UBS sponsored article from AFR Apr 23 2018 at 4:39 PM Updated 1...

UBS sponsored article from AFR

• Apr 23 2018 at 4:39 PM
• Updated 1 hr ago

Shorts vindicated as Galaxy lithium output disappoints

The short sellers that flocked towards lithium exporter Galaxy Resources in recent months found vindication on Monday, when surprisingly poor production and unit cost results sparked a further slump in the miner's share price.

The 43,852 tonnes of lithium-rich spodumene concentrate produced in the three months to March 31 was well below the output seen in each of the previous two quarters, and put the company behind the pace required to achieve its goal of producing more than 200,000 tonnes of concentrate in 2018.

Galaxy provided little explanation for the weak production rate on Monday, but the company appears to have laboured under poorer grades and lower recoveries.

The average grade of the spodumene ore fed into Galaxy's processing plant fell from 1.27 per cent in the December quarter to 1.11 per cent over the past three months.

Deteriorating grades meant Galaxy had to mine 32 per cent more ore during the quarter and increase processing volumes by 3 per cent; yet production of spodumene concentrate was still 16 per cent lower than in the previous quarter.

The rise in volumes mined ensured Galaxy's unit costs soared from $US325 per tonne to $US415 per tonne quarter on quarter, and there was no assurance in Galaxy's statement that the issues would be temporary.

UBS analyst Glyn Lawcock described Galaxy's results as "pretty tough" and said it was clearly below the market's expectations.

Just 6.97 per cent of Galaxy shares were sold short in mid-January, but that number has since surged to an all-time high of 15.49 per cent.

Most Australian lithium stocks have lost close to 30 per cent of their value over the same period, with Galaxy shares down 34 per cent since January 10.


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