What do I think?
Got a few minutes?
The micro story is the H1 release has reminded Galaxy that it has a very sharp stick
and those underwater shorts are just one big fat juicy eyeball.
Time to exert some real pressure on those who have been leaning on our patience so heavily for the last year.
So -
now we have some momentum back the question quickly turns to - what happens next?
If you’re looking at the course of sales today you see something that wasn’t there in any other rally.
There are now huge fat walls of support forming behind the buy lines
and you will have seen massive line wipes that make it look like a fool’s errand to attempt to cap the price.
Some good signs of patient holders that are happy for it to track inexorably north.
What we don’t want is it galloping off on thin volume, and that isn’t happening this time.
That was just fresh meat for the shorters last time. The thin volumes and lack of support made it easy to push back
and trigger profit-taking.
Now shorts are over-extended (perhaps even maxed out at their ability to find fresh supply?)
and there is currently no indication that they have the means or will to double down and risk shorting into other insto's covering.
As we head into the predicted Q4 rally, I believe retail are willing to be patient enough
to see where this can go. We don’t dictate the price action anyway.
All we need for a decent change in our fortunes is a reversal of the shorting appetite of a couple of instos/funds - UBS primarily
and once they start going longer (or covering or whatever the hell they have been doing throwing shares back and forth between accounts)
then shorting by the smaller players will become an increasingly unrewarding activity. UBS have recently been responsible for 15% of all trades and at a staggering algorithmic-powered speed.
I believe that the signs are there now in recent broker buying reports that they may have altered course here, and at their other favourite lithium short snack, ORE.
Technically I think we are safe to call this a strong price break out and one that will be very difficult to put back in the box
and return to range-trading the sub $2 range.
Fundamentally, we all know JB drilling and DFS, The Much Anticipated SDV Deal
and the next quarterly with its nice fat boosts to the bottom line and profit ratio
each have a booster inside them to our prospects via confirmation of this company’s fundamental strength and growth.
We also all know that lithium prices are consistently tracking upwards, indicating that the new Contract 3 for 2018 will also be higher.
No question.
There will be no new entrant with supply by the time it comes around.
The negotiations will simply be a bidding war.
We also know that there is a LOT of money washing around in the system
here, and internationally
ready to pick a lithium winner
or already flushed with quick winnings from some of the specs ready to find it a better home.
A lot of of that cash is in fairly inexperienced and poorly researched hands.
This is not helping the disconnect from reality - and by reality I mean production vs hype.
We are heading into a quarterly that should show as much bottom line profit for GXY
as Orocobre did for their entire year,
but produced in a single quarter, and all the while still moving ahead on 2 new projects.
For the accountants here its very simple.
The quoted projected costs from the last quarterly for Q3 are $27m for total expenditure (including $18.9m on production)
are deducted from 42kt of shipments at $860USD/t - giving approx $45.5m AUD revenue
and $18.5m profit.
That is a tidy sum to charge into Q4 with. Should easily cover the pond works and camp construction at SDV
and by the end of Q4 another similar amount.
Those claiming that Galaxy’s H1 balance sheet will resemble the same expenditures going forward -
please just go take a look at Page 4 of Appendix 5b of the last quarterly
(
http://www.galaxylithium.com/Investor/170631QuarterlyReport.pdf)
H1 accounted for $22.8m in plant refurbishments and $18m in pre-payments.
There was expenditure on drilling and camp establishment at SDV.
There were also finance costs for the new loan facility.
None of these can be carried forward, as some commentators do, in their sloppy 140 character down-ramp of Mt Cattlin’s opex.
That is why the instos are back on the trail northwards again.
It is time to add value to their investments and make it more expensive for retail to get back on board.
They can not be seen to be missing out on getting while we’re still on the ground floor.
Bringing it back down again will be too costly and risky in Q4.
The H1 had nothing new in it except to re-confirmed that Galaxy was still on track with its figures
and the fundamentals driving the next quarterly were still in place - a lowering of costs
and plans in place for higher recovery over the next period.
SDV and JB can be put aside, and we’re still massively under-valued on PE.
I think we’re set now for a major recovery and the one that I’ve had zero problems in being patient for.
This short squeeze is just a part of it.
This insto-dominated stock has some very big buyers that can line wipe at will.
And they’ve found their will in the fundamentals again and the timing is right.
They can not risk being without substantial positions for the next announcements.
This is only 42c in the old money.
There are instos accumulating now with a $4 targets in mind
and by the time it gets there, the fundamentals will have only improved the prospects.
I hope Galaxy has a publicity campaign ready to roll for the SDV announcement.
That could almost be enough by itself to take us there by itself very quickly.
What resistance will there be to these announcements if
they are even half of what we are hoping for?
If some of the shorts can hold out now a bit longer to wait and see - then they’ll definitely be covering en masse if we get closer to $2.50.
That will take us to $3 and then FOMO and momentum does the rest -
but this time, with a news flow that should support the valuation
and new instos and investors who have been waiting for exactly this confirmation of Galaxy’s next step.
But I’m losing the thread of what I wanted to say.
As much as we can be relieved that sanity has prevailed again and the share price
is again sailing north then its also important to understand why there has been so much volatility
Its a good question to ask
as we head into a week with some serious acceleration.
WTF has been up with ASX lithium this year?
We know that lithium and the electric vehicle story and the battery factory growth continues to gather pace.
We know that China is playing hard ball to win the driver’s seat in EVs.
I believe that the volatility has been all about the opaque way that lithium has been traded.
One moment we are deluged in BS from Mac Bank’s over-supply then its Deutsche Bank over-egging DSO.
Fundamentally both were lies. The price of lithium itself is the final proof.
Lithium pricing has shown a steady increase all year, despite the new plants entering this year (Mt Cattlin, Mt Marion).
Next year, perhaps, a couple more but its all happening too slowly to make a serious dent in demand.
New plants will open with a trickle and its wise to consider that some may miss their dates or still fail on the doorstep of their own success.
The DRC stocks have been tempting some - but DYOR - a new govt policy for 40% royalties was announced a couple of days ago and new higher taxation
is going to cool their heels and show exactly what sovereign risk actually looks and feels like.
The smooth progress of production here from NY’s first shipment at Mt Cattlin is evidence of safe managerial hands.
so..
What is the problem that puts a good company like GXY under the heel of the shorters?
Simply that people can make stuff up very easily - and there are people ready to buy or sell that have listened.
Even the guys at the Big End of Town, that should know better, seemingly don’t and fall for any flag-waving hype machine.
“When enough people make false statements
words stop meaning anything.
Then there are no more answers
only better and better lies"
Jon Snow
When I lied to my father
he would just look at me over his glasses and say
“Whose intelligence are you trying to insult. Mine or yours?”
I’ve been here a while now and I’ve seen people on HC and Twitter insulting their own intelligences pretty mercilessly.
Poor things - really laying into themselves with the most twisted logic possible.
Galaxy gets down-ramped regularly by some commentators eager to push their book of micro-juniors.
My advice would be to get well out of the way before these people decide to take profits
because they’ll not only do that, but do it in an orchestrated dump,
and then make sure the market knows what they have done and take a lot of their herd onto the next target.
Easy come and easy go in the world of pumping micro-juniors that are years from proving themselves with production.
But its not all the pump&dumpers own fault.
There have been willing ears and wallets ready to listen to the BS.
Irrational exuberance that doesn’t understand that the period to production is measured in years
and an absolute failure to grasp that without experienced management and the required skill-set in lithium production,
then the likelihood of exploiting any lithium resources will become a series of costly misadventures.
I could list more than a dozen ASX lithium companies already that have embarrassed themselves already
with stupid decisions, legal entanglements, failed drilling results, failed take overs, contractual stuff-ups, poorly conceived or unfair deals.
At the heart of them all is that in the rush to lithium, most don’t know what to do when they find it
and there aren’t many around to help them.
Exactly how many people in Australia have worked in the lithium industry?
A figure I saw recently was that there were about 1000 in the lithium industry in WA already.
But how many of those have any experience or understanding of lithium-specific plant operation/construction or management.
How many of the next wave have anybody on staff that knows exactly what they’re doing?
And this is WA - centre of Australian lithium and a player in hard rock for many years.
The situation must be even worse in other places without any history of production.
This isn’t iron ore or gold or coal.
This is a sector dominated by chemical companies, producing a complicated chemical product.
Mistakes happen. Setbacks and delays and accidents all stand in the way of new or experienced producers. Even Albemarle blew up a shed full of their own concentrate recently.
AT said this year would be the one where Galaxy put some distance between itself and the speculative sector.
Its certainly done that fundamentally
but I believe that the absolute opacity of lithium pricing and Chinese control has been the major problem.
Pricing is published in China - but we don’t have any real context for it
and, I believe, its treated very suspiciously.
It leaves it open to people saying whatever they like.
That may well change soon.
The London Metal Exchange, that already tracks cobalt is on the verge of starting to trade lithium as well.
https://www.ft.com/content/24c36964-89af-11e7-bf50-e1c239b45787
The mention of this seems to coincide with a recent uptick in lithium stocks
which were already starting to show signs of it being time to reward the actual producers with some decent backing.
I believe that the fact that cobalt price has been so much more visibly tracked that has given the bigger ASX cobalt plays
a measure of stability over lithium this year. Nothing quite like a daily graph to reveal the demand profile
and it will add in an extra layer of broker-driven demand in physical product
which could further sap the weak supply response.
Benchmark is also going to supply lithium prices to the bigger news outlets.
Both these will be really good to see. Lithium pricing emerging from the shadowy merchant alleys of China
and being discussed with the same certainty at the Price Of Gold.
It will serve to make our jobs easier as investors and provide a bit more defence against claims of over-supply.
It will certainly help our share price too. Some instos won’t get behind a company until it shows positive profit growth over at least 2 quarters
and they will appreciate being able to look at the London graphs to track the wisdom of their investments.
Those algorithmic stock sites still reflect badly on Galaxy as they track back into a period of absolute catastrophe - but they will also be a very different story soon.
With what is coming down the line and the money that will be looking for strong, stable lithium growth stories,
by the time Galaxy turns 10 years old at the end of the year,
there will also be a lot to celebrate on this forum.
AC
