Why did the Lake Resource share price sink 24% in February?

Businessman puts hand over eyes on a sinking boat in oceanBusinessman puts hand over eyes on a sinking boat in ocean

The Lake Resources N.L. (ASX: LKE) share price closed out the month of February down 24% to 63 cents.

In the first hour of trading on Wednesday, the ASX lithium stock is down 2.88% to 61 cents.

Let’s take a look at the factors putting a drag on the Lake Resources share price.

Why did the Lake Resources share price tumble so hard?

The primary issue is softening spot prices for lithium spodumene, carbonate, and hydroxide.

As my Fool colleague James points out, investors are probably worried that Lake Resources will miss out on what are still historically high prices by the time it actually starts producing lithium.

Lake Resources’ flagship Kachi Project is slated to start producing lithium in 2024.

The trouble with lithium prices is you could probably line up five brokers on one side who will tell you prices are going to fall, and five on the other side who will tell you they’re going to remain high.

Let’s compare the pair.

Goldman Sachs has a bearish outlook for lithium prices. Here are Goldman’s forecasts compared to today’s lithium commodity spot prices:

  • Lithium carbonate (per tonne)
    • Spot: US$55,167
    • 2023: US$53,300
    • 2024: US$11,000
    • 2025: US$11,000
  • Lithium hydroxide (per tonne)
    • Spot: US$75,400
    • 2023: US$58,650
    • 2024: US$12,500
    • 2025: US$12,500
  • Lithium spodumene (per tonne)
    • Spot: US$5,800
    • 2023: US$4,330
    • 2024: US$800
    • 2025: US$800

Now compare to the forecasts of fellow top broker Macquarie, which says lithium prices will remain “higher for longer“.

As my Fool colleague Monica reports, Macquarie analysts think restricted supply due to development delays and capex upgrades could support lithium prices at today’s comparatively high levels.

Ongoing short-seller attack

Lake Resources remains one of the most shorted ASX shares with 6.9% of its capital shorted by the pros.

Short-selling is where investors try to profit from a fall in the share price. They borrow the shares, then sell them, with the intention of buying them back later when they fall in value to make a profit.

It’s generally a strategy only available to professional traders.

US short-selling activist group J Capital is targeting Lake Resources because they don’t think Lake Resources can deliver what it says it can.

Specifically, they have doubts about the company’s technology and project funding.

The attack began in July last year. Lake Resources says J Capital “puts forth incorrect information on technical matters and inaccurate assertions … “.

J Capital released its latest investor report on Lake Resources in December.

The post Why did the Lake Resource share price sink 24% in February? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in Allkem and Core Lithium. 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.

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