Lithium Stocks in Action; Galaxy Acquires Alita’s Senior Loan Facility; While Orocobre Wraps Competitive Chemical Pricing

  • Sep 02, 2019 AEST
  • Team Kalkine
Lithium Stocks in Action; Galaxy Acquires Alita’s Senior Loan Facility; While Orocobre Wraps Competitive Chemical Pricing

Lithium Stocks such as Galaxy Resources and Orocobre and many more are gaining traction in the market as the energy-hungry electric vehicle segment looks charged up to capture a substantial tranche of the global vehicle market. The recent stance of the major global economies to reach Zero-emission is prompting the electric vehicle sector to outpace the traditional ICE (or Internal Combustion Engine) vehicles.

The Lithium-based battery chemistry replaced the conventional nickel-based batteries, which prompted the lithium miners to increase the production to leap with the development of lithium-based batteries for energy storage.

However, the higher production from the Australian lithium miners coupled with high production from the global players such as Albermarle and SQM created an oversupplied lithium market.

Status Quo of the Lithium Market

The Australian lithium miners have started reducing the production over demand fall in China amid weaker lithium chemicals pricing.

The trade war between the United States and China has significantly impacted the lithium demand in China, which in turn, raised a red flag for the Australian lithium miners, and in response to the red-flag the Australian lithium miners have slowed down the production.

Also Read: Lithium Demand Plays Spoilsport; Alita, Galaxy and Pilbara Limits Production

However, the recent leap of Chile and Chilean lithium mammoth- SQM to regain the lost market shares to the Australia lithium miners still possess headwinds for the beleaguered lithium industry as it could keep the production well above the global demand.

Many Australian lithium miners have already reported losses over the falling prices of lithium-based chemicals and lithium-rich spodumene.

ASX-Listed Lithium Stocks
Galaxy Resources Limited (ASX: GXY)

Galaxy reported the revenue from the ordinary operations of US$27.961 million for the half-year ended 2019, down by 68 per cent as compared to the previous corresponding period revenue of US$88.440 million, despite strong operational performance amid lower sales and weaker spodumene pricing.

Glance Over Operations:
Mount Cattlin:

Galaxy sold 44,630 dry metric tonnes of spodumene concentrate during the half-year ended 30 June 2019, down by over 50 per cent against the previous corresponding period. The company realised price for the concentrate stood at US$584 per dry metric tonne for June HY2019, down by almost 38 per cent as compared to June HY2018.

On the operational counter, Mt Cattlin observed the record spodumene concentrate production of 98,334 dry metric tonnes in June HY2019, up by 7.17 per cent against the concentrate production of 64,936 dry metric tonnes in June HY2018.

The production and sales summary from the prospect is as below:

(Source: Company’s Report)

Sal De Vida

The Sal de Vida lithium project of the company witnessed development works throughout HY2019, with a major focus on process optimisation works and seeking to identify potential opportunities to de-risk project developments.

Likewise, the company was engaged in the development of its James Bay lithium pegmatite project during the June HY2019.

Despite decent progress in production capacity, lower sales volume and weaker spodumene prices in the international market left the company with a gross loss of US$19.554 million as compared to a net profit of US$23.239 million during the June HY2018. The inventory write-down of US$13.589 million brought an additional burden on the gross profits during June HY2019.

However, despite a fall in revenue and the gross profit, Galaxy remains committed to the lithium industry, and Mr Simon Hay mentioned that the operational outcomes during the first half remain pleasing in the face of difficult market conditions.

Galaxy seems to be committed to the lithium industry and walking shoulder-to-shoulder with the international giant. SQM recently recognised losses, and despite lower prices, the behemoth plans to inch up the production to recapture the lost market shares.

Also Read: Chile And SQM Leap To Regain The Market Share Posses Headwinds For Australian Lithium Miners Ahead

Galaxy’s Exposure to the Bald Hill

The lower spodumene prices have forced Alita Resources (ASX: A40) to halt production at its Bald Hill prospect, and the company entered into a discussion with its key investor- Tribeca Investment Pty Ltd. Galaxy recently reached an agreement with a consortium of lenders to acquire the senior loan facility provided to Alita Resources.

Galaxy has been assigned and novated the rights, title and interest of the Facility with a principal value of US$28.8 million. The commercial terms of the Facility remain as below:

(Source: Company’s Report)

Galaxy appointed KPMG as the receivers and managers of Alita Resources Limited, and the company would now work with the Receivers and the voluntary administrators to determine the future actions for beleaguered Alita.

Orocobre Limited (ASX: ORE)

Orocobre Limited- an ASX-listed lithium chemical developer and exporter reported a statutory net profit after tax (or NPAT) of US$54.58 million in FY2019 (ended 30 June 2019).

Despite lower prices for the lithium chemicals in the international market, ORE managed to bag profits as Chinese downstream processors witnessed various challenges.

The slower growth in China and the impact of the trade spat played-off for the Australian lithium chemical as it forced the domestic supplier in China to de-stock in the first quarter of FY2019. The rush to de-stock the inventories amid surmounting tensions from the trade war offered competitive pricing and encouraged sales from other suppliers of lithium chemicals.

Key FY2019 Highlights

ORE lithium carbonate production stood at 12,605 (SDJ PTE 100%) tonnes in FY2019, slightly up from the previous year production level of 12,470 tonnes. Orocobre managed to sell higher lithium carbonate in FY2019, due to the competitive pricing offered by the Chinese lithium chemical industry amid a rush to de-stock the inventories.

The lithium carbonate sold by the company in FY2019 stood at 12,080 tonnes, up by 2.05 per cent as compared to the previous year level of 11,837 tonnes.

However, the weak lithium price in the international market led the company to realise a selling price of US$10,322 a tonne of lithium carbonate in FY2019, down by almost 18 per cent as compared to the previous year realised the price of US$12,578 a tonne.

On 2 September 2019, the company announced to the market on the appointment of new Chief Operating Officer, Mr Hersen Porta. He would be responsible for overseeing the operations of Olaroz Lithium facility and Borax Argentina S.A. Further, Mr. Porta has over 28 years of experience at Dow Chemicals. Since 2015 he has held the position of General Manager and President of Cabot Corporation in Argentina.


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