Outlook and news, page-89

Take all this as pure speculation and lazily shooting the breeze on a slow day but I don’t think flipping James Bay is on the cards at all.
Almost the reverse - but let me explain.
Tenements aren’t exactly expensive. Any 2 bit company can buy one and hang a shingle out on the ASX and start selling shares.
There is little to be gained by off-loading JB when it would just be handing over one of the best lithium resources in the world.
I don’t know of any other deposits of that grade sitting on the surface, in a mining friendly location, close to infrastructure and clients for the product.

What is most valuable above all else at the moment is companies with lithium know-how and momentum.
Galaxy definitely has both of these.
Others can bluster all they want - but Mt Cattlin is at name plate and can be copied and replicated as a successful model.
The lithium brains and experience behind SDV are also currently unrivalled.

Anthony Tse has put forward the concurrent development of SDV and JB on the agenda and the last presentation showed one little detail that hasn’t surfaced before - that they were scoping locations in Quebec for a processing plant.
AT was right to get on with SDV as soon as possible, but I think the surprise that 2017 has in store is that after the drilling program and DFS we get the announcement that Primero has packed the St Bernards and maple syrup and is set to commence construction of JB in Q1 2018.
If my crystal ball isn’t too foggy, I foresee a less than smooth construction period for the other Australian speculatives, investors growing tired of delays and hiccups. Can you imagine what JB build would do for the share price? A new mine built by experienced players with established clients - with a timeline to production you can actually have faith in being adhered to..

JB is the kind of capex that Mt Cattlin can afford to pay down so there isn’t an issue there.
SDV is a big project that can be serviced either by equity partners, debt - but its not like the capex bill comes all in one go, like buying a car.
It will have steady bills but there will also be the start of income there even from test plant sized production.
It can be built up to 50ktpa (another target that the company identified earlier this year) over time.

What strikes me as funny now is all the down-ramping that brine got last year.
The most ridiculous was that brine was lower quality. That may be true of some deposits. We’ve seen news this week that a Chinese brine project has failed - which is all down to the level of impurities and low lithium concentrations that they have.
But to compare crushing rock to what is basically a distilling operation? The thing about chemistry is that once you have it set up then its a factory scale operation. Mix in the right reagents and let the chemical do their work. No messy crushers and circuits and blasting and giant trucks and ships hauling dirt.
Just clean product coming out the end ready for the battery companies and, importantly, not requiring Chinese middle men to siphon off the profits and perform extra processing.

But there is no “right now” with brine. Everything is all white coats and careful lab analysis to begin with. The ponds need to be built and the whole operation incrementally staged up from testing to full nameplate. The $60m credit raise takes care of the test plant stage. There is little point in rushing things (see ORE for consequences). Neither is there any point in putting all the eggs in that basket when JB can become a monster that could easily rival the very best spodumene mines, with the added benefit that the team knows exactly how to do it now.

If I was to guess why Michael Fotios moved on - it was possibly that there was a disagreement at the board level over whether it was SDV or JB that got the nod. AT had to make sure that SDV got moving ASAP, as JB wasn’t ready for DFS yet and the development time would have been lost.
Not much good having Mayfair and Park Lane without at least putting a house on it.
So they proceed with both, with a CR to get things moving as fast as possible.

One of a series of careful gambles with investor patience that AT has made.
The earlier one was that despite Mt Cattlin being previously an operational mine, and despite Chinese clients clamouring for product - that the decision was made to delay the first shipment for additional plant refurbishment until there had been a massive increase in quality and quantity.

Gutsy move. Took real balls to be that patient and make sure that work was done so that future profits would be maximised and the quality would unquestionably fit within the Greenbushes style grade that has been established, more out of habit than out of pure necessity.
Others have just rushed in - and looks that this will be the modus operandi for all future planned mines.
Mt Marion is already in production but missing fines circuit and flotation.
Ask why is NMT exiting and why Ganfeng/MIN have passed on buying up the remaining percentage?

The pay off for patience with Mt Cattlin was a massive jump in our grade and output. The additional capex gets paid out almost immediately from the increased shipment sales and there are now years ahead to let the operation supply cash to all the other assets. Even the down-rampers with their LOM arguments have failed to really research the number of adjoining tenements that Galaxy has in the Ravensthorpe area. Some are indicative of even higher grades and now the company is moving to use them as additional ore capacity. There is no danger of running out of spodumene down there, and even the possibility of future scaling up of Mt Cattlin.

I think one of the issues now is that Galaxy has become a threat to the majors.
As independent supplier, they can ride the very crest of spodumene pricing for the next few years at peak profitability.
They are free to supply the highest bidder. (in this respect it is wise to stay away from Tesla - who are known to be lithium’s lowest bidder, believing that the honour of Tesla supplier is more important than paying market price for their product).

If a major was to go in, say 50:50 on SDV they may be quite delighted with the profits, but in turn they are also adding extra momentum to Galaxy’s rise.
By the time Galaxy has 3 assets running (even sharing some of that profitability) then they are easily in that very top group of majors.
Mt Cattlin, JB + Processor and SDV at 50ktpa.
BlackRock can see that future too.

If I was Albemarle with all their spare cash I would be hesitant to play any role in helping out Galaxy at this point.
The only option that would make sense would be a TO - but perhaps not quite yet. It’s clear that management know what they are doing hitting target after target, and I don’t believe that there is another team that would drive this asset collection any better.
The next 2 years see Galaxy putting together these next 2 assets and the know-how element is critical.
The money will follow the surest bet.
ALB don’t have that knowledge - their role in Greenbushes is back-seat driving, nor does any other Australian ASX listed lithium project.
Brine and Hard Rock capability and project management is key.
Only Ganfeng have those investments in place but not yet in production.
Tianqi have pulled out of SQM (likely over Chilean royalties) to fund further GB expansion and their Kwinana plant.

That leaves Ganfeng.

Apparently Mr Ganfeng and AT are on friendly terms. They are certainly the most aggressive and open to deal-making of the majors. They have pretty much sidelined PLS now as a supplier to their own vertical structure, if and when that gets up.
Galaxy, they will have to deal with on more equal terms, and they clearly are interested in the future here, having become a subholder in the last short period (the CR perhaps?).

Optionality. Thats what Chris Berry the lithium analyst always said Galaxy had by the bucket-load and the playing field is still clear of competition.
I was relaxed about the situation at 41c.
With BlackRock now putting some confidence behind retail and insto holders, I’m content to simply keep up the plan of constant accumulation and let these shares sleep-walk their way to several more bags over the next few years.

Good luck with all your own short, medium and long ways of benefitting from Galaxy’s rise.