Cashed up from the POSCO sale – what’s next for Galaxy Resources?
Lithium is 3rd element in the periodic table and the lightest solid element. It is a small soft silver grey metal perfectly suited for use as a super light electrolyte (conducts electrical current). The lithium-ion battery sector is one of the largest consumers of lithium, and it is growing very fast spurred on by the electric vehicle (EV) boom.
Lithium-ion batteries have superior energy density and are more efficient and environmentally friendly than traditional lead acid batteries. Originally used in computing and mobile communication devices, lithium-ion batteries are being increasingly used to power electric vehicles (bikes, cars, buses, trucks, boats, ships, and soon trains and planes), and mass energy storage devices to help power our homes and cities.
Galaxy Resources Limited (ASX: GXY) engages in the production of lithium with three 100% owned global projects diversified across spodumene and brine, and across 3 continents.
Sal de Vida (SDV) (Argentina) – Development stage
Sal de Vida is one of the world’s largest and highest quality undeveloped lithium brine deposits with significant expansion potential covering more than 385 square km. Galaxy Resources recently sold their northern SDV tenements to POSCO but retained their southern tenements upon which their current resource and Feasibility Study is based on. This means the negative impact from selling the north is minimal, and the positive is US$280 million.
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Mt Cattlin Spodumene Mine (Western Australia) – Production stage
Galaxy Resources owns the Mt Cattlin spodumene Mine, located in Western Australia. Galaxy is currently mining pegmatite ore at Mt Cattlin and processes on site to produce a spodumene concentrate and a tantalum by-product. At full capacity, ore can be processed at a rate of 1.6 million tonnes per annum (tpa) with lithium oxide concentrate production of 180,000 tpa. Galaxy Resources holds a series of tenements surrounding and including the mining lease M74/244, which contains the majority of the spodumene resource identified to date and which hosts the Mt Cattlin mine.
James Bay Spodumene Project (Canada) – Development stage
The James Bay lithium pegmatite Project in Quebec Canada contains Indicated Resources of 40.3 million tonnes grading at 1.4% Li2O. The James Bay deposit occurs at surface and resource modelling indicates that the resource 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.
Recent big news for Galaxy as POSCO sale successfully completes
In what started in August of 2018, a deal to buy Galaxy’s northern SDV tenements for US$280 million by South Korean steelmaker POSCO has finally settled.
Galaxy Resources stated: “(Galaxy) is pleased to advise that final settlement of the sale of a package of tenements located on the northern portion of the Salar del Hombre Muerto to POSCO has now been completed…..Galaxy will now receive US$271.6 million (after US$8.4 million in withholding taxes was paid in November 2018) as follows: US$257 million consideration held in escrow plus interest accrued will be released by the escrow agent to Galaxy by Tuesday 26 February 2019 and US$14.6 million will be paid by POSCO directly to Galaxy by Friday 1 March 2019, now that registration of the usufruct transfers has also been completed.”
The above sale proceeds will combine with Galaxy’s existing cash of ~US$ 41 million, less tax to form a very nice cash pile heading towards US$300 million.
What will Galaxy do with their new large cash hoard of ~US$250 million?
My best hypothesis is the following:
- ~US$150 million towards the development of SDV, in combination with a project partner.
- ~US$100 million towards a lithium spodumene conversion plant either in Western Australia or China. A JV with Neometals (ASX: NMT) perhaps?
- Any remaining funds to purchase nearby lithium tenements/projects to bolster the mine life of Mt Cattlin, and to advance James Bay.
My outlier idea is Galaxy may look to diversify away from lithium into other EV metals.
Please note the above is what I think may happen, and purely my own speculation.
What is for sure is that Galaxy Resources will continue to make profits from their Mt Cattlin lithium spodumene mine, focus to advance Sal de Vida to production, and steadily advance James Bay to FS stage completion for now. This makes Galaxy one of the very best pure play lithium miners globally, and definitely on investors radar with plenty of near term catalysts likely in 2019.
Australian based Galaxy Resources Limited has a market cap of A$910 million, noting they will shortly have ~A$400 million in cash, and no debt.
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>