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Galaxy share price pushes higher after announcing strategic review

In morning trade the Galaxy Resources Limited (ASX: GXY) share price has pushed higher following the release of its third quarter update.

At the time of writing the lithium miner’s shares are up 3.5% to 88 cents.

What happened in the third quarter?

During the third quarter Galaxy’s Mt Cattlin operation delivered production volume of 50,014 dry metric tonnes (dmt) of lithium concentrate at a 6.0% Li2O grade. This was the midpoint of its production guidance of 45,000 dmt to 55,000 dmt.

This production was achieved at a unit cash cost of US$387 per dmt. Which reinforces Mt Cattlin as one of the lowest cost lithium concentrate operations globally.

Galaxy reported total shipment volume of 58,278 dmt, slightly under its guidance of 60,000 to 70,000 dmt. Disappointingly, it chose not to reveal the prices it received for its lithium during the quarter.


Looking ahead, management is targeting lithium concentrate production volume of 35,000 to 45,000 dmt in the fourth quarter. This will lift its full year production to 183,000 – 193,000 dmt, which is towards the low end of its previous guidance range of 180,000 – 210,000 dmt.

In addition to this, the company advised that it is undertaking a review of Mt Cattlin operations to determine the optimal scale of operations in response to the market conditions currently being experienced in the lithium sector.

Management advised that the “key drivers in this review are to prioritise value over volume, to ensure Mt Cattlin continues producing a positive operating cash margin, preserving resource life and to maintain balance sheet capacity for advancement of the Company’s development portfolio.”

Whilst the review is still ongoing, management expects the outcome for FY 2020 to be a scale back in mining operations. It estimates a 40% reduction in material mined over the 12 months.

It concluded: “This reduced scale of operation, combined with the cost initiatives currently underway, will allow Galaxy to maintain a low unit operating cost and a forecasted positive operating cash margin. Production volumes plus the existing product stockpiles are expected to be sufficient to meet the requirements of contracted customers in 2020. As there will be no change in staff levels and contractors, production will be able to be ramped back up to full rates promptly, when market conditions improve or as required by Galaxy’s customers.”

Overall, I don’t think this was unexpected given the shocking deterioration in trading conditions for Galaxy and its rivals Orocobre Limited (ASX: ORE) and Pilbara Minerals Ltd (ASX: PLS).

I feel it is a good move by management, but I would still suggest investors stay well clear of Galaxy and the rest of the lithium miners until there is a notable improvement in their performances.

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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.