Buy one, sell the other: Goldman's verdict on these 2 ASX lithium shares

The broker says lithium prices will not bottom until 2025. Here's what you should do in the meantime.

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ASX lithium share prices remain volatile this year despite lithium commodity prices stabilising somewhat amid the ongoing surplus supply of lithium for electric vehicle (EV) battery manufacturers.

The lithium carbonate price began the year at US$13,384 per tonne. Today, it's fetching US$14,579.48 per tonne, up 8.9% since January. The highest price it has reached this year is US$15,995 per tonne in March.

What's happening with lithium prices?

Trading Economics says the EV industry is still working through battery gluts across the supply chain.

However, Chinese lithium producers have continued to expand capacity and look for new reserves, which has raised expectations of continuing surplus supplies.

According to Trading Economics:

… hopes that the market will eventually balance out drove Chile [to] set plans to double output for the world's second-largest producer over the next decade.

Such developments follow cuts in battery prices as EV producers continued to take advantage of high inventories of input materials and finished product from extensive subsidies from Beijing in 2022.

Top broker Goldman Sachs predicts that lithium prices will not bottom till 2025.

For example, the broker thinks the carbonate price will average US$11,106 per tonne in 2024, down from an average of US$32,694 in 2023. It tips a further weakening to an average of US$11,000 per tonne in 2025.

Goldman says lithium prices will turn around in 2026, with the average rising to US$13,323 per tonne and then reaching US$15,646 per tonne in 2027.

With all of this in the background, Goldman Sachs recommends the following action on these two ASX lithium shares.

Which ASX lithium share is a buy?

Goldman has a buy rating on ASX lithium and nickel share IGO Ltd (ASX: IGO) and a 12-month share price target of $8.10.

The IGO share price is currently $7.87, down 2.11% on Tuesday and down 47.1% over the past 12 months.

Goldman analyst Hugo Nicolaci said:

We rate IGO as Buy, where on valuation IGO is trading on 0.95x net asset value (NAV) and pricing ~US$1,100/t spodumene, at a discount to peers (~1.2x NAV and ~US$1,300/t), with near-term FCF yields remaining >5% and attractive vs. peers (<0% on average) and supporting ahead of peer returns.

The broker noted that IGO's Greenbushes mine is the lowest-cost lithium asset among the ASX lithium shares it monitors. It says production growth more than offsets the increasing strip ratio.

IGO owns 49% of Greenbushes and joint venture partner Tianqi Lithium Corp owns 51%.

The broker said IGO's nickel business would likely decline without further developments or mergers and acquisitions activity.

The broker added:

We expect largely continued growth in net cash, with liquidity stable above the A$1bn threshold for excess capital management payouts from 2H FY25.

Why is this lithium stock a sell?

Goldman has a sell rating on ASX lithium junior Core Lithium Ltd (ASX: CXO) with a share price target of 11 cents. The Core Lithium share price is 15 cents, down 1.94% now and down 86% over the past year.

Nicolaci said the broker rated Core Lithium shares a sell for three main reasons.

The first is valuation, with Core Lithium looking "relatively expensive" trading at a premium of about 1.1x its NAV and an implied LT spodumene price of about US$1,200 per tonne. This compares to a peer average of about 1.05x NAV and about US$1,250 per tonne.

The second is ongoing risks to the timing of its production restart and the lesser likelihood of funding its BP33 exploration from cash flow due to weak declining lithium prices.

Lastly, the broker noted that further exploration activities underway may result in an expanded resource base. However, the development of any discoveries is likely a ways off.

Motley Fool contributor Bronwyn Allen has positions in Core Lithium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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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