80% of the global niobium supply is controlled by one company CBMM. Niobium sits as the second highest risk metal on the critical materials list for both the EU and the US for supply concentration.
$0.025
Opened: 06-Aug-2024
Shares Held at Open: 24,900,000
What does SGQ do?
St George Mining (ASX: SGQ) is a Brazilian niobium & rare earths developer in the state of Minas Gerais.
What is the macro theme?
80% of the global supply for niobium is controlled by one company and one mine in Brazil.
This commodity is considered the second highest commodity for both the US and the EU in terms of supply chain risk.
Although the market for niobium is still relatively niche, it may grow as metal of the future in things like ultrafast charging batteries.
Rare earths are also considered critical minerals with production and processing capacity concentrated in China.
Why did we invest in SGQ?
Niobium is a critical mineral. Governments want it, SGQ has it.
80% of the global niobium supply is controlled by one company CBMM. Niobium sits as the second highest risk metal on the critical materials list for both the EU and the US for supply concentration.
SGQ is capped at $55M post acquisition, much smaller than listed peers.
Post acquisition SGQ will be capped at A$55M (at 2.5c/share). Peers that have made niobium discoveries include WA1 Resources ($842M) and Encounter Resources ($249M). SGQ can also be compared to peers that have defined Rare Earth Element projects including Brazilian Rare Earths ($550M) and Meteoric Resources ($210M).
Existing discovery with 500 intercepts above 1% niobium.
Compared to other companies that are in the exploration stage, SGQ already has a niobium discovery. This provides a strong foundation for SGQ to quickly progress towards a JORC resource through more drilling of its own.
Money flowing into companies developing niobium projects.
Because of the importance of niobium, and its concentrated supply chain, large swathes of capital is pouring into other companies that are developing niobium projects. WA1 and Encounter Resources are two of the most successful stories on the ASX, both discovering niobium in WA.
Project sits next door to the largest niobium producer in the world.
SGQ is next door to CBMM, which supplies 80% of the global niobium market. SGQ’s project sits on the same geology as CBMM.
Only 10% of the project has been drilled (exploration upside).
To date, only 10% of SGQ’s project has been drilled with most of the drilling only down to ~50m depths. The high-grade mineralisation commences at surface and is open in all directions, leaving open the possibility for this discovery to grow even bigger.
Rare earths, with high grade TREO.
SGQ’s project also contains ultra high grade rare earths with TREO grades >10% in 10-60m intercepts. SGQ’s project sits on the same type of geology (carbonatites) as Lynas’ giant Mount Weld rare earths mine.
Project located in the same state in Brazil as Latin Resources.
The project is located in the Minas Gerais state of Brazil, a state that we have visited and home to one of our best ever Investments, Latin Resources. Latin Resources grew from $0.03 to over $0.40 off the back of a giant lithium discovery. The region is very mining friendly with good access to infrastructure and power.
Project acquired from a forced seller.
The vendor of the asset (Itafos) is a TSX listed phosphate producer and is currently going through a de-leveraging process trying to reduce debt. SGQ is picking up an asset that Itafos likely sees as non-core because of the business’ phosphate focus and a lack of bandwidth to bring another mine into production.
What do we expect SGQ to deliver?
Objective #1: Acquisition completion
We want to see SGQ satisfy the conditions for the acquisition and complete the deal.
Milestones
Shareholder approvals
Upfront cash payment completed
Deferred consideration #1 Paid
Deferred consideration #2 Paid
Objective #2: Drilling to increase size of discovery
We want to see SGQ drill out its existing discovery at depth and in all directions to increase the footprint of the deposit.
Milestones
Drilling permits granted
Land access agreements
Drilling commenced
Drilling results
Objective #3: Maiden JORC resource estimate & met testwork
We want to see SGQ define a maiden JORC resource for its project. As part of the resource estimate we also want to see SGQ run some metallurgical testwork and confirm its project sits on similar geology to CBMM’s project next door AND that it can be processed using similar processing techniques.
Milestones
Metwork updates
Maiden JORC resource estimate
Objective #4: Enter feasibility studies
We want to see SGQ take its project into economic studies either via a scoping study, Preliminary Economic Assessment (PEA) or a Pre Feasibility Study (PFS).
Milestones
Scoping study/preliminary economic assessment commenced
Scoping study/preliminary economic assessment completed
What could go wrong?
Exploration risk
A big part of our Investment is in seeing SGQ extend mineralisation at its project at depth and along strike.
There is no guarantee that drilling will return anything of significant commercial value for SGQ (either through weak grades or thin intercepts).
There is also some risk associated with metwork for later stage projects like SGQ’s - SGQ will be focusing on understanding the metwork over the coming months in parallel to drilling.
Commodity price risk
The niobium market is very small, which means that there can be big swings in commodity prices based on supply out of CBMM (who controls 80% of the market).
There are also a number of substitute commodities to niobium such as tantalum and vanadium.
If the price of niobium accelerates, then buyers may look for substitutes, pushing the price of the commodity down.
Deal Risk
The acquisition by SGQ is still subject to a certain number of conditions being met.
SGQ will need to get shareholder approvals for the deal - and there is a chance the vendor will need to get approvals for the transaction also.
SGQ expects the conditions of the deal to be satisfied by late September/early October 2024 but there is always a risk that these do not happen. If the deal falls through then our Investment Thesis wouldnt be applicable anymore.
Deferred payments risk
To pay for the acquisition SGQ will need to make three separate payments totaling US$21M. The first US$10M instalment is due on closing of the deal with the remainder due over the next 18 months.
IF SGQ is unable to raise funds to pay for the deferred milestone payments then it risks losing the asset. It is possible that SGQ fails to make these payments in which case we would expect the company’s share price to be re-rated significantly lower.
Market risk
Broader market sentiment could deteriorate, and shares as an investment class trade lower, taking SGQ’s share price with it. Alternatively, there could be further sector specific pain ahead where junior explorers suffer a lot more than the broader market.
Development/delay risk
Should any or all of the above risks materialise, SGQ could wind up stuck in “development purgatory” where newsflow dries up and the project remains stagnant for a prolonged period of time, hurting the share price. Additionally, if delays occur in terms of material newsflow, the market could turn on SGQ.
What is our investment plan?
We are Invested in SGQ to see it progress its project into development.
Our plan is to hold the majority of our position in SGQ for 3 to 5 years which we hope is enough time to see SGQ to move towards development (see “our long term bet” above).
After 12 months we will apply our standard de-risking strategy.
We may also look to sell up to 20% of our holding if the company delivers on one or more of our Investment Memo objectives and/or the share price materially re-rates.
Any sell downs will be in accordance with our trading and hold policy disclosure.
Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 24,900,000 SGQ shares at the time of publishing this Investment Memo. The Company has been engaged by SGQ to share our commentary on the progress of our Investment in SGQ over time. Some shares are subject to shareholder approval.
SGQ confirms that anonymous person on internet chatroom is wrong
Aug 12, 2024
Aug 12, 2024 |
16 min
Last week we added SGQ to our Portfolio. We also committed cash into the SGQ capital raise at 2.5c. We think at a $55M transaction market cap, SGQ’s advanced stage niobium and rare earths project in Brazil will eventually be repriced upwards by the market.
Our New Investment is St George Mining Ltd (ASX: SGQ)
Aug 6, 2024
Aug 6, 2024 |
21 min
St George Mining Ltd (ASX: SGQ) just announced the acquisition of a niobium and rare earths project right next door to this niobium mine that supplies 80% of the global niobium market.
SGQ signs non-binding MoU with SKI HongKong Limited
Oct 21, 2024
Oct 21, 2024 |
2 min
Our Brazilian niobium Investment, St George Mining (ASX: SGQ) announced today it has signed a non-binding Memorandum of Understanding (MoU) with SKI HongKong Limited, a leading global trader of steel materials including niobium.
SGQ Niobium-REE acquisition approved by shareholders
Oct 10, 2024
Oct 10, 2024 |
4 min
Our Brazilian niobium and rare earths Investment St George Mining (ASX: SGQ) just got shareholder approvals for its recent acquisition.
Former Brazilian Minister of Mines joins SGQ as advisor to the Board
Aug 27, 2024
Aug 27, 2024 |
3 min
St George Mining (ASX:SGQ) has just announced a new advisor to its board, Adolfo Sachida, Brazil’s former Minister of Mines and Energy.
Insights from Industry Leaders at IMARC
Nov 2, 2024
Nov 2, 2024 |
17 min
A few of our team was in Sydney this week for the IMARC conference, and to hear from some of our Portfolio Companies. IMARC is the largest mining conference in Australia - so the big mining companies show up, but also well attended by small cap companies and investors. The sentiment “vibe” is definitely improving, something we’ve been observing and pointing out in recent weekend editions.
Why Small Caps Stand to Benefit from Precious Metals Push
Oct 26, 2024
Oct 26, 2024 |
25 min
Can you feel it? The small end of the market is… feeling good again? It’s being led by gold and silver price rises that are (finally) driving serious interest into a few smaller gold and silver stocks. And people are remembering how it feels when small stocks deliver price rises on high volumes.
Major Announcements Driving Volatility in Small Caps
Oct 12, 2024
Oct 12, 2024 |
15 min
The mood is good in small cap land. Cautious… but good. It was another positive week, with plenty of green across the board.
Riding the Bull and Bear Cycles
Oct 5, 2024
Oct 5, 2024 |
19 min
Everyone's a “genius” in a small cap bull market. At least that is what it felt like between November of 2020 and June of 2022. All IPO’s oversubscribed, cap raises were highly competitive and good news was being rewarded with on-market buying. Everything was going up. (Remember things like Afterpay? Lithium at $80,000/t? Gamestop? Shells with a $10M EV? The occasional “50 bagger”?) Since then, it has been MUCH harder to navigate the small cap market during the “bear” winter.
How will this Impact the Critical Minerals Market?
Aug 31, 2024
Aug 31, 2024 |
13 min
This week was a little bit different for one of our team members. With a visit to the Imperial War Museum in London. The museum focuses on World War I and World War II.
