On Monday the Galaxy Resources Limited (ASX: GXY) share price continued its strong run and climbed a further 3.5% to $2.11.
This brought the lithium miner's five-day return to an impressive 20%.
Can its shares continue to climb higher?
Thanks to its world-class assets and the insatiable demand for lithium carbonate to be used in the batteries of electric vehicles, smart devices, and renewable energy, I believe Galaxy's shares have significant upside potential.
The three key assets in Galaxy's portfolio are its Mt Cattlin site in Western Australia, the Sal de Vida lithium and potash brine project in Argentina, and its James Bay lithium hard rock development in Canada.
Production at Mt Cattlin has been very impressive and recently increased to 14,038 tonnes in June. Which means the site is operating with an annual run rate of over 168,000 tonnes.
Considering Mt Cattlin's cash costs have reduced to just US$334 per dry metric tonne and it enjoyed an average realised sales price of US$724 per dry metric tonne in the June quarter, I believe Galaxy is in a great position to produce strong levels of free cash flow in the future.
Especially as costs are expected to reduce further and all future shipments are now based on 2017 pricing terms. These terms are US$830 per tonne for 5.5% grade lithium concentrate, rising to US$905 per tonne for 6% grade product.
Elsewhere, the Sal de Vida operation is another asset with world-class potential. Management estimates this deposit can generate total annual revenues in the region of US$215 million and operating cash flow before interest and tax of US$118 million per annum at full production rates for a 40 year period.
Finally, drilling at its James Bay site is at an advanced stage and the early indications point to there being a significant resource underground. A bonus here is that the site is located in a mining friendly jurisdiction with low cost of energy and excellent infrastructure.
All in all, I believe this adds up to Galaxy being a miner with significant growth potential in the future and also arguably an attractive acquisition target for a mining giant such as South32 Ltd (ASX: S32).
This could make it a great investment option for investors with a high tolerance for risk.
