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Deutsche Bank: Lithium supply could soon catch up with demand in 2018, page-173

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stakx

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10/03/18

21:29

Post #: 31665880
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Originally posted by airconditioner ↑

My opinion on what happened to the sp last week may be as useless to you as knife in a gunfight
and I’ll apologise first for boring you with another long one (hey, I’ve been good and quiet for ages - having too much fun on summer holidays with the family etc),
and then take a stab at what has been going on.

The strong quarterly should have cemented GXY in the top 5 profitable lithium producers,
way ahead of rival producer ORE's financials issued on the same day,
and years ahead of the next wave arriving at the same position (specifically wrt to debt and profit position).
It should have taken us to $5, easily.

But 25% down? What a joke. Somebody really leant on that Sell The News Button a little too hard I guess, and created a giant orgy of panic and stop-loss waterfalls.

It was a bit more complicated than that, though..

Anyway. First - about that quarterly -
Just as predicted start of last year, GXY start this year with approx $100m AUD available to fund expansion (inc the LPD stock and the payment from the cheque in the mail for last Dec shipment)
and, even a conservative result for 2018 would see this easily double that by end of this year.
(plus the full whack of paid-off BNP debt facility to exploit, at AT’s pleasure).
That is pretty close to the full capex of a lithium project right there, in cash.
Being this cashed up with lithium bucks already means a lot in investment-starved junior lithium, where the hottest new prospects are up to their eye-balls in debt
and dangerously exposed to any economic downturn.

Unfortunately, 2 news events probably sucker-punched GXY along with other lithium stocks the hardest.
Not so sure about the first and most widely discussed.
Increased production by SQM truly deserves the headline of Attack of the Killer Snail.
And we’re expected to run screaming away now? Years in advance?
As they speed towards us at .002 km/h?
What is the deal with that?
We have our own killer snail moving into position at SDV
with production finally expected this year?

An increasingly brine dominated lithium world is actually good for GXY
as we enter that side of production ourselves with one of the best resources and experienced management teams on the planet.

We all know that mid 2020s will be brine’s time to shine.
That SQM and other brine producers will be coming on strong by then is a given.
That provides plenty of time for GXY’s SDV to be optimised, scaled up to 50ktpa and competing good and hard and benefitting from a much more supportive Argentinian govt economics (= lower cost production advantage). Chile still represents a more complicated lithium production environment (at least to me, looking at the taxation, quotas and some of the production issues they have experienced recently - floods etc.)

Needless to say, Brine will again have the largest share of the production, taking back the crown from the recent concentration on Hard Rock suppliers,
as the cheapest and the most green/efficient.
No hard rock miners will ever match the brine production price
but they will still be needed in the mix to keep up with demand.
Whilst they do, as JL always says, the price of lithium will reflect the costs of the highest producers in the supply mix.

But, for the foreseeable, having both is good because demand is coming on incredibly fast.
Ford’s big lithium plans were undoubtedly the Lithium Good News event of last week, forgotten in the stampede.

But who really knows what is happening with the onset of production in the 2020s, 2030s?
Not me. Not you. Nobody at AFR or Roskil. Nobody at all. Including Sir Joe.
This is all impossible to predict that far out.

Its all opinion. Not fact.

Same as the report Roskil put out.
They were behind the other Bad News Story of the week. Another beat up about DSO and oversupply.
(Yes. Again. What makes it even more strange/suspicious is that they themselves were the ones who were the first to scoff at DSO as anything but a hedging bet and price negotiation strategy when it was first mentioned by Shandong Ruifu in connection with PLS in 2015).

Roskil, amongst the gloomiest and least accurate of lithium analysts in grey old Denmark
get as pessimistic as Hamlet and the AFR goes ga-ga over DSO.
Yes. Again. (these lithium articles are truly just re-treads from mid 2017).
I never saw the actual article - was it in the cartoon/street talk pages or the regular cartoon/street talk pages?
DSO has zero chance of competing with companies in production of spodumene with real/actual concentrators/processor combinations.
Its all about transport costs.
Even if you pay the Chinese workers a stone age pay cheque, it is an eye-waveringly expensive logistics operation ending in a pile of rocks that are sub-standard
and not being converted into anything.
DSO represents the source of the most expensive lithium on the planet and something that nobody was ever even contemplating even a couple of years ago.
Utterly bonkers.
Handy for the Chinese to have as a hedge against moments of short term zero supply and/or outrageous spot price demands, perhaps.
But not a reasonable response to resource scarcity and efficient, cheap production.

Ultimately its a bit like that other famous gloomy Danish prince, who once asked via Willy Shakespeare
"To Oversupply or not to oversupply.
That is the question.
Whether tis nobler in the the mind to suffer the slings and arrows of outrageous shorting at GXY
or by actually backing a m-fing producer at the right time
be eventually “rewarded for our patience” *
etc..etc..”

* BlackRock recently quoted as bullish on lithium production companies on US stock program. Carefully chosen words for sure, but. still. They’ll be right.

The reality is that DSO may even serve to slow down the entry of more “real” spodumene into the market as MIN and PLS chase the DSO dollar
and spend money and time on production that is, at best, only marginally profitable, and at worst is actually sacrificing the easiest to mine areas for the worst possible share-holder return.
All sound and fury. Profiting no-one.
No wonder there are no hard numbers out yet.
Increase in DSO will only make GXY’s spodumene more valuable and increase pricing pressure.

My take on the lithium investment circle of life :

Lithium Oversupply = lithium stocks go down, lithium specs begin to exit stage left, dagger in heart and never to achieve funding. Cheque books go back in the drawer. Oversupply disappears. Prices go up.

No Lithium Oversupply= lithium stocks go up, too many new lithium specs arrive stage right, newbie management teams and feverish HC forums ready to whoop up a pump and dump.
Established producers then announce new production coming on. Oversupply articles appear in media. Return to Oversupply mentality.

Remember, it is important that nobody has been talking about “actual” over supply.
Just more opinions and analysis a long way from the lithium front lines
about projections of possible production that could possibly occur at some point in the future.
Well. Dang. Time to shoot grandma. Its the zombie apocalypse.
Except these particular zombies write articles in the financial newspapers.

The same stuff is being written up every week somewhere by financial zombie hacks.
But just occasionally it concides with a sell-down and then people start believing it.
Then it is is called “analysis” which feels better and more neutral than calling it what it should be - “advertorials"

UBS is, of course, still up to its usual fun and games.
They accidentally broke the surface last week, revealing also that Regal has had their hand in the till (typical behaviour as well).
They played the same game at ORE last year, and that eventually spiralled the price up from the $2s to the $7s.
UBS has been shorting GXY for the last 2 years.
It is absolutely nothing new.
And they are also, very weirdly, absolutely bullish on lithium.
This is just how roughly they play the game. Get used to it.
If you have no stomach for volatility then lithium is not for you.

They will use shorts, day trading, day shorting, swing and long positions, hyped up/down media news, brokers, upgrades and downgrades, a deluge of incomprehensible quanting, bots,
to keep the fear and exuberance at the right levels to move the market around to suit them.
But, criminally self-serving and vicious though they may be, they will eventually see to it that - if GXY continues to perform as an efficient giant money-making operation
that it ultimately moves towards a fairly (and that means expensively) valued share price.

But they are not the only player in the GXY registry.
Not to be too much of a FH conspiracy-licker, but there must at times be collusion between the instos for things to operate as neatly as they do.
Similarly, there is also reasonable evidence of competing forces. One selling down and the other using the opening of short positions as any easy way to force up the share price quickly when the positions are left open.

Yep. Its all going on at GXY and the time period between now and 2021 should see the asset development program that will absolutely make the company into a power house.
Double digit dollar figure for the share price is a given.
2017 was the turning point for lithium vs Oil. Right place and the right time for GXY to be cashed up and expanding.

This company is really a bit like the lithium Rosetta Stone. (the thing that they ultimately used to decipher egyptian hieroglyphics)
Understand Galaxy, read all the announcements, including between the lines, study the market manipulation and critics - and you get a much greater understanding of spec and major lithium, brine and hard rock production’s requirements, obstacles and time-frames.
Slightly unfairly perhaps, but GXY is far enough ahead to suffer some of the most unfair treatment - like an older sibling who needs to fight the parents for the freedoms the younger sibling takes for granted in the years ahead.
But with it also comes the near certainty of Galaxy’s survival and prospering from being on the main stage and making good money.

Even if Roskil is right. Even if SQM’s giant lithium snail slithers across the lithium landscape.
Even if lithium price corrects downwards in a couple of years.
None of this stops Galaxy from making money. It was profitable at $600USD/t. It is making bank in the $800s USD/t.
It will be smashing it at the predicted $1000 USD/t for 2018’s contract.
It will be jack-potting if the tolling arrangement delivers a multiple of this profit margin, as I expect it should.

This tolling strategy is not a tactic that is in play or possible right now for any other new 2018 producer on the ASX.
Galaxy can remain independent and benefit enormously from this period where the only new production from ASX hard rock companies is still the production of big promises.

I expect a period where people will rush to cash in profits in spec lithium.
GXY may well be seen as the safest of the bets for the bags to come from JB and SDV.
ORE perhaps too, now that they have credit-raised, but it remains to be seen if they have learnt anything from their painful construction and commissioning.

I’ve been calling a correction in lithium spec stocks for ages. And I’ve been quite wrong so far, I admit.
We’ll see, now that there have been quite a few strong drops in a row, and likely more to come.
There is often a lot less “brand loyalty” in the pump and dump sector.
With talk of over-supply in the media, there will be no Chinese coming with their cheque books for their stocks.
They will get sold down and the smart ones will again take positions in the producers.

Actual progress with higher shipping prices and construction at SDV this year should present us with a strong fundamental case for a re-rate.
Same with the new contracts, tolling and increased price per ton from the value-adding that this generates.
Not sure why they’ve delayed the fines circuit stuff.
Perhaps the production expansion budget is going straight to prioritising SDV this year?

Is it -
2017 Mt Cattlin
2018 SDV
2019 JB
?
It would be good to see this kind of development schedule taking place.

You can see I find it very hard to stick with what happened last week without talking about what is happening over the next 6 months,
and what has happened over the last few.

GXY was unlucky to get caught up in this media fear bomb right in the middle of a strong move to re-rate (delayed santa rally) to at least match the PLS market cap.
The 2 stocks have been moving in tandem for ages but have now become completely disconnected.

PLS side-stepped their ASX200 short-hazing entry with a fairy floss flavoured MOU and the fortunate short-squeeze it created added 20% to their stock price.
Lucky for them but it really was a bunch of BS and played its part in inflating the investment in a large set of speculative lithium stocks to the point that the sharks
started licking their lips at how to start shaking down the unrealistic gains.

Galaxy has become collateral damage in this profit-taking/short attack on lithium.
PLS should definitely have been forced to consolidate the 80c-$1 range and still may have to do so as production delays loom.
Perhaps an extreme arbitrage opportunity opening up for traders between the 2 stocks,
or perhaps there is was one of the major valuation disconnects that occurred over the last couple of months, where
the market was temporarily given permission to drive up non-producing/spec lithium to wild valuations.

Or perhaps it is GXY finally divorcing itself from PLS?
They won the last round. Next round belongs to us as they are forced to spend the year justifying their current value in 2018 with real production, and GXY starts to accelerate as it moves forward in Argentina.

All these cycles to ride….
If fear continues to swirl around the micro-junior lithium sector (and it really should, for those with unrealistic expectations of near/medium-term production or overly optimistic risk-reward calculations)
then a lot more lithium money should find its way back to GXY quite quickly.
The instos have shaken the whole sector down and their shuffling of the deck may see favour dealt out more fairly this time.

ORE have reminded the market that $300m is a good amount of capex to have for a lithium project
and that no $20m market cap company will ever raise that kind of money.

GXY’s first month of profit out-earned ORE’s first year of profit.
GXY’s second month of profit doubled it.
GXY could easily have $200m in the bank at the end of this year. Who needs a credit raise when the money is flowing in so fast
and the BNP facility is available to exploit?

Under-valued, poster child for ASX lithium and high global profile, but still basically un-rewarded for its progress, GXY is clearly a better bet than the next wave right now,
where valuations have got seriously out of whack and still face commissioning hurdles and delays, and years until their operations break even and repay debt.
First announcements of delays from the next wave - and what happens?
All the investment dollars sit patiently? The shorts take a break?
No chance.

GXY on the other hand has no valuation at all for their non-producing assets.
SDV and JB are not liabilities. They are future share price multipliers and they are now as close, or actually even closer to production that stocks with 100s of millions in valuation for drilling.
2018 will need investors to be more discerning with their lithium investments.
Management and experience is crucial and is still thin on the ground in the global push to bring on production.

A year ago AT pretty much nailed his guidance of 2017’s production output.
Not an easy job from a standing start and so many variables at Mt Cattlin.
I take the announcement that SDV will be in production in 2018 as a serious commitment from the company.
This is the resource that I first dropped 6 figures on GXY in 2015 to see come into production.
Around $10/share I’ll let go of a few of the shares I picked up sub 10c.
Until that point I refuse to sweat the small stuff.

I’ve been hearing that a lot of the new GXY holders are coming from profit-takers in the speculative stocks,
starting to view GXY as the lithium bank for a gentler ride.
Then, out of the blue, they get a week like last week, probably exacerbated by the setting of very tight stop-losses too though and have contributed to the falls.
Shorts + stop losses will do that.

Then people umm and erm about it their re-entry point when the stock starts climbing
and ultimately become the accelerator pedal behind rapid recovery.
Regular trading pattern 101 stuff.

I don’t pretend to have seen this drop coming.
I'm become very used to the sp swinging about as it climbs steadily upwards.
For me, it was not fundamentally based at all - so I bought on Friday and hope to buy again tomorrow.
Buying regularly and always buying fear-driven drops is my simple strategy.
It has worked for me. Its up to each of us to play the game whichever way we want.

Anyway. Most of this I've said before. My apologies for going on.

Next week is a new week. It will have its own big and small news items that will excite and/or scare investors.
Personally, I don’t see the typical theatre of US govt shut down will feature that strongly for our sector or prevent people from snapping up the cheap GXY shares that are sitting there in the $3s.

I’d expect a good week and a giant bounce on Monday as cool heads prevail and realise that this stock has been completely oversold on news that it actually has very little to fear from.
If you were a pattern seeking creature you might even predict that the next pattern to play out was a fairly speedy run up to $5,
particularly if management have something major to announce soon about pricing, tolling or SDV.

All the best
AC

Expand

Will Galaxy Resources Be Next with Some Good News?

https://seekingalpha.com/article/4111348-will-galaxy-resources-next-good-news

The following response lays out the facts squarely asking fellow readers to question whether misinformation (not being fully truthful) is actually standard procedure with GXY:

Where is the deal that GXY CFO, Alan Rule, stated for SDV as an imminent deal since early 2017?

https://thewest.com.au/business/dig...e-to-secure-lithium-says-galaxy-ng-b88561463z

The company has been pinged by regulators and forced to clarify the Panasonic situation. See "Galaxy Resources strikes deal with Japan's Panasonic"

http://webcache.googleusercontent.c...m=1&client=safari&hl=en&gl=au&strip=1&vwsrc=0

https://hotcopper.com.au/threads/ann-response-to-asx-price-query.3731274/#.Wozn9WZL0Wo

It appears the same team of misinformation disseminators were again at it recently on a BMW deal: "Market analysts are questioning whether lithium producer Galaxy Resources could be about to to strike an off take agreement with BMW amid…"
See The Australian, "BMW may sign deal for Galaxy Lithium" February 12 2018 [paywall]

How is it that Galaxy Resources has extremely high profile exposure to ramping misinformation in mainstream press in Australia? Is it purely journalists attempting a fairy tale or something more insidious? You have to ask before you invest why does this occur, and will this pattern continue? How do I know, as a retail investor or institutional investor what is real in the marketplace?

Why will GXY not progress and likely fail ?

Sal de Vida (SDV): SDV has been shown to have a low recoverable rate of lithium carbonate per hectare. It appears the deposit may be full of fresh water which can happen in salars.

https://seekingalpha.com/article/41...le-thumb-lithium-projects-potential-argentina

Almost 5 years since this asset was first acquired and ultimately taken control of by GXY no substantial progress has been made other than opinion pieces that something or someone wants to do a deal. It appears as soon as any hydrologists were to evaluate the project that any interested participant would walk away.

Mt Cattlin: Plagued by problems, delays and commissioning issues. The asset appears to be marginally profitable but at the top quartile of the cost curve. It is clear that once the initial resource is mined (should be gone by now) the costs to mine increase exponentially as GXY chases thinner and less profitable seams at a greater depth. My opinion is this asset has a two year life, the high level of impurities in the deposit do not make it viable in the long term and is likely to suffer the same fate again when it went into care & maintenance

Small deposit compared to PLS or KDR.

Post 28872215 Airconditioner 16/11/17

“In local WA lithium news, Albermarle have put the frighteners on the independent spodumene converters in China with their plan to build a Bunbury processor.
Whether or not it happens, whether GAM blocks them, how much and when it comes online - but even the threat of the withdrawal of their Chinese tolling arrangements put at least a couple of hundred kt hole in forward contracts that nobody but Galaxy is doing anything to fill. No surprise that the sector will now want to lock in Mt Cattlin LT supply contracts.”

Complete obfuscation of the facts! See above for correct information. PLS and AJM will be up and running this year KDR not far behind and AVZ up and running within 12-18 months. Chinese are not held back like miners on Australian home soil. Fast timeframe to production in DRC by the Chinese. No EPA, Workcover, Native Title, DLI regulations,

“Greenbushes represents something that they don’t want to admit -
that theoretic capacity or large hard rock operations seriously lags actual production figures (DYOR check Bunbury port data) and they do not appear to scale well at all.
There is not enough experience on the ground in WA to make accurate predictions of costs this far out from production and the whole “no mica” thing is a fabrication concocted by the Pilbara forum. (DYOR) as was the brine vs hard rock thing. (DYOR)”

Greenbushes is mining at USD 480/ton due to depth. The lithium carbonate onsite is an absolute requirement to extend the life of the deposit. Without this the additional cost of transport would likely make the project not economic. All the easy to access and close to surface seams have all been mined out. The proximity to a national park limits the projects footprint and makes approvals for further development a nightmare. This project is in perpetual decline.

“Still - I don’t mind one bit that the sp has raced ahead in the Pilbara.
It presents a ludicrously strong logical case for GXY’s own rapid re-rate to $5 and beyond as they are a long way from out-producing MT Cattlin and getting their debts under control.”

“For some reason GXY’s additional assets are seen as a road block to further sp increase. Beats me why. Each asset should have a commensurate valuation with the unbuilt projects of the next wave because they are just as certain to come into production. A new JORC for JB is due very soon and should make a few worshipers of the word “BIG" very happy. 6.53% spodumene and 75% recovery were the old figures, and already well inside the quality range of GB. Plenty of new drilling now complete to suggest that the new jorc will dramatically increase the tonnage (and possibly even grade??)”.

James bay is in deep freeze over the winter period. Open cut/ pit mining in -17*C average is not easy, just see what happened to RB Energy. The processing circuits keep freezing for multiple years until the project went bankrupt.

The cold weather combined with transport distance will make this another high cost project globally and at risk to any price corrections.

“A wild and unscrupulous prediction from me for the next 6 weeks’s action -
up, flat, flat, up, down, flat, suddenly up another $1.
$5+ under the Xmas tree and to celebrate GXY’s 10th Birthday”.

JANUARY 24, 2018 14 Investors are rightly taking steep projections of demand for lithium from battery makers with a pinch of salt. Australian miners of the briny stuff have seen stocks sell off an average of 12 per cent since Monday last week. The context is that shares in Pilbara Minerals and Altura Mining have more than doubled since September, although they have yet to start selling the metal. Rival Orocobre gained two-fifths in the same period. Its share price has held up compared with rivals. Last week Toyota Tsusho, the trading arm of the Japanese conglomerate, paid a 17 per cent premium for a 15 per cent stake. Car battery technologies rely heavily on the material. But investors should stay clear of producers’ shares at these levels. In October, Macquarie analysts projected 45 per cent demand growth until 2020, but expect it to outstrip supply only two years later. They think half of lithium demand in 2022 might come from electric vehicle batteries — 10 times the share last year. Past estimates have tended to be over optimistic. High share prices are underpinned by such bullishness. Pilbara, which mines rock deposits for the metal, is expected to become one of the largest producers along with Orocobre, which extracts the metal more cheaply from salt flats in Argentina. Toyota Tsusho already owns a quarter of this project and the new funds will be used to boost capacity to three times the 2018 target. Orocobre’s contract prices increased 3 per cent in the most recent quarter with an operating margin of two-thirds. But price increases have recently slowed. Supply gains must ultimately bring it down. The sector’s recent volatility highlights nervousness. The miner’s shares trade at 35 times their forward earnings, two-fifths above Galaxy Resources, but far below Pilbara and Altura. Mineral Resources trades at half that multiple and already produces substantial tonnages. The hype about lithium stocks will continue, despite production ramping up. Strategic investors such as Toyota Tsusho need the metal at any price. Stock market investors do not. The Lex team is interested in hearing more from readers. Are lithium stocks overvalued?

https://www.ft.com/content/526082ec-facc-11e7-a492-2c9be7f3120a

Alternatively:

https://newsstand.google.com/topics/CAAqJAgKIh5DQkFTRUFvS0wyMHZNRFZ3WWpKc2NCSUNaVzRvQUFQAQ(google account required)

Compelling evidence don't you think of what the insto's think of Galaxy?
GXY Price at posting: $3.04 Sentiment: None Disclosure: Not Held
9 Upvote

8 Great analysis

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