Dreadnought Resources Share Price Slides on Capital Raise (ASX:DRE)
Diminutive gold miner Dreadnought Resources Ltd [ASX:DRE] is in the red today. Suffering a 16.67% share price fall in early trading.
The reason for the slip? A fresh capital raise.
Now, given the current state of markets this isn’t all that remarkable.
We’ve seen plenty of companies tap all sorts of avenues for cash top-ups lately. With much of the nation in lockdown, free cash flow has been hard to come by for many.
Not so for Dreadnought.
No, this capital raise was all about breaking new ground — literally!
Going all in
Dreadnought declared that it has raised $500,000 from sophisticated investors. Money that will go directly towards drilling at their Illaara project in WA.
In other words, they’ve drummed up more cash on the hopes of finding gold. A speculative but calculated strategy that will leave them with an all or nothing result.
It’s a fairly typical scenario for these ultra-tiny gold miners. And for shareholders, it presents a huge risk.
They’ve learnt that first-hand today with the dilution of their shares.
However, great risk can also result in great reward. It will all hinge on what sort of findings the drilling presents. As Dreadnought’s Managing Director Dean Tuck comments:
‘This funding will be used specifically to test nine of our highest ranked targets commencing in late May 2020.’
A significant discovery could send the share price soaring. Making today’s cap raise and slight share price hit seem irrelevant by comparison.
Whereas a dud result will only end up hurting investors even more.
That’s just the way it goes for many of these junior miners.
Hedging your bets
When it comes to stocks like Dreadnought, the reality is they aren’t going to be for everyone.
You must have a high-risk tolerance to justify investing in a company like this. Which is why many will be able to bear today’s slide.
However, not all gold miners are as speculative as this. In fact, some of the more established outfits can be a great way to hedge against a market downturn. Which is especially prudent right now.
As we all know, we’re in the midst of a pandemic. And while we appear to be through the worst of it, the full extent of the economic damage has yet to be counted. A global recession is all but guaranteed, the real question is just how bad it will get.
Financial guru Jim Rickards believes we’re in for a big transition. If he is correct, we could be on course to endure one of the biggest financial collapses in history. An outcome that would ruin investors across the globe.
But he has a solution.
Gold, he believes, is the answer. A safe haven asset that could give investors the best chance to preserve their wealth. Not that Jim would be recommending buying a company like Dreadnought.
Instead, you’ll have to read his full report for all the details about his ‘New Case for Gold’. Check it out, for free, right here.
For The Daily Reckoning Australia