Rox Resources (ASX: RXL) has been marked a speculative buy by Patersons Securities, which said there was significant value in the company shares if the early success at the Mt Fisher project were confirmed.
The following is an extract from the report.
Rox Resources could have hit the jackpot having received encouraging preliminary results from first pass reconnaissance reverse circulation drilling at its Mt Fisher Project targeting nickel sulphide mineralisation.
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% to 2% in 4 of the 5 holes drilled, with the other indicating 4% to 5% nickel.
Intersection widths are between 1 metre and 7 metres and lie between 130 and 213 metres below surface and have occurred over a 300 metre strike length along an identified electro-magnetic (NYSE:EM) conductor.
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 (NYSE: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 6 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.
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