An offer of $2.28 is a bit too much because it's valueing GXY more than it's Enterprise value. My take would be that it would be closer to $1.00 after MIN does it's thing to squash the junior players like GXY.
This is because MIN has huge advantage over GXY in a lot of areas, but I will only go to a few (as I'm not the type to write long posts like airconditioner)
Shipping:
MIN at Port Hedland
GXY at Esperance (by the time GXY Shipping comes to Esperance, MIN would probably have done two shipping already)
Infrastructure:
Port Hedland is essentially a mining town, with rails, access, etc and a number of other mining companies are also in Port Hedlands. DSO is the cheapest way to get the ore ship and there is no need for a processor in Australia. There are already processors in China, but though I don't have the cost of processing lithium DSO but can suspect it will be much more economical. Iron Ore (FE) are largely shipped DSO as well (I believe)
Also with the Dirt - The Chinese are quite creative, which can include repackaging it with minerals, etc and make it into fertiliser and resell it elsewhere.
Mine:
MIN has a 120million tonne mine compared to GXY's 16million tonne. This gives it economies of scale and can outlast, and out ship GXY. MIN Wodgina site has about 1.5% lithium grade while GXY has about 1.08% lithium grade. All up, MIN has about 174 million tonne mines at its disposal.
Moat:
MIN has other operations that produce income and can afford UNDERCUT ALL WA Lithium players. GXY needs a 2018 contract soon (it is already JUNE) and if nothing is forthcoming in 3-6 months, then yes.. it is basically gone... because a sizable investment has been made by shareholders, etc to bring the plant to life and take 100% stake but only receive 2016 and 2017 pricing contract/revenue but won't cover the $200M loss made over past few years.
SDV and plans to raise $500M to build it is very risky. I did mention that by the time it can produce lithium of sizable quantity, it is already 2019, or latest 2020, which is when it's peaked. By that time, plenty of customers would have gone to other players like ALB, and others. It'll be hard to get a net return out of it (ie: Invest $500M, and get nett $50M)
And I haven't even started on Greenbush's lithium mine, with 119 million tonne of Li Ore in Western Australia.
GXY Price at posting:
$1.76 Sentiment: Sell Disclosure: Not Held
