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Date : 29/12/2022

Dreadnought Resources



Market Cap : $295.63 Million


52 Week Range : $0.032 - $0.155

Share Price : $0.097

Developments continue and DRE is making good progress on its activities. We retain a 'Buy'.

Company Analysis

Dreadnought Resources (ASX: DRE) explores a range of mineral resources across its three projects in Western Australia.

Kimberly Ni-Cu-Au Projects: Dreadnought controls the second largest land holding in the West Kimberly region of WA. The main project area, Tarraji-Yampi, is located only 85 km from the town of Derby in the north of WA. Exploration results in the project area to date indicate that there may be a related, large-scale, Proterozoic Cu-Au-Ag-Bi-Sb-Co system at Tarraji-Yampi, similar to Cloncurry/Mt Isa in Queensland and Tennant Creek in Northern Territory. Cloncurry and Mt Isa regions in Queensland are homes to world-class copper and zinc deposits with production from the area since 1931.

Central Yilgarn Au-Iron ore-Ni-Cu-Li projects: The Central Yilgarn Projects are located 190 km from Kalgoorlie in WA with a long history of iron ore mining and some gold discoveries in the region, which has made the project area well-situated in relation to existing road and rail infrastructure, connecting it to a number of export ports.

Mangaroon Ni-Cu-PGE-REE-Au projects: The Mangaroon REE (Rare Earth Elements) project is Dreadnought’s flagship project, and the company’s outstanding share price performance in the recent months is owed to pleasant REE discoveries in this region.

The Mangaroon Project covers an area of approximately 4,900 square km located 250 km southeast of Exmouth in the vastly underexplored Gascoyne Region of WA. Part of the project targets Ni-Cu-PGE (Platnum Group Elements) and is subject to a joint venture with First Quantum Minerals (earning up to 70%).

The other part of the Mangaroon Project is 100% owned by Dreadnought and targets REEs. The project area contains outcropping high-grade REE ironstones, similar to those under development at the Yangibana REE Project, owned by Hasting Technology Metals (ASX: HAS, Market capitalization: $450m), which is located only 25km away from Dreadnought’s Mangaroon REE project.

We first wrote about Dreadnought Resources in May 2022 and then in October 2022. For a detailed report about the company’s projects and their prospects, Shares In Value members can read those articles here and here.

The Mangaroon REE project is becoming increasingly promising.

The proximity of the Mangaroon REE project to Hasting Metals’ Yangibana REE project significantly adds to the attractiveness of Dreadnought Resources. Discoveries at the Yangibana REE project have proved the presence of substantial neodymium and praseodymium (NdPr) deposits in the area. NdPr is a vital component used to manufacture permanent magnets used in advanced technology products, ranging from electric vehicles to wind turbines, robotics, medical applications, digital devices and more. The high demand for REEs has already got Hastings multiple offtake agreements signed and it has debt finance in an advanced stage.

Dreadnought’s discoveries at its Mangaroon REE project area increasingly support the idea that the Mangaroon REE project is set for similar success as the Yangibana REE project. Dreadnought has recently identified six potentially REE-bearing carbonite intrusions which may be the source of the regional rare earth elements.

Dreadnought commenced drilling in the area in June 2022 and reported extremely successful results, giving to an initial Inferred Resource of 14.36mt at 1.13% TREO (Total Rare Earth Oxides) containing significant NdPr at various cut-off grades with the lowest at 0.20% TREO, approximating the cut-off used at the close-by and advanced stage Yangibana project.

The initial Resource of 14.36mt at 1.13% TREO only covers about 10% of Dreadnought’s Yin REE ironstone complex at the Mangaroon project which currently consists of about 30kms strike length. In comparison, Hasting’s Yangibana project has reported a mineral resource of 29.33mt at 0.93% TREO, which covers 24km out of a total of 66km (or 36%) of rare earth-containing ironstone strike length. Therefore, we think Mangaroon’s Yin REE deposits are potentially of a higher quality than those of Yangibana.

2023 is set to be another exciting year for Dreadnought Resources

The initial resource announced by Dreadnought on 28 December only covers 3kms of the circa 30kms long Yin Ironstone Complex at the 100% owned Mangaroon project, which was based on 2.5 months of 11,907m RC (Reverse Circulation) drilling of 117 holes between June and August 2022. The initial independent Resource confirms Yin as a high-grade and High Resource intensity deposit, which are both material factors in a project’s economics.

This initial substantial success paves the way for significant resource growth drilling in 2023 in the other approximately 90% of the Yin Ironstone complex. Dreadnought expects to recommence RC and diamond drilling along the circa 30kms of the strike at Yin as well as the C1-C7 carbonatites in February or March 2023 and additional Resource updates to be announced during 2023.

Demand for Rare Earth Elements is set to remain high

The global demand for REEs is expected to grow by a CAGR (Compounded Annual Growth Rate) of 9.1% to 2030. This will primarily be due to the increasing usage of these elements in the consumer electronics, energy, aerospace and automobile industries.

The various applications of these elements in defence equipment, including communication equipment, night-vision goggles, precision-guided weapons and stealth technology, as well as their applications in healthcare equipment, such as MRI machines, makes the supply of these elements a critical matter for governments around the world.

China currently produces more than 95% of the world’s supply of rare earth elements from its domestic mines primarily in Inner Mongolia. And it has been predicted that Chinese domestic demand for REEs will exceed its domestic production in the next few years as the country progressively moves towards renewable energy sources and EV production. This puts western countries at a significant supply chain risk with regards to the critical rare earth elements.

The prices of most rare earth elements have almost doubled in the last twelve months. And it is predicted that if the global chip shortages ease next year, allowing the auto industry production levels to return to normal, the demand for all major rare earths will see a boost, putting further upwards pressure on their prices.

With rare earths prices increasing and investors realizing the dramatic increase in demand for rare earths for renewable technology applications, access to funding has been less challenging for companies with good projects. And if funding is less of a problem, the next challenge is to deliver and to be able to bring projects to production as soon as possible by developing an economic and competitive metallurgical process. This is where we believe Dreadnought Resources has an advantage as its REE deposits are of high quality and it has a management team with a successful history of making and commercializing discoveries.

How to play Dreadnought Resources’ stock?

When we first wrote about Dreadnought in May 2022, we gave it a speculative Buy recommendation as we liked the company’s scalable projects with proven mineralization in highly prospective terrains, all located in Tier 1 jurisdictions in Western Australia, targeting a range of critical commodities. We also liked the company’s management team as we mentioned they had a solid track record of making and commercializing discoveries. Now seven months later and we’ve been proven right as the company has made significant REE discoveries in its Mangaroon REE project and its share price has responded accordingly, rising from then 4 cents to the current price of 9.6 cents.

Looking at Dreadnought’s weekly chart, we can see that DRE’s share price has been in a consolidation phase since September 2022 after making massive gains from its Corona Crash low in March 2020. The consolidation pattern has created a support level for the share price around 8.8 cents (the green line on the chart). As such, we think prices near 8.8 cents are attractive with a target price of the September high at 15.5 cents to be reached in the next six to 12 months. Dreadnought has mentioned that it will recommence drilling at its Yin REE deposit in the Mangaroon Project in February or March 2023, and we expect the drilling results to start to flow into the market in May or June 2023.

We maintain our Buy recommendation and we also recommend using a confirmed break below 8 cents as a stop-loss indicator. A confirmed break below 8 cents would mean the support level of 8.8 cents and the long-term uptrend (the blue trendline on the chart) are both broken, and it would indicate a significant bearish sentiment on the stock that can potentially open the way down to lower levels.

Dreadnought Resources, Weekly Chart in Semi-log Scale (source: Metastock)


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