The Galaxy Resources (ASX:GXY) share price slides on half-year results

Shares in the lithium producer ended the day down.

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The Galaxy Resources Ltd (ASX: GXY) share price finished the day lower as the lithium explorer reported its FY21 half-year earnings.

Let’s investigate a little further.

Galaxy share price slides despite strong half year revenue growth

Galaxy Resources shares closed in the red despite the company reporting strong revenue and profit growth. Here are the highlights:

  • Revenue of $38,686,000 for the half year ended June 30, a 66% year-on-year (YOY) growth schedule
  • Profit from ordinary activities after tax came in at $64,292,000, from a loss of $22,191,000
  • Net profit for the period attributable to members also $64,292,000
  • No dividends were declared

What happened in the half year of FY21 for Galaxy Resources?

In a positive for the Galaxy Resources share price, the Group recognised a 66% YOY growth in revenue. In addition, the company also recorded a profit after tax of US$64.29 million, from a loss of US$22.19 million a year prior.

Operating cash flows also grew by $28.9 million to reach $11.9 million, driven by higher operating margins.

Moreover, Galaxy achieved record production for the half-year of “109,909 dmt of lithium concentrate at a 5.8% Li20 final product grade”.

Galaxy attributed the achievement to a prior decision to “return production rates to fully capacity” as market conditions improved.

In addition, the company also realised sales of 78,416 dmt of lithium concentrate on a realised selling price of US$453/dmt. This represents a 37% increase on December 2020 half-yearly results.

Furthermore, the company had announced on 19 April that it had entered into a binding agreement with Orocobre Ltd. (ASX: ORE).

The deal advanced further on Monday as Galaxy lodged a copy of The Supreme Court of Western Australia’s orders approving the Orocobre merger to the Australian Securities and Investments Commission.

Consequently, the deal is now legally effective under Australian law and will be fully implemented towards the end of August.

What did management say?

Regarding the Orocobre merger, in its director’s report, Galaxy’s directorship said:

Orocobre will acquire all of the fully paid ordinary shares in Galaxy subject to the satisfaction of certain conditions, including approval of the Scheme by Galaxy shareholders and the Supreme Court of Western Australia.

Expanding on the scheme, where shareholders will receive 0.569 Orocobre shares for every Galaxy share held, it added:

The Scheme provides Galaxy shareholders with the opportunity to share in the significant benefits of being part of a larger diversified group and the synergies to help enhance and progress the Merged Group’s portfolio of world class assets. The Merged Group’s growth opportunities in both brine and hard rock lithium deposits position it to take advantage of expected rising demand for lithium in connection with the electric vehicle market.

What’s next for Galaxy Resources?

Galaxy didn’t add any specific colour on guidance with respect to earnings in its report. However, it stands to reason that there is plenty more to come with the Orocobre merger.

New Orocobre shares are expected to commence trading on the ASX on a normal settlement basis from 26 August 2021.

Moreover, Galaxy has upcoming production developments at several of its sites. For instance, at its Sal De Vida site in Argentina, Galaxy “continues to target production” by the end of 2022.

Furthermore, the company advised that Q3 contracting arrangements for shipments “are well advanced” and that realised pricing is expected to fetch US$750/dmt cost insurance and freight (CIF).

The Galaxy Resources share price has posted a year to date return of 136%, extending the previous 12 months’ gain of 344%.

The returns have outpaced the S&P/ASX 200 Index (ASX: XJO)’s return of 25% over the past year.

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