AT article

Probably deserves its own thread.

Trend Investing

byMatt Bohlsen


Resources CEO Anthony Tse Talks With Matt Bohlsen Of Trend Investing

Sep. 28, 2018 11:27 PM ET•GALXF•Comment!
Summary

Mr Tse shares his views on lithium supply and demand, as well as his thoughts on the lithium sector as a whole.
Mr Tse gives an update on Galaxy Resources as well as his outlook for the company.
Galaxy Resources has 3 lithium projects - Mt Cattlin mine, Sal De Vida project, and the James Bay project.
Mr Anthony Tse - Managing Director & Chief Executive Officer
Mr Tse has 20 years of corporate experience in numerous high-growth industries such as technology, internet/mobile, media & entertainment, and resource & commodities – primarily in senior management, capital markets and M&A roles across Greater China and Asia Pacific in general. His previous management roles include various positions in News Corporation's STAR TV, the Deputy General Manager of TOM Online, Director of Corporate Development at Hutchison Whampoa's TOM Group, President of China Entertainment Television (a joint venture between TOM and Time Warner), and CEO of CSN Corp. He is a Fellow of the Hong Kong Institute of Directors (HKIoD) and a member of the Hong Kong Mining Investment Professionals Association (HKMIPA).
Anthony Tse – Galaxy Resources


Galaxy Resources [ASX:GXY] [GR:LK9] (OTCPK:GALXF)
Galaxy Resources Limited (“Galaxy” is an international S&P / ASX 200 Index company with lithium production facilities, hard rock mines and brine assets in Australia, Canada and Argentina. It wholly owns and operates the James Bay lithium pegmatite project in Quebec, Canada and the Mt Cattlin mine in Ravensthorpe Western Australia, which is currently producing spodumene and tantalum concentrate.
Galaxy is advancing plans to develop the Sal de Vida lithium and potash brine project in Argentina situated in the lithium triangle (where Chile, Argentina and Bolivia meet), which is currently the source of 60% of global lithium production. Sal de Vida has excellent potential as a low-cost brine-based lithium carbonate production facility.
Galaxy Resources 3 lithium projects

Source
What are your current views on the lithium industry? Can you please give your views on supply and demand issues, industry consolidation, and on lithium pricing?

• The fundamentals of the lithium industry remain incredibly strong and highly attractive for corporate investment. Demand growth continues to be underpinned by substantial increase and broadening of lithium-ion battery end uses, including increased market penetration and ranges (and therefore battery sizes) of electric vehicles, as well as the emergence of large industrial energy storage applications. The disruption of various energy generation and storage industries is expected to result in demand growth for lithium in the order of an expected CAGR of 15%-20% through to 2025.
• China continues to maintain its position as the global leader in the adoption of electric vehicles targeting at least 20% penetration of new energy vehicles (“NEV” by 2025. At the end of July 2018, year to date production volumes of NEVs in China were greater than 500 thousand vehicles, representing 86% growth year on year.
• The key challenges facing the industry remain on ensuring the supply of lithium raw materials, and importantly the quality thereof, does not become the bottleneck in the fast growing lithium-ion battery value chain. Our demand estimates suggests that somewhere in the order to 700-800 thousand tonnes of additional raw material will be demanded by the industry by 2025 (compared to 2017). This will require investment capital in the order of US$10-12 billion, which is far in excess of what the industry has raised over the past 3 years, and such capital needs to be deployed over the course of the next 2-3 years in order to even have a chance of bringing enough new supply to meet anticipated incremental demand.
• Today there are only a limited number of ‘shovel ready’ projects in the world that could use such investment to develop assets capable of delivering new chemical production within the near term. Coupled with increasingly stringent battery specifications and the obvious challenges associated with delays in project delivery and ramp up we foresee that the supply/demand balance will remain tight.
• The recent retraction in lithium chemical prices in China have resulted from destocking within the value chain and some weakness in buying as producers look to upgrade their production lines with regard for evolving cathode chemistries. There has also been some increased production from brine operators in China, however the quality of such production has been poor - as well as incidents of a few domestic producers selling at undercut pricing due to their own poor financial positions. Despite this, however, contract prices achieved by the ex. China producers throughout 1H 2018 were the highest prices ever recorded, and have now flipped the previous situation into one now where rest of world pricing is at a material premium to China spot pricing, for both lithium carbonate and hydroxide. Lastly, lithium prices have now begun maturing into annual seasonal cycles with an expected recovery in 2H 2018 in line with the traditional cyclicality in global NEV sales.
• The other recent trend of note within lithium market has been the significant disconnect between corporate transaction multiples and equity trading valuations, with the increase in corporate activity seen more broadly with the resources space over the past 12 months this would suggest that the current landscape is highly attractive to further strategic activity and potential industry consolidation

What is Galaxy Resources currently working on?

• In line with Galaxy’s commitment to project execution the Company is currently delivering on a number of operational and development initiatives with several exciting catalysts expected to be announced throughout 4Q 2018.
• Mt Cattlin: The Company continues to execute of the yield optimisation program at Mt Cattlin which includes the implementation of an ultra-fines DMS circuit, a secondary float re-crush circuit and a new optical sorting circuits. Production optimization resulting from these processing efficiencies is expected to improve plant recoveries to an eventual targeted 70-75%, which in turn will result in an increase in annual production volumes to between 220,000 and 240,000 tonnes per annum.
  • An extensive regional greenfield and brownfield exploration program will be continued over the coming 12 months aimed at further enhancing Galaxy’s understanding of the surrounding geology and maximising mine life at the Mt Cattlin operation.
• Sal de Vida: Galaxy recently announced a binding transaction with POSCO Corporation to sell a package of tenements in the northern portion of the Salar de Hombre Muerto basin for US$280 million, significantly derisking the funding required for the development of Sal de Vida.
  • Galaxy is advancing discussions to evaluate potential joint venture partnership options for Sal de Vida, the objective of which will be to secure the remaining financing required and fully fund project construction.
  • From an operational perspective the Company will further advance early works at the asset, including the construction of test evaporation ponds, expansion of its pilot program and building up basic infrastructure as engineering related to the processing facilities is advanced.
• James Bay: Galaxy is in the final stages of preparing its submission of the Environmental Impact Assessment for James Bay, which will mark the beginning of its project permitting process in Quebec.
  • The project team is also about to initiate a feasibility study for an integrated upstream and downstream operation.

What do you see as the main catalysts for Galaxy Resources going forward, and where do you see the Company being in one year?
Please see above.
Do you think Galaxy Resources is currently fairly valued (feel free to give an alternative valuation)?
Recently, the equity markets have significantly devalued lithium stocks across the board globally. There has been a substantial disconnect between the transaction multiples realised via corporate transactions and equity trading valuations. Industry insiders are placing a significantly higher valuation on lithium assets compared to the see through value being ascribed by equity markets suggesting that equity prices are undervalued. These transaction multiples highlight a clear display of confidence from the corporates and industry insiders in the long term fundamentals of the sector.
Where do you see the Company and the stock price being in 5 years?
In 2017 Galaxy was the 5th largest effective producer of lithium raw materials on an LCE basis. In 5 years’ time we will endeavour to maintain this leadership position and potentially grow market share through the continued optimization of production at Mt Cattlin and the construction of our world class development assets, Sal de Vida and James Bay.
We will continue to be active on the corporate front and will consider strategic growth options should the right value-accretive opportunity arise.
Our growth strategy is focused on project execution and delivery, as we strive to reinforce and expand OUR leading industry position and maximise shareholder value. We believe that the equity markets will recognise the fundamental value of the Company as we deliver on the execution of this strategy.
On the topic of rewarding Galaxy shareholders - Does Galaxy plan to have dividends soon, a share buyback plan, or issue options for loyal shareholders?
The company will consider potential capital management options subject to its financial position and the right timing. Given the growth opportunity in the sector and the quality of Galaxy’s development assets the company has historically focused on reinvesting funds back into its business, as management feels this is the most effective way to enhance shareholder value.
What differentiates Galaxy Resources from your peers making it the best investment?

• One of the premier global lithium opportunities with existing production and a world class project development pipeline.
• Spodumene operations at Mt Cattlin generating significant, 100%-owned cash flows, positioning Galaxy as a major global supplier of high quality lithium.
• Diversified project portfolio with hard rock and brine based lithium assets across Australia, Argentina and Canada.
• Revised feasibility at flagship Sal de Vida Project in Argentina supports low cost, long life project with robust economics.
• James Bay in Canada, is a high quality development asset, feasibility underway for both upstream and downstream operation.
• Management’s sector insights and comprehensive understanding of the whole lithium battery value chain globally, particularly in China - as well as its unique experience in building and operating hard rock projects combined with developing brine projects.

Conclusion

I would sincerely like to thank Mr Anthony Tse for giving freely of his time and insight into the lithium sector and Galaxy Resources
As usual all comments are welcome.