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Dreadnought Resources

ASX :

DRE

Market Cap : $299.70 Million

52 Week Range : $0.032 - $0.155

Share Price : $-0.907

Buy

A company with a lucrative rare earth asset. We recommend a 'Buy'.

Company Analysis

Dreadnought Resources (ASX: DRE) explores a range of mineral resources across its three projects in Western Australia. It explores for nickel, copper and gold in its Kimberly projects and explores for gold, iron ore, nickel, copper and lithium in its Central Yilgarn projects. But the company’s flagship is its Mangaroon REE (Rare Earth Elements) project in the Gascoyne Region of WA. 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.

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. 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.

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 substantial initial 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 REEs in defence and healthcare equipment also make the supply of these elements a critical matter for governments.

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. 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 9.8 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 Speculative 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)

Our earlier coverage can be viewed by clicking here.

 

*Disclosure: Employees of Shares in Value hold positions in ASX:DRE”

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