An extremely well-written and entertaining article, but I don't agree with its economic prognosis for China. When I've spoken to officials, their stories were always consistent about the government objectives of raising the standard of living to Western standards and releasing rural land for agriculture. These factors combined to drive the massive migration to urban communities, thus creating the mainstay of the internal economy and the demand for construction steel. The momentum is too great to stop (even if anyone wanted to), without Maoist-style intervention. I'm fairly convinced that we will see the Chinese empire continuing its rise for a few more generations. To continue with the Shakespearian metaphoric analogy, Caesar said to Brutus: "Yon Cassius has a lean and hungry look. He thinks too much. Let me have men about me who are fat." China is lean and hungry. The Westerners who criticise them are fat.
– Jan Zaraza
Lithium charges up
I read Michael Feller's article with interest but would wish to point out that Orocobre (ORE) is not the only lithium play on the ASX. Galaxy (GXY) has been mining spodamene at Mount Weld in WA and is at the point of commissioning its purification facility in the very near future. It is also very advanced in extracting maximum value from its mineral deposit, with a battery joint venture in China. Lithium batteries are a high priority for the Chinese government as it seeks to reduce pollution and congestion in its cities by encouraging electric mopeds. This initiative is part of the current five-year plan. I tend to have a preference for mining companies, such as GXY, that are either in production or very close to adding value through secondary refining/manufacturing activities. GXY is much unloved by the market, but this is likely to change once the cash starts to flow in earnest later this year. ORE is still a pure exploration play at the moment, many years from production, even though it has plenty of cash. The remoteness of its tenements may add to the expense of development. I have owned GXY shares for a while at $ 0.595.
– Peter de Cuyper
Michael’s response: Thanks for your letter. Galaxy has a number of assets in other base metals, gold and iron ore, notable at Ravensthorpe as well as Connolly, Shoemaker and Boxwood Hill, so I didn’t want to focus on them as a pure-play exposure. Moreover, as they are near production – despite being potentially undervalued at current levels – there is more sell-side coverage out there, so technically I don't consider them "under the radar".
As for how they stack up to Orocobre, I haven’t done the numbers on Galaxy but in general, hard rock sources of lithium are more expensive to mine than brine-based sources, like the ones that Orocobre is hoping to develop.
In the last couple of years, Eureka Report writers have mentioned Galaxy in a few notes. While this information is out of date, you may find it to be a useful backgrounder:
'¢ Mercurial small metals (Tim Treadgold, June 3, 2011)
'¢ How to spot the next ten bagger (Frank Gomez, June 18, 2010)
'¢ A lithium caution (Tim Treadgold, March 1, 2010)
'¢ Wheels of fortune (Alan Kohler, March 1, 2010)
'¢ Lithium miners rev up (Giles Parkinson, August 17, 2009)
To read this week’s letters, click here.