Galaxy Resources Limited (ASX: GXY)

Improved Market Sentiments - Galaxy Resources, a companywith lithium production facilities, hard rock mines and brine assets in Australia, Canada and Argentina has been advancing as per its plans to develop the Sal de Vida lithium and potash brine project in Argentina situated in the lithium triangle (where Chile, Argentina and Bolivia meet), which is currently the source of 60 per cent of global lithium production. The Company entered into a non-binding agreement with POSCO to sell a package of tenements located on the northern area of the Salar del Hombre Muerto in Argentina, for cash consideration of US$280 million. The tenement package is situated to the north of Galaxy’s world- class Sal de Vida Project (“Sal de Vida” or the “Project”) in Argentina. Galaxy retains 100 per cent of the tenements in the southern area of Salar del Hombre Muerto in the Catamarca Province included in the recently announced updated feasibility study for the development of Sal de Vida.


Sensitivity of the economies of Sal de Vida (Source: Company Reports)

The proceeds from the transaction with POSCO will be available to progress the development of Sal de Vida in the Catamarca Province and Galaxy is in a strong financial position to continue the planned development of the Project. The non-binding agreement is conditional on completion and execution of definitive documentation and receipt of POSCO Board approval which are expected to be satisfied during the third quarter of 2018. Galaxy and POSCO will also enter into cooperation agreements intended to maximize potential development, operational, infrastructure and logistical synergies for their respective projects. This transaction allows Galaxy maximum flexibility with the parallel formal process being conducted with JP Morgan. This transaction is also strategically significant as it means there will now be two new lithium projects that will be developed concurrently on the Salar del Hombre Muerto and will deliver benefits for all stakeholders in the region. The Group had lifted itsCAPEX guidance from $US376 million to $US474 million, and the sale of a northern tenement package at Sal de Vida for $US280 million will provide over half of this. ROE improved from (1.3 per cent) in June 2017 to 1.2 per cent in December 2017.

The Group completed a Definite Feasibility Study and reaffirmed the potential for a long-life, low cost and highly profitable operation and a revised post-tax NPV of Sal de Vida is expected to be US$1.48 billion at an 8 per cent of the discount rate. The development of the Project will provide substantial benefits at local, provincial and national levels. It was observed that total mining volumes increased significantly by 32 per cent in Q12018 over the previous quarter. Following a record-breaking year in terms of several global lithium market indicators throughout 2017, Q12018 was defined by continued positive momentum in the rapidly accelerating market demand for lithium-ion battery applications. It is expected that the market for lithium chemicals will remain tight and will continue to support a decent pricing environment. The stock was up by 4.80 per cent in last three months and climbed up by 10.79 per cent in last one month post falling about 8% in last six months. The stock further rose up by 16.72 per cent in last five days and was up by 2.86 per cent on 4 June 2018 as market sentiments were improving. We have a “Hold” on the stock at the current price of $3.59.

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