Company Update

Highlights

• Jiangsu Divestment Process – Update on transaction
• Jiangsu Plant Update – Tolling production continues, operationally cash flow neutral
• Sal De Vida – Final tenement acquisitions complete, ongoing planning and development
• Mt Cattlin – Initiatives underway to realise value

PERTH, Australia, Oct. 21, 2014 /CNW/ -

Jiangsu Divestment Process

Galaxy Resources Ltd (ASX: GXY) ("Galaxy" or "the Company") wishes to detail the remaining steps to close the sale of the Jiangsu plant. As previously notified to the market, the acquisition of Galaxy Lithium International Limited ("GLIL") by Sichuan Tianqi Lithium ("Tianqi" or "Acquirer") is subject to a number of regulatory approval procedures within China, including the approval of the China Regulatory and Securities Commission ("CSRC"), as Tianqi is a company listed on the Shenzhen Stock Exchange. All necessary Australian regulatory approvals have already been completed.

Due to the size of the Jiangsu acquisition, at US$230M, the transaction falls under the pre-approval processes of the CSRC rules, as it is deemed to be a Very Substantial Acquisition ("VSA" – in China, known as Major Asset Reorganization), given that it exceeds certain percentage thresholds in terms of certain financial ratios when comparing the relative size of the asset being acquired to the size of the Acquirer. Under the current regulatory regime, such a transaction is subject to a very rigorous independent review and typically a long protracted and complicated approval process. 

In March 2014, the China State Council issued a memo outlining the Opinions of the State Council on Optimizing Regulatory Regime of Mergers and Acquisitions (the "Opinions"), in which it outlined its intent to optimize the overall regulatory regime regarding mergers and acquisitions. In particular, according to the Opinions, the CSRC approval procedure would no longer be required for such VSAs. A public consultation process by the CSRC regarding the proposed rule changes was conducted from July through to August 2014. Adoption of these recommended changes would mean that the sale of Jiangsu would no longer be subject to pre-approval by the CSRC and, as such, would not be required to fulfil the current complicated process within the CSRC VSA rules. In expectation of the adoption of these changes the Company and Acquirer have taken the view that it would be more expeditious to the sale timetable to wait for these favourable changes to be enacted. The Company remains confident that based on the timing between the completion of the public consultation and formal enactment of law changes for precedents in China that waiting for the change to the CSRC approval process remains the quickest way to achieve final closing.

In the event that the CSRC rule change process is overly protracted, the VSA criteria would fall away upon the issuance of the 31 December 2014 audited accounts of the Acquirer, as then the relative size of Jiangsu to the Acquirer will no longer trigger the financial ratio thresholds requiring CSRC pre-approval. This is because the Acquirer has completed a very substantial equity raise and newly consolidated a large asset during the 2014 financial year meaning its size will be above the VSA threshold at year end.

Upon passing of the anticipated CSRC rule changes or alternatively the issuance of the latest audited financial statements of Tianqi the completion of the transaction would then proceed with the following steps:

• Corporate approval by the shareholders of the Tianqi,
• Approval of the provincial-level department of the Ministry of Commerce ("MOFCOM"),
• Approval of the provincial-level department of the National Development and Reform Commission and
• The approval of the provincial-level department of the State Administration of Foreign Exchange.

The last provincial government departmental approvals are procedural to allow for Tianqi to properly and legally complete the transaction with settlement of US$'s offshore.

Management continues to interact with Tianqi on a regular basis and is maintaining an excellent relationship, not only in terms of progressing the regulatory approvals for the transaction, but also in other matters, including the pre-acquisition integration of production operations at the Jiangsu plant, marketing initiatives and working together to maintain continuity in other key stakeholder relationships, such as with the local government and Galaxy Jiangsu's relationship banks..

As announced previously, in addition to the initial USD12.2M deposit, a further advance of USD30M was negotiated as part of the contractual arrangements with Tianqi. This was a strong demonstration of the financial capacity and conviction towards completion of the transaction on Tianqi's part. These funds have allowed Galaxy the financial flexibility to further reduce and service its non-Chinese corporate liabilities as well as continue to reduce corporate overheads and attend to other matters, including the payment of the final instalment required to secure 100% ownership of all of the tenements at the Sal de Vida project.  The monies are being managed conservatively until it is necessary to deploy them for future growth initiatives with careful attention being paid to maximising the benefit of the recent decline in value of the A$ against the US$.

Jiangsu Plant Update

As announced on 18^th March 2014, Galaxy entered into a tolling agreement with Tianqi to process Talison spodumene concentrate and produce lithium carbonate on their behalf. Jiangsu continues its spodumene tolling arrangement with Tianqi and maintains an operational neutral cash flow level.

Sal De Vida Update

In August, Galaxy completed all instalments for deferred land purchases for Sal De Vida with a final payment of USD2.5M Galaxy now fully owns 100% of all tenements necessary for both production wells and surface evaporation. The Company has also made significant progress in its discussions with local governments in the two provinces and continues to make positive advances on its outstanding permitting processes. Further planning and development work is being undertaken with respect to determining how best to adopt a phased development approach to the project.

Mt Cattlin

Galaxy is continuing to actively evaluate potential partnerships for this asset that will allow the Company to realise value from the capital investment it has made with the objective of continuing to strengthen its overall financial profile.

About Galaxy (ASX: GXY)

Galaxy Resources Ltd ("Galaxy") is an Australian-based global lithium company with lithium production facilities, hard rock mines and brine assets in Australia, China, Canada and Argentina. The Company is a lithium producer listed on the Australian Securities Exchange (Code: GXY)

Galaxy owns the Jiangsu Lithium Carbonate Plant (100%) in China's Jiangsu province, Mt Cattlin (100%) spodumene project near Ravensthorpe in Western Australia and the James Bay (100%) lithium pegmatite project in Quebec, Canada. 

Galaxy is also advancing plans to develop the Sal de Vida (96%) lithium and potash brine project in Argentina situated in the lithium triangle (where Chile, Argentina and Bolivia meet), which is currently the source of 60% of global lithium production. Sal de Vida has excellent potential as a future low cost brine mine and lithium carbonate processing facility.

Lithium compounds are used in the manufacture of ceramics, glass, electronics and are an essential cathode material for long life lithium-ion batteries used to power e-bikes and hybrid and electric vehicles. Galaxy is bullish about the global lithium demand outlook and is aiming to become a major producer of lithium products. 

Caution Regarding Forward Looking Information.

This document contains forward looking statements concerning Galaxy. 

Forward-looking statements are not statements of historical fact and actual events and results may differ materially from those described in the forward looking statements as a result of a variety of risks, uncertainties and other factors.  Forward-looking statements are inherently subject to business, economic, competitive, political and social uncertainties and contingencies.  Many factors could cause the Company's actual results to differ materially from those expressed or implied in any forward-looking information provided by the Company, or on behalf of, the Company. Such factors include, among other things, risks relating to additional funding requirements, metal prices, exploration, development and operating risks, competition, production risks, regulatory restrictions, including environmental regulation and liability and potential title disputes.

Forward looking statements in this document are based on Galaxy's beliefs, opinions and estimates of Galaxy as of the dates the forward looking statements are made, and no obligation is assumed to update forward looking statements if these beliefs, opinions and estimates should change or to reflect other future developments. 

Not For Release in US

This announcement has been prepared for publication in Australia and may not be released in the U.S. This announcement does not constitute an offer of securities for sale in any jurisdiction, including the United States, and any securities described in this announcement may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer and that will contain detailed information about the company and management, as well as financial statements.

SOURCE: Galaxy Resources Limited

Corporate, Nick Rowley, Director - Investor Relations, [phone], [email protected]