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Galaxy Resources Limited shares race higher on half-year update

In morning trade the Galaxy Resources Limited (ASX: GXY) share price has climbed 2% higher to $1.76 after the lithium miner released its half-year update.

Key takeaways include:

  • Half-year revenue since May 1 of $14,975,000.
  • Half-year loss after tax of $6,000,000.
  • Spodumene production for the half-year was 56,465 dry metric tonnes (dmt).
  • Production of 14,038 tonnes in June, equating to an annual run rate of 168,000 tonnes.
  • Redesigned Mt Cattlin average recovery rates of 61% in June.
  • Average realised sales price of US$724/dmt in the June quarter.
  • June cash costs of US$334/dmt.
  • Revised Sal de Vida DFS estimates a post-tax net present value of US$1.4 billion at an 8% discount rate.
  • Outlook: Cash costs will continue to reduce in the second-half.

While the financial result may not be much to get excited as it only includes sales made from May 1, I think the level of production, average recovery rates, and the reduction in cash costs were very impressive.

Galaxy’s production certainly has been increasing at a strong rate over the last few months. Almost a quarter of its first-half production came from the month of June alone.

This puts the company on an annual run rate of over 168,000 tonnes.

In June Galaxy’s cash costs reduced to just US$334 per dry metric tonne. As low as this seems, it is expected to go even lower as the second-half progresses.

Which should result in strong margins for the company, especially with the company enjoying an average realised sales price of US$724/dmt in the June quarter.

Furthermore, Galaxy has now completed its 2016 contract off take supply obligations priced at US$600 per tonne. As a result, all future shipments are now based on 2017 pricing terms of US$830 per tonne for 5.5% grade lithium concentrate, rising to US$905 per tonne for 6% grade product.

Finally, I was pleased to see that a revised DFS study at the company’s Sal de Vida operation resulted in an increase in its post-tax net present value to US$1.4 billion at an 8% discount rate.

I see Sal de Vida as a key part of Galaxy’s future and it really isn’t hard to see why. Management believes it has the potential to generate average annual revenues of US$354 million and average operating cash flow of US$273 million.

Should you invest?

I continue to believe that Galaxy is one of the best options in the resources sector. It may be volatile and reasonably high risk, but I believe its world class assets and the ever-increasing demand for lithium puts it in a great position to beat the market over the coming years.

In light of this, I would choose it ahead of rivals Orocobre Limited (ASX: ORE) and Pilbara Minerals Ltd (ASX: PLS).

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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