US Defence Validates IperionX Potential

This story features IPERIONX LIMITED. For more info SHARE ANALYSIS: IPX

The company is included in ASX300 and ALL-ORDS

IperionX has won a significant contract with the US Department of Defence, providing a beachhead into aerospace, oil & gas, and industrial markets. 

-IperionX lands significant US Dept of Defence contract
-Win validates the company’s technology, offers further upside
-Bell Potter envisages titanium supply chain disruption

By Mark Woodruff 

Investors may wonder what titanium and critical materials producer IperionX ((IPX)), market cap $1.36bn, has in common with Nasdaq-listed Palantir Technologies (US$324bn) and private defence technology heavyweight Anduril Industries (not listed, but estimated value US$30.5bn)?

Broker Petra Capital explains IperionX is treading the same pathway adopted by both international heavyweights, using small business innovation research (SBIR) phase III contracts to scale into multi-billion-dollar federal vendors.

For a pre-revenue materials company like IperionX, the analyst highlights winning a SBIR contract with the US Department of Defence (DoD) is an exceptionally rare and strategic milestone.

IperionX CEO Anastasios Arima stated “securing this first US Army task order (for US$1.3m) is a decisive step towards reshoring the nation’s titanium supply chain. It marks the beginning of a long-term partnership with the Department of Defence that will deliver mission critical titanium parts and strengthen America’s advanced-materials leadership. We look forward to rapidly scaling additional task orders under our US$99m contract“.

This contract compares with the company’s previous largest contract with Ford Motor Company at around US$11m for the supply of manufactured metal components, announced in September last year.

Building on prior announcements

Back in April this year, management announced a definitive feasibility study (DFS) was underway for the Titan Critical Minerals Project in Tennessee, the largest US mineral resource of titanium, zircon, and rare earth mineral sands.

This DFS is seen as a major step towards developing a fully integrated, mineral-to-metal US titanium supply chain.

Part funding for the DFS is via IperionX’s US Government award to re-shore such a supply chain. This brings total government funding to over US$60m.

At the time, management noted the Virginian Titanium Production Facility was on track for successful ramp-up through 2025.

The company is establishing this facility in Halifax County, Virginia, to scale its production of recycled titanium products.

The facility will be the first in the US to produce titanium metal powder entirely from recycled scrap, supporting a low-carbon circular supply chain.

When announcing US$47.1m in funding by the DoD in February, Arima noted “IperionX’s technologies, combined with the Titan project, offer a pathway for a resilient end-to-end supply chain“.

More on SBIR Phase III

Canaccord Genuity explains SBIR Phase III is a congressionally approved funding program under the industrial policy base aimed at supporting commercialisation of new technologies.

In effect, the company has entered the DoD supply chain and any US DoD agency can now directly contact IperionX with no requirement for financing approval.

Management expects initial supply projects to commence in the coming months, likely focussed on titanium fasteners, with scope to expand into higher-value aerospace components and other forged products.

The companys proprietary Hydrogen Assisted Metallothermic Reduction (HAMR) and Hydrogen Sintering and Phase Transformation (HSPT) technologies are used to recycle scrap titanium into products capable of use in military applications.

Canaccord suggests the five-year sole-source contract for titanium fasteners for ground vehicle and weapons platforms validates the company’s technology at scale.

Bell Potter notes the Phase III designation signals IperionX’s technologies are ready to move beyond research and development into commercial-scale production, and that the company is equipped to supply components for US defence programs.

Crucially, it secures a major customer to underpin the manufacturing ramp-up at the company’s Virginia facility, while also serving as a proof point to attract future customers and funding partners.

Petra Capital believes the contract positions IperionX as a dependable supplier, enabling the receipt of product orders from DoD agencies for up to US$99m, with terms including indefinite delivery and quantity, and may be terminated in whole or in part at any time.

Titanium fasteners are used extensively in modern defence platforms, including armoured vehicles, submarines, and fighter jets.

More importantly, Petra Capital believes the contract win provides a beachhead into aerospace, oil & gas, and industrial markets. 

Gaining sole source eligibility allows any federal agency to issue production contracts without additional tender or justification, explains the broker. It also enables IperionX to sell directly to other agencies, including the Navy, Air Force, and NASA, using the same sole-source framework, with no requirement for competitive re-bid. 

Titanium Supply Chain Disruption

Initial manufacturing and supply into the contract are expected to commence in the coming months, explains Bell Potter. This will include titanium fasteners, though may encompass additional product forms including higher-value aerospace components.

The broker believes IperionX has the potential to disrupt the traditional titanium supply chain by significantly reducing production costs and minimising manufacturing waste.

The analysts expect production to ramp-up through 2025, positioning the company to advance commercial relationships with a range of high-profile aerospace, automotive, luxury goods and government customers.

Given a focus on domestic manufacturing and aerospace/defence-linked markets, IperionX is also expected to benefit from increased US trade barriers.

Outlook

Management at IperionX recently noted eight commercial partners were engaged on pilot-scale production and qualification programs, highlights Bell Potter, and the company has several outstanding funding applications and processes currently underway with US government-backed agencies.

At the same time, the company’s R&D team is actively assessing more automated and continuous processing technologies.

Certainly, Canaccord continues to see a strong buying opportunity for IperionX shares, noting supportive US Government policies (including the tariff tailwind), potential for additional supply contracts through 2025, and significant valuation upside potential.

Canaccord and Petra Capital have Buy ratings for IperionX. Bell Potter has a Speculative Buy.

Following the SBIR contract win, Petra Capital raised its target to $8.21 from $6.95 and Bell Potter went to $6.25 from $5.90, while Canaccord remained at $6.65.

Even after a strong share price rally following the news, the shares closed at $4.62 yesterday, still well below those price targets.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms