Red Dirt Metals (ASX: RDT): When hype meets reality

Marc Kennis Marc Kennis, September 9, 2023

Red Dirt Metals (ASX: RDT) is an Australian mineral exploration company focused on the exploration of gold properties in Western Australia, including the Eureka and Warriedar gold projects. The company was incorporated in 2003 and is based in Subiaco, Australia. 


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Let’s start with RDT’s chart and see what moved it since September 2021. 


Red Dirt Metals

Red Dirt Metals, Daily Chart in Semi-log Scale (Source: Metastock)


RDT acquires the Mt Ida Gold/Copper Project from Ora Banda Mining (ASX: OBM) for $11m cash and raises $15m equity capital at 15 cents per share. (Mt Ida Acquisition, Capital Raise and Presentation) 

RDT announces multiple high-grade lithium results from historic drilling and surface rock chips within the Mt Ida Project area. (Mt Ida – A New Lithium Province) 

The share price is correcting in line with the rest of the market and lithium stocks.  


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Red Dirt Metals’ acquisition of the Mt Ida Project for its gold resources sent its share price flying from 18 cents to 90 cents in 3 weeks after reporting high-grade lithium drilling results in the peak of lithium hype of September 2021. Since then, RDT has been on a downtrend as indicated by continuously making lower highs and lower lows indicated on the chart.  

In recent months, the downtrend in RDT has been accelerated by the bear market environment and the fading lithium hype since Goldman Sacks called the peak for battery metals in its 29 May 2022 report.  


Most metals’ prices are set for a correction 

We agree with Goldman Sacks that we have seen the peak for battery metals for now and that the outsized supply increases in the next couple of years will lead to a sharp correction in the prices of these metals. 

In addition, an impending economic slowdown is becoming more likely as central banks’ responses to the staggering global inflation is to curtail demand by increasing the cost of borrowing, which will further suppress the economic output. This means demand for base metals, such as copper, is going to decline and so will their prices.  

We also believe that the increasing interest rates will make holding gold as a store of value expensive as the opportunity cost of capital will increase. This will encourage people to sell gold in favour of conceived risk-free assets, such as the US TIPS (Treasury inflation-protected securities), which pay positive real interest rates at all times. 


What we expect for Red Dirt Metals’ share price

The current bear market, led by the increasing inflation and interest rates, has supressed investors’ enthusiasm for growth and pre-revenue stocks. In addition, we expect the prices of gold, copper and lithium to continue to correct for the foreseeable future. Therefore, our expectation for RDT is that it will continue on its current downtrend in the next several months to fill the gap it made at 18 cents (point 1 on the chart), i.e., we see more than a 50% downside to the current share price of around 42 cents. 


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