In morning trade the Galaxy Resources Limited (ASX: GXY) share price has been amongst the worst performers on the market.

At the time of writing the lithium miner’s shares are down 4.5% to a 52-week low of $2.21.

Why are its shares at a 52-week low?

This morning Galaxy Resources released a disappointing third-quarter update to the market.

During the quarter Galaxy produced 29,555 dry metric tonnes of concentrate, down 35% on the previous quarter. Management has blamed the production decline on lower feed grade and reduced recoveries arising from delays in the completion of its Yield Optimisation Project.

The lower recoveries were the result of delays in permitting leading to the majority of the ore processed being sourced from its 2SW pit which contains a higher proportion of weathered ore. Fortunately, all necessary permits have now been received and this issue should not be repeated in the current quarter.

Another disappointment during the quarter was the cash margin per tonne of concentrate sold. That came in a US$411 per tonne, down 23% on the prior quarter. This was primarily due to higher unit costs of production arising from its lower production.

Also weighing on its shares today could be its industry and market update. Management advised that there was substantial volatility in the lithium market during the last quarter. Stating that:

“Domestic battery grade lithium carbonate prices in China retracted (US$11,000 – US$12,000/t) following the combination of an increase in low quality domestic brine supply from the high cost Qinghai operations being sold into the market at deflated prices and a temporary period of slower downstream demand within China.”

Though it is optimistic on improvements in the current quarter.

“Lithium prices in China are expected to recover during Q4, with an expected increase in downstream demand in line with the expected seasonal strength in NEV volumes and the fact that destocking is thought to be largely complete, an anticipated seasonal slowdown in domestic brine production, as well as stronger ramp up from new and expanded conversion plants following environmental permitting delays.”

Another potential positive in the current quarter is a strategic partnership for the development of its Sal de Vida project in Argentina. In the second quarter Galaxy appointed JP Morgan as an advisor with the initial objective of structuring a deal so that the project is at least fully-funded through to production.

Management has advised today that it has shortlisted several potential investors which are now conducting due diligence and site visits. The company hopes to announce a binding transaction by the end of the year.

Should you buy the dip?

While I think that Galaxy’s shares look dirt cheap considering its sizeable cash balance and valuable portfolio of assets, I fear its shares could continue to trend lower until there are consistent improvements in Chinese lithium prices.

In light of this, I would suggest investors keep away from Galaxy and fellow lithium miners Kidman Resources Ltd (ASX: KDR), Orocobre Limited (ASX: ORE), and Pilbara Minerals Ltd (ASX: PLS) for the time being.