The Motley Fool

Galaxy Resources share price slumps after $220 million impairment

The Galaxy Resources Ltd (ASX: GXY) share price opened this morning 2% down and could slide lower today, after the Aussie lithium miner announced a $220 million non-cash impairment to the market.

What did Galaxy Resources announce?

Galaxy said that as part of its preparation of the financial statements for the half-year ended 30 June 2019 (FY19), it has been undertaking a review of its inventory on hand at Mt Cattlin.

Galaxy is also reviewing its capitalised Mt Cattlin mine development costs attributable to the acquisition of General Mining Corporation Ltd and deferred tax assets arising from capitalised tax losses.

Galaxy said that the review is ongoing and will be completed prior to the finalisation of Galaxy’s financial statements for the half-year ended 30 June 2019.

Based on current information, Galaxy anticipates that the review will result in a non-cash impairment for the half-year ended 30 June 2019, which is estimated to be in the range of US$150 million to US$185 million (A$222 million to A$274 million).

When finalised and reviewed by the auditors, Galaxy said the adjustment will be included in its financial statements for the half-year ended 30 June 2019, which are scheduled to be released in late August 2019.

Galaxy said that the adjustment arising from this impairment is a non-cash item and does not have any impact on cash-flow, operations or banking covenants.

At 30 June 2019, Galaxy held cash of US$176.3 million (A$261 million), marketable securities of US$27.2 million (A$40.4 million) and no debt.

Foolish takeaway

Despite Galaxy announcing it as a one-off, non-cash impairment, I’m expecting investors to punish the Galaxy share price in early trade.

The Galaxy share price has been hammered lower so far this year and is currently trading at $1.12 per share, having fallen a further 2% this morning on top of its 5% dive in yesterday’s market tumble.

Galaxy shares are down nearly 50% this year as the lithium prices have collapsed amid a demand slowdown and concerns over commodity pricing.

However, with the ongoing US-China trade war putting pressure on the S&P/ASX200 (INDEXASX: XJO), I think the latest significant impairment ahead of August results will see the Galaxy share price continue to slump towards the $1 mark this morning.

While lithium isn't charging higher in 2019, this boutique ASX cannabis stock could be set to soar in the second half of the year.

One ASX Stock For An Estimated $US22 Billion Marijuana Market

A little-known ASX company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

And make no mistake – it is coming. To the tune of an estimated $US22 billion.

Cannabis legalisation is sweeping over North America, and full legalisation arrived in Canada in October 2018.

Here's the best part: we think there's one ASX stock that's uniquely positioned to profit immensely from this explosive new industry... taking savvy investors along for what could be one heck of a ride.

AND, this is the first time The Motley Fool Australia has EVER put a BUY recommendation on a marijuana stock.

Simply click below to learn more on how you can profit from the coming cannabis boom.

Click here to find out more

Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.