Stratex International’s latest JV with Teck Resources in line with “Find it, Prove it, Move it” model

Stratex International has just signed an option/joint venture agreement with the Turkish subsidiary of Teck Resources Ltd to advance the Hasançelebi gold project, one of a number of high sulphidation gold projects recently identified by Stratex in central Turkey.  This is Stratex’s fourth announcement about joint ventures in as many months.  So far the announcements seem to have been appreciated by the market.

Stratex, whose name derives from “Strategic Exploration”, has always had a clear business model.  It is firmly rooted in economic exploration and the application of science to the ground, and is focussed on the skills of the high calibre, well-respected management team with good track records in exploration. The model, in Stratex’s own words, is to “discover and develop new projects by focused low-cost exploration thus adding maximum value prior to optioning/joint venturing or selling on to a dedicated mining company”. Or, as Wendy Durham, a Proactive Investors’ colleague, succinctly put it in a recent article, Stratex seek to “find it, prove it, move it”

At the AGM in April Stratex, which then had 11 gold and base metal exploration projects in Turkey, fleshed out its strategy more specifically, announcing a three pronged plan whereby the company would increase shareholder return and generate revenues through:

(1)    joint venturing its defined gold resources at the Altintepe and Inlice projects, (which have a combined resource of 570,000 ounces of oxide gold), in order to fast track them into production.

(2)    joint venturing parts of its current exploration portfolio to provide funding, to reduce risk and costs, and to accelerate exploration and development.

(3)    using cash to acquire new assets, either within or outside Turkey, with a view to finding the next major deposit.  

Since the AGM announcements about each aspect of the strategy have been coming thick and fast.  

·    In June Stratex signed a Memorandum of Understanding identifying a road map to a definitive agreement to form a 45:55 joint venture company with NTF, a Turkish civil engineering and contract mining company.  The JV company will take Inlice and Altintepe through feasibility to production, in target times of 18 months and 36 months respectively.  Under the agreement NTF, which has considerable experience in major construction projects and in quarrying, will pay Stratex $1m and provide $2m funding for the Inlice feasibility study plus $2.5m for Altintepe.  Stratex will also have up to $2m project finance available as a loan from NTF.  These projects, while not especially large, have the potential to be low cost, (with indicative cost estimates of $200/oz at Inlice and $290/oz at Altintepe), as they will yield readily treatable gold oxide material in areas with good access. They should thus generate a useful revenue stream for the JV from 2011 onwards.  Stratex are particularly committed to growing this company, with the view to becoming a significant gold producer in Turkey.

·    On 17th August the company announced a JV with Canadian-based Centerra Gold to explore and develop the Öksüt gold project, discovered by Stratex in 2008.  Centerra will fund $3m over 3 years to acquire a 50% interest in the project and is committed to spending $500,000 in year one, including reimbursement of Stratex’s exploration costs back to May 2009.  Centerra can optionally increase to 70% after 3 years by spending an additional $3m over the following 2 years.

·    On August 24th, Stratex announced an arrangement with Teck whereby Teck would sell back its earn-in options on six projects in exchange for 15.2 million new shares in Stratex at 2.64p expanding Teck’s stake in Stratex from 8.6% to 14.3%.  The arrangement would give Stratex total flexibility to either develop the six projects on its own or to identify suitable partners to fast track development in a shorter timeframe than would otherwise have been possible.  Teck also retains underlying royalty rights on the first two projects that are put into production.

·    On 1st September Stratex announced that it was expanding into Ethiopia with PLUS-listed Sheba Exploration Plc, whereby Stratex acquired a 5.6% interest in Sheba for £40,000, it could earn in to an initial 60% on the Shehagne gold project by spending £350,000 over 21 months, (with a commitment to £100,000 in the first 3 months), and it would operate a 70:30 JV with Sheba to explore a large area of northern Ethiopia.  Stratex’s thinking was that Ethiopia has high discovery potential, a good mining code and improving infrastructure and thus provides an opportunity for rapid low cost discovery and early mover advantage.  Stratex Chairman, David Hall, quotes a telling statistic that cumulative exploration expenditure in Ethiopia over the last 40 years has been the same as just one year’s expenditure in Australia and Canada’s greenstone terranes, despite similar geology.

·    On 28th September Stratex signed a JV with Teck on its Hasançelebi gold project, discovered by Stratex in 2007, whereby Teck will fund $2m to acquire a 51% interest in the project by the end of 2012 with an option to acquire a further 19% in the project by expending $3m over the following 3 years.

So in just a few months Stratex have followed through on all three strands of its strategy, setting up three JVs (with Centerra, Teck and Sheba) and an MoU for a JV with NTF. The JVs include some definite financing with the potential for considerably more, and the company’s cash position may well increase by the year-end from its current £2.1m.   It is unlikely therefore to have to return to the market before 2011 unless there is a very special need for funding. The JVs leave Stratex free to focus on its core skills of discovery; the company is proud of its record of having discovered 59 ounces of gold for each metre drilled, compared to an industry average in low single digits. 

Stratex’s plans for the short term are to sign the definitive agreement with NTF, to take Inlice and Altintepe through feasibility studies, to fast-track Öksüt, to define targets for drilling at Hasançelebi with Teck, and to begin exploration in Ethiopia at Shehagne.  In the medium term it hopes to start production, first at Inlice, (during 2011 for a 3 year mine life), and then at Altintepe, (by 2013 for 9 years).   With Centerra’s help Stratex also hopes to define a resource at Öksüt which, if large enough, can be developed by Centerra.  Should Centerra not proceed to a 50% earn-in Stratex will have the option to spin the project into the NTF JV company.  Stratex will also continue exploration and development at Hasançelebi and move to resource definition in Ethiopia as quickly as possible.  The long term plans meanwhile are to grow the company and create value for investors by continuing exploration in Turkey, developing resources with technically able partners and successfully expanding into Ethiopia.

So far the market appears happy with the strategy; since the AGM the share price has recovered from 2p to 4.25p.  Stratex’s market capitalisation currently stands at £10.6m.


The author holds a small number of shares in Stratex International.