Galaxy Resources Limited (ASX:GXY) shares edge lower on Sal de Vida update

The Galaxy Resources Limited (ASX: GXY) share price has seen its strong run come to an end today.

At the time of writing the lithium miner’s shares are down 1% to $3.18.

Why are they sinking lower today?

This morning Galaxy provided the market with reasonably mixed results from its updated definitive feasibility study (DFS) for the Sal de Vida Project in Argentina.

According to the update, the results validate a technically superior, highly profitable, long life, and low-cost lithium and potash project.

Positively, management estimates that the post-tax net present value (NPV) of the project is approximately US$1,480 million at an 8% discount rate, which is slightly higher than 2016’s DFS which gave it a post-tax NPV of US$1,416 million

Furthermore, the average annual revenue from the project is now estimated to be US$360 million, with annual operating cash flow (EBITDA) of approximately US$270 million. Previous estimates were for US$354 million and US$273 million, respectively.

But unfortunately the estimates for its average operating costs have increased. In 2016 these were estimated to be US$2,959 per tonne after potash credits, whereas this is now expected to be US$3,144 per tonne after potash credits.

In addition to this, the internal rate of return has fallen from previous estimates of 34.6% to 26.9%. This means that the post-tax payback period has extended to three years from two years and ten months following production commencement.

Should you invest?

While this DFS is slightly mixed and the market may have been hopeful of a stronger result, it is hard to deny that Galaxy still has a world class asset on its hands.

I believe the combination of its Sal de Vida, Mt Cattlin, and James Bay assets, makes Galaxy the best lithium miner on the Australian share market ahead of Orocobre Limited (ASX: ORE) and Pilbara Minerals Ltd (ASX: PLS).

As such, if you are confident that lithium demand will continue to outstrip supply thanks to electric vehicle growth, then Galaxy could be the one to buy.

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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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