After a heavy selloff in FY 2024, several ASX lithium shares are starting to show sprouts of green.
One major catalyst for the sector's underperformance is the price of lithium, with the battery metal down heavily last financial year. It had plunged more than 70% to CNY90,500 per tonne at the time of writing.
Now, with heavily compressed stock prices in the sector, brokers have identified three ASX lithium shares with potentially compelling catalysts.
Let's dive into why these lithium shares are gaining traction and what brokers suggest for their future.
Core Lithium Ltd (ASX: CXO)
Core Lithium shares have jumped more than 20% this past week and are now trading at 11 cents per share. The ASX lithium share caught a strong bid on Thursday after a company announcement.
The update said Core Lithium has initiated reverse circulation (RC) drilling at its Shoobridge Project in the Northern Territory. This is part of its FY25 exploration program.
While the site potentially contains lithium-containing pegmatites, it is also prospective for gold, uranium, and other base metals. Given the recent prices of some of these metals, this could potentially add more value.
Broker Goldman Sachs is more bullish on the ASX lithium share after its review of the sector. In a recent note, it stated:
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).
It also says that approximately 40% of the company's market capitalisation at the time of reporting was "now in cash on hand (with no debt), potentially partially mitigating exposure to falling lithium prices."
IGO Ltd (ASX: IGO)
IGO closed on Friday at $6.07 apiece and is one ASX lithium share that has lifted 3% into the green this week. Aside from its nickel-copper-cobalt assets in Western Australia, IGO is also a major lithium player.
It has a large stake in the Greenbushes lithium mine, one of the world's most largest hard-rock lithium mine.
IGO shares were heavily sold in FY24, with the stock plunging from highs of $16.12 per share in July last year. Shares are down 32% in the past 12 months.
Despite this, Goldman Sachs has a buy rating on the ASX lithium share with a $7.15 price target. This implies around 17% potential upside at the time of writing.
It views "a widening discount" that supports its "relative preference for IGO", adding:
With Greenbushes expansion (and opportunity for value optimisation) and JV balance sheet risks overdone, with the AISC of Greenbushes well below peers. For recently initiated ALTM/LTM, we see current discounts (~0.75x NAV) as fair and in part representative of upcoming growth/ execution risk with >60% of CY30E raw material production yet to be built/ramped up.
IGO is rated a hold by consensus, according to CommSec.
Liontown Resources Ltd (ASX: LTR)
Liontown Resources are up by more than 9% this week. The company's Kathleen Valley Lithium Project is nearing production, marking a critical shift from development to mining.
This is the ASX lithium share's flagship asset, with first production expected soon.
Liontown recently secured a US$250 million convertible note agreement with LG Energy Solution to fund Kathleen Valley's development. This funding boosts the company's cash reserves to around A$501 million, giving it stable footing for the prospective operations at the site.
Analysts have mixed views, but Bell Potter maintains a speculative buy rating with a $1.85 price target on the ASX lithium share. The broker praised the funding arrangement with LG, and eagerly awaits production at Kathleen Valley.
Goldman Sachs, however, holds a neutral view. Despite this, it has a $1.15 price target on the stock, implying around 15% upside from the current market price.
It says the projected Liontown's revenue could reach $1.46 billion by FY29, with a significant profit increase if production ramps up as planned.
ASX lithium shares takeaway
ASX lithium shares may have found a bottom after a turbulent FY24. Whether these stocks will flourish this year is yet to be seen. Nevertheless, the analysts appear to think the worst is over.
As always, it's wise to conduct your own due diligence before investing.
