Stratex International: very busy and very promising

Stratex International (LON:STI) is one of the AIM market's busiest gold explorers. It is making fairly rapid progress on many fronts and sometimes it can be hard for investors to keep up.

Here we take a detailed look at this junior gold stock that has nearly trebled in value in just a few months.

It has two near production gold mine development projects and several exploration joint ventures in Turkey, as well as an exciting new exploration frontier in Ethiopia and Djibouti.

Stratex shares, like many others, were trading strongly towards the end of 2010. 

After surging from around 3.5 pence in late September the shares quickly burst through the 8 pence mark in November before reaching highs of 10.25 in January. Since then the share price has pulled back somewhat and Stratex is currently trading at about 8.8 pence a share.

While much of this rally should be viewed against sector-wide strength that has been fuelled by rising commodity prices, Stratex has also released a series of updates across its extensive project portfolio.

Indeed with so much going on many investors will welcome the chance to pause and digest the group’s progress, as well as its busy forward work schedule.

This morning Peter Rose, Fox-Davies’ respected mining analyst, had a forensic look at the groups’ recent developments in both Turkey and Africa and upgraded his valuation by 20 percent, to 10 pence a share, to catch up with events.

Rose previously had a 8 pence target - a level that Stratex shares breached some time ago.

“We retain our ‘Buy recommendation’ with a new target price of £0.10 which represents an 11.2 percent uplift on the current share price,” Rose said. 

“Upside potential exists within the Öksüt deposit which could potentially contain upward of 200,000 ounces with mineralisation remaining open, and in the potential of their East African prospects.”

The analyst stripped out three key activities from Stratex’s expansive portfolio.

Right now most of Stratex’s market value is based on the Turkish assets, particularly its two near production mine development projects - Inlice and Altıntepe.

Inlice will be the first to be mined, with the first gold pour expected in the first quarter of 2012. It is currently at the feasibility stage and the study is due at the end of this quarter.

Rose emphasised that while the Inlice deposit is relatively small - 98,000 ounces of oxide gold has been defined as part of a larger 262,300 total gold resource - he still sees it as a ‘cash earner’ for Stratex.

Crucially it will help fund the larger Altıntepe development project, alongside its Turkish JV partner NTF Insaat Ticaret.

The company is currently working through the 2010 resource drilling results from Altıntepe. The results are being incorporated into an in-house resource estimate which will pave the way for the commissioning of a full feasibility study - subject to results.

Rose reckons that mining is due to get underway at the larger Altintepe deposit in early 2013.

Altintepe has 574,013 ounce in total gold resources, of which there are 472,318 ounces of oxide gold as well as 2.37 million ounces of oxide silver and a further 812,819 ounces of sulphide silver.

He also highlights that NTF will play an important role in this larger mine development project, because of their operational experience and they will help optimise both capital and operational costs compared to other foreign-led projects in Turkey.

“We consider the involvement of NTF, an earth-moving and construction company in Turkey, to be a great asset to the project,” Rose said.

The analyst adds: “Exploration companies find it notoriously difficult to make the switch into mining and NTF will help fill this skill gap. NTF will also assist in getting relatively low cost capital construction and access to lower cost plant and machinery in Turkey.” 

In Ethiopia and Djibouti Stratex has agreed several joint ventures for exploration over a total land position of 4,798 square kilometres. Rose reckons the fact that the group has managed to sign up so many JVs in the area indicates the prospectivity of the region. He also said it is an endorsement of Stratex’s management and exploration team.

Meanwhile, back in Turkey, Stratex is also exploring the Öksüt deposit in a joint venture alongside Centerra.

The analyst notes that expanding the preliminary 148,000 ounce oxide gold resource was the main aim of the 2010 drilling programme at Öksüt and the subsequent results show potential for a ‘high-grade deposit with a bulk-tonnage, low-grade gold envelope’. He expects a independent resource statement to be released this quarter.