Let's recap.
The company has 2 major projects, a hard rock hope and some minor ownership in other listed entities:
- The flagship Hombre Muerto West (HMW) brine asset in Argentina
- Candelas brine asset also in Argentina
- Greenbushes south in Western Australia (cow pasture)
*The HMW + Candelas projects rank among the top 20 global lithium resources with an estimated 9.5 million tonnes of lithium carbonate equivalent (LCE) at a grade of 841 mg/L.
HMW ProjectThe HMW project is structured in 4 production phases, designed to scale up output. The plan focuses on producing a high-quality lithium chloride concentrate (6% lithium, equivalent to 32% lithium carbonate equivalent, or LCE), leveraging the region’s high-grade, low-impurity brine.
Phase 1:
Target: 5,400 tonnes per annum (tpa) LCE of lithium chloride concentrate.
Timeline: The company has stated first production is scheduled for the second half of 2025 (H2 2025), but the reality is that the earliest will be 2026.Details: This phase involves constructing initial evaporation ponds, production wells, and supporting infrastructure. It aims to establish a low-cost operation with an estimated operating cost of US$3,510/t LCE, placing it in the lowest quartile globally. A Definitive Feasibility Study (DFS) for Phase 1 highlights a post-tax NPV (8%) of US$460 million and an IRR of 36%, with a capital expenditure (capex) of US$104 million.
Note: The quoted figures are using highly speculative lithium pricing.
Phase 2: 21,000 tpa LCE of lithium chloride concentrate.
Phase 3: 40,000 tpa LCE (includes Candalas).
Phase 4: 60,000 tpa LCE (includes Candalas).
HMW is in the construction phase, with significant milestones achieved toward Phase 1 production.
Pond 1: Completed in early 2024, with earthworks finalized and liners installed. Brine filling began in January 2024, and evaporation is underway. This pond, covering 205,000 m².
Pond 2: Earthworks are 65% complete (reported February 2024), with liner installation started in March 2024. Filling commenced in March 2024, advancing the evaporation process.
Ponds 3 and Beyond: Earthworks for additional ponds are in preparation, with construction ongoing to support Phase 1 and future phases.
Overall Completion: As of October 2024, Galan reported 45% project completion for Phase 1, with pond construction at 76%. The project is currently slowed/stalled, pending finance.
Challenges
Galan’s share price has experienced a significant decline, dropping from a peak of $2.27 in April 2022 in line with the broader sell off in lithium equities.
The sell off has been further exacerbated by the ineptitude of the board by beginning construction without first securing financing. This has resulted in the number of shares on issue ballooning by 76% since halting production in July 24, with capital being raised at increasingly lower prices as the market loses confidence in the boards ability to secure full project financing and finalise the project.
Financing
Glencore:
On November 16, 2023, Galan signed a binding term sheet with a Glencore subsidiary for an offtake and financing deal. Glencore committed to purchasing up to 100% of the lithium chloride concentrate from HMW’s Phase 1 (5,400 tpa LCE) for five years from the start of commercial production, expected in H2 2025. The agreement included a financing prepayment facility of US$70 million to US$100 million, subject to conditions such as due diligence and final documentation.
By mid-2024, the Glencore agreement faltered. In August 2024, Galan announced that the previously outlined deal would not proceed as planned. While specific reasons were not detailed, the shift coincided with a challenging lithium market environment and Galan’s pivot to alternative financing sources. To this date, I am unsure if Galan still has a latent risk associated with this binding term sheet.
Chemphys:
On August 27, 2024, Galan announced a memorandum of understanding (MoU) with Chemphys for an offtake prepayment deal. Under the terms, once definitive agreements are executed, Galan will supply 23,000 tonnes of LCE as lithium chloride concentrate over the first five years of HMW Phase 1 production. Chemphys agreed to provide a US$40 million offtake prepayment facility to support ongoing Phase 1 development.
On September 10, 2024, Galan launched a US$25 million capital raise, including a US$12 million placement and a US$13.3 million entitlement offer. Chemphys, through its affiliate Latam Resources Pty Limited, subscribed to US$3 million worth of shares at $0.105 per share.
The Chemphys funding is expected at the end of Q1 2025... Yes, that is in the past now. The Chemphys funding is IMO now make or break for the company, as it runs out of any further realistic funding options other than asset sales.
Takeover Offers
Galan has faced multiple takeover proposals
EnergyX Offer (August 2024):On August 6, 2024, Energy Exploration Technologies (EnergyX), a Puerto Rico-based clean energy tech company, made an unsolicited, confidential, conditional, and non-binding proposal to acquire Galan’s Argentine assets (HMW and Candelas).
- US$50 million in cash.
- US$50 million in EnergyX common shares (not listed on any exchange, complicating valuation).
- US$50 million for a wholly-owned EnergyX subsidiary to own the assets, dedicated to completing HMW Phase 1 and maintenance.
- A 10% gross revenue royalty to Galan for 10 years from the start of commercial production.
The offer was rejected.
Zhejiang Huayou Cobalt Co and Renault Group:Today Galan advised shareholders via a secondary trading notice of a takeover bid from Zhejiang Huayou Cobalt Co (a major Chinese cobalt and lithium player) and Renault Group for Galan’s Argentine assets, valued at US $150 million (approx. 0.28c per share).
To quote the announcement:
The Board of Galan has, with its financial and legal advisers, considered the Indicative Proposal and rejected it. The Board believes that the Indicative Proposal is opportunistic and undervalues the Company’s key assets. The Board also believes that completion of offtake and financing arrangements
for Phase 1 of HMW will occur in the short term, leading to a more certain and superior outcome for Galan shareholders relative to the Indicative Proposal.SummaryWhile the company’s assets are highly regarded, the management team has failed to translate the enormous potential into tangible value, with many long term investors suffering significant losses as a result.
Today's announcement makes some things extremely clear to me:
- The board plans on taking this project into production as a private entity.
- The board is disconnected from reality regarding the value of the company. They are willing to dilute holders by issuing shares to the equivalent of loan sharks at 10c, whilst rejecting a TO bid of 28c. If this bid undervalues the company, then why aren't they raising closer to 28c?
- The board has a complete disregard for shareholders and are only providing this update about the TO offer because they have to, thus they have hidden it in a secondary trading notice. They should have disclosed this when it happened as it's own announcement. I'll note the previous offer was disclosed only after an AFR street talk article was published.
(20min delay)