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Plugged that into one of the Mac Mini's USB ports, booted the machine up (with a wired USB keyboard as a workaround so I could log in) and voilà - immediately I could pair my Apple wireless keyboard and so far (two weeks) no dropped connection. I went to Amazon and bought a standard USB 4.0 dongle which stated compatibility with Macs (price < $10). and after reading several threads about this problem on other websites, the impression I got was that this is an inherent problem with the hardware design (either shielding due to the case or influence from something else on the board) and that the easiest workaround would be to use a USB bluetooth dongle. After experimenting around with placing the Mac Mini somewhere else, reducing the distance between the keyboard and the computer etc.
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It was completely impossible to pair my Apple wireless keyboard, the computer could not see it. Having the same issue with my M1 Mac Mini.
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