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Here’s why the Galaxy Resources (ASX:GXY) share price is dropping lower

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The Galaxy Resources Limited (ASX: GXY) share price is out of form on Thursday and dropping lower.

At one stage today, the lithium miner’s shares were down as much as 6.5% to $2.80.

The Galaxy share price has since recovered a touch and is down 2% to $2.94 this afternoon.

Why is the Galaxy share price dropping lower today?

Investors have been selling Galaxy’s shares today after the market selloff overshadowed a reasonably positive fourth quarter update.

According to the release, Galaxy shipped a record total of 75,336 dry metric tonnes (dmt) of lithium concentrate during the quarter. This brought its full year FY 2020 shipments to 150,630 dmt with an average grade of 5.8%.

Another positive was the company’s quarterly sales, which increased 349% on the prior quarter. This was driven by improved customer demand, improved grades, and stronger prices.

Galaxy’s free on board (FOB) unit cash cost of lithium concentrate produced for the quarter was US$452 per dmt, which is just a touch lower than the price it is commanding at present.

Management advised that this was an 11.3% increase compared to the previous quarter and due predominantly to a 41% increase in material mined, lower recoveries, and shipping costs as sales volumes were greater than production.

At the end of the period, Galaxy’s balance sheet was in a strong position with cash and financial assets of US$215.1 million and no debt.

Outlook

Management spoke positively about the future and revealed that trading conditions are improving rapidly.

It said: “Galaxy is experiencing solid demand for its spodumene as strong global EV sales increases the demand for lithium chemicals through the value chain leading to an increase in utilisation of spodumene converters. As a result, spodumene inventory in China has declined to ~2 months of supply, down from ~ 6 months’ supply for much of 2020. The absence of Altura product in the market is also having an impact on product availability and customer sentiment.”

The company also provided investors with an update on lithium pricing.

“Galaxy has completed contractual arrangements on two shipments with 30,000 tonnes scheduled for February and 15,000 tonnes for March. Pricing has moved significantly to begin the year and currently stands at approximately US$480/dmt CIF.”

“Galaxy’s marketing plans for 2021 are for sales to broadly match production and to continue selling on a spot basis as the market recovery continues,” it concluded.

Finally, management revealed that it is aiming to reduced its FOB costs to US$360 to US$390 per tonne. If lithium prices continue to rise this year, this should put Galaxy in a position to deliver a solid profit in FY 2021.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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