Our AL3 site visit and what we learnt

• Commentary: Our AL3 site visit & what happened this week.
• Quick Takes: GTR, LYN, GAL, TG1, GEN, SLM, L1M, 88E, WHK
• This week in our Portfolios: MNB, GEN, AL3, GTR

Yesterday our team made a trip to Adelaide to visit AML3D (ASX:AL3)’s facility.

We saw some huge robot arms using precision arc-welding to 3D-print giant metal parts for the defence and aerospace industries:

We also saw the largest ever custom AL3 ARCEMY 3D printing system ever built, before it gets shipped off to the USA:

(see that sliding rail the robot arm sits on - it allows the robot arm to slide along and 3D print very long complex metal parts)

AL3 is already 3D printing parts for the US Navy.

Earlier in the week AL3 revealed a Manufacturing License Agreement with the $172BN capped Boeing’s Defence and Space division.

(Boeing makes about 33% of its revenue from it Defence and Space division)

AL3 has developed a technology to “3D print” complex industrial parts for the defence, oil & gas and aerospace industries.

(industries where highly specific machine parts are often urgently needed, but not readily available).

Think of it like printing... but with metal.

And the printed parts are harder, better, faster, stronger than traditional casting or forging.

Basically the AL3 system can be installed and used onsite to “3D print” required parts near where they are needed based on a 3D computer model using various metals, steel or alloys:

Yesterday we got to see this technology first hand for ourselves and also spend some time with AL3 management:

Bright lights, the constant crackle of a state of the art robotic 3D printing machine in the background and a warehouse humming with activity.

From the outside looking in it's easy to mistake AL3 as a straightforward “3D printing of custom metals parts” manufacturing play.

But AL3 has spent 10 years developing intellectual property in their software that runs the carefully calibrated robotic arms that use arc-welding to additively build large metal parts based on a computer 3D model design.

AL3 is not only 3D printing custom parts requested by customers - AL3 are also selling the full 3D printing systems and software to operate them so customers can design and 3D print their own parts themselves.

(and AL3 has recently introduced a recurring yearly licence for their software that comes each system, adding a recurring revenue component to all future 3D printing system sales)

AL3 runs a simple go-to-market model:

1. AL3 sign a contract to custom 3D print a metal part for a customer
2. Customer tests the 3D printed part and confirms they are happy with it
3. Customer can then buy its own ARCEMY 3D printing system so they can print their own parts whenever they need

So AL3 generates material revenue from custom 3D printing jobs BUT each 3D printed custom part job is a sales lead to a potential big ticket ARCEMY 3D printing system sale.

It's a high margin operation, and AL3 wants to sell this kind of solution at scale.

With a particular emphasis on the US market.

Ohio has been selected for AL3’s base in the US and the hub is expected to be operational this quarter.

This is where AL3 will custom 3D print parts locally in the US, which will hopefully lead to more ARCEMY 3D printing systems sales.

The USA hub will then help service AL3’s main deals in the USA.

AL3’s ARCEMY systems specialise in 3D printing big, heavy parts for defence and aerospace - the kind of parts that can take months to make.

Like for example this 1.5 tonne component for a large ship:

Defence and aerospace need big metal parts, and to precision 3D print big metal parts you need a big 3D printer:

This particular bit of kit is the biggest custom ARCEMY 3D printing system built to date and is being shipped off to the USA soon.

(Source AL3 announcement Nov 2023)

The ARCEMY System can sell for upwards of ~$2.5M. (Source)

Fun fact: the big ARCEMY systems can do everything the smaller ARCEMY systems can.

So it would make sense for anyone wanting to buy an ARCEMY system to go as big as they can to capture a bigger library of parts that can be printed, even if they just initially need it for smaller parts.

$154BN capped ABB (a European conglomerate) provides the robotic arms, which are used around the world for various industrial applications.

But an advanced robotic arm by itself doesn’t actually “do” anything... it needs to be “programmed” to do specific tasks.

Which is where AL3’s software comes in.

These are the two primary components of AL3’s software workflow:

1. WAMSoft - takes a 3D model of a part to be printed and designs detailed instructions on how to print the item.
2. AMLSoft - the operating system which translates the print plan to instruct the robotic arm on how to print it.

This software is complemented by AL3’s in-house knowledge of alloys (combinations of metals), and how they function under extreme heat, to make the large complex parts that AL3 provides to its customers.

(Turns out, getting the welded metal accredited takes years of testing to get the mixture of elements right, and needs to be applied in a precise layered fashion under specific conditions.)

This is what the user interface looks like on the outside of the ARCEMY system - it allows operators to modify the design and output of the system (AL3 MD Sean Ebert giving a quick demo):

We also spoke with one of the AL3’s lead software engineers who talked us through the technical details of how the software works and explained the complex problems it solves.

There was a lot of specialised knowledge on display in the run through - AL3’s team have a mixture of experience across a range of fields.

AL3 uses its software to combine materials science, mechanical engineering, robotics and precision welding - in the ARCEMY 3D printing system.

The software is what coordinates everything and allows customers to take the metals/alloys and turn them into finished goods.

Importantly, at a certified standard that makes them fit for purpose...

To the highest standards in fact - these 3D printed parts will be going into places where failure isn’t acceptable, and only the hardest, strongest, best parts will do.

All of this wouldn’t be possible without the software that allows for the fine tuning of the ARCEMY system across many different parameters.

Each ARCEMY system sold requires the AL3 software - adding a recurring yearly revenue to the upfront ARCEMY system purchase fee.

We think that as AL3 generates more recurring revenue from its software sales, it could start trading at revenue multiples typically seen of software companies (over the medium to long term).

Valuation multiples for software companies (purple bars) are higher than pure play hardware (green bars):

(Source)

Where hardware companies have an edge however is that the barriers to entry are far higher than traditional SaaS businesses.

AL3’s two pronged approach to generating revenue, through both custom 3D printing contracts AND with the sale of the ARCEMY system as well as ongoing revenues through the sale of its software, is one of the key reasons we Invested in AL3.

“Sell the 3D printing system” strategy opens up yearly recurring revenue
For new orders of the ARCEMY system, AL3 will now build in ARCEMY services to include software and services fees on a recurring revenue basis. This includes software licensing fees, hardware maintenance, and tech support. This is an untapped stream of revenue for AL3 and a potential source of upside for the company as the company grows.

“Why did we Invest in AL3” - Investment Memo June 2024

On the sales front, AL3 recently sold one of its ARCEMY systems to a US navy supplier for $1.1M:

AL3 announces $1.1M sale to US Navy supplier - US traction growing

Also, AL3 announced this week that it had “finalised a Defence Manufacturing License Agreement” with Boeing Defence and Space.

This agreement is with $172BN capped Boeing, and it gives AL3 access to the designs and specs for the products that Boeing’s Defence and Space division makes.

Our read is that the agreement allows Boeing to share with AL3 designs for any parts Boeing chooses across its defence and space business, allowing AL3 to 3D print and deliver these parts to Boeing

Boeing’s “Defence and Space” alone employs around 17,000 people and published a top line revenue figure of ~US$23.2 billion in 2022.

(Source - Boeing defence space presentation page 4)

We’re hoping Boeing Defense and Space will make AL3 a bigger part of its business in the coming years.

Even a small number of orders from Boeing could give the $60M capped AL3’s revenues a large uplift considering where they are now.

AL3’s Quarterly reveals new agreement with Boeing, and more than 500% growth in cash receipts

Given Boeing and AL3 have collaborated on deals in the past , we are quietly confident that orders will start to come in from this deal and it helps push AL3 to our Revenue target for FY25 of $12M.

Objective #1: Hit $12M in revenue
According to the March quarterly AL3 will hit ~$7M revenue for FY24.

We think that if they can back that up with beating $12M revenue in FY25 it would be a huge result.

Objectives: What do we want to see AL3 deliver? - Investment Memo June 2024

We are looking forward to seeing the first orders from this Manufacturing License Agreement signed with Boeing Defence and Space.

A big thanks to our hosts, CFO Hamish McEwin and MD Sean Ebert.

What happened this week across our Portfolio

For early stage mining exploration companies, drilling is the most important (and exciting) period for the company.

There are a few of our stocks that are still in the pre-drill preparation stage that made meaningful progress towards the drilling program.

Exploration stocks are finding it difficult to get traction in the market, but there are a few bright pockets out there.

And companies with important discoveries can perform in a range of market conditions...

This week LYN completed heritage surveys in the West Arunta. LYN is in the same region as market darlings WA1 and Encounter Resources (who both made big Niobium discoveries over the last two years).

GAL is in the middle of a project-wide target generation program, with new EM targets announced this week. GAL has gone back to find some more exploration targets with drilling set to start next month.

SLM announced that it had hired a drone magnetic contractor to run geophysical surveys over Copper assets in Peru. We are hoping for SLM to identify some juicy targets to drill, results will be published at the end of August.

L1M kicked off its Brazilian lithium exploration program with some field work, with a key focus on geological mapping and soil sampling. L1M’s project is just south of Latin Resources giant lithium deposit.

Finally, 88E completed 2D seismic over its project in Namibia.

Two companies just started their drilling campaign this week, our uranium Investment, Gti Energy (ASX: GTR) and our microcap explorer, Techgen Metals (ASX: TG1) which is now drilling for gold.

We’re bullish on the US uranium macro and gold keeps hovering around all time highs...

And on the African continent, our green iron ore Investment Genmin (ASX:GEN) got a presidential site visit this week, while our oil and gas Investment 88 Energy (ASX:88E) completed 2D seismic at its promising Namibian project.

Finally, our long term cybersecurity Investment Whitehawk (ASX:WHK)secured a 5th year renewal of a major US government client.

WHK’s customers like to keep a low profile, but hopefully it is a sign of more to come...

What we wrote about this week 🧬 🦉 🏹

Minbos Resources (ASX:MNB)

MNB is now a few key financing catalysts away from getting its phosphate fertiliser project developed and in production by May 2025.

In this week's note we go through the reasons why we think MNB’s share price has been trading lower and what we think might be a catalyst for a re-rate higher.

Read: ⛏️ $47M capped MNB to Build ~$80M EBITDA per year phosphate mine within 10 months?

Genmin (ASX:GEN)

Gabon's president recently visited our Investment GEN’s iron ore project.

It was good to see the president supportive of GEN’s project and his recent commitment to spend ~$17.5M on regional infrastructure in the area.

Presidential support is going to be important for GEN as the company peogress’ financing for its project.

Read: ⛏️ President visits GEN’s green iron project - offers support and encourages rapid mine development. First production mid 2025?

AML3D (ASX:AL3)

AL3 put out its June and quarterly report this week.

The company showed a 500% increase in annual cash receipts reaching $8.5M in FY24 - huge progress in its own right...

BUT the other big piece of news in the quarterly was the Manufacturing Licence Agreement (MLA) AL3 signed with Boeing Defense and Space.

The MLA is a precursor to AL3 being able to 3D print parts for a division that pulls in >US$23BN in revenue for Boeing.

Read: 💻 AL3’s Quarterly reveals new agreement with Boeing, and more than 500% growth in cash receipts

GTI Energy (ASX:GTR)

Our US uranium Investment GTR announced that it was just days away from drilling its project in Wyoming.

Then a few days later GTR announced its membership to the Uranium Producers of America association.

AND a partially underwritten rights issue to raise ~$2.2M.

With cash in the bank and drilling about to start we are looking forward to the next few months of newsflow from GTR.

Read: ⛏️ GTR commencing uranium drilling “any day now”. Granted membership to “Uranium Producers of America”

Have a great weekend,

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