Strike Resources : Half Year Report - 31 December 2020

HALF YEAR REPORT

31 December 2020

THIS DOCUMENT SHOULD BE READ IN CONJUNCTION WITH THE

30 JUNE 2020 ANNUAL REPORT OF COMPANY

LODGED ON 2 NOVEMBER 2020

ASX Code: SRK

Strike Resources Limited

A.B.N. 94 088 488 724

REGISTERED OFFICE	SHARE REGISTRY
	Advanced Share Registry Services
Level 2	Western Australia - Main Office	New South Wales - Branch Office
31 Ventnor Avenue	110 Stirling Highway	Suite 8H, 325 Pitt Street
West Perth, Western Australia 6005	Nedlands, Western Australia 6009	Sydney, New South Wales 2000
	PO Box 1156	PO Box Q1736
	Nedlands WA 6909	Queen Victoria Building NSW 1230
T | [phone]	Local T | 1300 113 258
F | [phone]	T | [phone]	T | [phone]
E | [e-mail]	F | [phone]
W | www.strikeresources.com.au	E | [e-mail]	W | www.strikeresources.com.au

31 DECEMBER 2020	STRIKE RESOURCES LIMITED
	A.B.N. 94 088 488 724

CONTENTS			CORPORATE DIRECTORY
Directors' Report	2		BOARD
		32		Farooq Khan	Executive Chairman
Auditor's Independence Declaration		William Johnson	Managing Director
		33		Victor Ho	Executive Director
Consolidated Statement of Profit or Loss		Malcolm Richmond	Non-Executive Director
	and Other Comprehensive Income			Matthew Hammond	Non-Executive Director
Consolidated Statement of	34		COMPANY SECRETARY
	Financial Position			Victor Ho
Consolidated Statement of	35		PRINCIPAL AND REGISTERED OFFICE
	Changes in Equity			Level 2
				31 Ventnor Avenue
Consolidated Statement of Cash Flows	36		West Perth, Western Australia 6005
Notes to Consolidated Financial	37		Telephone:	[phone]
	Statements			Facsimile:	[phone]
				Email:	[e-mail]
Directors' Declaration	46		Website:	www.strikeresources.com.au
Auditors' Independent Review Report	47		AUDITOR
List of Mineral Concessions	49		Rothsay Auditing
				Level 1, Lincoln House
JORC Mineral Resources	50		4 Ventnor Avenue
				West Perth, Western Australia 6005
JORC Code Competent Persons'	51		Telephone:	[phone]
	Statements
Securities Information	55		STOCK EXCHANGE
				Australian Securities Exchange
				Perth, Western Australia
				ASX CODE
				SRK
				SHARE REGISTRY
				Advanced Share Registry Limited (ASX:ASW)
				Main Office:
				110 Stirling Highway
				Nedlands, Western Australia 6009
				Local Telephone:	1300 113 258
				Telephone:	[phone]
				Facsimile:	[phone]
				Email:	[e-mail]
Visit www.strikeresources.com.au for			Investor Web:	www.advancedshare.com.au
•	Market Announcements			Sydney Office:
•	Financial Reports			Suite 8H, 325 Pitt Street
•	Corporate Governance			Sydney, New South Wales 2000
•	Forms			Telephone:	[phone]

• Email Subscription

HALF YEAR REPORT | 1

31 DECEMBER 2020	STRIKE RESOURCES LIMITED
	A.B.N. 94 088 488 724

DIRECTORS' REPORT

The Directors present their report on Strike Resources Limited ABN 94 088 488 724 (Company or SRK) and its controlled entities (the Consolidated Entity or Strike) for the financial half year ended 31 December 2020 (Balance Date).

Strike is a company limited by shares that was incorporated in Western Australia and has been listed on the Australian Securities Exchange (ASX) since 7 March 2000 (ASX Code: SRK).

The Company has prepared a consolidated financial report incorporating the entities that it controlled during the financial half year.

OPERATING RESULTS

		December 2020	December 2019
Consolidated	$	$
Total revenue	91,357	13,595
Total expenses		(623,716)	(812,600)
Loss before tax	(532,359)	(799,005)
Income tax expense		-	-
Loss after tax		(532,359)	(799,005)

CASH FLOWS

		December 2020	December 2019
Consolidated	$	$
Net cash flow from operating activities	(2,305,743)	(986,597)
Net cash flow from investing activities	956	872,146
Net cash flow from financing activities		3,795,018	922,139
Net change in cash held	1,490,231	807,688
Cash held at half year end		4,549,549	2,038,833

FINANCIAL POSITION

	December 2020	June 2020
Consolidated	$	$
Cash	4,549,549	3,241,161
Financial assets at fair value through profit or loss*	203,664	164,083
Exploration and evaluation expenditure	2,894,117	1,016,713
Receivables	203,583	57,494
Other assets	39,271	9,991
Liabilities	(527,808)	(254,373)
Net assets	7,362,376	4,235,069
Issued capital	154,779,314	151,049,893
Reserves	14,996,206	15,065,961
Accumulated losses	(162,413,144)	(161,880,785)
Total equity	7,362,376	4,235,069

HALF YEAR REPORT | 2

31 DECEMBER 2020	STRIKE RESOURCES LIMITED
	A.B.N. 94 088 488 724

DIRECTORS' REPORT

REVIEW OF OPERATIONS

Paulsens East Iron Ore Project (Pilbara, Western Australia)

(Strike - 100%)

The Paulsens East Iron Ore Project (Paulsens East) is located in the Pilbara region of Western Australia, ~10 kilometres from the Paulsens Gold Mine (owned by Northern Star Resources Limited (ASX:NST)), ~200 kilometres west of Paraburdoo (where a key 'FIFO' airport is located), ~233 kilometres by road from the Port of Onslow and ~600 kilometres by road from Port Hedland (refer Figure 1).

Completion of Feasibility Study

On 30 October 2020, Strike announced the completion of the Feasibility Study (Study) on Paulsens East, which confirmed strong project economics for a 1.5Mtpa production rate over an initial 4 year life of time (LOM) with direct shipping ore (DSO) (lump and fines) product trucked to Port Hedland for export.1

Paulsens East Economics and Assumptions

The results from the Study together with key assumptions are summarised in the following tables:

				Study Outcome			Study Outcome
					Benchmark				Benchmark
				Iron Ore Price				Iron Ore Price
Financial Metrics		Unit		US$115/t2				US$100/t3
Life of Mine Revenue		A$M		1,032			906
Operating Net Cashflow		A$M		279			167
NPV		A$M		227			140
IRR		%			223			213
		Table 1: Study Financial Metrics (pre-tax)
Operating Metrics				Unit			Study Outcomes
Production Rate				Mtpa			1.5
Average Strip Ratio				Waste:Ore			3:1
Initial LOM				Years			4
Total Tonnes Processed				Mt			6.2
Average C14 Costs				US$/t			64.8
		Table 2: Study Operating Metrics
						Study Input		Study Input
						Benchmark		Benchmark
						Iron Ore Price		Iron Ore Price
Key Assumptions			Unit		US$115/t LOM		US$100/t LOM
Benchmark Price			US$/t			115			100
Lump to Fines Ratio		Lump:Fines		75:25			75:25
Price received - Lump (62% Fe)			US$/t			127			112
Price received - Fines (59% Fe)			US$/t			103			89
US$/A$ Exchange Rate			US$/A$			0.70			0.70

Table 3: Study Key Assumptions (average over LOM)

An economic model prepared by Strike forecasts an operating net cashflow of $167 Million (pre-tax) and a net present value (NPV) of $140 Million (pre-tax) over an initial four-year mine life, at an average Benchmark Price of US$100/t over LOM (US$115/t in the first year of production declining to US$85/t in the fourth year).

1. Refer Strike's ASX Announcement dated 30 October 2020: Paulsens East Feasibility Study Demonstrates Significant Cashflow Generation and Financial Returns - the Company confirms that all material assumptions underpinning the production targets and forecast financial information derived from the production targets in this announcement continue to apply and have not materially change
2. Constant over LOM
3. Average over LOM
4. C1 Costs include mining, processing, haulage, port handling, administration and marketing, but excludes royalties, shipping, depreciation and capital charges.

HALF YEAR REPORT | 3

31 DECEMBER 2020	STRIKE RESOURCES LIMITED
	A.B.N. 94 088 488 724

DIRECTORS' REPORT

If a Benchmark Price of US$115/t is sustained for the LOM, the forecast operating net cashflow is $279 Million and pre-tax NPV is $227 Million over the four year LOM.

The Company notes that the Benchmark iron ore price continues to remain very strong - currently ~US$168/t5 (compared with an average of US$100/t assumed under the Study in October 2020). Furthermore, the premium attached to Lump ore over Fines has increased significantly, reaching record highs recently of US$0.51 per dry metric tonne unit (compared with US$0.20 per dry metric tonne unit assumed under the Study in October 2020). Based on Fe content of 62% for the Paulsens East product, this would imply an uplift of ~US$32 per tonne of Lump ore once the Paulsens East Lump product is established in the market. The premium pricing paid for Lump ore is highly significant, given that at least 75% of the Paulsens East DSO product is expected to be Lump ore.

Estimated pre-production capital costs are approximately $15.7 Million (including contingencies), with an internal rate of return (IRR) of 213%.

An average iron ore price of US$100 per tonne6 (62% Fe Fines, delivered CFR China) (Benchmark Price) has been assumed in the Study over the LOM.

Average C1 cash costs free onboard (FOB) across the LOM are expected to be approximately US$64.8 per tonne.

The forecast Paulsens East financial metrics (NPV, IRR and Operating Net Cashflows) are calculated and shown net of applicable royalties but before deductions for tax. Strike will be subject to Australian corporate tax at an assumed rate of 30% on its taxable income. Any tax payable may potentially be reduced by utilising Strike's carried forward tax losses, which currently totals ~$25 Million7.

Strike has a confidence level of +/- 15% in the Study's forecast Capital and Operating Costs.

For further details on the Study, refer to Strike's ASX Announcement dated 30 October 2020: Paulsens East Feasibility Study Demonstrates Significant Cashflow Generation and Financial Returns.

Paulsens East Production Details

Strike plans a 1.5 Million tonnes per annum (Mtpa) production schedule of direct shipping ore (DSO) over a minimum four-year LOM (totalling approximately 6.0 Million tonnes). This initial production target has been determined to facilitate fast track production of lower strip-ratio material at first instance, with the opportunity to expand production once the initial production target is met and is underpinned by the Probable Ore Reserve of 6.2 Million tonnes (within the Indicated Mineral Resource of 9.6 Million tonnes).

An open cut mine is proposed, with an average forecast waste to ore ratio of 3.0 over the first four years of mining. Ore will be crushed and screened to produce DSO Lump and Fines products, with estimated average product Lump grade of 62% Fe and Fines grade of 59% Fe over the LOM. Metallurgical testwork indicates that a 75/25 (or higher) Lump/Fines split can be expected where Lump ore typically attracts a significant price premium compared to Fines. An on-site laboratory will be established for ongoing analysis of ore samples to manage grade control and ensure consistency of product grades.

Processed Lump and Fines products will be trucked from the mine to the Utah Point Multi-User Bulk Handling facility at Port Hedland (Utah Point), predominantly by sealed road, where it will be stockpiled prior to being loaded directly into ocean going vessels (OGV's) for export to customers.

Mining, crushing and screening and haulage operations are proposed to be undertaken by specialist contractors with overall supervision and management provided by Strike employed personnel.

Paulsens East Opportunities

Opportunities identified with the potential to have a materially positive impact on the value of Paulsens East include:

• Extending the LOM, underpinned by the balance of the existing JORC Indicated Mineral Resource inventory.

1. 62% Fe Index (CFR China), as at 12 March 2021
2. The Benchmark Price is assumed to decline from US$115 per tonne in the first full year of production to US$85 per tonne in the fourth year, equating to an average of US$100 per tonne over LOM
3. Subject to compliance with Australian tax laws

HALF YEAR REPORT | 4