mining activities in response to weak lithium prices.

According to today's update, management has decided that suspending its mining operations to conserve cash is the right thing to do in the current environment.

Core will continue processing established ore stockpiles but temporarily suspend mining operations in the Grants Open Pit.

It notes that this approach reduces the cash cost of the Finniss operation, generates revenue from stockpiles, and provides an opportunity to recommence mining as market conditions improve.

At 31 December, approximately 280,000 tonnes of ore stockpiles were available for processing, which allows for sufficient stocks to feed the concentrator until mid-2024 without any further mining.

The company also highlights that by suspending operations, rather than preferentially mining ore over waste, the current mine plan will be preserved resulting in improved economics of future mining activities.

Core Lithium advised that revised operating costs, exploration, studies and capital expenditure guidance for FY 2024 will be provided in its upcoming quarterly update.

In addition, it expects to record an impairment of the carrying value of the Finniss operation with its half year results in February.

'A difficult decision'

Core Lithium's CEO, Gareth Manderson, believes that the actions been taken are for the greater good. He said:

The team has moved at pace to ensure Core's value is preserved in these tough market conditions. While suspending mining operations is a difficult decision, processing of ore stockpiles will continue to generate revenue and we will focus on managing our cash reserves prudently.

We are working to put the business in the best position possible to recommence mining and proceed with BP33 when market conditions improve.

The Northern Territory government has been a supportive partner, and we remain committed to finding a path forward for the Finniss operation and the Territory community. We understand that this decision is difficult for employees, contractors and some local businesses.

There is significant prospectivity in the NT both in the Finniss district and in our broader regional tenement holding. We will continue to take a longer-term view and explore for new lithium resources.

Core Lithium shares are now down 78% over the last 12 months.

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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