My summary of the Rex Minerals (ASX:RXM) in its current...

My summary of the Rex Minerals (ASX:RXM) in its current state.

Currently RXM has a market capital of $93,000,000 (as at 15/03/13 share price 49c Calculation by CommSec). If you take away the cash RXM holds of $46,507,102 the market is only valuing the 100% owned hillside project at $46,492,898. Add the $900,000,000 required to start the project (assuming they issue shares in exchange for the funding) to the market capital of $93,000,000 equals a market capital of $993,000,000. The project is estimated to produce $240,000,000 cash flow per year for at least 15 years (as per the half yearly report and accounts released on 22nd of February 2013) giving a return on investment of 262% (((3,600,000,000-993,000,000)/993,000,000)*100) and an annual return of 24% (($240,000,000/993,000,000)*100).

As per the half yearly report and accounts released on 22nd of February 2013 Rex has commenced reviewing a wide range of funding options inclusive of construction financing, potential off-take agreements for concentrates and opportunities to potentially pre-sell some of the planned gold or iron ore production. Some of these will be advanced during the next half.

If funding does come from pre selling production, debt financing etc then the return on investment would significantly increase as the profits would not be shared out to loan providers etc. They would be taken out of the total cash flow proceeds and all proceeds net of the extra costs would be shared between the investors owning the market capital of $93,000,000. This of course would be a lower profit level due to cheap production pre sales and interest repayments on debt but it would not cost more than $90,000,000 (estimate based on entirely debt funded $900,000,000 at 10% simple interest). This would mean the return on investment would be 2,706% (((2,610,000,000-93,000,000)/93,000,000)*100) and an annual return of 187% (($174,000,000/93,000,000)*100). (The 990,000,000 start up costs and interest have been taken out of the proceeds from the investment).

This analysis was conducted without taking into account the following:

A new announcement has been released for RXM
Summary: Lower Capital Costs and Increased Production for Hillside
Announcement number: 387104
Release time: 3/13/2013 9:08:20 AM (this announcement is viewable now)
Price sensitive: Yes

• Higher production profile of more than 115,000tpa CuEq (80,000t copper plus by-products) in years 3 to 10 due to higher grades and improved recoveries
• BFS on track with potential for material savings to capital expenditure estimate
• Drilling program reduced due to completion of work associated with the Hillside BFS

"The extra revenue from higher grades and recoveries has substantially enhanced our ability to lock in funding for Hillside, allowing us to progress meaningful discussions with a number of parties actively engaged in funding proposals for the project."

" The combined capital savings associated with the BFS is anticipated to be significant and will reduce the amount of capital required for Rex to commence production at Hillside. Rex will further update the market in regard to the extent of the capital savings as firm contracts are finalised as part of the BFS."

If the revenue increases and costs decrease it would make a large difference to our calculations above. It will also make it easier for Rex to acquire potential funding to get the project underway.

The risks:

If no funding is obtained for the project, Rex Minerals will most likely need to sell off everything in a fire sale and the shareholders will most likely be left with nothing.

Currently Rex Minerals has cash of $46,507,102 but used up $21,340,779 in the last six months in exploration costs. This implies that RXM can only continue operating for one more year if no other finance is acquired. However if you look at the cash flows from operating activities it is only costing RXM $2,507,833 to meet their operating cash flow requirements. If RXM stop drilling and producing evaluation reports and they could potentially stay afloat for 18 years waiting for an funding deal.

Estimates could be materially incorrect, although this is a low risk as the we assume the pre feasibility study is getting closely scrutinized by banks and potential investors so RXM would need to ensure it has strong logic behind it. A point could also be made that the latest financial report contained the estimates, which the auditors would not allow to be included if they were materially incorrect.

The share price could keep dropping. This is only a risk if you can't afford to have the cash tied up. The share price is meaningless to the long term investor, if the funding is acquired and the project goes ahead then the price will sharply rise, if the project does not the price will sharply fall. The share price movements in between is a risk only to the short term trader.

You should do you own research to validate mine above, you should also re calculate everything and ensure the calculations make sense, most of all you should make up your own mind. Please let me know if you see any problem with my calculations as we want the most accurate information possible to base our decisions on.

Taking in all of the above information as well as the wealth of other information out there, I am in a long term buy position and have been acquiring more shares over the last week. Please note that this is not the current sentiment of most analysis firms who are saying hold.