galaxy to buy talison ore, page-8

According to the 28 April 2012 release, Mt Cattlin's long term spodumene concentrate production cost is A$300/tonne and Talison sells spodumene concentrate for US$310/tonne.

As stated in our initiation note released 28 April 2012, Mt Cattlin was not designed to be a standalone operation, but an important feedstock supplier for Jungian. Its estimated long term production cost base of A$300/tonne is roughly equal to Talison’s Greenbushes operation average sales price of US$310/tonne for chemical grade spodumene concentrate. In this respect the value of Mt Cattlin to Galaxy lies in its consistency and security of supply of concentrate for its higher margin downstream businesses. Consequently, the rationality behind the Company’s strategy not to sell spodumene concentrate to third parties and to instead temporarily mothball Mt Cattlin’s operations, thereby saving approximately A$4m per month in costs.

A three year spodumene concentrate contract with Talison makes sense because it locks in the price and adds three years to the life of Mt Catlin by preserving the resource.

If the price of spodumene concentrate goes up, GXY still gets it cheap from Talison for 3 years, and Mt Cattlin becomes profitable again. Meaning GXY can buy cheap from Talison and sell for profit from Mt Cattlin if it wants.

If the AUD drops, Mt Catlin becomes more profitable and can startup again and produce profit - which hedges against a falling AUD.

GXY is in a better position than Talison because it has a lithium carbonate plant in China which makes much more profit per ton of spodumene concentrate. When battery production commences - more profit again per tonne of spodumene concentrate.

Apparently, Chengdu Tianqi cant consume all Talison's spodumene concentrate. They know WA spodumene is better for making batteries than SA brine. The are prepared to share it with GXY but not Rockwood. Perhaps Chengdu Tianqi wants Lithium carbonate from the Jiangsu plant or perhaps they have plans to amalgamate?