Galaxy keeping its HK options open
Galaxy Resources, the world's fourth-largest maker of lithium carbonate, used in making batteries, will keep its Hong Kong listing options open despite poor market conditions, after Japan's mega-earthquake derailed its listing plan last year.
The Perth, Australia-based and Sydney-listed firm believes mainland-market-savvy investors in Hong Kong have a better appreciation of its 'growth story' compared to investors in Australia, although current low valuations on the Hong Kong market has made a share offer unattractive at present, according to executive director Anthony Tse.
'Our story will get a better following in Hong Kong, because investors familiar with the mainland can easily see the market potential [of lithium batteries in electric bicycles],' Tse said in an interview late last month. Galaxy was listed in Sydney in 2007.
Another factor stalling the need for a hurried resurrection of listing plans, said Tse, was the fact that Galaxy raised US$120 million in April last year through a shares placement to institutional investors in Australia. The placement was made after it dropped its US$200 million Hong Kong listing plan at the eleventh hour a month earlier.
Earlier this month Galaxy announced an all-shares merger with Canada-listed Lithium One, offering the latter's shareholders a 27 per cent price premium for their shares.
The merger will allow Galaxy to expand its upstream resources to meet surging downstream demand from the electric bicycle and vehicles market. Before the merger's completion, Galaxy plans to raise US$50 million in Australia by issuing more shares.
Some 29 per cent of lithium consumed last year was in the batteries manufacturing industry, followed by 16 per cent in ceramics, 14 per cent in lubricating greases, and 13 per cent in glass-making, according to Singnumbox. The Chile-based consultancy forecasts global consumption of lithium will grow at an average annual rate of 10 per cent between last year and 2020 to 300,000 tonnes.
Galaxy has a mine in West Australia with 18 million tonnes of resources containing 1.09 per cent lithium oxide. Its facilities have the capacity to extract around one million tonnes of the ore a year and turn it into 137,000 tonnes of spodumene concentrate.
The concentrate is shipped to its plant in Zhangjiagang, Jiangsu province, which came on stream early this month and has the capacity to produce 17,000 tonnes of lithium carbonate, suitable for battery production, annually.
Galaxy is conducting a study to expand the Jiangsu plant's capacity to 22,000 tonnes, to be supported either by faster extraction of ores at its Australian mine, or commercialisation of its 20 per cent-owned lithium pegmatite mine in James Bay in Canada's Quebec province.
The mine is undergoing a feasibility study, which is expected to be completed within nine months. It has 22 million tonnes of resources, containing 1.28 per cent lithium oxide and could be developed to a similar capacity to the Australian mine and processing facilities, which cost US$80 million to build.
With the impending merger with Lithium One, which owns 80 per cent of the James Bay project, and a 70 per cent of the Sal de Vida lithium and potash brine project in Argentina, Galaxy will have more choices in sourcing upstream raw material.
To capture the downstream market, Galaxy also plans to build an A$143 million (HK$1.15 billion) lithium-ion battery plant in Jiangsu with a capacity to produce 620,000 battery packs annually for the electric bicycle market. Three mainland banks have given it letters of intent to provide loans totalling A$120 million, Tse said.
The rapid fall in the cost of lithium-ion batteries and higher lead costs due to the government's clamp-down on production by lead smelters with pollution records, has made lithium batteries more competitive. Though lithium-ion batteries cost about three to four times more to make than lead-acid batteries of similar capacities, they last about three times as long, Tse said.
The number of electric bicycles, which use lithium-ion batteries, sold on the mainland last year