Uncovering Value In Rox

By Tim Boreham | More Articles by Tim Boreham

Rox chief Ian Mulholland is perplexed why the WA gold and nickel explorer’s market valuation is less than it was last October, just before the company said it would sell its Reward zinc tenement in the NT for $20m cash.

The sale, to JV partner Teck, means Rox now has $15m in the bank, with a further $3.75m to come (albeit in six years).

Since then, the company has also outlined an official nickel resource of 75,000 tonnes at its flagship Fisher East nickel project in the north eastern goldfields region.

“Either the market is not ascribing any value for the cash, or the ground,’’ Mullholland says.

With farm-in partner Doray Minerals funding a separate gold project at Fisher East, Rox is one of those exploration unicorns that don’t need capital. Conversely, it is scouring for a worthy project to buy and could eligible sellers please form an orderly queue.

Mulholland says Rox jettisoned Reward because zinc was not gaining traction with investors. Nickel also isn’t exactly flavour of the month, although at $US7 a pound the stainless steel ingredient recovered from its 2016 nadir of $US4lb.

The price has been affected by Chinese demand for low-grade laterite material, which has subdued demand for the more desirable sulphides. The Indonesian ban on exporting raw –a stance followed by the Philippines – adds another variable.

The sum effect though is that sulphide ore supply is tight, with regional smelters are offering better terms for sulphide content.

In terms of acquisition, Rox is targeting base or precious metals traded on the London Metals Exchange and thus transparent (which precludes a fashionable dalliance into lithium or cobalt).

He would prefer the project to be in Australia, but is amenable to some parts of Europe, which have been underdone on exploration.

In the meantime, Rox should deliver a steady flow of exploration news. An 1800 metre reverse-circulation drilling program at Fisher East is underway, to be followed by a 5-6 week, 3350 metre diamond drilling program (subsidised by the state government’s Exploration Incentive Scheme).

In July, the company should release results of 12,000 metres of aircore drilling at the Fisher East gold prospects.

Under the deal, farm in partner Doray committed to $1m expenditure in the 2016-17 and can spend up to $10m to earn a 75% stake in the project.

Rox believes there is strong potential to increase the 86,000 ounce resource, although it is questionable whether the cash-strapped Doray will pony up any more.

A distracting factor is that Rox is engaged in a legal spat with Marindi Metals, which offered to buy Reward. Marindi was overbid by Teck, which exercised a pre-emptive right Merindi claimed it was not entitled to.

Mediation attempts have been unsuccessful, so it’s pistols at dawn in court room five.

Based on peer comparisons, Rox values the deposit at $23.4m on an enterprise value per tonne comparison.

Analyst Peter Strachan of Strachan Corporate values the stock at 3.8c a share, or $47m.

In harsh reality, Fisher East probably needs a sustained higher nickel price if it is to be developed. But ascribing a valuation of zip to it is a tad stingy.

About Tim Boreham

Tim Boreham edits The New Criterion. Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades' experience of business reporting across three major publications.

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