Falling lithium prices have been the bane of existence for investors backing miners of the 'white gold' over the last 12 to 18 months. The sector's sentiment suffered further damage on Friday amid Core Lithium Ltd's (ASX: CXO) decision to suspend mining operations. Is this a fate Sayona Mining Ltd (ASX: SYA) shares could soon be confronted with?
In November 2023, the emerging lithium company handed down its completed strategic review. Among other items, Sayona determined it should ramp up — rather than ramp down — production at its 75%-owned North American Lithium (NAL) project to "sustainably optimise production".
Importantly, the price of lithium spodumene has since weakened to US$850 per metric tonne (as of 5 January, S&P Global). Where does that leave the $600 million ASX lithium share now?
Contending with thin ice
Friday provided its first drop of blood in the water for ASX lithium shares, demonstrating the challenge miners face at prevailing prices. As covered by my colleague James Mickleboro, Core Lithium succumbed to the depressed battery commodity's price.
The decision comes down to a straightforward question: can the material be sold for more than it costs to produce? For Core Lithium, 'no' seems to be the answer its management team arrived at. After all, the company's last reported unit cost came to A$1,889 per tonne (US$1,269).
How does Sayona Mining compare?
Firstly, its last reported unit costs were better than Core Lithium's. In its 2023 AGM presentation, Sayona highlighted costs of A$1,231 per tonne (US$827) in the first quarter of FY2024, approximately 35% lower than Core Lithium's.
That's fairly positive. However, compared to the current spodumene price (US$850 per tonne), the margin is nearly non-existent. A 2.8% margin fails to give the company much room for further lithium price weakness.
On the flip side, perhaps Sayona can accomplish much lower unit costs as it ramps production. Any evidence of this would be beneficial to Sayona Mining shares.
If not, the lithium miner may find the need to conserve capital like Core Lithium.
The only other alternative is for lithium prices to stabilise here (or begin to rally). Unfortunately, analysts at Goldman Sachs are expecting prices to deteriorate again this year.
What's next for Sayona Mining shares?
In Sayona's AGM presentation, it was said the company would provide unit operating cost guidance once the NAL project had reached 'steady-state' production levels. This information will be extremely important to shareholders in light of weaker lithium prices.
If updated cost guidance details don't emerge in the next few weeks, the next important announcement for Sayona Mining shares will arrive around the end of January. Investors should be able to get a glimpse into more recent economics of the miner as it posts its quarterly activities report.
The Sayona Mining share price is down 77% over the past year. Shares in the lithium miner are 5.7% lower today, now sitting at 5.8 cents a pop.
