Alita’s lithium woes an opportunity for Galaxy to make its move
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Industry consultants Roskill thinks Galaxy Resources (ASX:GXY) could make a play for Alita Resources (ASX:A40) as the latter struggles at its Bald Hill lithium project.
In a note earlier this week, Roskill analyst Jake Fraser noted the struggles Alita was going through at Bald Hill — including news earlier this week that it had received a notice of default on a key loan.
Alita’s reasons for the default included the challenging market conditions for lithium producers, with an oversupply pushing down the price on the spot market.
This was demonstrated by news that it had effectively sold lithium concentrate to a buyer below a previously announced floor price.
Since starting production in Q2 2018, Alita’s Bald Hill had produced at an average quarterly cost of $US646 ($953) per tonne against the life of mine average of $426 per tonne.
It’s all a recipe for a cashed up suitor to come and swoop, and Roskill thinks Galaxy is just the company to do that.
“Whether Alita remains operational or enters care and maintenance is also of commercial importance to Galaxy, Alita’s largest stakeholder at around 10 per cent,” Fraser wrote.
“Through Alita, Galaxy could gain access to the additional resources it’s actively seeking. Synergies between Bald Hill and Mt Cattlin are clear as both are exported via Esperance, whilst on the production front the deposits could provide greater operational efficiencies and economies of scale.
“Galaxy has shown an improvement in operational efficiency over 2019 and could share such experience with Alita.”
More broadly, Fraser said spodumene producers needed to tighten their belts to ride out the current lithium price weakness.
“For new spodumene miners, it is now delivering on the transition to operational efficiency that will determine the robustness of each mine’s ability to remain profitable through the current hostile price environment,” Fraser said.
He said while no casualties may be nice, the near-term market oversupply of lithium means a few mine closures may be “an unwanted necessity” to force pricing support once more.
WA spodumene producers are hurting as prices fall from over $US1,000 ($1475) a tonne to well under $US600 a tonne.
Over the past 12 months, Pilbara Minerals (ASX:PLS) is down 47 per cent, Altura Mining (ASX:AJM) 62 per cent, Galaxy 56 per cent, and Alita 75 per cent.
Alita is looking particularly shaky right now, and some are predicting it may become the first major casualty of a weakening market.
But lithium expert Chris Berry says that while prices for lithium and cobalt have continued to fall, “long-term demand projections haven’t budged and are still very much intact”.