TG1 is getting closer to drilling its WA pegmatite field

Disclosure: S3 Consortium Pty Ltd (The Company) and Associated Entities own 5,866,081 TG1 shares and 883,750 TG1 options. The Company has been engaged by TG1 to share our commentary on the progress of our Investment in TG1 over time. Shares and options from the placement are subject to shareholder approval.

Two priority WA lithium drill targets announced...

...and potentially a third to come.

Hard rock lithium in WA is still one of the strongest thematics in the market right now.

Billionaires and lithium majors have set the tone from the top - any hard rock discoveries across WA that start to show size/scale potential become an M&A target.

The demand for the bigger discoveries has also flowed down into the junior end of the market...

Juniors with nothing more than rock chips have hit market caps as high as ~$150M.

Others have drilled below soil anomalies and after hitting lithium mineralisation are trading at market caps >$50M.

Our micro cap (sub $10M) Investment TechGen Metals (ASX:TG1) has:

• A 2.2km x 1.1km field of outcropping pegmatites,
• a large lithium soil anomaly and
• is drilling in Q1 2024.

For context on the size of that field of outcropping pegmatites - some of the biggest discoveries in Australia have been made over a surface area smaller than TG1’s pegmatite field.

TG1’s project is ~50 km to the north of $287M Delta Lithium and to the south of $3.3BN Liontown Resources’ Kathleen Valley project.

Right now TG1 is capped at just ~$10M.

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.

TG1 gets pitched to Australian media luminary David “Kochie” Koch

We noticed TG1 got picked up on Ausbiz’s “The Call” show recently.

On the show, viewers call in and ask industry professionals to talk about a particular stock.

One viewer called up to talk about none other than our TG1.

On the show, Chief Investment Officer of Anadara Asset Management - Shaun Cartwright happened to be there, and was able to talk at length about why he likes TG1.

Shaun mentions how he is TG1’s “3rd or 4th biggest shareholder” and lays out his reasoning for being invested relatively well.

He also mentioned TG1 were “falling over pegmatites” on a recent site visit.

We tend to agree with Shaun’s perspective of why he is invested, and also wonder if Kochie decided to pick up a few TG1 shares after hearing Shaun’s pitch.

Check out the full video here:

(Source)

Lithium Exploration 101 - and where TG1 is at

Typically, the way to make a lithium discovery is to:

1. Map the ground and find pegmatites.
2. Sample the outcropping pegmatites and confirm they have lithium mineralisation.
3. Confirm the pegmatites contain spodumene via assay results.
4. Drill into them and see if they form a big deposit.

TG1 has added another layer to its project pre-drill by overlaying soil sampling data from its project.

Here is where we think TG1 fits in the lithium exploration process:

1. Soil samples showing high grade lithium ✅ - TG1 has a high grade lithium soil anomaly. Today, TG1 finished reprocessing ~1,219 soil samples and has managed to define two high-priority areas for drilling. TG1 still has results to come from ~500 more soil samples.
2. Map the ground and find pegmatites ✅ - TG1 has managed to define a pegmatite field with outcrop over a 2.2km x 1.1km area. For context, some of the biggest discoveries in Australia have been made over a surface area smaller than TG1’s pegmatite field.
3. Sample the pegmatites and confirm they have lithium mineralisation 🔄- TG1 currently has ~41 rock chip samples in the lab being assayed for lithium. We expect to see the results from the rock chips in the coming weeks.
4. Confirm the pegmatites contain spodumene 🔲 - This will likely be something that gets confirmed during the drill program, most of the explorers drilling high grade soil anomalies tend to find spodumene bearing pegmatites below the surface.
5. Drill and make a discovery 🔲 - TG1 expects to be drilling in Q1-2024.

Why we increased our Investment in the recent TG1 capital raise

We mentioned in our last note that we took a relatively big swing (for us) at the last capital raise for TG1 at 5.6c per share.

Our reasoning was relatively simple - TG1 has a near term catalyst (expected to drill in Q1 2024) in a macro theme that is hot at the moment AND it has a relatively low market cap and low shares on issue.

Interestingly TG1 has also held up pretty well after the first tranche of shares from the recent capital raise were issued.

In a tough market, usually companies trade back down to the capital raise price - but TG1 has stayed well above it consistently since the first tranche was issued back on the 28th of November.

Typically, if a share price stays high after a capital raise, it means there is still more demand to buy shares on the market and a sign investors are looking to get exposure to TG1 ahead of any major catalysts.

The second tranche is expected to be issued in mid-January, we are hoping TG1 continues to show this type of strength even after those shares are issued.

The key reasons why we increased our Investment in TG1:

• 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...

The next three announcements we want to see from TG1:

With TG1’s first drill program across its lithium project planned for Q1 2024, here are the three key announcements we will be looking out for over the coming months:

1. Rock chip sampling results - TG1 has ~41 rock chip samples being assayed, and results are expected in the coming weeks.
2. More mapping/fieldwork - TG1 mentioned in today’s announcement that the company would be doing more mapping/sampling work across the “Central target” before Christmas.
3. Permitting + drilling commencement - TG1 expects to be drilling in Q1 2024.

Ultimately, just like it is for most junior explorers, it will be the drill bit that determines whether or not TG1 can achieve our 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.

What could go wrong?

Exploration risk

At this stage TG1 has early signs of high concentrations of lithium in soil samples.

There is a good chance that further investigation may reveal there are not any drill targets worth pursuing.

We think exploration risk is the single biggest risk to TG1’s lithium project right now.

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