TMRC Hosts Largest Known Gallium Deposit, Offers Huge Upside

9 авг. 2023 г.

Texas Mineral Resources Corp.’s primary focus is to develop and commercialize, along with its joint venture operating partner USA Rare Earth LLC, the Round Top heavy-rare earth, technology metals, and industrial minerals project located in Texas, in which TMRC owns an approximate 20% interest and USA Rare Earth owns an approximate 80% interest. Additionally, the company is exploring for silver in New Mexico.

The 2019 preliminary economic assessment (PEA) on Round Top was very encouraging with a pre-tax NPV of $1.5 billion and IRR of 79%. With a 20% interest, TMRC’s ownership of this NPV is approximately $300 million, yet they have a market cap of just $68 million. An IRR anywhere above 20% is typically considered good in the mining industry, so this IRR of 79% is outstanding. The mine life is 20 years based on just 14% of the existing mineral resource estimate.

What I find particularly interesting about TMRC at the current time is that Round Top hosts the largest known gallium deposit in the United States at 36,500 metric tons.

What is gallium you might ask?

Gallium is a rare mineral that only occurs in trace amounts as a by-product of mining and processing other metals, such as aluminum, zinc, and copper. Gallium arsenide has a similar structure to silicon and is a useful silicon substitute for the electronics industry. It is an important component of many semiconductors. It is also used in red LEDs (light emitting diodes) because of its ability to convert electricity to light. Solar panels on the Mars Exploration Rover contained gallium arsenide. Gallium nitride is also a semiconductor. It has particular properties that make it very versatile. It has important uses in Blu-ray technology, mobile phones, blue and green LEDs and pressure sensors for touch switches. Gallium readily alloys with most metals. It is particularly used in low-melting alloys. It has a high boiling point, which makes it ideal for recording temperatures that would vaporize a standard thermometer. Gallium is on a short list of critical minerals published in the Federal Register.

China, the world’s top supplier of the two minor metals used to make semiconductors, announced restrictions on the exports of eight gallium and six germanium products in early July, citing national security reasons. This is a decision that many consider a retaliation for restrictions imposed on the Chinese semiconductor sector by the U.S., Japan, and the Netherlands in recent quarters. China’s export controls on gallium and germanium kicked in last week, with traders braced for a drop in international supply in August and September. Stockpiles outside China, which could last for two to three months, will need to be tapped while traders await Beijing’s export permit approvals.

Gallium is the more important of these two metals in my view, as the U.S. and western governments have stockpiles of germanium but not gallium. Offer prices for gallium ingot at Rotterdam jumped 43.4% to $370 per kg last week, against $258 per kg in late June.

Again, TMRC’s Round Top project is estimated to have the largest known deposit of gallium in the U.S. Round Top has around 20 different rare earth metals, with a favorable composition toward the more valuable heavy rare earth metals such as Dysprosium, Lutetium, Terbium, Neodymium, etc. Round Top also contains lithium, uranium, and several industrial minerals. This deposit has key minerals that are used in several vital applications including Defense, Consumer Technology & Green Energy. With geopolitical tensions and economic warfare heating up between the U.S. and China/Russia, it is more important than ever that the U.S. secures domestic supplies of these metals. This is why I think the value of the Round Top project will increase dramatically and the government may even step in with grants and other incentives to move the project toward production.

TMRC has also signed a mineral exploration and option agreement with Santa Fe Gold with an initial target silver property within the Black Hawk Mining District in New Mexico. The geology is generally characterized by narrow ultra-high grade silver veins. A bankable feasibility study is to be conducted in measured phases and TMRC has established a new Standard Silver subsidiary to hold these project assets. During July they reported the successful completion of a geophysical investigation using multiple variations of EM (electro-magnetic) geophysical surveying within the Black Hawk mining district, Grant County, New Mexico. They identified 16 potential drill targets. While this is still early stage exploration of historic mining areas, it nonetheless gives investors some exposure to silver, in addition to the rare earths at Round Top.

Lastly, the company’s management/board owns an estimated 20% of outstanding shares. aligning their interests with those of shareholders.

The project has been in the PEA phase for over 3 years now with no signs of progressing toward development. TMRC seems to be focusing on silver exploration in New Mexico and their partner seems focused on a rare earth metal and sintered neo-magnet plant in Oklahoma. This facility could have significant synergies with Round Top, but they don’t seem to be deploying capital toward Round Top itself. Another risk is that TMRC has very little cash on hand, which means shareholder dilution could be incoming. Yet a recent press release suggests they might reduce their equity position in Round Top in exchange for cash, rather than diluting shareholders.

The upshot for TMRC and shareholders would be government funding or a takeover or partnership with a larger mining company such as MP Materials. The financials look compelling and securing supplies of gallium are going to be of critical strategic importance with China banning exports. Insiders have bought shares in the open market recently, although a small amount, and former Secretary of State Mike Pompeo has joined partner company USA Rare Earths. It is rumored that USA Rare Earth has been working diligently to complete the preliminary feasibility study (PFS). It seems likely that there is now increased interest in moving this project forward one way or another. It is a risky investment, but could also generate significant returns for investors willing to take a position while the share price is so low.

The share price for TMRC had a similar move to TMC, but less dramatic, over the past month. The share price bounced from $0.75 cents to over $1.00 in May and then bounced again from $0.80 cents to a brief high near $1.40 in July. Those were moves of 35% and 75% in just a few days. The price has since dropped back to $0.91 and could be offering an attractive entry price for investors that believe Round Top will move forward in the near future.