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asb83

5,935 Posts.

1209

05/12/19

17:48

Post #: 41819449
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Originally posted by maxybro ↑

If you into account the royalty payments and marketing costs, they would be lucky to be making anything at current levels. In fact its probably better if they are not producing at all, except of course they have in order to maintain market share. From the quarterly:

Alan Rule: Nick, it's Alan here. The royalty is - the state royalty we pay is 5% of sales revenue. We've got a marketing
fee which is 5% of the sales revenue price. CapEx, during this period, we spent a bit of CapEx on the creek diversion at
Mt Cattlin, so year to date we've spent about 8 million on CapEx. Going forward, our sustaining CapEx at Cattlin, we
expect to be around about 2 to 2.5 million a year.

The best thing they can do is go to the local Bunnings warehouse and buy a few big bags of mothballs and shut down the operation, sack staff, and cease all other work on the other projects. Basically go into hibernation and conserve cash. Then, return most of the cash back to shareholders via a capital return. I think this will actually give the share price a boost and it would mean the shorts will have less incentive to remain short and you'd probably see some short covering. By returning the cash the risk of the company wasting the funds on hodgepodge of assets and capex is removed and gives the shareholders the choice of what do to their money (they could always use the cash to buy more shares in GXY). This is why the shorts are not budging because they see the cash slowly being dwindled and the share price sinking further and they will keep their foot on the throat until it happens.

We've seen that A40 is worth at least A$70m in a distressed situation, so if GXY returns the cash and mothballs the assets, the share price will in a worst case scenario go as low as what the assets are deemed to be worth which compared to A40 should be worth more than A$70m. If and when lithium prices improve the market will rerate the stock and in a rising market they company can easily raise money and investors will be be keen to participate if they can see prices are going up.

But of course the company will not return the cash because the BOD and executives need a job and need to justify their salaries. Looking at the BOD, there are 6 directors and a Chairman. Why does a company making no money need so many directors? So looks like it's going to be death by a thousand cuts.

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I think I calculated they were making around USD$70/t after royalties and marketing based on a selling price of $USD525/t. That is wiped out after you take into consideration capex at Mt Dudlin. Have they actually shipped anything this quarter? I guess if you don't ship anything you can't have a selling price If they did, it would surely be struggling to be above US$500/t.

People can bang on about Mt Dudlin being cash flow positive, but the reality is it probably isn't after capex. And people last year were calling GXY "cheap" when it was more than double the current share price because it was trading on a PE of 5 or something. I hope people weren't fooled into buying based on hocus pocus numbers

GXY Price at posting: 86.0¢ Sentiment: None Disclosure: Not Held
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