Core Lithium Ltd (ASX: CXO) shares have been sold off over the last 12 months.
During this period, the lithium miner's shares have lost a very disappointing 80% of their value.
There have been a number of reasons why investors have been hitting the sell button. But the key drivers have been falling lithium prices and the suspension of production.
And while you might be hoping that Core Lithium's shares have now bottomed following such a sharp decline, this may not be the case.
For example, Goldman Sachs recently named three reasons why its thinks investors should be selling the lithium stock rather than buying it.
3 reasons to sell Core Lithium shares
The first reason is its valuation, which remains higher than peers despite its fall from grace. Goldman explains:
CXO appears relatively expensive trading at a premium on ~1.5x NAV (peer average ~1.15x) and an implied LT spodumene price of ~US$1,330/t (peer average ~US$1,315/t), with the lowest average operating FCF/t LCE on a more moderated/deferred production restart/ramp up.
Another reason is the potential for the mining suspension to continue longer than expected. It adds:
We continue to see production risk (in a steady state operation) as the Finniss project moves through ramp up on project complexity (moving between different open pits and underground configurations), though in the current pricing environment see risk that restarting mining at the Grants pit / processing operations is less likely near-term with the mining contract terminated and notice given on the processing contract, increasing the risk of a longer gap in production.
The third and final reason is its belief that exploration activities aren't going to deliver any short term upside. The broker concludes:
Though further exploration is underway (including revisiting the gold, uranium and base metal exploration projects), and while potential resource expansion could be promising, with resource extension likely at depth/from new areas, we see limited near-term upside, where further exploration is now also likely longer dated on falling lithium prices, particularly with a near-term restart of the operation now unlikely in the near-term.
Potential downside
Goldman Sachs has a sell rating and 13 cents price target on the company's shares.
This implies potential downside of 16% for investors over the next 12 months.
