Is it too late to buy these 2 Lithium Stocks - Pilbara Minerals and Galaxy Resources?

Pilbara Minerals Ltd (ASX: PLS)

PLS Details

Partnership with China’s largest automotive manufacturers: Pilbara Minerals Ltd.’s stock rocketed high with a 16% rise on September 29, 2017 after emerging from a trading halt, at the back of a positive news released by the group. PLS has executed a binding terms sheet with Great Wall Motor Company and its wholly-owned subsidiary, Hong Kong-registered Billion Sunny Development Limited for Stage 2 (5Mtpa) off-take from Pilbara’s Pilgangoora Lithium-Tantalum Project in Western Australia. The pricing for the off-take deal is in line with existing off-take agreements, using a market-linked price reference to Battery Grade Lithium Carbonate sold in China to determine spodumene pricing. This deal is said to include 75,000tpa of chemical grade spodumene concentrate over an initial 5-year term, and can be extended for up to a further 10 years via two 5-year options. Great Wall also can secure a further 75,000tpa of Stage 2 offtake, for a total off-take volume of 150,000tpa, by providing Pilbara with US$50 million of debt financing for its Stage 2 expansion either through a debt or off-take pre-payment facility. PLS has also executed a subscription agreement with Great Wall for an upfront A$28M equity investment in Pilbara Minerals wherein the proceeds will be used for completion of Stage 1 of the Pilgangoora Project and financing of the Stage 2 Definitive Feasibility Study. This is yet to be completed and may occur by no later than 30 October 2017, and will eventually result in Great Wall owning about 3.5% of the current issued PLS shares. The Stage 2 expansion of the Pilgangoora Project now gets associated with the Great Wall as well as Jiangxi Ganfeng Lithium Co Ltd and opens-up an opportunity for the off-take-linked debt financing solution for a significant proportion of the Stage 2 capital requirements.

Increase in spodumene concentration production: PLS has updated about a pre-feasibility study earlier this month as per which an expansion of the Pilgangoora Project from 2Mtpa to 4Mtpa nameplate capacity, resulting in chemical grade spodumene concentrate production increasing from 314,000tpa to 564,000tpa over the current life-of-mine was contemplated. PLS now targets chemical grade spodumene concentrate production of more than 800,000tpa given the recent developments.
PLS stock is now moving at high levels while more upside momentum is expected given the boost from lithium market fundamentals. We give a “Hold” recommendation at the current price of $ 0.63


Progress at Pilgangoora Project (Source: Company Reports)

Galaxy Resources Ltd (ASX: GXY)

GXY Details

Long-term potential: Galaxy Resources Ltd.’s stock surged up about 4.4% on September 29, 2017 as the stock appeared to get a boost from the rise in PLS stock along with some movement in lithium prices. The lithium player is expected to benefit from the ongoing lithium demand that is growing significantly with time, and thus has a long-term potential. The group had recently highlighted about the extension of mineralisation at James Bay based on its latest 33km diamond drilling campaign in Canada; and this has reaffirmed the long-life high grade spodumene project’s potential. Further, group’s Mt Cattlin project is progressing well with operations already transitioned to commercial production as at May 2017. At the back of the developments this year, the stock has already surged over 50% in last three months (as at September 28, 2017) and is at a slightly high level. Given the trading scenario, we put a “Hold” at the current price of $ 2.60

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