Rox Resources (ASX: RXL, Share Price: $0.015, 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 advised that it has signed the definitive Sale and Purchase Agreement with Teck Australia, which will allow Teck to acquire Rox’s interest in the Reward Zinc Project by exercising its pre-emptive right over the project. Teck will pay up to $20.6 million in cash and shares to secure 100% of the Reward project.
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Market Significance
Rox’s share price has fluctuated between a 12-month low of $0.01 and a 12-month high of $0.033 in mid 2016. The major driver has been speculation and activity surrounding its Reward zinc project in the Northern Territory, where a 2016 resource upgrade confirmed the 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 Teck deal leading to the receipt of $8 million cash almost immediately – in turn boosting Rox’s coffers.
Announcement Detail – Reward Project Sale
In previous coverage during late 2016 we’d covered the corporate machinations related to outside interest in Rox’s Reward zinc project. Most recently in late 2016, Rox’s joint venture and project partner, Teck Australia, had announced its intention to exercise its pre-emptive right and match the previous offer tabled by ASX junior explorer, Marindi Metals (ASX: MZN) for Rox’s 49% stake in Reward.
As background, under the Earn-in and Joint Venture Agreement struck a few years ago between Rox and Teck, Teck had retained a pre-emptive right over Rox’s 49% stake in the project. Rox was therefore obliged to offer to sell its interest in the Reward project to Teck under the pre-emptive right.
So the scene was set for an interesting struggle between Marindi (a well managed junior exploration play with production ambitions) and Teck (a mining behemoth and the world’s third-biggest producer of zinc).
Latest Developments
The reality is that the Reward project was inevitably going to end up with Teck, so long as Teck genuinely wanted it. The Marindi offer was in essence a nice fall-back position for Rox, which also had its benefits for Rox in terms of forcing Teck into action.
Rox today announced that it had signed the sale agreement with Teck Australia, with completion of the transaction anticipated by mid-February 2017.
So what exactly are the sale 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
The monetisation of the Reward project represents a successful outcome for Rox’s shareholders. It is the most important and substantial commercial transaction in the company’s history and demonstrates its ability to acquire, develop and monetize exploration projects. As a result of the deal, Rox is now fully-funded for the foreseeable future.
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 $18.5 million. The purchase highlights the fact that the market had for a long period of time significantly under-valued the Reward project.
Next Steps
The funds received from the Reward sale will allow Rox to pursue its Fisher East nickel and Collurabbie gold-nickel projects, whilst it is also to considering other mineral opportunities.
In the short term, Rox has plans to commence exploration drilling at both Fisher East and Collurabbie, with details of the drilling programs to be announced in due course.
Under the Rox-Doray joint-venture on the Mt Fisher gold project, an air-core drilling program funded by Doray Minerals (ASX: DRM) is planned to commence during Q1 2017, following the successful completion of aboriginal heritage surveys during late 2016.
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 and a 100% stake in the Collurabbie gold-nickel nickel project.
Summary
We initially covered 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 Reward project and the subsequent sale arrangement with Teck is testament to that.
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 $18.5 million.
The company is therefore cashed-up and well-placed to advance its residual projects in the nickel. Gold and copper spheres, as commodity prices continue to improve.
