When I write my post, I like to get my information from paid and non paid sources. It is good to have the input of the experts on the forum to clean the house and let us understand the real picture.
Our beautiful company Galaxy, through its accounting team has thought carefully about the tax side of the sale to POSCO. They have achieved so much with a very good strategy. They had the agreement in August with POSCO and planned the following:
1-Spent money on exploration activities in SDV to increase the reserve base, ponds, roads to ready the project while negotiating with the strategic partner to get a better deal from strong data. The cost will be used to offset the capital gains from the sale to POSCO. So Galaxy was burning money each quarter for a reason.
2- by focusing their activities in Argentina , the rising cost is justified because it serves the company better while negotiating with the strategic partners and prepare the prof and put it on the table in a better shape.
3-They saw the market sentiment and Chinese manipulation of the prices and lack of transparency when it comes to lithium prices, and decided to stockpile at MC, just produce enough to meet their contracts obligations. By doing that they have increased their costs to offset capital gains from sale to POSCO and stockpiled enough to meet the huge demand from the new chemical plant, they intend to build with POSCO in 2019. This way sell the products at a high prices which is anticipated in second half of 2019 and bypass the depressed prices last year 2018, and reduce the tax bills.
I I were POSCO chief, I would have done exactly that.
In summary:
In times of depressed prices, stockpiling, remove excess capacity from the market, improve prices, spend on other projects, defer capital gains, reduce tax bills and get a better deal. They have executed the perfect strategy and timing was all planned IMHO.
You guys should be very grateful , you have a good management team with cashed up company and zero debts.
Go Galaxy Go.
Cheers, Sydney
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