Will FY25 be kinder to Core Lithium shares?
A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
It is fair to say that the 2024 financial year was not kind to Core Lithium Ltd (ASX: CXO) shares.
During the 12 months, the lithium miner's shares lost approximately 90% of their value.
Will things be better for shareholders in the new financial year? Let's have a look and see.
What happened in FY24?
Firstly, it is worth addressing that humongous decline over the past 12 months.
This was driven by significant weakness in lithium prices.
In 2022, lithium carbonate averaged a price of US$63,232 a tonne and lithium spodumene (6%) averaged US$4,368 a tonne. Then in 2023, these battery making ingredients averaged US$32,694 a tonne and US$3,712 a tonne, respectively. These high prices were underpinned by insatiable demand and supply shortages.
However, these high prices also meant that many companies raced to get new mines operational to profit from this strong demand. And given that there is no shortage of untapped lithium out there in the world, it didn't take long for supply to catch up and go from a deficit to a surplus.
Unfortunately, this means that current spot prices (in China) are now US$11,167 a tonne for lithium carbonate and US$1,060 a tonne for spodumene 6%.
At these prices, many mines that were forecast to be highly profitable are now loss-making and burning through cash reserves. Core Lithium's Finniss operation was one of them.
So much so, the company suspended mining activities and stood down its mining team at the start of the year. And while Core Lithium has been processing stockpiles, this was only expected to last until the middle of the year (i.e. now), which means its only source of income will soon be drying up.
Outlook for Core Lithium shares in FY 2025
There's no doubt that Core Lithium shares would be classed as dirt cheap if lithium prices were at levels that made its Finniss operation profitable.
However, many analysts believe that lithium prices will remain around current levels for several years. This could potentially mean that there is no mining at Finniss until later in the decade, if at all.
In light of this, as far as lithium is concerned, there appears to be no reason to expect a re-rating of Core Lithium shares over the next 12 months.
But it is worth noting that the company is looking beyond lithium and at other metals. In March, management revealed that its 2024 exploration activities will focus on unlocking value in its regional uranium and gold targets in the Northern Territory and South Australia.
Given how uranium and gold are experiencing very strong prices right now, it could give the company's shares a major boost if it can find a significant deposit.
As a result, investors may want to keep an eye on its exploration activities in FY 2025.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.