In early trade the Galaxy Resources Limited (ASX: GXY) share price has sunk lower following the release of its latest quarterly update.
At the time of writing the lithium miner's shares are down 5% to $2.10.
How did Galaxy perform?
According to the release, during the fourth quarter the company produced 33,780 dry metric tonnes (dmt) of spodumene concentrate at its Mt Cattlin project and sold a total of 39,682 dmt.
The average cash margin (including royalties and marketing fees) during the quarter came to US$288 per dmt sold. This is a massive 30% lower than the previous quarter when Galaxy enjoyed an average cash margin of US$411 per dmt sold.
Management blamed the decline in its average cash margin on increased unit costs of production arising from higher mining volumes and lower production. It neglected to reveal the average selling price of its spodumene concentrate like it did in the same release last year.
I suspect that its selling prices have continued to slide notably lower, especially given the update out of Orocobre Limited (ASX: ORE) earlier this month which revealed a sharp decline in the price of its lithium.
What's next?
Unfortunately for Galaxy, Orocobre, Pilbara Minerals Ltd (ASX: PLS), and Kidman Resources Ltd (ASX: KDR), things look likely to get worse before they get better.
Included in the release was an industry update which revealed that calendar year 2019 has had a soft start.
"Reduced margins in lithium chemical sales have resulted in a reduction in the contracted price of spodumene for 1H CY2019. Whilst contract prices are notably weaker than 2018 they have not reduced by the same percentage magnitude as the fall in Chinese lithium carbonate prices throughout 2018."
Should you invest?
While Galaxy has a collection of world class lithium assets and a hefty cash balance, until prices improve I would suggest investors stay clear of it and the rest of the lithium miners.
Instead, I would focus on diversified miners such as BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
