Is this why Galaxy Resources Limited shares are going gangbusters?
James Mickleboro | May 17, 2018 | More on: GXY KDR ORE PLS
One of the best performers on the local market on Thursday has been the Galaxy Resources Limited (ASX: GXY) share price.
In afternoon trade the lithium miner’s shares are up 7.5% to $3.35. This means Galaxy’s shares have now climbed over 45% since this time last year.
Why are its shares on fire today?
With no news out of Galaxy, today’s significant move higher is a bit of a mystery.
However, there has been a positive development in the industry this morning that could potentially be a catalyst.
That was of course Kidman Resources Ltd (ASX: KDR) signing an offtake agreement with Tesla, Inc to supply lithium hydroxide. Kidman and Tesla have signed a three-year fixed-price take-or-pay basis agreement, with the latter having two options to extend the agreement by a further three years.
Another potential catalyst could be a delayed reaction to global lithium giant Albemarle’s recent quarterly update.
As many readers will be aware, there has been a lot of talk about the lithium price collapsing as supply increases.
The good news for Galaxy and peers such as Kidman, Orocobre Limited (ASX: ORE), and Pilbara Minerals Ltd (ASX: PLS), is that Albemarle recently reported a lift in prices.
According to its quarterly results release, Albemarle saw lithium prices realised increase 14% in its first quarter thanks to growing demand.
In addition to this, on Tuesday Reuters reported that leading lithium miner Sociedad Quimica Y Minera has caught the eye of China’s Tianqi Lithium.
Tianqi Lithium is rumoured to be nearing a deal to buy a 24% stake in the Chilean company for US$4.3 billion, which was a 22% premium when announced.
And finally, another reason for today’s strong gain could be a good old fashioned short squeeze. At the last count, Galaxy was the fourth most shorted share on the ASX with 14.7% of its shares held short.
This positive news flow could have led to short sellers rushing to buy shares to close positions, driving the share price higher.
Should you invest?
I think Galaxy is one of the best options in the resources sector and could prove to be a good long-term investment option. However, it is an extremely volatile industry with wild swings occurring almost daily. This certainly makes it a high risk investment option and one that may be unsuitable to the average investor.
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