Why is the Lake Resources share price sinking again and down 47% since 1 March?

This lithium stock has been sold off this month. But why?

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The Lake Resources N.L. (ASX: LKE) share price is having another day to forget.

At the time of writing, the lithium developer's shares are down 14% to a new multi-year low of 7.2 cents.

This means that its shares are down 47% since the close of play on 1 March.

Why is the Lake Resources share price sinking?

Today's decline has been driven by a selloff in the lithium industry, which has seen most ASX lithium shares sink deep into the red today.

Here's a quick summary of some of the declines:

  • Core Lithium Ltd (ASX: CXO) shares have dropped 4%
  • Liontown Resources Ltd (ASX: LTR) shares are down 7%
  • Pilbara Minerals Ltd (ASX: PLS) shares have tumbled 5%
  • Sayona Mining Ltd (ASX: SYA) shares are down 4.5%

This follows declines on Wall Street for lithium miners in response to a hotter than expected inflation reading, which reduced the chances of a rate hike in the near term. Investors may believe that electric vehicle demand will remain subdued until rates ease.

What else is weighing on its shares?

Investors have also been selling the company's shares this month after it announced yet another capital raising.

Lake Resources received firm commitments to raise $15 million at 7 cents per new share. This was a significant 39.1% discount to where the Lake Resources share price traded at the time.

The company explained that it was raising funds while it seeks to find a partner for its Kachi lithium project in Argentina. It said:

The Offer enhances Lake's balance sheet by providing additional working capital and financial flexibility during the strategic partnership selection process for Kachi. Lake is actively conducting outreach to a wide array of potential strategic partners including car and battery manufacturers, lithium producers, oil and gas companies, sovereign wealth funds and private equity. The strategic partnership process is scheduled to conclude in the second half of the year.

This process may not be as easy as you think based on the scoping study for the project. As I outline here, based on realistic lithium price assumptions, the project looks unlikely to offer a return that is sufficient to justify its construction.

In light of this, Lake Resources arguably needs a big rebound in lithium prices this year more than any other ASX lithium stock.

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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