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Stratex eyes potential of Dalafin as successful strategy rolls on

Stratex International's recent work at Dalafin in Senegal has fired the starting pistol on what looks set to be another very productive period for the gold explorer

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Stratex International's (LON:STI) recent work at Dalafin in Senegal has fired the starting pistol on what looks set to be another very productive period for the gold explorer.

Management believes the results validate its strategy of building a pipeline of prospects to create value, a blueprint that has already been hugely successful for the company in Turkey.

Stratex's enviable cash position (£15mln as at the end of June) stems from its neat disposal of three Turkish projects: Inlice (gold) in April this year, plus the Muratdere copper-gold project and Öksüt gold property in 2012.

This financial strength has also opened up the opportunity for the cash-rich Stratex to make further acquisitions in the West African region, one of the most active areas for gold exploration on the continent.

"We've got a well-developed three pronged strategy and portfolio," explains Bob Foster, Stratex chief executive, referring to the firm's activities in Turkey, East Africa and West Africa – “a portfolio of development & production projects in Turkey, exciting exploration programmes in East and West Africa, and the financial and technical capabilities to acquire new advanced project from companies that do not have the financial resources to move forward".

Stratex’s management has already demonstrated its ability to spot value with the discovery and eventual sale of the Öksüt project in Turkey.

Stratex had a 30% stake, which it sold last December for US$20mln cash and US$20mln future production royalty after an initial investment of just US$1mln.

The 1mln ounce gold project was sold to the firm's joint venture partner, TSX-listed Centerra Gold.

"Our exploration pipelines (in East and West Africa) will continue now to deliver the new ideas and the projects that can be taken to the next level," says Foster.

The Dalafin project in eastern Senegal is a good example. The 636 square kilometre (km) licence is the subject of a joint venture (JV) between Senegalese company EMC and Stratex, with Stratex now vested at 75%. Already it is emerging as the next potential full-scale discovery and perhaps the next formally defined resource for the company.

Four out of a total of five target areas have now yielded very encouraging signs of gold - the latest being the Medina Bafé - and follow up drilling is earmarked to commence in the next two to three months.

"Although we remain very excited about the potential of our Afar Rift Valley portfolio in East Africa, West Africa is offering the biggest upside for new opportunities," says Foster.

As well as the Senegal project, the firm also has a gold licence in north-west Liberia, where trenching is now being used to investigate a 4.5km long gold-in-soil anomaly.

Interestingly, Foster explains that although West Africa is an established exploration region, many of the small firms operating there have now ground to a halt, making an acquisition opportunity for Stratex.

"We've got a firm footprint and a good technical team in the region.

"We see a really good opportunity here to pick up some of the low hanging fruit," he told Proactive, adding that the firm was currently "sifting" through exactly such opportunities.

"A lean and mean" deal, as he puts it, will speed up the whole process of the firm's value adding strategy.

Foster says ideally the company is seeking an advanced “tipping-point” project - for example, where grassroots exploration has identified a prime target that merely requires a limited drill programme to prove a discovery, or a company, which does not have the resources to move an inferred resource into the higher confidence indicated category, all of which could be achieved by injection of relatively small amounts of cash.

Last month, broker Northland described this monetisation of the firm's projects as the "successful culmination of Stratex’s business model" of buying greenfield assets, building them up and then selling them on.

Foster says there are currently no plans to sell or farm-out any other assets in the company's portfolio.

"We would only bring partners in if we felt the project doesn't quite have the upside that we'd like it to and we feel we could put the money elsewhere. At the moment that doesn't apply to any of our projects," said Foster.

Also on the near-term horizon, investors can look forward to the potential of production from the modest (0.5 mln oz) Altintepe gold project in Turkey, a joint venture with Turkish firm Bahar Madencilik.

Foster says the project’s Environmental Impact Study and in-house technical studies have been approved by the Turkish authorities and Bahar are poised to begin construction, estimated to take six months, with the only thing outstanding being a Forest Permit.

Bahar is funding all development, including construction, and is focused on a minimum production target of 30,000 ounces of gold a year to recover its costs from 80% of net free cash flow.

After that, net proceeds will be distributed 45% to Stratex and 55% to the Turkish company.

In a tough market for junior miners, shares in Stratex have rallied to close to their 2013 high in recent weeks, suggesting the progress being made is starting to be recognised by the market.

Northland reckons first production at Altintepe alone is worth a risked net present value of US$23mln, or around £15mln, net to the company, representing around three quarters of its entire market cap.

"...we view Stratex as an excellent exposure even at this stage in the cycle, given management track record, quality of JV-partners, exploration prospects and inherent value from gold in the ground, whilst any improvement in sentiment for small cap mining should see Stratex as a preferred selection," it said when the company unveiled first half results at the end of August, repeating its 'buy' rating and 12.8p price target.

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