Company Overview - Galaxy Resources Limited is an Australia-based company engaged in mineral exploration and processing. The Company's principal activities include the production of Lithium Carbonate and exploration for minerals. Its segments include Australian operation, Argentina operation and Canada operation. The Australia operation segment includes the development and operation of the Mt Cattlin spodumene mine and exploration for minerals. The Argentina operation segment includes the development of the Sal de Vida project and exploration for minerals. The Canada operation segment includes the development of the James Bay project and exploration for minerals. The Mt Cattlin spodumene project is located over two kilometers north of the town of Ravensthorpe in Western Australia. The Sal de Vida Project is located in north-west Argentina. Its James Bay project is located in northwest Quebec, over two kilometers south of the Eastmain River and approximately 100 kilometers east of James Bay.

GXY Details 
Successfully finished 2016 offtake supply obligations: Galaxy Resources Limited (ASX: GXY) recently finished 2016 offtake supply obligations (contracted at 15,000dmt plus/minus ten percent) for its second customer. The shipment volume was confirmed at 13,700dmt of lithium concentrate loaded on vessel MV Blessing SW and sailed for China on March 01, 2017. The certified analysis is finished by SGS Australia and production data from Mt Cattlin has been confirmed, while the reported lithium concentrate grades from this shipment are 5.71% Li₂O, 1.53% mica and 1.79% moisture. Moreover, the performance of the redesigned Mt Cattlin processing plant has continued to exceed expectations in product quality, and the company’s management is confident that the plant and operations team will continue to make progress on improving performance as part of the ongoing production ramp up. GXY has been aiming to complete its 2016 contract offtake supply obligations with the upcoming third shipment, the laycan for that vessel has now been nominated for mid-April. After this third shipment, all future volumes shipped will then be on 2017 pricing terms, which is US$830 for 5.5% grade lithium concentrate product, rising to US$905 for 6.00%. Additionally, the internal data analysis for the April shipment has indicated that the lithium concentrate production will at least meet the contracted 5.5% Li₂O; and with the current performance of the plant, it is expected that the next shipment will meet specification. The operational management team at Mt Cattlin is now focusing on increasing production rates of the plant with the aim of shipping frequencies of approximately 15,000dmt being achieved monthly. The group had lately completed the second shipment of spodumene concentrate at the Port of Esperance.
 

Loading for Second Shipment (Source: Company Reports)
 
Commencement of James Bay Project Extensive Drilling Program: GXY has announced that an extensive drilling program has started at its James Bay Project in Québec, Canada. The program will include $3.5 million in exploration and development work and the objectives of the program are to execute a thorough and multi-facetted diamond-drilling campaign and to continue the Definite Feasibility Study (DFS), the work of which was suspended in 2012. The James Bay Project Team had been expected to commence work on the program in early March 2017. The work entails exploring and developing the lithium resource contained in numerous outcropping spodumene bearing pegmatites. Currently, the resources at James Bay stand at 22.2Mt (Indicated & inferred) at a grade of 1.28% Li₂O, and limited to an open-pit vertical depth of less than 100m. Moreover, the 2017 drilling program aims to nearly triple the aggregate 14,000m of depth drilled so far on the project, and will consist of drill holes at a deeper depth and closer proximity. Further, several other pegmatites located on the east side of the highway will be mapped after the snow-melt period and will also be drilled later when the warmer weather arrives. Each pegmatite swarm consists of 2 to 8 individual pegmatite dykes ranging in size from 2m to over 100m. All the spodumene pegmatites delineated thus far are parallel to each other and are separated by barren host rock of sedimentary origin, are now metamorphosed to amphibolite facies. The current Ore Resource estimate of the Project dates back to 2010, however the data that will be collected in the current drilling program will allow for an update to these resources, and the results will also be included in the future Definitive Feasibility Study (DFS). The development program in 2017 will continue this work with additional pilot-plant scale metallurgical testing. The DFS includes Environmental and Social Impact Assessment (ESIA) - Phase 1, bulk sampling from existing stockpiles, pilot-plant scale metallurgical test-work and the formal revision to the Resources/Reserves of the project from the new data collected. 

James Bay Project Resource Estimate (Source: Company Reports)
 
Mt Cattlin Project Production Update: GXY reported to have successfully reached 90% of nameplate throughput with peak feed rate at 95% of design. During February 2017, the Mt Cattlin Operations continued to increase its throughput and was expected to reach the nameplate design of 210tph and the recent feed grades of 1.1-1.3% are in line with reserve modelled grades. Meanwhile, the group has been successfully negotiating Lithium offtake for 2017 contracts and forecasted for a better cash flow and margins. The group also resumed product haulage to Esperance Port in late February 2017 post the extensive unseasonal rains witnessed in early February that led to a two-day suspension to operations. 

Project Pipeline (Source: Company Reports)
 
Funds raised: GXY has raised A$61 million through a private placement as it has received commitments from sophisticated and institutional investors to subscribe by the placement of the ordinary shares. The placement consisted of the issue of 113 million new fully paid shares at a price of A$0.54 per share, representing a 9.2% discount to GXY’s closing price on February 03, 2017, of A$0.595. The capital raising was significantly oversubscribed, with the support shown by both existing shareholders and new investors. The funds raised from the placement, along with existing funds available to GXY, are to be used primarily to strengthen the company’s balance sheet and increase its financial flexibility to progress its development work at the Sal de Vida and James Bay projects, as well as for general corporate purposes. As per GXY, the strong demand for placement of shares confirmed the underlying strength and robustness of GXY’s suite of assets, and has marked the company as a leading global pure-play lithium company.
 
China dominating Lithium market demand: China has been currently identified as a leading producer and consumer of lithium chemicals with a focus on lithium-ion battery applications. As per GXY, the incremental supply pipeline projects are forecasted at only c. 70-80kt funded to date (Mt Cattlin, Mt Marion, La Negra, Kwinana). Meanwhile, China’s focus on renewable energy is ongoing, and accordingly, the country is expanding generation capacity and leading in electrification of transportation. The country is at the forefront of the electric vehicle revolution and aims 5 million electric vehicles by 2020. Moreover, China is targeting for up to 50% of government fleet vehicles to be new energy vehicles and targeting 4.8 million charging stations and city transportation fleets of 200,000 electric buses. 

Galaxy’s Competitive Edge (Source: Company Reports)
 
Stock Performance: GXY stock has fallen 4% in the last four weeks (as of March 28, 2017) post some challenges witnessed owing to the heavy rainfall last month which damaged local roads, leading the group to make alternative plans to export the commodity via Bunbury Port from their Mt Cattlin Project. Moreover, as per the industry dynamics, the industry supply response might be slow as development pipeline is undercapitalized while the projects have the potential for delays and budget overruns. As a result, the supply and demand balance is said to remain tight until at least 2020, which would lead to a strong pricing environment. On the other hand and given the prospects, the stock rose over 62.71% in the last six months (as of March 28, 2017), and we believe this momentum would continue in the coming months despite some short-term pressure. The operations restarted at Mt Cattlin with expanded capacity which would generate substantial, 100%-owned cash flows in 2017, and is also expected to position GXY as a major global supplier of high quality lithium.  Moreover, the ongoing growth in demand for lithium, is expected to drive the group’s stock further. Despite a lagged response from supply side of both lithium compounds and concentrate feedstock, the pricing levels have been more or less sustained. The group believes that their market capitalization coupled with significant cash flows from Mt Cattlin would de-risk Sal de Vida development as compared to their smaller peers. We give a “Buy” recommendation on the stock at the current price of – $ 0.46

 
GXY Daily Chart (Source: Thomson Reuters)

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