Company Overview - Galaxy Resources Limited is an Australia-based company engaged in mineral exploration and processing. The Company's principal activities include the production of Lithium Carbonate and exploration for minerals. Its segments include Australian operation, Argentina operation and Canada operation. The Australia operation segment includes the development and operation of the Mt Cattlin spodumene mine and exploration for minerals. The Argentina operation segment includes the development of the Sal de Vida project and exploration for minerals. The Canada operation segment includes the development of the James Bay project and exploration for minerals. The Mt Cattlin spodumene project is located over two kilometers north of the town of Ravensthorpe in Western Australia. The Sal de Vida Project is located in north-west Argentina. Its James Bay project is located in northwest Quebec, over two kilometers south of the Eastmain River and approximately 100 kilometers east of James Bay.

 

GXY Details
 
Significant ramp upin productionat Mt Cattlin: During the March 2017 quarter, Galaxy Resources Limited(ASX: GXY) reported that ramp up and commissioning of the Mt Cattlin plant was substantially completed and the plant achieved 100% of its throughput nameplate capacity of 210tphshortly post the end of quarter. During the ramp up period, ore throughput totalled 248,488 dry metric tonnes (“dmt”) with the plant performance continuing to meet production expectations in a steadier state. Since recommissioning, Mt Cattlin has produced a total of 34,000 dmt of product including 23,467 dmt of lithium concentrate for the current quarter. In January, Mt Cattlin dispatched first shipment of 9,755 dmt. During February, heavy rains and severe floods in the Great Southern Region of Western Australia led to temporary suspension of mining activities. However,with strong site leadership and robust systems, there was limited impact to the dispatch of the second shipment of 13,700 dmt. Further, product quality for the next shipment is in line with the specifications, contract requirements and with the third shipment, Mt Cattlin will complete its 2016 contract off take supply obligations priced at US$600 per tonne. Thereafter, all subsequent shipments will be on 2017 pricing terms, which is US$830 per tonne for 5.5% grade lithium concentrate and up to US$905 per tonne for 6.0% grade product.
 

Mt Cattlin - Production and Sales Statistics(Source: Company reports)
 
For Q1FY17, production costs (excluding royalties and marketing fees) at Mt Cattlin stood at US$389 (A$514) per dmt of spodumene produced. Although the plant output for the quarter was below target production rates, it is expected that unit production cash costs will further reduce in the coming quarters as the operation reaches planned monthly production rates.Notwithstanding the continuing ramp up and commissioning of the operations during the quarter, Mt Cattlin generated a positive EBITDA for the quarter.Further, scoping and design work began on refurbishing the mine’s fixed crushing circuit, with a view to re-starting inFY17, to increase the plant reliability and reducton in input costs.With expanded capacity at Mt Cattlin, Galaxy resources is positioned as a major global supplier of high quality lithium and expected to generate substantial cash flows in 2017.
 
Extension of environmental permit for Sal de Vida and Drilling work at James Bay: During the quarter, the SDV Project was granted an extension of its environmental permit by the Mining Secretary of Catamarca. The renewal of this permit will allow the project to move towards the definitive test work phase, all the way through completion of construction to commissioning. Importantly, field drilling of the initial two production wells is ongoing along with a third exploration well. In early March, the company has commenced drilling work at James Bay and is focused on exploring and developing the lithium resource contained in numerous outcropping spodumene-bearing pegmatites. Currently, the resources at James Bay stand at 22.2Mt of 1.28% Li2O grade. The new drilling program targets to triple the aggregate 14,000m of depth drilled so far on the project, and will consist of drill holes at a deeper depth and closer proximity.
 

Development Projects (Source: Company reports)
 
Lithium demand and pricing to remain robust: The lithium market, particularly in China, is expected to remain robust in terms of demand and pricing for the year, due to the sustained growth in demand from the battery and electric vehicle segment. According to recent industry reports, production of NEVs (new energy vehicles) in China was estimated at 700-800,000 for 2017 against the 517,000 vehicles reported in 2016, which represents a 35-55% increase in NEV production volume. Notably, combined with the launch of numerous new electric vehicle models increase of vehicle sales in other markets, the global electric vehicle sales is expected to reach 1 million in 2017. In 2016, 81% of those vehicles produced in China were pure electric and reported a growth of 64% year-on-year, with the balance being hybrid electric vehicles reporting a 16% year-on-year growth. In addition, passenger vehicles represented 67% of all NEVs produced, with the electric and hybrid categories in that segment reporting a 73% and 30% year-on-year growth,respectively. Moreover, another strong year for lithium demand is expected, primarily driven by the adoption of new energy vehicles globally, particularly in China. Additionally, the lithium ion battery is leading as the preferred energy storage platform for not only transportation applications, but also stationary storage and well established consumer electronics segment. 

Global lithium demand estimations(Source: Company reports)
 
Historically over 70% of LCE production in China is dependent on spodumene supply from Talison with limited availability from domestic production and imports from South America. With the recent Tianqis decision to not sell spodumene for third parties, Mt Cattlin is the only new independent supplier of spodumene (Mt Marion offtake 100% secured by Ganfeng) to other lithium converters in China and has signed offtake agreements for 120kt volume in 2017, at US$830/t for 5.5% grade product, representing a 38.3% increase over 2016 pricing.
 
New Debt Facility with BNP Paribas and Equity Capital Raising of A$61 million: During the quarter, Galaxy received commitments to subscribe for A$61 million worth of ordinary shares via a private placement to domestic and international institutional investors. The placement consisted of the issue of 1130 million new fully paid shares at a price of A$0.54 per share. Further, during the quarter, Galaxy entered into an agreement with BNP Paribas for a new secured debt facility for up to US$40 million. The proceeds will be used to repayment of the outstanding balance due to OCP Asia and to further strengthen the company’s balance sheet and increase its financial flexibility to progress its development work at the Sal de Vida and James Bay projects.
 
Financials: For FY16, Galaxy Resources reported a steep decline in revenue owing to low financing income for FY16 ($29k) against a high base of $4.2 million in FY15. However, the company has reported profit from continuing operations of $122.7 million against a loss of $15.6 million for FY15, led by impairment reversal and realized gains on financial assets. Cash flows from operating activities stood at $2.6 million for FY16, while the cash flows from investing activities was an outflow of $15.0 million. For Q1FY17, both net cash from operating activities and investing activities were an outflow of $3.0 million, $1.1 million, respectively; and as on 31 March 2017, the company holds a cash balance of $40.1 million.
 

Multiple Catalysts for Sustained Market Re-rating (Source: Company reports)
 
Stock Recommendation:The stock moved up by 58.3% over the past six months, while it declined about 14% over last three months (as at May 09, 2017) owing to volatile conditions. In the last five days, the stock recovered about 13% while Blackrock Group acquired a 5.6% interest in the group. Given the latest developments on project commencements and robust outlook for lithium demand and pricing, we give a “Buy” recommendation on the stock at the current market price of $ 0.49

 
GXY Daily Chart (Source: Thomson Reuters)

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