Thanks for posting the link Bob. Even though there were only a...

Thanks for posting the link Bob.
Even though there were only a couple of questions they were good ones
re: SDV and Recovery rates.

A disappointing initial response on the ASX - but there is good detail in there that tells a completely different story to the current sp and a lot of commentary on this site.

This is my summary of what I got from it for those not already too far gone .

Yeah - a lot of this stuff we already knew.
5 months into production and nameplate has already been exceeded.
More than exceeded. More appropriate to say it has been absolutely smashed.

June was obviously the start of a new period for the plant.
They've done a lot of blasting and removed a lot of the overburden on the north edge of the pit where a lot of the good spodumene in Dowling Pit is located. That cost $$$.

438 dmt per day is the mark at which the plant achieves nameplate 160ktpa
and the report and today's call reiterated the Mt Cattlin update announcement that the plant had already exceeded 500dmt per day for half of last month (and 600dmt for 5 days) means that its basically beginning to nudge up to the 180ktpa rate now that it has a recovery rate of 61% (up from old 50%). June alone produced 14kt.

So - we get today's quarterly with the profit results for 2 shipments, one at the old pricing
and 2/3 of production at a lower run rate.
The headline for some may have been - Galaxy didn't make much profit - but even just with 2 shipments for a lowly $19m, the company is already managing to balance its books with early stage developments at SDV+JB.

The surge in production in June, means it won't be until the September quarterly that we really see the full impact of the new rates/payments in a report.
We were given guidance during the call that we should expect 3x shipments this coming quarter at 15kt each at the new contract pricing and lower costs.
If that plays out it will be confirmation of a sustained 500dmt per day or 180ktpa run rate and results in significantly higher revenue next quarter.

45k x $860USD (1.28AUD) = $49.5m AUD
That's a very big jump from revenue of $19m AUD this quarter.

Now you see why they're talking about adding a crusher or 2 to improve it further.
Spodumene is making bank.

That 180ktpa production rate is what sets up the $100m+ free cash flow calculation that has been discussed so many times that we forgot how we actually got there.
Revenue = 180k x $860USD (1.28 AUD) = $198m AUD. *
Costs = 180k x $393 USD (1.28 AUD) costs = $90m AUD. **
= $110m AUD profit. ***

* Q2 2018 production should benefit from higher spodumene prices
** Guidance is for costs to decrease from these levels.
*** AUD is valued pretty high vs USD at the moment.

The COO also explained, and it stacks up with what I've been saying for ages about ramp-up, that a lot of increased recovery rate hasn't come from capex but simply comes from staff getting more experienced in their roles and running the mining and plant operations more efficiently.

The next upgrades that they're talking about are a set of crushing upgrades to further improve recovery rate to target 70-75%.
They're doing them because the improvements pay for themselves quickly with the extra spodumene.
Remember they've already hit multiple days of 600dmt without these upgrades.
That rate implies a 219ktpa annualised production.
200-220ktpa looks to be where this plant is heading for 2018.
Adjust my above production calcs as required, and according to your own conservative estimates.

This is exactly what those looking at the potential recovery numbers late last year were calculating.


The COO stated that they're pretty set on using contract crushing, and that, along with a recovery rate advantage, would also result in another cost saving.

Still no mention of implementing flotation at all, which I think is a good thing at this point.
Could be considered for another +5%ish improvement - but from what I've seen, they can be more trouble than they're worth.

All in all - some solid work done in the last 3 months by Galaxy.
Its so easy to forget how few months this mine has been operating
and already be seeing these production results.

SDV also looks like its progressing "well".
One of the main things about going about these early stages carefully and backed up by a lot of testing is that they save a lot of money in the long run. Many established brine operations can run for a generation on a couple of good wells, sunk at exactly the right spot on the salar. Orocobre's operation have already sunk a dozen or so. They all cost money and time. Better to get it right straight off the bat.

One of the most interesting point to me is the subtle change in the language about SDV negotiations
in all the documents, and again in the way it was discussed on the call.
They seem at pains to make sure the market knows that they're now much closer to a "reveal" on the SDV plans and that it seems the mix of auto/battery companies is along the lines of what we've been guestimating here.

As for the current valuation discussion.
3 months ago you could have looked at the quarterly and said - well... its finally producing but its hard to judge how the operation is going from production results so far.
Prior shipments were already 50% pre-paid by clients so there wasn't much revenue left and an opex crunch that will be faced by any new miner putting together their first shipments in the ramp-up phase.
Now we have the production figures and guidance that we are set to exceed name plate consistently and put that $100m+ profit margin firmly back in the picture.

One last thing - from a quick glance Galaxy now owns approx 100 tenements including 3 gold tenements at Mt Chesterfield (are they being sold or kept for development?) and approx 250 hectares at James Bay. Those fixated on comparison of resource estimates are looking at the wrong metric. Galaxy is not a drilling company. Its a production company.

What matters is that Galaxy is starting to make good money and any and every prospective lithium junior would be well pleased if their eventual plants moved through the ramp-up phase as smoothly as Mt Cattlin has been.

No wonder we're being shorted like hell to shake out retail.
Screw them.