Hi
@vin123
Its a good point to bring up but I think you're reading that chart slightly wrong.
The reason for that is that its measuring LCEs which is a confusing thing to use to compare the 2 types of production - but I'll do my best to explain it a little more.
Whilst it is true that, as the newest producer, Galaxy's costs are high at this point,
what you have put up is a chart showing 1000s of dollars per ton. Not 100s.
(but I think they're messing up their USD and AUD with GXY).
LCE is confusing because it is approx 8 tons of spodumene to make an LCE, or Lithium Carbonate Equivalent.
I think whoever prepared that graph wasn't the full bottle on that calculation.
However, to properly compare you really need to look at the entire profitability of the operation. GXY actually is on track to produce 20kt of LCE per year, likely even more if recovery rate is actually increasing per month.
So, what it loses on costs per ton, it makes up by shipping a great deal of product, in comparison to some of the operations that it is compared with.
Thats the thing about hard rock. It can crank out a lower grade product that is more costly than brine, but makes up for it in pure volume.
The costs comparison between brine and hard rock of course favour brine. Always will.
That is precisely why Galaxy's future lies in the low cost production at SDV and vertical integration of processing at James Bay, and possibly Mt Cattlin too.
But - there are some major inaccuracies in the costs on that chart.
Citi Research have not done a good job.
For example last costs given by Orocobre are $3,565 per ton in the March quarterly
https://hotcopper.com.au/threads/ann-march-quarterly-activities-report.3385866/#.WTv2HxN97jA
They are also shipping approx half as many LCE's as Galaxy (20 vs approx 12 when you consider their ownership in the project), but being paid slightly more per ton. But the ORE product, unlike other brine producers, has also required post-processing to achieve battery grade.
I'm sure if you spent a little more time in the various quarterly statements, you would also see that the brine costs in that graph are all out of date, or using a few little input credit calculation tricks. And the un-named ones are hard to work out who and what they are actually talking about.
Greenbushes (presumably that is depicted as Tianqi in that graph) has been running for longer than 10 years now, so its a very mature operation with the best grades in the world. Galaxy, in comparison, is not far behind if their costs are truly in the approx $4,500/ton range vs Galaxy's approx $5000/ton. This is the only like for like comparison on the chart and Tianqi's costs could be stated to be about as good as it will ever get for a hard rock mine. I just don't know if they're accurate though - not much else on that chart is.
Citi's graph truly compares apples(brine) to oranges(hard rock) and then uses kiwi fruit (LCE) to compare them. Its a pointless metric for costs because the ultimate profitability of the operations are so different, with hard rock requiring additional processing (exclusively in China at the moment) and brine does not ( unless you're Orocobre - and the costs for post-processing of their lower grade product is not actually available anywhere to quantify at this point).
LCE is a metric better suited to measuring demand than production.
Another useful one is capital costs for plant building per ton for the 2 assets.
Chris Berry's post-Montreal analysis (
http://www.discoveryinvesting.com/b...trial-minerals-lithium-conference-in-montreal ) saw them as over-lapping to a greater degree than I was aware. That is a good thing as far as SDV goes. Certainly the costs for the new hard rock mines in Australia are much higher now than they were when Mt Cattlin was built.
Chris makes a sort of veiled case for new producers to consider smaller operations to begin with so that they don't come unstuck trying to commence with massive scale operations.
Galaxy has already stated in the latest announcement that they expect costs to be coming down this year.
I think that alone pretty much answers the entire point of your post.
This is only the first 6 months of Mt Cattlin's operation and its entirely normal to have higher costs as a plant ramps up.
Give it a bit of time to get the processes all smoothed out, recovery increases - and then you should see the costs lowering. You can also take Galaxy's costs as a good guide for the kind of costs that other plants will aspire to. Greenbushes is a private company and Oz lithium projects haven't really been able to benchmark costs with any accuracy until Galaxy produced figures. New plants of 2018 and beyond will not have it quite so easy as Mt Cattlin, and are likely to face much more difficult commissioning phases, simply because GXY's plant was restarted and upgraded, rather than built from scratch. Even that took around 8 months. Investors in other hard rock plays are being more than optimistic to believe in the build to ship date estimates that are so commonly quoted in these forums.
Far from Bigger is Always Better - some of the planned bigger plants are going to find exactly the reverse happening as there is more that can go wrong. 6 months in and Mt Marion still has a number of circuits that need to be installed (fines and mica processing) that add a great deal to their transport costs as it prevents them from shipping from the closer port of Esperance.
Other oz lithium plays continually predict they will have low costs by accounting for tantalum credits in their calculations.
Galaxy just shipped tantalum so it would be fair to take that into consideration when making those comparisons. We just don't know what they were paid for it yet - but then - neither would any of the operations seeking to pull off that cost deduction.
Citi's graph looks like it is taking into account some brine operation's potash credits (which Galaxy accounts for separately in the latest DFS).
Anyway...
Galaxy has nothing to hide and it has been said that funds are able to contact production staff at Mt Cattlin directly and ask any questions they have about operations. Obviously BlackRock would have done their due diligence in regards to costs and were happy enough to substantially increase their holdings here. Having high costs now is more than bearable given the profit margin, the likelihood of even higher contract pricing for 2018 and the virtual certainty that this is something that will continue to improve over time as plant recovery steadily increases.
