GXY 0.41% $1.21 galaxy resources limited

Gah!Another insane over-reaction.We are told every day by the...

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    Gah!


    Another insane over-reaction.

    We are told every day by the lithium bears that SDV has no value

    and then once the market has removed all hint of a valuation from that asset,

    that we are then priced as if we entirely at the mercy of the Argentinian govt.

    And one that has turned Evil and out to destroy us at that.


    Why did no-one remember that, unlike ORE, we don’t currently have any Argentine income,
    that GXY's current profitability is not encumbered by any changes in policy there,

    only that GXY pay workers and taxes in cheaper pesos,

    and that if this news is so bad, then it actually advantages the Australian (and Canadian) side of our operations?


    Did anyone stop to consider the reason why Galaxy wants to be globally diversified
    is precisely because it presents the company with options for strategy and defense?
    I call that being smart and ahead of the curve
    but I guess others believe that we should be considered the permanent victim of the worst possible interpretation of world events?


    aah… but who can reason with a tantruming child?


    I wonder how many people even believe in this confected panic over preliminary Argentine elections.

    It’s a thin veneer of newsiness to manufacture more volatility to support institutional pip trading.

    Fear, served chilled and after-market drinks at the club for the perpetrators.

    Meanwhile we pick up the pieces and look for a single shred of logic

    beyond the political leanings of the markets for the right side of The Force.


    I think other posters have already made the point that SDV was already valued at nothing in our market cap.
    Now, apparently, worth less than nothing.

    And - over what?

    These primary election results are just some foreplay and preamble.
    Not a single bit of lithium-related analysis to be seen. And yet the market is happy to run with the vaguest of vagueness.

    It's so preliminary and unfinished that the market has no choice but to forget about it in a day or 2.
    The primary is a basically an early opinion poll for the main deal in October.


    Nah.

    Nothing to do with South American politics.
    It’s still all about those short positions that are under water from the last couple of weeks.

    This is all about giving them a chance to cover while retail is paralysed by confusion.

    Remember that last week the lithium market was tilting for a huge resurgence?
    Why?
    Because some of the market leaders were saying profits were up, that they were going to let the market and prices stabilise
    and that their forward order books were looking strong as the new gigafactories started making their first orders.
    None of that has changed.
    That is the real landscape of lithium for H2.
    There is a massive bull market erupting in rare earths, nickel, cobalt AND lithium.
    This is just another way of keeping the lid on it.

    Only a primary election result in Argentina has handily popped up for the bears to conflate into something doomy.
    Problem is that the lithium bears won't want to make anything too much of it - because it will just set hard rock stocks running..
    oh yeah. We're hard rock too...


    SO.
    What is this Argentine stuff all about?
    The actual election will be fought in October.

    Something similar happened last time (Wasn't it the senate elections?) - that were being dominated early on by the left and swung back the other way.

    Look again at the situation with a little more clarity.

    The main point here is whether any new government of either persuasion would seek to obstruct or continue to support the rise of the Argentinian lithium sector.


    The lithium sector is their greatest opportunities to inject cash directly to their poorest regions

    because that is where the lithium lives too.
    The Left are running on addressing poverty.

    I see a connection and logic to them continuing to support international lithium investment.


    As a side note. I read a book (or at least a few chapters) on Argentinian investment. Catamarca retains the rights for the local govt to give tax breaks, with the purpose of stimulating investment in mining, forestry and tourism.

    I would suggest of the 3, that mining is a safer bet, in this dry and disadvantaged part of the world where bikini-clad instagrammers fear to tread.


    Digging around today, I can't find a single piece of information new policy that reframes the way a new leftist government will treat the sector.
    Anybody seen anything about anti-lithium policy from the new govt?


    The incumbent right-aligned govt of Macri removed a 5% lithium tax, removed a swathe of import duties, swept away layers of bureaucracy that made importation of mining equipment slower, lowered tax rates and grandfathered these policies.
    All positive stuff and it was reported at the time that these measures received bi-partisan support in the Argentine National Congress.


    We don’t know anything definitive about how or even if any of that would change.


    That said, the brine profit margin is healthy enough to sustain increases in taxation

    and if that is the net result then it will make no difference at all to whether or not projects are developed or expanded.

    You can not take away brine’s cost advantage so easily.

    Even Chile’s royalty scheme has not stopped their lithium industry.


    A quick point about the difference between Argentina and Chile.

    One of the main reasons that the new Chilean leftist govt has gone after the lithium sector is because it is dominated and owned by members of the old right-wing leadership.
    Well. It wasn’t so much a right wing government as a full-blown Prussian style military dictatorship under Pinochet,

    and resentments and reprisal and revenge still dominate the thinking of the new left govt.


    The left in Chile, have dealt very heavy handedly with Chilean brine largely because SQM was privatised by Pinochet, divided amongst his friends, and the company not exactly kept a squeaky clean record, found guilty of having paid millions to ex ministers, tax evasion and bribery.

    I believe persisting enmity between the leadership of SQM and the Chilean govt is the main reason that the lithium royalties have been put in place. Albemarle probably got caught in the cross-fire, but it could easily involve aspects of how their own Chilean tenement deals first came into place in the Pinochet era.

    My point here is about the reason for the vindictiveness. It was more than right-left swing. Pinochet's govt ran a brutal fascist regime in Chile with the blood of an estimated 10,000 - 30,000 Argentinians on his hands.

    It's a much less dramatic story in Argentina.

    Argentina has swung the other way - from Left to Right.
    Macri tackled the isolationism, bribery and debt of the preceding left era.

    There are members of that old Left wing govt now seeking re-election but we’ll see what they actually want to achieve, beyond the advertised desire to address the issue of poverty and jobs.


    I’d like to see Galaxy and the lithium industry play an important role in supporting Argentina’s economy.

    Once we are selling lithium from SDV then I don’t think many of us will be minding whether the Argentine govt gets an extra cut of the action.
    Traditional brine production is a very low opex production method. Hard rock can't beat it.
    I don’t think anyone would seriously be trying to extrapolate that a change of Argentine govt would make SDV any less likely, or that they would go about destroy their booming local lithium industry.


    Remember also, that the local provinces have been free to do their own deals and that, in Galaxy’s case, hovering on the brink of major capital works and expenditure, they are likely still attempting to be as seductive as possible, knowing that Galaxy’s social responsibility and cash flows through to desperately needed infrastructure, employment and eduction for the local populace.

    That giant Catamarca Mining Secretary has been busy photo-bombing us, beaming ear to ear in virtually every photo op that Galaxy has had over there.


    It may not be until the election proper that we see what policy changes the left would like to make

    but up to this point both sides of politics have been supportive of the lithium industry and both sides have been happy to see the international investment money flowing into the Atacama, which holds the poorest of the country's provinces.
    Catamarca, where Galaxy's SDV lives, may well be the poorest of the poorest, a dry and unforgiving environment where some people’s lives are no different to the way they were 300 years ago.

    Are we expected to believe that, in the eventuality of a leftist govt, that they’ll close down all the lithium operations?


    The country is getting impatient with the pace and patchy results of reforms but these new primary results seems far from a pro vs anti lithium election that bears would like you to believe.

    There is still a lot more electioneering to go and if there is any intervention from the outside then it is likely to be in ways that assist Macri, as the IMF will have more faith in Macri to pay back their loans faster.

    It's typical for a Western investor looking at a country like Argentina and seeing all kinds of dangerous.
    If you’re politically right, then you react in horror.


    The truth is that the country has been operating in a way that doesn’t quite match up to our own view of politics for decades.
    It is a country with enormous challenges and has been described as being similar to China, prior to its last wave of industrialisation.


    If the peso is devalued then we’ve already seen that it can have a positive exchange result.

    We are not paid in Argentine peso, but pay some of ouropex bills, tax included, in them.
    GXY saved $10m USD from the POSCO transaction.
    That said, SDV capex is likely to be dominated by USD.

    A lot of the more expensive elements of Galaxy's plant (assuming they build an old school carbonate facility) would be imported (likely from China), making little change to their costs irrespective of where the Argentine peso was at. Wages in pesos, but its possible that the bigger Argentinian contractors do contracts in USD anyways.


    Taken to extremes, if the new govt makes it harder for briners then it also creates a lithium market where the spodumene price may well increase, meaning Mt Cattlin makes better money and James Bay jumps up the list for priority development.


    This is exactly the point of having operations in different parts of the world!


    If a change in government results in little more than taxation changes then I don’t see any of this as a major impediment to progress and a new Argentinian govt will not be in the position to afford to go around killing its own golden geese.


    SDV is a strategic resource. Big enough to sustain a decent size gigafactory for a generation.
    Also capable of producing a high quality lithium chloride product for the next generation of lithium metal batteries (targeting a doubling or tripling of EV range). GXY have signalled that alternative tech has proved to be cost effective from its feasibility tests.

    That is the game changer but its probably a little too technical to explain to a floor trader from an institution.


    Today seems to be all about trying to leverage and escalate the concept of geo-political risk.

    The reality is that I’m glad that SDV stands apart from the rest of hard rock lithium on the ASX.
    That is the ultimate advantage it has and why it is attractive to a completely different

    and wider range of potential clients and off takers than hard rock companies here in WA.


    I’d be quite disappointed to see SDV’s brine corralled back into a business relationship with Chinese Lithium. Independent supply is a very powerful chess piece for Galaxy to have at this point.

    Forget Argentinian politics for the moment. (if you can)

    China vs US trade has been the real market sticking point this year

    and Trump’s govt has been put on high alert about the sorry state of US lithium (and other battery mineral) supply/ownership. China has only hinted at their near complete control of the battery mineral supply chain.

    That is what sent our share price to $1.80 a few months ago.
    Lithium stocks suddenly jumped, led by the briners, which offer the lithium supply in the production style that US companies have so far preferred, and mostly unencumbered by any Chinese offtake contracts.


    SDV is one of those high quality, long LOM resources that give US, Japanese, Korean or European companies one of their best chances of getting/keeping supply if China decides to be protectionist about its ownership of the lithium industry.


    The Australian hard rock miners ( yes - Mt Cattlin included) are always at the mercy of Chinese policy (and Australian tax, enviro, wages and royalty policies)

    and it may be worthwhile to remember that when considering how many eggs and what size are being put in baskets locally

    by companies that have no/zero/nada exposure to operations in other parts of the world,

    independent of control by China.


    I look forward to the day when we have to watch out for Canadian FUD dropping on us too.




 
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