One of the best performers on the local market on Thursday has been the Galaxy Resources Limited (ASX: GXY) share price.
In afternoon trade the lithium miner’s shares are up 7.5% to $3.35. This means Galaxy’s shares have now climbed over 45% since this time last year.
Why are its shares on fire today?
With no news out of Galaxy, today’s significant move higher is a bit of a mystery.
However, there has been a positive development in the industry this morning that could potentially be a catalyst.
That was of course Kidman Resources Ltd (ASX: KDR) signing an offtake agreement with Tesla, Inc to supply lithium hydroxide. Kidman and Tesla have signed a three-year fixed-price take-or-pay basis agreement, with the latter having two options to extend the agreement by a further three years.
Another potential catalyst could be a delayed reaction to global lithium giant Albemarle’s recent quarterly update.
As many readers will be aware, there has been a lot of talk about the lithium price collapsing as supply increases.
According to its quarterly results release, Albemarle saw lithium prices realised increase 14% in its first quarter thanks to growing demand.
In addition to this, on Tuesday Reuters reported that leading lithium miner Sociedad Quimica Y Minera has caught the eye of China’s Tianqi Lithium.
Tianqi Lithium is rumoured to be nearing a deal to buy a 24% stake in the Chilean company for US$4.3 billion, which was a 22% premium when announced.
And finally, another reason for today’s strong gain could be a good old fashioned short squeeze. At the last count, Galaxy was the fourth most shorted share on the ASX with 14.7% of its shares held short.
This positive news flow could have led to short sellers rushing to buy shares to close positions, driving the share price higher.
Should you invest?
I think Galaxy is one of the best options in the resources sector and could prove to be a good long-term investment option. However, it is an extremely volatile industry with wild swings occurring almost daily. This certainly makes it a high risk investment option and one that may be unsuitable to the average investor.
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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.