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Our Big Bet for ARN

ARN delivers a 10x return by discovering and defining a significant enough deposit to move into development studies for one of its projects.

Investment Memo: Aldoro Resources (ASX:ARN) - LIVE

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.

Investment Milestones for ARN

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

Maiden JORC resource estimate announced


Oct 13, 2022


Investment Memo: ARN IM-2022
Objective 2 : Maiden JORC resource estimate at the rubidium/lithium project

Yesterday, our exploration investment Aldoro Resources (ASX: ARN) announced its maiden rubidium-lithium JORC resource estimate.

ARN’s maiden JORC resource is for a total inferred resource of 4.6Mt @ 0.17% rubidium and 0.07% lithium.

The resource is equivalent to 8,060 contained tonnes of rubidium and 3,080 contained tonnes of lithium.

This makes ARN’s project one of the highest grade undeveloped Rubidium deposits globally.

ARN has also confirmed that mineralisation remains open at shallow depths which means there is still plenty of scope for ARN to grow its resource size.

This image summarises that potential perfectly, the red dots being the drilling completed by ARN to date and the purple being the outcropping pegmatites (which ARN can still test).

On top of all of this, the resource is only from ARN’s Niobe project and does not include Wyemandoo where ARN has recently been drilling.

We think that the resource estimate provides a good baseline for ARN, with the company already starting planning its phase 3 diamond drilling program to grow the resource size and upgrade its classification.

ARN’s published exploration target is for 33,000 to 150,000 tonnes of rubidium for this project and with more drilling we think ARN could achieve this target.

We have been waiting for this news since ~March of this year when we first launched our ARN Investment Memo - with this objective now being achieved we will look for ARN to continue to drill out its rubidium resource and any potential upgrades to the size or classification.

Critical minerals quickly becoming a priority in the EU

Sep 20, 2022

Macro: Commodities

Readers who follow our Investment Portfolios will know that we have been making strategic Investments in commodities that have made critical minerals lists for the EU, USA, Japan, India and Australia.

These minerals are considered critical to the digitisation and decarbonisation macro thematic and include lithium, graphite, cobalt, nickel and PGE’s, to name a few.

Over the weekend, the following speech from the president of the European Commission, Ursula von der Leyen, gave a speech announcing that the EU would look to pass a “European Critical Minerals Act”.

The aim is to avoid the position Europe finds itself in with oil and gas, where it relies on a single trading partner like Russia.

The act would see the EU put in place:

  1. Agreements with partners like Chile, New Zealand, Mexico, India and Australia for the supply of critical minerals.
  2. Identification of strategic projects across all along the supply chain from mine sites to processing/refining projects.
  3. The act would also see the setting up of strategic reserves of these critical minerals.

All of this bodes well for our Investments across commodities identified as “critical minerals” giving these projects strategic importance on the world stage.

To see a list of all the critical minerals in the Australian Critical Minerals strategy document, check out the following link.

Here is a snippet from that speech:

Resource drilling ongoing with more pegmatites being intercepted


Aug 10, 2022

Investment Memo: ARN IM-2022
Objective 1 : Drilling across the company’s rubidium/lithium projects
Objective 2 : Maiden JORC resource estimate at the rubidium/lithium project

This week our exploration investment Aldoro Resources (ASX: ARN) put out two updates across all of the drilling the company is doing right now.

First was around the drilling program at ARN’s Wyemandoo rubidium-lithium project.

Here the company announced that ~29 RC drillholes had been completed and that pegmatite structures as thick as ~30m had been intercepted.

Second, ARN put out an update for its infill resource definition drilling program at its Niobe rubidium-lithium project.

Here ARN confirmed that pegmatites were being intercepted >50m in thickness with initial drilling exceeding pre-drilling expectations.

We are more focused on seeing the assay results from the Niobe project, given this is following up on a recent drilling program that ARN set out to complete so that it could define a maiden JORC resource for its project.

We did a deep dive on what a JORC resource could mean for ARN and what we were watching next in our latest note which you can here read here: ARN delivers rubidium assay results, good enough to drill again.

Noosa Mining Investor Conference round-up

Jul 22, 2022

Macro: Commodities

Spanning three days on the pristine Sunshine Coast of Queensland, the Noosa Mining Investor Conference kicked off its 12th year on Wednesday. Attracting a diverse and large spread of corporates, brokers, retail and institutional investors, this year’s event featured over 60 companies presenting and over 1,000 people in attendance, all hosted within the coastal town's Peppers Resort.

At the event, we caught up with a number of executives from our Investment companies (including AKN, AOU, BPM and PFE) as well as companies of interest, either as potential additions to one of our Portfolios, or to gain expert insight to macro and regional headwinds impacting the markets.

The conference is held in the ideal location to mix work with pleasure, and meet a host of CEOs of ASX juniors. Each day ends with a short ‘business at the bar’ session that quickly morphs into talking tactics about where to eat and drink. On Thursday and Friday nights, many head to the Noosa Surf Club for its networking sessions, enjoying its glassed indoor area and open deck to the beach.

We look forward to providing updates on companies we met with down the road.

China considering US$1.1 trillion infrastructure stimulus

Jul 15, 2022

Macro: Commodities

China plans to make up to US$1.1 trillion in financing available for infrastructure spending, which we think will increase commodity demand. Read the following Bloomberg article for details.

Read the full article here.

Below are our key takeaways:

  • China is making 7.2 trillion yuan ($1.1 trillion) in funds available for infrastructure spending.
  • According to Citigroup, infrastructure investment in 2022 is likely to rise by 7.7% versus 2021.
  • President Xi Jinping has called for an “all out” effort to increase infrastructure spending this year to fuel economic growth and meet a GDP growth target of around 5.5%.

The Bloomberg article touches on the impacts of China’s COVID induced lockdowns on the domestic economy.

With economic growth tipped to slow, the Chinese government is getting ready to lean on fiscal stimulus through infrastructure investment to spur economic growth.

We think this type of fiscal stimulus is likely to become a common theme in China and the West, with macro themes like decarbonisation requiring massive CAPEX.

This infrastructure spending forms part of our “commodities supercycle” investment thesis, where we see increased fiscal stimulus and CAPEX investment spurring higher demand for commodities already facing supply shortages.

China considering US$220Bn in infrastructure stimulus

Jul 08, 2022

Macro: Commodities

The following Bloomberg article highlights China’s plan to spend up to US$220 billion to spur economic growth through infrastructure spending.

All of this new infrastructure will require more commodities.

Read the full article here.

Below are our key takeaways:

  • China’s Ministry of Finance is considering US$220 billion of infrastructure funding aimed at shoring up the country’s beleaguered economy.

  • The funding is to be brought forward from next year’s quota, marking the first time the issuance has been brought forward due to concerns around the dire state of the world’s second largest economy.

  • The funding would primarily be used on infrastructure spending to boost an economy hit by Covid lockdowns and a housing downturn.

  • Commodities rallied in European trading hours following the news, with copper moving 3.6% higher on the London Metal Exchange.

For over two years, we have been writing about an upcoming commodities supercycle brought about by infrastructure spending, following decades of underinvestment in the “real economy”.

All this investment in the “real economy” requires raw materials, which is why we think the macro backdrop for commodities over the next decade is strong.

The Bloomberg article highlights the readiness of the Chinese government to lean on fiscal stimulus to spur economic growth at a time when the Chinese economy is slowing down.

Generally, governments would try to respond to slowdowns in economic growth by cutting interest rates. With this tool exhausted after the COVID pandemic, we think infrastructure spending will become the new policy of choice for governments worldwide.

Again, this infrastructure spending will increase demand for commodities which we expect will take commodity prices higher.

VW CEO breaks down batteries and supply chain issues

Jul 08, 2022

Macro: Commodities

The following Bloomberg article showcases the moves major carmaker Volkswagen is making in the batteries industry.

Read the full article here.

Below are our key takeaways:

  • VW is pressing forward with investments along its battery supply chain, commencing construction at a new cell factory in Salzgitter, Germany, one of five facilities in Europe under the carmaker’s PowerCo subsidiary.
  • Salzgitter is home to VW’s main motor factory, and it is where the company last year opened an $80 million facility to research, develop and test EV batteries.
  • Roughly $2 billion will be invested in the new cell factory, where production is scheduled to begin in 2025.
  • VW expects its battery business to generate €20 billion in revenue by the end of this decade.
  • VW CEO Herbert Diess said, “We are invested in some startups and we are looking forward to a joint venture together with Bosch for the machine tools and equipment for those plants, so we’re really gearing up to become one of the bigger battery cell producers”.

The news is just another sign that downstream investment in battery supply chains is showing no signs of slowing down.

VW is one of the world's largest carmakers and is heavily investing in downstream production capacity. It expects this part of its business to generate over €20 billion in revenues by the end of the decade.

This is a situation where investment in midstream/downstream (manufacturing/battery industry) is far ahead of upstream investment (mining), this leads to the supply/demand imbalances for the raw materials required to produce batteries only becoming worse.

The imbalance comes from the timing of these mega projects. Building a downstream / midstream facility could take 1-4 years whereas it takes around 7 years on average to bring a new resource discovery into the production stage.

As a result, we think that raw materials prices will remain high for at least the next decade whilst the mining industry catches up to demand.

Purple specs of lithium intersected at lithium/rubidium project


Jun 23, 2022


Investment Memo: ARN 2022

Key Objective #1: Drilling across the company’s rubidium/lithium projects

This morning our exploration investment Aldoro Resources (ASX: ARN) put out a drilling update for the RC drilling program being run at its lithium/rubidium project in WA (Wyemandoo).

As of today, ARN had completed a total of 26 RC holes for a total of 3,286m down to depths of ~202m. From these drillholes the majority of holes have intersected pegmatites.

Importantly today, ARN confirmed that it has intersected lithium and rubidium with purple lepidolite in the RC rock chips. The images look encouraging but the ultimate determinant of success will be the assay results which will determine just how much lithium ARN has found.

We also note that the intersection is largely lepidolite and not spodumene bearing pegmatites, this will mean the metallurgical testwork results will be important to see. ARN has confirmed that analytical & mineralogical works are ongoing and that results will be released shortly so it will be interesting to see what comes of this.

Off the back of these results, ARN also confirmed that it is currently going through the planning process to increase it’s drilling program from ~4,000m to 6,000m of total drilling.

More rubidium/lithium drilling to commence in WA.


May 04, 2022


This morning our exploration investment Aldoro Resources (ASX: ARN) confirmed that a rig contract had been signed for a 40-hole, 3,500m drilling program at its rubidium/lithium project in WA (Wyemandoo), with drilling expected to start within the next 5 days.

The drilling program which will be done with an RC drilling rig looks to have been designed around the targets generated from previous sampling programs and will test the previously identified pegmatite outcroppings the company finds scattered over the project area.

The ultimate aim will be to test the thickness, depth and orientation of the outcropping pegmatites and to see whether or not they contain economic levels of rubidium/lithium.

This drilling program comes after the company recently completed a 65 hole RC drilling program at another one of its rubidium/lithium projects in WA (Niobe).

Here the company had already established an exploration target of between 33,000-150,000 tonnes of rubidium oxide with grades ranging between 0.07 and 0.15%.

We are now waiting on the assays from the drilling program here before we get a better understanding of whether or not the drilling program can convert that exploration target into a maiden JORC resource estimate.

Both of these speak to key objectives #1 and #2 of our 2022 ARN Investment Memo which can be viewed by clicking on the image below.

In our Memo we detail the key reasons we continue to hold ARN in our portfolio, what we want to see the company achieve in 2022 and the key risks to our Investment thesis.

More assays from WA nickel project


Mar 18, 2022

Today, ARN announced that it had received assays from two diamond drill holes at the VC1 target that we wrote about in our last note. Peak results from the two assays were as follows:

  • 0.55m @0.87% Nickel, 0.14% Copper and 0.06% Cobalt from 109.45m.
  • 1.5m @0.76% Nickel, 0.29% Copper and 0.06% Cobalt from 150.05m.

Overall, we don’t think these are spectacular results. But it is still a sign that there is nickel in and around the targets that ARN was focussing on with its last round of drilling.

ARN will be following up these drill results with EM surveys which will form the basis for the next round of drilling.

But we are more focussed on the assay results from ARN's recently completed rubidium/lithium drilling program — a precursor for what ARN hopes could be a maiden JORC resource.

We set these drilling results and a potential maiden JORC resource from its rubidium/lithium project as two of the three objectives we want to see from ARN in 2022. To see all of the objectives and why we continue to hold ARN in 2022, see our 2022 Investment Memo.

Drilling completed at WA rubidium/lithium project


Mar 17, 2022

Earlier in the week, ARN announced that its 65 hole RC drilling program had been completed at its Niobe rubidium/lithium project.

With the majority of the drill holes making pegmatite intercepts, all eyes will be on the assays which ARN will be looking to convert into a maiden JORC resource. In our last note on ARN’s drilling program we set the following expectations for the assays:

  • Excellent: Average rubidium grades at or above the 0.15% upper range ARN set for its exploration target, with the project also proving out a lithium resource at the same time.
  • Good: Average rubidium grades above 0.07% and some indication of lithium mineralisation.
  • Poor: Average grades <0.07% rubidium and no lithium mineralisation in the assays.

We set this based on the exploration target that ARN had set based on analysis of historic drilling results: 33,000-150,000 tonnes of rubidium oxide grades ranging from 0.07% to 0.15%. ‘

The drilling program and the announcement of a maiden JORC resource are two of the three primary objectives we set for ARN to achieve in 2022. To see these and why we continue to hold ARN in 2022 view the memo here.

Assays received from Nickel project


Mar 04, 2022

ARN ended the week with some of the final assays from the drilling program completed at its last Nickel project at the back end of 2021.

Peak results from the program were as follows:

  • 7.86m at 0.53% Nickel from 269.5m
  • 4.26m at 1.22% Nickel from 277.14m

The positives from the drilling program is that ARN has managed to intersect massive sulphides and confirmed there is nickel in them. However, the market didn't seem to react to the results, we think because of the nickel grades.

With nickel now trading at US$28,000 per tonne we think that the market may at some stage start to take an interest in these types of results.

Our focus for ARN in our 2022 Investment Memo (coming soon) is around the rubidium/lithium project where ARN is currently in the middle of a drilling program. Be on the lookout for our memo launch in the coming weeks.

Wyemandoo pegmatite rock chip samples


Feb 28, 2022

ARN announced today assay results from its last round of rock chip sampling at the Wyemandoo lithium/rubidium project.

Out of a total of 188 assays received by the company, ARN reported a peak result of 1.24% rubidium and in a separate assay a peak grade of 1.05% lithium.

This forms the basis for the geochemical sampling program ARN are using to define drill targets, which it will be following up as soon as the drill rigs are done at the companies Niobe project.

At the moment we are waiting on the assays from all of the pegmatite intercepts ARN has made whilst drilling Niobe.

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