Galaxy has struck a deal to sell its troubled Jiangsu lithium processing plant.
Galaxy has struck a deal to sell its troubled Jiangsu lithium processing plant.

UPDATE 2.30pm: Embattled Galaxy Resources has struck a long-awaited deal to sell its troubled Jiangsu lithium processing plant in China in a deal worth $US230 million ($249 million).

The sale to China's Sichuan Tianqi Lithium Industries involves a cash component of $US122 million ($132 million), but will effectively eliminate all of Galaxy's Chinese debt and leave it with $62 million in cash.

Galaxy said the deal would allow it to focus on its Sal de Vida lithium brine and potash project in Argentina as its core asset.

Managing director Anthony Tse described the deal as a major step in the financial transformation of the company.

"This will leave the company in a very strong position to extract the maximum value for shareholders from its remaining portfolio of lithium assets, in particular the Sal De Vida lithium brine project in Argentina," he said.

Mr Tse said the fundamentals for the lithium sector remained strong.

"Demand growth is robust, with the consumer electronics sector continuing to step up, coupled with increased consumption in hybrid and electric vehicles," he said.

The deal leaves Galaxy with the Sal de Vida lithium brine project in Argentina, the mothballed Mt Cattlin spodumene project near Ravensthorpe and the James Bay project in Quebec, Canada.

"Management will continue to investigate how to best extract value from the Mt Cattlin and James Bay projects while concentrating on the development of Sal de Vida now from a position of financial strength and stability," Mr Tse said.

The company, which completed a definitive feasibility study for Sal de Vida last year, said it would continue to work on refining the capital expenditure options for the project to achieve a much lower budget, shorter development timeline and pay back period.

Galaxy expects to secure final environmental approvals for Sal de Vida shortly.

Tianqi is a leading producer of lithium products in China and recently acquired a majority interest in Talison Lithium, which owns the Greenbushes lithium operations near Esperance.

The deal is expected to take about three months to settle.

Galaxy's Jiangsu lithium processing plant was the brainchild of former managing director Iggy Tan, who had a dream of turning Galaxy into an integrated lithium mining and processing company.

But the plant was plagued with problems, spectacularly highlighted when a pipe exploded in 2012, killing two employees and injuring several others.

Despite its efforts, the company has never been able to run the plant as a cash flow positive operation.

Galaxy shares, which emerged from a three-month suspension this morning, closed down 0.9 cents, or 13.43 per cent, at 5.8 cents.

The West Australian

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