Rox Resources Limited (RXL) Earnings Call Transcript & Summary

[Audio Gap] disclaimers on Slides 2 and 3 regarding forward-looking statements and scoping study results. So Rox has several advanced gold and nickel projects in Western Australia. The flagship project for the company is the Youanmi Gold Project, which we acquired in a series of joint ventures last year. The Youanmi project is located south of Sandstone in Western Australia, and Rox has, in fact, one of the largest land holdings in this area with a prospective strike length of 80 kilometers of shear zone. The project comes with an existing resource of 1.2 million ounces of gold in situ, including a near-surface, free-milling resource of 10 million tonnes at 1.65 for 533,000 ounces. Now since Rox acquired the asset in the middle of last year, we've been drilling since July. And with a small break over the Christmas period, we'll back out there in January. And our focus is very much on growing the near-surface, free-milling resource. And to that end, we've had some real exploration success recently at the high-grade Grace Prospect, and some of the best intercepts from that prospect include 5 meters of 126 grams, 7 meters at 54.5 grams, 2 meters at 140 grams. So these results, in terms of gram-meters, are some of the best results you're likely to see in the WA gold fields and, in fact, compare pretty favorably on a global basis. Now we've been drilling the Grace Prospect flat out for the start of this year. We've got assets back to 31 of the holes that we've drilled with 78 holes outstanding. Now we've paused the drilling program in March due to the travel restrictions imposed by the state government due to the evolving COVID-19 pandemic. And we'll hopefully be back out there as soon as we possibly can be when travel restrictions are raised. But in the meantime, there's plenty of work for us to do on the Grace Project -- Prospect in terms of analyzing the data that we do have plus the outstanding results that come in, and we'll be targeting an initial resource in mid-2020. The -- some of the other interesting events that have happened in recent times apart from the Grace discovery, there have been some recent merger and acquisition activity, which is really putting a highlight on the belt. We're very lucky to have the landholding that we do have as you cannot get any new land in the belt anymore. And there's been several discoveries. So there's been Spectrum Metals discovering an extension to the historic Penny West mine, Penny North, which culminated in Spectrum being bid for by Ramelius in a $208 million scrip and cash takeover. So together with the Grace -- the discovery of the Grace Prospect, it's certainly a very hot belt, and it really has been highlighted as a very prospective belt. Now Rox also owns the advanced Fisher East nickel project, which has 78,000 tonnes of contained nickel metal in resource, and I will be talking about that in this presentation as well. So just turning to a little bit of Rox background corporately. So we have 1.45 billion shares on issue. We trade under the ticker RXL, and cap at around $32 million at present share price of around $0.022. We are well funded with $5.75 million in cash and receivables as at the end of March. A portion of that does relate to a deferred payment from Teck for the sale of a zinc asset that Rox -- a transaction that Rox entered into a couple of years ago. So in terms of our asset overview and project overview, we're very much -- we're a gold and nickel company, Youanmi being the flagship. Our projects are all in Western Australia with low sovereign risk. We have commanding positions in the belts that we operate in, which gives us real upside leverage when we do discover deposits. And the other thing to note about these projects is that they're advanced. So it's historical production at Youanmi, and there's been a scoping study done at the Fisher East nickel project, so very much advanced project offering potential for cash flow and development and then cash flow. We like the mix of our projects, so gold very much enjoying a solid price outlook and macro outlook at the moment. In the short and medium term, the Aussie dollar gold price is likely to be driven by a low interest rate environment and ongoing QE, as we're saying, with central banks around the world entering into new phases of QE, which is all very supportive for gold. And in the long term, we're fans of the nickel sector and the nickel price. The electric vehicle and battery thematic is very much yet to play out, and Rox is well positioned to take advantage of that. In terms of the team that we've got bringing these projects into fruition, I'm a geologist originally with a finance -- but spent most of my career in finance, and we have deep capital market connections and networks. And the Rox team has a good discovery track record. So we discovered Fisher East in 2012 and more recently, Grace. So turning to the Youanmi Gold Project. Youanmi is situated between Mt Magnet and Leinster in its own greenstone belt called the Youanmi greenstone belt. The project was operated in -- between 1987 and 1997 when the gold price was around $400 an ounce, and it produced 670,000 ounces from a series of open pits and one underground mine, the Youanmi main lode underground mine. It's been very limited exploration over the past 10 years and -- due to a series of different owners controlling the projects. But also, when gold mines in Australia were running the project and the gold price was around $400 an ounce, the impetus to do exploration was very limited as the -- as that project was struggling for cash flow. So there's strong potential for resources in and around the historic pits to have economic prospects at the current gold price of $2,650, but there's also some real economic prospects at the Grace deposit with the new discovery. Now just on -- in terms of ownership, so we struck the acquisition of the Youanmi Gold Project in conjunction with our joint venture partner, Venus. The deal is really structured in 3 $3 million tranches, so $3 million to buy the project; $3 million to be spent in the ground, $2 million around the mine and $1 million regionally; and then an additional payment of $3 million to go to 70%, which we at -- which can be done at our election on or before the 30th of June next year. And we're fully prepared to -- preparing to do that and looking forward to increasing our economic interest. So in terms of the site overview. This is an area or part looking at the main -- Youanmi main pit, and there's a couple of highlights I'd like to point to. So the pit is about 1.2 kilometers long. The historic Youanmi gold processing plant sits on the eastern side of that, or the right-hand side in this figure. There are 2 distinct rock parts we can see in the pit. There's a yellowy, greeny rock on the western side or the left-hand side -- left side, sorry, which is the -- which is a weathered greenstone. And this has been the host -- the most with gold mineralization at Youanmi historically. So the thinking was that the granite, which is the white rock on the right-hand side of the pit wall or the eastern side, was very much the footwall and wasn't overly prospective. So it wasn't historically a focus for exploration. And we were, in fact, drilling to the south of the plant, drilling out a laterite deposit and shallow laterite deposits, and discovered Grace. And also, we've been expanding a deposit called airstrip, which is to the south of that. So in terms of the infrastructure that is on-site, there is an old processing plant, 600,000 tonnes per annum of throughput capacity, although that needs real money spent on it. There's estimates of between $14 million and $25 million to refurb that plant. But more importantly, there are significant other pieces of infrastructure around that we can use to springboard ourselves into production, so tailings disposal facilities that have capacity, mine offices, core shed, workshop, access roads, the airstrip, the bore field, the fact that the process water, we know, can be used -- the local water can be used for process water without affecting the process too much. We've also got a historical -- a huge historical database of drilling maps and plans, which is a real head start. So what you see with greenfield start-ups in the WA gold fields is around 60% of the overall cost might be the new plant, with about 40% as -- this is just as a general rule, being roads, civil and power lines and so forth. So we do have a real head start in terms of the infrastructure on-site. In terms of the processing plant, the company's current thinking is that we would use bits of this but not all of it. And it is probably in the wrong spot with the Grace Prospect striking towards that plant and, in fact, probably underneath the plant. So looking at the Youanmi regional setting. Youanmi shear zone is a 150-kilometer long crustal-scale shear zone and we have a tenure that covers around 80 kilometers of that strike. So you can see on Slide 11 in that -- in an aeromagnetic image the 80 kilometers of strike that we do hold. The shear zone runs from north to south in an arc up through the Penny West and Penny North gold deposits, which was discovered by -- Penny North being discovered by Spectrum, up around -- to around 25 kilometers further north of that into the Youanmi mine area, which is the area where those -- where the Youanmi shear zone separates. And you have a northwestern branch or northeastern branch in the mine area is covered by the red tenements called the OYG joint venture. So there's plenty of exploration upside and discovery potential along the belt. There's around -- we hold, in the joint ventures, around 640 square kilometers of ground. And we have another 200 square kilometers of ground in our own right. So looking at that figure in a little bit more detail, turning to the exploration model. We -- you can see here the -- where the shear zone splits into the Youanmi shear zone and the main lode shear zone. The granite that sits in the middle of those 2 share zones, Youanmi granite, has undulations along its boundary. And they -- and that has created dilation zones, which enables gold mineralizing fluids to move through that area. So we see gold mineralization found in both the mafic and the granite, but we're having particular success obviously at Grace, which is a shear zone called [ zero site ] shear zone in granite. So we've been drilling the Grace deposit in -- sorry, the Youanmi project since July last year. We're drilling a grid pattern of holes to the south of the plant looking at laterite deposits and discovered the Grace Prospect in November. So the northernmost line of holes there, MLRC020, returned 5 meters at 125 grams. And you can see in Slide 13 some of the visible gold specimens that we've had from those RC chips. So we then drilled underneath that, initial hit in January, with results received in January. And you can see the RXRC135 drilling underneath that and returning 8 meters at almost 40 grams per tonne. And so the Grace lode dips down to the west. And in fact, that hole also intersect with a new lens, a hanging wall lens, which we've since been following up as well. Then moving forward to February and the results that we received then. So this is a cross-section that's further north of the cross-section shown in Slide 14, and we've delineated 4 lenses in this area, and these lenses really -- that they are high-grade, above 30 grams per -- above the 30 gram-meters and plunge away to the north at around 35 degrees. These lenses are contained within -- in a mineralized envelope of around 0.5 gram per tonne. Then moving forward to what we see now, so with the results and with the drilling that we've collated thus far. This is a long section. So this is looking to the east at Grace and at airstrip. And you can see there that the north plunging high-grade shoots are starting to open up and form -- and we believe that forms quite a repeatable pattern. So the exploration model here is very much working. Youanmi South potentially represents another one of these high-grade lenses. This also is near the intersection of the main lode shear zones and the Youanmi fault. We look forward to following this up when we get back out there in the middle of the year. So turning to -- so we've been discussing new mineralization that we've been exploring at Youanmi, and that's very much our focus and where we can see we can add significantly to the 530,000 ounce resource that's currently in place. However, recently, we've also been looking at some of the historical resources at Youanmi. So the resource at Youanmi is divided into 2 parts, near-surface, shallow free-milling ore that occurs down to around 120 meters; and then a deeper ore body that's associated with sulfides with a mineral called arsenopyrite. And this ore body is significant. It is partially refractory. Around 53% of the gold is contained within arsenopyrite. And so it's something that we haven't made a focus internally up until recently. And there are several transactions that -- some of which have been made public, such as the Blackham/Polymetals offtake agreement that indicates that the market for gold concentrates has really developed over recent times. So with sulfide ore, there's 2 things you can do. You could either put in a Bacox through a Biox plant at Youanmi, which was historically the case and convert that sulfide ore into an oxidized form and then make gold from that; or you can concentrate that sulfide material into a sulfide concentrate and then sell that to an offtake partner. And there are companies such as Polymetals, which are very active in the space, presently having developed new, large -- big pressure oxidation mills in Russia and in Europe. So just interestingly on the Youanmi -- on Youanmi deeps, looking at some of the highlights. The ore body is at 900 meters and extends and is still open. We hit at depths going up to 27 grams per tonne, which is pretty spectacular. So this indicates that the plumbing system, the mineralizing system at Youanmi is deep and is significant. And this has implications for things like exploration at Grace. It would be fantastic if that could extend down to 900 meters, but there's no reason why it couldn't. But it also, at those grades at Youanmi deeps, means that there is actually a hell of a lot of value in that gold. So there's around 658,000 ounces at 8.5 grams, so in today's gold prices worth around $1.9 billion. And given that $12 million potential capital cost for reopening and dewatering the underground mine, it starts to look pretty attractive at today's prices. So in terms of Youanmi and our plan going forward, the drill out of the Grace Prospect has been done as far as we can for the minute. We've still got 78 holes to come. And so we'll be going through that data and doing a lot of project evaluation throughout April. We then hope to be out there diamond drilling in May to complete metallurgical test work and ore characterization. The initial LeachWELL work that we've done on Grace suggests that it's free-milling and plus 97% recovery. But as a check to that, we also want to do diamond drilling to confirm what we believe to be the metallurgy there. And then in June or around the middle of this year, we'll be looking at a maiden resource for Grace and then having concept studies and scoping studies from that resource. In the middle of the year, we'll also be drilling our regional tenure with air core to do a scout program. So turning to Mt Fisher. Rox' tenure at Mt Fisher is around 1,100 square kilometers, so a very significant land holding. The Mt Fisher belt is a greenstone belt that is around 150 kilometers east of Wiluna. Rox made a significant discovery here in 2012. And I've listed some of the better intersections on Slide 20. So there's -- the high-grade massive sulfide that we see at Fisher East is very high tenor. So some of the better results there, 4 at 8.5% nickel, including 2 at 14.7% and 5 meters at 8.4% nickel, are very good nickel grades in anybody's language. So Rox has -- again, has about 80 kilometers of strike length of the prospective horizon here. And the deposits that we've delineated here, 3 deposits around -- are situated on about 3 kilometers of that 80 kilometers. So the geological framework of the Mt Fisher belt is really that it's an Archean greenstone belt to the east of the Norseman-Wiluna and Yandal belts in Western Australia. And these are host to some of the largest nickel and gold deposits globally, and there's no reason why Mt Fisher greenstone belt can't host similar deposits given its similar age and metamorphic grade. We mainly see the nickel deposits on the eastern side of the belt in the ultramafic. These nickel deposits are ultramafic komatiite flow-related deposits, much like the Kambalda. And then on the western side of the belt, where the ultramafic is sheared away and we -- and that shear zone has probably introduced gold mineralizing fluids because we see large gold anomalies on the western side of the belt. So we're following up, I think, on the long 1 gram per tonne gold anomaly at Mt Fisher as well. So looking at the Fisher East resources. They're across 3 deposits, Musket, Cannonball and Camelwood. The deposits start from surface and plunge away to the north. There are some very high-grade parts of those deposits. So you can see from Slide 22 that there are significant areas where there's grades between 22.5 meter percent nickel, which is pretty spectacular. The -- these flows and lenses are open at depth. There's EM conducted below them. However, at the depth that we're talking, which is around 500 meters vertically, we're starting to be having to -- we're starting to having to drill 700-meter deep diamond holes, which gets expensive for a company of Rox' size. So the cheapest and easiest way for us to grow the nickel tonnage here is to look along strike, which is what we're doing. So these deposits really occur in a 3-kilometer window of the 80-kilometer strike. There has been an economic plan around Fisher East previously, and this was last updated in 2018. We could look at building a concentrator on-site at Fisher East or we could truck ore to a nearby plant, the Toll Mill Case. Now this would most sensibly go to Leinster nickel operation of BHP Nickel West, and we have previously been in discussions with them. The -- we could also look at going to other plants that are opening up in the area, such as the refurb-ed Cosmos plant. The project itself, on the economic study that was completed, showed annual production of 7,300 tonnes of nickel in concentrate over 6 years. It's probably a little bit on the small side. Hence, we're exploring hard to try and lift that overall tonnage. So the key points to watch for Mt Fisher are that we are exploring our large landholding. We've completed VTEM surveys and air core drilling on regional targets recently. We're evaluating that data now. And then in the second half, we'll be out there RC drilling to add to the resource position, and we'll be re-engaging with potential offtake partners. So in conclusion, the gold sector is enjoying strong prices, which we expect to continue given the low interest rate environment globally and QE. The nickel price is expected to recover in the medium term as the EV and battery thematic Plays out, and we're leveraged to that as well. But looking at what we can control and what we are doing, the recent discovery of the Grace Prospect at Youanmi has significantly enhanced our overall portfolio and significantly enhanced that project. So we look forward to further success there. In terms of our exploration philosophy, we are actively exploring our properties and we have commanding positions in those belts so when we do discover deposits, we have leverage to the upside. Our programs are well funded for the minute. We have $5.75 million in cash and receivables. Like all explorers and developers, yes, we will be capital-market-dependent at some point but there are no immediate plans to do anything. And the company's management team is committed on to -- committed to delivering on the milestones, as we've outlined. And we look forward to keeping you updated in due course. So with that, I'm just going to check for any questions that might have been handed in.

So I've had a couple come -- a couple of questions come through, and I'll run through some of the answers to those now. So we have quoted a near-surface resource. Can we please define what is open-cut and underground? The near-surface resource is down to 120 meters at Youanmi, and below that, it's defined as deeps. There's a natural metallurgical change at around that depth. What's the status of the old plant is another question. The plant is -- it's just about anything that moves in the plant is unserviceable, has -- and hasn't been well maintained. But there are parts of the plant, such as ore mill shells and other long lead time items, that we can reuse. So we'll be -- we would be looking at reusing as much of that plant as we possibly -- as we could. Where is the nearest toll milling operation? And could we look at toll milling growth? The nearest toll milling operations are -- the [ Kirklocker ] plant, the Mt Magnet plant and the Gold Fields plant, Agnew, will be the 3 main ones. It probably makes the most sense to go to somewhere like Ramelius' Mt Magnet plant particularly given that they would be driving trucks with Spectrum or Penny West or straight past to Youanmi gate. We haven't commenced any negotiations. We're still busy drilling out Grace to understand what's there. Is there refractory ore in the new resources at Grace and airstrip? Not to our knowledge, no. The initial metallurgical test work has shown that it's free-milling. What may be an estimated time line to get into production? We -- well, Grace is shallow and it's high-grade. So it's -- and it sits on a granted mining lease. So that is -- so that means that permitting and starting is quite easy. And it's about us working out what's there and what the economics look like. And I'll just have a look for any further questions. What's my opinion on the Ramelius takeover? Well, I think it underpins the valuations in the belt. I think that with Ramelius, the Vivien -- the high-grade Vivien deposit at Leinster coming through the end of its last next year, the Mt Magnet plant obviously noted to supplement its high-grade feed and the Penny North deposit was a good way of doing that. Where -- when can we expect further exploration results from the Grace Prospect? Well, we have results coming in over -- we've had some -- we have results coming in intermittently, and we need to interpret those and work on those, and then we'll be releasing them as soon as we possibly can. We are still waiting on above 70 holes to come in. So yes, there should be lots of good news to come. There is talk of a small plant to get the Grace shallow deposit up and running. How big could this be? And what would the cost be? Well, we're still working out how big Grace could be but there are -- there is a natural size of around 250,000 tonnes per annum for a semi-modular plant, where the capital cost and the operating costs are quite effective. A couple of the other questions regarding M&A activity that I'm not going to talk to. What is the timing of the $3.75 million receivable and its conditions? So it's an unconditional receivable. It's due on the earlier of February 2023 or a decision to mine the Teena zinc project. And we expect the earlier milestone would be February 2023, and that's completely unconditional from Teck. It just needs the time to run down. So with that, I think we've done all the questions. So thank you for your time, and we look forward to keeping you up-to-date on all the developments at Rox. Thank you all, and have a great day.