Galaxy Finance Update

 /NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

PERTH, Australia, Dec. 12, 2012 /CNW Telbec/ - Galaxy Resources Ltd (ASX: GXY) ("Galaxy" or "the Company") advises it has extended the date within which cornerstone investor East China Mineral Exploration & Development Bureau ("ECE") has to complete due diligence on the Company, for the purposes of a capital raising, from 19 November 2012 to 31 December 2012.

Galaxy announced on 5 November 2012 it was to complete a capital raising of A$81 million (before costs) via a placement to ECE and existing investor M&G Investments ("M&G"). Under the two-tranche raising, Galaxy is issuing 162.4 million fully paid ordinary shares at a price of A$0.50 per share. Tranche 1 comprised the subscription of 30 million shares by M&G for gross proceeds of A$15 million, increasing its interest in the Company to 19.3%. Tranche 1 has been completed and funds have been received by the Company.

Pursuant to an executed Non Binding Indicative Offer ("NBIO"), Tranche 2 comprises the subscription for 132.4 million Galaxy shares by ECE, for gross proceeds of A$66.2 million. The Tranche 2 placement is subject to due diligence by ECE, approval from the Jiangsu Provincial Development and Reform Commission and Jiangsu Provincial Department of Commerce, registration with China National Development and Reform Commission and PRC Ministry of Commerce, approval from the China State Administration of Foreign Exchange Jiangsu Branch, Australia's Foreign Investment Review Board (FIRB) and Galaxy ordinary shareholders.

ECE has completed financial and legal due diligence. In addition, technical site visits at Mt Cattlin and the Jiangsu Lithium Carbonate Plant ("Jiangsu Plant" or "Jiangsu") have been completed. However, ECE's site visit to Galaxy's Sal de Vida Lithium and Potash operation ("Sal de Vida") in Argentina has been held up due to business visa application process delays in Argentina and China. Consequently, Galaxy and ECE have executed an agreement to extend the due diligence to 31 December 2012.

Once the condition precedents have been satisfied, the settlement of Tranche 2 is expected to be completed during Q1 2013, although later in the Quarter than previously expected.

Due to the delay of ECE's cash injection and the impact of the Jiangsu incident on near term cash flow, Galaxy has agreed to a financing arrangement with Deutsche Bank for A$20 million (before costs), comprising equity placement and call option transactions.

The placement consists of the issue of 48.0 million new, fully paid shares at a price of 41.67c per share, representing nil discount to the Galaxy 3 day VWAP up to and including trading on 12 December 2012.  The A$20 million (before costs) placement will be settled in two tranches of A$10 million for each tranche. The first tranche ("DB Tranche 1") will settle on 17 December and the second tranche ("DB Tranche 2") will settle immediately following the re-commencement of Jiangsu operation, anticipated to be early February 2013.

In conjunction with the placement, Galaxy has purchased cash-settled call options from Deutsche Bank to potentially benefit from future appreciation in the Galaxy share price. Galaxy stands to receive an additional cash payment to the extent its share price has appreciated in three years' time, up to a maximum of approximately A$10m per placement tranche (based on current share price levels). Any payoff under the call options is contingent on Galaxy's share price performance from trade date to maturity date in three years' time.

The net proceeds of the financing arrangement of A$15 million (after placement, structuring fees and call option premium) will be used for working capital and corporate purposes.

Shares issued under the placement will rank equally with existing Galaxy shares. DB Tranche 1 of the placement is within Galaxy's available capacity to issue new shares under ASX Listing Rule 7.1 and is not subject to shareholder approval. DB Tranche 2 is subject to Galaxy refreshing its placement capacity under ASX Listing Rule 7.1, which it intends to do late January 2013, subject to shareholder approval.

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