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Why Galaxy Resources Limited shares have been placed into a trading halt

The Galaxy Resources Limited (ASX: GXY) share price won’t be on the move today after its shares were placed into a trading halt.

According to the release, Galaxy’s management has requested a trading halt while it prepares a response to recent media speculation.

Its shares are expected to be offline until the earlier of the release of an announcement or the opening of trade on Wednesday May 2.

What is the media speculation?

The speculation that Galaxy’s management refers to is likely to be a story in The Australian this weekend.

According to the report, Galaxy has enlisted investment bank JPMorgan to offload a portion of its Sal de Vida project in Argentina.

Sal de Vida is one of the world’s largest and highest quality lithium deposits which management estimates 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.

With such a lot of potential it will come as no surprise to learn that there are reportedly numerous interested parties. These include China’s Tianqi and Ganfeng, and Korean steelmaking giant Posco.

The report indicates that Galaxy is looking to offload a non-controlling interest worth up to $US350 million, which involves an offtake agreement and equity.

What now?

I think this would be a great idea by management and will allow it to get the lucrative operation up and running without the need to take on debt.

However, at this stage it is of course only speculation. Until Galaxy’s management adds more colour to the situation it is difficult to make an investment case out of it.

So I would suggest that investors wait patiently for the release and take a closer look at fellow lithium miners Mineral Resources Limited (ASX: MIN) and Pilbara Minerals Ltd (ASX: PLS) in the meantime.

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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 Scott Phillips.

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