You little ripper of an announcement!
You are at it again A/C!
Providing the basis for some bright spark at RIO (for example) to plagiarize your intelligent analysis to incorporate it into a board submission for a .........
An analysis which even us mere mortal retail Shareholders can understand, IMHO.
PS Thank you
Passing due diligence stage is definitely worth a small celebration for Galaxy investors.
Not the full Toyota “Oh. What a feeling” jump
More the Toyota ad with the 3 sumos in the Hiace van “Here we go. Here we go”
(or is that ad a bit too old for anyone to remember?)
The market’s response today was a bit disappointingly bland at the moment.
Still - up 4c. That’s fine. I guess. For now.
The market is still working out what it all means,
how much time have we got to position ourselves properly etc.
The existential threat of a severely undervalued company remains,
particularly, as some have pointed out, we start to rub shoulders with the giants to get these deals up.
The more due dilligence is done the more they realise the value of the component parts.
The GXY market cap valuation in comparison to less profitable/less productive/start-up stage competitors in our sector still keeps us firmly in Underdog Status,
which is where I am always most comfortable buying, and making a noise about the value I see.
We’ve had a few days of decent rises, correcting north again.
Steady and sustained rises are OK with me.
Let's just walk to the top of the next mountain, OK?
You old screen-watchers could probably do with the exercise.
Let people get on or off board, with enough time to do their own due diligence and form a good view of what is coming down the line, once the last legal technicalities of the new deal are completed.
Give the shorts a couple of weeks to cover and switch to their long pants.
Shortman site shows how GXY share price that has been capped and manipulated within an inch of it’s life.
It also shows what seems to be a hard limit on the amount of shorts they are able or willing to deploy.
They haven't crossed that 15% line without coming straight back down again.
They're pretty close to that limit now.
Are they out of supply when they need it the most?
We are now on the verge of (please somebody correct me if I’m wrong) signing the biggest lithium deal of the year for an Australian company.
$280m USD. $375m AUD.
How does someone short that huge deal with a straight face?
That deal was genius.
Surprised everyone in terms of the identity of the purchaser and the details.
$375m AUD for selling land that doesn’t impact our own plans, our share of the profits of our DFS-ed operation, the massive jorc-ed resource or our 40 year LOM.
It's the real estate equivalent of selling a spare car-parking space on the street for enough cash to be able to build a house on your primo block.
Did I get Unsubstantiated Information for a recent post because I said we’d have $500m in hand after this deal?
On top of the Posco cash, include the earnings from this quarter, the LPD investment and what was on hand last quarterly.
Then being able to draw down on the $40m debt facility from BNP would surely see us slide over the line and provide the last coins down the couch.
$500m can be exploited to commence construction, knowing full well that the capex won't come in one hit and will be spread out over the next year or so.
Surely not every shorter will be willing to double down now to prevent the natural de-risking rerate from occurring.
If not now, then ... when?
When the pics start appearing of the concrete poured to make ponds and then lined?
The processor plant being built (with or without Posco team also smiling and shaking hands in front of it)?
As for - the "production is year's away" argument.
The market is forward looking, so they say.
PLS was 87c in 2016 on promises of its future profitability.
It was the same last week or so. The market will get ahead of itself as soon as it can sense it is actually happening.
Orocobre wasn't a long time between first construction and first shipment.
( To be honest I've forgotten the exact number of months now. Was it 14,18? It was certainly less than 2 years. Anyway that is something that you can DYOR on, from tracking their construction to shipping announcements. I've presented that timeline info so many times before, but I'll leave it to others to look into now if they're interested. ORE were also delayed by lack of cash and construction issues, so I'm inclined to see their timeline as very beatable.
Don't believe hard rockers with their "brine = many years to production" spiel.
From a standing start, as a brine beginner with no prior knowledge - Yes.
From where we are now? No way, José.
As long as the plan is good, the numerous studies and the money is there, then it's not rocket science to get these things built and running with a good team and a world-beating resource.)
Orocobre's share price did not stay at zero until the brine plant shipped, but rose steadily and peaked ahead of that (slightly delayed) shipment.
We have no reason that a capable plant build and good communication from management won't see a good chunk of the SDV valuation for it's future production getting added to GXY's market cap well ahead of first shipment.
While I do believe in some stock market conspiracies - I also believe there must still be humans behind these short trades and, therefore, they'd have to be well ware of the way that lithium and Galaxy fundamentals are again heating up and positive sentiments for the lithium sector returning.
Quite a bit of green in decent lithium stocks the last couple of weeks.
And a lot of red in cobalt.
Some of the paint has been knocked off the cobalt sector lately and perhaps its finding it's way back to lithium? I am still a firm believer in Australian cobalt (or at least one company in that sector) but there has been a massive amount of turbulence in the cobalt sector lately as the PFS after PFS reveal the large quantities of capex that each project needs to raise and investors run scared.
It may take some time for people to work out which projects are the ones to back.
In many ways there are some big similarities - brine/hard rock lithium and laterite/sulphide cobalt.
Anyway...
Back to lithium.
I think it’s 3 Times now the big banks have called lithium “Over Supply!” and caused lithium mayhem,
and 3 times we’ve run down the hill again in fear, just like the old story goes.
Next time they will surely need to prove it with a lot more than opinion and doom calls for the impact of DSO production.
You don’t prove jack predicting doom while watching lithium prices increasing, while huge deals like this Galaxy/Posco one are done (or Tianqi’s even bigger one) for brine assets
and clients are scouring the globe for reliable supply/producers.
Time is running out on the Galaxy Shorter’s Clock and some will need to fold their hand and cover now while (or if) they still have a profit.
It is the market magician's sleight of hand tricks that make it seem that nothing much is happening on the surface.
Misdirection.
Beneath the surface the sweaty shorts are furiously paddling like ducks' feet.
All they can say in defense of their position - "Nothing changes until we see the cheque in the hand."
Maybe. But it’s a pretty weak position if you are relying on this deal falling through now.
POSCO completing Due Diligence was the only major hurdle for the SDV North deal to clear (imo).
If that had thrown up any issues then we could have been some possibly lengthy delays
as the issues were worked through, or even some reframing, renegotiation or complete cancellation of the contract.
That would have been fairly disastrous for us, or led to a mad scramble by Galaxy to find Contestant Number #2. Fair enough to pull back a little out of caution. perhaps you could make that case...
But.. Now?
The rest of the process now is a contract formality that (imo x 10)
only depends on Posco continuing to be interested in lithium and battery production.
That path has already been well sign-posted (I’ll get to that in a bit).
We have our own board stuffed with lawyers, including our new lovely Argentine lady lawyer
and the resources of JP Morgan and Posco all furiously scribbling their legal guts out to get this squared away.
To me, passing Posco DD was a foregone conclusion, 3 x DFS studies at SDV,
including one completed just prior to the announcement of the deal means that the data room
was completely up to date and our brine team are some of lithium’s smartest cookies
for the Posco boys to chat with about technical questions.
Will be interesting to see how the deal is framed in terms of co-operative ventures, sharing of tech, blue-prints, expenses, infrastructure, processing, management, offtake etc.
Sal de Vida is already one of the most comprehensively studied, but still undeveloped high quality lithium resources on the planet.
They have been tweaking the capex bills, management team, positioning of infrastructure
and the regular occurrence of new ideas that bubbles to the surface in presentations and announcements
(pipeline, location of ponds, locating processing plant off site etc) means that this is a project still undergoing fairly continuous tweakage to it's engineering and infrastructure.
So.
What is left to do before the Posco board sign-off and Galaxy gets the $280m USD cheque?
What is our best guess, as share-holders, as to what that entails, and how much risk is there that we don’t get the money?
On the 27th of July POSCO will vote on the new Posco boss and the guy they’re voting on is the chemical division boss.
There is only one name being put forward.
Choi Jeong-woo has already been selected from a short list of 5 members put up in June
, including 2 steel bosses and the head of Daewoo.
I’m not entirely sure of the process or the competing visions they presented.
Guessing it wasn’t a sumo wrestle or samurai swords at dawn.
Probably flow-charts and power-points to the death.
Posco’s old boss had offered to step down after he suffered the dishonour of not being invited with other big Korean business leaders on a trip to the US by the Korean president.
Oh the indignity! His grandkids never got to go to Disney Land or point at Mr Trump
and ask WTF is going on with that old man's hair.
Old Mr Posco Boss offered his scalp to provide generational change.
The business has already made large plans in the battery sector, SDV, new battery factory,
actively sourcing cobalt and nickel, getting in bed with PLS,
and seeking to become a competitor with the existing Big Battery sector in Korea - LG, Panasonic etc.
My guess was that Posco were clearly at a fork in the road.
Old steel biz vs fully embracing the lithium revolution.
Some dead wood was probably pushing back against the boss
and I think it was probably time to have a full-on behind doors, knock-down-drag-em-out battle
over the competing visions, Old vs New,
then present a unified position to share-holders, rubber stamp the new boss
and get on with it.
Choi Jeon-woo is very likely to grab the steering wheel pretty hard and give it a tug towards the Chemical division and put Posco on track to be the Korean battery major it wants to be.
Posco Chemical division = Posco battery division.
Now he can divert the rivers of steel production cash exactly where he has been wanting them to go for ages.
My guess is he got the job because he already had the ear of the boss.
The SDV deal was announced under the old guard’s watch. Posco has history in lithium going back over a decade, including experimental high opex "fast brine".
It just hasn’t been that spectacular or studded with success.
Sal de Vida north obviously has a lot of what they want in a brine tenement and they’re willing to pay through the nose for it.
Would make sense that the 27th July was also the date to take care of signing off on the big ticket items
that reinforce the new boss' agenda.
Yes - I can see that as being the best way to stage manage the press conference.
Announce the new boss and his accompanying agenda, roll power point and trumpet soundtrack - battery factory, more triumphant music, acquisition of new giant brine fields from Galaxy.
cue applause. Hi Mr Tse.serve tea. sign cheque. Bye Mr Tse. Thanks.
Obviously, I can't say for sure but...
Why else delay the ratification by the board for Mr Choi until the 27th?
(seems perfect amount of time to finalise those pesky legals).
They are choosing him from a field of exactly ONE contestant so my money is on that date being the most logical for GXY deal too. Present the new boss and his new vision.
What is that - Friday in 2 weeks time...
btw: some Posco source material about the section process for the Choi.
https://www.reuters.com/article/us-...ch-as-candidate-for-next-leader-idUSKBN1JJ058
http://www.ajudaily.com/view/20180622174537926
http://english.donga.com/Home/3/all/26/1362005/1
https://newsroom.posco.com/en/engines-electric-motors-whats-ahead-automotive-industry/
“It’s the first time in Posco’s 50-year history that a CEO of a non-engineering background has been nominated. With his expertise in business management and experiences working for non-steel group affiliates, we believe Choi will play a major role in helping Posco fulfill its vision of ‘steel and beyond,’” the leadership succession counsel said in a statement.”
http://www.koreaherald.com/view.php?ud=20180623000091
Btw:
I think one of the points I was trying to make a few days ago, and sort of failed, was that
it’s a very interesting thing to see some of the new entrants in lithium and where they have come from.
Mineral Resources is one - and in some ways a very similar company to Posco.
Not quite the same scale, of course,
but both cashed up companies with aggressive management teams that can quickly steer a company in new directions.
For both they have come from iron ore/steel backgrounds and rapidly embraced lithium production/battery minerals.
If you were a Turnbull/Rudd 21st century managerial speak fan - you’d call it being “agile” enough to pivot your company
and exploit new markets and opportunities, even if that upsets the old faithful.
I’d link to think that Galaxy’s management are looking over the current horizons, too.
They already represent the very rare (outside the majors) combination of hard rock AND brine
which is, in itself, shows some of their chops and capability, and ability to operate internationally.
At the moment there is much to do - evolve from hard rock only, to also building and operating that brine plant,
increasing our proportion of value-adding by adding tolling arrangements, developing down-stream processors,
bringing on operations in Canada, new clients and off takes, acquiring new tenements and good personnel,
perhaps even getting a foot-hold in battery production, keeping an eye on R&D developments
and exploiting any tech that could provide value for money.
In a few years down the track I also see Galaxy as being in the same boat as these iron/steel giants.
At least financially. 3 diversified operations all in production.
Galaxy should have it's rivers of cash flowing in as ammunition, completely clear of debt,
to finance further expansion and capable of swooping on M&A opportunities as they come up.
Cobalt and lithium are still today’s hot ticket battery items that need much more investment to get quantity into production.
But next…?
Who knows - perhaps the next technical innovations and evolution in the battery sector are missing another vital mineral or chemical ingredient that needs expensive plants and technical skills.
Galaxy
Resources has always been a name that gives it the ability to pivot and expand from its current position.
This all depends on how long you may be looking down the track, of course.
The longer they keep ticking the boxes, the longer I’m willing to hold.
But it’s worth considering that it may also have been fanciful for a Posco investor a few years ago, to be thinking about making batteries for electric vehicles, rather than just cranking out steel for Korean cars and oil tankers.
Great announcement.
Proves that Galaxy’s DFS documents are the goods.
Looking forward to the James Bay one soon too.
Cheers
AC
PS Just as I was about to press Post Message -
Matt Bohlsen's article on Seeking Alpha came in with his renewed target price of $11.83.
I concur
https://seekingalpha.com/article/41...a-project-de-risked-huge-cash-sale-posco?dr=1