iTech Minerals: Good Work in a Bad Market
iTech (ITM.AX) continues to positively develop its Campoona graphite project, but does anyone care about graphite right now?
tl;dr:
iTech keeps doing the right work the right way, making positive progress on three separate projects, including putting the first points of a potentially economic, mineable graphite deposit on the board.
As the summer here in Canada comes to a close, I thought I should prepare a brief update for iTech Minerals. It is an opportune moment - positive graphite drill results, success with other projects, and, as of Aug. 29, their Annual Report to Shareholders - are all topics to be covered.
Like I said in my last weekly update for them, graphite has had a very tough go the past little while, very nicely coinciding with my primer article I wrote for it. Which you just have to love, right? But then, I don’t pretend to understand the short-term machinations and variations in sentiment and market response, and don’t believe they’re relevant to the reasons I have invested in this company.
Of course, the dream is to be the first in the door on FOMO-driven price discovery. But good things are sometimes also a little quieter developing. Fundamentally, I believe ITM is a strong investment for a whole multitude of reasons that exist independent of the short-term fluctuations in the price of graphite or iTech itself.
Low barrier to economic viability,
cheap to get to production and short timeline
great jurisdiction,
positive metallurgy,
cheap and effective refining,
consistent drill results,
strong management,
multiple opportunities for value creation,
huge macro tailwinds for graphite from a multitude of directions, etc.
Those are why I believe iTech is a good pick, not short term volatility.
Anyway, let me move on and provide a recap for iTech’s past little while:
The Annual Report (and my comments)
Lacroma Drill Results
REE Met Work
Cash and Funding
Part 1. Annual Report
I will provide some brief notes from the recent Annual Report that can be found by clicking through the link on 29 Aug. 2023 "Annual Report", where pps 7-27 are the full review of operations. I pull the following notes from the Managing Director’s Report at the start.
1.1. Campoona Spherical Graphite Project
During the year, iTech Minerals demonstrated that it could produce up to 99.99% purity uncoated spherical and flake graphite, that meets all relevant industry specifications (from Lacroma and Campoona)
Importantly, this high level of purity was achieved with the environmentally friendly and sustainable caustic leach process which avoids the use of the more dangerous hydrofluoric acid method.
12,000m drilling program at its Lacroma and Sugarloaf Graphite Prospects. These prospects have the potential to increase iTech’s graphite inventory many times over.
My Comments on graphite news:
This is obviously a lot of positive news. Graphite prices in the dumps or not, iTech is proving up a resource with a lot of potential. Granted, iTech’s Lacroma prospect isn’t going to provide the longest intercepts or the highest grade (Kingsland Minerals and Ceylon Graphite come to mind here), but that isn’t necessarily the decisive factor. The are other, more critical, variables (as I listed above).
Therefore, the exact characteristics of the graphite discovery that iTech is proving with its Lacroma drill campaign is important. Lacroma isn’t a proven entity, but it looks like it could potentially be simple, close to surface, easy to mine and extract, and of sufficient size to feed a mill for the necessary LoM. And, I think it’s right to say that that’s what really matters. There’s lots of graphite in the world. It has to be cheap. Cheap to mine. Cheap to refine. Cheap to upgrade. Advantage iTech here. (I also really like ITM’s plans to upgrade and refine their graphite themselves, but I digress).
1.2. Rare Earth Element Projects
iTech Minerals completed a successful drilling program at its Caralue Bluff REE Project that demonstrated a large Exploration Target of 110 – 220 Mt @ 635 – 832 ppm TREO and 19-22% Al2O3.
Initial metallurgical test work suggested that the recoveries of REEs through traditional ionic leach methods were problematic, so our challenge was to improve the recovery process.
Over the past few months, through our partnership with METS Engineering we have systematically explored all the processing options and uncovered the right conditions for exceptional rare earth element recoveries. Recoveries of up to 86% TREO and up to 88% were achieved for the MREOs (Nd, Pr, Dy, Tb)
This has opened the path to creating a low cost and effective leaching process, though it is still early days.
My comments on REE developments:
As for the REE developments - they are also clearly steps in the right direction. I admit I have not done a proper deep dive into understanding REEs enough to want to speak about them, so my feedback here will be relatively muted.
That being said, the notes above display good promise. Finding a way to crack the metallurgical code seems to be something Michael Schwarz has a knack for so far as MD of iTech, with positive developments at its Sugarloaf graphite project and now also here. If the process proves to be simple and cost effective at scale, even with the now-reduced raw total of REOs, this could easily get iTech’s original Caralue Bluff REE project back on track as well, providing further optionality for investors.
Part 2. Drill Results
The following are highlighted notes from the past 2 months of news releases pertaining to Lacroma drill results:
2.1. From Aug. 8
iTech has completed the last of four regional traverses, spaced 1km apart, across the 4km graphite prospect at Lacroma.
The aim of the regional drilling was to determine the best part of the graphite prospect to potentially define a graphite resource.
the most prospective region occurring over a 2km central zone, coincident with the peak of the airborne electromagnetic anomaly.
2.2. From 25 July Quarterly Report
Drill results from the first drill traverse have defined an extensive graphite horizon which extends ~200m across strike, from surface to >150m deep. … The mineralisation has a true thickness of approximately 60m of 6-7% TGC with a 25m thick high-grade core of 8-9% TGC. Graphite mineralisation has also been drilled in the remaining three traverses to cover a total of 4km of strike.
This is consistent with iTech’s model that the 6km airborne electromagnetic anomaly is caused by a regionally extensive graphite horizon of scale
2.3. From 10 July News Release
A lower grade zone to the west is approximately 90m thick and averages ~5% TGC and a higher-grade zone to the east is approximately 20m thick with grades between 9-14% TGC.
This second traverse is over 1 km south of the first traverse and confirms the extensive nature of mineralisation.
The mineralisation has a true thickness of approximately 60m of 6-7% TGC with a 25m thick high-grade core of 8-9% TGC.
Together the two traverses indicate that the mineralisation is 200-300m wide with a 60-90m thick lower grade zone grading 5-7% TGC and a 20-25m thick higher-grade zone grading 9-14% TGC, now extending for over 1 km.
More good news to report throughout. Lacroma has been a success from my vantage. They have a few thousand meters of drilling left to play with, and will be striking out on a new target to the west while completing some resource drilling with them. With positive met work, Lacroma looks like it matches what iTech’s hopes for it were.
Part 3. REE Met Work
3.1. From 10 Aug 2023 News Release
74.5% of the total REEs and >75% of magnet REE’s (Nd + Pr) can be concentrated in the fine fraction, which makes up just over half (51%) of the sample volume.
A reduction of nearly half of the feed volume of REE bearing clay material would significantly lower acid consumption and would mean a substantial reduction in both the OPEX and CAPEX at REE extraction stage.
Concentration of REE’s in half the volume of material can be achieved by simple screening and recovering the -20 µm fraction.
This is the fraction that also contains the potentially valuable kaolin by-product.
This provides some additional colour to the Annual Report summary - I like the strategic approach to reducing capex and opex requirements.
Cash and Funding
4.1. From 25 July Quarterly Report
4.2. From 3 July 2023 News Release:
iTech progressing development of a process to produce battery anode material from the Sugarloaf Graphite Prospect
Project funding of ~ $1,100,000 has been approved for this R&D project, with 46% grant allocation from CRC-Projects and 54% to be funded by iTech Minerals and partners on an equal contribution basis
Just to finish off the update - a quick look at cash. Good news here too. $6.8M gives iTech some strength to weather a downturn without falling prey to raising money expensively. But more interesting is the $1.1M grant awarded to iTech (on a 54:46 contribution ratio between iTech and their partner) for R&D dedicated to unlocking Sugarloaf. That is one of those bullish details that stick out to me as an investor. Another great example of jurisdictional advantages. Always exciting to raise funding without shareholder dilution.
Conclusion
Subjective definitely, but I would argue at its current valuation (AUD $20.2M at $0.165 SP), iTech isn’t getting proper credit for any of its big 3 projects - Sugarloaf, Lacroma/Campoona, and Caralue Bluff. Hard, intentional, work appears to be paying off for iTech, with value-increasing developments announced regularly over the past while. And yet, ITM’s share price is languishing over this time period.
Which takes me back to my earlier point - I am not here to fret about the ups and downs of a market beyond my control or comprehension. I am here to use data and knowledge to build conviction that value, potential, and reward outweighs risk for my investment choices. And from that perspective, iTech continues to make a lot of sense to me.
-JRI