Galaxy Resources Announces $36-million Lithium Concentrate Agreement

Update: Galaxy subsequently announced that the Offtake agreements reported on below will settle through Japan’s Mitsubishi (TYO:8058).
On Monday, Galaxy Resources (ASX:GXY) and its partner General Mining (ASX:GMM) announced a binding spodumene concentrate supply agreement with two Chinese buyers.
The companies have forward sold 60,000 tonnes of concentrate to be delivered in 2016 from the Mt Cattlin project in Western Australia. The concentrate has been priced at US$600 per tonne, freight on board, for a minimum of 5.5 percent lithium oxide. The sale, worth $36 million, includes a US$18-million prepayment due by March 31.
In total, Galaxy expects to produce 65,000 tonnes of lithium concentrate at Mt Cattlin this year.
On top of that, the Galaxy and General Mining will deliver a further 120,000 tonnes of lithium concentrate to the same buyers, with the sale price to be determined in Q4 2016.

“These sales represent a tremendous step forward for the Mt Cattlin operation, and validate the work General Mining has done to re‐optimise the process flow sheet,” said General Mining Executive Chairman Michael Fotios in a statement. “The Company is very pleased that it has been rewarded for a careful and prudent approach to agreeing its maiden concentrate sales, and we look forward to long and successful relationships with our new customers.”
General Mining has an option to earn a 50-percent interest in the Mt Cattlin project. The company provided the capital for the restart capex and ramp up of operations at Mt Cattlin.
To be sure, analysts and market watchers are pleased with the news:

$GXY off-take agreements at significant premium to current spod pice plus advance payments. #benefittingfromshortage. #lithium

— Joe Lowry (@globallithium) March 8, 2016

Galaxy / General Mining agree at 60,000 tonne sale of 5.5% lithium spodumene concentrate at $600/tonne. 25% above market price. #China
— Simon Moores (@sdmoores) March 8, 2016

Galaxy / General Mining deal: 50% to be paid up front by two Chinese buyers. A further 120,000 tonne deal in the pipeline for Q4. #lithium

— Simon Moores (@sdmoores) March 8, 2016

Joe Lowry of Global Lithium has written extensively about the shortage of raw materials for lithium producers in China. Galaxy notes that increased demand from the electric vehicle sector and a push to combat pollution in China are expected to push lithium demand even higher. Meanwhile, demand growth from the battery sector for more traditional market segments, such as consumer electronics, also remains strong.
“We expect to continue to see strong growth in end user demand from a diverse range of end user applications,” said Galaxy Resources’ managing director, Anthony Tse, in a release. “[A]nd coupled with an ongoing limited response on the supply side for the near term, lithium feedstock will remain in very high demand, and as such pricing will also continue to be very robust going into 2017.”
The companies expect to make their maiden concentrate shipment in July or August of 2016. Shares of Galaxy have risen 32 percent, to $0.225, in the past five days, and are up 95.65 percent so far in 2016. General Mining has seen its share price gain 22 percent, to $0.35, in the past five days, and is up 37.25 percent so far this year.

 
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 
Editorial Disclosure: Galaxy Resources is a client of the Investing News Network. This article is not paid-for content.