Microcap TG1 pinpoints gold drill targets
Our early stage micro cap exploration investment TechGen Metals (ASX:TG1) is setting up for a busy second half of the year with two drilling programs planned.
One at its newly acquired gold project in NSW and the second at its copper/gold projects in WA.
All of this is coming at a time when TG1 is trading at a market cap of just $6.6M with $2.6M in cash on hand at the end of the March quarter.
This means TG1 currently trades at a tiny enterprise value (EV) of just $4M.
Going into a busy period of exploration with an enterprise value this low, we think means TG1 is highly leveraged to a re-rate in the event it can make a new discovery.
This busy exploration season starts at TG1’s newly acquired, never before drilled “Jackadgery” gold project in NSW.
After reprocessing some historical IP surveys, TG1 today confirmed the existence of IP chargeability anomalies right below surface trenching works where TG1 was initially planning to focus its drilling.
The significance of this is that the geophysical anomalies now line up with the gold mineralisation found in the historic exploration data right below the surface trenching work where average gold grades of 1.2g/t were delivered over a 160m strike length.
Importantly, inside that 160m strike zone the company also delivered two different intervals measuring 18g/t and 7.1g/t gold. Those are excellent grades and all of this at surface level.
These high gold grades have never before been followed up with drilling, so TG1 will be testing fresh grounds, hoping to make an entirely NEW discovery.
With drilling permits and all of the land access agreements already in place, TG1 now expects the maiden RC drilling program to commence in “mid-2022”, meaning it shouldn’t be long before we start to see what TG1 has got its hands on in NSW.
Gold has for a long time been seen as the perfect market hedge, whereby the price of gold appreciates during times of market volatility.
With recent swings in the market we think TG1 has timed its attempt at a new gold discovery perfectly.
This doesn't mean we have forgotten about the copper/gold projects in the Ashburton Basin in WA though.
In the background TG1 has also been busy putting together drilling targets across its copper/gold prospects in WA.
Just last week, TG1 put out the results of an IP survey at its Ashburton Basin project whereby the company has managed to identify two specific high priority anomalies right underneath rock chip samples which returned copper grades as high as 54.8% and 249g/t silver.
After a relatively quiet start to 2022, TG1 looks to be preparing for a busy second half of the year where it will be taking plenty of exploration shots on goal for new discoveries, first targeting high grade gold in NSW and then targeting copper/gold in WA.
TG1 is going into its busy exploration season with ~$2.6M in cash in the bank (as at 30th March 2022).
As a result we think that there is a chance TG1 may try to raise some additional capital to shore up the company’s balance sheet ahead of or immediately after starting its drilling programs.
Generally we like to see our junior exploration Investments go into these risky exploration drilling programs well funded, just in case no discoveries are made and the company needs to go back to the drawing board.
We have been investing for a very long time and know that new large scale discoveries are rarely made off the back of a maiden drilling program.
Junior explorers will need to run several rounds of exploration programs before a discovery is confirmed, hence why a strong cash position is important.
Given TG1 will be doing the first ever drilling program at its newly acquired gold project, our base case expectation is not for the company to make a giant new gold discovery.
With a tiny enterprise value of $4M, we want to see the drilling program hit enough gold to warrant follow up drilling.
However, if TG1 does make a discovery then we suspect the market will be delivered with unexpected good news and the company could re-rate significantly.
This upside potential makes for good exploration exposure in our portfolio, on a risk reward basis.
To see all of the key reasons why we are invested in TG1, check out our 2022 Investment Memo by clicking on the image below:
More on today’s announcement:
Today’s announcement comes a month after TG1 first announced the acquisition of its NSW gold project.
In our last note we mentioned that the gold project had “walk up, fully permitted drill targets” already identified and that the project had never been drilled before.
Today, TG1 put out IP (Geophysical) survey results which confirms that these drill ready targets also coincide with geophysical anomalies that warrant drill testing.
Importantly, these newly modelled IP anomalies sit underneath the ~220m long trench that the previous owners (Kennecott and Southern Goldfields) of the project dug between 1983-1985.
The surface trenching returned gold mineralisation over a 160m strike length at an average gold grade of 1.2g/t gold. It's also worth noting that inside that 160m trench two higher grade intervals were also picked up measuring 5m at 18g/t of gold and 5m at 7.1g/t of gold.
To make things more interesting, previous rock chip sampling projects also returned gold grades as high as 17.9g/t gold.
So where does TG1 find itself now?
Firstly, surface trenching identified high priority targets where TG1 was initially planning to drill. The surface trenching returned grades as high as ~18g/t of gold.
Secondly, rock chip sampling in and around the trenching works also returned gold grades as high as 17.9g/t gold.
Now, TG1 has reprocessed the existing IP surveys over the project area and has confirmed untested geophysical anomaly coinciding with all of the historical exploration data.
With the project having had no drilling done in the past, TG1 will be the first ever company to actually test these targets meaning that any good drilling results could signal the finding of a completely new discovery.
Of course this is not our base case expectation.
As with all junior explorers we expect that even if TG1 hit a gold structure with this round of drilling, it will need to come back and do several more rounds of exploration before it can confirm a commercially viable discovery.
This is where the exploration risk inherent for all junior explorers comes into play.
TG1’s Copper/Gold projects in WA are also shaping up nicely
We have also been tracking the work TG1 is doing across its copper/gold projects in WA.
The bulk of the work TG1 is doing is mostly centred around putting together high priority drilling targets which it can then incorporate into one larger drilling program scheduled for later this year.
Instead of running exploration programs one project at a time, TG1 has instead elected to do all of the target generation work first, looking to rank the highest priority drill targets after which it can go out and systematically drill them back to back.
We don't mind this approach, given how early stage TG1 is as an explorer, it would also make sense financially to get the drill rigs to work back to back as opposed to trying to secure them for each project at separate times.
To this end, TG1’s announcement last week confirming IP anomalies below its “Station Creek Copper Project” in the Ashburton Basin was especially interesting.
The results from a specific type of geophysical survey seem to be indicating two high priority anomalies.
Interestingly, these IP anomalies also coincide with high grade rock chips (grading upto 54.8% copper and 249 g/t silver) and also sit right on top of two major fault lines that run through TG1’s project area.
After seeing the results of the surveys, the first thing that came to mind for us was the way ASX listed Carnaby Resources made its copper discovery in late 2021.
After running almost identical surveys and producing what looks to us like similar anomalies, Carnaby drilled straight into the guts of the red signatures and made its “Nil Desperandium” discovery.
Off the back of that discovery, Carnaby’s share price moved from ~25c to a high of $2.20/share adding over $200M to its market cap:
With TG1 trading at a tiny market cap of $6.6M, this is a good indicator as to just how much leverage TG1 has to a re-rate in the event it makes a discovery.
The obvious caveat here is that these are just geophysical surveys and It is still far too early to tell what TG1 has on its hand here.
The early signs are however looking promising and we are looking forward to TG1 getting a drill rig on site and testing these targets.
What’s next for TG1:
Drilling to commence at the newly acquired gold project in NSW 🔄
After today’s announcement, TG1 has nothing left to do but go in and drill out its newly acquired NSW gold project.
We expect to see the drilling program detailed in the coming weeks with TG1 confirming in today’s announcement that “drilling would commence in mid-2022”.
Target generation works across WA copper/gold projects to be completed 🔄
TG1 has spent most of the first half of 2022 running geophysical surveys across its portfolio of copper/gold projects in WA.
At the end of the March quarter the company was still planning to do some more work across the Ashburton Basin and Paterson Province.
We expect to see some more results from the target generation works ongoing in the lead up to a drilling program later in the year.
Drilling at the WA copper/gold projects 🔲
This will be the next step after the high priority targets are ranked and put together in a detailed exploration program.
We are hoping that the details of these drilling programs will be laid out by the company as soon as the drilling at the company’s NSW gold project is completed.
All of this preparation works form the basis for the three key objectives we set in our 2022 TG1 Investment Memo, which you can read by clicking on the image below:
Our TG1 Investment Memo for 2022
Below is our 2022 Investment Memo for TG1 where you can find a short, high level summary of our reasons for investing.
The ultimate purpose of the memo is to record our current thinking as a benchmark to assess the company's performance against our expectations 12 months from now.
In our TG1 Investment Memo you’ll find:
- Key objectives for TG1 in 2022
- Why we invested in TG1
- What the key risks to our investment thesis are
- Our investment plan
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