Ardea Resources Limited

Successful Drilling at Gale: Ardea Resources Limited (ASX: ARL) is engaged in mineral exploration and development mainly focusing on cobalt, nickel and scandium project and gold exploration in Western Australia and zinc, silver, lead and gold at its Lewis Ponds project in NSW. The company operates in Western Australia and New South Wales.

Ardea's major projects are – (1) Kalgoorlie Nickel Project and Cobalt Zone (Western Australia) (2) Lewis Ponds Project (New South Wales).

The strategy adopted by ARL is to combine the following elements: (1) Developing the Goongarrie Nickel Cobalt Project, which is part of the Kalgoorlie Nickel Project, a globally significant series of nickel-cobalt-scandium deposits which host the largest cobalt resource in the developed world (2) advanced-stage exploration at WA gold and nickel sulphide targets; and (3) the demerger of the NSW gold and base metal assets with planned in-specie share distribution.

ARL Project Locations (Source: Company Reports)

The company recently updated about the successful drilling at Gale in WA resulting in downhole continuity of low-grade gold mineralisation.The intercepts are-
 

• 0.28 g/t of gold was extracted from the 2 meters hole at the area of 96.0 meters which included 22m @ 0.48g/t of gold (AU) from 10 meters in the hole named as AMZR0006.
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• 0.25 g/t of AU was extracted from the 6 meters hole at the area of 22.0 meters which included 4.0m @ 0.79g/t of gold from 6 meters in the hole named as AMZR0002.
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The management considers an excellent drilling development at Gale in WA. Going forward, the next phase of exploration at Gale will be designing follow-up drilling. ARL holds ~910 km of Celia Lineament tenure between Mount Zephyr and Darlot East.

The company released an update on 8 April 2019, regarding Goongarrie Nickel Cobalt Project. The GNCP Strategic Partner process demonstrated that there is strong interest from battery producers and end-user organisations wanting to secure long-term supplies of nickel and cobalt. The management sees ARL well-funded with $10.7 M as on 31 March 2019.  Advancement of its project portfolio in WA and NSW will be continued. The management maintains its intention to progress the planned demerger and IPO of the NSW projects.

Financial Performance:Looking at the financial overview for FY18, operating loss post tax for the company increased significantly at $3.8 million as compared to $0.53 million in FY17. The company was unable to turn into profit and recorded operating loss post tax of $0.84 million in 1H FY19, higher than $0.74 million in 1H FY18, mainly on account of higher depreciation, corporate expenses, etc.

Stock Recommendation:The stock is trading at $0.455 per share with the market capitalization of $48.83 million. Looking at the price movement, the stock has gone down significantly at 48.89% in last one year. Price to book ratio stood at 1.3x for the company is broadly in-line with the industry median (Metals and Mining) of 1.4x. The RoE for the company was -2.2% which is well below the industry median of 6.2%. Considering the decent drilling development at Gale in WAbut gloomy stock performance over the past one year, we, therefore, suggest investor that they should keep a close watch on the stock at the current market price of $0.455 (down 1.085% on April 16, 2019).
 

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