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Date : 23/05/2022

Dreadnought Resources

ASX :

DRE

Market Cap : $105.03 Million

Buy

52 Week Range : $0.022 - $0.062

Share Price : $0.04

An emerging player that offers exposure to a diversified resources exploration company of commodities in high demand. A speculative “buy” for us.

Company Analysis

Dreadnought Resources (ASX: DRE) is an exploration company focused on delivering shareholder returns through discovering several mineralisations in the tier one jurisdictions of Western Australia. Dreadnought is focused on an exploration portfolio that targets the minerals and commodities emerging as high demand globally.

We are confident that Dreadnought will achieve these highly lucrative goals as the Company has demonstrated solid capabilities in identifying projects with significant unrealised potential. DRE also focuses on its technical effort and financial investment to effectively and efficiently generate and drill high potential mineralised targets whilst maintaining low overheads and keeping the market well informed through continuous activity and news flow.

Dreadnought currently has three core projects:

  1. the Tarraji-Yampi Ni-Cu-Au Project,
  2. the Illaara Au-Cu-Ta-Iron Ore Project, and
  3. the Mangaroon Ni-Cu-PGE, REE & Au Project.

Source: DRE

Dreadnought has three scale projects with proven mineralisation in highly prospective terrains

Dreadnought currently has three projects, the Tarraji-Yampi Ni-Cu-Au Project located in the highly prospective West Kimberley, the Magaroon Ni-Cu-PGE-REE-Au Project located southeast of Exmouth, and the Illaara Au-Cu-Ta-Iron Ore Project located northwest of Kalgoorlie.

Tarraji-Yampi, Kimberley Ni-Cu-Au Projects: Dreadnought controls the second-largest landholding in the highly prospective West Kimberley region of Western Australia. The main project area, Tarraji-Yampi, is located only 85 kilometres from Derby and has been locked up as a Defence Reserve since 1978. Tarraji-Yampi presents a rare first-mover opportunity with known outcropping mineralisation and historic workings from the early 1900s, which have seen no modern exploration. Recent results indicate that there may be a related, large scale, proterozoic Cu-Au-Ag-Bi-SbCo (Copper, Aluminium, Bismuth, Samarium Barium Copper Oxide) system at Tarraji-Yampi, similar to Cloncurry / Mt Isa in Queensland and Tennant Creek in the Northern Territory.

Mangaroon Ni-Cu-PGE, REE & Au Project: Mangaroon is a first-mover opportunity covering approximately 4,500 sq kilometres of tenure located about 250 kilometres southeast of Exmouth in the Gascoyne Region of Western Australia. During the region’s early history, limited government support for exploration resulted in a vastly underexplored region. Since acquiring the project in late 2020, Dreadnought has identified outcropping high-grade gold-bearing quartz veins and the Edmund and Minga Bar Faults. DRE also found outcropping high tenor Ni-Cu-PGE (Nickel, Copper, Platinum Group Element) blebby sulphides in the recently defined Money Intrusion and outcropping high-grade REE (Rare Earth) ironstones, similar to those under development at the Yangibana REE Project.

Illaara Gold, Base Metals, Critical Minerals and Iron Ore Project: Illaara is located 190 kilometres northwest of Kalgoorlie in the Yilgarn Craton and covers 75 kilometres of strike along the Illaara Greenstone Belt. Illaara is prospective for typical Archean mesothermal lode gold deposits, VMS base metals and critical metals comprising Lithium-Caesium-Tantalum. Dreadnought has consolidated the Illaara Greenstone Belt mainly through an acquisition from Newmont Exploration Pty Ltd. Before Newmont, the Illaara Greenstone Belt was predominantly held by iron ore explorers and remains highly prospective for iron ore.

Company Updates

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Source: ASX: DRE 5-year share price performance

FY22 onward outlook: DRE is progressing tightly on time with its work plan

Dreadnought is progressing swiftly in its drilling operations at its highly prospective Mangaroon site

We have been please that Dreadnought Resources recently achieved its intersection of magmatic Ni-Cu sulphides at the Money Intrusion prospect, part of the Mangaroon Ni-Cu-PGE Project in the Gascoyne Region of Western Australia. Initial drilling targeted an approximately 1.2 kilometres long intensely oxidised rock, also known as gossanous horizon within the Money Intrusion. DRE has intersected visual disseminated to net-textured and brecciated sulphide mineralisation in the first three holes. Furthermore, a fourth hole targeting another “gossans outcrop” on the western side of the intrusion intersected mineralisation near the edge of the intrusion. The presence of high-tenor magmatic sulphides at the base of the Money Intrusion confirms the ~45 kilometres long Money Intrusion as fertile and highly prospective for Ni-Cu-PGE mineralisation with the comparable aged Jinchuan Ni-Cu-PGE deposit in China as the current working analogue. The Joint venture partner First Quantum Minerals, has also approved two additional holes to further test the mineralised horizon along strike and depth. Once the initial drilling is complete, a downhole electromagnetic survey will be undertaken, with results expected by June or early July this year.

Dreadnought and First Quantum Minerals have mapped, surveyed, drilled, and confirmed a new Ni-Cu-PGE system in just over a year. Whilst it is still early, this is an encouraging step for DRE. Moreover, adding two deeper holes to the programme will further context these significant results. We are confident that this outcome from the first drill holes opens up the entire Money Intrusion to host Ni-Cu-PGE mineralisation.

Source: DRE

Four Reverse Circulation (RC) drill holes of 612 metres have been completed at the Money Intrusion. These holes were designed to test for mineralisation and provide downhole electromagnetic platforms for deeper penetrating geophysical methods. The first three holes targeted an approximate 1.2 kilometres long “gossanous horizon” along the eastern margin of the intrusion with a small coincident fixed loop electromagnetic conductor with about 50 metres of modelled strike. DRE also achieved a fourth hole drilling under a gossanous outcrop on the western margin of the intrusion.

All four holes intersected disseminated sulphides with holes REYRC001 and REYRC002 containing an increase in disseminated sulphides before intersecting net-textured and brecciated sulphide near the contact with the country-rock. All sulphide mineralisation consists of pentlandite, chalcopyrite and pyrrhotite. In addition to the observed mineralisation, the presence of Nickel and Copper was confirmed. Magmatic Ni-Cu mineralisation has been confirmed over 850 metres of the strike, down to 70 metres in-depth and open in all directions.

The fourth hole drilled beneath a thin gossanous horizon on the north-western side of the dyke also intersected disseminated sulphide mineralisation comprised of pentlandite, chalcopyrite and pyrrhotite.

About 45 kilometres of the Money Intrusion has been flown with detailed airborne magnetics, mapped, and surface sampled, resulting in the identification of 32 areas containing high-tenor, three-phase blebby sulphides and a ~1.2 kilometres long gossanous horizon.

DRE has undertaken ground-based fixed loop electromagnetic surveys over 12 kilometres of the Money Intrusion with the most developed outcropping mineralisation to screen for near-surface conductive bodies. Two conductors associated with prospective lithostructural settings have been identified. The northern conductor is associated with an approximated 1.2 kilometres long gossanous horizon. Outcrop at the southern conductor sits under shallow cover.

In April last year, DRE entered into an option agreement with First Quantum Minerals, who committed $700,000 to a target definition programme, after which point First Quantum Minerals must commit to the project or exit with 0% interest. By spending a further $2.3 million by October 2022, First Quantum Minerals has the right to enter a staged earn-in and joint venture agreement with the base metal rights over the option tenements. First Quantum is currently moving toward the second phase of the joint venture and is committed to the $2.3 million spendings.

Dreadnought has completed its drilling operation at the Illaara project

DRE recently achieved 48 RC holes drilling at Spitfire, Metzke’s Find, Kings and Nelson targeting gold, iron ore, and base metals. We are pleased that all prospects intersected with visual evidence of mineralisation, with assays expected through May, June and July 2022. Moreover, the targeted commodities, drilling at Nelson intersected additional LCT pegmatites and drilling at Spitfire, returned high-grade goethite-haematite and magnetite BIF mineralisation. DRE is currently analysing the magnetite samples to determine if a suitable concentrate can be created. This aligns with Mineral Resources Ltd’s studies to convert the Yilgarn to a magnetite hub and Hancock Prospecting’s recent investment in the Mt Bevan magnetite project located 50 kilometres away.

DRE has successfully tested a range of targets and commodities through recent drilling at Illaara. Additionally, we were surprised by DRE’s discovery of pegmatites intersected at Nelson and Trafalgar and the goethite-haematite and magnetite at Spitfire.

During the period, DRE also progressed with the first pass surface sampling and an airborne magnetic survey over the Central Komatiite belt with a drone survey, mapping and sampling across the outcropping Peggy Sue LCT pegmatite swarm.

Source: DRE

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Source: DRE: CY22 work plan

Dreadnought Resources’ near-term milestones:

  • June 2022: Commencement of RC drilling at Mangaroon rare earth ironstones/carbonatites
  • June 2022: Assays from Peggy Sue pegmatite sampling (Illaara)
  • June 2022: Assays from RC drilling at Metzke’s Find, Kings, Spitfire (Illaara)
  • June 2022: Presenting at the Gold Coast Investment Showcase
  • July 2022: Assays from RC drilling at the Money Intrusion (Mangaroon Joint Venture)
  • July 2022: Results from an auger sampling program at Tarraji-Yampi 22-23
  • July 2022: Rare earth assays from RC drilling at Yin, ironstones, carbonatites
  • July 2022: Initial JORC Resource for Metzke’s Find Au (Illaara)
  • Aug 2022: Commencement of RC and diamond drilling at Tarraji-Yampi (Orion, Grant’s, regional targets)

Investment Thesis

DRE continues to discover high-grade elements at its different project sites

Mangaroon Rare Earth and Aluminium in high-grade ironstones discovered

DRE confirmed two of six carbonatites at C3 and C4 as mineralised in rare earth elements (REE) and phosphate. C1, C2, C5 and C6 remain to be tested. The Company has also discovered significant total rare earth oxides (TREO), neodymium-praseodymium (Nd2O3+Pr6O11) and phosphate rock chips on the project site. Additionally, around the Yangibana Y2 and Y3 locations, DRE has identified an important amount of high-grade ironstones which contain rare earth elements, niobium and zirconium. The Yangibana ironstones are readily accessible and are located 5-20 kilometres from the Cobra-Gifford Creek Road. The ironstones were first explored in 1972 for base metals. The rare earth potential of the ironstones was first assessed in 1985 and has seen substantial work by Hastings Technology Metals (ASX: HAS) on the Yangibana ironstones north of the Lyons River Fault since 2011. Yangibana currently has a JORC 2012 Mineral Resource of 27.42Mt @ 0.97% TREO with 0.33% Nd2O3+Pr6O11 and is under construction and development. The high proportion of Nd2O3+Pr6O11, which are elements in high demand for the development of electric vehicle magnets and renewable power generation, is an important component of the project’s economics. DRE is currently RC drilling with a clear objective to deliver an initial JORC 2012 Resource.

Illaara Project site might contain a significant amount of Au-Cu-LCT-Iron Ore

DRE has now consolidated Illaara’s Greenstone Belt via the acquisition from Newmont. Moreover, the Company could exercise an option to acquire 100% of the Metzke’s Find E30/485 and E29/965. Given the long history of iron ore mining in the region, Illaara is well situated with existing road and rail infrastructure connecting it to several export ports. Historically, gold was discovered and worked at Metzke’s Find and Lawrence’s Find in the early 1900s. In addition to gold, outcropping VMS base metals mineralisation was identified and briefly tested in the 1970s and 1980s with no subsequent exploration utilising modern techniques. During the quarter, eight strong conductors were defined at Nelson and Trafalgar, which further enhanced the prospects for massive sulphide mineralisation, which was confirmed when intersected in the RC drilling programme. Assays results are currently pending, with results expected in early June this year.

Commenced auger programme could reveal high-grade ore zones at Tarraji-Yampi

DRE initiated a low-impact auger programme in recent months designed to identify additional massive sulphide deposits at Tarraji. DRE specifically designed this low impact auger sampling system for the Taraji-Yampi site allowing the Company to start activities earlier in the season. This was done before the re-establishment of road access, which allowed to extend and maximise the dry season. The auger programme will sample through the shallow black plain soil to reveal high probable mineralisation underneath this surface. This is the first programme of its kind across Tarraji-Yampi, and we believe it could lead to the identification of additional mineralisation across the project. The programme will take two to three months, including infill sampling of anomalous areas. Regional targets defined by the auger programme will be drilled in August or early September 2022.

For instance, previous work at Orion has shown that black plains soils could be the signature of massive sulphide mineralisation at the surface. Previous geochemical orientation work has shown that this type of terrain, which cover most of Tarraji-Yampi, obscures the geochemical signature of the massive sulphide mineralisation, rendering surface geochemical surveys ineffective. However, the cover is only one to five metres thick, and the weathered saprolite material beneath the cover expressed a well-developed, broad and zoned geochemical signature around the Orion massive sulphide deposit. Given the shallow depth of cover and the well-developed geochemical dispersion, Tarraji-Yampi is ideal for using auger sampling to define additional targets obscured by the cover. Auger sampling will identify and define priority targets at Tarraji-Yampi, allowing for the drilling of higher priority targets, potentially leading to additional massive sulphide discoveries.

DRE has ample liquidity and a solid balance sheet to comfortably perform its exploration activities

Despite having achieved tremendous exploration work during the period, DRE continues to exhibit a comfortable level of liquidity. DRE has exercised 1.5 million options since the 31st of December 2021, injecting $15K of additional funds into the Company. DRE has shown a disciplined approach regarding its cash flow management with limited disbursement of $21K for Director salaries and $68K for corporate and exploration work. The expenditure represents direct costs associated with the various surveys, drilling programmes and assays. In total, the exploration activities cost the Company less than one-million-dollar during the first quarter of CY22. DRE currently has an amount of $4.61 million cash at the bank.

During the last four years, DRE expenses for its exploration activities remained mostly under control with an expense/cash ratio under 53%, except for a temporary surge above 200% during FY20. The Company improved its cash flow management during FY21, which brought the expense/cash ratio down to 44.1%. DRE is now at a comfortable level of cash which is more than sufficient, in our opinion, to support its ongoing exploration projects. We have forecasted the cash to expense ratio to remain stable below 76% at its peak from FY22 to FY24. We are also convinced that DRE has a great execution capability and a quality management team, as reflected by the cash burn rate, which has been mostly well under control throughout the last four years.

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Recommendation

In recent years, DRE has proved to be capable of delivering successful exploration across a range of critical commodities, each with a genuine commercial appeal to large Corporations. DRE has three scalable projects with proven mineralisation in highly prospective terrains. The Company is also operating in a Tier 1 jurisdiction in Western Australia. Moreover, DRE has a dedicated management team with a solid track record of making and commercialising discoveries. And last but not least, DRE’s projects are fully funded exploration programmes.

DRE is an emerging and diversified resources exploration company of commodities that are in high demand. A speculative “Buy” for us.

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