Rox Resources (ASX: RXL, Share Price: $0.019, Market Cap: $23m) is one of our most respected exploration plays, with three highly-prospective projects – its Fisher East nickel sulphide project in Western Australia, followed by two secondary projects – Reward zinc and Bonya copper projects, both situated within the Northern Territory. Importantly, there is strong activity occurring on all project fronts.
Rox has announced that its joint venture partner with respect to its Reward zinc project in the NT, Teck Corporation, has elected to exercise its pre-emptive right over the project. Accordingly, Teck will pay up to $20.6 million in cash and shares to secure 100% of the Reward project, which hosts the Teena deposit.
Market Significance
Rox’s share price has fluctuated from a low of $0.01 during May to a recent high of $0.029 in June. The major driver has been speculation and activity surrounding its Reward zinc project in the Northern Territory, where Rox and Teck’s resource upgrade a few months back confirmed the project’s Teena deposit as a world-class Mineral Resource, comparable to other giant zinc-lead resources globally. Rox’s decision to monetize its Reward stake is in my view a sensible approach and represents a successful outcome for Rox shareholders, with the receipt of $8 million cash almost immediately.
Announcement Detail – Reward Project Sale
Rox Resources has advised that its project partner, Teck Australia, intends to exercise its pre-emptive right to match the offer previously received from Marindi Metals (ASX: MZN) with respect to the purchase of Rox’s minority interest in the Reward zinc project. Teck is the world’s third biggest producer of zinc.
As background, under the Earn-in and Joint Venture Agreement between Rox and Teck, Teck has retained a pre-emptive right over Rox’s 49% stake in the project. Rox is therefore obliged to offer to sell its interest in the Reward project to Teck under the pre-emptive right.
Subject to the finalization of a definitive asset sale agreement, Teck being able to raise the necessary funding in order to complete the acquisition, along with the satisfaction of a number of conditions consistent with the Marindi Offer, Teck will acquire Rox’s Reward interest on the following terms:
- Cash of $8.0 million
- Immediately tradeable, un-escrowed shares in any ASX or TSX listed company to the value of $3.6 million or, alternatively $2.6 million cash
- A 3-year promissory note with a face value of $5.25 million
- A deferred payment of $3.75 million, payable on completion of a bankable feasibility study, or the expiry of 6 years, whichever comes first.
Technical Significance
I share Rox’s view that monetisation of its Reward project represents a successful outcome for shareholders. The purchase highlights the fact that the market had for a long period of time significantly under-valued the Reward project.
If Teck pays cash in lieu of shares, then the aggregate purchase price will be $19.6 million, or up to $20.6 million based on a combination of scrip and cash. Compare this with Rox’s current total market capitalization of $23 million!
The deal effectively leaves Marindi Metals, which had made a $21 million bid for Rox’s interest in the project, out in the cold. Marindi’s bid in turn had trumped an earlier $14.8 million bid for the stake from ASX-listed shell, IM Medical.
Rox will retain a 100% stake in its Mt Fisher gold-nickel project within the North Eastern Goldfields, along with a 51% stake in the Bonya copper project in the Northern Territory, east of Alice Springs.
Summary
We initially acquired Rox Resources at a price around $0.019 during September 2015. We retain our positive outlook on Rox Resources, given the company’s high level of exploration activity on all fronts. The company has managed to continue to enhance the value of its projects, either directly or via committed joint venture partners. The company is therefore well-placed to advance its projects when nickel and copper prices ultimately improve. Accordingly, Rox Resources will remain firmly held within our Portfolio. We will have more information on Rox’s residual projects in upcoming coverage.
