Galaxy Resources Limited (ASX:GXY): Shares Falter Despite Impressive Production Ramp Up
Bhuvnesh Rai July 18, 2017
Lithium miner
Galaxy Resources Limited (ASX:GXY) reported an impressive second quarter with 41% higher lithium concentrate production compared to the preceding quarter; however, company shares ended the day lower by 4% as selling pressure sustained.
There were a number of other positives in the report related to its redesigned Mt Cattlin project:
- Plant recoveries during June stood at 61% against the budgeted target of 50–55% — output accelerated in June to 14,038 dry metric tonnes (dmt), a significant ramp-up against the entire quarter’s production of 32,998 dmt of lithium concentrate
- Average production cost without royalty and marketing cost stood at US$393 per dmt for the quarter; but, improved to US$334 during June
- Improved cash flow outlook as all shipments will be based on 2017 pricing terms of US$830 per tonne for 5.5% grade lithium concentrate, compared to 2016’s pricing at US$600
- The average realized price for the quarter was US$724 per dmt, resulting in a cash flow of $13.2 million before capital expenses and customer repayments, leaving GXY with $40 million in cash
Additionally, the company said pump tests on first production bore at the Sal de Vida project showed better than expected results, while work on feasibility study advanced at the James Bay Project with phase-2 drilling results due in September after a successful phase-1.
Galaxy is in discussions with potential joint venture partners and is also in talks with a “number of strategic partners and customers” to secure financing and sign offtake agreements for the Sal de Vida project, located in north-west Argentina and touted as one of the largest undeveloped lithium deposits across the globe.
Bears still dominate
As reflected in improved pricing terms, the demand outlook for lithium remained robust, driven by strong growth in electric-vehicle production in China and the US. The company’s optimism for strong medium-term demand also relies on the “high potential mass energy storage sector” — Tesla recently announced “the world’s largest lithium battery storage system in South Australia”.
GXY currently trades at a market capitalisation of $730 million, which is 50% more than the book value of its assets. If the company successfully develops its prime lithium assets, the net present value of the assets could be well in excess of $1 billion.
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Reducing cost and improving production and pricing didn’t seem to attract big-ticket investors as shares plunged 4% Monday, following the announcement. GXY shares have experienced spikes in short-interest (bets on drop in share prices) whenever the stock appears set up for big gains.
Clearly, some of the biggest investors are betting that the company will face enough executional hurdles to ever deliver such impressive returns. As of now, they definitely seem to have an upper hand. But, if GXY sustains the recent production gains amid robust lithium pricing, the tide will turn in the favour of company shareholders. Short-squeezes aren’t uncommon when a small-cap company like GXY gains the escape velocity to become a consistently profitable entity.
https://**.st/news/2017/07/18/galax...falter-despite-impressive-production-ramp-up/
