STRATEX INTERNATIONAL in the field in Ethiopia. After a flurry of joint-venture deals in the last year, the company has emerged with cash of £15m ($24m), versus its £22m ($36m) market cap.

Stratex Bumps Up Ownership in Megenta in East Africa

Issue 58, October 2013

Stratex International has said it will lift its ownership in the Megenta gold project in Ethiopia from 49 to 65 per cent, in exchange for funding the project’s current round of drilling. “The potential is enormous,” says chairman Christopher Hall. “If Ethiopia comes right, it could be monstrous.”

Megenta covers 1,700 sq kms, hosting “tens of kilometres” of gold-bearing strike. A company of lecturing geologists, Stratex wandered into Ethiopia from Kenya in pursuit of the thesis that East Africa’s Rift Valley is likeable to Argentina’s gold-rich Deseado Massif. “The Atlantic is just a big version of the Red Sea."

Joint-venture partner AngloGold Ashanti has the option to buy back its majority share for three times Stratex’s drill costs of at least $500,000, but Stratex’s move to a majority position reflects a wider shift by its board.

When the company listed in 2006, it repeatedly optioned out ground in its Turkish heartland of young volcanics, minimising costs and retaining carried upside; the approach has yielded $26m from 3 properties in 12 months, including $20m for its 30 per cent share in the Oksut discovery, where the company retains a 1 per cent royalty.

Stratex spent $1m at Oksut before optioning it to Canada’s Centerra, who injected $6m for 70 per cent. The 20-to-1 return allows Stratex to hold projects for longer and at a higher share. “We decided we’d take projects further up the development curve before bringing a partner in,” says Hall, “so we can demonstrate more value.”

At its Altintepe project, Stratex delineaed 593,000 gold ounces before optioning 55 per cent to a Turkish contractor, who carries 100 per cent of the costs. Subject to crossing the prime minister’s desk, Altintepe enters production next year.

“We’re also looking for opportunities to invest in projects where 1 or 2 rounds of drilling can make a significant difference.” Hall is eyeing projects where a discovery has been made, but a resource has not been defined.

The strategy capitalises on market conditions in which peers are unable to raise money for drilling. It also holds Stratex to its remit of exploration. “We don’t have the inclination to become mine operators. We’re happy to retain positions in operating projects, but we don’t want to do it ourselves.”

“The Atlantic is just a big version of the Red Sea.”

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