After crashing deep into the red over the past 12 months, Core Lithium Ltd (ASX: CXO) shares could now be close to their bottom.
That's the view of analysts at Goldman Sachs, which have just taken their sell rating off the lithium miner's shares.
What is Goldman Sachs saying about Core Lithium shares?
Goldman has been tipping Core Lithium as a sell for some time. And with its shares losing 90% of their value since this time last year, it certainly would have paid to listen to the broker.
And while its analysts are becoming a little more upbeat on the lithium miner, this shouldn't necessarily be interpreted as a signal to buy.
According to a note from earlier this week, the broker has upgraded Core Lithium's shares to a neutral rating with an 8 cents price target.
This price target is still a sizeable 20% below where its shares currently trade because of some solid gains this week in response to a couple of promising updates.
Why did the broker upgrade its shares?
Goldman believes that the company's restart risk is now priced in and highlights its strong cash balance. It said:
While we still expect developers to underperform ramped up producers into the declining lithium price environment, we upgrade CXO to Neutral on valuation, with ongoing production restart risk now more priced in at 1.1x NAV (peers 0.8-1.0x NAV) or pricing ~US$1,170/t LT spodumene, and ~40% of CXO's market cap now in cash on hand (with no debt) potentially partially mitigating exposure to falling lithium prices.
Since we added CXO to the Sell list on 20 Nov 2023, the CXO share price has fallen ~76%, underperforming ASX lithium peers and spodumene/ carbonate/ hydroxide prices down 15-30% over the same period, with the ASX 200 up +11%. We update our valuation methodology to 100% NAV (from 75% NAV, 25% EV/EBITDA multiple), with a return to production and cashflow unlikely in the near-term, in our view, and lower our PT to A$0.08/sh.
The broker also highlights that there is reason to be optimistic from Core Lithium's exploration activities. Though, it concedes that any real benefits from this are unlikely to be realised in the immediate term. It adds:
Though further exploration is underway, and while potential resource expansion could be promising (including revisiting the gold, uranium and base metal exploration projects), with resource extension likely at depth/from new areas, we see limited near-term upside (particularly as new projects likely require additional funding), where further meaningful 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.
In light of the above, Goldman thinks investors should keep their powder dry for the time being.
