Stratex International (LON:STI) shares could almost double in value as the group starts producing gold in turkey and unlocks the ‘blue sky’ potential within its African exploration portfolio, according to research by Northland Capital.
Today Northland analyst Andrew McGeary began his coverage on the AIM quoted gold junior with a ‘buy’ recommendation and a 13.3 pence price target – the stock currently trades at around 7 pence a share.
As McGeary points out, in a note to clients today, the Turkish development assets in the Stratex portfolio underpin the group’s valuation while the early-stage exploration prospects, mainly in Ethiopia, ‘offer the potential to be transformational’.
“In Turkey, Stratex has made steady progress from greenfield exploration to discovery to the commencement of low-cost oxide production, expected mid-year 2012,” McGeary said.
“The Inlice deposit is expected to come on stream mid-2012, scheduled to be followed by the Altintepe deposit in 2013 which could vindicate Stratex‘s efforts in Turkey.
The analyst emphasised that while the two Turkish mine development projects are modest in scale, they should generate healthy near-term cashflows which will be spent on exploration, both in Turkey and Ethiopia.
It is Ethiopia that provides much of the excitement surrounding Stratex. Indeed McGeary reckons that Stratex may be uncovering a significant frontier gold province through its early stage exploration work.
Reflecting on a recent site visit to Ethiopia, McGeary said: “We were impressed by the scale of opportunity, clear signs of mineralisation, and early progress.
“The assets contain multiple epithermal gold systems exhibiting some remarkably high grades at surface. It is too early to be conclusive but early indications suggest that a significant gold discovery is possible.
“Grassroots work on the extensive Ethiopian concessions has uncovered potential for a significant new gold system which has attracted the attention of major Thani-Ashanti (which is now a joint venture partner for a large proportion of the Ethiopian assets).”
The analyst also emphaises the fact that aside from Thani-Ashanti – a Dubai based associate of Anglo Gold Ashanti, which is also a major shareholder in Stratex – a number of other major partners is also invelved in Stratex-led projects.
The endorsement that these partnerships represent set Stratex apart from its junior exploration peers, McGeary added.
“We view the recent moves by AngloGold Ashanti (one of the world’s largest gold producers), to take an 11.5 per cent direct equity stake in Stratex, and the 2.97 per cent placing to copper major Antofagasta as indicative of the potential of the group’s portfolio,” McGeary said.
“Thani-Ashanti, Teck Resources, Centerra and Antofagasta are funding projects. These high-quality partners mark Stratex out in comparison to the company‘s AIM peer group.”
The Northland analyst reckons the near-term catalysts for the shares should arise from drilling results from the Blackrock project (Q411/Q112) and prospect drilling at the Megenta prospect (H112) in Ethiopia, as well as the Inlice gold production (mid-2012).
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