Money Talks: Pengana Capital’s James McDonald is high conviction on these two critical minerals processing innovators

Keen on critical minerals? Pengana’s James McDonald believes these companies with processing technologies have the right stuff.

IperionX and MTM Critical Metals have processing technologies that could deliver big rewards, a big fundie says. Pic: Getty Images

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Pengana Capital Group portfolio manager James McDonald on two ASX stocks with unique critical mineral processing technology that could deliver cash flow in the short-term.

While most resource investors focus on the exploration and development of metals and minerals, Pengana Capital Group's James McDonald-led High Conviction Equities Fund has steadily increased its holdings in critical minerals processing and mining to the point that they account for about 50% of its holdings.

“We were really attracted to the critical minerals sector and processing just because of all the geopolitical uncertainty in the world, it just seems like a very good place to be,” he told Stockhead.

Rather than following a theme as some funds are wont to do, each stock the High Conviction Equities Fund invests in is an individual idea that stands on its own merits.

And the two companies that McDonald spoke to us about have intriguing tales to tell indeed.

MTM Critical Metals (ASX:MTM)

A company with interesting critical minerals processing technology that Pengana’s High Conviction Equities Fund has invested in is MTM Critical Metals, which jointly the developed the Flash Joule Heating technology with Houston’s Rice University.

It uses an advanced electrothermal process to recover high-value metals while using less energy and reagents than traditional cracking and leaching, which relies on energy intensive high-temperature sulphuric acid baking and requires large volumes of water.

While recently developments have proved the FJH technology’s ability to process rare earths mineralisation, it is the potential to recover valuable metals gallium, germanium and indium from e-waste – as covered by its partnership with New York-headquartered Indium Corporation – that caught McDonald’s eye.

“They are hoping to have a pilot plant that can produce 1t per day of material by the end of the year which, when gallium is selling for $1m a tonne, that’s very significant,” he said.

This is significant given China’s ban on exports of gallium and germanium – used in the production of semiconductors – to the US.

“Once again, the US is desperate to reshore the product, though cost is probably secondary compared to IPX as there’s just an effort to get product at any price at this point,” McDonald added.

He also noted that while it is not yet known what MTM’s contract structure with Indium Corporation is like, he expects that even with substantial discounts it will still deliver very attractive numbers relative to MTM's market cap of circa $103m.

Along with Pengana, Jeremy Bond's Terra Capital is also on board as a major institutional backer of the emerging ASX small cap.

IperionX (ASX:IPX)

IperionX is easily the more advanced of the two companies, with significant progress made in its ambition to become a leading American titanium metal and critical materials company using its patented metal processing technologies to produce high performance alloys from raw minerals or scrap titanium.

This suite of technologies feature lower energy consumption, lower capital intensity, faster production cycles, higher yields and virtually no carbon emissions when compared to the traditional Kroll process.

That requires temperatures of up to 1900 degrees Celsius to process titanium minerals such as ilmenite and rutile into a titanium sponge that can be used to produce titanium metal products, a process that results in the loss of 85-95% of the titanium metal to oxidisation due to how readily titanium bonds with oxygen.

By contrast, IPX heats titanium scrap up to 600C, adds hydrogen and gets a powder that can be pressed into shapes that are very close to the end product customers are after. That this can be achieved with a loss of just 20-50% of the titanium is a further tick in its favour.

McDonald is very keen on the company, noting that the technology developed in the University of Utah has the very real ability to solve the US’ dependence on titanium metal imports.

“Currently, they (the US) are importing basically 100% of their titanium sponge from countries like Japan, who produce about 20% of titanium sponge globally,” he said.

“China and Russia account for about 70% of titanium sponge production globally, while Kazakhstan produces the remaining 10%. So there’s a really firm desire by the US government to make that change.”

He adds that besides reshoring titanium production in the US, the technology suite will make producing titanium metal much cheaper.

“So the first thing is to displace the existing competitors in the titanium market, which by the way is quite a small market, I think the sponge is about US$4bn, the end products are US$20bn in the US alone,” McDonald said.

“The margins will be fantastic because you will be able to produce products that are largely finished products, so it will be much more of an industrial company than it is a base materials producer.”

He points out that competitors in the space – such as US$10.5bn market cap Carpenter Technology Corp – are trading on 15x EBITDA.

“IPX’s long-term goal by 2030 (is) to produce 10,000tpa of titanium metal and Canaccord has estimated that will generate about US$1.2bn of EBITDA, and then you start talking about some of these peer multiples, that would be worth US$15-20bn on their multiples,” he explained.

“And 10,000t is only 10% of the US titanium market and only 2.5% of the global titanium market, so there’s just some enormous numbers that you can arrive at very quickly.”

McDonald also notes that the company has several customer relationships he hopes will be converted into paying contracts over the next year or two.

Further highlighting just how far IPX has come, it has a pilot plant running in Utah for several years and had in August 2024 tested the furnaces of its commercial-scale plant in Virginia.

“I really expect over the next 12 months that a lot of the focus will be on providing samples of materials to customers, who will want to test them and probably show those to their clients,” McDonald added.

“It is going to take a bit of time initially, but then no doubt they will focus on the highest value products initially. Then I think when we move in 2026, we will really start to see much bigger revenue growth and build from there.”

McDonald added that he had not seen a similar technology that also owns the whole supply chain, a point that would allow IPX to bring its own mineral sands production onstream to support its business when the supply of cheap titanium scrap runs out.

“There’s really not many examples of when a company has fundamentally shifted the cost structure of a metal.”

At Stockhead, we tell it like it is. While MTM Critical Metals is a Stockhead advertiser, it did not sponsor this article.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

Originally published as Money Talks: Pengana Capital’s James McDonald is high conviction on these two critical minerals processing innovators