Banter and General Comments, page-228

What’s Happening with Galaxy Resources? Is It Short Sellers?
By
Kunal Sawhney
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October 17, 2018
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The shares of Galaxy Resources Limited (ASX: GXY) have been struggling in 2018. In August 2018, the primary reason for the negative impact on the stock price was experienced primarily because of the lower-than-expected results. The share price witnessed the downtrend mainly due to the poor production as well as unit cost results. The analysts which were covering the stock then states the company’s results were not up to the mark leading to disappointment in the market participants. The shares of the company have continuously been in the radar of the short sellers. These market players take charge of the stocks and benefit when the price of the underlying stock declines.

The short sellers have increased their position on the stock in the initial months of 2018 primarily because there were concerns that the might be short of funds for the construction of the Sal de Vida project. As a result of this shortfall, the market players believed that the company might need to go for equity funding. Since there were anticipations that the company might opt for raising the funds through equity, the broader market expected that it could adversely affect the existing shareholders and, as a result, the stock price witnessed the negative momentum.


However, the market participants were relieved when it was noticed that the company would be unloading the northern Sal De Vida tenements for the total consideration amounting to US$280 million. This sale was made to POSCO and the expectations were that once the sale gets completed it would significantly help to improve Galaxy’s balance sheet. Not only that the company would be able to strengthen the balance sheet after the sale completion, but it would also be working closely with POSCO, a company which has its clear focus on becoming the leader in respect to the battery minerals space.

Since Galaxy had sold the northern tenements to POSCO of Sal De Vida, its total resource estimate retained has witnessed a decline and stood at 4.09 million tonnes LCE. The company had retained southern tenements. In July 2018, Galaxy made an announcement the time which has been scheduled for the transaction completion would be met as they have got the notice from POSCO which contains information regarding the investment review and it was mentioned that this review has done with full satisfaction. However, the transaction would only be completed after the documents get executed and after the board members of POSCO approves the deal. The management of Galaxy stated that the amount which it would be getting from POSCO would be deployed to develop the Sal de Vida project.

As a result of the sale, the company has significantly reduced the risks which were earlier associated with the funding for the project. The sale which has been initiated would be having no impact on the project. As of June 30, 2018, Galaxy Resources continues to be debt-free. The company, however, recorded a rise in the inventories as of June 30, 2018 i.e. in the first six months of CY 2018 on the back of increased stock piles of spodumene.

However, for 1H FY18, the financials of Galaxy Resources remained strong and is evident in the numbers. As of June 30, 2018, the company had a cash balance of US$45.1 million which implies the YoY growth of 46%. The company’s revenues amounted to US$88.4 million in 1HFY18 while in the same period of the previous year where it was US$ 11.3 million.

However, the stock price of Galaxy Resources has again witnessed the downward momentum and came in at A$2.330 per share on October 17, 2018 which implies the fall of -0.030 or 1.271% with intraday trading volume of more than 2.5 Mn.