One might think that Stratex International had made no progress at all this year. Because in spite of the vigorous exploration and development programme it has been pursuing in Turkey, in common with many AIM listed mining exploration stocks, investor sentiment has drifted away, leaving the share price in a pretty parlous state.
There’s a fairly representative chart which has been around for some years, which illustrates how the share price of an exploration and development outfit can reasonably be expected to behave over the long term vis a vis the changing fundamentals of the company. It looks like this…
Compare it with the Stratex chart alongside, and indeed, that of any of today’s crop of junior explorers, and it’s clear that share price and fundamentals have decoupled entirely. Hardly surprising, given that the minerals for which they are exploring are also in a period of high volatility following market jitters and the very real fear of world-wide recession and decreasing demand for commodities. Only gold – fortunately for Stratex! – with its age-old attribute as a store of value, is showing resilience and some recent recovery.
As is now only too often the case, the Stratex price chart belies the reality of what the company are achieving. Stratex is an exploration company. The corporate aim is to discover and delineate new mineralised deposits for down-stream development by mining companies. They have no ambition to become a mining company themselves. This is amply demonstrated by their strategic alliance with Teck Cominco, who are likely to take on any large discovery made by Stratex and develop it themselves. Teck Cominco are also funding the exploration spend in the Konya Volcanic region – a vast area of exploration licences containing Stratex’s first grass roots discovery at Inlice.
This puts Stratex in a relatively different position to the majority of juniors who are developing an existing discovery with a view to taking it forward themselves into a producing mine. And it is one of the reasons why, compared with the exploration and development juniors, Stratex can be more difficult for investors to get a firm handle on.
That’s because exploration is a continuous process, with new potential feeding in at one end of the pipeline, whilst proven potential (or abandoned projects) move out at the other end. That pipeline has to be kept full. And Stratex keep theirs very full indeed!
The key objective for Stratex is to define a 2+ million ounce resource which can be put into production in partnership with a major miner, such as their partner Teck Cominco. A secondary objective is the discovery of other economic deposits which can be moved on into smaller mining companies for development, with Stratex retaining a financial interest.
The company is currently evaluating nine distinct projects hosted in geology primarily consisting of Miocene-age volcanics. Epithermal gold deposits and copper-gold porphyry formations are the main focus of attention, and Richard Sillitoe – who wrote the book on these systems - has drawn parallels between this geological area and the similarly hosted Maricunga belt in South America, which from a standing start in the 1980s now contains resources of more than 40 million ounces.
House broker Hanson Westhouse describes the Stratex portfolio as being “brimming” and “bursting at the seams” with good projects. These include defined resources at Altintepe, Inlice and Karaagac, and exploration projects at Öksüt, Doğanbey, Karacaören, Kozlu, Gölcük, Altunhisar, and Hasançelebi. The company’s current resource – comprising mainly the resources at Inlice and Altıntepe – now amounts to over a million ounces of gold plus minor gold equivalent, but thus far the major 2+ million ounce discovery has evaded them. However, partner Teck Cominco is sufficiently excited by the Konya volcanic region – where Inlice and Doğanbey are situated – to be earning into 51% of the project that includes three gold porphyry projects at Karacaören, Gölcük and Kozlu.
As Chairman David Hall explained: “The Konya exploration programme, where we have now discovered four porphyry occurrences, is fully funded by Teck Cominco. The early drilling of Doğanbey has greatly enhanced our understanding of the system and further drilling is anticipated. More importantly, with the recent identification of the Karacaören, Kozlu and Gölcük porphyries in the northern part of the Konya Belt, we are reinforced in our view that the Konya Project offers considerable potential for the discovery of a large-tonnage, low-grade porphyry gold deposit.”
The most recent discovery at Öksüt is attracting a large share of the company’s attention right now. Situated in a 75sq km licence area south of Develi, the mineralisation is hosted in Miocene-age volcanics, similar to the Konya Belt. Announced in March of this year, the Öksüt licence encompasses gold-bearing silica ledges and associated altered volcanic rocks extending over an area of approximately 3,200 metres x 3,000 metres. Preliminary mapping and surface rock sampling on one hillside revealed high-sulphidation mineralisation grading up to 1.6 g/t Au, with one of the silica ledges showing 0.93 g/t Au over 25 m. Further continuous rock chip sampling this spring produced excellent results, ranging from 111m grading 0.9 g/t to 21m at 2.91 g/t in surface outcrops over a 200m x 300m area known as the Ortaçam zone.
Unlike the steeply dipping silica ledges at Inlice, the mineralisation here is relatively flat lying, with the silica ledges having formed in gently dipping lava flows. This lateral mineralisation, some 100m in thickness, has the potential to contain a large near-surface, open-pittable tonnage, similar to the very large high-sulphidation deposits such as Yanacocha (35 Moz) and Pierina (9 Moz) in Peru. Exploration is continuing over the wider silica system, and at least four additional mineralised zones have been identified for further work alongside a drilling programme on Ortaçam that is already underway. Confidence in this new grass roots discovery is such that Stratex have already commissioned a baseline environmental study.
The company have a packed programme for the next several months, including drilling and further reconnaissance at Öksüt; more drilling at the Doğanbey porphyry including testing the system to depth; drill testing of the Konya porphyries at Karacaören/Kozlu/Gölcük; and enhanced exploration leading to identification of targets and drilling at the Hasançelebi and Altunhisar/Karapınar gold projects.
Meanwhile, with oxide gold resources of high confidence now established at Inlice and Altintepe, the company is planning to move these to feasibility studies and production through a JV partner or a partial sale. Metallurgical tests at Altıntepe have demonstrated good recoveries of 91-98% of the contained gold, and Stratex are keen to bring this project into development. At Inlice, the focus is on the easily treatable oxide resource, where 95% of the contained gold is recoverable. A baseline environmental study has been completed on Inlice, and Stratex are in discussion with potential partners.
So that’s the story. The first two projects – Inlice and Altıntepe - have been progressed speedily to development status and are ready to move out of the pipeline. At the opposite end, new projects such as those at Hasançelebi and Altunhisar have moved in, hard on the heels of the Konya porphyries and the enormously prospective Öksüt project which are progressing steadily through the pipeline at the moment.
Yet, with all this going on, and with both the drive and the potential to discover and progress their eagerly sought 2+ million ounce project, Stratex is currently valued by the market at just £10 million – of which more than £4 million is cash in the bank! The average private investor has simply lost patience and interest in mining and exploration, and is now fixated on the allegedly safer business of production ounces. But those who know better are holding Stratex shares tightly. Of the shares in issue, the directors hold almost 21 million, or 9%. Kairos Investment Management own 21%, Teck Cominco have invested almost 9% and Nick Graham, a highly successful exploration geologist in his own right, holds almost 10%.
CEO Bob Foster put it in a nutshell for us: “There is a total disconnect between the market valuation of Stratex and our underlying asset value, but that’s a frustrating sign of these turbulent times.”
“We’ve got great projects, real gold assets, twin objectives of going into production whilst continuing to search for the Big One (and any one of a number of our projects could be just a drill-intersection away from that company-defining moment!), and we have the strong cash balance to ensure that we can deliver”.
House broker Hanson Westhouse confirmed Foster’s view in late July: “With a current market cap/oz AuEq value of US$23/oz, Stratex is significantly undervalued relative to its AIM-quoted peers, who average US$41/oz.”
Since then the market cap has fallen and the resource has increased, valuing Stratex at just £9.74 of market cap per ounce, of which almost £4 is represented by the cash in the bank…
Make sense out of that!