Macquarie have lifted their price target from $0.30 to $0.46 !...

Macquarie have lifted their price target from $0.30 to $0.46 !

Galaxy Resources First to market
Event
 We update our view on GXY post recent developments at the company’s Mt Cattlin and Sal de Vida projects.
Impact

•   First production achieved. GXY made its first shipment of spodumene concentrate on 2 January 2017. We assume that the majority of the 10,000t shipped was produced from the remnant crushed ore and RoM stockpiles from previous operations. Open pit mining has commenced and the company is guiding to 160,000t of concentrate for CY17.
•   Strong pricing secured for CY17. As previously announced, GXY has secured off-take of 120,000t of spodumene in CY17 at a 5.5% Li2O benchmark price of $830/t with a $15/t bonus for every 0.1% Li2O above the 5.5% specification.
•   New debt and equity provides flexibility. The company has secured a US$40m debt facility to provide working capital and refinance the outstanding A$16m of its pre-existing debt facility. Further financial flexibility has been provided by a recently completed A$61m capital raising.
•   Including a development scenario for Sal de Vida. Work in the quarter focused on studies to support the renewal of the project’s construction permit and engineering optimisations. We have now included a development scenario for the project in our valuation based on the company’s DFS, although we note that our long-term LCE price forecast of US$6,750/t delivers a materially lower NPV than the US$11,000/t assumed by GXY.
  Earnings and target price revision

 We have made a number of updates to our forecasts and valuation of GXY. Adjustments to our recovery assumptions for CY17 have resulted in an 8% reduction in our CY17 earnings forecasts. We value the Sal de Vida project at $199m or $0.10/sh which along with some other adjustments lifts our target price to $0.46/sh (previously $0.30).
Price catalyst

•   12-month price target: A$0.46 based on a DCF methodology.
•   Catalyst: Achieving its first shipment and securing strong pricing for CY17 have proved strong catalysts for GXY. Translating this success to earnings and increasing market share through expansion are, in our view, the key long- term catalysts for the company. Meaningful progress at Sal de Vida would also be a positive.
  Action and recommendation

 Maintain Underperform. GXY’s successful redesign and recommissioning of Mt Cattlin is a significant achievement. We still expect a large amount of new supply to be delivered over the near term. Whether longer-term demand conditions are strong enough to incentivise the construction of Sal de Vida remains to be seen.