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Goldman Sachs' three key themes for lithium in 2023

Fri 13 Jan 23, 3:28pm (AEST)
Electric car with lithium batteries plugged into charging station
Source: iStock

Key Points

  • Buy: Allkem (ASX:AKE)
  • Hold: Pilbara Minerals (ASX:PLS), IGO Limited (ASX:IGO) and Liontown (ASX:LTR)
  • Sell: Core Lithium (ASX:CXO)

For all you lithium bulls, strap yourselves in. 

Goldman Sachs (GS) is out with its latest lithium update, and it makes for interesting reading.

GS notes the hot start to the new year, with prices up around 15% after the market softened into the end of 2022. 

The GS team also highlight three key themes to watch over the next 12 months.

Three key themes

  1. The GS Commodity team “expect lithium prices through 1H 23 to reflect the near-term tightness and lagging spodumene contract price pass-through before declining over 2H23, where we note 2024 futures have continued to pull back”.  As an extension of that, GS expects the same earnings support for Australian lithium stocks over the coming 12-18 months on price lags, but expect lithium stock prices to more closely reflect commodity price movements in real time, as prices decline from record peaks. 

  2. Potential margin improvement is also on the cards for certain producers, notes GS. Moving downstream from spodumene into lithium chemicals offers a margin accretive opportunity for producers at the quality end of the spectrum – i.e. those with higher grade resources, longer life, and those with emerging uncontracted volumes.

  3. Furthermore, producers with low costs & growth optionality are best placed, with GS highlighting a preference for low-cost producers versus developers. Lithium asset base diversification is also appealing.

Buy

With all that in mind, Goldman Sachs identifies Allkem (ASX:AKE) as a BUY, noting optionality across the Americas and Australia growing lithium carbonate equivalent production more than 4x by FY27, and at a lower cost that its peers.

Hold

Pilbara Minerals (ASX:PLS), IGO Limited (ASX:IGO) and Liontown Resources (ASX:LTR) are all rated NEUTRAL by GS, nothing that whilst PLS and IGO have strong free cash flow and growth options, those factors are already priced in. 

Liontown, whilst cheap, carries construction and execution risk as they bring their Kathleen Valley project online, according to GS.

Sell

Finally, GS rates Core Lithium (ASX:CXO) as a SELL, noting that the price has run away from the fundamentals.

Core Lithium's six month charts
Core Lithium's six month charts

 

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Written By

Chris Conway

Managing Editor

Chris is the Managing Editor at Livewire Markets and Market Index. His passion is equity research, portfolio construction, and investment education. He is also very keen on the powerful processes that can help all investors identify great opportunities and outperform the market, and wants to bring them to life and share them with you.

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