GXY 2.61% $2.61 galaxy resources limited

galaxy - reasons to be happy

  1. 74 Posts.
    I have been following Galaxy for the best part of a year now (through my investment in Creat Resources in the UK) and I am astounded by the performance of the Galaxy share price. It defies logic. I have detailed some of my simplistic views on the past performance and future expectations below:

    Reasons for the fall:
    - Sentiment. It is easier to be negative than positive on a share and find faults where really there are none.
    - Macroeconomic conditions. Affects all shares but the Japanese Tsunami and general market weakness appears to have affected Galaxy considerably more than others. I believe this is because �shorters� have used the negative sentiment to drive down the price, and any bounces have been suppressed, resulting in the current highly oversold position.
    - Lack of communication with shareholders. I believe this has been Galaxy�s major failing and helps explain why the share price is where it is today. With more detailed and frequent communication of the financials of the projects, a greater level of confidence would have been gained in what have been tough trading conditions. I believe Galaxy will look to improve the frequency and detail of communication over the coming weeks and months.
    - The unexpected nature of the share dilution. In the short term the dilution appeared to sell the existing GXY shareholders short and the immediate decline in the share price reflected this sentiment; but in the long term I believe this will be seen as a shrewd business decision, considering the quality of investors that were brought on board and the prevailing economic conditions at the time.

    Further significant dilution is unlikely in immediate future due to cash position ($185m at last count). Dilution would occur if the HK listing option was re-ignited (which would be a highly positive move in my opinion)

    Demand for lithium
    In my opinion Galaxy is an outreach of the Chinese Government�s quest for control over supply of its resources (as are Creat Resources). The Chinese economy is still very very strong despite efforts in some parts of the Western media to downplay its growth; refer to the following news story (released yesterday) regarding Chinese growth: http://www.bloomberg.com/news/2011-07-13/china-s-economy-grows-9-5-exceeding-estimates.html

    I thought the following article was very significant, shining some light on Geely�s investment in Galaxy:

    MMartin made the significant point that it looks like earlier this year Galaxy acquired a substantial investor and potentially a major customer all in the one play. This puts the �cheap� dilution in a better light...

    "It was not the first acquisition by Geely that could be part of a strategic development plan. After the privately owned carmaker acquired Volvo for $1.8 billion in August last year, Li said that the deal was worthwhile because Volvo has invested deeply in developing new energy technologies. He said new energy vehicles are the future and will be the major battlefield for competition among automakers."

    Interesting chat about lithium with Galaxy referred to as the number one of all lithium mineral projects: http://www.theenergyreport.com/pub/na/9747

    From a personal point of view, it is clear that there has been signficant growth in demand for electric cars in the UK (and US). At the end of my street an electric top-up station has recently been installed and it is frequently used (much to my amazement).
    Demand for hybrid cars has increased considerably, on the back of high fuel costs at the pump. The next step for the electric car market is mass production of fully electric vehicles as this will bring the initial purchase cost down to an affordable level, and with a cheaper (and perceived greener) fuel, customer demand will outstrip demand overnight.

    I could ramble on and on about the benefits of investing in lithium and galaxy�s fully integrated approach but I�ll leave it there for your benefit, and mine (as it is late in the UK).
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