Could the Galaxy (ASX:GXY) share price be next to raise capital after Zip (ASX:Z1P)?

The surge in the Galaxy Resources Limited (ASX: GXY) share price to a three-year high should prompt investors to ask if the miner could be close to pulling the trigger on a capital raising.

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Galaxy Resources capital raisegrowth in asx share price represented by multiple hands all placing coins in a piggy bank

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The surge in the Galaxy Resources Limited (ASX: GXY) share price to a three-year high should prompt investors to ask if the miner could be close to pulling the trigger on a capital raising.

This is the perfect time to rattle the can as the S&P/ASX 200 Index (Index:^AXJO) closes in on record high.

Just ask our friends at Zip Co Ltd (ASX: Z1P), which went into a trading halt to prepare for a fresh capital injection. Never mind that Zip undertook a placement and share purchase plan only in December last year.

You can’t blame management teams to strike while the iron’s hot!

Why Galaxy Resources could be mulling a cap raise

That’s why I am half expecting Galaxy Resources to tap shareholders on the shoulder, particularly as the high-flying lithium miner outlined ambitious plans for its Sal de Vida project.

Galaxy Resources is looking increasingly unlikely to sell a stake in the project, reported Peter Ker from the Australian Financial Review.

The recent surge in the lithium price is giving management courage to go alone on the first state of the US$153 million ($200 million) project.

This first stage should be enough for Sal de Vida to produce 10,700 tonnes of lithium carbonate a year. Around 80% of this output is expected to be battery grade.

Stars aligned for a placement and SPP

In case you were asleep, lithium is the flavour of the month. Several experts are predicting a looming supply shortfall on accelerating sales of electric vehicles.

This could not be a more perfect time for Galaxy Resources to raise cash. It would almost be like shooting fish in a barrel.

One also cannot underestimate the miner’s need for cash if it wants to accelerate the second and third phases of Sal de Vida.

Growing capex requirements

The expansion will more than triple the project’s output at a cost of another US$313 million. It’s perfectly logical to want to increase production as quickly as possible to capitalise on high commodity prices.

You can bet other lithium miners are desperately looking for ways to boost production. Galaxy Resources won’t want to be a late comer to the party.

The miner’s chief executive Simon Hay is reported as saying he would prefer to sell a stake in Sal de Vida in the second or third stages of the project. That’s when Galaxy Resources will need US$244 million for its James Bay project in Canada.

Foolish takeaway

But I am not discounting Galaxy Resources holding on to all of Sal de Vida if it can raise sufficient cash from shareholders.

The last time Galaxy Resources raised capital was in November last year when it got a circa $160 million cash injection.

Never mind the miner’s repeated recent claims of having a strong balance sheet. I have yet to meet a CEO who would turn down an easy cap raise.

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Brendon Lau owns shares of Galaxy Resources Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. 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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