Good to see a big positive movement right across the lithium...

Good to see a big positive movement right across the lithium sector
and some strong moves in the US markets, shrugging off another round
of FUD.  

Perhaps the Galaxy bear trap has now had enough fresh meat in it
(retail shorters entering way too late, fear-driven sales at the bottom by frightened longs)
to slam it shut and switch-back-to-long for a double dose of easy trades by the market makers.

For those that follow the shortman gxy graph religiously, I think there is a distinctive pattern to a short raid getting old
and it involves the short percentage starting to oscillate up and down.
Some of it is just crappy/late reporting (I’m not even sure if Chi-X trades are reported)
but if you drill down into the number of shorts placed and left standing on a given day,
once that starts going up and down fast, it is showing that positions are closing.

The final dessert of the shorter’s meal is the arrival of retail shorters.

I feel slightly sorry for them. Perhaps already red and dejected from the performance of their long position,
they sell at the bottom and then short as a can’t-beat-em-so-may-as-well-join-em strategy,
just in time to feed their trades into the large scale covering machine moving back up….
then cover nervously at the first hint of a loss. And then - do then buy higher again? or wait and buy a lot higher?
damn.  The market is cruel.

The thing about shorters is that they’re their own worst enemies,
and, like a plague of mice, once the easy pickings are gone they start eating each other.
Then the plague can be over almost overnight.
You could of course say the same about Longs too, of course - but I think we’re made slightly differently.
Research is key and the ability to ride the waves of media hype and crash, as this whole sector grows into maturity and some semblance of transparency that has eluded discussion about lithium pricing.

Anyway - I am now officially bored with shorting talk.
I think its time to start looking over their heads of the evil little dwarves who have been running us down
and take a look at what else has been happening.

Now. Where were we?
(cracks knuckles and fires up the typer machine)



I think a big part of the new change in sentiment is the new VW "Electric For All" campaign in the media promising they are going to be the Tesla-killers and new EV market leaders on quantity, quality, charge time and most importantly find the price point that will get them into our garages.
https://insideevs.com/vw-electric-for-all-campaign/

The plan for 10m VW EVs by 2022 is probably a much faster roll-out than anyone was expecting and a comparatively short period before their ads will be all over our TV screens, and then the cars parked in our driveways.
Also a plan that will need a lot of batteries.
VW really has the brand power to put the middle class behind the wheel of an EV by the end of the 2020s.
Up until now they have experimented with differing strategies in different markets and it looks as if they’re going to go all-in on the all-electric ID range
rather than the wimpier hybrid solution (which is pretty much a tiny incremental efficiency gain and the death rattle of the ICE engine).
The new EVs on Australian streets in a couple of years will do a lot to normalise lithium miners away from this current tech bubble stock short term bitcoin mentality that the shorts are preying on.

The cynic in me also sees the little media blitz about the VW EV roll-out plans as a way to keep the other recently exposed darker news off the front pages about the German auto companies’ collusion between the heavy weights as they attempted to defeat emission testing.
That little emission saga is the gift that keeps on giving to the lithium sector.
It put VW definitively on the path to EVs exactly when we needed the world’s biggest auto company to change direction, and the manufacturing scale they bring means that the price point should be able to catch and undercut Tesla’s attempt at more middle class price points.
Very likely that the first years of the next decade are going to see some extraordinary changes.
Potentially a very hard-fought battle for even lower priced vehicle from China seeking to undercut even the very cheapest petrol vehicles.

And for every EV that is bought in Australian suburbia, it will be followed by the conversation around the dinner table that night
“Barry. Do you think its time we got a battery system too?"

Meanwhile out in the deserts of the Middle East, the Saudi Kings of Oil are finally getting even keener on EVs
and have just splashed out $1b USD into a Tesla competitor, Lucid.
The new change in lithium sentiment probably owes something to this development starting to sink in too,
although there are dozens of other factors playing a part - not the least being technical charting stuff
and there must be a good dose of expectation that of a repeat of the seasonal run with higher pricing and lithium sector confidence.
You can’t overlook that ORE, PLS and GXY are all moving together at the moment.
Everytime you try to single out something that shorters may have targeted, you have to ask yourself, why are the same corresponding trades happening at the other 2 stocks 2 - with such different production strategies.
It's clear that we have been put in the same bucket and treated exactly the same.

So. Anyway. The Saudis were identified as the source of financing behind Elon’s privatised Tesla thought bubble to defeat shorters,
but perhaps that may or may have been before or after Elon had another bong at Tesla HQ.
(only kidding. Elon for President!).

The Tesla deal may have also been predicated on the success of Saudi’s own IPO of Aramco.
Unfortunately that hasn't quite worked out the way they wanted.
The Saudis have now quietly put their Aramco IPO on hold
https://www.copyright link/news/world/aramco-ipo-halted-oil-giant-disbands-advisers-20180823-h14f0n
and have skipped waiting for the IPO funds and immediately borrowed $11b from the banks instead.

Wait.
No. They have said they weren’t scrapping it. It was just happening quite yet and it has nothing to do with the lack of interest
… (uh huh...nods head… of course it is...)
https://www.cnbc.com/2018/08/23/saudi-aramco-ipo-riyadh-denies-its-scrapping-plans-for-listing.html
Nah. cough BS cough.

SO - the plan for the Aramco IPO is dead but nobody is sitting and crying about it in the Saudi palaces.
16 major banks agreed to loan them $11b to get on with it and EVs and lithium seems to be looming large on the shopping list.
They have an economy that is quickly headed into redundancy and they need something that will provide
revenue for the next 100 years.

Either that or the new EV interest is all because they have finally let women drive in Saudi Arabia
and everybody now has scratches and dings down the sides of their gold & bullet proof Mercs.
Forget the Oil Shock - its time for auto-pilot to save the Saudi Kingdom from a lady parking crisis!!
only kidding ladies..

I’ve posted about this Saudi Aramco IPO before because I think it becomes a very visible proxy for the investment world’s level of interest in Big Fossil Fuel
vs their interest in Renewables.
It is clearly getting much tougher to sell Big Fossil Fuel with the fast approaching tipping point into EVs.
It was only a few weeks ago that I posted about rumours of their IPO heading south from lack of interest.
Now, not only is it on hold but the Saudis have
a) not even waited for the IPO proceeds but but borrowed the cash instead
and
b) have already used a $1b chunk of it to show the world they aren’t interested in investing in petrol either

$10b left now in the account and its a decent sized lithium-powered stalking horse with very full saddle bags,
and, spent super wisely, it would be just about supply the current short-fall in lithium mining/brining project investment.
However, I just can’t see those guys with their golden cars and cocaine-addled princes spending that wisely though — can you?
My guess is that they’ll invest first in other high visibility flashy investments, rather than nerdy and wise ones.
They could (just about) take out any lithium company they liked but the unfortunate thing is that they really wouldn’t know the first thing about lithium production.

And $11b on the credit card to make timely investments is nothing to them.
Their sovereign wealth fund could just swallow the very biggest companies in the world without it touching the sides.
The Saudi Public Investment Fund has already got a decent chunk of Tesla and Uber (nice going there with that pairing for the future)
and
you know who else?
38% of our good friends POSCO, which was one of their very first investments in an international business once the fund was permitted to invest in overseas companies.

The new Lucid deal adds more weight on the demand side of the ledger and more un-factored supply is now required.
btw: Rounding out one of the last of the auto company laggards in the EV race, Subaru were last week’s news breaking their E-virginity with a hybrid Forester for 2019.

Anyway. Good on the Saudis.  They are not the enemy.
The only ones left to fight are the mad rump of the old order who have framed their belief in fossil fuel like religious zealots
and
unfortunately, for us - they are the Old Rich White Guys still in power in our backwater states and provinces
and also unfortunately the White House.
The same types are running some of the investment banks and institutions who miserably failed to see this whole lithium revolution coming
and have run the mother of all shock and awe campaigns for the last couple of seasons to dislodge Mr and Mrs Retail from their positions.
Around about the time I was getting into Galaxy, Deutsche Bank were selling up.
Yep.
That is how well the biggest bank analysts were predicting the future back in 2015.
And we are expected to respect the opinions of the likes of Morgan Stanley now?

I’m getting more interested in what the big miners do next.
How are they explaining the continued sleeping at the renewable wheel to their share holders?
These are huge companies that will probably never get the same chance to take out established lithium producers so cheaply as they will right now.
They have already publicly accepted the future does not need quite a few things they have a lot of.
I’m not across BHP strategic policy but there was some interesting changes regarding nickel recently (ie Nickel West being for sale at the beginning of the year - then being upgraded.. something like that anyway. DYOR). Its subtle repositioning stuff, but they are, for the moment at least, sticking with parts of the battery metal mix that they understand, whilst recognising this is a silly time to divest themselves of nickel just when a new run is about to start.
Rio have Jadar moving glacially.
Have either of these 2 big miners done enough?

I wonder if either of them made an appearance in the Magnificent Seven List for SDV partnership?
btw: I’d be inclined to add at least one tech company to the Magnificent Seven.
Probably at least one German or Japanese auto company too.
AT did say there were some unusual players in the group and I haven’t heard anyone mention anything sufficiently left field yet.
A tech/computer company like Google or Apple that is getting closer with its final design documents will be starting to work on supply chain logistics
and may be take a keen interest in partnerships or offtake.
Sal de Vida represents one of the biggest high quality salars, capable of scaling up to corporation supply level.
Its inevitable that both the tech giants companies (I really don’t put Facebook in the same category)
are plotting to swing out of the gates and testing bunkers and have a shot at grabbing poll positions in the race to dominate 21st century computer-powered transportation (as these things are basically just laptops with wheels and the best Operating System will win).
Apple's Titan project is getting bigger and bigger (was it 5000 staff have access to the internal project network)
and they’ve head-hunted way too many big names attached for it to simply be a software project.
I expect Google/Apple to repeat the Ford/Holden of the EV auto industry, eventually transforming it away
from the concept of personally owned transport into a service industry, more like a phone plan.

I think for the moment, its pretty blindingly obvious now that if you’re a car company and want to stay in business,
and want to have sell your product in China and Europe into the next decade and beyond,
then you’re going to need a good line up of EVs to be able to satisfy public sentiment and govt restrictions.
US and Japan are also rapidly growing markets for you.
Despite Trump.
Because - don’t forget California alone has already bypassed the UK to become the 5th largest economy in the world
and is all in about the green agenda - EVs, renewables, grid batteries, solar etc. They also pretty much set the Green policy agenda for another string of democratic states.

Interesting Bloomberg interview video last week with Gov Brown of California defending his power to legislate clean power however the good progressive folks of the west would like (including plans to be carbon free by 2045)
against Trump’s threats to over-rule them - to which he says “we’ll be in court longer than Trump is in office”.

https://www.bloomberg.com/news/vide...s-trump-is-sabotaging-u-s-auto-industry-video
A few choice quotes -
“The next 10 years will show the dominance of the electric car”
“Trump must be stopped” (if US is to compete against Chinese dominance in EVs)
“5m EVs by 2030”

Another link that puts the pace of change for lithium very much in perspective.
Take a look at this old report and read the page on lithium in
Australia’s Identified Mineral Resources 2008
http://www.ga.gov.au/webtemp/image_cache/GA12116.pdf
(page 41)

2008 and Greenbushes is the only lithium deposit know in Australia.
Nobody else was even thinking about it. No other explorers listed as known.
Well - maybe one or 2 had just started thinking about it. Galaxy would go to IPO at the end of the year initially targeting tantalum, but switching over to spodumene.
In 2008, Greenbushes was the biggest producer of spodumene with an output of 192ktpa (less than Mt Cattlin produces now) at grades between 4.8%and 7.5%.
Chile was the world’s biggest producer of lithium carbonate with 9kt.

Wow. 2008 Lithium is a cute little mini industry that could deliver their batteries with Pedro and 3 donkeys.
And if Saudi’s Aramco had got their sheet together and IPOed in 2008 - it would have been the hottest ticket in the world, with every fund and institution clawing over themselves to get in…

How things change.

From that point lithium suddenly got hot, as our lives filled with devices and EV and battery tech started getting very good.
By 2009 Mt Cattlin was in operation and by March 2012 Galaxy had built a carbonate plant in China and selling product from Jiangsu,
and had also taken over Lithium One and picked up Sal de Vida and James Bay in the process.

Unfortunately all of that breakneck speed growth proved a bit too much too soon and
we all know that the company just about imploded with debt.
And, since AT was brought in as The Debt Fixer - its very clear that this herculean task has framed his aversion to ever getting into that position again.
Being debt free was mentioned how many times in the earnings call? A dozen?
Mr "Debt Free” Tse you’ve done a good job. Pity that the share price could not be defended from the wolves post-POSCO.

But share price is temporary and getting operations up and running are the real things of legacy and substance for a company and management team.
I don’t think you can overlook or ignore the fact that Galaxy got in so early to the lithium biz.
You have to ask - could the POSCO deal have been landed by any other Australian lithium company?
Nah. They put in the time and enough studies to make even the nearby vacant lot valuable.
If we have experienced a disappointing Year of the Dog share price for the moment at GXY then this single transaction represents more money
than many of our rivals will make in the next few years.

The experience with production and sales, and the early established position with clients in this Chinese dominated industry will help to define this company as one of the safest pairs of hands for the next period of production expansion.
Almost everyone else is brand new to this product and process and some of the latest legal issues (KDR - again in the courts??) perhaps illustrate that some of the companies may not quite have their house in order to really execute on the big deals just quite yet.

Yeah the GXY share price has been smashed down and, right at the moment, there is no absolutely no logic to the lack of differentiation between the status of Galaxy's operations and cash balance, and the juniors that may never get up and running, or are only just beginning to get their hands dirty and debt off their backs. After all the banging on about mica here in 2016 - it appears that some of the new operations are not producing product with any less than Galaxy…

It just goes to show how thick the veil has been behind the new lithium mining operations. We will see how closely the new operations come to the claims from the marketing dept.
Every time I spend a few minutes reading around in hard rock project forums on this site I see the same dismissive posts about brine. I think its wrong to be dismissive about the contribution that brine will make to supplying one of the cleanest and most competitively priced forms of final product lithium.  It will cost some people a fortune to ignore brine. Its just not coming on as fast as Morgan Stanley have said, and its coming from us in Argentina (not SQM and ALB in Chile).

You have to ask - with all that Galaxy has going for it - why is this company getting so much negative manipulation?
And the clear answer is that the biggest institutions are jockeying for a bigger slice of the pie.
This has been another well-orchestrated lithium dip for them to load up for what looks to be shaping up as an excellent Year of the Pig for lithium
and Galaxy in particular.

If the instos had actually lost faith in lithium then we’d have seen them selling and moving on.
Instead, they’re buying and pushing us around in the process.
New York Life went to 9% of our registry as soon as we ducked under $3.
A bunch of the very biggest US funds are all up to their ears in Galaxy now, cashing in on the chaos that has been created.
Those instos that have rented out some of their positions to shorters obviously expect the share price to snap back soon enough.
Or - like, duh - why let someone borrow your car and drive it off the cliff?
In the meantime I guess the only good retail share holder is a confused one.

Yes. We have been smashed and the only negative fundamental argument we have in front of us to consider, is not that Galaxy is not being paid well for its product (it is making absolute bank right now) or failing to do the big deals (hello POSCO) - it's that there is some evidence that a few other companies selling on the Chinese spot market have not been getting paid well, and that is largely because they are not producing a good product.
Chinese home-grown harder rock or brine has always tended to be weak sauce.
That is why the Chinese turned to Australia to save them from the weak local lepidolite
and why South America has set the standard for good quality brine.

Its just not enough to provide sufficient rationale for close to 50% of share price destruction
while record profits flow through the door and the POSCO deal effectively underwrites and agrees with the company valuation,
whilst simultaneously sweeps away any doubt that they believe that Morgan Stanley are right.

This is an absolute race to get production set up as fast as possible, grab market share and clients
and for countries and corporations alike they don’t want to be missing a lithium chair when the music stops.
And yet. So few operations are coming online. We have a few new entrants in 2018.
But who is ready and financed for 2019 plant construction?  I can't see any who are going to be making much of a contribution to supply for the next couple of years.

So...
How exactly is any of other people’s problems a problem for Galaxy?
Well, it's fair to say we are all trying to predict the future with our investments
and a company’s future success always depends on the next contract price (and the next and the next etc).
The game for Galaxy is not necessarily that lithium prices always stay sky high, it is that we can quickly expand geographically (making it cheaper to service other markets and clients) and vertically integrate (Mt Cattlin + Chinese processor jv) or create finished product (SDV and JB) without needing to double handle transport or share profits with downstream processors.

The POSCO deal signals that Anthony Tse has not been restricting his deals and negotiations to China.
It was clever to establish deals with the Koreans.
The history with Mitsubishi is also a Japanese relationship that can be built upon.
For the moment, expanding operations into 2 more countries potentially brings new production closer to new non-Chinese clients
and means Galaxy is doing its bit to give Euro/Japanese/Korean/US battery plants and economies access to fresh supply that is not dominated by Chinese foreign policy. The little episode of Trade War posturing and retaliation is an example of why Galaxy is smart to bring on a diversified production and clientele.

It would be unwise for the world to hand China control of lithium and EVs or to underestimate the wave of demand that is coming on from new previously unfactored demand sources. One of the almost unimaginably large new markets is India, as they rapidly attempt to address their pollution and energy problems with Chinese-style heavy handed govt stimulus to rapidly increase EVs and lithium battery tech.

Don’t you need some decent reason to believe that there is going to be worse pricing in the future?
Surely? You can't just say "too good to be true" without looking at the explosion of demand
and spending a bit of time understanding why supply response is much more complex
that smashing together some Iron Ore type operations.
The much-hyped DSO supply dreams have completely fallen over, just as we always knew they would.

The possibility of over-supply is too weak a bed time story to scare the already supplying companies.
Clients need us to survive and prosper.
Demand is currently going exponential (10x required by 2025) and, as share holders in a lithium miner, we all know here how long things take to get done.
There are many phases to commissioning and fine tuning the plant, and its more complex than hitting a particular grade.
Impurity profile is at least as important to the final customer and I think what was being explained by Alan Rule and AT at the last
earnings call was that clients and suppliers basically tune their plants to work very specifically with a product for the best quality and recovery,
making it harder to just swap in other suppliers.
For a hard rock plant, I think PLS was a pretty fast build operation and they were pretty much 3-4 years from plan to production. Their own announcements say that it will be a year to fully commission the plant.

As for Galaxy’s clients, the hydroxide price in China has been stable and now rising again - so its really stretching it to assume lower pricing for our spodumene while such healthy product margins are being made.

The Mt Cattlin recovery upgrades are at least partly focused on increasing the margins for the plant.
The plans for vertical integration operation that AT was talking about in the last earnings call, are obviously the logical evolution of the tolling negotiations
and detailed conversations about how to align the 2 operations as profitably as possible.
A profit-sharing jv for at least a portion of Mt Cattlin supply would perhaps set up a fairly permanent business relationship.
Galaxy is the only ASX company to have operated a processor before and its planning to build and operate another at James Bay.
Could it be followed by another processor plant. It would satisfy a famous ex GXY forum poster’s posthumous wish.

Perhaps because there is so much of GXY’s plate already the we haven’t heard anything of plans beyond a 3 asset Galaxy.
It is enough for the company to chew on for now but they must have longer term expansion plans.
I’d love to hear more from AT about future expansion beyond the 3 assets. Where does he see Galaxy in 2028 - or does he want to keep the cards secret, sort of like the possibility of selling the northern SDV tenements, that none of us even knew were in play...?

Each day (with very few exceptions) GXY trades more money in shares than any other lithium company on the ASX.
Its been a regular hyper-volatile highly liquid cash cow for the traders and bankers and the fun and games probably won't stop any time soon - because of a lot of that safe hands/profitable appeal that it has means that a steady-nerved long can also build a cheap position, same as the instos are doing in the background.
Every day in the mid $2 range is another day another insto can move in for a new long position and disturb this annoying accumulation period.
The price can’t stay down here.
Its too damn easy to buy here and feel easy about making a good investment for the future.

There are probably close to a dozen catalysts for a good run now
and stuff like this VW news just keeps coming, standing in fierce opposition to the weak predictions of Morgan Stanley.

If we’re being expected to believe that we’re down here because the POSCO deal is in any doubt, then the confirmation of payment should be enough to act to remove the brakes.
Final investment decision, partnership and offtakes should follow - again with more cash for SDV. Then construction starts.
Then JB looks in the last phase of enviro (and possible govt grant) - according to a recent post by @Gameplanon .
Perhaps even some special dividend if there is a surplus of cash slushing around, and I can’t see how that won’t be the case if
the 4 sources of possible additional cash all come through
1) SDV partnership from equity sharing in SDV plant
2) SDV Offtake (with advance payment)
3) JB finance partnership from equity sharing in mine and processor
4) JB offtake (with advance payment)

Whilst other newly minted lithium companies (most recently notable management/legal issues at TAW and KDR) experience the complex growing pains of getting up onto their feet and establishing themselves,  and dealing with production, debt and finance and the ASX itself,
Galaxy will be moving onto financing its second project, the company making Sal de Vida project. And then the third.

Its ridiculous that the sp got down to these levels again but I haven't spent any sleepless nights
because I never believed the over supply argument and the correction was always going to come.

And - to bring this post full circle again….
What was that bit again about the Saudis owning a massive chunk of POSCO….?

Cheers
AC