If they are producing 40,000-45,000t, but have shipped 15,000t,
In the short term, they are carrying a much higher cost of production (cash outflows) across much lower sold spodumene quantities (cash inflows).
You could argue they are doing this to back-end their contracts due to optimism/belief in higher prices in 2H...but we dont know that yet. Management have been silent. As I have said a few times, managements messaging and the reasons for why they have adopted this strategy will be important. e.g. if it us because there is an LPD converter that they are saving spod for, I bet we'll be back in the mid 2's real quick.
Also, the existing contracts may not be as airtight as we think - by way of example, GXY did not meet their required shipment quota for last year - believe there was a 10% allowance but their production volumes indicate they didn't even reach that minimum quantity - I don't recall anything being said or coming of it...so clearly there is some wiggle room. There could then well be wiggle room on other aspects. Could be why we are deferring shipments - but there could be a more sinister reason which management announce on Thursday. I'd like to think they are very mindful of disclosure but evidently there is a little bit of playing 'fast and loose' with that.
Case in point - when did they mention the Floater Road delays? Was that market sensitive? It was only announced 2+ months after the event...even though one of those analysts had asked a very pointed question in the prior quarterly and been told there would be no issue.
How about how long YOP would take? YOP has been talked about for yonks - and was meant to be well and truly done in 2018.
Management have delivered what they said thus far, but they have been slower than anticipated - suggests a lack of technical/engineering mindsets in leadership (cue, new CEO - a great move IMO so long as AT now has free reign to focus on deal-making and approved of the move). So I suspect the market is not pricing in potential positives until they are well and truly delivered.
Also, we may not be desperate for cash but I can't see how it's a great situation to be in. Yes, the fact we have a lot of cash allows us to play a (presumably) deferred shipment game...but the proof will be in the pudding. Some of management's previous claims about spodumene pricing have evidently been off the mark. And so if we defer spod shipping until 2H...two questions:
1. When were they going to tell the market?!?!??!
2. What if 2H pricing is the same or worse....and now we have weathered ore to sell?
The cost guidance that was given does not include royalty, marketing and various fixed costs...or even costs like resource drilling. Looking at cash production cost is not the whole picture. So while we had great margins in 2018...what does 2019 margin look like? We don't know because management won't talk pricing. One could argue it's because they are getting better than market pricing...well in that case next annual report will see a significant rerate. But if it's worse, things may not be as rosy as some holders think.
But in this regards, I think GXY is way better off than AJM and PLS - so yes, if it's hurting us at low spod prices, it's hurting the other newcomers too.
The problem is all the smoke and mirrors GXY have been applying - to a layman or generic analyst - it smells like they have something to hide. Maybe not and time will tell but big/seasoned investors don't like uncertainty, and that's where GXY sits right now.
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