The Galaxy Resources share price surged 41% in July. Here’s why.

Galaxy Resources Limited (ASX: GXY) saw its share price soar 41% in July, a painful surge for the many short sellers betting against it.

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Cut outs of cogs and machinery with chemical symbol for lithium

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Investors in lithium producer Galaxy Resources Limited (ASX: GXY) enjoyed a tremendous 41.0% share price gain in July.

The stock hit a monthly high of $1.12 per share on 28 July. It closed the month at $1.10 per share, up from 78 cents at the start of July. That puts Galaxy high on the top gainers list for the All Ordinaries Index (ASX: XAO) last month.

It’s been a wild ride for the company’s investors in 2020. The Galaxy Resources share price plummeted a gut-wrenching 42.3% from 5 February to 4 May. Investors who held their nerve were rewarded handsomely though. Since 4 May, the share price has gained 63.4%.

Year-to-date, the share price is up 16.0%, giving the company a market cap of $475 million. Over that same time the All Ords — down 0.5% yesterday — lost 9.9%.

What does Galaxy Resources do?

Galaxy Resources Limited is a lithium producer working to create a large scale, global lithium chemicals business to power the future. It has a diversified portfolio of lithium hard rock and brine assets at different levels of development.

Those include its hard rock operations in Mt Cattlin, Western Australia. Galaxy is also progressing with its development of its flagship brine project, Sal de Vida in Argentina, among the world’s largest undeveloped lithium brine assets. The company is also progressing the early stage development of its James Bay project in Quebec, Canada.

Short sellers beware!

On 6 July, Galaxy Resources made the top 10 list of shorted stocks, coming in at number six, according to figures from ASIC. Believing the weakness in lithium prices would see the company’s share price fall, short sellers held 8.1% of the stock on 6 July.

With the stock gaining 36.5% since then, the short sellers got this one completely wrong.

And the company’s outlook remains strong.

On 13 July the company reported:

A multiyear offtake extension has been executed with long term major customer Yahua Industrial Group. Yahua has recently doubled their lithium hydroxide production capacity and has agreed to purchase additional spodumene concentrate from Mt Cattlin.

If you’re out for the specifics, Yahua agreed to purchase an additional 30,000 dmt of 6% Li2O spodumene concentrate in 2020. It also agreed to buy 120,000 dmt per year from 2021 to 2025 on a take or pay basis.

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Motley Fool contributor Bernd Struben 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.

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