Mangaroon ironstone exploration target defined

Paul Howard | Analyst | Canaccord Genuity (Australia) Ltd. 

50-100Mt @ 0.9-1.3% TREO Exploration Target: Dreadnought Resources (DREASX) has published an exploration target range for the ironstone potential within its 100%-owned Mangaroon REE Project in the Gascoyne, WA.

The company has cited a substantial amount of geological knowledge derived from work undertaken by DRE itself and neighbour Hastings Technology Metals’ (HAS-ASX: $3.00 | SPEC BUY, TP $6.90 | Reg Spencer) in advancing the Yin and Yangibana ironstone province.

DRE has defined a JORC 2012 Exploration Target of 50-100Mt @ 0.9-1.3% TREO for the 40km of mapped and sparsely drilled ironstones within its Mangaroon Project. This is in addition to its current resource over a 3km strike at Yin (14.36Mt @ 1.13% TREO).

In total, DRE has defined 43km of strike potential within its tenure. The exploration target excludes ironstone mineralisation at depths greater than 150m below surface, and all carbonatite mineralisation across the project.

Not just ironstones; DRE also has carbonatite targets: As we wrote recently, in addition to the ironstones, sampling over the C7 carbonatite has confirmed REE mineralisation similar to that seen at C3 and C4. Initial drilling at C3 returned ~100m interval of REE mineralisation. DRE is still working through its first pass drilling program over the C1-C7 carbonatite targets. Not a single drill hole has been put into C6 and C7, which both present as compelling targets: C6 because of the 900m x 600m ‘classic carbonatite’ magnetic feature defining the target area, and now C7 because of the mineralisation seen in sampling from the limited outcrop at the target site. Drilling at C1-C7 will continue this month.

Valuation and recommendation: We have updated our model following the recent A$20m placement and for the newly released exploration target. In our initiation of coverage, we believed that 40Mt was achievable from the ironstone targets defined at the time. Given DRE has already defined 14Mt of resource and now has a further 50-100Mt defined in an exploration target, we believe a total resource offering of 60Mt is achievable from DRE and have updated our model accordingly.

Our valuation is now underpinned by an EV/Resource multiple centering around a 60Mt @ 1% TREO ironstone resource defined at Mangaroon, as well as a takeover scenario given the strategic nature of the project (see our initiation of coverage). We model a conservative 20% premium paid for a takeover of DRE (see Figures 1 & 2 overleaf).

We also ascribe a nominal value for the carbonatite opportunities at Mangaroon as well as DRE’s portfolio of other WA projects. Remember, DRE’s market capitalisation was over $100m prior to the discovery of any REE mineralisation at Mangaroon.

The impact of modelling a 60Mt resource offering (previously 40Mt) and recent $20m cash inflow from the placement has netted off against a slightly lower EV/Resource peer comp value following the DecQ and share dilution, resulting in no change to our price
target. We maintain our SPECULATIVE BUY recommendation and price target of $0.24.

Read the full report here.