Core Lithium shares have fallen more than 20 per cent after a strategic review was announced

Core Lithium shares have dropped sharply after it announced a strategic review, while Macquarie tips ongoing merger and acquisition action.

Core Lithium's Finniss project in the Northern Territory.

Core Lithium has announced a strategic review designed to cut costs in the face of plunging commodity prices, sending its shares sharply lower.

Meanwhile Macquarie has announced downgrades across the lithium on Friday morning, with Core, Liontown Resources, Global Lithium and Leo Lithium all trimmed from Outperform to Neutral.

Macquarie is also tipping further merger and acquisition action as companies seek to protect balance sheet strength and cut costs.

Core told the ASX on Friday morning that it had been undertaking a strategic review in the face of the plunging price of the lithium-bearing mineral spodumene, which had fallen 80 per cent year to date, and 40 per cent just since the end of October.

“The company has now been producing concentrates for 10 months and has seen improvement in mine productivity and plant performance over that period,’’ the company said.

“However, the current decline in the spodumene price has caused the company to investigate a range of options to lower costs and increase productivity.

“Options being considered include changes to the mining strategy and plan, such as prioritising ore mining and possible temporary curtailment of mining operations, commercial solutions and reductions in exploration and other discretionary expenditures.’’

Core said it had built up a stockpile of ore which could be processed over the Northern Territory’s wet season, but given the difficulties associated with mining and construction in the wet season, it had suspended early works at the BP33 underground expansion of its Finniss mine.

The early works program was costed at $40m-$50m and the company had been working towards making a final investment decision in the March quarter of 2024.

“The cost reductions and productivity improvements being targeted by the company are expected to reduce expenditures and operating costs; however, discussions with contractors and suppliers are not yet complete, so the amount of potential cost savings is unknown,’’ the company said.

“The company will provide an update on the cost-saving initiatives in the company’s quarterly report for the period ending 31 December, 2023 or prior in the event of any material developments.’’

Core shares dropped more than 20 per cent in early trade before recovering slightly to be 19.7 per cent lower at 26.5c.

The stock is well off its 12-month high of $1.27 and traded as high as $1.67 in October, 2023.

Macquarie had reduced its rating for Core before Friday’s announcement.

The Macquarie Commodities Team said in a note to clients it expected the lithium market to remain in surplus “for several years, before returning to deficit from 2027 as demand growth progressively outpaces supply growth’’.

“This translates to lower near-term prices offset by improved price outlook over the longer term.

“Spodumene prices have been reduced by 61-74 per cent in calendar year 24-26, reduced by 2-37 per cent in 27-28, and increased by 9-19 per cent in 29-30.

“Lithium carbonate prices have been lowered by 44-71 per cent in 24-28, and upgraded by 12-15 per cent in 29-30.

“Similarly, lithium hydroxide prices have been cut by 63-73 per cent in 24-26, reduced

by 16-44 per cent in 27-28, and uplifted by 10-12 per cent in 29-30.’’

Given the near-term headwinds, Macquarie said balance sheet strength was key, with Pilbara Minerals well-placed to weather the volatility, while IGO’s cash position was highly dependent on the capital cost profile at its Cosmos project in Western Australia.

“While lithium prices were subdued, upstream lithium consolidation accelerated in the past few months,’’ Macquarie said.

“We expect M&A transactions to continue as strategic investors tend to look past the near term price trough, against the backdrop of vehicle electrification.

“Business combination could take place at both the asset level and holding company level, in our view.’’

Pilbara Minerals was Macquarie’s preferred producer while Patriot Battery Metals was its exploration pick with “the greatest upside on exploration over the near-term’’.

Originally published as Core Lithium shares have fallen more than 20 per cent after a strategic review was announced