What the Brokers Say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe
Rox Resources (ASX: RXL)
Rox Resources’ exploration efforts are currently focused on the Mt Fisher gold and nickel exploration project, located in WA.
A small JORC resource of approx. one million tonnes at 2.75g/t gold for around 86,000 ounces of gold has already been identified, and is likely to grow with ongoing exploration.
Teck Australia has entered into a JV with Rox for the exploration and development of the Myrtle zinc-lead project which already hosts a sizable JORC resource of 43.6Mt at 5.04 per cent zinc and lead.
Significant opportunity exists to extend this resource and for the delineation of new nearby deposits.
As per the terms of the farm in agreement, Teck will earn 51 per cent of the project by sole funding exploration up to $5 million.
Teck may then elect to spend a further $10m to increase its interest to 70 per cent.
Rox also has an interest in two earlier stage exploration projects. Marqua hosts 30km of strike along a highly prospective limestone unit where drilling has intersected ‘ore grade’ phosphate. At Bonya, Rox is earning into the project by funding $500,000 of exploration.
Rock chips recently assayed as high as 30.7 per cent copper, 34.1g/t silver and 0.52g/t gold, highlighting the prospectivity of the project.
A recently announced Share Purchase Plan (SPP) will seek to raise a maximum of $1.8m at 1.5 cents per share (a historically low share price) which will be used to advance the Mt Fisher gold and nickel project and the Bonya copper project.
Teena Prospect
Between 1976 and 1978, Mount Isa Mines (MIM), then operators of the exploration licence, drilled numerous deep diamond holes at the Teena prospect, located west of the McArthur River mine.
For reasons unbeknown, the assay results from these holes were never released.
Teck tracked down the original core and the associated assay results.
So as to check the integrity of the historical assays, random sections of drill core from the Teena 4 and the Teena 6 holes were re-assayed.
Encouragingly, these sections demonstrated a close comparison to the original results.
Highlights from the assays include:
– 11.3m grading 10.9 per cent zinc and lead, 14g/t silver from 908.8m;
– 8.6m grading 9.84 per cent zinc and lead, 23g/t silver from 789.6m;
– 3.8m grading 7.98 per cent zinc and lead, 4g/t silver from 629.2m; and
– 13.1m grading 6.02 per cent zinc and lead, 5g/t silver from 599.2m.
Teena is shaping up to be a significant zinc-lead prospect with ongoing exploration likely to identify additional thick intersections of mineralisation.
Teck will soon commence a surface geochemical sampling campaign over the prospect and is also expected to commence a diamond hole drill program early in the 2013 field season.
Rox and Teck have an exploration target for Teena of 100 to 200 million tonnes at 10 to 12 per cent zinc and lead.
Breakaway has been highly encouraged by the uncovering of the historical drill hole data as it demonstrates the potential for a large zone of higher grade zinc-lead mineralisation over an area of at least 1.0 by 1.5km with a cumulative thickness of between 5 and 40 metres.
Recommendation: Speculative BUY
Avalon Minerals (AVI: ASX)
Avalon Minerals has completed a placement of 119.3 million shares at 7 cents per share to institutional investors, raising a total of $8.4 million.
The placement has broadened the register with institutions including Acorn Capital who have become a substantial shareholder with a 12 per cent holding and diluted the existing substantial Malaysian shareholders from 35 per cent to 25 per cent.
Following the completion of the placement, AVI will have approx. $10 million in cash and hence be fully funded to complete a planned 25,000m drill program at Viscaria.
Further scoping study analysis has been completed by mining consultants Xstract on the Discovery Zone prospect, which is currently subject to due diligence and is to be acquired from Hannans Reward for $4 million.
The economic assessment has indicated that the existing resource at Discovery Zone has the potential to add US$140 million to the base case project NPV of approx. US$60 million to an updated NPV of approx. US$200 million on a stand-alone basis (i.e. excluding resource growth from planned drill program).
Based on the ‘Development Case D’ scenario which assumes resource growth at the A and D Zones following the upcoming drill program and completion of the Discovery Zone acquisition, the NPV increases to approx. US$350 million with a production profile of 29,000 tonnes per annum copper and almost 1Mtpa iron over a 9 year mine life.
AVI is fully funded to complete an aggressive 25,000m drill program, expected to deliver significant resource growth and value creation.
A 25,000m drill program is scheduled to commence in coming weeks targeting both the A and D Zone deposits at Viscaria, prior to further resource upgrades in H1 2013, DFS commencement in mid-2013 and ultimately first production in early 2016.
Recommendation: BUY with a price target of 20 cents per share.
Pura Vida Energy (ASX: PVD)
Moroccan Prospects – Huge Potential
Pura Vida Energy has performed seismic inversion analysis, utilising local well results, to further confirm the prospectivity for hydrocarbons within the Mazagan permit.
The recent analysis will be added to the data room currently set up to assist the company in the farmout process of the Mazagan permit.
Seismic inversion analysis is a process of identifying the response of seismic acquired over oil or gas shows in other nearby wells and comparing that seismic response to the seismic acquired over the Mazagan permit.
The seismic inversion analysis follows the encouraging recent and ongoing drop core analysis.
5.3 billion barrels in prospective oil targets
DeGolyer & MacNaughton’s (D&M) independent report estimates net resource potential of 5.3 billion barrels of oil (Pmean) in the Mazagan permit.
D&M’s estimate includes the giant Toubkal prospect which has a Pmean potential of 1.5 billion barrels of oil (1.1 billion barrels net to PVD).
The Direct Hydrocarbon Indicators, which have been previously identified and supported by the recent analysis, support a probability of success (POS) of 31 per cent for Toubkal. We have a risked value of $140m for the Toubkal prospect which is based on a rule of thumb NPV of $10/ barrel of oil (bbl) assuming Pura Vida retains a 30 per cent interest in the permit and a probability of success of just 3 per cent.
Plenty of pre-spud upside
Investing early in oil and gas explorers is highly speculative and comes with many risks. There are general rules that we believe can be followed that will limit risk exposure.
The key to early stage exploration investment is to wait for a giant prospect to be identified (PVD tick) in a region of growing popularity (PVD tick), derisked through desktop analysis (PVD tick) and where well timing is known (next to be ticked).
When assessing the likelihood of upside, we believe that the market will focus on the next well to be drilled and not the potential of the whole permit.
As such, we assess the rule of thumb value of the most current prospect (in this case we assume Toubkal will be the first prospect drilled) to be the key driver in share price appreciation.
The common industry POS is 10 per cent and we assume this is the common value that could be reached pre-spud on the assumption that investors will pay 10 per cent of a prospects’ value to take the risk of a 10 per cent POS.
In the case of Toubkal, Pura Vida’s diluted market cap currently implies a 1.3 per cent POS and D&M have attributed a 31 per cent POS.
As such, we believe the share price pre-spud should reflect at least 10 per cent POS which is a 7 times uplift from current prices but could potentially reflect a 31 per cent POS.
Current risks surround the farmout process being successful (which we consider a low risk), Pura Vida’s ability to negotiate a carry on at least the first well and the Toubkal prospect being selected as the first target (some potential farminees might prefer to drill the prospect with the highest POS first).
Recommendation: Buy with a price target of $1.50.