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ARN to Spin out Gold Assets Ahead of Nickel Drilling Event


Published 26-MAY-2021 11:54 A.M.


5 minute read

Our nickel explorer Aldoro Resources (ASX:ARN) has announced a spin out of its gold assets into a new company that will list on the ASX.

ARN will be keeping a 16.66% chunk of the ‘New Co’, and ARN holders on the record date of 21st June will get priority access to the IPO.

We are invested long term in ARN for the nickel exploration projects - 5,000m of nickel drilling is happening in June on a number of high confidence targets.

Today ARN announced a spin out of its gold assets - and our favourite part is the cheap $1.2M Enterprise Value on listing of the gold focussed New Co.

A tiny $1.2M Enterprise Value on ASX listing means that ARN investors get favourable leverage to the upside on successful gold exploration in the New Co, given the 16.67% holding that ARN will retain.

The New Co is targeting a minimum raise of $4.5M and up to $5M, which will give it a decent runway to fund exploration and drilling programmes.

All ARN investors will need to do is sit back and watch the gold exploration progress, whilst ARN goes after nickel.

Lately we have been seeing a lot of gold explorers targeting ASX listings with diluted capital structures from Pre IPO and seed raisings, saddled with lots of broker options that can weigh down the share price - this is not the case here with the capital structure ARN has announced.

We think spinning out the gold assets at a modest enterprise value now is great timing, as the gold price has been in a steady uptrend for the last 8 weeks, and just passed the $1,900/oz. mark overnight.

The gold price cracked the $2,000/oz. mark in July last year, and we are hoping that it will keep going this time around, especially when the New Co IPO goes live in a few weeks.

The key date is 21st June - ARN shareholders on the record date of 21st June 2021 will be eligible for a priority offer of shares in the New Co.

So that means any new ARN investors that come on board between now and then have the opportunity to assess ARN on its nickel exploration merits, get exposure to nickel drilling AND get a priority allocation in the gold spin out IPO.

Why we like ARN:

  • Tightly held share register, including renowned geologist Dr Fu
  • Exposure to upside of a large nickel discovery
  • Nickel drilling starting in June - 5,000m targeting three high confidence targets
  • Spin out of gold assets allows ARN to focus on existing assets but retain exposure to gold exploration success.

ARN Investment Strategy:

We expect ARN to deliver the following key milestones over the next 3 to 6 months and the share price to appreciate as the market speculates on a drilling outcome:

  • Key Team additions (✅ Dr Minlu Fu, internationally renowned geo)
  • Permits and Land rights (✅ all land rights and permits secured)
  • Drill targets identified ( ✅ some already found, potentially more to come)
  • Geological surveys and prep work (ongoing)
  • Drill rig secured (✅ Rig on site in June)
  • Key Catalyst: 5,000m of drilling begins (June 2021)
  • Divest Gold Assets: Gold spin out IPO goes live (June 2021)
  • Gold Spin out: ASX listing of new co (Q3 2021)

We plan to retain a significant position into the nickel drilling results which are hopefully positive.

At that point, we will assess our investment strategy based on drilling results.

Catalyst 1: Gold assets to be divested - ARN Record Date 21st June

ARN has proposed a non-standard partial spin out and Initial Public Offer (IPO) of wholly owned subsidiary Aurum Resources Ltd, which holds the gold assets.

The spin out and associated IPO capital raising of $4.5-5M is designed to fast-track exploration and possible development of three projects: the Penny South Gold Project, the Ryans Find Project and the Unaly Hill South Projects.

The projects include positions on the Youanmi and Mt Dimmer gold fairways - recent listed peers have recently undertaken successful gold exploration programmes, and are valued at multiples of the New Co’s tiny enterprise value. You can read more details about the gold assets here.

Key details of the spin out structure:

  • New Co “Arrum” will raise up to $5M to fund exploration programs on the Projects.
  • Arrum’s listing Enterprise Value will be $1.2M.
  • ARN will retain approximately 16.67% of Aurum.
  • ARN will receive a $200,000 payment from Aurum upon completion of the IPO as partial reimbursement for expenditure incurred by ARN in developing the Projects.
  • ARN shareholders on the record date of 21st June 2021 will be eligible for a Priority Offer to participate in the IPO of Aurrum.
  • ARN’s capital structure will not be impacted by the proposed spin out.
  • Arrum is expected to list on the ASX by Q3 2021.

With the New Co Aurum funded and focused solely on exploration of the gold projects, ARN will be able to focus on its nickel projects, including the upcoming maiden drilling program that will start in June – just a few weeks from now.

Catalyst 2 – Nickel drilling starting in June - another June catalyst for ARN

The main reason we are invested in ARN is for the nickel exploration, and drilling is getting closer - the rig is expected to arrive on site in June.

ARN has planned a 5000m diamond drilling program with the ability to increase its program as results come in.

ARN’s drilling will focus on high confidence conductor anomalies VC1, VC 11 and VC8.

The drill holes will also be assessed to determine their viability to conduct DHTEM surveys, which will be used to assess the size and nature of the in-hole bedrock conductors at depth, and which can also identify adjacent, off-hole bedrock conductors.

ARN is also in the process of finalising a gradient array (GAIP) survey - an electrical geophysical technique which has the ability to identify disseminated sulphide mineralisation. This type of survey is important in that it can help further de-risk the Project and refine its targets.

ARN is investigating the use of this survey over all of its 11 high interest anomalies identified in previous FLTEM surveys.

ARN’s commitment to de-risking its project has gone beyond the traditional approach of “EM & Drill, Hope & Pray”, and we think Dr Fu’s input will help it determine the best places to successfully drill.

ARN is chasing a large nickel discovery, and whilst this is an early stage explorer, we like its tight capital structure, approach to nickel exploration, and upside potential.

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