Australia | Jul 18 2018
Galaxy Resources posted an improvement in June quarter production and a further financing deal for Sal de Vida could be the next catalyst.
-Tenement acquisitions could present benefits to Mt Cattlin in future
-POSCO underscores strong funding position for Sal de Vida
-Further funding deal for Sal de Vida could bolster cash by year's end
By Eva Brocklehurst
Galaxy Resources ((GXY)) delivered a pleasing June quarter report as brokers focused on grades, recoveries and improved throughput at the Mt Cattlin lithium mine. Galaxy produced 47,900t of spodumene at Mt Cattlin in the June quarter and average margins rose to US$534/t, driven by higher achieved pricing and higher grades (5.8%).
The company acquired three exploration licences surrounding the Mt Cattlin operation during the June quarter, for $300,000 plus the issue of shares. These tenements have increased the area leased to around 460 square kilometres, and also appear to connect existing leases, which UBS suggests could present benefits in the future as mining progresses.
Recoveries at Mt Cattlin are expected to improve to 70-75% from around 55% as processing upgrades are now underway. Macquarie found the results strong and expects sales to increase further on the back of an upgrade to the processing plant.
Optimisation of the Mt Cattlin processing plant includes the installation of ultrafines DMS, secondary float re-crushing and final product sorters. Resulting increases in output are expected by the December quarter.
Canaccord Genuity adjusts production estimates and revises 2018 forecasts to 190,000t, just short of offtake obligations of 200,000tpa. Achieving the target may not be a stretch, the broker asserts, given timely completion of the plant upgrade and commissioning performance, highlighting positive commentary around an improvement in lithium prices in the second half.
The company has specified a mechanism with fixed pricing for the calendar year, determined in the fourth quarter of each year. Hence, Morgan Stanley suggest comments around better pricing in the second half will need to be clarified.
The company has revised its volume of ore mined in the first quarter to around 529,000t and Morgan Stanley believes the re-stated number has implications for the current strip ratio at Mt Cattlin and, therefore, the costs involved.
Sal de Vida and James Bay
Sal de Vida and James Bay continue to progress. Macquarie believes Sal de Vida's eventual development could be altered by a JV arrangement, while James Bay is a long-term growth prospect, albeit strong.
Feasibility work at James Bay continued over the quarter along with mine, plant design and site infrastructure planning. Metallurgical test work was also undertaken for the proposed downstream conversion facility and results were in line with the company's expectations.
POSCO has provided notice that it has completed its investment review for the purchase of the northern tenements at Sal de Vida and final close is expected in the September quarter. The two companies are in discussions regarding mutually beneficial developments and infrastructure. No updates were provided regarding offtake or equity opportunities that would assist in further funding of Sal de Vida.
Credit Suisse believes the sale to POSCO should be a positive catalyst if completed by the end of the year. The financing hurdle for Sal de Vida is now looking less challenged and this reduces the magnitude or risk of any potential equity sell down in the project. Credit Suisse still envisages a minority sell down as the likely outcome.
Canaccord Genuity believes existing cash, operating cash flow from Mt Cattlin and proceeds from the POSCO sale mean the company is already in a strong funding position for Sal de Vida.
Nonetheless, a deal could deliver even further cash to the company and bolster expected cash reserves by the end of the year. The broker, not one of the eight monitored daily on the FNArena database, considers the finalising of Sal de Vida offtake/financing is the key near-term catalyst. Canaccord Genuity has a Buy rating and $5 target.
FNArena's database has three Buy ratings and two Hold. The consensus target is $3.58, signalling 12.9% upside to the last share price. Targets range from $2.80 (Morgan Stanley) to $4.30 (Citi).
See also, Galaxy Finds Solution To Brine Project Funding on May 31 2018.
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