Shares Held at Open: 3,432,000
What does TMR do?
Tempus Resources (ASX:TMR) is an exploration company focussed on gold in Canada and Ecuador.
What is the macro theme?
Gold is considered a safe-haven asset that performs well when the overall market sentiment is negative.
Historically the gold sector outperforms other asset classes in times of increased volatility (i.e bubble crashes, Inflation or geopolitical tensions).
With inflationary pressure popping up all over the world and heightened geopolitical tensions due to supply-chain issues. We think that gold serves as the perfect hedge against an unexpected economic shock occurring.
Our Big Bet for TMR
TMR becomes a gold producer following the discovery of enough new gold sources to justify the restart of its onsite gold mill.
Why did we invest in TMR?
Fast Pathway to production
TMR’s Canadian assets have had historical production of over 230,000 ounces and comes with a fully permitted mine. The project also has existing processing infrastructure in place so any new discoveries can be quickly put into production, especially if the gold price goes on a run.
TMR’s Gold project in Ecuador is a nearology play, the asset sits adjacent to CA$2.6B capped Lundin Gold’s Fruta del Norte project. A discovery here could lead to a positive re-rate in the TMR share price.
Company highly leveraged to new discoveries with only 125M shares on issue. With a market cap of $15M and $4.3M in cash TMR has an EV of ~$10.7M.
What do we expect TMR to deliver?
Objective #1: Make new discoveries at the Canadian gold project.
- High impact drilling with a focus on discovering new gold veins over the project area.
- In particular further drilling of the areas around the newly discovered Blue-Vein.
Drilling program commencement
Objective #2: Upgrade the JORC resource at the Canadian gold project.
We want to see TMR complete another round of drilling at the Blue-Vein discovery both infill and extensional. Off the back of these results, we want to see TMR upgrade the JORC resource for its Canadian gold project.
JORC resource estimation commenced
JORC resource completed
Objective #3: Re-start exploration at the Ecuador Gold project, and identify drill targets.
- We initially invested hoping to see TMR aggressively explore its gold project in Ecuador, but with COVID getting in the way, exploration of this project has been difficult.
- In 2022 we want to see TMR complete a large scale soil sampling program in H1-2022 as part of target generation works which we hope will lead to a maiden drilling program either late in 2022 or early 2023.
Soil sampling works completed
Drill targets identified
TMR has no established economic resource, this means the company is dependent on a new discovery being made to make it economically feasible to get its assets into production and producing cash flows. If a new vein or mineralised system is not found at its Canadian project then the project may become stranded.
TMR is doing high-risk high-reward exploration drilling which means they need access to capital that is willing to finance this type of exploration. TMR is heavily reliant on good market conditions and positive sentiment in the gold-space.
Gold is a commodity that shines in periods of market volatility & negative sentiment. This doesn't happen often and when it does it can be for a very brief period.
Ecuador country risk
In late-2021 a federal election meant a more mining friendly government came into power in Ecuador but there is still a risk that the government and regulators look to make structural changes to the mining industry. The mining industry needs a stable geopolitical environment given it requires long-dated capital investment, there is a risk the government makes changes that deter capital investment and/or make projects uneconomic to explore/mine.
What is our investment plan?
The TMR share price took a beating in the last quarter of 2021, being sold off from its August 2021 high of 29.5c to be now trading at around 12c.
This has been disappointing for us and a lot of long term investors - we have been holding TMR for almost 2 years now, and have not sold a share. Our average entry price is ~18c across four separate investments.
Hitting our above objectives this year combined with a positive gold price should see TMR’s share price re-rate, given the low number of shares on issue (~125M). In 2022 we will look to sell about 20% of our holding if TMR trades above 30c.
Disclosure: The authors of this memo and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 3,432,000 TMR shares at the time of publication. S3 Consortium Pty Ltd has been engaged by TMR to share our commentary and opinion on the progress of our investment in TMR over time.