Sayona Mining Ltd (ASX: SYA) shares have been on a downward spiral, down more than 54% this year to date.
If you had bought the ASX lithium stock 12 months ago, you would be at an 87% disadvantage compared to the S&P/ASX 200 Index (ASX: XJO).
At the time of writing, Sayona shares are fetching 3.3 cents apiece. Meanwhile, the price of lithium is at CNY85,500 per tonne, more than 85% below its all-time high of November 2022.
With this continued sell-off, one might wonder if there's any hope for a rebound in FY 2025.
What's up with Sayona Mining shares?
Throughout FY 2024, Sayona Mining shares were under constant pressure despite reporting several high-grade drilling results.
The primary culprit behind this downtrend? Falling lithium prices.
As noted earlier, lithium carbonate is down 85% from its record highs, a sharp contrast from the enormous rally we observed from January 2021 to 2023.
Over this period, lithium prices surged more than 1,180% from trough to peak in 2022. But with several macroeconomic headwinds in play, demand has slowed, and the battery metal has given back just about all of these gains.
This price drop significantly impacted Sayona's financials, as evidenced by its half-yearly results.
For H1 F24, it reported revenue of $118 million but ended the period with a $32 million loss after tax, which wasn't positive for Sayona Mining shares.
The company's quarterly update in April highlighted the financial strain further. It had sold 142% more concentrate volume than the prior corresponding period.
The only problem was that it was sold at a 34% per tonne discount to what it cost to produce the concentrate.
It realised an average selling price of just under $1,000 per dry metric tonne (dmt), but the cost to produce the concentrate was $1,536 per dmt.
Consequently, it burnt through cash during that period. Cash on hand dwindled from $158 million at the end of CY 2023 to under $100 million by the end of Q1 CY 2024.
Can Sayona shares rebound?
The selling pressure hasn't eased for the miner. Entering the year, Sayona Mining shares were in a sharp downtrend and are down more than 7% in the past month.
Lithium prices, which many analysts predict will remain subdued for the time being, will be the critical factor influencing Sayona's performance.
Because lithium is a commodity, the market sets the price, and those producing the battery metal are price takers. Profits are often determined by factors of capacity or market pricing. As such, Sayona cannot do much about the situation except secure more offtake agreements.
However, some industry experts are more optimistic.
According to my colleague Bernd, Janus Henderson suggests that lithium prices could surprise on the upside by the end of 2024.
If this bullish forecast materialises, I believe that Sayona Mining shares could rally.
Interestingly, according to CommSec, consensus rates Sayona Mining shares a buy. Perhaps they see something we don't?
What about short sellers?
Sayona Mining shares have also been a favourite among short sellers, with short interest increasing to 9.8% at the start of this week.
Short sellers profit from falling share prices by borrowing shares to sell at the current price and buying them back later at a lower price. The high short interest suggests that many investors expect Sayona's woes to continue.
The main reason for this pessimism is the forecasted surplus in lithium supply, according to my colleague James. This could keep prices low for the foreseeable future.
But if there's zero recovery in lithium prices, or if there are no positive catalysts for the company, it's difficult to see where the Sayona share price heads from here.
One of the primary risks in owning ASX resources stocks is the cyclicality of earnings, cash flows, and, therefore, share prices.
Foolish takeaway
Sayona Mining shares have had a rough ride, with significant financial challenges stemming from low lithium prices and high production costs.
But there is no verdict on where the stock heads from here.
While there's some optimism about a potential rebound in lithium prices, the road ahead remains uncertain. Despite this, consensus rates it a buy. My view is this large divergence in opinion to reality could be a risk factor.
In any case, you should always consider your own risk tolerances and seek professional advice when needed before any investment decisions.
