LONDON (ResourceInvestor.com) -- The chances of a geological target making it into production are sometimes quoted at 1 in 3,000 or even 1 in 10,000. Even if the geology appears favourable and the grade economic there are still many political, financial, permitting and logistical hurdles to surmount, and the possibility of local or environmental opposition or the like.
However a company which has taken huge strides to stack the odds in its favour is Stratex International [AIM:STI], a company currently focussed on exploration and development for gold and base metals in Turkey.
Stratex began life in 2004 with Canadian major Teck Cominco [TSX:TCK-B, NYSE:TCK] as a partner and founder shareholder. It has been reviewed twice before on Resource Investor, firstly in December 2005, a month before listing in London, and more recently in May 2007 in “There’s Gold in Them There Hills.” Highlights of the story up until that point were that:
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The company had made four discoveries including a grassroots discovery at Inlice which was first identified by the General Manager of Stratex, Bahri Yildiz, when he noticed potentially gold-bearing silica ledges in a roadside cutting while driving his family to the beach.
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Stratex then moved quickly and efficiently to acquire, explore and define a resource at Inlice. After drilling just 3,800 metres and spending $500,000 it published an initial JORC resource of 373,000 ounces of gold in May 2007. This is equivalent to:
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A discovery cost of $1.30/oz (compared with the Western World average of at least $30/oz according to a 2004 paper by the
Metal Economics Group).
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Inlice was only a small part of the Stratex story. The Konya volcanic district around Inlice was completely unexplored so Stratex, when it realised that Inlice could be part of a far larger system, was able to cherry pick and acquire 410 square kilometres of licences in the area in one fell swoop. It has since demonstrated from exploration work near Doðanbey village, some 17km from Inlice, that there is at least one, and probably multiple, large gold/copper/molybdenum porphyries in the area.
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In total the company has seven projects throughout Turkey with a combined area under licence of 1438 square kilometres. These include porphyry and epithermal high- and intermediate-sulphidation styles of mineralisation and are prospective for gold, copper, molybdenum and other metals. The Altintepe project has a NI 43-101 resource of 311,543 ounces.
Since the May article there have been a number of developments. Stratex has entered into an agreement with Teck Cominco to fast track exploration in the Konya volcanic belt whereby Teck has committed to $1 million of exploration expenditure over the next year and has the option to spend a further $2 million to earn in up to 51%. It also raised £7 million ($14 million) in an oversubscribed share placement to advance Inlice and Altintepe towards production, potentially within 2-3 years.
It announced further encouraging results from the Doðanbey and Muratdere projects, and has published an in-house resource estimate of 157,000 ounces of gold at Karaaðaç, taking the company’s total resources to date to 841,000 ounces. It also relinquished a previous exploration prospect at Dikmen as part of the Company’s policy to rapidly evaluate properties and only retain those felt to have excellent exploration potential.
This month Resource Investor joined a group visit by investors and journalists to see Stratex’ flagship projects in the Konya district and to learn more about recent developments. The visit highlighted a number of points:
1. Inlice already has the potential for a high-grade open pit operation.
The initial resource estimate demonstrated that Inlice is a high-sulphidation near-surface deposit with good grades, widths and depth, and a resource of 373,000 ounces of gold. Metallurgical and baseline studies are underway as part of the scoping study, and Stratex are now completing an infill drilling programme to increase the confidence in the current resource estimate, taking the inferred categories to indicated and the indicated to measured. It is hoped to announce the results by January.
The high sulphidation style of mineralization occurs in Peru at three of the largest and lowest-cost gold mines that have begun producing in the last 15 years (Pierina and Alto Chicama mines operated by Barrick [NYSE:ABX; TSX:ABX]and Yanacocha, a JV by Newmont [NYSE:NEM] and Buenaventura [NYSE:BVN]).
Geophysical work over the Inlice area has indicated further potential for concealed mineralisation, and drill targets have been identified with drilling anticipated during the winter months.
2. Inlice is just the tip of the iceberg. Stratex may be on the cusp of discovering a whole new district in the Konya volcanic belt which has strong parallels with the 40Moz+ Maricunga district in Chile.
Although Turkey has a long mining history extending back thousands of years there are no records of any mining or exploration of metals in the environs of Inlice (though there is a magnesite quarry about 20km to the east). In 2005 when Stratex’ geologists were increasing their understanding of Inlice they realised that it could have originated as part of the upper section of a large porphyry system, many more of which could be contained in the 60km by 40km Konya volcanic belt. As CEO Bob Foster said, “If you see one elephant from a herd you are likely to see a lot more.”
A satellite (Aster) image, reproduced in part below, gave further support to this hypothesis. Unfortunately the demands of the internet mean that the resolution below has to be very low, but it should be sufficient to see the key points:
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Potential areas of interest are principally the orange areas and especially the ‘double whammy’ areas where orange and yellow are adjacent. Inlice, with its current resource of 373,000 ounces of gold, is just a tiny orange blob on the map.
Dr. Richard Sillitoe is a key member of Stratex’ advisory committee and medal winner from the Society of Economic Geologists for his work on porphyries in Chile (the medal citation describes him as a household name among economic geologists!).
He visited the Konya district last year and confirmed that there were similarities with the Maricunga Belt in Chile which was discovered in 1980 and where more than 40 million ounces of gold have since been defined, including deposits such as Marta, Cerro Casale and Refugio.
3. The Stratex/Teck Cominco JV have 100% ownership of most of the Konya volcanic belt which has at least eight potential targets in the area. Results from a multi-faceted exploration programme at Doðanbey have all indicated mineralisation.
Since the area was wide open to exploration Stratex was able to tie up all the key licence areas, a total of 410 square kilometres, much of this being acquired immediately after the Inlice licence had been secured in August 2005.
Adjoining licence areas have now been acquired by other companies, but only Stratex and Teck Cominco are actively exploring in the area.
To date six studies have been conducted at Doganbey consisting of two geophysical surveys (magnetic and induced polarization), geological mapping, stream and soil geochemistry surveys and outcrop sampling; all have yielded encouraging results showing that there is a porphyry gold system which is exposed at surface.
Drilling, which Chairman David Hall, describes as the “truth test”, has recently begun to investigate the co-incident geochemical and geophysical targets. The first hole, now some 250+ metres deep, has already revealed discrete molybdenite at a number of points within the porphyry.
4. Stratex’ alliance with Teck Cominco is highly synergistic with benefits to both parties. Teck Cominco currently regards Turkey as its most important country target.
Teck Cominco was a founder shareholder and partner of Stratex and now holds 8.8% of the equity. The two companies pool skills and projects, and in June an agreement was signed to advance the alliance further in the Konya region (excluding Inlice) whereby Teck Cominco agreed to commit $1 million of exploration expenditure before the end of June 2008 followed by the option to earn in up to 51% by spending a further $2 million.
The relationship brings Stratex advantages of capital investment, reduced technical and financial risk, and highly relevant technical expertise as Teck Cominco already have operations in a number of Konya-like belts in Turkey and elsewhere in the world and have leading-edge geophysical capabilities. Teck Cominco are cash rich and so could be a ready buyer of new resources if necessary, and their backing should facilitate Stratex if it chose to raise debt finance to assist in development of a project. Teck’s involvement in the Konya region will free up time and resources for Stratex to pursue its other projects in Turkey, particularly at Inlice, Altintepe and Muratdere. Teck Cominco’s interest in farming-in on the early stage exploration of Konya is an indication of its belief in the potential of the region and the general alliance is an endorsement of Stratex’ vision and business strategy.
For Teck Cominco, the Stratex relationship is part of their business model, which is to be “partner of choice” with some 35 exploration and development companies around the world in order to invest for the future, to reduce costs, to diversify risk and to gain access to capabilities and processes which may not be available internally. Turkey is currently Teck Cominco’s number one country target and will account for 16% of the exploration budget this year.
5. Stratex also has a strong relationship with the local community.
Besides its strong relationship with Teck Cominco it was clear from the visit that Stratex has also forged strong links with the local community. The Mayor of Inlice village, Sevket Yuca, made a speech in which he affirmed that the village wanted the mine and would co-operate in any way possible. The population of the village had declined from 5,000 to just over 1,000 and he was anxious to arrest that decline through additional employment opportunities. The village was already benefiting from the exploration project, he said; Stratex try to source locally wherever possible. A mine would significantly enhance those benefits.
Left to Right: Bariþ Yildirim, (Teck Cominco Project Geologist), Bahri Yildiz (Inlice discoverer and Stratex General Manage in Turker), Sevket Yuca (Mayor of Inlice), Tayfun Cerrah (Turkey General Manager, Teck Cominco).
6. The projects in the Konya volcanic belt are well located with excellent infrastructure.
Both Inlice and Doðanbey offer year-round access, water is readily available from local springs and they are situated in undulating countryside with sufficient flat ground to site drill platforms and potentially a mill. Both are away from villages though close enough to supply communications, power and labour (the workforce has experience of the mining sector from the local magnesite mines). Inlice is just a few hundred metres from the main road from Ankara and Konya to the Mediterranean coast while Doðanbey is just a kilometre or so from a sealed road.
Since 2004, Turkey has benefited from favourable mining legislation which encourages international participation.
7. The Management Team are highly experienced; they walk the walk and talk the talk of economic exploration and development, and have particular experience of gold and Turkey.
Almost without fail, every reference to Stratex’ CEO, Bob Foster (including the previous Resource Investor story), talks of his palpable enthusiasm and tremendous geological knowledge, both at the theoretical level (he spent 15 years lecturing in geology at the University of Southampton where he managed a large research group studying mineral deposits around the world) and in the field. He has been in the exploration business for 33 years working in five continents and has particular expertise in the genesis and exploration of gold projects.
Chairman David Hall is also a well respected and highly strategic economic geologist who has worked in exploration in 50 countries and has a track record of discovery including the Gumushane porphyry gold deposit in Turkey. He has published a number of papers about the business and management of exploration, its analogies with research and development in other sectors (especially pharmaceuticals), and the need for a new paradigm in the relationship between exploration and development companies and mining companies in which mining companies are the customers for exploration success.
As Hall explains, “Commercial mining and E&D have long been awkward bedfellows, struggling to overcome differences in culture and strategy.” Hall practices what he preaches and keeps careful track of Stratex’ own performance and that of its competitors, he recognises the need to select the best projects sooner and so reduce costly attrition at late stage, and is single-minded that survival for E&D companies is about securing funding and adding value through continual discovery.
Bahri Yildiz, the General Manager for Stratex in Turkey has worked for 27 years in mineral exploration in Turkey including 10 years with the Government’s Directorate of Mineral Research and Exploration and 11 years for Inco’s Turkish subsidiary. Like Foster and Hall Mr. Yildiz is committed, enthusiastic and a geologist to the core - as evidenced by his identifying the Inlice deposit while driving the family on holiday!
Stratex place great importance on the quality of the entire geological team, the advisory board and the Board. It takes the view that it is crucial in the management of exploration that the highest level of geological, geophysical, geochemical, metallurgical, mining and financial acumen should be employed. As Hall writes, “In a business where the success rate is 1 in 10,000 the company with the best performing people will have the advantage to cut these odds.”
Summary
The visit highlighted that Stratex can tick a lot of boxes as an exploration and development company. It has a big land position with numerous mining targets of different kinds, and a pipeline of projects to explore and drill in 2008 and 2009 which include potential Konya-like areas.
It also has a low cost base and a strong and experienced partner in Teck Cominco who have recently reaffirmed and extended their commitments with Stratex, a good relationship with the local community, an experienced and committed management team and it already possesses resources of some 800,000 ounces.
It could be on the cusp of discovering a whole new gold district in an area with good infrastructure for mining. If so it could enjoy significant uplift from its current market capitalisation of £25 million ($50 million).
Of course the management of Stratex would be the first to admit that none of the above is any guarantee of ultimate exploration success. As David Hall writes, “early stage E&D relies heavily on an elusive mix of innovation, skill, perseverance and serendipity.” But at least the odds appear stacked in Stratex’ favour.
