Galaxy Resources Limited
Increase in stake in GXY by company’s director: Metal and Mining sector company, Galaxy Resources Limited (ASX: GXY) recently announced change in its director’s interest where John Turner acquired 30,000 shares at the value of $49,500, taking the final holdings to 55,000 Fully Paid Ordinary Shares and 500,000 Unlisted Options exercisable at $2.78 on or before 14/6/2020.
In the quarterly activities update, the company announced operational highlights for Q1 2019 and production guidance for Q2 2019.It reported an increase in mined volume at Mt Cattlin by 18% to 1,168,120 bcm in Q1 2019 as compared to Q4 2018, due to an increase in the stripping ratio. With respect to Sal De Vida project, the full US$271.6 million consideration payable by POSCO in connection with the sale of the package of tenements located on the northern portion of the Salar del Hombre Muerto was released from the escrow account and transferred to Galaxy.
At James Bay project, the company’s environmental impact assessment moves to the next step of evaluation following the confirmation from the Canadian Environmental Assessment Agency of company meeting the requisite EIS guidelines.
As of 31 March 2019, its closing cash and liquid assets was reported at US$285.3 Mn along with ‘nil’ debt.
As per the market update, long started trade war concerns impacted the lithium battery supply chain. Despite these macro conditions, the end user segment of the lithium battery chain has exhibited continued demand growth.In March 2019, the China government announced the latest revision of the new energy vehicle (NEV) subsidy framework for domestic NEV manufacturers. Subsidies were reduced on lower range vehicles and the requirements for subsidy eligibility were raised.
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China’s NEV subsidies multipliers data (Source: Company Reports)
What to expect: The company expectstotal spodumene production volumes at Mt Cattlin in the range of 45,000 dmt to 50,000 dmt in Q2 of 2019 and 180,000 dmt to 210,000 dmt for the full calendar year.At Sal De Vida project, a series of other engineering trade-off and value-add activities will commence in Q2 2019, focused on advancing project engineering and identifying any potential capital reduction opportunities.The project team has been in discussions with other regional developers regarding potential shared infrastructure options.At James Bay project, the bid process to select the test work contractor for the secondary lithium conversion program was conducted during the Q1 2019.The contract award and the commencement of the test work start are planned to occur during Q2 2019.
Stock Recommendation: Galaxy Resources’ share generated negative YTD return of 29.22%. It is trading close to its 52 weeks low level of $1.505.Its EBITDA margin and net margin for FY2018 stood at 35.3% and 97.6% better than the industry median of 28.9% and 13.2%, implying a decent financial position of the company than its peer group. Its ROE for FY2018 stood at 30.1% better than the industry median of 11.9%, implying a better return to equity-holders than its peer group.
Its current ratio for FY2018 stood at 2.96x better than the industry median of 1.56x, implying the company’s better ability to address its short-term obligations than its peer group.As per ASIC, on April 18, 2019, the short selling of Galaxy Resources’ shares stood at 17.85%.Hence, considering the aforesaid facts and current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.515 (down 2.258% on April 29, 2019).
