Worth Watching: Technology Metals Australia Limited (ASX: TMT)
Technology Metals Australia Limited listed at the end of 2016 and announced a maiden resource in June 2017. This was excellent progress, resulting in a vanadium resource of 62.8M tonnes at a grade of 0.8% vanadium pentoxide (V2O5). This includes a high grade component of 29.5M tonnes at a grade of 1.1% V2O5. These are good grades. The resource is an extension of that held by neighbor, Australian Vanadium Limited (ASX: AVL). Read more about vanadium here and about AVL here.
The company has a strong, experienced board. I know the Chairman, Michael Fry, and Executive Director Ian Prentice, and both have the experience and skill set to make this company work.
TMT has 35.1m shares on issue. A further 10m Class B Performance Shares will be issued if an indicated resource of 20Mt at 0.8% V2O5 is defined by 31 December 2019.
At the current share price of $0.20 the company has a market capitalization of $7.0M. With cash estimated at around $3M at the end of June, this leaves an enterprise value of $4M, or $0.06 per tonne of resource. This is low compared with its peers, but I doubt it will remain that way once the market picks up on vanadium and on TMT.
The company’s strategy at Gabanintha is to add value preparatory to some form of deal, such as a sale or joint venture. This makes infinite sense, as the development of vanadium (or equivalent) production facilities is highly risky and even minor problems can sink a junior company. A joint venture with a company of substance would retain the upside and mitigate the risk.
To add value TMT intends to increase the resource size and resource confidence. The first step would be to upgrade the resource from inferred to indicated. Given the geology, this will be straightforward and low cost. The next step would be to increase the already substantial resource (about 500,000t of V2O5) towards 1Mt of V2O5. This would interest many large companies in the business and would be large enough to support a standalone operation.
The next stage will be metallurgical test work for vanadium and probably also cobalt and titanium. The company will also benefit from AVL’s test work. That company has just commenced test work using one of Neomet Technologies Inc’s proprietary hydrometallurgical processes. Positive results here will also be very positive for TMT.
There has been some suggestion that the two companies should merge. This seems counter-intuitive. The companies have quite different strategies and are at a different stage of development. I think shareholders will get a better outcome if TMT stays independent until it finds a partner of significance, or is in a position to make a strategic asset sale.
The vanadium sector is still at a very early stage, about where cobalt was in the third quarter of 2016. It is a sector well worth looking into as vanadium is increasingly going to be an important energy metal. TMT is a good choice and worth researching. Sound management, good strategy and a straightforward, easy to understand business plan.
Plan showing TMT & AVL tenement boundaries, AVL and TMT resource outlines
TMT vanadium resource outline in detail
A section through the vanadium resource
The images above are courtesy of TMT.
My “Worth Watching” series is a brief review of companies that appeal to me. They are in no way a recommendation to buy or sell shares. The reader is advised to do their own research and/or consult with their broker.