Galaxy Depends Heavily On Mt Cattlin Upgrade

Australia | Apr 24 2018

Costs were higher than forecast for lithium miner Galaxy Resources in the March quarter and brokers await process enhancements, expected to improve the production profile going forward.

-Increased ore volumes being processed meant cash costs were substantially above broker estimates
-New area to the east should deliver lower strip ratio and better grades in December
-Key catalysts include an updated feasibility study at Sal de Vida, permits hand offtake agreement


By Eva Brocklehurst

Galaxy Resources ((GXY)) disappointed brokers in the March quarter, as costs rose and feed grades dropped at Mt Cattlin. Increased volumes of ore being processed, coupled with the drop in feed grade, led to higher costs.

Shipments of 44,300t over the quarter were above the required 5.5% lithium grade and moisture and mica content were below contract specifications. Yet, 43,900t of spodumene concentrate production was -16% below the December quarter.

The March quarter results were not what UBS expected as total mined volumes were up 69%, which meant cash costs were well above estimates, at US$415/dmt.

The average grade of treated ore was 1.11% versus several broker estimates of 1.2%. The company did not report the average grade of ore that was mined in the quarter but Morgan Stanley suspects it was below forecasts. Production cash costs were up 28% from the December quarter and 31% above the broker's estimates.

Production and grades were lower than Macquarie expected while costs exceeded its forecast by 20%. The broker assumes a similar cost and production profile over the second quarter and maintains an Underperform rating.

Citi sticks with its Buy/High Risk rating but revises its earnings numbers down by -19% for 2018 on the back of the lower production and higher costs from Mt Cattlin. The broker highlights the fact the company has stopped disclosing realised pricing. Galaxy provided no comment on sales prices, other than to say that these were achieved at the higher 2018 contract price.

UBS forecasts a 10% lift in prices to US$919/t for 5.5% grade concentrate. As mining has moved to a new area with a relatively higher strip ratio, material movement is expected to stay high for the next 3-4 quarters. Grades, however, should lift back to around 1.2% in the June quarter, in the broker's view.

Galaxy is also intent on securing a new mining area to the east that should provide higher grade material and a lower strip ratio. Mining is expected to start in December.

Mt Cattlin Upgrade

The company's stated intention to improve recoveries is on track, with construction and commissioning of process plant improvements to be completed in the September quarter. The initiatives include ultra-fines DMS and secondary float re-crush circuits as well as a final product optical sorter.

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