Core Lithium Ltd (ASX: CXO) shares had a year to forget in 2023.
During the 12 months, the company's shares were the worst performers on the ASX 200 index with a disappointing 75% decline.
This was despite Core Lithium successfully transitioning from lithium developer to lithium miner and reporting a maiden profit.
Image source: Getty Images
Why were Core Lithium shares sold off?
Investors were hitting the sell button last year for a number of reasons.
One was its lofty valuation, which I warned investors about countless times here and here, for example.
Goldman Sachs had highlighted that the stock was trading well above peers at 1.5x net asset value despite having the lowest average operating free cash flow per tonne. This meant that when the bad news started to flow, Core Lithium's shares had much further to fall.
What was the bad news?
Where do we begin?
Perhaps the worst news was the state of lithium prices. With the price of the battery-making ingredient in freefall, sentiment in the industry was hit hard.
And rightfully so. Prices have fallen so much now that Core Lithium's margins have been squeezed to the point that it has suspended its underground development and warned that it could pause production to conserve cash.
And with many analysts tipping a lithium surplus for the next couple of years, it's hard to see lithium prices rising meaningfully in the near term. This may not bode well for its operations in 2024.
Also weighing on Core Lithium's shares last year was its highly dilutive capital raising and weaker-than-expected production guidance. Although the latter is largely insignificant now because of the above, investors were not happy when management revealed guidance well short of study estimates.
All in all, a very disappointing 12 months for investors. Hopefully 2024 will be kinder.
