Motley Fool Australia

Why the Galaxy Resources share price surged higher on the ASX today

child in a superman outfit indicating a surge in share price
Image source: Getty Images

Rehashing old information seemed to have worked wonders for the Galaxy Resources Limited (ASX: GXY) share price as the lithium miner is one of the best performing ASX shares today.

The GXY share price surged 6.7% to $2.56 – making it the second-best performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index on Wednesday after the Speedcast International Ltd (ASX: SDA) share price.

Galaxy Resources re-released its drilling results at its Mt Cattlin project and the information appears identical to the update it released on November 28.

Sounds better the second time

Both announcements were marked “market sensitive” and I can’t understand why the ASX would allow a company to repost already released information – no matter how good the news might be!

Perhaps management thought investors would appreciate the news the second time around given that the Galaxy share price fell the first time the announcement was posted.

But what may actually be behind Galaxy’s big share price run today is news that the federal government was throwing its support behind the idea of turning Australian (particularly Western Australia) into a major processing, manufacturing and trading hub for lithium-ion batteries.

The real reason for the price jump

The idea had been floated by the federal opposition and the WA state government following yesterday’s Austrade report which found that Australia was well placed to capitalise on the battery boom that is being fuelled by the electrification of vehicles and energy storage.

The West Australian newspaper reported that Trade Minister Simon Birmingham said Austrade was ramping up efforts to attract international investment in the sector.

“At the moment Australia produces about half of the world’s lithium, but once it’s mined out of the ground, it’s shipped offshore, with all of the value-creation activities such as processing and battery manufacturing occurring overseas,” said Minister Birmingham.

Developing a processing facility in this country would be a boon to the sector. Galaxy’s Mt Cattlin project is located in WA.

Shock factor

But Galaxy Resources’ share price isn’t the only one in the sector making strong gains. The Orocobre Limited (ASX: ORE) share price and Neometals Ltd (ASX: NMT) share price also jumped although they didn’t have the benefit of a repeat announcement and their gains couldn’t keep pace with GXY.

However, the sector isn’t for the faint-hearted even though few would argue that electric vehicles will eventually replace combustion engines.

The problem is that the lithium market is forecast to be oversupplied over the next two years or so and that means price gains for the commodity could be limited.

It’s better to bet on copper miners like the OZ Minerals Limited (ASX: OZL) share price or BHP Group Ltd (ASX: BHP) share price as copper is needed for electric cars and the demand-supply fundamentals for the red metal are far more constructive.

Looking For Bargain Buys? These Cheap Stocks Could Be Just What You’re After (FREE REPORT)

Scott Phillips has released a FREE stock report revealing 5 stocks that he believes are WAY undervalued by the market at these current prices.

Scott thinks these 5 stocks are a 'must consider' for any savvy investor.

Don't miss out! Simply click the link below to grab your free copy and discover Scott's 5 bargain stocks now.

Click Here For Your Free Stock Report

Motley Fool contributor Brendon Lau owns shares of BHP Billiton 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.

Related Articles…