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Why Galaxy Resources Limited (ASX:GXY) shares are surging higher

It has been a strong start to the week for the Galaxy Resources Limited (ASX: GXY) share price.

In early afternoon trade the lithium miner’s shares are up 4% to $2.88.

Why are Galaxy’s shares on the rise today?

This morning Galaxy provided an update to the market on its non-binding agreement with South Korean conglomerate POSCO to sell a package of tenements at its Sal de Vida operation in Argentina for a cash consideration of US$280 million.

According to today’s release, management has advised that POSCO’s board meeting, where it will approve or reject the agreement, has been brought forward.

This puts the timetable for completion of the transaction ahead of schedule. If POSCO’s board approves the transaction, Galaxy will immediately push ahead with the final step of providing definitive documentation.

What will Galaxy be left with?

Although it is giving away a portion of its operation, Galaxy still has a lucrative asset just from its southern tenements.

A recent updated feasibility study found the southern tenements to contain 1.14 million tonnes lithium carbonate of JORC compliant reserves.

By selling the package of tenements to POSCO, Galaxy can use the funds to progress the development of its southern tenements without the need to tap the market for funds or take on additional debt. Which I think is a smart move by management.

Should you invest?

Due to its world class portfolio of assets, which includes the highly profitable Mt Cattlin operation in Western Australia, I think Galaxy is the best lithium miner on the Australian share market.

But, as I mentioned earlier with industry peer Argosy Minerals Limited (ASX: AGY), a lot will ultimately come down to future prices of the battery-making ingredient.

If demand continues to outstrip supply then I expect prices will remain favourable and cash flows will be strong, but should prices tumble then lithium miners like Galaxy, Argosy, Orocobre Limited (ASX: ORE), and Pilbara Minerals Ltd (ASX: PLS) could come under a lot of pressure.

If you're not sure on the lithium miners than these top growth shares could be better options.

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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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