Galaxy flags Mt Cattlin write-down of up to $274m

Galaxy Resources said it expects to record a non-cash impairment charge of between $US150 million ($222 million) and $US185 million ($274 million) for the first half of 2019, reinforcing the current bleak conditions in the lithium sector.

The company told the market the impairment announcement followed a review of the inventory of lithium concentrate it held at its flagship Mt Cattlin mine near Ravensthorpe, costs it attributed to its purchase of the mine's previous owner, General Mining, and tax losses.

Galaxy acquired General Mining in May 2016 in a scrip deal that valued the target at $216 million and created an entity with a market capitalisation of around $700 million.

Business News understands the write-down was a result of a downgrade to the value of the plant, equipment and reserves since Galaxy acquired General Mining.

Galaxy said the final amount of the impairment charge would be announced during first-half results released at the end of August.

The announcement was further evidence of the supply and demand imbalance currently facing the lithium sector.

At the end of the June quarter, Galaxy had around 86,000 tonnes of lithium concentrate produced from its Mt Cattlin mine sitting in a stockpile.

By the end of the same period, other lithium miners were in a similar predicament, as Alita Resources had 40,800t stockpiled, Altura Mining 27,000t, and Pilbara Minerals 51,000t.

In comparison, for the June quarter Galaxy shipped 29,400t, Alita 18,700t, Altura 38,600t, and Pilbara 43,200t.

By the end of the quarter, Pilbara Minerals confirmed it would scale back production and Alita Resources said it would launch a strategic review into its operations.

Additionally, while the spot price for lithium concentrate is difficult to gage, there have been tangible indicators of a slump.

Mineral Resources priced its Mt Marion 6 per cent spodumene concentrate product at $US791.84 per dry metric tonne in the March quarter.

This has fallen to $US608.95 for the current quarter.

MinRes also recently placed its $1 billlion-plus Wodgina lithium refinery on hold.

The Galaxy impairment was seemingly anticipated by the market, as its shares closed trade up 0.44 per cent to $1.14.

In early December, its shares were around $2.70 each.