The ASX 200 stocks hit with the biggest broker downgrades last week: Core Lithium, Sayona

Core Lithium (ASX: CXO) suspended mining operations last week and warned of a significant asset write-down as the collapse in lithium prices takes a massive toll on marginal producers.

Spodumene prices have more than halved since early December, down to US$1,037 a tonne, according to the Shanghai Metals Market. Pricing agency Fastmarkets is quoting spodumene concentrate prices of around the US$950 a tonne level.

A year ago, lithium producers were raking in cash as spodumene prices soared to above US$8,000 a tonne. Now, prices have plummeted, squeezing even some of the biggest producers.

The Biggest Broker Downgrades

'Target price' is an aggregate of Refinitiv broker target prices. % Dif compares target prices between 8 December 2023 and 5 January 2024

A few takeaways and observations from the Core Lithium situation:

• Core Lithium shares are down a further 16.5% to 19 cents on Monday. The stock is now 89.7% off its November 2022 peak of $1.87. No offence but the stock looks no different to that of Zip (ASX: ZIP)

• The announcement effectively says the project is going into care and maintenance (C&M) without explicitly saying its going into care and maintenance

• Lithium prices peaked in November 2022 but Core's 4Q22, 1Q23 and 2Q23 reports noted operating cash inflows of -$8.6m, $8.4m and $94.7m respectively. All that for just one solid quarter

• Production costs for Core have been volatile, ranging from A$2,386 to A$1,691 a tonne in the last three quarters vs. current spodumene prices of ~US$1,000 a tonne (A$1,550)

• If Core's Finniss Project is unprofitable and going into C&M – What's going to happen to other marginal producers like Sayona Mining (ASX: SYA) and Piedmont Lithium (ASX: PLL) as well names like Liontown (ASX: LTR) and Arcadium Lithium's (ASX: LTM) Mt Cattlin Project

• For context, Liontown completed the Kathleen Valley Definitive Feasibility study back in November 2021. The study forecasted 10-year average cash costs of A$651 (~US$430) a tonne. I wonder what the cost profile looks like after two years and a whole lot of inflation