New leadership and a proposed reverse takeover are good reasons to take another look at small cap miner Stratex International (STI:AIM). We think the market has failed to spot the importance of several news announcements over the past two months.

We rate Stratex as a speculative buy at 1.52p. There is no guarantee its plans will be successful, but this looks one of the more interesting situations among small cap miners on AIM at present.

Previous management spread the company’s interests too thinly with countless exploration projects. Admittedly, two small gold mines were brought into production under joint ventures but they failed to trigger a share price re-rating.

Marcus Engelbrecht was hired in September 2016 to revive the business. He’s best known as the old boss of former AIM-quoted Archipelago Resources which developed a decent size gold mine in Indonesia. The company was acquired at a 49% premium to its market price in 2013.

Stratex has proposed an A$54m reverse takeover of Australia-listed Crusader Resources. That would give it a small producing iron ore mine and two near-term producing gold mines, all in Brazil.

We doubt the iron ore project will stay in the portfolio. The chief executive says it is too early to make a decision, but he does mention the asset isn’t generating much cash.

Earlier in May, Crusader said it was trading more than five times cheaper than its peer group on the Australian and Canadian market.

‘Crusader has been under the radar of Australian investors because they aren’t familiar with Brazil as a destination,’ claims Engelbrecht.

Approximately A$70m has historically been spent on the two gold assets. It seems clear that Crusader has now run out of money to take them into production.

Engelbrecht is well known among UK analysts and institutional investors; and those relationships will be important for raising the company’s profile in the near future when it needs to find the cash to build the two Brazilian mines – assuming its takeover is successful.

Stratex recently sold its 45% interest in the Altintepe mine in Turkey for $8m; this figure was net of costs and taxes. Theoretically that cash could fund exploratory work on the Brazilian gold assets and help Stratex have a firmer plan for how it would bring the assets into production.

It is good to see Engelbrecht take bold steps to revive Stratex. Brave investors buying now should be prepared for short-term price volatility as some existing shareholders may not like the shift from exploration to potential near-term production, and thus they could sell. More risk-averse individuals should watch from the sidelines.

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