Technology Metals Australia Offers Excellent Upside With Strong Near-Term Catalysts
Summary
Technology Metals Australia has already defined a good size, high grade, vanadium resource in Western Australia.
Valuation is extremely attractive.
Near term catalysts include a PFS in June 2018, followed by potential off-take and funding partners. A possible 2021 vanadium producer. This article was first published on Trend Investing on May 31, 2018; therefore all data is as of that date. Technology Metals Australia [ASX:TMT] [GR:TNG] - Price = AUD 0.41
Technology Metals Australia is an Australian vanadium exploration and development company focused on its 100% owned **anintha Vanadium Project located 40km south east of Meekatharra in the mid-west region of Western Australia. Technology Metals Australia 5 year price graph
Source: Bloomberg Technology Metals Australia **anintha Vanadium Project
The **anintha project is located in Western Australia and neighboring with Australian Vanadium [ASX:VAL] [GR:JT71] (OTC:ATVVF). **anintha Vanadium Project location map
Their **anintha Vanadium Project global resource is 119.9Mt at 0.8% V2O5. Within this resource there is a high grade core of 55.0Mt at 1.1% V2O5. The company has also announced a maiden Indicated Resource of 21.6Mt at 0.9% V2O5 (Northern Block only). The current mineralized strike length is 5.5 km, and at surface.
Executive Director Ian Prentice states: "The updated resource reported in March 2018 places Technology Metals **anintha Vanadium Project as one of the highest grade deposits in the World."
At this stage the Company's focus is on metallurgy and project funding/off-take partners as the resource is sufficiently large enough to be very economic.
Executive Director Ian Prentice states: "Metallurgical test work, which has been conducted in parallel with the drilling programs and resource estimation work, has confirmed the extremely high quality of the magnetite hosted vanadium ore at **anintha, delivering outstanding recoveries of vanadium in to a magnetic concentrate (up to 97.8%) with very high weight recoveries of up to 85.6%. Importantly this work indicated very high rejection of deleterious elements silica and aluminium, resulting in production of a very high quality magnetic concentrate." Infrastructure and access
Access is good with a sealed highway from Perth that passes within 30km of the project. The Port of Geraldton is 500km to the south west accessible via a sealed highway. A gas pipeline is within 140km.
Onsite infrastructure is limited at this stage. With regards to:
Electricity - A third party provider would be arranged to build a small build-own-operate power plant (perhaps gas powered).
Gas (for Kiln heating etc) – The company could use a gas pipeline 140kms away (if pipeline would be a build-to-own operate), or the gas can be trucked in as LNG.
Water – The Company will source ground water via a bore, which is inexpensive.
Labor – Fly in/fly out. Small accommodation village or existing accommodation in nearby Meekatharra. Estimate of 200 workers and between AUD 3-15m (included in the AUD 350m Capex).
Note: All of the above would be included in the CapEx or operating costs in the PFS.
Western Australia is a very mining friendly state, and the remoteness of the site will make environmental approvals very easy. Management
Michael Fry - Non-Executive Chairman
Michael Fry holds a Bachelor of Commerce degree from the University of Western Australia, is a Fellow of the Financial Services Institute of Australasia, and is a past member of the Australian Stock Exchange. Mr Fry has extensive corporate and commercial experience, financial and capital market knowledge and a background in corporate treasury management. Mr Fry is currently Non-Executive Chairman of ASX listed Brookside Energy Limited with a focus on oil and gas exploration and production onshore mid-continent region of USA, Non-Executive Chairman of Challenger Energy Limited that is focusing on oil and gas exploration opportunities in South Africa and Non-Executive Chairman of ASX listed Norwest Energy NL that has assets in Australia and the United Kingdom with an operational focus on the northern Perth Basin.
Ian Prentice - Executive Director
Mr Prentice has extensive global resource industry and equity capital markets experience, with a proven track record of high quality corporate management and technical excellence. His broad ranging 25 year-plus career extends from exploration and operational roles across a variety of commodities to the listing and management of ASX-listed resource companies. Mr Prentice has served as a Director for a number of ASX-listed resource companies, with activities ranging from exploration and project acquisition in Asia and Africa through to gold production in Australia. He has broad experience in identifying and reviewing resource projects for potential acquisition. Mr Prentice is a Member of the Australasian Institute of Mining and Metallurgy and holds a Bachelor of Science (Geology) from the University of Western Australia. Mr Prentice is currently a non-executive Director of Fraser Range Metals Group Limited. Mr Prentice was Managing Director of Gleneagle Gold Limited (Gleneagle) in May 2007 when the board of directors appointed Administrators to the company. Gleneagle was ultimately re-organised pursuant to a Deed of Company Arrangement, which was effectuated on 11 March 2008. There were no investigations or proceedings brought, other than standard investigations carried out by the Administrators. Sonu Cheema - Non-Executive Director and Company Secretary
Mr Cheema holds the position of Accountant and Company Secretary for Cicero Corporate and has over 10 years’ experience working with public and private companies in Australia and abroad. Largest Shareholders Source
Note: Company insiders have minimal share ownership for now but this is likely to increase towards 8% with future option conversions (see below).
Valuation
Technology Metals Australia has no debt, and cash as at 12 March 2018 of AUD 3.5m. Current market cap is AUD 23m. By way of comparison similar stage and neighbor Australian Vanadium has a market cap of AUD 64m (albeit with a larger resource). Pure play vanadium producer Largo Resources [TSX:LGO] [GR:LR81] (OTCQX:LGORF) has a market cap of CAD 943m.
The Company has a very attractive capital structure, with only 55.25 million ordinary shares on issue, of which 22.5 million are escrowed until end of December 2018. This leaves tradeable shares of only 32.75 million, providing great leverage to positive news flow. The table below shows the outstanding options.
Column 1
Column 2
Column 3
0
Option strike price [AUD]
Expiry
Number
1
0.25
31/12/2019
14.85m
2
0.35
12/01/21
3.0m
3
0.40
April 2020
10.0m
Source
Note: The Board owns 6.5m of the original $0.25 exercise options. Therefore on a fully diluted basis management owns about 8%, with option conversion of these to bring in $1.625m to the Company.
My recently updated price target (with higher production volumes) for end 2021 is AUD 3.12 or ~7.6x higher, based on 12ktpa V2O5 production. Assumes a cost of production of USD 4.50/lb and a selling price of USD 10.00/lb. Assumes a CapEx of AUD 350m.
Sensitivities: At a USD 6.50/lb vanadium selling price my target price is AUD 0.58 (~1.4x higher), or at USD 13.50/lb my target price is AUD 5.66 (~13.8x higher). So clearly the target price is very sensitive to V2O5 selling prices.
Given the good size resource and excellent current economics the stock appears very attractive at current valuation.
In my valuation assumption I have used a selling price of USD 10/lb. The chart below shows that to be quite reasonable especially given the Vanadium Redox Flow Batteries [VRFBs] boom that appears to be just at the beginning, and strong demand for stronger steel rebar requiring more vanadium. The current China V2O5 price is USD 13.90, and Europe V2O5 price is USD 14.65. Vanadium demand versus supply forecast - with price forecasts
Source: Largo Resources presentation Vanadium miners compared
Vanadium miners compared by grade, resource size and market cap - Technology Metals in red, black line shows grade Source: Technology Metals presentation - March 12, 2018. Catalysts
End June 2018 - Preliminary Feasibility Study [PFS] due.
2018 - Potential announcements re off-take or equity partners.
2019 - Definitive Feasibility Study [DFS]
2021 - Possible producer.
Executive Director Ian Prentice states: "We are aggressively pursuing the development of the **anintha Vanadium Project, with a clear focus to progress through the PFS, definitive feasibility study and move to a decision to mine as rapidly as possible to position the Company and Project for development in the rising vanadium price environment." Competitors
Post publication updates On May 31 Technology Metals announced: "High purity +99% vanadium pentoxide product confirmed at **anintha. This work has delivered a V2O5 product with a purity in excess of 99% from an ammonium metavanadate precipitate that recovered ~97.4% of vanadium from a leach solution generated from salt roasting of magnetic concentrate from **anintha."
On June 21 Technology Metals Australia announced: "TMT delivers robust **anintha Pre-Feasibility Study." An amazing result for a A$20 market cap company.
Highlights below. Source Conclusion
It is quite rare that I come across a junior miner with a market cap less than AUD 25m (
The only slight negative I can see is that Company insiders have very minimal ownership right now; however this is likely to increase towards 8% with future option conversions.
Investors would be wise to move quickly to take an initial position in Technology Metals Australia. The next year should see the Company progress through several key catalysts for a stock re-rating. If successful to make it to production in the next 3-5 years then a multi-bagger return looks highly likely.
As usual all comments are welcome.
Disclosure: I am/we are long TECHNOLOGY METALS AUSTRALIA [ASX:TMT], LARGO RESOURCES [TSX:LGO], AUSTRALIAN VANADIUM [ASX:AVL].
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.
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