IperionX (IPX) - Technical Analysis & Due Diligence

IperionX has the potential to lead the way for critical material extraction, processing, and recycling to create a first-of-its-kind closed loop, low-to-zero carbon, resource-efficient, and socially inclusive green metal economy. Titanium has the potential to be a key critical material that can be substituted for more widely used higher-carbon metals, particularly stainless steel and aluminum. It is a superior metal to stainless steel and aluminum due to its high strength-to-weight ratio and excellent corrosion resistance. The material is critical to the global aerospace, medical, space, and defense sectors.

Merlin-Marr Johnson caught up with Anastasios Arima, Co-Founder, and CEO, IperionX. Anastasios (Taso) Arima is a US-based resource executive with a strong history of identifying company-making resource projects in North America and Europe. He is currently the Managing Director and CEO of IperionX, a metals technology company focused on creating an All-American, sustainable, low-cost, low-carbon titanium supply chain. Prior to this, Mr. Arima founded Piedmont Lithium (NASDAQ: PLL) and was instrumental in securing the funding that enabled the company to grow into one of the most critical lithium chemical projects in the United States and ultimately list on the NASDAQ stock exchange. Mr. Arima was born in Greece and emigrated to Perth, Western Australia where he attended the University of Western Australia and studied Bachelor of Commerce and Bachelor of Engineering.

Company Overview

IperionX’s mission is to be a leading developer of US-based sustainable critical mineral and critical material supply chains to facilitate the global transition towards a closed-loop, low-to-zero carbon, resource-efficient, and socially inclusive green economy, that begins with titanium. The company aims to create a new, self-sustaining global supply chain that will enable manufacturers around the world to better incorporate scrap recycling and raw materials in a cleaner, resource-efficient, closed-loop system. This will enable the potential for longer product lifetimes and increase product reusability, which will help meet and exceed industry compliance standards while reducing carbon footprints. The company was founded in 2020 and is headquartered in Charlotte, North Carolina, the United States. It is listed on the Australian Stock Exchange (ASX: IPX) and the NASDAQ (NASDAQ: IPX).

IperionX is looking to build an all-American, sustainable, low-carbon circular source of titanium metal for use in a wide range of industries from automotive to defense. As per the company, the current market situation with inflation and interest rates is a reality. In the short term, over the next 6-12 months, the companies would need to see how the situation pans out. However, in the medium-to-long term, the tailwinds in the operating industries are expected to continue. The company is trying to hit on a few thematics that are not going away in the short term. This includes reassuring the critical material supply chains in America to ensure that they are tied to energy efficiency, electric vehicle batteries, and the electrification of everything. Titanium and other co-products will tie into the thematic. Titanium also ties in well with the national security thematic as it will be one of the key metals needed for the United States defense industry. Here, the company anticipates that the tailwinds will continue to exist even in the short-to-medium term.

In a rare instance, the US government is coming out and spending a lot on industries that are tied to the thematic. On 20th October 2022, the DoE (Department of Energy) and the White House announced $2.8Bn in grants. This is a large loan funding that is made available for projects tied to the electrification thematic. The $2.8Bn in grants have come into projects within the US that are tied to the manufacturing of batteries in the US for cathodes, anodes, and more.

Piedmont Lithium was granted a $145Bn grant. Notably, Piedmont Lithium was founded by IperionX’s CEO. The government still has tens of billions of dollars left for projects that focus on industries where IperionX seeks to become a major player. The shorter-term outlook is choppy due to the inflation and interest rates, however, over the short, medium, and long term, there is a lot of funding and focus on the types of markets in which the company operates.

IperionX is focused on producing low-carbon, sustainable, circular titanium that fits well into the thematic. Titanium is used for energy efficiency, weight reduction of objects, and product longevity due to its corrosion-resistant properties. It also plays into the clean manufacturing, electrification, sustainability, and circular economies which the company is moving towards. The company ticks a lot of thematics that American investors and large global investors are looking to gain exposure to. At the same time, the government is looking to fund these projects. The company has a very strong institutional shareholder base comprising top shareholders that have shown in these thematics.

Shareholder Register

IperionX was founded in 2020 as a private company. At the time, the company was self-funded through shareholders. The company’s Board had a few million dollars in cash flow to start looking at land acquisition in West Tennessee for its Titan project. It also started working with Dr. Fong to carry out due diligence around the technology. In December 2020, the company was backdoor-listed or RTO’ed (Reverse Take Over) into a publicly listed company on the ASX. During this time, the company was called Tower Commodities. It was listed a few years before with a gold project as an IPO (Initial Public Offering). Notably, it is typical in Australia to have publicly-listed companies which list smaller assets and then go out and look for projects or companies for a reverse takeover. The company had AUD$4M in cash flow at that point. IperionX carried out a reverse takeover and put its own money, amounting to AUD$2M on the back of the listing.

Tower Commodities represented 50% of the enlarged share capital. IperionX vended into Tower Commodities on a milestone basis. There are two milestones left that are based on the development of the Titan project. The company had secured the mineral rights for the Titan project, however, the technology rights were yet to be secured.

Currently, the company is taking the project through a PFS (Preliminary Feasibility Study) with a $200M NPV (Net Present Value), which will be followed by the first production at the Titan project. The company believes that the current time isn’t ideal to simply publish a resource. It is better suited to get reserves and enter production.

Ever since the project was first acquired, IperionX has had a lot of turnover in the shareholder register. A lot of shareholders bought at AUD$0.06c-AUD$9.07c. The IPO was carried out at $0.20c, but when the deal was closed, the share prices were around AUD$0.06c. There has been a lot of shareholder turnover in Australia leading the share price to peak at $1.40. Currently, the share prices are close to $0.80c, which is more than ten times higher. IperionX has a lot of shareholders that have historically supported it through significant buy-ins in other companies as well. When the stocks were trading at lower levels, some of the shareholders exited. Overall, the company has had a very strong shareholder base that features both smaller institutions and high-net-worth retail groups that have supported the company over the years by purchasing shares for the long term. The company is highly satisfied with its current shareholder base. In 2021, IperionX accelerated the development and secured the technology.

In early 2020, the company started building a strong advisory board by leveraging its network. It was focused on building a sustainable critical material company in the United States. Since this was before the Russia-Ukraine war, the company had a degree of foresight that there would be serious issues within the titanium supply chain. As it continued to build relationships, the company brought in highly-qualified and talented people, including Toby Symonds, Chief Strategy Officer, who has been instrumental in helping the company build a lot of relationships along with advisors.

The company is building a thematic that has piqued the interest of a lot of groups that are looking to gain exposure. It is also looking to communicate the project updates to the right people by leveraging its network and relationships. The company’s team was able to educate a range of investors, and by mid-2021, it was hitting a lot of milestones. This enabled the company to directly reach one of the major fund managers Fidelity Management and Research Company (FMR), based out of Boston. Toby Symonds was able to educate Fidelity and its team about IperionX’s strategic vision.

IperionX is building a sustainable titanium supply chain that includes ore in the ground all the way through to titanium metal, including circularity. Its vision isn’t typical of a mining company. It is an industrial disruptive technology company that has a mineral asset as a feedstock. The company is strongly focused on industry disruption. The company is looking to build a multi-billion dollar business in the future as it hits major milestones. Fidelity has invested in mineral assets along with the technology side of businesses. Fidelity is a very large fund that cornerstoned IperionX’s August 2021 financing at AUD$1.20. Notably, Fidelity came into the company as a 10% shareholder.

However, ever since the financing, the markets have continued to be choppy. Managers find it tough to be unaffected by the share price. But sometimes, the managers need to put aside the share price and focus on hitting milestones and building the business. Last month, the company looked at the market conditions and forecasted its position over the coming 6 months. Following this, it looked over the 6-month budget, leading to the prudent choice to raise additional capital. The additional funds have provided it with a much longer runway, placing it in a strong financial position.

The company raised an additional AUD$24M. Interestingly, the August 2021 placement also amounted to AUD$24M. Once again, Fidelity followed its money in. During this time, the company was also successful in securing some additional major investors, including Fidelity International. The company was able to bring in Fidelity’s fund manager who had previously invested in Piedmont Lithium. The company was able to secure them as a major shareholder. Fidelity currently holds 17% of IperionX.

The company also successfully secured B.Riley, one of the only remaining merchant banks in the US, which has a USD$2.5Bn arm. Through the company’s network, it was able to approach the fund manager and secured them as a cornerstone shareholder. Currently, 23% of the company’s ownership is held by three major institutions that will continue to support it over the short, medium, and long term.

Despite relatively low liquidity and no research analyst coverage, the company has an institutional register which is unlike a lot of companies that are much bigger in size. This serves as a testament to the company’s efforts, the thematic it is focused on and the team it has built. Retail shareholders should take comfort in the fact that the large groups have carried out extensive due diligence, acknowledging that IperionX is going to be transformational over the medium and longer term. As per the company, investors should ideally focus on companies that can make money in the long term.

Most of the fund managers write a minimum of $25M tickets for a company that has at least $500M in market cap. Based on its vision and story, IperionX is an exception where the fund managers see it becoming a multi-billion dollar company in the future.

Share Incentives

As part of vending the asset, the company’s co-founders received shares upfront and additional shares on reaching milestones. This arrangement is also made available for a few people on the company’s executive team. As it continues to add new team members, upfront share-based incentives are offered to attract outstanding individuals. Essentially, the share-based incentives are performance shares. Since the company has moved to operational targets, the operating team needs to meet set targets. The share-based payments for the CEO and some of the key executives are based on the share price.

The CEO’s incentive is 6M shares split equally over three trances, with $2, $3, and $4 hurdles in the share price. In comparison, most companies simply have 20% in layups. It is important to note that the share incentives were issued when the company was around AUD$0.40c. As the company hits milestones in the future, it is expected to have a lot more value and generate significant revenue. Interestingly, the majority of the company’s performance-based shares are structured in a similar fashion.

Board Members

Todd Hannigan, IperionX’s Executive Chairman has been active in the business and will continue to be involved in the medium term. Todd was instrumental in building one of the most successful coal development in Australia with Aston Resources. Back in 2009-2010, it was one of the largest coal IPOs in Australia. Todd was also involved in Piedmont Lithium as a major shareholder and a board member. At IperionX, Todd is heavily involved in the strategy and the company’s strategic direction. Most of the company’s team members other than Todd Hannigan and the company secretary are based in the United States.

As part of the non-executive board, the company has Vaughn Taylor and Melissa Waller on the team. Both members are focused on sustainability and technology from the investor side. Melissa is well-known among the ESG (Environmental, Social, and Governance) investing circles in America, where she is focused on advising pension funds on ESG strategies.

Vaugh Taylor has been focused on diversifying the Bennet Family away from iron ore and towards technology-related plays. He has invested in mining companies in the past, but his work has been largely focused on start-ups, with investing in the US and diversifying the family’s money away from mining into more technological-based investments, or forward-looking investments.

Lorraine Martin and Beverly Wyse come from the aerospace sector. Both members have had connections with the defense and the titanium sector, as Boeing and Lockheed Martin use a significant amount of titanium in their aircraft. Lorraine and Beverly have an in-depth understanding of titanium supply chains and advanced industrial operations. Both have past experience dealing with complex businesses and supply chains.

IperionX is looking to build a substantial business. It currently has a team of 30 people. In the future, the company could possibly have multiple manufacturing sites that serve a wide variety of customer bases. The company has already started to build a lot of defense industry connections. To achieve this, the company wanted directors that could help guide it in the right direction, helping build the right culture, processes, and mindset to become a major company that attracts the right talent and shareholder base over the long term. It is looking to bring in directors that have had broad experience in building or being part of businesses that the company aspires to emulate.

Targets 2022 and Beyond

IperionX is cognizant that a lot of the retail investors and the people participating in day trades are trying to look for comparators. It continues to have a lot of shares in Australia. Interestingly, the company trades a lot more with the general market when compared to the actual NASDAQ trades which are typically 10% above the Australian market even today. Here, a large portion of the company’s investors is ex-mining focused. Currently, the company has more industrial-focused investors, however, the situation is different as a result of choppy market conditions.

It is difficult for the market to put an accurate valuation on the company’s metals business. The company does not consider itself as a mineral sands play, but more as a developing industry company that will solve a key supply chain through the creation of a circular, sustainable titanium metal supply for the Western world.

IperionX compares itself to some of the most valuable stainless steel producers like Outokumpu and ThyssenKrupp. For integrated industrial companies in the US, the company is interested in Tronox and Chemours’ integrated approach. Chemours also has a very strong focus on sustainability. It is integrated somewhat into the company’s feedstock. Tronox is also heavily integrated with its feedstock, but it’s considered a titanium pigment company. The company is looking at these businesses as comparators over the long term.

IperionX is tackling a very large market that comprises titanium metal along with lightweight metals including aluminum, stainless steel, and ultra-high-strength steel. The company intends to target materials that are integrated into the industrial sector. Being a unique business, it’s tough to directly compare the company with its peers. Due to this, the company is focused on telling the story and executing its strategy. This entails building the technology business along with the Titan project. Over the last 12 months, the company has made significant strides in industrial technology. Currently, it has an operational titanium metal facility.

A few weeks back, the company announced that it is working to build a much larger facility in Virginia over the next 12 months. Along the journey, the company is signing up the right customers to demonstrate the ongoing operations. This will help educate the investors on the titanium end of the business over the longer term.

The Titan project is on the minerals side of the business. It is a standard and straightforward heavy metal sands operation with two standout attributes. Since the project is based in mid-Tennessee, it benefits from a well-built infrastructure, negating the need for a major investment in the infrastructure. According to the company, the Titan project is one of the best undeveloped heavy mineral sands deposits in the world. Secondly, the project has a substantial co-product of monazite and xenotime, both of which are rare-earth-containing minerals, adding a lot of value to the rare earth supply chain. These attributes make the Titan project a highly valuable asset.

Over the longer term, the company intends to focus on the titanium side of the business. At the same time, the company will continue to advance the Titan project because, in the longer term, it will serve as the company’s source of feedstock, or raw material supply chain, along with the technology that the company is actively building. In the shorter term, the company believes that a lot of value can be extracted by developing a light and heavy rare earth-containing project in the US that can help the electric vehicle supply chain. The company is looking to become a major source of rare earths for the US, especially dysprosium and terbium, both of which are heavy rare earth elements.

IperionX is looking to advance the Titan project. It intends to carry out a PFS and acquire permits. The company already has an MOU (Memorandum of Understanding) for an off-take, which it plans to progress into more substantial agreements. In the short term, over the next 6-12 months, there’s already a lot of interest in the asset from a joint venture and strategic investment perspective. People are looking to get involved with the asset as it's going to produce titanium and zircon minerals along with rare earth minerals that are in short supply, especially on the rare earth minerals side. There is a need for additional rare earths in the United States, particularly heavy rare earths to drive the electrification thematic forward. From a strategic investor angle, there’s a lot of potential opportunity to get involved and drive a lot of value forward at a project level.

The Titan project has an AUD$700M NPV. The company is de-risking the project so that some part of the NPV ultimately flows through into the company’s value. On the metal side of the business, the company has a fully-operational, small-scale pilot facility. The company is producing titanium mineral powders on a daily basis. As it continues to increase production, the company is engaging more with the partners that it is looking to secure. As part of the financing, the company announced that it is going to continue upgrading the pilot scale facilities. It has an excellent operational team that is driven by an exceptional senior personnel group, helping achieve notable milestones. The company is in a position to deliver titanium metal powders into the supply chain. It is already producing some of the products.

IperionX has announced a collaboration with Panerai, where the former is taking the titanium metal powders and using 3D printing technology to produce blank watch cases. The blank watch case is taken by the OEM (Original Equipment Manufacturer) and is machined into its final form. The watch case has a little bit of extra titanium on top of it, which is machined down into a watch. Panerai’s watches start at $10,000-$12,000 a piece, and the company produces about 60,000 watches on a yearly basis. Panerai is a part of the Richemont Group, which also owns Cartier and RWC. The Group produces in excess of 600,000-700,000 watchers yearly for the luxury market. Interestingly, the Geneva or the Swiss luxury watch market amounts to millions of watches each year. IperionX has a very high-margin product. Panerai is an excellent partner to start with. Since it’s largely a consumer-facing business, the company is looking at lower costs and a sustainable supply.

RWC makes mechanical watches that are sustainable and have a good surface finish. According to IperionX, if the material is good enough for a luxury watch, it should be good enough for a myriad of other applications including smartwatches, smartphones, and other consumer electronics. This collaboration is expected to help the company break into a lot of other products. A large number of consumer electronics made today are made from stainless steel, aluminum, and titanium. The Apple Watch Ultra is made from titanium.

IperionX is looking to become the only company in the world that is working on producing titanium with 100% recycled material or net zero carbon. This enables it to demonstrate to the investors that the company can break into the market. The company is increasing the scale of production alongside the production of watch blanks. It is currently delivering watch blanks to Panerai.

The company will continue to generate relatively small revenue until its new facility is up and running. This shows that people are paying for a high-quality product that is recycled, sustainable and American-made.  A lot of companies might have a good-looking product, but struggles when it comes to sales. The company is building relationships while showcasing a fully-operational commercial-scale facility that produces 125t titanium per annum. It would be one of the largest titanium metal powder facilities in the world. The company is currently focused on selling the product and securing products ahead of time.

In the next 6-9 months, the company expects to have a larger facility that will be operational by this time next year. In the meantime, it continues to add new customers. Interestingly, it took over 6 months of testing and work to sign on Panerai. The latter had some milestones that it wanted to meet early next year for the titanium. This pushed Panerai to sign a deal earlier. IperionX is working in the automotive sector, the consumer electronics sector, and the defense sector to bring in additional customers. Due to limited production power and human resources, it is not possible for the company to cater to every customer.

IperionX is working with some very big-name companies. Richemont is one of the biggest names in the luxury market. Signing additional big-name companies would serve as a huge approval for the company. It is currently in the process of supplying prototypes to multiple industries. The company is supplying powder that is being made into tensile bars, and it is also carrying out mechanical testing across a range of industries. Over the next 6-12 months, the company intends to sign new customers and deliver products as soon as possible. As the company gets its larger facilities up and running, it plans to sell titanium to its’ customers.

Cash Position

When IperionX announced Virginia as the project site, it released some extensive details in the appendices. The project is an AUD$20M build, out of which AUD$4.5M will be coming from the state of Virginia and the local development association, the latter was actually responsible for constructing the shell building. The building is currently going through an upfit and will be released to IperionX upon completion. The upfit process includes a lot of electrical work along with extensive HVA (Heating, Ventilation, and Air conditioning) work. The company has a considerable contingency in the build. For the remaining AUD$15M, $10M accounts for equipment, a lot of which is movable in nature, unlike a mineral operation. The equipment comprises furnaces, crushes, leaching equipment, and more that can easily be moved and sold, making it easy to finance. The operating equipment can also be acquired through leasing. The remaining AUD$5M would be commissioned as working capital for the building.

The facility is a 125t per annum production capacity. The company is currently looking at about AUD$120/kg with a 50% contingency to manufacture titanium spherical powders. As the company scales up operations, it expects to bring down production costs significantly.

Currently, titanium metal powders sell for anywhere between AUD$250/kg-AUD$300/kg, which leads to very healthy margins. The company anticipates that the project can be easily financed. It is currently in a strong financial position to drive the facility forward. It has had a lot of interest from partners, some of which have specific manufacturing funds to help scale up the supply chain. There is a range of customers and government programs out there that can easily fund the project, especially since the project is targeted toward sustainable production, clean manufacturing, and defense-oriented products in the future.

IperionX’s current cash flow is sufficient to take it through to the end of next year. In a case where the company is successful in securing a good financial package around equipment, it will be a position to build the project. The company is looking to retain its strong financial position. To achieve this, the company intends to attain the right financial package along with the right customers. In the case of equipment financing, the company might not need to raise additional capital as it can acquire funds through government grants or customer pre-payments. The company is already putting down the deposit to buy some of the equipment. Interestingly, one piece of the equipment was about AUD$1.7M of the AUD$20M build, which the company bought second-hand for around AUD$150,000. The company is highly conservative when it comes to the cost of the build.

To find out more, go to the IperionX website