A pure play lithium miner with cash and zero debt attracts Galaxy interest.
The salt flats of Chile, Bolivia and Argentina hold the bulk of the world’s supply of lithium. These stunningly beautiful salt flats form a region that has become known as the Lithium Triangle. The demand for lithium is expected to at least triple by 2025.
Australian based Galaxy Resources Limited (ASX: GXY) engages in the production of lithium concentrate, with their flagship project Sal de Vida (Salt of Life) located within the Lithium Triangle, in Argentina. The Company also holds 100% interest in both the Mt Cattlin lithium spodumene mine in Western Australia, and the James Bay lithium spodumene project in Quebec, Canada.
Sal de Vida
Sal de Vida (SDV) is one of the world’s largest and highest quality undeveloped lithium brine deposits with significant expansion potential. Galaxy controls 100% of the brine mineral rights covering more than 385 square km.
The Sal de Vida brines average about 780 mg/L lithium which is good. They also have potassium concentrations averaging around 0.87 mg/L potassium, with low sulfate and magnesium which is also advantageous (high magnesium content can increase the production costs of lithium carbonate).
In May 2018, an updated Feasibility Study (FS) was released supporting a low cost, long life lithium and potash operation. The updated FS estimated a post tax net present value (NPV) of US$1.48 Billion, with a post-tax IRR of 26.9%, over a 40 year mine life. Average annual revenue was estimated at US$360M and EBITDA at US$270M. CapEx was estimated at US$474M and ongoing expenses at US$3,144/t LCE. Clearly SDV economics are impressive and it looks like it will be a very profitable project. The planned development can use modular designs giving flexibility to add units to upscale the capacity of 25,000 tonnes per year of lithium carbonate and 95,000 tonnes of potassium chloride.
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Galaxy’s Q3 activities report
As of the 30th of September 2018 Galaxy had US$54.7M in cash and liquid securities and zero debt. In addition, a US$13.3M payment for a shipment completed in late September was received in early October.
During the past quarter, Galaxy entered into a binding agreement with POSCO to sell a package of tenements located on the northern area of the Salar del Hombre Muerto in Argentina, for a cash consideration of US$280M. In early October, POSCO transferred US$257M into the designated transaction escrow account at HSBC. These funds will be released to Galaxy upon receipt of the tenement transfer deeds which is expected to be released by the end of October 2018. Note that the sale of the northern tenements does not impact Galaxy’s NPV on Sal de Vida as they were not included.
Adding all the cash Galaxy will soon be at about US$348M, which goes a long way towards the US$474M to start Sal De Vida.
Mt Cattlin Spodumene Mine update
During Q3, the Galaxy commenced a 30,000 m drill program in support of exploration, resource and reserve development at Mt Cattlin. As the dry season in Western Australia approaches, exploration activities will include a further round of ground penetrating radar (GPR) west of Mt Cattlin and completion of ongoing geochemical sampling programs confirming earlier GPR work. An updated resource and reserve estimate is expected early in Q1, 2019.
James Bay Spodumene Project update
The James Bay lithium pegmatite project contains indicated resources of 40.3 million tonnes grading at 1.4% Li2O. The deposit occurs at surface and resource modeling indicates it is amenable to open pit extraction. There is excellent potential to increase the resources through additional delineation of the pegmatite dykes along strike and at depth and potential to increase grade through infill drilling. Galaxy is steadily progressing the project towards a Feasibility Study.
Galaxy Resources continue to give investors a lower risk, high reward, pure play lithium miner with an achievable pathway ahead which should significantly reward long term investors. Cash flow and reserves are excellent, and several near term catalysts exist. The big one would be a project partner or funding decision on Sal De Vida. Put simply, Galaxy is a great buy.
Matthew Bohlsen holds a Graduate Diploma in Applied Finance and Investment (similar to CFA), and a Graduate Diploma in Financial Planning. He has 30 years ... <Read more about Matthew Bohlsen>