Sources told this column managing director Anthony Tse, chairman Martin Rowley and other directors were in Japan for a signing ceremony two weeks ago. Shipping data also shows product from Mt Cattlin being shipped to Japan. Galaxy is developing the Sal de Vida lithium brine project in Argentina and has for months flagged discussions with 'investors, offtakers and potential strategic partners' for the project's production. It is also studying the development of its James Bay lithium project in Canada. Galaxy chief financial officer Alan Rule told reporters on the sidelines of the Diggers and Dealers conference in August the company had held discussions with large car manufacturers about lithium supply, particularly from Sal De Vida.
Galaxy 100% Owns Three Excellent Lithium Projects
Galaxy currently has a market cap of AUD 1.15b (~USD 900m) and 100% owns three outstanding lithium projects. Their flagship Sal De Vida posted an August 2016 DFS result with a post-tax 8% NPV of USD 1.426 billion, or AUD 1.8538b, and an IRR of 34.6%. Added to that are the Mt. Cattlin lithium mine, which is currently producing at capacity of 220-250ktpa spodumene, and the James Bay lithium spodumene project.
Valuation
My DCF model currently values Galaxy at AUD 4.36. My target is assuming both James Bay and Sal de Vida make it to production within the next three to five years. Bell Potter, in their August report, have a valuation price of AUD 3.35.
The analyst consensus price target for Galaxy Resources currently is AUD 2.95. The reason this is lower than mine is that analysts are heavily discounting the value of both Sal De Vida and James Bay as they are not yet fully funded, and also 2018 off-take for Mt. Cattlin is not yet finalized. While I agree this is reasonable and cautious, if these factors were to change with a substantial off-take deal with, say, Panasonic or Volkswagen (OTCPK:VLKAY), then price targets would start to rise toward my target -- especially as funding became clearer.
Conclusion
It is looking very likely that a very significant off-take deal, or equity partnership, is just around the corner for Galaxy. Other miners such as Pilbara Minerals (OTCPKILBF) and Altura Mining (OTCPK:ALTAF) have all signed superb long term off-take deals over the past year, and I would expect Galaxy will do the same if not better.
Galaxy's advantage is they have both brine and spodumene, they 100% own their three projects on three separate continents, and they have very strong connections in China. Those investors who might have missed some of the lithium boom until now would do well to urgently jump aboard Galaxy Resources.
As usual, all comments are welcome.
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Disclaimer: The information in this article is general in nature and should not be relied upon as personal financial advice.
Disclosure: I am/we are long ASX:GXY, ASXLS, ASX:AJM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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CRFY)/Tesla (NASDAQ:TSLA) Deal With Galaxy
