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Red-hot lithium miner Galaxy Resources is contemplating the sale of a stake in its $US1.4 billion ($1.94bn) Sal de Vida lithium development in Argentina as it weighs up funding options for the project.
Galaxy, the best-performed stock of the ASX 200 in 2016 after a 330 per cent share price gain, has been in talks with potential offtake partners in recent months as part of its plans to develop the Sal de Vida.
Managing director Anthony Tse told The Australian those discussions included the prospect of selling a 30-40 per cent stake in the project, which would reduce Galaxy’s share of the project’s $US376 million capital cost and help fund its remaining portion of the capex bill.
The company almost went under in 2013 under previous management as it struggled under the weight of debt, and Mr Tse said he was determined not to repeat the mistakes of the past.
“Having gone through that cycle of deleveraging the balance sheet, we also want to think of ways to not overleverage again and have a reasonable level of the most appropriate financing structure for our projects,” he said.
Sal de Vida would be Galaxy’s second lithium mine, with the company having just restarted its Mount Cattlin hard-rock mine in southern Western Australia. The maiden shipment of production from the mine is expected by the end of this week.
“In some of the discussions I’ve had with offtakes, in the same way we took prepayments for concentrate from Mount Cattlin, we could look at potentially negotiating some prepayments on Sal de Vida offtake,” Mr Tse said.
“Do we want to take 100 per cent risk on Sal de Vida, or do we want to sell down 30-40 per cent of the project where essentially we can raise enough capital to fully fund the equity component or maybe even take some money off the table and help us derisk?”
The company’s efforts to fund Sal de Vida will also be boosted with cash flow from Mount Cattlin as the mine cranks up its output. Either way, an equity raising by Galaxy to fund Sal de Vida’s development looks unlikely.
A recent definitive feasibility study into Sal de Vida estimated a post-tax net present value of $US1.4bn, with the project potentially generating annual revenues of $US354m and average operating pre-tax cash flow of $US273m.
The brine-based development, which would produce 25,000 tonnes of lithium carbonate and 95,000 tonnes of potash a year, is described by Galaxy as “the premier lithium development globally”.
Galaxy director and mining industry veteran Michael Fotios, who joined the board following Galaxy’s acquisition of Mount Cattlin project partner General Mining last year, resigned just before New Year’s Eve following the commissioning of Mount Cattlin.
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