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It finally begins…TG1 starts drilling.


Published 12-APR-2024 10:18 A.M.


8 minute read

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 6,115,714 TG1 shares and 1,133,929 options at the time of publishing this article. The Company has been engaged by TG1 to share our commentary on the progress of our Investment in TG1 over time.

Lithium stocks were buoyant yesterday.

A perfect backdrop for TechGen Metals (ASX:TG1) to start the long anticipated drilling of its lithium project in WA.

TG1’s first drill hole started yesterday.

This is a green field, swing for the fence attempt at a totally new lithium discovery.

At a sub $5M market cap (with over $2M in the bank), there is plenty of room to rerate if TG1 is blessed with some of that rare exploration luck and delivers a big, lithium rich spodumene intercept...

We’ll find out in a few weeks.

And given that this ground has had some historical gold exploration, they are going to be testing for gold too...

The gold price is on a tear and has been hitting new at all time highs nearly every week.

(we’d love a surprise gold hit in this market, but we are more interested in the lithium here)

Small cap exploration is a lot about how many bets you have on, and occasionally a drill campaign delivers an incredible discovery.

Most fail, many deliver good but not amazing results.

But each time an exploration company commences a drilling campaign, the chance is there for this to be “the one” that delivers.

That’s what we are in this game for - betting on the possibility of that rare new discovery and hopefully 10x plus return.

And TG1 has just started the next “roll of the dice” in our small cap exploration Portfolio.

In the coming weeks we will find out if TG1 can make a new lithium discovery... and hopefully a giant one.

...and rerate upward from its sub $5M market cap.

TG1’s project is 50km north along strike from Delta Lithium’s Mt Ida Lithium deposit and 100km south of Liontown Resources Kathleen Valley deposit:

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Drilling is happening right now. Here is a photo TG1 included in their announcement yesterday:

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TG1 is trying to replicate the success that many other hard rock lithium explorers have had across WA over the last few years.

Just last year, TG Metals declared a discovery and saw its share price re-rate by ~1,300%.

(caution: just because TG Metals did this doesn’t mean TG1 will do it too)

Drilling should only take a few weeks so we won't have to wait too long to see if TG1 can deliver a discovery too.

Share prices for lithium explorers have come off the boil a little over the last few months which is completely understandable considering the movements in the lithium price.

(that's why we think TG1 is trading at sub $5M market cap, with over $2M in the bank).

However, interest at the corporate level is still as strong as it was in 2021, 2022, and 2023.

In WA $14BN Minres is still active with its $20M deal with Dynamic Metals for lithium exploration ground and a farm-in deal with Lord Resources worth ~$6M.

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Outside of WA, the Chinese Gangfeng are also actively doubling down on investments in Argentina.

While many investors are shunning the industry, the corporates know that right now is the best time to buy lithium assets (no matter how wrong it feels when cutting the cheques).

So we think that if TG1 is able to deliver a significant discovery then it could get a re-rate despite the overall market sentiment for lithium stocks.

Especially considering TG1’s market cap of just $4.7M.

Now its over to TG1 and the exploration gods...

What we want to see from the drill results:

During the drilling (next 1-2 weeks) 🔄

Initially with lithium explorers, the market likes to see spodumene in the drillcores during a drill program.

Spodumene is generally the host rock for high grade lithium.

Visual spodumene will be a positive first indication of potential economic lithium mineralisation (but sometimes not).

The catch is that the only way you get solid drillcores is if you're doing diamond drilling.

TG1 is drilling with an RC rig so there wont be any shiny drillcores during the program (like the ones we see from Diamond rigs).

Instead TG1 will be looking at “RC chips” the whole time.

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Hard to know what you're looking at with the RC chips but we have seen a few explorers put out results based on different visual estimates so cant fully rule it out.

For TG1 we expect to know what the company has found AFTER drilling is finished and assay results are back from the lab.

After drilling (usually 4-6 weeks after drilling) 🔲 - it will be all about the assay results.

Ultimately we want to see TG1 hit intercepts with lithium grades above the levels that are typically considered economic.

The general rule of thumb when it comes to lithium projects is that grades of ~1% are considered economical.

The shallower the mineralisation, the lower the grades can be - the deeper the mineralisation, the higher the grades will need to be.

For context Delta Lithium’s discovery ~50km away has an average grade of 1.2%.

Below are our expectations for the assay results from TG1’s first pass drill program:

  • Bull case = >1.5% lithium grades from 5m+ intercepts
  • Base case = >1% lithium grades from 5m+ intercepts
  • Bear case = <1% lithium grades from <5m intercepts

🎓 To learn more about expectation setting going into drill programs check out our educational article here.

At the moment TG1’s market cap is just $4.7M, so we think market expectations for this drill program are fairly low.

That puts TG1 in a position where IF it does deliver something the share price has plenty of room to move higher.

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🎓Learn: What is a share price catalyst?

Context on TG1’s drill targets:

TG1’s project is ~50 km to the north of $214m Delta Lithium and to the south of $3.2bn Liontown Resources’ Kathleen Valley project.

TG1 has a ~2.2km x 1.1km field of outcropping pegmatites AND a large lithium soil anomaly across three main target areas.

TG1’s first six holes across two of the three areas:

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We are Invested in TG1 to see it drill its large lithium soil anomaly and hopefully make a new hard rock lithium discovery in Western Australia. This forms the basis for our TG1 Big Bet which is as follows:

Our TG1 Big Bet:

“That TG1 will return 10x by discovering and defining a significant enough deposit to move into development studies for one of its projects.”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our TG1 Investment memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

Why we increased our Investment in TG1:

Below are some of the reasons we are holding TG1 going into this round of drilling:

  • TG1’s project is 50 kms from ~$297M Delta Lithium - TG1’s Ida Valley project sits ~50km away from Delta Lithium’s Mount Ida lithium deposit. Just like TG1’s Ida Valley project, Delta’s main asset was initially focused on gold exploration and was only discovered after the company made a pivot to lithium exploration on the ground.
  • Small market cap leveraged to a discovery - TG1 is currently in a position where its valuation is starting from a relatively low base - where any good news could lead to big re-rates in its market cap. Most of the WA lithium explorers are trading at multiples of TG1’s market cap despite only having mapped pegmatites and a few rock chip samples.
  • Low expectations - Strong result? - TG1 was capped at just ~$4.5M at the placement price of 5.6c per share. When the market ascribes a market cap that low, it usually has very low expectations for a company. Companies that deliver strong news when expectations are low typically see the biggest share price re-rates.
  • Cash raised and major catalyst coming up... - TG1 expects to be drilling in Q1-2024 and has already managed to lock away a $2.8M capital raise ahead of the drill program. With the chance to buy off market via a cap raise now gone, we are hoping TG1 finds itself in a position where it has more buyers than sellers on market, which could mean a rising share price leading up to its drill program.
  • WA lithium heating up - Australian billionaires (Chris Ellison and Gina Rinehart) are battling out major lithium companies to take over hard rock lithium projects. A precedent has been set across WA where any sniff of a lithium hit is immediately on the radar of bigger players and market caps can move very fast. Some notable wins across the space are - Azure Minerals, up ~1,400%, Raiden Resources, up ~1,700%, TG Metals, up ~700%, Wildcat Resources, up ~ 2,600%.
  • Rio Tinto entered the WA lithium sector - Up until very recently, the big moves in the WA lithium industry were coming from the existing majors - MinRes, SQM, Albemarle, etc. A few weeks back Rio Tinto made a move into the sector with a deal signed with junior explorer Charger Metals.
  • TG1 also pegging ground in the Pilbara? - We also noticed TG1 started picking up new exploration ground in the Pilbara. This one is a bit left field and unrelated to its Ida Valley project, BUT it caught our attention because we have seen another junior explorer pick up ground, find rock chips with lithium in them and re-rate to a market cap of ~$150M before any drilling on its project...

What are the risks?

Exploration risk

Now that drilling is underway, the key risk will be whether or not TG1 hits any lithium mineralisation of interest.

There is always a risk TG1 finds nothing and in that scenario we would expect a sell off in TG1 even though its market cap is already relatively low.

This is part and parcel of high risk high reward junior explorers like TG1 and so we always make sure that we are comfortable with our position size even if things go wrong.

We listed some more risks as part of our TG1 Investment Memo here.

Our TG1 Investment Memo

In our TG1 Investment Memo, you can find the following:

  • Our TG1 Big Bet
  • Key objectives for TG1
  • Why we are Invested in TG1
  • The key risks to our Investment thesis
  • Our Investment plan

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

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S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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