Monsters of Rock: Lithium's grim reaper strikes one last time in 2022

Lithium stocks dive as Goldman Sachs initiates coverage on $60 billion ASX lithium sector
Core Lithium worst hit after being slapped with sell recommendation
Chalice Mining shares soar on Julimar drill hits

Lithium stocks are being met with ghosts of bear markets past, present and future in the lead up to Christmas, with their arch-nemesis Goldman Sachs taking one last parting shot at the booming battery metals sector for 2022.

Goldman, whose global commodity team famously tanked lithium stocks with a bearish note on 2023 and 2024 prices back in May (before they rebounded to record highs), has initiated coverage on a swathe of ASX listed miners today.

Regardless of whether they are wrong or right — which of course they could well be one day as Chris Ellison sarcastically noted at the Mineral Resources (ASX:MIN) AGM last month — is sure to inspire murmurs of discontent from retail investors wedded to the EV thematic that has sent lithium prices charging in 2022.

The recent word from GS’ global commodity forecasters is the pullback in lithium carbonate prices in 2023 from current levels of ~US$70-80,000/t (depending on which price agency you trust) will be far less severe than it previously predicted.

A sustained rally in EV demand and lithium pricing has seen that number revised from US$16,372/t LCE to a more impressive US$53,300/t. They still see a sharp reprice to US$11,000/t “on the supply demand outlook”.

Cue tomatoes from the pits.

Australian analyst Hugo Nicolaci, Paul Young and Caleb Heiner said in a note the $60 billion ASX lithium sector — four times larger than it was two years ago — will see earnings support for 12-18 months on price lags but “expect lithium stock prices to fall as lithium prices decline from record peaks.”

Core Lithium (ASX:CXO) has borne the biggest brunt of the investor sell-off, falling almost 10% after it copped a sell recommendation from GS.

Nicolaci, Young and Heiner say it has run ahead of fundamentals with the market pricing in a US$2400/t long term spodumene price for the $2.2 billion capped NT miner.

Buy Allkem, Sell CXO

GS think there is 23% downside on CXO’s $1.30 December 6 closing price, slapping a 12 month price target of $1 on the stock.

Kathleen Valley developer Liontown (ASX:LTR) has 16% downside to its December 6 price of $1.97 at a 12 month price target of $1.65, but is still rated a neutral recommendation.

Goldman sees 7% and 2% downside to IGO (ASX:IGO) and Pilbara Minerals’ (ASX:PLS) recent prices at targets of $14.40 and $4.50 respectively, but they remain bullish on Allkem (ASX:AKE) and MinRes, with 9% and 5% upside respectively at price targets of $15.20 and $94.

Nicolaci, Young and Heiner say companies which offer a transition downstream from spodumene production to chemical processing will offer better margins and outperform, favouring ‘low cost producers with quality resources’ over developers.

“On this basis we prefer Allkem (Buy) with optionality across the Americas and Australia growing equity LCE production >4x by FY27E and at a discount to peers,” they said.

On the positive side, GS notes Australian lithium equities trade at a discount to their North American listed peers.

“While our ratings are relative to our Australian coverage, we highlight the broader upside risk to the Australian names if they re-rate more in line with global peers,” they said.

Lithium crew share prices today:

What is happening in lithium prices right about now

With November done and dusted, lithium pricing in the real world has defied bearish rumours according to Benchmark Minerals Intelligence.

As Jess Cummins reports over at Eye on Lithium:

“Lithium prices in China continued to climb in the first half of November before stabilising in the latter half, as rumours swirled that downstream battery supply chain players would limit production for the rest of 2022,” she wrote.

“This resulted in an overall (and still very respectable) 4.9% month-on-month increase in Benchmark Mineral Intelligence’s Lithium Price Index.

“Lithium carbonate prices averaged US$68,114/t ($101,517/t) in November, up 4.3% from the previous month, while lithium hydroxide retained a small premium with an average weighted price of US$71,565/t – a 5.8% increase.

“Spodumene recorded the biggest increase in value, soaring 15.1% to US$5,903/t.”

Over in the markets today it has to be said other large cap miners along with lithium, sans gold stocks, are pretty down, with the materials sector off 0.69%.

Leading the pack is Chalice Mining (ASX:CHN), which rose 13.11% after striking PGM rich sulphide mineralisation in five reconnaissance drill holes over a 1.8km strike at the Hooley prospect under the Julimar State Forest.

The intercepts sit around 5km north of the Gonneville deposit, which sits on private farmland outside the Julimar forest boundary and was announced by Chalice last year as the largest nickel sulphide discovery in two decades and first major PGM deposit found in Australia.