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We Think This Might Be An Undervalued Story!

We have just come across a research report from Hannam & Partners, an Equity Research Company, who have put together a very comprehensive review of Crusader Resources (CAS) who have recently been in talks with Stratex International Plc (LSE:STI) regarding a merger.

Once the merger completes, Marcus Engelbrecht, CEO of Stratex, will be the CEO of the combined group. The aim is to focus on Borborema, a key asset based in Brazil with a resource of 2.43Moz @ 1.14g/t, and combined with other assets, the aim is to target production of 200 koz pa within the next 3-5 years.

Now that’s a LOT of gold. And that’s just Borborema.

Hannam & Partners have placed an NPV valuation on Crusader’s Borborema Gold mine at US$104.5M based on an assumed gold price of US$1,275/oz; assuming a production of 68koz pa over 11 years. That NPV alone is 3-4x of CAS’s current market capitalisation, and using a gold price that’s currently below current levels of ~US$1,350; this raises some questions on whether our market has yet to discover this little stock that looks seriously undervalued.

Borborema – a 100% owned asset by CAS, is close to finishing up a Bankable Feasibility Study (BFS) and the combined entity are aiming to get construction in within the next 12 months. Infrastructure around the area is already set with excellent road network, power network, availability of trained employment (20km away from two mining schools), and previously Brazil being a tungsten focused region, they have the ability to move really quickly. So production isn’t too far off!

Brazil isn’t very well understood in the ASX market, and gathering funds has been the biggest challenge for CAS given the lack of knowledge of the jurisdiction. Having come across Stratex, who have expressed huge interest, CAS will be able to receive the funding they need to get things going. CAS also brings to the table a decade of experience in Brazil that, as the combined entity, will be extremely valuable moving forward.

Marcus Engelbrecht also has a phenomenal background in mining, with experiences in Oceana Gold, and BHP Billiton, and doubt this brings an array of expertise that could push CAS into production, and hopefully huge value to existing shareholders, both CAS and STI. Access to the London capital markets, existing cash in Stratex, and other mines we haven’t even talked about…

Just briefly on Crusader’s other mine, Juruena. Too many excellent gold hits for now creating the problem of not knowing where to focus, and whether to target the open pit vs underground… The merger will provide the funding to advance this, and likely this might be as big a gold mine as Borborema! Drilling results will tell us.

Overall, it sounds like the merger with Stratex could seriously help Crusader advance their projects, ones that seem to be heavily undervalued, and overall could be huge value to existing shareholders of both entities!

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