Core Lithium shares tumble 10%, production and costs fall short

Core Lithium (ASX: CXO) missed almost every single analyst metric for the June quarter, with underwhelming lithium recoveries, higher-than-expected costs and lower-than-expected production. The stock opened 10% lower to 76.5 cents as the market opened on Monday.

For the quarter, Core produced 14,685 tonnes of spodumene at grades between 5.35% to 5.6% at a C1 unit cost of $902 a tonne. More importantly, the company guided to FY24 spodumene production of 80,000 to 90,000 tonnes at $1,165 to $1,250 a tonne.

Core also hosed down expectations of a near-term production recovery, with the view that “overall production in FY25 is expected to be below FY24 due to a currently anticipated three-month gap in ore supply from the mine and processing plant capacity constraints.” 

“Production forecasts are lower than what was anticipated in the July 2021 Definitive Feasibility Study and cost expectations are higher,” said Chief Executive Officer Gareth Manderson.

“Following this review, we are working through a suite of improvement projects to drive Finniss operating performance to deliver higher mining rates, improve lithia recoveries and commercialise the fines products,” he added.

For perspective, Citi analysts expected FY24 production volumes of 134,000 tonnes (SC5.8%) at cash costs of $820 a tonne. At the midpoint, production is 37% below expectations and costs are 47% higher.

The Citi report from 12 July was SELL rated on Core Lithium with an $0.80 target price.

Core Lithium 12-month price chart (Source: Market Index)

The second most shorted stock

Core Lithium has a 9.95% short base as at 17 July, making it the second most shorted stock on the ASX.

Here’s the main thought that comes to mind about Core’s short base: When a highly shorted stock gaps down, would shorters use this as an opportunity to cover (aka take profits) and if so, does this dynamic provide some near-term relief for the stock? 

Lithium stocks smashed

It’s a sea of red for local lithium stocks. Most stocks gapped down and continued to sink heading into afternoon trade.

Performance as at 11:30 am AEST on Monday, 24 July (Source: Market Index)

Last Friday,  China debuted its first ever lithium futures on the Guangzhou Futures Exchange. Contracts for January 2023 delivery fell more than 10% to lows of 214,150 yuan a tonne, according to Bloomberg. 

“Sentiment is now tempered by an anticipated surplus for lithium products in 2024,” said Shirley Wang, General Manager at the Shanghai Metals Market.