Market Update The market availability of lithium concentrate...

Market Update
The market availability of lithium concentrate feedstock continues to remain very tight in China, as well as the general supply of lithium products overall in the market. In light of the significant prices increases that have been reported in the last quarter of 2015, Galaxy and GMM will continue to review the marketing and pricing strategy of the future spodumene product from Mt Cattlin, as the project continues to advance to a restart of production.
Given this constrained supply, General Mining and Galaxy are working closely together with Mitsubishi Corporation on binding spodumene concentrate sales and the group expects to be able to further update the market on spodumene offtake contracts by the end of February 2016.


Operational update
Entech Mining Consultants completed an independent review of the Mt Cattlin Project in the quarter, the results of which were strongly supportive of a near term restart of operations with robust positive cashflows forecast.

The production of lithium bearing spodumene concentrate from Mt Cattlin will be the key revenue driver, and in October the Company announced an exclusive sales and distribution agreement with Mitsubishi Corporation Limited to sell Mt Cattlin spodumene concentrate into China, Taiwan, Vietnam and South Korea.

Operational headcount increased substantially in the quarter with key hires across mining, metallurgy, processing and exploration now in place. This will increase further again as operational staff are hired ahead of a late Q1 2016 recommencement of production at Mt Cattlin.

Signing of Tantalum concentrate sales and Distrubution contract being Finalised

Cannacord
We note that the deposit remains open at depth within the main pegmatite (Dowling pit), suggesting the potential for further increases in the resource. GMM are expected to commence resource extension drilling programs later in 2016. However, we don’t consider the project to be resource constrained with Reserves sufficient to support a ~10 year project life, while further conversion of Inferred resources could see an ultimate mining inventory supporting +15 years of production at the proposed production rate of 800ktpa.

We highlight the optionality offered by the potential to expand plant capacity and production. Noting that the project is not resource constrained (current assumed mine life of 15 years), and with the likelihood of relatively low capital costs to expand the plant, we see clear potential for enhanced value for the operation should production be increased. We note that any expansion would be reliant on sufficient market demand for spodumene concentrate, but noting current and expected tightness in the spodumene market, an expansion could be a distinct possibility in our view.

On this basis, we have also modelled an “expansion case” for Mt Cattlin, whereby plant throughput is increased 60% to 1.6Mtpa, lifting production to 208ktpa of spodumene concentrate. In this scenario, we have assumed expansion capex of A$45m (consisting of upgraded crushing circuit, additional fines recovery capacity and TSF expansion costs), starting 1H’17. An expanded project would lift our project valuation (NPV10%) 44% to A$364m.