Canaccord's updated Rox valuation

For those who haven't read this it's worth looking at. This is the update on the March valuation

1		Wholly focussed on gold Share consolidation and demerger of nickel assets:Rox Resources (RXL-ASX) has completed a 1-for-15 share consolidation of the ~2.4Bn shares on issue. Total shares on issue now stand at 157.6m. The company has also announced plans to demerge its Fisher East and Collurabbie assets into a new company, Cannon Resources (CNR- ASX), via an in-specie distribution. RXL shareholders will receive one share in Cannon for every ~4.3 shares held in RXL (64 RXL shares pre-consolidation). The Prospectus was lodged with ASIC on 26 May with the in-specie distribution to be completed by 28 July for ASX listing on 10 August 2021. The demerger narrows RXL's focus to gold only, as it commences study work to restart operations at the flagship Youanmi Gold Project. The demerger values the nickel and base metal assets at ~Am, which is in line with our previous estimates. We initiated coverage of RXL in March 2021 -Multiple pathways to production, and ascribed a conservative Am to total exploration and other asset valuation in RXL outside of the flagship Youanmi JV. Current resources at Fisher East total 78kt contained Ni. RXL completed a Scoping Study in 2018, based on a Conceptual Mining Study undertaken by CSA. The study assessed two cases; a concentrator case and a toll milling case. 39% increase in Youanmi resource:Last week, RXL published an updated resource for the Youanmi Gold Project in JV with VMC-ASX (70% RXL, 30% VMC). The update sees a 39% increase in contained gold to1.7Moz @ 2.85g/t Aufrom 1.2Moz @ 3g/t Au; a pleasing outcome overall in our view. The update includes a maiden resource for Grace, and we still await incorporation of resources for the emerging Junction and Link prospects; so further upside remains. Themaiden resource for Grace is 109koz @ 7g/t Au.We had been expecting more in the region of 300koz but at a lower grade, and acknowledge the high-grade spotty nature of the orebody may contribute to a more challenging resource estimation process. Close spaced infill drilling will be employed to better understand ore distribution at Grace. In our view it is positive to see resource growth for RXL. In our initiation of coverage, we modelled a number of development scenarios. Pleasingly, RXL has now met two of the resource milestones required to satisfy our assumptions (the larger being +1.5Moz @ 3g/t Au). Am investment by Hawke’s Point: In March, Hawke's Point showed strong support for RXL with an Am at 3.5c equity investment (52.5c post consolidation). The investment gives Hawke’s Point 13% of the company and is its third investment into WA gold projects in recent times (it owns 10% of CMM-ASX and 40% of OBM-ASX). Hawke’s Point will also receive one option for every two shares, exercisable at 7c (.05 post-consolidation). Valuation and recommendation:We maintain our SPECULATIVE BUY recommendation. We have updated our price target to reflect the share consolidation and upcoming demerger of the nickel assets out of RXL. Given RXL is effectively losing assets, our price target has decreased slightly; but no value is lost to RXL shareholders who retain exposure to the nickel assets through ownership of Cannon Resources (remember RXL shareholders receive one share in Cannon for every ~4.3 shares held in RXL). Our post-consolidation price target decreases to .10 (from .20). This is equivalent to a pre-consolidation price target of 7.3c (down from 8c). Our valuation is preliminary in nature and should be viewed as a what-if case given no formal mining studies have been published. We have modelled a number of possible development scenarios using weighting for 1.0x forward curve and spot gold prices, and apply a conservative 14% discount rate to our NPV. We have also included a takeover scenario and a resource multiple based on similar Australian peers’ EV/oz valuation.