EDITOR: | July 23rd, 2018 | 3 Comments

Lithium investors need look no further than Galaxy Resources

| July 23, 2018 | 3 Comments
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Galaxy Resources Limited (ASX: GXY) is an Australian lithium miner with three lithium projects globally. Unlike their much larger peers, they are a pure play lithium miner. Galaxy recently agreed to sell their northern Sal De Vida tenements to POSCO for US$280m, thereby boosting Galaxy’s balance sheet and de-risking the Company once the sale completes in Q3, 2018.

Mt Cattlin lithium spodumene mine – Western Australia

The Mt Cattlin mine has ramped up lithium spodumene production to reach 47,901 tonnes in Q2 2018, at an average cash margin of US$534/t. On a yearly basis that works out to be ~US$100m just from Mt Cattlin.

Mt Cattlin

Sal De Vida (SDV) lithium brine project – Argentina

After the sale of the northern tenements of Sal De Vida to POSCO the total resource estimate for Galaxy’s retained SDV falls to 4.09 million tonnes LCE (at a grade of 780mg/L), as Galaxy retains the southern tenements. The reserves estimate of 1.14 million tonnes also remains unchanged. The key point here is that Galaxy still has a very large high quality resource. The latest Feasibility Study results (post tax NPV8% of US$1.48 billion) is therefore unchanged as it did not include the northern tenements.

On July 9 the Company announced (regarding the POSCO sale): “The Company advises that the agreed timetable for completion of this transaction continues to be met, with notice received from POSCO on 6 July that their investment review had been completed satisfactorily. The transaction remains conditional on execution of definitive documentation and final POSCO Board approval which is still expected during the third quarter of 2018.”

SDV tenements map – Blue sold to POSCO, and red retained by Galaxy

James Bay spodumene mine – Ontario, Canada

Galaxy Resources continues to slowly advance their final project at James Bay. The Feasibility Study is in progress as is further metallurgical test work and ongoing engagement with the local Cree community.

Valuation

As of June 30, 2018 Galaxy had US$84.8 million in cash, and no debt. Current market cap is AUD 1.25b and enterprise value is estimated to fall to AUD 860m or lower (after the POSCO sale completes). 2018 PE is 10.4. Analyst’s consensus target price is AU$4.04.

With the POSCO sale due to complete sometime in Q3 2018 Galaxy Resources should receive a significant re-rating given the fact the sale proceeds of US$280m (plus ~US$200m retained Mt Cattlin earnings) will be enough to allow Galaxy to self fund Sal De Vida (CapEx US$474million). Looking ahead once Sal De Vida is up and running it is projected to earn an EBITDA of US$270 million for a project life of 40 years (40 years x 25,000tpa). Finally James Bay could be brought on quite easily using existing retained earnings say by mid 2020’s as global lithium demand requires. Once all three projects are running Galaxy Resources could be looking at combined EBITDA of ~US$500m pa (100m + 280m + 120m). Applying a 10x multiple to this would suggest Galaxy is headed towards an Enterprise Value of ~US$5b by the mid 2020’s, which would be 5.8x higher than now.

Investors need look no further than Galaxy Resources for a lower risk, high reward, pure play lithium miner. The pathway ahead looks very achievable, and should significantly reward the long term investor looking to buy and hold until 2025 and beyond.


Matthew Bohlsen

Editor:

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>


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Comments

  • Bux436

    Hi Matthew,

    Great article, full of facts and no bullshit. I must ask however, why you only assume James Bay develops a concentrator and no downstream chemical production facilities? IMO JB will have similar EBITDA to Galaxys SDV project.

    Very exciting period ahead for Galaxy as it moves forward into its next growth phase.

    July 23, 2018 - 5:47 PM

  • Matthew Bohlsen

    Thank you. Yes a good point re James Bay. I will keep that in mind for further updates. Regards Matt

    July 24, 2018 - 3:58 AM

  • Stars align for Galaxy Resources – Lithium WA Australia News
    July 24, 2018 - 9:03 AM

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