With all the A40 and geopolitical discussion here it seems nobody seems to have paid any attention to Ganfeng quietly upping their stake in LAC, paying $160m USD for another 13%.
Ganfeng now own 50% of LAC.
I can’t find a complete breakdown of all the LAC investments in one place at the moment but the other major investor is Bangchak, a Thai oil company who bought their position with something like $100m in 2017.Ganfeng put in $87m USD last year to take shares out of SQM’s hands.
Its relevant to us here in Galaxy because this is a major investment in brine at the same scale as SDV- a 25,000 ton brine plant. This kind of money shows the market that the big players are still fully expecting business as usual to continue in Argentina. The Argentinian lithium biz has bi-partisan support but Ganfeng’s vote of confidence is a very timely reminder that a big company doing its DD is willing to back it up with substantial cash.
This last payment nominally values LAC at approx $1b USD but is currently trading at $419m (CDN).
So much for SDV being worth nothing.I’d pick up a LAC position myself, but the likely bag of profit is nothing in comparison to the head room on investment here once SDV moves forward.
The SDV resource is larger and higher grade. It has already earnt the company $400m and will earn billions more in revenue. We just need Simon to sign off on a construction plan.
All this talk of a “lithium bubble” but the value of LAC finance deals have only increased in the last year.
Perhaps that is because, despite all the talk of pricing, that there are still shipments of high quality brine going out to clients at $15k/t (SQM mentions in recent shipment list).
If hard rock is under pressure it will only drive more money to look at brine as the safest option.
No major holds only hard rock assets at this point.
Brine’s cost of production is unassailable in any low pricing environment.
I personally see A40 as a distraction.
It is a car accident and everybody wants to stick their beak in and get involved.A40 simply are not profitable and none of us could claim to know precisely why Tribeca have lost confidence in A40’s mining plan.
Presumably, Galaxy have had some faith in them, or at least they did when they invested $20m
but we don't know the time frame or strategic purpose of that investment exactly,
nor if something has occurred very recently that has made Tribeca pull the parachute cord.
Is it just greed? Is management the problem? Or is it operational - LOM, commissioning, plant issues, strip ratio, contracts, low likelihood of lowering production costs etc?
We don’t know. A40 holders have been kept in the dark and misinformed about the mine’s progresss.
At the very least, Burwill look like a disastrous offtaker.
There are too many issues and complications with A40 to make glib calls about what either of these 2 companies should do.
We are not standing in the data room. I’m not fully across the take over rules of the Singapore exchange or whether the key to LOM expansion requires those Cowan tenements to be secured.It may be too much of a nightmare to untangle their corporate structure from the twin indexes.
All very well to grab A40 and claim double spodumene production but if its hamstrung by low LOM, it doesn’t represent t a good use of GXY’s funds, or to relinquish its Cash Reserve when other companies are struggling with debt.
Why the absolute fixation on A40? There may still be better operational (and possible profitable) targets in the battery sector that emerge from this period.
I wish A40 well, for the sake of their holders and employees, but if the latest AFR article is right then A40 is, at least temporarily, has only succeeded in jumping from one frying pan into another one.
OCF initially bailed out GXY, but the terms were onerous, requiring share issue AND high interest.The best thing that GXY did was pay out that debt with a new facility from BNP Paribas.
The investment loss on A40 may still come good.
Galaxy was probably always willing to go long as the cash reserve is quite deep.
Now it has to go a bit longer. Worth remembering that this has happened to all the majors, and all major financiers of lithium projects in the last year.
Ganfeng have been investing hand over fist in other projects, and the losses incurred over the last year is not stopping them from the strategy of taking as many pieces of pie as they can.
Perhaps they know something that Hot Copper does not seem to understand yet.
What that is - you have to assume is that they know that this media-propelled frenzy about over supply can turn to deficit very quickly. And that this is virtually inevitable, given that, despite Ganfeng and the other majors’ best efforts, the supply side is NOT keeping up with the demand that is being built.
What is important when you look at supply chain is where and how a company is positioned in the market.
Galaxy entered the supply chain quickly, picked its clientele and has retained Mitsubishi to enforce its contracts and payments (none of this payment under floor price stuff has happened here).It has kept Galaxy payments ahead of its competitors and now the product quality and grade justifies has been put beyond the doubts that many used to cast on GXY’s product.
Each gigafactory needs supply. A decent sized one needs an SDV or a JB and the last period has been brutal in terms of actual construction by juniors.
ie There hasn’t been any. No new hard rock or brine projects breaking ground this year.
LG Chem just announced another $424m USD Cathode plant in South Korea aiming to take another 15% of the existing market share.
https://www.reuters.com/article/us-lg-chem-investment-batteries-idUSKCN1UK0P8
Not sure on its size but aiming to employ 1000 workers and 15% of global cathode, must be a pretty decent LCE requirement.
More previously unfactored demand too.
One of my investment reasons still keeps firing almost every day. The big boys are still committing to huge investments in battery production.Eventually this dam wall is going to bust.
Asian metals (a slightly dodgy source TBH) is now tracking upwards again. We'll see how reliable that is and whether it proves to be a fore-runner in spodumene recovery.
Regardless of what occurs at A40, the main point is that Galaxy’s cash and profit position is putting them in the frame each time that the market looks for leadership and investments.
That’s a good position to be in.You have A40 holders ready and willing Galaxy on to take them out because they can see that management here has been stronger than most give credit.
GXY have been challenged many times and the company is in good shape. They have skills with negotiation and deals, even this last apparent loss on their $20m investment may be more “strategic” than I give them credit for.
I believe if GXY does not make a bid for A40 then their DD and highly credentialed M&A team is telling them that there is too much risk and that they have better irons in their own fire.
The main focus is Galaxy’s own assets and the biggest jewel is SDV.Hot Copper and Australia is fixated on hard rock but the big money has always been in brine.
Ganfeng have just proved that there is still strong appetite for brine projects in Argentina.
In my opinion, all that Galaxy needs to do now is to make a convincing start on SDV construction, or to post definitive results of its alt tech and there will immediately be offers of finance, offtake and partnership, in much the same way as a company like A40, which is potentially gut-shot but has still “allegedly” been offered another $60m, and has dozens of posters here willing GXY to throw everything at taking on the responsibility of fixing its broken wing and getting it ready to fly.
I hope it does, for all A40 holders and employees, but to be honest the most important thing that may come out of all this fixation on another company is the rumour that Japan and Korea may be about to seriously invest in spodumene conversion capacity.
If so - a very interesting chapter is about to start.
Others may have already picked up that this challenges China’s ability to keep careful control over the contract pricing. India has also been purchasing spodumene and plans stirring for their own converters.
There are major benefits in just hanging tough, getting through this period, concentrating on keeping costs low and keeping the cash reserve intact.
I expect GXY management to have learnt some important lessons about hasty investments that can go south very quickly.If Galaxy (and holders here) can remain focused and disciplined we will emerge from this period with the highest market cap of the oz pure play sector again, simply because the threat of implosion from debt and cash squeeze is not currently present here. PLS and AJM probably will need to CR to calm their farms. If A40 only are getting their hands on $60m - they may still be short of working capital and additional capex bills that their discount shipments can't cover.
Maintaining the Galaxy balance sheet advantage is critical at this point in time.
It makes sure that we’re a front-runner when the market turns and remembers that there is actually a critical supply deficit, a deficit of experienced lithium management teams and very few companies that have assembled the quality of assets that Galaxy has managed.
If we take over A40 - fine. I haven’t been studying the entrails with a fine tooth comb.
If we don’t, I won’t be crying about any missed opportunity.
More like.
Bullet. Dodged.
On with the real reasons most of us invested here - SDV and JB.
