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Investment Memo:

GTI Energy (ASX:GTR)

- CLOSED

Opened: 14-Mar-2022

Closed: 04-Aug-2023

Shares Held at Open: 16,662,000

Shares Held at Close: 41,043,000

Reason Memo Closed: JORC Resource Complete


What does GTR do?

GTR is an exploration company targeting Uranium discoveries in Wyoming, USA & Utah, USA.

What is the macro theme?

Transition away from highly pollutive base-load energy generation using coal & oil to nuclear power, which provides a more Green alternative.

Nuclear power has one of the lowest carbon footprints & highest utility rates of all renewable energy technologies. Uranium being the primary fuel source for Nuclear makes it a critical mineral for a green future.

[Memo Assessment - 04-Aug-2023]: Sentiment = Strong

The underlying theme hasn't changed - nuclear power is still the cheapest, cleanest and most reliable form of clean energy. Nuclear power needs uranium. Government recognition is also gaining momentum, with the EU lawmakers voting in favour of nuclear energy being considered a “green energy” in July 2022.

Our Big Bet for GTR Big Bet Tooltip

To see GTR prove out a large resource base in the “uranium capital” of the USA, and generate offtake or acquisition interest as the USA moves to secure local uranium supply.

Why did we invest in GTR?

The uranium projects are in Wyoming

Wyoming is the capital for uranium production in the US accounting for 80% of domestic production. GTR also has an experienced US team with plenty of ISR uranium experience (Doug Beahm & James Buaghman). Wyoming also attracting Nuclear investment from Warren Buffet + Bill Gates.

[Memo Assessment - 04-Aug-2023]: Grade = A

The US Department of Energy has started giving out supply contracts to uranium majors in Wyoming who are closest to restarting their projects. GTR’s neighbours are now bringing projects into production and putting Wyoming at the forefront of the US domestic uranium industry.

Uranium price at 9 year highs

Uranium prices have moved from ~US$32/lb at the start of the calendar year to now trade at ~US$46/lb.

[Memo Assessment - 04-Aug-2023]: Grade = A

The uranium price is now US$56/lb - trading well above the levels of ~ $46/lb at the time of writing our previous GTR Memo. We have seen some contracts for uranium supply get signed for ~US$60-70/lb.

Uranium is becoming a critical strategic metal in the US

The shift towards cleaner sources of energy generation as well as Uranium increasingly becoming a strategic mineral will mean the US to need a lot more of it.

[Memo Assessment - 04-Aug-2023]: Grade = A

The US government has now introduced two bills that underline the strategic importance of the nuclear/uranium supply chains. Bill #1 is a potential ban on Russian uranium supply & Bill #2 is ~US$3.5BN in funding for US nuclear fuel supply chains.

What do we expect GTR to deliver?

Objective #1: Drilling at the company’s Wyoming uranium projects.

  • Emphasis for the drilling results is on the "GT Measure" (Grade x Thickness).
    • 10 foot intercepts grading >0.02% uranium (GT > 0.2).
      • I.e. 3m @0.02% Uranium.
  • Drilling with the ultimate aim of putting together an initial maiden resource estimate or at the very least an achievable exploration target.
    • Bull case = Uranium intercepts lead to a maiden JORC resource. [Achieved ✅]
    • Base case = Enough uranium is intercepted to put together an achievable exploration target.
    • Bear case = No uranium is intercepted, and projects are considered stranded.

[Expectations added on 18th July 2022]

Milestones

complete Drilling targets identified

complete Drilling permitting

complete Drilling commencement

complete Drilling results

complete Forward exploration plan

[Memo Assessment - 04-Aug-2023]: Grade = A

GTR completed its drill program and announced a maiden JORC resource estimate at its Great Divide Basin project. GTR achieved our “Bull Case” scenario with a resource of 1.3Mt at 570ppm for 1.66 million lbs of uranium.

Objective #2: Drilling at the company's uranium projects in Utah.

Target generation works to commence in November 2021. No results are anticipated from this until at least late Q1-2022. Target generation will form the basis for a drilling program in late 2022.

Milestones

in-progress Drilling targets identified

not done Drilling permitting

not done Drill rig contracting

not done Drilling commencement

not done Drilling results

[Memo Assessment - 04-Aug-2023]: Grade = D

GTR did some mapping and sampling work but didn't run any drill programs at its projects in Utah. GTR ended up acquiring another project in Wyoming (Lo Herma) and is now focusing most of its exploration funds in Wyoming. With access to capital being difficult we think the move to focus on one region is the right strategic move for the company.

Objective #3: Maiden resource estimate at newly acquired (Lo Herma) project.

We want to see GTR utilise its newly acquired US$15M drilling data and convert it into a maiden resource estimate [NEW - 14-Mar-2023]

Milestones

complete Maiden resource estimate

[Memo Assessment - 04-Aug-2023]: Grade = A

GTR recently announced a maiden JORC resource estimate at Lo Herma of 4.12mt at 630ppm for 5.71 million lbs of uranium.

What could go wrong?

Exploration Risk

GTR is currently drilling for Uranium. The drilling program may not return any uranium mineralisation. Failed exploration programs may lead to the assets becoming stranded.

[Memo Assessment - 04-Aug-2023]: Risk = Decreased

GTR now has two projects with in ground JORC resource estimates which reduces the amount of exploration risk attached to the company.

However GTR still needs to prove size/scale potential across the projects and to do so will need to run more exploration programs.

As a result we will be carrying this risk over into our new GTR Investment Memo. There is always a chance the resources are not increased with future drill programs - limiting the upside potential of the resource.

Commodity Risk

Uranium is often shunned by governments because of the issues related to spent-uranium cells needing to be disposed of even though they remain radio-active. A lot of countries have abandoned commitments to Nuclear due to the risks of accidents like Chernobyl & Fukushima. This may slow the adoption of Nuclear power globally.

[Memo Assessment - 04-Aug-2023]: Risk = Unchanged

The uranium spot price has been creeping higher and has gone from ~US$40 in 2022 to now trade around ~US$56 per lb.

The moves by the EU to consider nuclear power a “green” energy source has been a positive move toward commodity risk for uranium being addressed, however we do note countries like Germany are still opposed to building new nuclear power plants.

Countries like Australia and the US are still on the fence about nuclear power. As a result this risk is unchanged.

Funding Risk

GTR is a junior explorer with no revenues to fall back on. This means the company is reliant on fresh funding for future exploration programs. GTR will need to come back to the market and raise more capital from investors to finance major exploration programs.

[New 21-Mar-2023]

[Memo Assessment - 04-Aug-2023]: Risk = Increased

The funding environment for junior exploration companies is now a lot tougher than when we first published our GTR Investment Memo.

We expect it to get even harder for small explorers to raise funds as long as interest rates stay high. We will carry this risk over to our new GTR Investment Memo.

Market Risk

If the broader market sells off there is a chance that investors shy away from high risk investment opportunities such as early stage junior explorers. During market downturns, investors will generally look to pull capital away from the highest risk investments. GTR is an early stage explorer and may be impacted by these market wide sell offs.

[New 21-Mar-2023]

[Memo Assessment - 04-Aug-2023]: Risk = Materialised

Over the last 12 or so months we have seen a market wide sell off across micro cap companies.

Markets like these make it difficult for companies to build any sort of momentum because good news is met with selling instead of buying pressure. We think this is one of the main reasons why GTR’s share price is trading near 52 week lows.

What is our investment plan?

Our strategy with early stage explorers is to achieve free carry prior to the initial drilling results, which we expect in early 2022. We plan to hold ~50% of the position to see the entire story play out over at least 2 to 3 years.

[Minor wording edits made on 18th July 2022]

[Memo Assessment - 04-Aug-2023]: Grade = C

Since we published our GTR memo in March 2022 the company’s share price has slowly trended downwards.

We did not manage to Top Slice or Free Carry our investment as there was no share price run up in anticipation of drill results for the company.

We did take the opportunity to increase our position in GTR at 0.9 cents, averaging down on our Investment Entry Price.


Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 16,662,000 GTR shares and 746,615 GTR Options at the time of publication. S3 Consortium Pty Ltd has been engaged by GTR to share our commentary and opinion on the progress of our investment in GTR over time.

Investment Memo:

GTI Energy (ASX:GTR)

- LIVE

Opened: 04-Aug-2023

Shares Held at Open: 41,042,995


What does GTR do?

GTi Energy (ASX: GTR) is an exploration company targeting Uranium discoveries in Wyoming, USA & Utah, USA.

What is the macro theme?

Nuclear power has the lowest carbon footprint and highest utility rate of all renewable energy technologies.

Uranium is the primary fuel source for nuclear power, which makes it a critical mineral for a green energy future.

We expect to see uranium production increase across the world, buoyed by the transitions away from highly pollutive base-load energy generation like coal and oil.

The US is also allocating US$6BN in credits under the Inflation Reduction Act (IRA) to expand its nuclear fleet which we expect to increase demand for domestic uranium supplies.

Our Big Bet for GTR Big Bet Tooltip

To see GTR prove out a large resource base in the “uranium capital” of the USA, and generate offtake or acquisition interest as the USA moves to secure local uranium supply.

Why did we invest in GTR?

Uranium price at ~12 year highs

Uranium prices have moved from ~US$32/lb in 2021 to now trade near US$56/lb.

US Government is investing in domestic uranium supply chains

The US launched a US$1.5BN strategic uranium reserve & is investing US$6BN in its existing nuclear reactor fleet.

At the same time the US is home to the world's biggest nuclear reactor fleet and imports ~95% of its uranium supplies. In short the US is desperate to rebuild its nuclear power supply chains.

GTR’s projects in the uranium capital of USA

Wyoming is the capital for uranium production in the US and was once the biggest producing region in the world.

Wyoming has also attracted US$4BN in funding for a nuclear power plant from Warren Buffet and Bill Gates.

GTR’s projects are ISR uranium projects

ISR (In-situ recoverable) uranium projects have the lowest environmental impact, lowest CAPEX and lowest operating costs. ISR projects can be put into production a lot quicker than conventional hard rock uranium projects.

Existing JORC resource base and low enterprise value

GTR has an existing JORC resource base of 7.37m lbs of uranium. At our most recent Investment price of 0.9 cents, GTR trades at an Enterprise Value (EV) of $14M, giving it an EV/resource ratio of ~$1.90/Lb of uranium. Producers in Wyoming trade at >$15 per lb of uranium resources.

GTR’s projects sit near existing processing infrastructure

GTR’s Wyoming projects sit near ~9 central processing plants, with five fully permitted for production. GTR’s projects have the potential to be a part of a regional “hub and spoke” production model.

What do we expect GTR to deliver?

Objective #1: Drilling at first Wyoming Project - Lo Herma

We want to see GTR define drill targets and then drill its most advanced Lo Herma uranium project in Wyoming. We want GTR to upgrade its existing 5.71m lb JORC resource for the project.

Milestones

in-progress Geophysics/Geochemical surveys

in-progress Permitting/planning

not done Define drill targets

not done Drilling started

not done Drilling results

Objective #2: Drilling at second Wyoming Project - Green Mountain

We want to see GTR define drill targets and then drill its earlier stage exploration project - Green Mountain. We want to see GTR get enough drilling data to put together a maiden resource estimate or exploration target.

Milestones

in-progress Geophysics/Geochemical surveys

in-progress Permitting/planning

not done Define drill targets

not done Drilling started

not done Drilling results

Objective #3: Increase global resource base and start feasibility studies

Ultimately we want to see GTR increase its total in-ground resource base and then take one of its projects into the feasibility study stage.

Milestones

not done Resource upgrade commenced

not done Resource upgrade completed

not done Feasibility study commenced

What could go wrong?

Commercialisation risk

GTR now has a total in-ground JORC resource base of ~7.37 million lbs of uranium. There is no guarantee that this resource can be economically extracted. Project development is risky and a range of issues can always come about leading to projects being considered stranded.

Exploration Risk

GTR is still drilling exploration targets to grow its in-ground uranium resource. This may or may not return any uranium mineralisation. Exploration drilling that does not lead to economic uranium resources may occur.

Commodity Risk

In recent decades, governments have often shunned uranium because of the issues related to spent radioactive uranium cells needing to be disposed of somewhere.

A lot of countries have abandoned commitments to nuclear power due to the risks of accidents like Chernobyl and Fukushima.

This may slow the adoption of nuclear power globally and impact the demand for uranium. Other energy sources may be more popular than nuclear.

Funding Risk

GTR is a junior explorer with no revenues to fund exploration and ongoing costs. This means the company is reliant on capital raises to fund exploration programs.

Assuming no JV partner appears, GTR will need to come to the market and raise additional capital from investors leading to dilution for existing shareholders if raises are done at lower prices.

Market Risk

If the broader market sells off, investors may shy away from high-risk investment opportunities like junior explorers. During market downturns, investors will look to pull capital away from the high risk investments. GTR is a junior explorer and may be impacted by these market wide sell offs.

What is our investment plan?

With the GTR share price well below our Initial Entry Price of 1.8 cents, we took the opportunity to “average down” our GTR investment while sentiment was relatively low.

We hope this is a strategy that pays off.

We will look to sell ~30-40% of our holdings if the company if the share price materially increases either from:

  • A new uranium discovery
  • Anticipation of material drilling event
  • An increase in JORC resource
  • A macro event that spotlights uranium stocks

Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 41,043,000 GTR shares and 1,579,715 GTR options at the time of publication. The Company has been engaged by GTR to share our commentary on the progress of our Investment in GTR over time.

Our Investment Summary

Date of Initial Coverage

29-Apr-20

Inital Entry Price

$0.018

Returns from Initial Entry

-50%

High Point

89%

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