Several ASX lithium shares, including Core Lithium Ltd (ASX: CXO), felt the brunt of a blow dispensed by Macquarie yesterday.
Analysts at Macquarie have doused cold water on the recent lithium reignition with its updated commentary. The sector had been relishing in a rally following Rio Tinto Ltd (ASX: RIO)'s deal to acquire Arcadium Lithium (ASX: LTM) at a 90% premium to the lithium producer's previous closing price.
Rather than seeing the sector's renewed embrace as a time to buy, Macquarie is taking the polar opposite view on a handful of major lithium names.
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A rally riding on hope
Yesterday, Macquarie chopped down its ratings on the following ASX lithium shares:
- Atlantic Lithium Ltd (ASX: A11) shares cut to neutral
- Liontown Resources Ltd (ASX: LTR) shares cut to underperform
- Piedmont Lithium Inc (ASX: PLL) shares cut to underperform
- Global Lithium Resources Ltd (ASX: GL1) shares cut to underperform
- Core Lithium shares cut to underperform
As you might imagine, the response was negative.
Core Lithium's share price slumped 8.7% amid Macquarie's verdict. Today, however, the market appears more optimistic. Core Lithium shares are up 2.3% at the time of writing, accompanied by other gaining lithium producers such as Pilbara Minerals Ltd (ASX: PLS), IGO Ltd (ASX: IGO), and Liontown Resources.
Funnily enough, a different team of analysts believes this could be just the beginning of a green streak. In a report of its own, Sydney-based investment advisors E&P say, "[…] one more M&A deal in the lithium sector would light up equities".
The bullish stance runs counter to the extreme levels of short interest across ASX lithium shares. As my colleague James Mickleboro covered, three of the 10 most shorted ASX shares this week are lithium developers/producers.
Why the pressure is on Core Lithium shares
As shown in the chart below, shares in Core Lithium are among the hardest hit during this lithium downturn.
Part of the heightened pessimism towards the Finniss project operator could be its financial position. In FY24, Core posted a negative free cash flow of $165.2 million on $189.5 million of revenue. As a result, measures have been taken to preserve its cash balance.
At the end of June 2024, the company held $87.6 million in cash and no debt. Still, it is significantly less cashed up than some of its peers, such as Pilbara Minerals.
