Stratex International PLC (LON:STI) saw its shares jump today after the firm said it has “identified potential optimisation opportunities” at Crusader Resources Limited's Borborema project in Brazil “which are expected to yield material economic gains and lower upfront capital spend”.
The AIM-quoted gold and exploration company – which announced plans for an around £31mln 'reverse takeover' merger with Crusader in May – said, having completed an extensive due diligence review into Borborema, it expected to reduce capex at the project from the current estimate of US$120mln to around US$100mln.
READ: Stratex International to merge with Aussie peer Crusader Resources
Stratex said this reduction would reflect a shift to using mining contractors; a smaller footprint than previously anticipated, with significant reduction on infrastructure spend; accessing electricity from on-site rather than remote power lines; and re-basing to the current average exchange rate.
In addition, it said there would be a more benign equipment supply and pricing environment, and lower grinding capacity requirements as a result of positive metallurgy testing results.
The group also highlighted a revision of the mining schedule, prioritising easily identifiable and consistent higher grade core, and drilling and blasting efficiency improvements.
Stratex said metallurgical testing results present an opportunity to substantially reduce grinding volumes and mill throughput by diorite flotation of silica material, and the expansion drilling of footwall for resource extensions is expected to define additional low-cost reserve ounces.
The group said its intention is to reflect these optimisation opportunities in the planned Bankable Feasibility Study (BFS) on Borborema.
It added that, subject to successful completion of the BFS, Crusader currently expects final construction permitting within 9-12 months of closing of the merger, with the decision to mine expected thereafter.
WATCH: Stratex boss Marcus Engelbrecht on the 'significant upside' to Crusader merger
In addition, Stratex announced that the conditional sale of the Posse Iron Ore mine in Brazil – first announced on August 2 - is progressing as planned, with Crusader having received the first payment of R$1.0mln approximately US$0.32mln).
It added that the remainder of the R$8mln (approximately US$2.57mln) consideration is due to be received in 15 equal monthly payments commencing 31 October 2017.
Fundamental value proposition in proposed merger
Marcus Engelbrecht, Stratex’s CEO, said: "The successful sale of Posse by the Crusader management and receipt of the first payment tranche is the first step toward refocussing on development of their gold assets.”
He added: “The fundamental value proposition for both Stratex and Crusader shareholders in the proposed merger between the two companies is the underlying and unrealised value inherent in these gold assets, and in particular in Borborema.
“The ongoing optimisation work that is being done has repeatedly demonstrated opportunities to lower operating costs and initial capital spend to construct the project and provides further value uplift."
Shares jump over 14.5%
In early afternoon trading, Stratex shares were up over 14.5%, ahead 0.18p at 1.38p.
In a note to clients, Shore Capital mining analyst Yuen Low noted the “good news” from Stratex’s due diligence review, and called news that Crusader’s sale of the loss-making Posse iron ore mine appears to be progressing to plan encouraging.
He noted that Borborema is the flagship asset of ASX-listed Crusader Resources (ASX:CAS), which Stratex is ‘acquiring’ by way of a Scheme of Arrangement under Australian law.
The transaction, which is expected to become effective in October 2017, will constitute a reverse takeover, with the Australian firm’s shareholders to receive 6.6 Stratex shares per Crusader share, resulting in their owning around.81% of the enlarged company.
-- Adds share price, analyst comment --