Neometals: Making Investors Money in a Smarter Way? (Flashback to February)

Neometals Ltd.
  • ASX: NMT
  • Shares Outstanding: 545M
  • Share price: A$0.16 (29.07.2020)
  • Market Cap: A$85M

We recently released an article regarding one of our favourite stories: Neometals, an ASX-listed Australian-based mineral/material development company. They utilise a patented, seemingly unrivalled hydrometallurgical process to recycle Li-ion batteries for a cheaper price with a higher quantity of recovered metals. In that article, we broke down their process and what it means for investors.

However, today we’re looking at Neometals from a slightly different angle. We love green stories, especially ones related to the EV revolution, a topic Neometals has been trying to utilise. Green investment is very topical right now, and investors are finding the combination of ethical benefits and the long-term potential for exponential growth a very tempting proposition.

Matthew Gordon talks to Paul Wallwork, March 2020


There are two other significant themes at play in relation to Neometals, and both are demonstrated by the second project on their list: the Barrambie Titanium And Vanadium Project (Barrambie), which Neometals has 100% ownership of. Let’s first explore the project and then delve into the duo of themes that makes Neometals such an attractive investment package to us.

Barrambie Titanium and Vanadium Project

Neometals’ General Manager, Paul Wallwork, sat down with us recently for an interview about the project. Barrambie is the world’s second-highest grade hard-rock titanium (TiO2) resource/highest grade undeveloped TiO2 resource (53.6Mt at 21.17% TiO2 and 0.63% V2O5) and high-grade vanadium resource (64.9Mt at 0.82% V2O5 and 16.9% TiO2), according to Neometals’ 2018 Mineral Resource Estimate. Some mining commentators regard the resource as world-class, TiO2, which is believed to be the highest grade undeveloped TiO2 resource in the world.

It is located approximately 80km Northwest of Sandstone in Western Australia and is one of the largest vanadiferous-titanomagnetite (VTM) resources globally, 280.1Mt at 9.18% TiO2 and 0.44% V2O5.

Titanium & Vanadium: A Match Made in Heaven?

So, titanium and vanadium? Wallwork was keen to start by talking about titanium: the primary target and focus of the operation. Titanium is found in nature as titanium dioxide; the most common mineral it is found within is ilmenite. When we hear titanium, most of us think of exotic supercars and fighter jets. However, the titanium metal industry only accounts for around 5% of consumption. 90% of titanium dioxide supply is turned into a pigment, titanium white. It is used in paints, protective coatings, plastics, etc. Demand is strong if unremarkable; although it doesn’t quite match the excitement surrounding battery metals, the titanium macro story is still one investors should be paying close attention to.

Titanium supply is ubiquitous. There are many big players in the market, including Rio Tinto, Iluka Resources and Kenmare Resources. Then there are titanium pigment producers like Tronox. With such plentiful levels of supply, and so much competition, we were worrying this project might not have the excitement factor investors crave. However, Wallwork gave us plenty of evidence on the contrary.

Here is a Short List:

  1. Barrambie has been granted a mining permit.
  2. A total of AU$30M had been spent on exploration and evaluation at the site, courtesy of Neometals. All infrastructure and planning appears to be in place.
  3. As previously mentioned, Barrambie seems to have the scale and grade that investors are looking for. The ore body is forecasted to produce 9,235t of FeV80 and 6,337t of V2O5 a year, with an average plant feed rate of 2.66Mtpa.
  4. Many projects fall down because of a small life-of-mine, which leads to regular managerial movements as individuals try to jump ship at the optimal time and serve their own best interests. Barrambie will not have this problem; an estimated mine life of 15 years will see to that.
  5. The mining jurisdiction that Barrambie occupies, Western Australia, is regarded as a safe, stable mining region. This is becoming increasingly rare; many companies we have recently interview have been affected by geopolitical issues, such as the terrorism crisis in the Sahel.

Let’s Focus on the Vanadium for a Second

During our discussion about the ore body, Wallwork explained the potential for “co-product credits” in titanium mining. One of the most valuable elements found in titanium sand deposits is zirconium. While the secondary product in Barambie’s ore body doesn’t have quite as obscure a name, it could still be regarded as promising: vanadium is a “valuable metal” with uses in the steel industry.

After we have taken all of these factors into account, the Barambie project looks strong, but this is just on paper. If we are going to judge Neometals on share price performance, as any investor should, there is still lots of work to be done. Throughout our interviews with members of the management team, we have always had total faith in their competence and ability to deliver on ambitious projects. In addition, the projects themselves are always unique and look well planned. Investors will now be hoping Neometals can convert these robust foundations into strong market performance. In our opinion, they simply need to tell the story to the market in a louder, better way; this is the only thing letting them down right now. It’s a great story, so tell it!

In the last few years, Neometals has undertaken a systematic programme of test work and pilot plant trials to determine the preferred beneficiation and metallurgical extraction pathways for the recovery of titanium and vanadium from Barrambie. This work has focussed on the recovery of vanadium from the ‘Central Bands’ of the deposit, which contains a high-grade, and the recovery of titanium from the ‘Eastern Band’, which is also high-grade.

The latest pilot plant trials have demonstrated the technical feasibility of recovering a high value TiO2 product (titanium hydrolysate) from Barrambie Eastern Band ore. These trials follow a great deal of previous technical feasibility work, such as the production of an Fe/V/Ti concentrate, an Fe/V concentrate and a Ti concentrate.

The Two Important Themes

Returning to our earlier statement, we’d like to share the two impressive aspects of the Barambie project and how they relate to Neometals as a whole.

Cookie Cutting

During our due diligence of mining companies, a recurrent theme has become noticeable. The best companies deduce a profitable business model, then simply repeat it for a different asset, often with similar mineralogy and metallurgy.

The truth of the matter is that companies who leap from commodity to commodity, from asset to asset and from business plan to business plan are doing one thing and one thing only: they are gambling your money. While this might have the potential for huge shareholder returns, it is effectively a roulette wheel, with companies making decisions based on hope rather than logic and research.

There is absolutely nothing boring about stable, predictable growth. Investors should heed this advice when opting for much riskier ventures with greater potential. The house always wins.

Another one of our favourite stories of 2019, Serabi Gold, has recently announced a debt refinancing package, that will allow them to replicate their success at the Palito Gold Mine at the Corringa Gold Mine. We also recently interviewed Salazar Resources, and they follow a strategy of repetition too: using their own finances to take assets to a certain stage, before entering into a farmout agreement. Companies who operate a rinse and repeat strategy usually do it for one reason: why change a successful formula? Companies who are constantly chopping and changing things give a different, often desperate impression.  

With every project it develops, Neometals is building up strong reputation. It doesn’t seem to touch a project unless it is going to be a success, and this is an encouraging sign. However, it really is time for the team to get the word out to the market, because investors won’t be patient forever.

Financing

The real magic of the Barrambie Titanium And Vanadium Project is in its financing. Towards the end of October 2019, Neometals signed an MoU with the Institute of Multipurpose Utilisation of Mineral Resources Chinese Academy of Geological Sciences (IMUMR) to jointly develop Barrambie on the pathway to a potential 50/50 JV. The fact this strategic partner is based in China, the world’s largest market for vanadium and titanium, is particularly impressive. Financing this project would be beyond Neometals’ own financial means, but once again, Neometals as concocted a deal that gets shareholders exposure to the most exciting project at a reduced CAPEX. Neometals will now attempt to capitalise on the emerging deficit of titanium feedstocks by finding the optimal development pathway.

Neometals seems to keep pulling off deals like this, having already agreed a similar MoU with German firm SMS Group to jointly fund and evaluate research on its lithium-ion battery recycling technology, which a contributor recently wrote an article about. Investors will hope to see this trend continue.

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Neometals repeatedly maximises the returns for shareholders while minimising CAPEX. This brutally efficient management is commendable. Neometals gives shareholders access to exciting projects and then gets other companies to, in part, foot the bill. The company expects to spend AU$3M on getting Barrambie into production, but this could lead to a return similar to the levels seen from MinRes’ AU$103.8 acquisition of Neometals’ stake in the Mt Marion Lithium Project: c.AU$45M. There should be a meaningful announcement on Barambie this quarter.

Neometals is currently valued at c.AU$100.74M, despite having c.AU$100M of cash on the books. The markets values both Neometals’ battery recycling project and the Barrambie project at AU$0. We feel this is a serious underestimation. Unless there is a hidden reason for this low valuation, we are somewhat baffled. As previously mentioned, the only reason we can see is a poor marketing strategy. If Neometals really wants to give shareholders the sort of returns they crave, they have to get this story out there sooner rather than later. We wait with bated breath to see how this plays out, and how these projects develop. Will they pan out as Mt Marion-esque successes or not? As is always the case in mining, only time will tell. Watch this space.

Company Website: https://www.neometals.com.au/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

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