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PERTH, Australia, May 20, 2013 /CNW Telbec/ -
On behalf of the Board of Galaxy Resources Limited, we would like to
provide an update of your Company and its capital raising plans. We
have launched a 1 for 1 pro rata entitlement issue at $0.08 per share
to raise up to $47 million. We believe it is very important to provide
you with some context and background to this significant decision and
the decisive actions we have taken within the business.
Galaxy's strategic plan has always been to become the preeminent
producer of very high grade lithium carbonate to meet the demand of the
rapidly growing lithium-ion battery market.
In the last four years, Galaxy's Management and Board have built a
global lithium company on four continents by:
Funding, constructing and commencing operations at the Mt Cattlin
spodumene mine in Western Australia on time and budget;
Funding, constructing and commencing operations of one of the world's
largest and most advanced battery grade lithium carbonate plants, in
China's Jiangsu province;
Producing battery grade lithium carbonate that ranks as some of the best
Developing strong relationships within the key markets of China, Japan
Merging with TSX-listed Lithium One Inc. to acquire a low cost brine
Completing the Definitive Feasibility Study on the Sal de Vida Lithium
Brine & Potash Project in Argentina on time and on budget.
Galaxy has taken all of the above projects from feasibility stage, right
through construction and development to production and market
establishment. No other lithium company has achieved this advanced
penetration into the market over such a short space of time. In four
years, Galaxy has built a global lithium business on the verge of being
operationally cash flow positive (subject to sales and the progress of
the Jiangsu Plant ramp-up to full production).
Galaxy's key asset, the Jiangsu Lithium Carbonate Plant is in production
and is on schedule to become operationally cash flow positive by Q3
2013, subject to sales and the progress of the ramp-up to full
production. The tragic pipeline rupture accident at Jiangsu in late
2012, and subsequent withdrawal of the proposed investment of $66
million by East China Mineral Exploration & Development Bureau, caused
a significant financial and operational setback for the Company,
resulting in a temporary shutdown of the Plant, loss of revenue and a
considerable recovery process. The Jiangsu Plant is now producing at
60% of design capacity and daily production rates and sales of lithium
carbonate continue to increase month by month. The Company's budget
scenario, assuming it meets its Plant ramp-up and sales profile, is to
achieve an operational EBITDA in 2014 of $20 million to $30 million and
to potentially increase further in future years as the product mix
changes to higher value EV grade product.
The event at the Jiangsu Plant, however, has placed a significant burden
on our working capital position, and we now require an injection of new
equity during this production ramp-up phase.
Galaxy now presents its shareholders with an equitable opportunity to
support the Company in this capital raising as we find ourselves in a
very exceptional and very challenging period in our Company's history.
Given the difficult equity raising environment and therefore the
discount being offered, we consider that the appropriate course of
action is to offer the equity raising to our 10,000 strong shareholder
base, in order to provide the Company with the necessary working
capital to achieve our vision of reaching positive cash flow status and
becoming a major player in the lithium industry. This will enable
existing shareholders the opportunity to maintain or increase their
holding in the company on attractive terms.
On behalf of the Board of Galaxy, we would like to invite you to
participate in the Company's upcoming capital raising. The capital
raising is a one (1) for one (1) pro-rata entitlement offer
(Entitlement Offer or the Offer) at an offer price of $0.08 per New
Share. Applicants will also receive three (3) free attaching New
Options for every two (2) New Shares subscribed. Galaxy intends to
raise up to approximately $47 million through the Offer to raise funds
for working capital (including interest payments), to reduce debt
levels and a re-structure of the Company's balance sheet. The
Entitlement Offer price of $0.08 per New Share represents an
approximately 65% discount to the closing price of Galaxy Shares on 24
April 2013, being the day the Company's Shares last traded on ASX
before announcement of the Entitlement Offer, an approximately 48%
discount to the TERP (theoretical ex-rights price or TERP) and an
approximately 66% discount to Galaxy's 5 day volume weighted average
price on the ASX on 24 April 2013.
Patersons Securities Limited has been appointed Lead Manager to the
Entitlement Offer. Deutsche Bank has been appointed Corporate Adviser
leading debt re-arrangement and non-core asset sale initiatives.
The discount level and free attaching options are necessary in these
very difficult financial markets but most importantly, being a pro rata
offer, it is offered to give you an opportunity to maintain your level
of holding in the Company. If shareholders do not support the
Entitlement Offer, we will unlikely be able to achieve our plans to
become cash flow positive. Ultimately, it will call into question the
ability of the Company to continue.
We understand the frustrations shareholders are likely to have
experienced in recent times and that in order to consider a further
investment, will want to know, we have taken significant action.
To strengthen its position Galaxy has, with the assistance of our
Corporate Adviser Deutsche Bank, undertaken a comprehensive strategic
review, with the intention of creating a profitable and robust
financial structure through cost reduction initiatives, re-scheduling
of debt and non-core asset sales to reduce leverage. Corporate costs
will be reduced from $17.6 million in 2012 to $12.2 million in 2013.
The 2012 corporate costs were mainly due to Lithium One-related due
diligence and merger activities, the Sal de Vida feasibility study as
well as the start-up and commissioning of the Jiangsu Plant. A further
$4.3 million in cost savings is being targeted to bring corporate costs
over the next 12 months to around $7.9 million. Part of the cost
reduction initiatives will be a salary cut of 20% for the Managing
Director and Board of Directors, and 10-15% for executive management of
The Company currently has loans ($117 million) with three Chinese banks
- China Construction Bank, Industrial and Commercial Bank of China, and
Shanghai Pudong Development Bank - all with short term tenor. In
addition Galaxy has existing convertible bonds on issue for $62 million
which are subject to investor put options in November 2013 where the
holder of the convertible bond has a right to require the Company to
repay the face value of the convertible bond. The Company is working on
various options to term out its debt maturity profile and restructure
the convertible bonds. Longer tenor financing will give the Company
time to further establish its business, and better match the
liabilities to the cash flow profile. The Company has already
implemented initiatives in the past 12 months to cut costs, restructure
its balance sheet and to streamline business processes. This included
the decision to place the Mt Cattlin spodumene mine on care and
maintenance in favour of a more cost effective off take agreement from
Successful completion of the Entitlement Offer would allow the Company
to reduce its gearing levels and, along with debt refinancing, would
allow the Company to re-structure its balance sheet. The Company's key
objectives in refinancing debt to better terms and conditions, is to
achieve an optimised balance sheet structure that better matches its
current stage of business and its growth profile going forward.
The Prospectus will include a shortfall application form which will
allow shareholders to apply for shares in excess of what their
entitlement might actually be and, to the extent that shareholders wish
to subscribe for additional shares, we would encourage them to do so on
the shortfall application form. Entitlements are non-renounceable. This
means the rights to subscribe for New Securities under the Entitlement
Offer are not transferable and there will be no trading of rights on
The issue of three (3) free attaching New Options for every two (2) New
Shares subscribed for will enable Eligible Shareholders who take-up
their Entitlements to benefit in any increase in Galaxy's share price
above the New Option exercise price ($0.08) prior to the New Option
expiry date (31 December 2014). Subject to satisfying the requirements
for quotation, the New Options will also be tradeable on ASX, enabling
New Option holders to realise value for the New Options through selling
them on ASX if they so choose.
Shareholders who choose not to take up their entitlement will receive no
value in respect of their entitlements and their shareholding in the
Company will be diluted.
Galaxy has resolved to maintain the current voluntary suspension from
trading in the Company's securities in place, while it seeks to
successfully complete the Entitlement Offer and balance sheet
re-structuring. The Company hopes trading in its securities will
recommence shortly after the close of the Entitlement Offer, when it
should have greater certainty as to its financial position and its
balance sheet re-structuring.
On behalf of the Board, we thank you for your continued support for
Galaxy and encourage you to participate in this investment opportunity.
Global Lithium Producer and Chemical Business - Galaxy is an Australian-based global lithium producer and chemical
company focused on supply of lithium products for the lithium battery
Lithium Battery Focused - Galaxy's business is focused on the lithium battery sector, which
continues to grow strongly from existing applications in consumer
electronics, and advancing penetration into sectors such as power
tools, electric bicycles, mass energy storage, hybrid and electric
vehicles (EVs). The lithium battery sector continues to be one of the
fastest growing sectors amongst consumers of lithium.
Strong Demand Growth Expected - According to a wide range of industry analysts, demand for lithium is
expected to grow by up to 200% in the next decade from about 140,000
tonnes per annum (lithium carbonate equivalent LCE) to around
250,000-300,000 LCE tonnes per annum. Galaxy is in a strong position to
meet this growth. The Company has also strategically located its
production capacity in China, which has proven to be the fastest
growing market in the last few years.
Largest Capacity Producer of Battery Grade Lithium Carbonate in Asia - Galaxy's key asset is the Jiangsu Lithium Carbonate Plant, one of the
first fully-automated battery grade lithium carbonate plants in the
world and one of the most technically sophisticated, producing
consistent quantity and quality product. At full design capacity the
Jiangsu Plant will be capable of producing 17,000 tonnes per annum of
battery grade lithium carbonate, making it the largest battery grade
plant in the world.
Jiangsu Produces Superior Battery Grade Quality - The quality of the battery grade lithium carbonate from Jiangsu met
the stringent battery grade specifications early in the start-up phase
of the Plant. Today the product quality is amongst the best available
in the global market. Qualification of the product by lithium cathode
producers continues, with strong acceptances and early sales recorded
Jiangsu Capable of Producing EV Grade® (99.9% LC) Lithium Carbonate - While the Jiangsu Plant is designed to produce 17,000 tonnes per
annum of battery grade (99.5% Li2CO3 purity), it is also capable of
producing a higher specification grade product of 99.9% purity,
registered by Galaxy as "EV Grade®". This product is used specifically
in the manufacture of electrolyte solution for lithium batteries. The
higher grade product tends to attract a higher price premium and
provides the Company with additional marketing options.
Continued Ramp-Up of Production and Sales at Jiangsu Plant - Galaxy continues to ramp-up production of the Jiangsu Plant, and
expects the facility to be operationally cashflow positive during the
third quarter of the year, subject to sales and ramp-up progress. The
Jiangsu Plant is currently producing at 60% of design output and, at
current production rates, is already the second largest lithium
carbonate plant in China.
Strong Sales Growth - Lithium carbonate product sales are also growing, with current
volumes at approximately 575 tonnes per month, generating revenue of
about $3.5 million per month (inclusive of VAT). Galaxy is committed
to increasing sales to a range of lithium customers across China, Japan
and Korea. Currently, Galaxy's customers are largely battery cathode
manufactures, along with some technical grade customers. Customer
acceptance of Galaxy's products has been very good to date. Sales
commenced in mid-2012 and product qualification processes are ongoing
with further customers in Asia. Significantly, the Company has
commenced sales to the Japanese market - a market that sets the highest
standards for product quality.
Jiangsu Records Positive Cash Inflows in April - Jiangsu's April production totalled 650 tonnes. Average daily
production in the month was 28 tonnes per day, representing 60% of the
Plant's design output. April's figures included three weeks of
production and excluded a one week scheduled outage for improvements
and modifications. Product sales in April totalled 575 tonnes of
battery and technical grade product. Sales revenue was $3.5 million
(including VAT). Production cost for Jiangsu (excluding sunk ore costs)
were $2.5 million for April, which means on a purely cash inflow and
outflow basis, the operation generated positive inflows for the month.
Battery Grade Lithium Carbonate Business Potential - Galaxy is well positioned both geographically and strategically, to
take advantage of the fast growing lithium battery sector in China. The
current price of battery grade (99.5%) lithium carbonate in China
ranges from US$6,800 -US$7,200 per tonne (inclusive of VAT).1 Assuming Jiangsu production and battery grade lithium carbonate sales at
full capacity, the Company has the potential to generate revenue of
US$115 million to US$122 million per annum. The Company expects that
the operating costs could range between US$4,900 to US$5,300 per tonne
of lithium carbonate. There is a potential upside of selling some
product at the higher grade of 99.9% lithium carbonate, which has a
current price range of US$7,900 to US$8,250 per tonne (inclusive of
China's Focus on Renewable Energy - Galaxy's strategy takes into consideration China's 12th 5-year plan
for the country, which focuses on development and uptake of renewable
energies and lessening reliance on oil. Lithium has a key role to play
in China's plans for a lower carbon economy, including a target for 5
million EVs on China's roads by 2020, and 50% ownership EV/hybrids by
2030. Overall, China targets 20% of energy to be from renewable energy
sources by 2020.3
Sal de Vida Definitive Feasibility Study - Galaxy is advancing plans to develop the Sal de Vida Lithium and
Potash Brine Project in Argentina, in which it has a 70% holding. A
recently completed Definitive Feasibility Study confirmed robust
economics for a low cost, long life lithium and potash project.
Potential annual revenues from the Sal de Vida project are in the
region of US$215 million, with operating cash flow before interest and
tax of US$118 million per annum at full production rates. The capital
cost estimate was US$369.2 million, with average operating costs
US$2,200 per tonne (net of potash credits). Galaxy sees Sal de Vida as
a future flagship asset for the Company.
Source: Asian Metal Ltd - Lithium Market Report March 2013.
Source: Asian Metal Ltd - Lithium Market Report March 2013.
Source: PRC Ministry of Industry and Information's (MIIT) 2012 released
policy "China Energy Efficient and New-Energy Vehicles Industrial Plan 2012-2020" released 28 June 2012.
SOURCE: Galaxy Resources Limited
For further information:
Galaxy Resources Ltd
Tel (office): +61 (0)8 9215 1700
Tel (office): +61 (0)8 9485 8888
Tel (mobile): + 61 (0)488 400 248