"During the course of the year, CRHL continued to pursue its dual strategy of exploration alongside growth through strategic acquisition and also began a management restructuring process that I believe has since the end of the period positioned us well to meet our long term growth objectives. We saw strong material advances in the projects undertaken through our shareholding interest in Australia's Galaxy Resources Ltd ("Galaxy") and completed exploration programmes that paved the way for further exploration and appraisal work now getting underway on our tenements in the mineral rich area around Zeehan on Tasmania's west coast. We are confident that with the stronger professional team now in place, we are well positioned for encouraging advances in the months ahead.
We began the year with a near 20% shareholding in Galaxy, which is quoted on the Australian Stock Exchange (GXY), and although the arrival of new Galaxy shareholders diluted our stake to 11.78% during May 2011, we remain the largest single shareholder. The year also saw the appointment of a second CRHL director to the Galaxy Board, with Mr Ren Xiaojian becoming a Non Executive Director alongside our Executive Chairman Zheng Yuewen during October 2010. We believe that our close involvement with Galaxy as it begins to achieve its key objectives as a player in the growing lithium market is a powerful example of the strategic alliances that we have identified as one element of our dual forward strategy.
As shareholders are already aware, Galaxy's operations progressed strongly during the year, commencing production of the lithium ore spodumene from its Mt Cattlin mine in Western Australia last October and subsequently completing two shipments of spodumene to China, where work on the completion of its Zhangjiagang lithium carbonate processing plant is now nearing completion. Galaxy is positioning itself to become a vertically-integrated lithium company, from the production of spodumene ore through to chemical processing and lithium-ion battery manufacturing. I am confident that with the long term demand outlook for lithium looking increasingly strong, our partnership with Galaxy offers the prospect of value growth for our shareholders.
During the course of the year Galaxy also strengthened its positioned with advances on two other projects, at Ponton in Western Australia and James Bay in Canada's Ontario Province. At the Ponton Rare Earths Project, Galaxy announced during April that it had identified new resource targets beyond those previously drilled, and that discussions were underway with the Western Australian Government for the grant of new project tenements. Equally as encouraging, Galaxy announced in May it had completed the acquisition of a 20% stake in the James Bay Project, which is an extensive high-grade spodumene pegmatite deposit, with an option to raise that to 70% on completion of a definitive feasibility study. Again, both of these projects offer the potential of increased value for CRHL shareholders."
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The Company is pursuing a dual strategy of acquiring interests in strategic resource companies, the first of which is Galaxy Resources Limited, and resource diversification through its exploration activities.
Galaxy Resources Ltd Investment
Galaxy Resources Limited ("Galaxy") is a Western Australian S&P / ASX 300 Index company which plans to become one of the world's leading producers of lithium compounds - the essential component for powering the world's fast expanding fleet of hybrid and electric cars. Galaxy's Mt Cattlin mine aims to be the world's second largest producer of lithium mineral concentrate globally, and through the development of its 17,000 tpa lithium carbonate plant in Jiangsu province, Galaxy expects to be one of the largest and lowest cost lithium compound producers in China. Lithium compounds such as lithium carbonate are forecast to be in short supply against high future demand due to advances in long life batteries and sophisticated electronics including mobile phones and computers. Galaxy has positioned itself to meet this lithium future by not only mining the lithium, but also by downstream processing to supply lithium carbonate to the expanding Asian market.
The Company's share holding in Galaxy at the start of the financial year was 38,091,616 shares or 19.99% of issued shares. Whilst there has been no change in the number of shares held by the Company during the reporting period, as a result of the exercise of a number of options and an equity fundraising throughout the financial year, the Company's holding was diluted to 11.78% as at 30 June 2011.
The market value for the investment in Galaxy Resources Limited based on the Australian Stock Exchange share price at 30 June 2011 is $28,568,712 (30 June 2010: $35,615,661).
Mt Cattlin Construction
Commissioning of Mt Cattlin commenced on 2 September 2010. A total of approximately 6,500 tonnes of spodumene was loaded and shipped to China in March 2011. On 30 June 2011, the second shipment of approximately 19,200 tonnes of spodumene was successfully loaded on 30 June 2011 bound for the Port of Zhangjiagang in China.
Jiangsu Lithium Carbonate Project in Jiangsu, PRC.
Galaxy has advised that construction and fabrication labour shortages in China's Jiangsu region have contributed to a revised commissioning schedule of the Jiangsu Lithium Carbonate Project, to be staged over the next five months. The revised schedule and budget plan for Jiangsu, which indicates the Project is 76% complete and purification, drying, micronising and bagging will be completed with commissioning to commence during the third quarter of the 2011 calendar year. The front half of the plant, which includes calcinations, sulphation, leaching and precipitation, is expected to be completed with commission to commence during the fourth quarter of the 2011 calendar year.
Capital Raising
On 15 February 2011, Galaxy completed its fundraising issuing 21,582,733 shares to Fengli Group (Hong Kong) Co Limited at A$1.39 per share. As a result, the Company's interest in Galaxy reduced to 17.78%.
On 14 April 2011 Galaxy finalised a A$120 million capital raising for working capital, existing projects, potential acquisitions and debt repayment via an equity placement. As the result of fundraising, the Company remained a major shareholder in Galaxy but the shareholding diluted to 11.78% and maintained the same as to 30 June 2011.
Dual listing on the Stock Exchange of Hong Kong ("SEHK")
This capital raising as well as Galaxy's intentions to list on the Hong Kong Stock Exchange will provide the platform for Galaxy to become a vertically integrated lithium company, from raw product lithium production through to chemical processing and lithium-ion battery manufacturing.
However, a postponement of its proposed initial public offering (IPO) in Hong Kong until further notice, due to unfavourable financial market conditions.
Assets pledged as security
Galaxy executed the US$105million project loan facility with Austrian Bank, RZB and the China Development Bank (CDB) on 10 September 2010. As part of the facility agreement, the financiers required the Company to enter into a Share Mortgage and the Facility Put Option. Under the terms of the Share Mortgage, the Company has secured by charge of up to a maximum aggregate of 19.9% of its shares in Galaxy in favour of the financiers. The Facility Put Option entitles the financiers to require the Company to purchase from the financers the debt outstanding under the facility agreement at the time the option is exercised. The purchase price for the debt outstanding under the facility agreement will be an amount equal to the principal, accrued interest and fees outstanding under the facility agreement at that time. In exercising this option, the financers would also transfer their rights under the facility agreement to the Company. The Facility Put Option will only be exercisable by the financers during the period from four years from initial drawdown until 10 December 2016.
The drawdown commitments of loan facility from RZB and CDB have been fully repaid from equity proceeds raised subsequently by Galaxy. The charge of Galaxy shares has been fully released on 10 August 2011."
I feel, and CRHL appear to feel, that Galaxy is currently highly undervalued.
Good luck all.
GXY Price at posting:
22.0¢ Sentiment: LT Buy Disclosure: Held
