WA lithium: TG1 announces 800m x 400m pegmatite field - bigger than a large sports stadium

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.

A pegmatite field as big as a sports stadium?

A field the size of 12 MCGs?

And it could get bigger?

Our micro cap WA lithium Investment TechGen Metals (ASX:TG1) has just got back from a site visit to start mapping the area where they stumbled onto some lithium soil anomalies from historical gold exploration on its project

This morning TG1 announced they have identified an 800m x 400m pegmatite field which is open in all directions:

Here are photos of a couple of TG1’s pegmatites collected from the last few days:

TG1’s WA lithium project is near $297M Delta Lithium which is 50 km to the south and $3.5BN Liontown Resources which is 100 km north.

TG1 has also just announced the completion of a heavily oversubscribed placement for $2.79M, which gives it enough cash to progress their WA lithium exploration campaign.

(we participated in this placement... and our allocation was scaled back, and only in tranche 2 in January)

TG1’s plan is to start drilling this new pegmatite field in January - two months away.

One of the hottest macro thematics right now is WA lithium.

Major lithium producers all over the world have their eyes on the big discoveries across WA.

Albermarle tried a $6BN takeover of Liontown and SQM a $1.6BN takeover of Azure Minerals.

The Aussie billionaires Chris Ellison and Gina Rinehart also joined the party and have been buying up stakes in the same projects.

The precedent set by the ones with deep pockets is that any sniff of a lithium hit could be next... and market caps can move very fast.

Some of the most notable developments across WA are:

• Azure Minerals up ~1,400%
• Raiden Resources up ~1,700%
• TG Metals up ~700%
• Wildcat Resources up ~ 2,600%
• Liontown Resources takeover offer
• Azure Minerals takeover offer
• Allkem merger with Livent
• And just yesterday Rio Tinto’s deal with Charger Metals

Note: just because these companies have performed well it is not an indicator that TG1 will perform the same way. Early stage exploration, especially by tiny companies, is high risk.

Our micro cap Investment TG1 is the latest on the scene and has:

• Mapped out a 800m x 400m pegmatite field
• Soil anomalies with high lithium/caesium grades - both “pathfinders” for lithium deposits.

Up until now, TG1’s project was focused primarily on gold BUT the gold to lithium pivot is one we have seen in WA before...

Red Dirt Metals (now Delta Lithium) made the pivot at its Mount Ida project (~60km away from TG1) and is now capped at $297M.

Another famous one was Kidman Resources which turned the Mount Holland gold project into a lithium deposit and sold it for $776M in 2019.

According this latest TG1 preso they are planning to drill in January:

(source)

This morning TG1 came out of a trading halt having raised ~$2.8M.

We took a pretty big swing at this TG1 placement, given the heat in the WA lithium sector, TG1’s low market cap (~$7.1M post placement) and drilling expected in January.

Earlier this month we wrote that TG1 was low on funds, which meant that on-market buying may have been limited in anticipation of an incoming cap raise (as is the rule of thumb for stocks that don’t have much cash in the bank).

Now armed with cash to drill, we are hoping that TG1 can replicate some of the success of these WA lithium companies we just mentioned.

NOTE: It’s important to note that small cap exploration is highly risky, and just because some WA lithium explorers are performing well does NOT mean that TG1 will do the same.

Rio Tinto enters 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.

Just yesterday, $46BN Rio Tinto made a move into the sector with a deal signed with junior explorer Charger Metals.

All of the activity across WA is happening at a cyclical low in the lithium sector.

Lithium prices are near their 24-36 month lows, BUT the majors with the deepest pockets are trying to get their hands on all of the big discoveries across WA.

Despite the low lithium prices, assets are being valued relatively fairly, too - think the $6BN offer for Liontown’s project by Albemarle.

The activity shows us that the smart money believes the theme still has legs and that in the near future, we are more likely to see lithium prices rebound than stay where they are today.

Our view is that once the USA’s Inflation Reduction Act subsidies come into full effect, demand for lithium supply from countries like Australia will increase exponentially.

We talked about the impacts of the IRA on lithium projects in “friendly countries” to the US in a previous weekend email here:

Critical Materials: Long term macro thematics are still very strong

TG1’s project is 50 kms from ~$297M Delta Lithium

TG1’s Ida Valley project sits 50 kms away from Delta Lithium’s Mount Ida lithium deposit.

The two projects have a similar origin story - both were gold projects before lithium was discovered on them.

In Delta’s case the project was purchased from Ora Banda for $11M. At the time the project had a ~141,000 ounce gold resource and hadn't had any lithium exploration done on it.

Up until now, TG1’s project hasn't seen any lithium-focused exploration either.

Fast forward to today, and Delta’s lithium discoveries have attracted the $12BN Mineral Resources Ltd (MinRes for short) onto its register - MinRes purchased a ~14% stake in Delta earlier this year.

So we know there is interest from the majors in lithium discoveries in this part of WA.

TG1 is now in a position where it has a mapped-out 800m x 400m pegmatite field, high grade soil anomalies and pegmatites in old drillcores.

The only thing the company needs to do now is to run a drill program focused on actually making a lithium discovery.

Small market cap leveraged to a discovery

At the 5.6c placement price TG1’s market cap is ~$7.1M after raising ~$2.8M.

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.

Raiden Resources for example is capped at ~$155M despite only having pegmatites mapped and rock chip samples - Raiden hasn't done any drilling YET.

TG1 can now spend a relatively small amount of money running mapping/sampling programs and IF the results are promising it should be enough to re-rate the company to a higher valuation base.

Then if it drills and actually makes a discovery, it could re-rate even further.

In summary - TG1 is in a position where it gets to have a crack at a discovery that could be worth 10x+ its market cap (IF found) for a relatively small cash cost.

At the end of the day the valuations for junior explorers is what determines expectations going into exploration programs.

The lower the valuation, the lower the expectations for a company - setting up the company to deliver unexpected good news.

We think that the strongest re-rates in share prices come when unexpected good news is delivered by companies where expectations are low - this is one of the main reasons we like the position TG1 finds itself in.

Of course - success is no guarantee here, micro cap exploration stocks are risky, and there is no guarantee they will find anything material or re-rate significantly. Seek professional investment advice before investing.

Cash raised and major catalyst coming up...

In our last note, we touched on how small cap stocks that are running low on funds can have a weight sitting on their share prices as investors start to expect a discounted capital raise.

We thought TG1 found itself in that exact position BEFORE today.

Here is the excerpt from our last note.

Now having raised ~$2.8M, TG1 should have enough cash to get through at least one round of drilling at the lithium project.

One round of drilling could see TG1 deliver a major catalyst and (we hope) a re-rate in its share price (or it might fail to make a lithium discovery and will need more cash to try again or find a new project).

Right now, TG1 is capped at $7.1M.

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 should lead to a rise in its share price leading up to the drill program.

What’s next for TG1’s lithium project?

(Source)

Assays from rock chips (Pending) 🔄

TG1 has ~500 different assays pending for samples taken from pegmatite outcrops on site.

TG1 has outcropping pegmatites across a ~800m x 400m area which sits in and around the high grade lithium soil anomalies.

Sampling/mapping program to find drill targets (About to start) 🔄

TG1 is about to kick off a sampling program across its three target areas.

When all of that work is done we should have a much better idea of where the best targets to drill are.

Drilling of high priority targets (Q1 2024) 🔲

After all of the sampling/mapping work is complete we want to see TG1 drill its best targets.

TG1 expects this to be at some stage in Q1 2024.

Ultimately we are hoping the drill program delivers 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.

TechGen Metals

ASX:TG1

TG1 also pegging ground in the Pilbara?

Another part of the lithium story with TG1 is the company’s ground in the East Pilbara region.

Most of the noise across the WA lithium industry has come from the Pilbara region with MinRes buying up stakes in Azure and Wildcat resources.

The region is also home to the Pilgangoora mine owned by $10.7BN Pilbara Minerals and the Wodgina mine owned by $12.5BN Mineral Resources and US$15.3BN Albemarle.

The reason we are watching to see what happens here is that we have seen companies go to market caps up to $100M just off pegging ground around some of the big discoveries in the region.

Raiden Resources went from a micro cap with a market cap of <$10M to trade at almost $100M market cap just because it pegged some ground to the south east of Azure Minerals.

Raiden’s share price went from ~0.3c per share earlier in the year to trade at a peak of 8c.

Note: just because this company has performed well it is not an indicator that TG1 will perform the same way. Early stage exploration, especially by tiny companies, is high risk.

It's still very early days for TG1 but we will be watching to see if TG1 continues to expand its ground position in the Pilbara and the location of the new ground.

(Source)

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