Why Galaxy Resources Limited (ASX:GXY) shares jumped 11% higher today

The Galaxy Resources Limited (ASX: GXY) share price has been amongst the strongest performers on the market on Tuesday.

In early afternoon trade the lithium miner’s shares are up almost 4.5% to $2.89. At one stage they were as much as 11% higher at $3.07.

Why did Galaxy’s shares jump higher today?

This morning the lithium miner announced that South Korean conglomerate POSCO has signed a binding agreement to purchase a package of tenements from it on the northern basin of Salar del Hombre Muerto in Argentina for a cash consideration of US$280 million.

While it has looked like a forgone conclusion for some time, judging by the share price reaction, it appears that not all investors were convinced that the POSCO board would approve the purchase.

But the POSCO board has approved the purchase and Galaxy will now begin the relevant tenement transfer and registration procedures. Completion of the transaction is expected by the fourth quarter to 2018.

This is a major positive for Galaxy and its shareholders and will leave the company well-funded to fuel its growth.

Galaxy’s chairman, Martin Rowley, stated that: “This transaction with POSCO underlines the significant previously unrecognized value of Galaxy’s tenements on the Salar del Hombre Muerto and provides a substantial cash injection which underwrites the development of the Sal de Vida lithium brine project.”

The company also sees opportunities for the two parties to work closely with each other. As a result, they plan to explore potential cooperation to maximise future development and operational synergies for their respective projects on the Salar del Hombre Muerto.

Should you invest?

I think that Galaxy is one of the best lithium miners in the world with a portfolio of assets capable of generating significant free cash flow. However, a lot of its future success will come down to lithium prices.

This week Chilean lithium mining giant SQM tipped prices to fall 10% in the September quarter on the back of rising production in Australia. While this wouldn’t be overly damaging, it depends what happens from there.

I’m optimistic that demand from battery makers will support higher prices over the long-term, but if this isn’t the case then lithium miners like Galaxy, Orocobre Limited (ASX: ORE), and Pilbara Minerals Ltd (ASX: PLS) could take a hit.

ASX Tech Share – Real Winner from the World Cup

Earlier this year, millions of Australians set alarms and watched the world's biggest sporting event, the World Cup, play out. But did you know there was another Australian representative quietly succeeding as the world watched?

It's the start-up who have positioned themselves as the global leader in sports analytics. Motley Fool's resident tech expert has already upgraded the recommendation of this company's stock to a rating of simply "Buy More".

Click here to access this share. It's completely FREE!

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.