The Galaxy Resources Limited (ASX: GXY) share price has declined 13% in early trade after making two market announcements.
Galaxy is a lithium business that has hard rock mines and brine assets in Australia, Canada and Argentina. It also owns lithium production facilities. It wholly owns the Mt Cattlin mine in Ravensthorpe, Western Australia. One of Galaxy’s key assets is the Sal de Vida lithium project which the company says has the potential to be an excellent low-cost brine-based lithium carbonate production facility.
Sal de Vida Update
Galaxy and JP Morgan have been looking at strategic joint venture opportunities for Sal de Vida. During this time, Galaxy successfully completed the US$280 million sale to POSCO of a package of tenements in the north of the Salar del Hombre Muerto.
However, to date Galaxy has not been able to find the right terms for what it believes appropriately values the “world class nature” of its Sal de Vida asset. Negotiations are ongoing with a shortlist of interested groups.
Galaxy outlined to investors that it’s in the strongest financial position it has ever been in with around US$285 million of cash & liquid assets, zero debt and cash flow from Mt Cattlin.
March 2019 Quarter Update
Galaxy announced that it produced 41,874 dry metric tonnes (dmt) of spodumene concentrate, with 17,021 dmt in March at an average cash cost of US$453 per dmt produced.
For the full calendar year, Mt Cattlin is expected to produce 180,000 dmt to 210,000 dmt.
With the James Bay Project, the Canadian Environmental Assessment Agency has progressed the project to the next step of evaluation, Galaxy has signed a pre-development agreement with the local Cree community and phase 2 of the test work program that is being conducted by Nagrom is now 80% complete.
However, Galaxy warned that the ongoing trade war between the US and China is affecting the lithium battery supply chain and is resulting in continued softness of pricing, plus materials and battery producers are maintaining very low to zero inventory levels.
Is Galaxy A Buy?
To steal one of Warren Buffett’s investment criteria, Galaxy is not within my ‘circle of competence’.
I am hesitant to consider any commodity-type business where it is a price-taker rather than a price-maker of its products, although it does seem as though Galaxy is in a good financial position and may profit from the growing lithium demand.
But, I prefer businesses developing their own products such as the ones mentioned in the free report below, over resource businesses like Galaxy.
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