Shares Held at Open: 5,472,728
What does TMZ do?
Thompson Resources (ASX:TMZ) is exploring and developing Australia’s highest grade undeveloped silver asset by combining a number of previously uneconomic projects into a much larger project with a central processing hub.
What is the macro theme?
Silver is both a precious metal and an industrial metal - it typically trails the gold price, is a hedge against inflation and also a key component in the photovoltaic cells in solar panels.
Our Big Bet for TMZ
TMZ becomes a silver producer by first proving up a large enough silver equivalent resource base that makes its "hub and spoke" development strategy feasible and then by feeding these resources through its centralised processing facility.
Why did we invest in TMZ?
Highest grade undeveloped silver asset in Australia
TMZ spent much of 2021 in ‘quiet execution mode.’ They’ve spent a lot of time getting the metallurgy work done, necessary to produce an economic project. Should the silver price make a big move upwards the economics of the project would improve increasing the likelihood of production.
Trading at a discount relative to ASX-listed silver peers
As of October 2021, had a EV/Resource Ounce of 54 cents compared to the two other silver focussed ASX-listed peers, which came in at 85 cents and $1.19. For us, this means that pound for silver pound, TMZ could be due for an outsized re-rate if the silver price and development factors click into place.
TMZ’s approach to their work is detailed and meticulous. TMZ’s team has decades of mining experience and we think this will aid their strategy of combining multiple different resources into a cohesive whole.
What do we expect TMZ to deliver?
Objective #1: Combine multiple deposits’ Mineral Resource Estimates to Hit 100 Moz AgEq (silver equivalent)
This is the threshold which TMZ believes it needs to hit in order to validate the project as economic. These Mineral Resource Estimates take into account all the latest data, and update the resources to the latest JORC standards. Given TMZ has multiple deposits, TMZ is in the process of updating its Mineral Resource Estimates which should help TMZ reach this threshold.
Objective #2: Complete metallurgical work
A core component of the project is understanding how to process the silver. Metallurgical work is needed to establish recovery rates at TMZ’s collection of deposits - and higher rates of recovery mean it is cheaper to pull the silver out of the ground and turn it into a finished product. We think success on the metallurgical front could unlock TMZ’s potential.
Objective #3: Move to Scoping Study/Pre-Feasibility stage
Metallurgical success may accelerate the Scoping Study and Pre-Feasibility work. The Scoping Study and Pre-Feasibility work is important for attracting institutional investors and giving the market greater confidence that the project is viable.
Silver price takes a major hit, hurting the TMZ share price. A lower silver price hurts the chance that TMZ goes into production.
Metallurgy work fails to find the right way to process TMZ’s resources, and they prove uneconomic.
Margins for success may be thin based on TMZ’s ability to secure funding. TMZ completed an institutional placement of ~$4.8M in October 2021 and subsequently secured $5M via an Equity Funding Facility which allows them to issue new shares in exchange for the ability to pull down more money as needed. TMZ’s access to funding hinges on investor sentiment towards silver, broader market sentiment towards small-caps and factors inherent to TMZ’s development progress.
What is our investment plan?
We have been holding TMZ since December 2020, our entry prices for TMZ are 8.8c and 10c
We still hold 87.7% of our total position in TMZ.
We will hold a position in TMZ to see them get into production around 2023. If objectives in this memo are achieved and the share price re-rates accordingly we will look to take some profit and de-risk our position by selling about 20% of our holding.
Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 5,472,728 TMZ shares and 112,500 TMZ options at the time of writing this memo. S3 Consortium Pty Ltd has been engaged by TMZ to share our commentary on the progress of our investment in TMZ over time.