ASX:ARN
Last Price:
$0.120
Date of Initial Coverage
30-Mar-21
Initial Entry Price
$0.200
Returns from Initial Entry
-40%
ARN delivers a 10x return by discovering and defining a significant enough deposit to move into development studies for one of its projects.
Opened: 07-Mar-2022
Shares Held at Open: 845,000
What does ARN do?
Aldoro Resources (ASX:ARN) is a junior exploration company aiming to discover rubidium, lithium and nickel across a portfolio of projects in Western Australia.
What is the macro theme?
Rubidium is currently used industrially in fibre optic cables. It also provides exposure as an up and coming battery metal with its use in sodium-ion batteries. Sodium-ion batteries have lower energy density than lithium-ion batteries, are faster to charge and more resilient to cold temperatures.
Nickel & lithium are critical raw-material in the production process of electric vehicle (EV) batteries. Nickel makes batteries energy dense, so that cars can run further on a single charge. lithium is the primary raw-material used in EV batteries. Nickel can also be found in everything from mobile phones to jet engines.
Why did we invest in ARN?
Rare exposure to rubidium on the ASX
Rubidium is used in a few high tech applications, and can be used in sodium-ion batteries. Rubidium is more expensive than gold because of how difficult it is to find, we believe it could evolve into a strategically important metal. ARN offers a rare exposure to this commodity on the ASX.
Dr Minlu Fu backing the company
Fu made a strategic investment into ARN via a $2m placement @20c. Dr Fu has been heavily involved in a number of nickel, copper and gold discoveries and was also a strategic investor in another one of our portfolio companies Los Cerros at 3.5c.
Leveraged to a new discovery
ARN’s Nickel-copper-PGE Project in the Murchison Region, sits on grounds synonymous with a specific type of nickel-copper resource that can also include platinum group elements (PGE). Other discoveries made in similar geological settings sold for multiple $B within 1-2 years of discovery. Voisey’s Bay sold for C$4.5BN just two and a half years after it made its discovery. Nova Bollinger sold for A$1.8BN, three years after its major discovery. Chalice’s Julimar discovery saw it reach A$3BN+ valuation.
What do we expect ARN to deliver?
Objective #1: Drilling across the company’s rubidium/lithium projects
With an RC drilling program ongoing at the Niobe project, we want to see ARN go on and drill its other rubidium/lithium project (Wyemandoo) ~40km nearby.
Objective #2: Maiden JORC resource estimate at the rubidium/lithium project
We want to see ARN convert its current exploration target for its rubidium/lithium project (33,000-150,000 tonnes of rubidium oxide grades ranging from 0.07% to 0.15%) into a maiden JORC resource estimate.
Objective #3: Drilling at the company’s nickel project
EM surveys and more rock chip sampling as part of target generation works leading up to the next round of drilling at the company’s nickel project.
What could go wrong?
Exploration Risk
All of ARN’s projects are still only prospects. With no confirmed resource or mineralised system there is a risk that after drilling nothing is found.
Financing Risk
ARN as a junior explorer is heavily reliant on freshly raised capital to finance high-risk drilling programs. ARN is currently in the middle of multiple drilling programs. With this much exploration activity ARN is likely to need to raise capital to finance further exploration later in 2022. Market conditions are also important for ARN, a deterioration in conditions could mean accessing capital becomes a problem for ARN.
Commodity Risk
Rubidium trades in an illiquid spot-market meaning it can be hard to model out a development project. There is also a risk that commodity prices fall and high-risk explorers like ARN fall out of favour.
What is our investment plan?
We have been holding ARN for almost a year now, the share price has performed well since entry so we have free carried, and now intend to hold our position into the 2022 drilling campaigns.
We may look to further de-risk our current position by 20% if the share price re-rates on a lithium or rubidium discovery, and then update our investment memo depending on drilling results and (hopefully) a JORC resource.
Disclosure: The authors of this memo and owners of Catalyst Hunter, S3 Consortium Pty Ltd, and associated entities, own 845,000 ARN shares and 220,000 ARN Options. S3 Consortium Pty Ltd has been engaged by ARN to share our commentary on the progress of our investment in ARN over time.
✅ Initial Investment: @20c
✅ Top Slice
✅ Free Carry
✅ Increase Investment @ 20c
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
✅ 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years
