What the Brokers say

WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe

Rox Resources (ASX: RXL)

Rox Resources (ASX: RXL) could well have hit the jackpot having received encouraging preliminary results from first pass reconnaissance reverse circulation (RC) drilling at its Mt Fisher project targeting nickel sulphide mineralisation.

This success comes after extensive target generation work that included structural analysis, geophysical techniques including Versatile Time Domain Electro-Magnetic (VTEM) and ground electro-magnetic (EM) surveys, and rotary air blast (RAB) and aircore (AC) drilling.

We expect that laboratory assay results due in mid-late January 2013 will confirm the highly promising preliminary indications.

The RXL share price has increased fourfold since it announced that RC drilling had discovered disseminated and semi-massive nickel sulphide mineralisation at its Mt Fisher project in WA.

Assay results are pending but preliminary scans with a portable XRF analyser indicate approximate nickel grades of 1 per cent to 2 per cent in four of the five holes drilled, with the other indicating 4 per cent to 5 per cent nickel.

Intersection widths are between 1 metre and 7 metres and lie between 130m and 213m below surface and have occurred over a 300m strike length along an identified electro-magnetic (EM) conductor.

We await confirmation of these results after laboratory assay analysis but we are sufficiently confident to class the potential nickel discovery as highly encouraging and meritorious.

This is based on visual inspection of the RC chips and discussions with RXL management and the senior geologist.

Pending confirmation of the preliminary analysis with laboratory assay results, we envisage that the next phase of exploration will be diamond drilling to assist with the understanding of geology, structure and mineralogy as well as to achieve depth penetration and to better handle water flow issues.

To achieve this we would expect RXL to raise additional funds to aggressively yet systematically drill out the initial discovery area known as the Camelwood Prospect, before testing numerous other targets defined by VTEM.

Despite an impressive share price jump since the discovery announcement of 19 December 2012, we see significant value in RXL shares, on the proviso that results are confirmed.

As an indication of potential value, a direct comparison with Sirius Resources (ASX: SIR) suggests substantial short-term upside with RXL’s current enterprise value (EV) of $32.8 million comparing favourably with Sirius’ fully diluted EV of $127 million, at the time just before its first capital raising after the discovery of its Nova nickel-copper deposit.

Less than six months on from the initial Nova discovery announcement, Sirius now has an EV of around $540 million due to continued positive results and its strong balance sheet.

Recommendation: Speculative Buy

Target Energy (ASX: TEX)

Target Energy (ASX: TEX) has established meaningful acreage in historic producing regions, with the objective of steadily growing production via the application of modern oil field technology.

Following on from the drilling success at the BOA 12 #1 well (drilled in 2011) and the Darwin #1 well (drilled in 2012), Target Energy and its partners are continuing to exploit oil and gas rich shales and carbonates within the prolific Permian Basin.

The operators of the Darwin #1 well estimate 200,000 barrels of recoverable oil (plus additional high value wet gas) from the Fusselman formation with potential for up to 400,000 barrels of recoverable oil.

Darwin #1 is currently being tied into local infrastructure and should commence production imminently at an initial estimated rate of 160 barrels of oil per day (BOPD) and 300 thousand cubic feet per day of liquids rich gas.

Opportunity exists for significant production increases during Q1 2013 from six wells which are either awaiting completion or are scheduled to be drilled imminently.

The Darwin #2 well has reached total depth (TD) and will soon flow test prospective Wolfberry section (strong oil shows were encountered in the Wolfberry section of the nearby Darwin #1 well, increasing the likely hood of an economic well).

The Sydney #1 is also set to reach TD imminently.

Breakaway expects positive news flow as flow testing results from both wells are released to market.

A further two wells (Darwin #3 and Pine Pastures #3) are also scheduled to be drilled this quarter, further adding to the potential production upside.

Recommendation: Speculative Buy

Disclaimer: The above
is intended as a guide only. The Roadhouse accepts no responsibility for
investments made from this advice.