Galaxy Resources – Achieving Lithium Liftoff
As may be remembered we divided the Lithium world into various generations some while back. There was the Lithium 1.0 world of Neometals, Talison, Galaxy, Orocobre and Nemaska and then the Lithium 2.0 group of rising entrants that appeared in 2016. We also declared 2017 to be the lost year in Lithium. Months have gone by and nothing has happened to change our mind on the “lost year” thesis as valuations still largely remain near 18 month lows for many players from both “generations”.
While the market torpor has impinged upon the movements and progress of the industry’s wannabes those that are already advanced from the first generation either are in production, are fully funded or have firm offtakers. Galaxy Resources Limited (ASX: GXY) (Galaxy) is amongst those showing rising production numbers and should shortly be showing a positive bottom line. In this piece I shall look at progress in recent times.
Galaxy has gone full circle. It was the outlier hard rock Lithium story at the start of the Lithium boom with its focus being the Mt Cattlin spodumene deposit in Western Australia when everyone else was off chasing LatAm salares. After bringing that to production, then focusing on the downstream with a processing plant in China, then disposing of that plant and then refocussing on the Australian mine, it has parallel processed an Argentine salar in recent years and that has now moved into poll position in its list of foci.
Nevertheless with its burgeoning production from Mt Cattlin and now its evolving Latin brine focus, Galaxy is one of the few listed companies we can think of (though Talison used to be an example) that straddles the two types of mineralisation (and the two continents). Clearly it hopes the ultimate outcome will be as profitable for shareholders as the ultimate fate of Talison.
Mt Cattlin – on the Move Again
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When first mooted the Mt Cattlin project was aiming to produce 137,000 tonnes of 6% spodumene concentrate per annum. The mine also has a Tantalum by-product credit which was expected to be 56,000 lbs per annum of Tantalum Oxide if production reached the aforementioned spodumene tonnages. In its current manifestation the target is 160,000 tonnes per annum of 5.5% spodumene concentrate with a goal of getting to the 6% grade. We have not seen much lately on the strategy regarding the Tantalum component.
For a couple of years Mt Cattlin was mothballed. It was for a brief period the “other” Australian Lithium producer from spodumene with the “big” producer being the Greenbushes mine, which was owned by Talison, until that company was taken over for around $760mn by a consortium of the Chinese producer, Tianqi, and Rockwood (now Albemarle).
As for Mt Cattlin, the comparative cross-sections below are a good visualisation.
Greenbushes is the long-producing property of Talison and is the most problematical property logistically but is compensated with a good grade. Neometals’ Mt Marion has the advantage of a minimal strip ratio and a grade that is double Mt Cattlin’s. Strip ratios for the Mt Marion deposits range from 1:1 to 2:1. Meanwhile Mt Cattlin has the Tantalum credits.
All long lead items required for the restart were ordered in late December 2015, with the 2016 production timeline comprising:
- Fines circuit commissioning – late March 2016
- Coarse circuit commissioning – late June 2016
- First export of concentrate – estimated July 2016
- Plant optimisation process – completed December 2016
The completed plant can be seen below:
The first shipment of product left port in the first days of January of this year.
In October of 2016 it was announced that Mitsubishi would buy 100% of the spodumene output of Mt Cattlin and Mitsubishi did indeed buy the first shipment. The March quarterly statement announced that Galaxy had signed binding agreements with Chinese offtakers for 120,000 tpa during the December quarter, which seemingly gazumped the Mitsubishi transaction. In the June quarterly report the company reported that it has satisfied all offtake supply obligations from 2016 priced at US$600 per tonne and that henceforth the 2017 pricing terms would kick in at a much more lucrative $830 per tonne for 5.5% lithium concentrate (rising to $905 per tonne for 6% concentrate).
Output is ramping up nicely at Mt Cattlin. Production still has to hit higher targets though as forecast production was supposed to be 160,000 tonnes of spodumene in FY17 and it stands at around one third of that level, halfway through the year. An undershoot seems probable but nevertheless Galaxy is now a world-ranking producer and on the way towards meeting its targeted run-rate in the first half of 2018.
With volumes rising and the low priced initial offtake satisfied and replaced by the more lucrative contracts at a price a full third higher the revenues should expand substantially in the second half of FY17 as well as margins widening out. Here are the financial for the recent past and some projections looking forward.
Cementing its reputation as a reliable producer should be key in Galaxy negotiating higher its prices in coming years and hopefully bettering these projections.
Galaxy was “first in, best dressed” in the Lithium space and learnt the lessons before many of the others. At least from the outside it appears a lesson to learn is to be wary of “Chinese bearing gifts”. Fortunately Galaxy eventually succeeded in escaping from that relationship and managed to get the “money and the house” in the form of the Mt Cattlin asset plus the cash to get it finally into production.
With product churning out at an increasing rate, Galaxy and its near- and distant-neighbours in Western Australia have put spodumene back into contention in the Lithium race when it looked in 2010 as if salares would conquer the world. With Tianqi and Ganfeng having got their grips on the two other main deposits, Galaxy looks ripe for the “Empire Strikes Back” and a Japanese move to defend territory against Chinese encroachment, dare we say, domination. Galaxy with Mt Cattlin and the advancing Salar de Vida project in Argentina looks like prime takeover fodder in the game of international Lithium chess currently being played.
Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>