Stratex International’s shares up after West African gold move

Shares in geographically-diversified gold miner Stratex International (LON:STI) moved up by four per cent to 7.15 pence each in late-morning trading today after it announced it would pay up to £4.7 million for West Africa-focused Silvrex – a private firm with a prospective gold portfolio in Senegal and Mauritania.

Analysts who follow the company welcomed the move, highlighting that the firm’s assets undervalue its shares.

The deal appears to be an opportunistic acquisition for Stratex, which already has gold assets in Ethiopia and Turkey, since it gives the firm exposure to what it describes as a “relatively undeveloped region in West Africa”.

Silvrex’s prospective gold portfolio includes the 636-square kilometre Dalafin gold licence in eastern Senegal, which Stratex said is located in a prime mineral district that hosts several major gold mines and multi-million ounce gold deposits in similar geological environments. Silvrex also has four new licences in Mauritania – one of which is located within the same geological terrain as Kinross Gold Corporation’s 20-million ounce Tasiast gold deposit.

Stratex said that by three months of due diligence, it has confirmed the presence of gold-bearing veins and areas of gold-enrichment in soils at Dalafin. The firm now plans to accelerate exploration here.

The terms of the offer include an amount of £850,000 payable immediately in Stratex shares, valued at eight pence each, along with a deferred additional consideration of £3.8 million (payable in shares or cash) on the identification of a JORC-compliant resource of no less than 500,000 ounces of gold, and independently verified, before the end of December 2014. This resource may be identified in either the Dalafin licence or at any one of the four licences in Mauritania.

So far, Stratex said, it has received irrevocable acceptances from Silvrex’s owners amounting to more than 52 per cent of the business’s equity.

“The acquisition of Silvrex would provide Stratex with a significant foothold in West Africa, which is increasingly recognised as an important target for gold exploration,” said Stratex chairman Christopher Hall. “The Dalafin gold project in eastern Senegal is particularly exciting as early exploration by Silvrex and ourselves has identified multiple gold occurrences.  The gold endowment of a number of these prospects is also supported by the presence of artisanal workings.  On successful completion of the acquisition, our aim would be to strengthen our knowledge of the assets, through the use of Silvrex’s highly experienced team, without detracting from our existing interests.”

Meanwhile, Hall said that Stratex’s maturing portfolio of gold properties in Turkey is moving towards production and that the firm is particularly encouraged by the recent exceptional gold intersections at Öksüt. In Ethiopia, after two years of pioneering work, he said that Stratex had seen encouraging drill results at Megenta, where Thani Ashanti is funding the project. The firm has also retained 95 per cent of the Blackrock project where drilling is expected to start shortly.

“Stratex has been successful in recognising under-explored target areas, rapidly evaluating their prospectivity and managing financial risk, where necessary, by joint venture,” added Hall. “We believe that Silvrex’s assets would provide the company with an exciting new opportunity in this relatively undeveloped region of West Africa.”

Commenting on the deal, analysts at Northland Capital Partners noted that West Africa is “highly prospective” and was recently highlighted as a gold exploration hotspot by a Rio Tinto director responsible for exploration in Africa and Eurasia. “At the Dalafin Gold Project in eastern Senegal multiple gold occurrences have already been identified and the area contains artisanal workings demonstrating the high level of prospectivity,” said the broker. “Our valuation focuses on the potential of Stratex International’s Turkish development projects and the expanded blue sky potential of the exploration [programme] is not taken into account, allowing additional upside potential.”

Meanwhile, while noting that the deal “seems like a good result for Stratex”, rival broker FoxDavies said one point that concerned it was that the 75-per cent earn-in option is conditional on Silvrex spending US$3 million over five years, “which could become a cross to bear for Stratex given its ever-expanding portfolio of assets which will all be competing for money and human resources”.

Nevertheless, FoxDavies rates the shares as a ‘buy’ with a target price of 12.5 pence per share. Northland has set a price target of 13.3 pence.