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
 
Extensive high grade mineralisation at James Bay Project: Galaxy Resources Limited (ASX: GXY) has announced for further assays from its 2017 drilling campaign at the James Bay Project in Quebec, Canada. In late March, Galaxy’s James Bay team commenced a ~31,000m diamond drilling campaign to extend and develop the existing resource and, the entire program has been said to get completed by the end of August. The earlier assay results (drill hole JBL17-19, 98.0m @ 1.62%, as on 02 August 2017) have confirmed the extent and continuity of Spodumene mineralization, while they have been re-confirmed elsewhere in the pegmatite swarm (drill holes JBL17-21, JBL17-36, JBL17-38 and JBL17-39, below) with the latest assays. Mineralisation remains open below and to the west of the currently drilled out resource. Drill hole JBL17-21 (with drill hole JBL-17-20) extends part of the resource a further -75m vertically below the current resource. Moreover, highlights from the most recent drilling and assay include 68.7m at 1.55% Li2O from 49.7 m to 118.35m (drill hole JBL17-21), 45.5m at 1.66% Li2O from 280.5m to 326m and, 30.20m at 1.52% Li2O from 51.23m to 81.43m (JBL17-35).
 

Long section of the James Bay Pegmatite Swarm; (Source: Company reports)
 
Mineralisation remained open and untested below current drilling in the centre, and dips westward. While assays have been received for a further 24 diamond holes for 4,824 of NQ (47.6mm core diameter) drilling, drill hole JBL-17-21 returned a cumulative 199.60m (down hole) of Li2O mineralisation including a cumulative 21m @ > 2% Li2O. Of these, the lowermost three intercepts fall outside the current resource and demonstrate the significant down dip potential of the James Bay pegmatites.


Assay results for drill hole JBL17-21; (Source: Company reports)
 
Mt Cattlin operations transitioned into commercial production: Mining operations at Mt Cattlin achieved full production levels during June quarter, with total material movement of 571,638 bank cubic metres (bcm) of waste and ore, including 303,394 wet metric tonnes (wmt) of ore at an average grade of 1.12% Li2O. Further, mining volumes increased by 147% from the March quarter mainly due to a 222% increase in waste mining volumes. Ore treated increased by 32% to 334,036 wmt and the average ore feed grade improved to 1.15%, while Spodumene production increased by 41% to 32,998 dmt during the quarter. The efficiency of the Mt Cattlin plant has continued to improve with concentrate production for the quarter averaging 436 dmt per day, equivalent to production of approximately 160,000 tonnes per annum (tpa). The annualised rate of concentrate production in June was approximately 170,000 tpa and, daily concentrate production exceeded 500 tpa on sixteen days. However, the average production cash costs (excluding royalties and marketing fees) for the quarter were US$393 (A$524) per dmt of spodumene produced, impacted by higher waste mining volumes during the June quarter. The production cash cost (excluding royalties and marketing fees) for the month of June stood at US$334 (A$442) per dmt of Spodumene produced and, anticipating the unit production cash costs to reduce as the operations achieve further efficiencies. The performance of the redesigned Mt Cattlin plant has now reached steady state operations with an average recovery of 61% achieved in June, well above the budgeted target of 50-55% due to higher head grade and improved specific gravity control, as well as improved stability in the dense media separation (DMS) circuit. There were two shipments of lithium concentrate during the quarter totalling 30,135 dmt, with both shipments at product grade and specifications well above contract requirements and with moisture and mica content levels well below contract requirements.
 

Production Statistics; (Source: Company reports)
 
The company sold 30,135 dmt at an average realized price before royalties and marketing fees of US$724 (A$964) per dmt. Notwithstanding the ramp up and final commissioning of the operations during April, Mt Cattlin generated a positive cash flow of A$13.2 million for the quarter before capex and repayment of the balance of customer prepayments. Following the successful ramp up of production, the current focus will be on progressing with a brownfield and greenfield exploration drilling campaign, including pegmatite targets east of Floater Road and south west of the existing pit.
 
Highest quality undeveloped brine deposits at Sal de Vida: Following the completion of the first drill hole for a planned production well in early April, a second drill hole, in the northern basin of the lithium-rich Salar del Hombre Muerto was completed to a depth of 300 metres. The Salar del Hombre Muerto is one of the world’s leading lithium deposits and is the same location where FMC Lithium has been operating for the past twenty years. A planned vertical sounding profile will confirm the final well design which will, in the future, facilitate the utilization of this drill hole as a production bore. Moreover, pump tests on the first completed production bore have yielded better than expected results, with continuous brine flow rates of more than 25 litres per second being achieved and, exceeding the values that were assumed in the DFS as the minimum flow rate required for each well for the production phase of the project. The refurbishment and upgrading of the test plant for the treatment of concentrated brine was recently completed and, a comprehensive review was undertaken to ensure the operating parameters of the test plant in line with final production conditions.
 

Production Well Drilling; (Source: Company reports)
 
Robust lithium demand driven by New Energy Vehicles: The demand outlook for lithium continues to remain very robust, with the lithium battery sector showing solid results for continued growth, as well as strong potential for extending that growth through to 2020 and beyond, with the announcements of major multifold capacity expansion from downstream manufacturers, including leading global companies such as Umicore and CATL. Importantly, much of these planned expansions have been due to the ongoing increase in adoption rates and sales of electric vehicles around the world. The New Energy Vehicle (NEV) sector in China has continued to report strong growth. After a slow start in Q1 2017, CAAM (China Association of Automobile Manufacturers) reported a strong Q2 data with a total of 154,000 vehicles produced in the quarter, representing a 167% growth quarter-on-quarter and a 20% growth year-on-year. Notably, of these NEVs, a total of 128,000 or 83% were pure electric vehicles, with the remainder being hybrid electric vehicles. In the first half of the 2017, China produced an aggregate 212,000 NEVs, which represented a 20% increase when compared to 2016H1. In addition, the US market also reported strong growth during the period, with a reported 47,364 plug-in vehicles sales, representing a 13% growth quarter-on-quarter and a 28% year-on-year growth. In total, the US market reported a total of 89,285 vehicles sold in the first half of 2017, an increase of 38% when compared to the first half of 2016.
 

Lithium Carbonate Demand (kt LCE); (Source: Company reports)
 
Growth initiatives in the high potential mass energy storage sector: Apart from the strong results in the electric vehicle sector, new growth initiatives have also been reported in the high potential mass energy storage sector, with the announcement by Tesla to build the world’s largest lithium battery storage system in South Australia. The PowerPack battery system is to be located next to the Hornsdale Wind Farm and will have 100MW of capacity, providing 129MWh of energy generation to the region, supporting the local renewable energy generation with load balancing and allowing for back-up power where required. The scale of the PowerPack battery farm significantly surpasses the next largest energy storage system, which is only 30MW in size, built so far and is the equivalent to over 2,000 Tesla Model 3's in aggregate battery size.

Stock Recommendation: The stock declined 36.4% over the past six months, and has been down 25.2% over last three months (as on August 22, 2017), owing to sector volatility and some impact from earlier operations at Mt Cattlin which were below expectations. However, given the latest development of projects and increasing demand for lithium carbonate fuelled by electric vehicles, we give a “Buy” recommendation on the stock at the current market price of $1.73


GXY Daily chart; (Source: Thomson Reuters)
 

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