ASX:TG1
Last Price:
$0.082
Date of Initial Coverage
07-Apr-21
Initial Entry Price
$0.200
Returns from Initial Entry
-59%
That TG1 will return 10x by discovering and defining a significant enough deposit to move into development studies for one of its projects.
Opened: 16-May-2022
Closed: 27-Apr-2023
Shares Held at Open: 1,250,000
Shares Held at Close: 2,331,081
Reason Memo Closed: It has been ~12 months since our first Memo and the company has delivered most of the key objectives we wanted to see it achieve.
What does TG1 do?
Techgen Metals (ASX: TG1) is a junior metals exploration company currently focused on copper and gold projects in Western Australia and New South Wales.
We are currently most interested in: the newly acquired gold project in New South Wales, copper projects in the Ashburton Basin, its copper/gold project in the Paterson Province.
What is the macro theme?
Copper is already the third most widely used metal in the world - and with demand set to increase from things such as electric vehicles and semiconductor wiring — we see it as leverage to the global electrification boom and anticipated commodities supercycle over the coming decade.
The Gold sector generally outperforms other asset classes in times of volatility (e.g market bubble crash, inflation taking hold) and we believe gold provides a good hedge to a portfolio of longer term investments.
[Memo Assessment - 27-Apr-2023]: Sentiment = Strong
Copper has exposure to the electrification boom that is still running strong.
The gold sector has also performed relatively well despite recent market volatility. The gold price is trading at all time highs against the Australian dollar and near all time highs against the US dollar.
Why did we invest in TG1?
Well defined gold prospect that has never been drilled
TG1 has just completed the acquisition of a 90% interest in a gold project in NSW where the previous surface trenching returned 160m @1.2g/t Gold. These targets have never been drilled before and could be indicative of an intrusive related gold system.
[Memo Assessment - 27-Apr-2023]: Grade = A
TG1 drilled its NSW gold project and announced a new discovery after hitting over 94m at 0.95g/t gold.
Well located projects
TG1 has projects in regions that are home to some of the biggest Copper/Gold discoveries in WA. Ashburton Basin - which hosts Northern Star’s Paulsens Gold mine & the Paterson Province - where Rio Tinto recently made the massive Winu discovery.
[Memo Assessment - 27-Apr-2023]: Grade = A
Being in the right area is important because it typically means major companies become interested when a discovery is made. Over the last 12 months, TG1 signed joint venture agreements with both Rio Tinto and IGO Ltd for two of its exploration projects.
We see this as validation from mining heavyweights that TG1 has the right ground in the right areas.
Copper/Gold prices near all-time highs
Copper is trading at US$4.20/lb just shy of its all time high. Gold is currently trading at US$1,820/oz just shy of its all time high.
[Memo Assessment - 27-Apr-2023]: Grade = A
Over the course of the last year gold also hit new all time highs it now sits at US$2,000/oz. Copper traded lower in early 2022 but has since recovered and sits at around US$4.00/lb.
Tiny enterprise value (EV) means leverage to a discovery
TG1 has ~53 million shares on issue with ~14 million under escrow. With a market cap of $7.3M (at 14c/share) and cash in the bank of $2.6M (at March 31st 2022), the current enterprise value is only $4.7M. This means TG1 is highly leveraged to any exploration discovery.
[Memo Assessment - 27-Apr-2023]: Sentiment = Unchanged
This is largely unchanged. TG1 has only 64 million shares on issue and a market cap of just $4.5M (at 7 cents per share), meaning it is still highly leveraged to a discovery.
What do we expect TG1 to deliver?
Objective #1: Drilling at the newly acquired gold project
We want to see TG1 get an RC drilling program done over the newly acquired gold project before the end of the year.
Milestones
Drill rig contracted
Drilling commencement
Drilling results
[Memo Assessment - 27-Apr-2023]: Grade = A
TG1 completed its drill program and made a discovery at its gold project.
Objective #2: Drill test the Ashburton Basin copper projects:
Milestones
Geochemical/geophysical survey results
Drilling permitting
Drill rig contracted
Drilling commencement
Drilling results
[Memo Assessment - 27-Apr-2023]: Grade = C
TG1 delivered drill programs at both of its Ashburton Basin copper projects, which we wanted to see. Unfortunately, TG1 didn't make a discovery at these projects.
Objective #3: Drilling at the Paterson Province copper projects:
We want to see the EM targets recently identified at the Harbutt Range prospect drilled in the next 12 months.
Milestones
Drilling permitting
Drill rig contracted
Drilling commencement
Drilling results
[Memo Assessment - 27-Apr-2023]: Grade = B
While we didn't get a drill program at the company’s Paterson Province copper project, TG1 did sign a farm-out agreement with Rio Tinto on the project.
Under the agreement Rio can earn up to an 80% interest in the project by sole funding exploration up to $3M (a minimum of ~3,000m of RC/diamond drilling).
What could go wrong?
Exploration risk
TG1’s projects are all considered early stage prospects, this means TG1 is yet to make a discovery on the projects. Inherently there is a risk that drilling programs return results with no mineralisation and the projects are considered stranded.
[Memo Assessment - 27-Apr-2023]: Risk = Unchanged
TG1 ran multiple drill programs across its copper/gold projects. While the company made a discovery at its NSW gold project, it didn't return anything significant from its copper projects in WA. Given none of TG1’s projects have an in ground JORC resource yet, exploration risk remains for TG1.
Commodity pricing
Copper is an industrial metal that is reliant on buoyant economic growth, if there is any significant decline in economic activity globally then copper prices are likely to de-rate.
[Memo Assessment - 27-Apr-2023]: Risk = Unchanged
Early in 2022 off the back of recession fears, copper prices fell significantly from ~US$4.50/lb to ~US$3/lb. Since then the price has recovered and demand for new copper discoveries is still strong. The gold price is still trading near all time highs.
Funding risk
TG1 is a very early stage exploration company with zero revenue and is reliant on continuous capital raises so it can undertake high-risk / high reward exploration programs. There is a risk that market conditions deteriorate and investors shun high-risk explorers like TG1, and TG1 is unable to raise capital without significant dilution of existing shareholders.
[Memo Assessment - 27-Apr-2023]: Risk = Increased
TG1 ended the December 2022 quarter with ~$1.8M in cash. The company is getting closer to a position where it may need to raise more capital to finance exploration activities. The current market environment isn’t as conducive to raising capital for high risk explorers than it may have been in previously. Reduced investor appetite for high risk explorers may make it more difficult for TG1 to raise capital, hence we think this risk has increased for the company.
Market risk
TG1 is an early stage exploration company chasing new discoveries. There is always a risk that a market wide sell off will hurt TG1’s share price the most, given investors will look to withdraw capital from the high risk high reward investments in their portfolios first.
[Memo Assessment - 27-Apr-2023]: Risk = Materialised
Market risk has materialised for TG1. Market sentiment shifted significantly and investors have rotated out of high risk explorers like TG1 and into cash. This has resulted in TG1’s share price trading down significantly from its 20 cent IPO price.
What is our investment plan?
Our investment plan for TG1 is the same as for all our early stage, exploration investments:
[Memo Assessment - 27-Apr-2023]: Grade = C
We first Invested in TG1 at 20 cents and then Increased our Position again at 18.5 cents.
As the TG1 share price did not run on the results of any of its drilling campaigns, we did not sell any TG1 shares since this Memo was published last May.
With “Market Risk” materialising, the company’s share price fell to ~6.6 cents, in line with the broader sentiment for risky small cap explorers.
We are still confident in our long term Investment in TG1, however we recognise that we may have mistimed our second entry point.
Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 1,250,000 TG1 shares at the time of publication. S3 Consortium Pty Ltd has been engaged by TG1 to share our commentary and opinion on the progress of our investment in TG1 over time.
Opened: 27-Apr-2023
Shares Held at Open: 2,331,081
What does TG1 do?
Techgen Metals (ASX: TG1) is a junior exploration company focused on gold and nickel-copper-PGE projects across Western Australia and New South Wales.
TG1’s current focus is its NSW gold project (John Bull).
What is the macro theme?
TG1 holds gold projects that are both pre and post-discovery.
Gold generally outperforms other asset classes in times of market volatility and we believe it provides a good hedge to a portfolio of longer-term investments.
TG1 also has nickel-copper-PGE exploration prospects, all of which provide exposure to the battery metals theme.
Demand for batteries is set to increase exponentially over the next decade from things such as electric vehicles and semiconductor wiring.
Why did we invest in TG1?
Tiny market cap leveraged to a discovery
As of 27 April 2023, TG1 has ~64 million shares on issue with a market cap of just $4.5M (at 7 cents per share).
This means TG1 is highly leveraged to a large exploration discovery from a drilling campaign.
Existing gold discovery with scope to grow
TG1 has already made a gold discovery at its NSW gold project and has scope to grow the discovery with drilling to its north/south and at depth.
The company has an exploration theory that its project may contain an intrusive related gold system. If this theory is correct, there may be a deeper lying large source to its gold discovery.
At present, the project has only been drilled for seven RC holes (by TG1 in 2022) where it hit 94m at 0.95g/t of gold.
Gold prices trading near all time highs
Gold is currently trading at ~US$2,000/oz - just shy of its all time high in US dollar terms.
Relative to the Australian dollar and many other currencies gold is now trading at all time highs.
Free carried exploration with majors
TG1 has farm out agreements in place with Rio Tinto and IGO Ltd who are free carrying TG1 for exploration expenditures across two of its projects. This means there is always a chance TG1 could be a partner to a discovery made by one of the majors without having to spend any capital on it.
Large portfolio of projects
TG1 holds ground across multiple regions in WA and in NSW. In the event that new major discoveries are made in any of these regions, TG1 will already hold ground nearby and could see market interest off the back of its land position.
What do we expect TG1 to deliver?
Objective #1: Drilling at its NSW gold project
We want to see TG1 drill to the north and south of its existing gold discovery in NSW. TG1 has defined targets over an area measuring ~1km in length and 200m in width.
Given this is an existing discovery our bull, base, bear case expectations for the drill programs are as follows:
Bull case = TG1 proves continuity in its discovery to the north/south or at depth with intercepts >10m and gold grades >1g/t.
Base case = TG1 proves continuity in its discovery to the north/south or at depth with intercepts <10m and gold grades >1g/t.
Bear case = TG1 hits no significant mineralisation to the north/south or at depth of its discovery.
Milestones
Rig mobilisation
Drilling commencement
Drilling results
Objective #2: Drilling across at least one of TG1’s other projects
TG1 holds projects right across WA with potential for nickel-copper-PGE and rare earths discoveries. We will set up expectations for drill programs as TG1 announces them.
Milestones
Drill permits
Drilling commencement
Drilling results
Objective #3: Progress from farm out agreements with Rio Tinto and IGO Ltd
We want to see Rio progress the Harbutt Range project and IGO the North Nifty project.
Objective #4: Explore new project opportunities
Given TG1 is capped at just $4.5M the company can be nimble and take advantage of new project opportunities should they come its way.
Milestones
New project acquisition
What could go wrong?
Exploration risk
TG1 has made a gold discovery at its NSW gold project but is yet to define an in-ground JORC resource. Most of TG1’s other projects are still pre-discovery. As a result we think exploration risk remains a key risk for TG1.
Market risk (macro)
Broader market conditions could change for the worse. This could mean small cap exploration stocks, like TG1, suffer from a “risk off” market move.
Funding risk
As a junior exploration company, TG1 will need to seek additional capital to advance the company’s projects. Access to capital could be impacted by a combination of the above risks.
TG1 also has a lot of tenements that each carry ongoing licensing costs. In order to fund exploration of these tenements, TG1 will need to raise capital.
What is our investment plan?
We would like to see TG1 strengthen its balance sheet to fund exploration activities in 2023.
We may look to increase our position in TG1 and “average down” on our Investments in the company to-date.
We intend to hold onto the majority of our position in the lead up to the NSW gold project (John Bull) drilling campaign in May. We may sell ~20% of our Total Holdings if the share price runs on speculation in anticipation of the drilling or a successful drilling result.
Disclosure: Disclosure: S3 Consortium Pty Ltd (The Company) and Associated Entities own 2,331,081 TG1 shares at the time of publication. S3 Consortium Pty Ltd has been engaged by TG1 to share our commentary and opinion on the progress of our investment in TG1 over time.
✅ Initial Investment @ 20c
🔲 Top Slice
🔲 Free Carry
✅ Increase Investment @ 18c
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1,000% from initial entry
✅ 12 Months Capital Gains Discount
🔲 Hold position for 2+ years
General updates from TG1
Rare earths in rock chips? [14-Nov-2022]
Option to acquire Pilbara nickel-copper-PGE project [21-Nov-2022]