iTech Minerals, pt. 1: Forward-looking Exploration, Great Location, Effective Leadership
"A primer on why iTech (ITM.AX) and its Lacroma graphite project is poised for success." or "Don’t waste time on projects with sketchy above-ground qualities."
tl;dr:
iTech Minerals is a smartly-run company exploring and developing their Lacroma graphite project in mining-friendly South Australia. Characteristics critical to high-value commercial applications have been demonstrated with their graphite. Clear, short, pathway to commercial production. No credit in the market yet given for a legitimate new discovery.
(Note that iTech is an Aussie-listed company. If you don’t have an international brokerage account you need to get one. I have found IBKR to be great as a Canadian.)
(You can watch my introductory episode to iTech this past winter by clicking here. I also previously produced an analyst report for ITM back in March. That report can be accessed by clicking here.)
Investing in resource exploration is in many ways a science experiment, just like the literal science experiment that is resource exploration itself. Consider: You have a predicted/desired outcome (profit) and a wide variety of variables – both known and unknown – with which to identify, contend, and control as you can. Grade, tons, recovery, marketing, financing, leadership, permitting, jurisdiction, demand, supply, feasibility, community support, government support… the list of variables to consider could keep going, seemingly forever.
Your goal, then, as an investor is always to minimise these variables as much as possible on your path to achieving a successful experiment. What do you know? What don’t you know? What do you need to know? What can’t you know? Every data point narrows the band of probabilities for potential outcomes for your project. For me, the goal of my investment process is to control for whatever variables that I can, and, having passed that test, to leave what I can’t control in the hands of a skilled team I trust.
Because, really, the geology is literally everything to these companies. It is where wealth is created – and destroyed. And, naturally, it is the geological side of investing in junior explorers that is most rife with uncertainty and unknown or uncontrollable variables. Indeed, that’s the name of the whole game – is that drill campaign going to uncover an elephant, or moose pasture?
What this means for me is that as a general rule I try very hard to minimise all other variables that might negatively impact a companies’ ability to actually meaningfully explore and develop their projects. Things like 1. jurisdiction and permitting, 2. management knowledge and action, and 3. financings and cash are all examples for me of variables that should absolutely never have a negative impact on a company’s exploration efforts, and are unnecessary dampeners if they ever do. Again, resource exploration is too risky as-is to let outside influences impede the actual work. So for me, I am extremely hesitant to buy into any company where those above 3 aren’t rock solid. To put it blithely, trust the country, trust the company, trust the cash.
And iTech Minerals fits all three perfectly.
1. Jurisdictionally, South Australia is one of the friendliest locations on the planet to mining. Clear government support, high-success permitting, no serious land ownership controversy, friendly tax regime. South Australia wants mines to succeed, full stop. Cleverly, iTech has multiple projects located within SA including its flagship. There really isn’t much else to say on this. Any research quickly shows the many advantages of SA. So that’s one key variable neutralised.
2. Leadership is strong. Managing Director Michael Schwarz is a geologist by trade and knows his craft well. This is of course important in any resource company, but graphite especially. Graphite is a complex mineral to understand and commercially exploit, with a wide range of the geological compositions that directly impact the commercial application of the graphite, all built around an opaque and fractured international pricing regime. Mike has a plan for all of this.
Mike’s strategy is impressive – his company has acquired a wide array of projects in these stable jurisdictions all focused on minerals needed for the future. Assuming his Lacroma graphite project is developed into, knock on wood, a producing mine, it will be entering production just as demand for graphite hockey sticks up in demand due to the green revolution.
In addition to this, Mike is also just a forthcoming and honest MD who works hard – qualities that are evident when speaking with him. I don’t say this lightly, especially in this industry where it is so easy for management to omit and obfuscate: I trust him. If ITM’s projects do not pan out, I am confident it will be a failure of the geology, not of management. So there’s variable #2.
3. And on the final topic of cash and financings: It is a testament to what I have spoken of so far (and I haven’t even gotten to the geological prospects themselves yet, mind you) that ITM does not struggle to raise cash, and they spend their cash wisely. Most of their money goes into the ground, exploration is cheap (shallow RC drills), and the market has shown a lot of appetite for participating in financings, with healthy-sized, rapidly closed, oversubscribed financings the norm since IPO. Dilution is a necessary evil of this industry – knowing that the company you are invested in 1. Uses your money responsibly, and 2. Doesn’t struggle to raise funds. The market clearly still trusts iTech with its money. And that takes care of variable #3.
Now, astute readers (namely, you) will notice I haven’t even gotten to the geology yet, and the reasons why I find iTech’s Lacroma graphite project (and its Lacroma, Sugarloaf, and Campoona targets) in particular exciting. Because there are quite a few. But I am going to put a pin in it here and return next week for a part 2 where I discuss Lacroma, graphite, and the last few months of iTech updates, as news has been plentiful and positive for them as of late.
With that, I say thanks, and enjoy another summer weekend!