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What is this goose Peter Ker talking about? "But it is also...

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30/04/19

16:05

Post #: 38331916
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Originally posted by jacklesd ↑

The conundrum for Galaxy Resources: buy or build
Peter KerResources reporter
Apr 29, 2019 — 12.00am
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Like a musician struggling with their "difficult second album", Galaxy Resources' mission to build on its stunning debut success looks to be drifting off course.
As the first new entrant to market during the extraordinary lithium boom of the past four years, Galaxy was expected to firm up its reputation as a globally significant producer with the swift development of a second operation in the high deserts of the Andes mountains.
Known as Sal de Vida, the $US474 million ($674 million) project would diversify Galaxy by geography and extraction method, given it would extract lithium from the briny water of Argentinian salt lakes rather than the hard spodumene rock that is processed by the company's Mt Cattlin mine in Western Australia.
But forecasts for the project to begin production in 2017 have come and gone without an investment decision, and the arrival of a lithium bear market has complicated Galaxy's plan to develop Sal de Vida with funds generated by selling a stake in the project.
JPMorgan's 12-month campaign to find a buyer for a stake in Sal de Vida was cancelled earlier this month after bids failed to meet Galaxy's expectations, and while the company insists it is still talking to prospective buyers, a transaction at a good price looks unlikely while lithium prices are in retreat.
Cancellation of the JPMorgan process was the biggest brickbat in an April quarterly report that was littered with under-performance, most notably on sales volumes, where Galaxy shipped less than half as much spodumene concentrate from Mt Cattlin as analysts had expected.

Shares in Galaxy, which is now the most shorted stock on the ASX, have slumped by 16 per cent in the four trading days since publication of the quarterly report on April 18, and were last week trading at their equal lowest level in 30 months.

The stock has lost 65 per cent of its value since peaking in January 2018.
Canaccord Genuity analyst Reg Spencer believes Galaxy missed the opportunity to sell a stake in Sal de Vida when lithium markets were hot.
"The inability to complete a transaction over the last 12 months during a stronger pricing environment is a missed opportunity in our view," he said in a note.
Mind the gap

The ongoing delays at Sal de Vida have some shareholders wondering about the risk of Mt Cattlin reaching the end of its life before the Argentinian project is in production.
Multiple analysts estimate the remaining mine life at Mt Cattlin is about four years, based on the 1.77 million tonnes of ore mined in 2018 and the 6.1 million tonnes of proven reserves in the ground.

Galaxy told The Australian Financial Reviewthe mine life was closer to six years if "probable" reserves are added to those classified as proven, and the mine could run for nine years if geology classified at a lower confidence level proves viable.
Galaxy's argument is not unreasonable: many mines run for decades with just a couple of years of proven geology ahead of them thanks to ongoing exploration success.
But if there's no further exploration success and the mine retires around 2022 or 2023, the chances of having Sal de Vida built and producing lithium before the end of Mt Cattlin's life are decreasing by the day.
"If you pushed the button today on Sal de Vida, it is probably a two-year construction timeline and then it is nine to 12 months before you get first production," said UBS analyst Glyn Lawcock.
"So it could be upward of three years before you see first production out of Sal de Vida if you approved it today."
Bell Potter now expects first production at Sal de Vida in "late 2022", while Mr Spencer tips first production in 2023.
First production is one thing, but full production is quite another; brine projects like Sal de Vida are slow to ramp up. Orocobre's Olaroz brine project in Argentinawas completed in 2015, but is still yet to reach its maximum production rate.
Burning of cash would be the inevitable outcome if sales from Mt Cattlin cease before sales begin at Sal de Vida, but Galaxy said it was confident of avoiding such a scenario.

"We do not see any likelihood of this. Galaxy is in the business of producing lithium and our planning is based entirely on there always being lithium production from our existing assets with no production gap," the company said.
Mr Lawcock said lithium prices and exploration success would ultimately determine whether Galaxy has to bridge a gap in production, and he said a short gap would not be a major problem if Galaxy's balance sheet remains strong.
He pointed to the example of Mt Gibson Iron, which has recently relied on its strong cash buffer to survive a gap between the retirement of its mid-west iron ore business and the restart of its Koolan Island mine in WA.
"You just work through the gap," said Mr Lawcock.
"So long as they are in development of Sal de Vida then it is fine. If you were to say to me three years from now Sal de Vida is still not approved and sold down, and Mt Cattlin is finishing, then it is a very different story."
Galaxy had no debt and $US285.3 million of cash at March 31.
But that cash balance is notionally quarantined for the development of Sal de Vida, so any reliance on that money to bridge a production gap would add to the funding challenge for the Argentinian project.

'Always looking'

The balance of power in lithium markets has clearly shifted to buyers, so rather than persist with efforts to sell a stake in Sal de Vida, then use the proceeds for construction, Galaxy could instead seize on depressed valuations and pivot to buying a lithium asset that is already built and in production.
Such a pivot is not a new idea; rumours swirled last year that Galaxy was creeping onto the share register of its WA lithium neighbour Tawana Resources, which has since evolved to become Singapore and ASX listed Alliance Mineral Assets.
Galaxy's cash war-chest could easily account for Alliance's $215 million market capitalisation, or the $255 million market capitalisation of WA's other small-scale lithium exporter, Altura Mining.
Neither acquisition would give Galaxy the diversification benefits that come with Sal de Vida, namely straddling both hard rock and brine lithium production in different jurisdictions.
Neither can Altura and Alliance match Sal de Vida's 40-year operating life, with both companies boasting mine lives similar to that of Mt Cattlin.
But it is also clear that lithium consumers are increasingly favouring lithium hydroxide (which can provide greater energy storage in a battery) over lithium carbonate, and that trend has boosted the attractiveness of Australian hard rock lithium mines in comparison to South American brines.
If the hydroxide trend accelerates, could the acquisition of an existing hard rock mine make more sense for Galaxy?

The company left open the possibility of an acquisition when asked if a gap in production between Mt Cattlin and Sal de Vida could prompt a strategy shift toward buying an asset that is in production.
"We currently have two world class development assets in Sal de Vida and James Bay in both brine and hard rock as well as Mt Cattlin. Galaxy has a very strong balance sheet so we are always looking at suitable opportunities to add to our asset base," Galaxy told The Australian Financial Review.
Alliance would be the most logical option, given it exports lithium from the same port as Galaxy on WA's south coast.
Much of Alliance's spodumene concentrate has higher lithium grades than Galaxy has been producing lately, suggesting there could also be product blending and sequencing opportunities under a marriage.
A new chief executive, former BHP and Iluka executive Simon Hay, will take the helm at Galaxy in nine weeks' time, and his view on where and when the company will get its second lithium operation will be eagerly awaited.

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What is this goose Peter Ker talking about?
"But it is also clear that lithium consumers are increasingly favouring lithium hydroxide (which can provide greater energy storage in a battery) over lithium carbonate, and that trend has boosted the attractiveness of Australian hard rock lithium mines in comparison to South American brines."
Brines deliver Hydroxide Mr Peter kermit, there is an additional process to turn rock carbonate into Hydroxide. Did you mean it the other way round? If you know nothing, why are you getting published?

GXY Price at posting: $1.47 Sentiment: Buy Disclosure: Held
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