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Crusader acquisition attractive on all metrics, says Stratex's Marcus Englebrecht

Stratex International's expansion plans involve a radical transformation of the company
gold bars
Gold production from Borborema could generate US$30mln in cash per year

The transformational vision that Marcus Englebrecht is putting forward for junior project generator Stratex International PLC (LON:STI): With one fell swoop he plans to turn a company with a disparate - though in places attractive – exploration portfolio into a near-term producer with projected cashflow of US$30mln a year.

There’s just one fly in the ointment: some shareholders and former directors are opposing it.

WATCH: Stratex International's Marcus Englebrecht to 'vigorously defend' Crusader merger

This opposition has taken the official form of a valid requisition to hold a general meeting, the date of which will be announced shortly, and the purpose of which is to vote Englebrecht off the board, stop his proposed transaction and appoint new directors.

So what is the transaction that’s caused all the upset?

Back in May, after Englebrecht had been in the job as chief executive for nearly a year, Stratex announced the proposed acquisition of Crusader Resources Limited (ASX:CAS).

READ: Stratex says now has valid requisition notice for general meeting to oust management, terminate takeover

Central to the deal is Borborema, a 2.4 mln ounce gold resource in Brazil, a significant geographical departure for Stratex, which has hitherto focussed on Turkey and Africa.

But Englebrecht believes Borborema and Stratex are made for each other. Borborema itself will take about US$100mln to put into production, according to analysis from Hannam, and it can be done quickly.

What’s more, the exploration upside around it is significant, and Crusader also comes with two more highly attractive gold projects, Juruena and Manga.

If it can be put into Stratex at the right price, the transformation will be significant, and long-lasting.

READ: Stratex convinced Crusader deal is right direction for company to take

And remember, Englebrecht is not new to this business. He’s previously built and sold a gold mine in Indonesia in a transaction valued in the hundreds of millions rather than the tens.

He admits there are hurdles.

“We would have to build a larger team,” he says. “At the moment it’s just me and Perry Ashwood, the CFO.”

But one reason the current team is so small, he adds, is that there isn’t a lot in the Stratex portfolio at the moment that the company is actually actively managing.

“The only exploration that I’m managing is Dalafin in Senegal, which I like,” says Englebrecht. “We don’t have anything that we’re managing in Turkey.”

And he goes on to emphasise that the idea isn’t to drop exploration as a core activity of Stratex, but rather to provide a solid foundation on which it can be supported.

The projected cashflows from Borborema do look tempting, but what about the acquisition costs? Some people argue that the valuation is too high, and some scathing commentary has been coming out of the broking house Fairfax, which, perhaps rightly regards the deal as a reverse takeover in all but name.

Certainly it’s true that Crusader shareholders will end up with most of the equity in the enlarged vehicle, and the price they are getting on paper looks punchy at around £31mln, according to Fairfax’s calculations.

Move from marginal junior miner ... 

But it’s Englebrecht who will end up having to put it all together, to make Borborema work and raise the funds.

And Englebrecht is in no doubt about the value that’s on offer at Borborema.

“The enterprise value per resource ounce in the ground is one fifth of what the North Americans are getting,” he says. “On an EV to reserve basis the ratio is even better. On every single metric we look at there’s clear value.”

And there’s the exploration upside to consider too.

“When I see the expansion into exploration that’s ahead of us, I get stars in my eyes when I look at that thing,” says Englebrecht.

“This deal will take us from being a marginal junior explorer into a more serious proposition. I think we can finalise the bankable feasibility study in six months and within a year from that we could be in construction. We could be one year from a decision to mine at Borborema.”

Englebrecht is clearly a man with ambitious and well-advanced plans. It’s not clear yet what the requisitioning shareholders plan to do instead.

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