Download Corporate - Galaxy Resources Limited

May 14th 2015
Corporate
AFSL: 259730
Galaxy Resources Ltd (GXY)
LITHIUM COMPOUNDS - POWER
Capital
GXY - CapitalStructure
Structure
TO THE
PEOPLE
Investment Drivers
C ode
Shares
Special shares
Notes *
ITM Options
GXY
1064.8 m.
14.1
600 @ $100K e@
37.0 m. Av $0.05
1115.9 m.
C ash (est)
-$
14 m.
Price
$ 0.036 per share
Market C ap'tln
$
38 m.
EV (est)
$
52 m.
* Likely to be restructured
 Galaxy has a clean balance sheet supported by A$62.4 million of
Valuation
 The company has negotiated a 3-year, $2.5 million pa lease and
Asset
A$m
Hardrock Li
29
Sal De Vida
60
Net cash *
16
Risked Exploration
5
Total
110
* Including new equity
$/shr
$0.015
$0.030
$0.008
$0.003
$0.055
 Galaxy is positioned to be a low cost supplier of lithium
compounds into an expanding lithium-ion battery market from
its 96% owned Sal de Vida lithium brine project in Argentina.
Demand for lithium compounds for use in batteries directed at
consumer goods, communications and computing is forecast at
a rate of over 4% pa over the medium term and should rise to
7% pa once sales of storage batteries along with hybrid and
electric vehicles accelerate in the early 2020’s.
royalty agreement over its Mt Catlin Li-Ta mine in Western
Australia, which is currently gearing up for production. Sale of
spodumene by-product is likely to lift revenue in 2016.
 Galaxy is examining a lower cost, possibly 8,000 tonne pa LCE
start-up at Sal de Vida costing ~US$122 million, with a later
expansion to 25,000 tpa plus addition of a potash recovery circuit,
as the market expands and product gains market acceptance.
 Galaxy is a lithium focused growth story, trading at a discount
Source: Strachan Corporate
Board
Martin Rowley
Anthony Tse
Charles Whitfield
Jian-Nan Zhang
convertible note debt and ~A$50 million of cash with which to
progress development of its Sal de Vida project.
Chairman
Managing Director
Exec Director
Non-Exec Director
it’s to more advanced peers. Strachan Corporate expects that
the stock will be re-rated as cash flow from Mt Cattlin is
established, along with reduction in the technical and funding
risks at Sal de Vida, through a clear path to start-up using a
development funding partnership.
 Galaxy continues to have the support of major shareholders, as
well as Acorn Capital, Deutsche Bank and Geologic.
Opinion*
Galaxy Resources is restoring its balance
sheet, holding about $50 million of cash
while refinancing a convertible note
facility. The company is establishing a
lease fee and royalty stream from third
party operations at its Mt Cattlin Ta/Li
mine with potential significant revenue
from spodumene sales to follow.
Development of a low cost, lithium and
potash brine project at its 96% held Sal
de Vida project in Argentina will place
Galaxy well down the cost curve as a
competitive
supplier
of
lithium
compounds to an expanding market for
Li-ion batteries.
Expansion opportunities and a long life
project position Galaxy as a major player
in this rapidly growing industry.
Peter Strachan.
*No recommendation is offered for this commissioned research.
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 1
May 14th 2015
STRACHAN CORPORATE
AFSL 259730
Introduction
Lithium focus
Demand growth for lithium-ion
batteries expected to support
price of lithium compounds…
... Lithium carbonate price rises
by ~20% over past year
In mid 2012 Galaxy Resources merged with Canadian lithium developer
Lithium One to create a significant force in the lithium supply chain. Following
the sale of its Jiangsu lithium carbonate plant in northern China, the
company’s main focus is developing a 96% owned, lithium/potash brine
project at Sal de Vida in Argentina. The company also owns the Mt Cattlin
spodumene/tantalum mine in the Southwest of Western Australia and the
James Bay hard rock spodumene development project in Canada. Galaxy’s
major focus remains to develop a significant presence in the global market for
lithium compounds.
Strachan Corporate sees strong growth in demand for lithium compounds
used in the manufacture of lithium ion/polymer batteries, while other
industrial uses show expansion in line with global economic growth. Sales of
lithium compounds into the rechargeable battery market for mobile electronic
consumer, communications and computing equipment are expanding rapidly
while the price for high grade product has risen ~20% over the past year to
levels of US$6,500 per tonne. Newly emerging trends towards battery use in
transport equipment and power storage look set to provide a further upward
step in market usage that will support expanded production of Li-ion batteries
as the decade unfolds.
Sources of Lithium Carbonate
Development of Galaxy’s
Sal de Vida project will
provide integrated processing
to Li-carbonate
Most lithium carbonate is sourced from brines such as Galaxy’s Argentinean
Sal de Vida Salar from which industry experience demonstrates that
production cost is typically lower than US$2,500 per tonne of carbonate. The
process of concentration, precipitation and purification of lithium product from
brines is simpler than for spodumene feed since lithium found in brines is
already in solution. Hard rock sources such as Galaxy’s Mt Catlin and James
Bay deposits typically grade 1% to 1.4% lithium oxide. The Greenbushes
mine in Western Australia is not typical since it grades 3% lithium oxide and
is considered an outlier of its type. Operating costs relating to the processing
of a complex lithium silicate called spodumene (chemical formula LiAlSi2O6)
are higher, typically ranging from US$4,000 to US$5,000 per tonne since
spodumene concentrate it must first be calcined and leached to deliver lithium
into solution.
Sal De Vida 96%
+40 year project life
Galaxy’s Sal de Vida salar project is part of a larger series of salar lithium
accumulations located in Argentina, near the borders with Chile and Bolivia at
an altitude of 4,025 metres. The western Salar del Hombre Muerto is owned by
leading lithium company FMC, which has operated its El Fenix production facility
for 20 years and currently produces about 16% of global lithium supply.
Sal de Vida is estimated to hold a Measured
and Indicated Resource containing just over 4
Possible 8Kt pa LCE start-up rate million tonnes of lithium carbonate equivalent
(LCE) and 16 mt of potash. Reserves of 1.1
mt of LCE plus 4.2 mt of KCl should support a
final run-rate of 25,000 tpa of LCE.
Sal de Vida
LCE
Potash
mt.
Resources
Reserves
4.0
1.1
16.0
4.2
project life of over 40 years at
Armed with an April 2013 Definitive Feasibility Study that assesses capital and
operating costs and consequent economics for a 25,000 tpa Li-carbonate
project, Galaxy is now considering a staged development. Initial capital costs
and market risk for the project are likely be moderated by commencing
production at an initial rate of 8,000 tonnes per annum of lithium product.
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 2
May 14th 2015
Galaxy estimates ~US$120m
CAPEX at stages start-up
Large Resource ...
... pumping flow rate tests &
assays support DFS
STRACHAN CORPORATE
AFSL 259730
Once the project’s process is refined and markets for product are established,
output can be lifted to a target rate of 25,000 tonnes pa of lithium product,
while adding a potassium recovery circuit, all funded out of operating cash
flow as the market opportunity develops.
Strachan Corporate has modified the company’s capital cost estimate of
US$369 million for a 25,000 tpa project to estimate a more manageable
capital cost of US$122 million for start-up rate of 8,000 tpa of lithium product
without an initial potash circuit.
The company is confident that it has the skills required to produce high
quality, >99.5% pure Li2CO3 product to capture premium prices of around
US$6,500 per tonne for battery grade material.
The company’s engineering
consultants estimated that a
project to produce 25,000 tpa
of lithium product plus 95,000
tpa of potash would have an
initial capital cost of US$369
million. Operating costs were
estimated at US$2,200 per
tonne of lithium carbonate and
an estimated annual revenue
of US$215 million was said to
result in a pre-tax operating
cash flow of US$118 million pa
and a post tax NPV 10 of
US$380 million.
Sal de Vida - Capex
@ 25 Ktpa @ 8 Ktpa
US$m. *
General
7.0
3.0
Brine extraction
26.2
10.5
Evaporation ponds
88.4
26.5
Li carbonate plant
61.8
24.7
Potash plant
26.0
0.0
Reagents
6.0
3.0
Power & Infrastructure
50.2
20.1
Other
10.1
4.0
Direct costs
275.7
91.8
EPC M
35.6
9.2
Owners costs
13.0
7.0
Freight
11.4
5.0
Total indirect
60.0
21.2
Total costs
335.7
113.0
C ontingency
33.5
9.0
Total Capital investment
369.2
122.1
* Strachan Corporate estimate
A scaled-down and conservative start-up at 8,000 tpa would deliver a project
that is within Galaxy’s capacity to fund while adding a more manageable and
less disruptive 4.7% to global lithium carbonate capacity.
At this initial scale, the project is likely to deliver an EBITDA of around US$23
million pa which could be used to support the establishment of an add-on
potash circuit while expansion of overall capacity would be driven by global
market demand.
Source: Galaxy
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 3
May 14th 2015
Test work supports
development methodology
Located high in the
Argentinean Andes
STRACHAN CORPORATE
AFSL 259730
Sal de Vida brine has favourable chemical properties, containing relatively
high grades of both lithium and potassium and a low grades of deleterious
elements including magnesium, ensuring a low cost and high quality
carbonate product can be produced by solar methods. Critically, brine
pumping test work on the Sal de Vida salar supports capacity assumptions
used for preparation of a Definitive Feasibility Study on the project.
Consistent mineral composition and flow rates of 16 litres per second from a
depth of 53 metres over a 30 day test supports an initial 8 well development
with capacity to expand to a 24 well development producing 25,000 tonnes of
lithium carbonate and 95,000 tonnes of potash per annum at full capacity.
Sal de Vida Location Map
Source: Galaxy
Development likely to follow
farm-in funding negotiations
The company has delayed progress towards a final investment decision on Sal
de Vida development until completing the sale of its Jiangsu plant and
negotiating off-take and farm-in funding of capital requirements. Through
2015, once all approvals are in place and funding is arranged Strachan
Corporate believes that Sal de Vida could begin developing its plant with the
aim of commencing production by late 2017, after a 15 month ramp-up period
from early Salar pond development.
Comparative Grades
Source: Galaxy
DFS indicates A/Tax NPV10 of
US$380 million at full-scale
With a stronger balance sheet and cash flow from Mt Cattlin, the company will
be able to fully explore opportunities for joint venture and other funding
mechanisms with downstream lithium partners. While the lithium carbonate
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 4
May 14th 2015
Current business environment
is favourable for project
cost reduction
Significant development value
upside for Galaxy
STRACHAN CORPORATE
AFSL 259730
price remains firm, current competitive conditions for engineering and project
development should enable Galaxy to revisit capital and operating cost
estimates with a view to achieving significant cost reductions prior to a final
investment decision.
At an average Li2CO3 price of US$5,500 per tonne, depending on grade the
DFS expects a full-scale project to deliver an operating cash flow before
interest and tax of US$118 million pa, which corresponds to a pre-tax NPV10
of $645 million. The current market price for product is ~US$6,500/tonne.
The company will work towards achieving generous project financing facilities
through its Chinese banking and joint venture partner connections. Progress
could then commence with possible new equity, along with ~US$220 million
of project debt.
Mt Cattlin
100%
Annual Lease Fee + Royalty Top Up
Re-emerging as tantalum
The Mt Cattlin mine was placed on care and maintenance in July ‘12. The
concentrate producer with
plant had achieved close to its design run-rate of 1 mt pa of ore during the
lucrative spodumene by-product
June ’12 quarter with an annualised rate of 876,000 tpa recorded over that
entire quarter.
General Mining (GMM: ASX), controlled by Galaxy’s founding MD Michael Fotios,
Lease & royalty agreement with has completed due diligence on the opportunity of restarting the mine to
GMM to contribute ~$6m pa.
produce a tantalum concentrate as well as spodumene by-product from higher
grade ore remaining. Galaxy has negotiated a 3 year, $2.5 million pa lease
agreement plus a 10% production royalty payment. An initial sale option any
time during the lease period for a price of $30 million less any production
payments could be renegotiated to reflect positive developments on the
spodumene sales front that could see the project revert to a joint venture. GMM
is preparing to recommence production by September 2015, with sales of
spodumene from Mt Catlin initially accruing on a 50/50 basis to Galaxy and
General Mining under an agreement to be finalised prior to GMM’s completion of
due diligence. Under the initial agreement, if the purchase option is exercised,
Deal to sell spodumene could
Galaxy would be entitled to a 3% net smelter return (NSR) royalty on sales
add revenue of >$15m pa.
from existing Resources and a 1% NSR on any additional resources outlined.
to Galaxy
Mt Cattlin’s total global mineralisation target, calculated to a maximum depth
of ~60 metres has been estimated at nearly 25 million tonnes, containing 2
mt of spodumene and 6.6 m lb of Ta2O5. When applying a cut-off grade of
0.4% Li2O or 5.9% spodumene, a Reserve of 11.4 mt, containing 1.7 mt of
spodumene and 3.7 m lbs of tantalite is estimated.
Mt Cattlin Resource and Reserve Estimates
Mt Cattlin
mt
Resource
C ontaining
High Grade Reserve
C ontaining
Spodumene Li2O
15.9 14.7%
2.33
11.4 14.7%
1.68
mt
mt
1.08%
378
1.05%
264
Ta2O 5
m lb
m lb
0.016%
5.6
0.015%
3.7
m lb
m lb
Source: Galaxy, Strachan Corporate Pty Ltd
Strachan Corporate believes that the Mt Cattlin mine will not be resource
constrained. Drilling to the west and northwest of known mineralisation
expanded known zones of relatively shallow lithium mineralisation. Bore-hole
GX849 recorded an intercept of 14 metres from 50 metres depth, grading
25% spodumene and bore-hole GX850 hit 10 metres from 53 metres
depth grading 26% spodumene, showing much higher grades than the
Reserve average at slightly deeper extensions. The project should be able to
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 5
May 14th 2015
STRACHAN CORPORATE
AFSL 259730
look forward to at least a 20 year project life with further extensions reliant
on applying capital to drilling and the presumption of commercial grades and
supportive commodity prices over the projected project life.
Lateral & depth extensions offer The Mt Cattlin ore zone occurs within a layered volcanic sequence of rocks
containing hard and brittle, mineralised pegmatite sandwiched between
expanded mine life
equally hard basalt layers. Mining to depths of about 50 metres will present
little difficulty, despite a need for drill and blast mining operations virtually
from the surface. Drilling to about 120 metres has shown repetitions of flat
lying, mineralised pegmatite below the presently defined open pit
mineralisation. This mineralisation could enable mining operations to be
extended at depth, either by deepening open pits or by application of
underground mining extraction techniques. On balance, underground methods
may prove to be more profitable than deepening open pits, provided that
deeper mineralisation with sufficient lithium and tantalum grades can be
established. Mining plans envisage the eventual low cost disposal of waste
and tailings into mined voids, following a period of surface disposal.
Mt Cattlin Location Map
GMM to sell tantalum
concentrate to Talison
Source: Galaxy Resources
Tailings material or crushed waste rock may ultimately find a market as
aggregates for road building or other industrial materials, representing an
additional revenue stream for the project.
Hard waste ideal for value
adding road metal sales
Low cost magnetic & gravity
separation of spodumene &
tantalum concentrates
When in operation, the mine produced a lithium oxide concentrate via heavy
medium separation from ore crushed to 100% less than 12 mm, using a
specific gravity cut of 2.9 gram per cubic centimetre. The light fraction was
subject to further grinding followed by wet magnetic and gravity separation,
with a target production of about 117,000 tpa of spodumene concentrate
grading 5.5-6% Li2O along with 351 tpa of 25% tantalum concentrate,
containing 193,000 lb of Ta2O5.
A recovery target of over 80% for spodumene and 65% for tantalum had
been set and the plant was close to achieving this level when it was put on
care & maintenance in July ‘12.
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 6
May 14th 2015
STRACHAN CORPORATE
AFSL 259730
Since GMM is focusing on a tantalum product, production of a low grade, 5%
spodumene concentrate by-product for sale at a 30% discount to market price
of $430 per tonne, could generate revenue of $21 to $30 million pa. If Galaxy
is instrumental in achieving sales of this product there may be some
adjustment to initial profit sharing understandings.
Argentina
Despite poor ratings,
Argentina remains a solid
mining destination
Reform in the air, post
Oct ’15 election
Argentina
consistently
ranks poorly on tables of
country risk. It’s political
and economic landscape
has moved through several
cycles since the country
went bankrupt in 2001. In
2012 the country took
control of Repsol’s 51%
interest in Argentina’s largest oil company YPF, effectively nationalising it and
causing a further deterioration in its global financial standing. Beyond that,
the country remains relatively stable for miners and there has been little
interference in this part of its economy.
Argentina’s GDP fell by ~2.1% in 2014 and inflation remains high at 38%.
Elections are due in October 2015, at which time an unpopular leader could be
voted out, paving the way for economic reform.
James Bay
Spodumene project
100%
Galaxy owns 100% of the James Bay Pegmatite project in Quebec. The
deposit holds total Indicated and Inferred Resources of 22.1 mt grading
1.28% Li2O, which is similar in size and extent to the Mt Cattlin deposit.
Metallurgical test work indicates that James Bay mineralisation can be
adapted to the same processing route employed at Mt Cattlin to produce a
spodumene concentrate.
Galaxy will concentrate on its high quality brine project, keeping James Bay
as a long term option or selling the project. Recent interest in the project
from private equity indicates that the asset has longer term value.
Financial Position
Galaxy holds approximately $50 million of cash and expects that final
reconciliation of working capital from the Jiangsu plant sale should add about
$2 million on completion.
The company holds 600 convertible bonds, on which it owes a total of $62.4
million. The company is engaging with bond holders with the objective of
restructuring this debt, aiming to resolve the position by July ’15.
Galaxy may offer to repurchase debt at a discount or some other arrangement
involving partial repurchase of debt, interest commitment payout in equity,
along with the issue of new debt with no equity option attached.
Once Mt Cattlin is re-commissioning in July ‘15, Galaxy will receive lease
payments of $2.5 million pa from General Mining, plus a 10% royalty on
tantalum sales, adding a further $2-$3 million per year. Income of $6 million
pa would cover the company’s debt service obligations plus its
administration costs.
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 7
May 14th 2015
STRACHAN CORPORATE
AFSL 259730
Product Market Review
LITHIUM PRODUCTS
Global lithium carbonate/chloride/hydroxide production, which arises largely
from processing of continental brines, is currently estimated at 187,000
tonnes pa of lithium carbonate equivalent (LCE), while installed capacity is
close to 200,000 tpa.
Tesla's sale of over US$800
Bn of storage batteries in just
2 days following product
release shows the future for
lithium demand
Current
estimates
see
demand
for
lithium rising by over
7%
per
annum,
which will result in a
doubling over the
coming 10 years to
over 270,000 tpa of
LCE.
An
annual
increase in market
consumption
of
7,000-9,000 tonnes
of LCE should easily
absorb
Galaxy’s
proposed
start-up
volume of 8,000 tpa
in 2018.
In recent years, as the market for lightweight, high performance Li-ion
batteries to power mobile and hand held equipment has ballooned,
consumption of lithium compounds has expanded. In response to this growth,
Chinese processors began to access higher cost lithium by roasting and
leaching spodumene, either with sulphuric acid or using an alkali leach
solution of sodium carbonate to access lithium carbonate.
The
major
producers
include brine operations in
Chile, Argentina and China
while Australia’s production
arises largely from the high
grade
Greenbushes
spodumene mine, while
several additional projects
are in the wings, including
the re-commissioning of
Galaxy’s Mt Cattlin mine.
About 35% of lithium
compounds find application
in the manufacture of
ceramics and high temperature glass, such as that used for glass cook-tops,
coffee plungers and the like where a low coefficient of expansion is required.
Lubricating greases, metallurgical powders and polymers account for a further
19% and air treatment adds a further 5% to market share. Most of the legacy
or non lithium-ion/polymer (Li-ion) battery uses of lithium compounds are
expected to experience demand growth at around global GDP expansion, or
around 3-4% pa.
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 8
May 14th 2015
STRACHAN CORPORATE
AFSL 259730
Over the past two decades, the major growth market for lithium compounds
has been for the manufacture of rechargeable and primary batteries for use in
consumer appliances, power tools, computers, communication devices and
increasingly in transport equipment and power storage applications. Lithium
ion battery technology now dominates the rechargeable battery market and
combined, this area currently makes up about 31% of lithium demand and
remains the fastest growing segment.
Within the battery market, transport
applications are set to experience an
upward step-change in application as
Tesla Corporation pushes ahead to
build its Gigafactory near Reno,
Nevada. Once price and performance
issues are resolved, demand for
electric vehicle (EV) applications look
set to take off later this decade and
into the 2020’s.
Vehicle
Battery
Required
Li2 CO 3
C hevy Volt
16.5 kWh
14.8 kg
Nissan Leaf
24 kWh
21.2 kg
C hevy Bolt*
60 kWh
53 kg
70 kWh /
Tesla Model S
64 kg/75 kg
85 kWh
*Estimate. Source: calculations based on:
Fox-Davies Research, signumBOX.
Sales of 114,000 Tesla Model ‘S’ vehicles pa would require ~8,000 tpa of LCE,
equal to Galaxy’s initial target output from Sal de Vida.
Longer term, power storage for remote and off-grid applications are set to
add significant tonnage to the lithium market in the 2020’s as smart-grids
combine with storage and renewable power generation technology to reduce
capital costs, leading to a likely outlook for very strong expansion in lithium
demand at rates of around 10% pa during the 2020’s.
Early technology focused on nickel-cadmium and NMH batteries is rapidly
being overtaken by the lighter, more energy dense and better performing
lithium based batteries now is use and development.
There are several technologies competing in the lithium-ion battery arena.
Each has its own intellectual property attached. As technical improvements
enhance battery performance, more applications are found and the common
theme is that all these batteries use lithium carbonate or hydroxide in the
manufacture of their cathodes, which now accounts for over 80% of the
rechargeable battery market.
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 9
May 14th 2015
STRACHAN CORPORATE
AFSL 259730
In China, production of electronic bikes is booming and has passed 2 million
units per month. Restrictions on the manufacture and use of lead-acid
batteries, combined with the superior performance and weight characteristics
of Li-ion batteries is opening up this market as more manufacturers switch to
Li-ion batteries.
One of the limiting factors that may hold back manufacturers from adopting
the Li-ion batteries is fear of secure supply. Galaxy is in a strong position to
guarantee supply to downstream customers in volumes and at the quality
required to underpin investment that must be undertaken by battery makers.
High performance batteries make up a large section of the growing market for
lithium, with Li-ion and various modifications, accounting for this growth.
Generally, ~1 kg of lithium carbonate is required for each kWh of battery
capacity. Each Toyota Prius has a 1.5kWhr battery and there are over 17
million of these vehicles that currently use NMH batteries. Fully electric
vehicles, such as the Volt, will need a 16.5 kWh battery containing ~15 kg of
lithium carbonate. Even at the current Li-carbonate price, this amount
represents just $98 per battery, so the price of lithium is not a significant
factor in the final product cost.
The energy density of Li-ion batteries is twice that of competing Ni/Cd
batteries, but they are fragile, requiring protection circuits which limit peak
voltage. The industry is experiencing rapid technological advancement, with
new chemistries and circuitry introduced about every 6 months. Latest
advances involve lithium/polymer/gel technologies.
Several new battery making ventures have recently been announced,
including Matsuchita, Volkswagon/Sanyo and Nissan-NEC, which have
announced new, large scale manufacturing initiatives which are likely to raise
demand for lithium after 2011.
TANTALUM MARKET
Tantalum metal has a number of physical properties which make it suitable
for a range of applications including:

Use in capacitors due to the metal’s high capacitance to store and
release energy

An additive in superalloys in the manufacture of aircraft and land based
turbine blades

Tantalum carbide cutting tools

Mill products for corrosive resistant piping, vessel lining and valves

High purity tantalum oxides
and chemicals for optical lenses
and anti-reflection coatings
Market data is difficult to find, but
demand for Tantalum experienced
annual growth of around 5% pa over
the 15 years to 2007, with peak
growth at the height of the tech
market boom in 2000. Primary
production currently stands at about
3.75 million. Australia and Brazil
together supply about 50% of global
production with large supply from
Source: Talison Minerals
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 10
May 14th 2015
STRACHAN CORPORATE
AFSL 259730
Africa and co-product supplies for other sources making up the remainder.
The tantalum price jumped from around US$30/lb in the mid 1990’s to a peak
of US$250/lb in the late 1990’s on the back of demand for mobile phone
capacitors and has recently settled under $200/lb.
Industry observer Roskill sees the tantalum market tightening into 2016,
expecting a return to 5% growth rates will have the market in balance or
slight deficit by 2016.
One serious issue for consumers is the large supply of tantalum sourced from
conflict areas in the Congo, Nigeria, Ethiopia and Rwanda. Providing an
alternative supply from Australia would be welcomed by many end users.
S.W.O.T Analysis
Strengths
Weaknesses
RISING DEMAND FOR LITHIUM: Auto makers are
initiating programmes to develop fully electrical or
hybrid electric vehicles, using Li-ion batteries.
Chinese battery makers are gearing up to expand
capacity. Warren Buffett and Tesla have invested in
the industry ahead of roll-out for mass domestic
power storage applications.
FUNDING: The company has a high level of debt
that it must restructure ahead of making a
transition to generating operating cash flow, firstly
from Mt Catlin tantalum and lithium, and then from
Sal de Vida.
SMALL COMPANY: Risk adverse equity markets find
smaller companies to be high risk.
SKILLED TECHNICAL MANAGEMENT: Galaxy has a
START-UP PROJECTS: Galaxy will need the ongoing
quality technical and financial team with proven
support of customers and its financing partners.
ability in corporate management.
Threats
LARGE RESOURCE BASE: The company’s Resources
FUNDING: Galaxy will need to attract funding to
at Mt Cattlin, James Bay and Sal de Vida are well
support growth objectives. Strong relationships
understood and the projects do not appear to be
with Chinese banks and potential joint venture
resource constrained.
partners should assist in this task.
LOCATION: Projects are well located with respect
COMPETITION: Rising prices for lithium minerals
to transport, services, labour and utilities.
are likely to draw in additional suppliers,
potentially leading to lower commodity prices.
Opportunities
EXPLORATION: Galaxy has extensive lithium Galaxy will need to work closely with customers to
Resources and has established relationships with ensure that it is not in competition. Operating in an
customers.
environment where Chinese producers and
customers are major players presents special
CORPORATE ACTIVITY: As a leader in its industry,
marketing risks.
Galaxy may attract corporate interest.
TECHNOLOGY CHANGE: Technology in the lightweight
battery industry is rapidly evolving, but Li-ion is
likely to be at the heart of this industry for decades.
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 11
May 14th 2015
Martin Rowley
STRACHAN CORPORATE
Board & Management
AFSL 259730
Chairman
Martin was a co-founder of TSX and LSE-listed First Quantum Minerals Ltd and remains its Executive
Director, Business Development. First Quantum is one of the world's largest copper production companies and owns the Ravensthorpe nickel project in Western Australia. He was previously nonexecutive Chairman of Lithium One Inc., which was acquired by Galaxy in July 2012.
Anthony Tse
Managing Director
Anthony has 20 years of corporate experience in high growth industries such as technology, media
and entertainment, resources and commodities, primarily in senior management, capital markets
and M&A roles. He was formerly the Director of Corporate Development at Hutchison Whampoa's
TOM Group (HKSE), Deputy General Manager of TOM Online (NASDAQ), President of CETV (TOM/
Time Warner) and CEO of CSN Corp, as well as various positions at new Corporation's STAR TV. He
joined the Board of Galaxy in late 2010 and was formerly appointed Managing Director in November
2013, following a management restructure of the company.
Charles Whitfield
Executive Director
Charles has an MBA from Columbia University and is the Principal Investment Officer of Drumrock
Capital, an investment firm providing capital and advisory services to start-up and early round companies. He was formerly a Managing Director with Citigroup where he held the position of head of the
corporate equity solutions group (Asia Pacific).
Jian-Nan Zhang
Non Executive Director
Mr Zhang is the Deputy General Manager of Fengli Group (Australia) Pty Ltd, a subsidiary of the
Fengli Group in China, which is a leading private industrial group in China, holding interests in iron
and steel, commodities trading, shipping and wharf operation related businesses. He is a Galaxy
shareholder and was previously Managing Director of Winly Trade & Investment in China.
Disclaimer
The information herein is believed to be reliable but the author, Strachan Corporate Pty Ltd, ABN 39 079 812 945; AFSL 259730 (“Strachan”),
does not warrant its completeness or accuracy. Strachan has relied on information which is in the public domain and has spoken with
management. Opinions and estimates constitute Strachan’s judgment and do not necessarily reflect those of the Board and management of
Galaxy Resources Limited and are subject to change without notice. Strachan believes that any information contained in this document is accurate
when issued however, Strachan does not warrant its accuracy or reliability. This material is not intended as an offer or solicitation for the purchase
or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all investors. Strachan has prepared
this report without taking account of any particular person’s investment objectives, financial situation or needs. Therefore, before acting on the
advice, you should consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. Strachan, its
officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the
full extent permitted by law. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The
investments and strategies discussed herein may not be suitable for all investors. If you have any doubts you should contact your investment
advisor. The investments discussed may fluctuate in price and changes in commodity prices and exchange rates may have adverse effects on the
value of investments. This work was commissioned by Galaxy Resources Limited and Strachan will receive a fee for its preparation.
Strachan Corporate: 15 Florence St, Cottesloe, WA, Australia, 6011
Page 12