By Alastair Ford
It’s not easy to conjure up something out of nothing, as any good scientist will tell you. Yet that’s what Stratex International – perhaps the only true project generator listed on Aim – continues to do.
This time round, the project is Muratdere, a copper-gold asset in the northwest of Turkey.
Muratdere has long been non-core to Stratex, as the company has repeated stated over the years. Nevertheless, joint venture partner Lodos, a subsidiary of local Turkish conglomerate Pragma, has been pressing ahead with a feasibility study, the details of which have now been made available to the market.
The numbers are not exactly earth-shattering. The project shows an IRR of 16 per cent, using a fairly conservative copper price, and requires around US$44 million to get it built. Were Stratex to hold up its 30 per cent end through to production it might conceivably generate between US$4 million and US$8 million for the company in the initial years.
But the chances of that happening appear remote, certainly under the parameters of the current study. Quite simply, Stratex chief executive Bob Foster reckons he will get more bang for his buck elsewhere, in particular on the company’s exploration ground in Senegal.
“The Muratdere financials we knew were never going to be that exciting”, he says.
“It doesn’t surprise me that the numbers have stacked up like this. The grades are relatively low. And our partners took the view that to minimise capex it was going to be a relatively small plant and a 16 year mine life. But this is a project we shelved in 2007 and 2008 when things were particularly bad. But now, when metals prices are still not great, our partners have produced a very sound study.”
Bob concedes that the 16 per cent IRR is “not going to set the world alight”, but he also points out that Pragma has shown itself to be extremely adept at raising finance in recent years, and big sums too, so the sourcing the debt to get Muratdere built ought not to be a problem.
Precisely what role Stratex will play after any development decision is made is still an open question. The two parties will meet for discussion next week, at which point Bob will raise the possibility of optimising the study. If that happens and the results come out favourably, then it’s possible that Stratex might be tempted in for full participation.
The more likely outcome is that a deal will be done to allow Stratex to bring the funding for its 30 per cent in from elsewhere, either via an outright sale, or some other form of accommodation.
“It the agreement is to go to production we would take a back seat”, says Bob. “Our ultimate bottom line is our 1.2% royalty.”
But how does this reticence sit with Lodos, who after all have spent considerable sums demonstrating the economic viability of this project?
“They are under no illusions that we are necessarily going to support out 30 per cent”, says Bob. That doesn’t mean that they’re likely to start pushing Stratex around though.
“They are very workable and responsible partners”, continues Bob. “They are good partners and we will have an open discussion.”
On the market, the news caused a slight dip in Stratex’s share price, which was off by 0.15p at 1.72p. But that temporary weakness is likely just market makers marking the price down in the absence of any really big upside in today’s announcement.
What they forget is that Stratex has already made a very nice turn on Muratdere. From an initial outlay of around US$1.2 million the company then pulled in US$2.2 million in cash from Lodos, a clear profit, as well as retaining its 30 per cent interest. Doubling your money on any deal and still retaining an interest can’t be bad in anyone’s book, even if the actual project in question isn’t quite as earth-shattering as some people might have hoped.
But turning assets to account is what Stratex does best. In this case, as Bob says, Muratdere wasn’t a project that Stratex was prepared to take on. In that context any kind of return at all is a win. “We’ve not only lost nothing, we’ve profited”, says Bob. And that’s hard to argue with in any language.