Although the Core Lithium Ltd (ASX: CXO) share price was on fire in 2022, it could have been so much better.
As you can see below, the lithium developer's shares finished the year with a 74% gain despite losing almost half their value after peaking at $1.88 in November.
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Could the Core Lithium share price explode in 2023?
As covered here recently, Goldman Sachs believes the Core Lithium share price is trading at fair value now.
It recently initiated coverage on the company with a sell rating and $1.00 price target.
However, as part of its initiation, it listed a few items that could make it more positive. So, if these all fall into place, it's quite possible that Goldman Sachs would adjust its recommendation for the better, which could give the company's shares a very big boost.
What would make Goldman more positive?
The first thing that Goldman highlights is exploration at the Finniss lithium project. It said:
Expanding the existing resource base could support life extension/capacity increases at Finniss (particularly if relatively shallow), improving the earnings and valuation outlook for CXO.
In addition, while it seems unlikely in the current environment, Goldman concedes that an earlier than anticipated commencement of production and easing inflationary pressures could make it more positive. It explained:
Accelerated construction and commissioning could result in a bring-forward of revenues, lower operating costs or capex. Inflationary pressures could ease, limiting the escalation of operating costs with higher materials, freight, and labour rates, while lower-than-expected raw material prices would also lead to higher margins and earnings. Projects coming in ahead of budget on capex (/avoiding escalations) or at growth projects would also positively impact our valuation. Factors impacting operations and asset performance to the upside could also be positive to earnings and valuation.
Another big one is of course the price of lithium. Goldman is quite bearish on lithium prices. So, if its forecasts prove to be off the mark, it would impact its earnings estimates for the better. It said:
Changes in lithium demand/supply dynamics will impact lithium prices and our earnings, where stronger pricing would positively impact our earnings forecasts (though the development of alternative energy storage technologies could also pose a risk to lithium demand/pricing).
Finally, the broker would become more positive if Core looked at downstream processing. It adds:
The construction of a strategically located mid/downstream processing facility in Darwin could offer upside to earnings forecasts and valuation, while unallocated volume sales could be tolled through third converters to capture higher margins.
All in all, there's certainly potential for the Core Lithium share price to outperform in 2023. Time will tell if it does.
