Strike Resources : Staged Production and Lower Capex - Opex for Paulsens East

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Friday, 4 February 2022

ASX Code: SRK

MARKET ANNOUNCEMENT

Updated Paulsens East Feasibility Study - Optimised Staged Production and Lower Capex and Opex Costs

SUMMARY

• Paulsens East Iron Ore Project Feasibility Study of October 2020 has been updated to reflect a two stage development with optimised mining operations that reduces Capex and Opex and improves project economics based on current market price of iron ore:
• • Stage 1 Production will focus on surface detrital and low strip ratio materials of up to 400,000 tonnes to be shipped through the Utah Point Multi-User Bulk Handling Facility at Port Hedland.
  • Stage 2 Production at an annualised rate of up to ~2Mtpa proposed to transition from Utah Point to Port of Ashburton at Onslow (reducing trucking distance by ~365kms), with Stage 2 ramp-up expected to be partially funded by Stage 1 cash flows.
• Project economics continue to remain attractive at a Benchmark iron ore price of US$110/t or above:
  • At US$110/t, Paulsens East has a forecast net cashflow of ~$138 Million and NPV of ~$104 Million and an IRR of 132% over an initial 3.5 mine life.
  • If US$135/t (versus recent current prices exceeding US$140/t) is sustained over LOM, Paulsens East has the potential to generate $309 Million in net cashflows.
• Average C1 Costs of ~US$60/t for LOM and total LOM breakeven price of ~US$87/t CIF (Cost, Insurance, Freight) China (and inclusive of royalties).
• Total Production Capex required is now only ~$3.4 Million for Stage 1 Production, which could largely be funded by a prepayment for offtake or other financing facility,
• A further Capex of ~$3 Million is required to ramp up to Stage 2 full annualised production of ~2Mtpa, which is to be partially funded from Stage 1 cash flows.
• Production ramp up to ~2Mtpa over a mine life of 3.5 years is proposed, with an estimated 75% of production being DSO Lump (~62% Fe) which would attract premium pricing.
• Opportunity to extend mine life based upon surface outcropping of high grade iron ore along strike and historical drill intersection ~1.6km along the current hematite ridge at the south-eastern corner of the mining lease.
• Further opportunity to potentially increase LOM as the adoption of a lower cut-off grade of ore of >55% Fe (currently >58% Fe) increases global resource size to a JORC Indicated Mineral Resource of 12.5Mt grading 60.08% Fe - subject to further refinement in relation to pit optimisation, mining and ore upgrading.

Notes:

• The Probable Ore Reserve that underpins the October 2020 Feasibility Study/current Updated Feasibility Study has been prepared by a Competent Person, with a Competent Person's Statement included in this announcement.
• The Company has concluded that it has a reasonable basis for providing the forward‐looking statements included in this announcement. The detailed reasons for this conclusion are outlined throughout this announcement.

	www.strikeresources.com.au
	STRIKE RESOURCES LIMITED	A.B.N. 94 088 488 724
	Level 1, Suite 1, 680 Murray Street, West Perth, Western Australia 6005
ASX : SRK	T | [phone]	F | [phone]	E | [e-mail]

For personal use only

20220204 SRK ASX Updated Paulsens East Feasibility Study - Optimised Staged Production and Lower Capex and Opex Costs.docx

• All key mining approvals and permits required to commence mining have been received; permitting is currently in progress for Stage 2 Production export out of Port of Ashburton and associated road and related approvals.
• Offtake and funding discussions well advanced and will be executed at the time of a Final Investment Decision (FID) by the Company.

Strike Resources Limited (ASX:SRK) (Strike) is pleased to provide an update on the October 2020 Feasibility Study (Study) previously announced by the Company1 for its Paulsens East Iron Ore Project (the Project) located in the Pilbara, Western Australia.

The updated feasibility study (Updated Study) reflects optimisation to mining operations since the original Study, with the objective of reducing project Capex and Opex and improving Project economics based on the current market price of iron ore.

The Updated Study has confirmed the potential for the Project to generate ~$138 Million in net cashflows (pre-tax) over a 3.5 year life of mine (LOM) at an average Benchmark2 iron ore price of US$110/t for a pre-production capital cost (Capex) of $3.4M.

The Project has significant sensitivity to increases in iron ore prices. If a Benchmark iron ore price of US$135/t (versus recent current prices exceeding US$140/t) is sustained over LOM, the Project has the potential to generate $309 Million in net cashflows.

Total Production Capex funding required is now ~$3.4M for Stage 1 Production with a further ~$3M required to ramp up to Stage 2 full annualised production of ~2Mtpa.). It is envisaged that Stage 1 could largely be funded by a prepayment for offtake or other financing facility with discussions well advanced in this regard.

Project Economics and Assumptions

The results from the Updated Study together with key assumptions are summarised in the following tables, with further details contained within the Updated Feasibility Study - Further Details section and the Appendices to this announcement.

		Updated Study Outcomes
		Benchmark	Benchmark
		Iron Ore Price	Iron Ore Price
Financial Metrics	Unit	US$135/t3	US$110/t3
Life of Mine Revenue	A$M	1,084	892
Operating Net Cashflow	A$M	309	138
NPV4	A$M	245	104
IRR	%	284	132

Table 1: Updated Study Financial Metrics (pre-tax)

Operating Metrics	Unit	Updated Study Outcomes
Annualised LOM Production Rate	Mtpa	2
Average Strip Ratio	Waste:Ore	3.1 : 1
Initial LOM	Years	3.5
Total Tonnes Processed	Mt	6.3
Average C15 Costs	US$/t	~60
Total LOM Breakeven price CIF China6	US$/t	~87

Table 2: Updated Study Operating Metrics

1. Refer Strike's ASX Announcement dated 30 October 2020: Paulsens East Feasibility Study Demonstrates Significant Cashflow Generation and Financial Returns
2. Benchmark price for 62% iron ore Fines CFR China
3. Constant over LOM
4. At a discount rate of 8%
5. C1 Costs include mining, processing, haulage, port handling, administration and marketing, but excludes royalties, shipping, depreciation and capital charges
6. CIF means Cost, Insurance, Freight; inclusive of royalties, administration and marketing costs

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20220204 SRK ASX Updated Paulsens East Feasibility Study - Optimised Staged Production and Lower Capex and Opex Costs.docx

		Updated Study Inputs
		Benchmark	Benchmark
		Iron Ore Price	Iron Ore Price
Key Assumptions	Unit	US$135/t LOM	US$110/t LOM
Benchmark Price	US$/t	135	110
Lump to Fines Ratio	Lump:Fines	75:25	75:25
Price received - Lump (62% Fe)	US$/t	141	116
Price received - Fines (59% Fe)	US$/t	94	78
US$/A$ Exchange Rate	US$/A$	0.725	0.725

Table 3: Updated Study Key Assumptions (constant over LOM)

An economic model prepared by Strike forecasts an operating net cashflow of $138 Million (pre- tax) and a net present value (NPV) of $104 Million (pre-tax) over an initial 3.5 year mine life, at a LOM Benchmark Price of US$110/t.

The estimated Stage 1 Production Capex is ~$3.4 Million, with the LOM Production Capex being ~$6.4 Million.

An internal rate of return (IRR) of 132% is forecast.

A constant Benchmark iron ore price of US$110/t (62% Fe Fines, delivered CFR China) (Benchmark Price) has been assumed over the LOM with a premium to the Benchmark price being expected for the Lump product produced and a discount to the Benchmark price for the Fines product produced.

If the Benchmark Price is assumed to be at US$135/t (versus recent current prices exceeding US$140/t) for the LOM, with relevant premium prices for lump and discount to fines being assumed on a pro rata basis, the forecast operating net cashflow is $309 Million, the pre-tax NPV is $245 Million and the IRR of 284%, over the 3.5 year LOM.

Average C1 cash costs free onboard (FOB) across the LOM are expected to be ~US$60/t with the approximate LOM Breakeven price CIF (Cost Insurance and Freight) China (inclusive of royalties, administration and marketing costs) being ~US$87/t.

The forecast Project 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 ~$25M7.

Project Location

The Project is located ~10km from Northern Star Resources Limited's (ASX:NST) Paulsens Gold Mine, ~235km by road east of Onslow (and Port of Ashburton) and ~600km by road south of Port Hedland (refer Figure 1).

The Project is ~20km from the private Wyloo Station airstrip previously used by the Paulsens Gold Mine, which is suitable to support the transport of the Project's FIFO workforce (refer Figures 1 and 13).

7 Subject to compliance with Australian tax laws

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20220204 SRK ASX Updated Paulsens East Feasibility Study - Optimised Staged Production and Lower Capex and Opex Costs.docx

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Figure 1: Paulsens East Project Location, West Pilbara

Project JORC Mineral Resource and Ore Reserve

The Project consists of a ~3km long outcropping high-grade hematite ridge (refer Figure 2), containing a JORC Indicated Mineral Resource of 9.6 Million tonnes at 61.1% Fe, 6.0% SiO2, 3.6% Al2O3, 0.08% P (at a cut-off grade of 58% Fe).8

As part of the completion of the original (October 2020) Feasibility Study1, part of the JORC Indicated Mineral Resource of 9.6 Million tonnes at 61.1% Fe, 6.0% SiO2, 3.6% Al2O3, 0.08% P (at a cut-off grade of 58% Fe) was converted to a JORC Probable Ore Reserve of 6.2 Million tonnes at 59.9% Fe, 7.43% SiO2, 3.77% Al2O3 and 0.086% P (at a cut-off grade of 55% Fe).1

As part of the completion of the Updated Study, an additional JORC Indicated Mineral Resource of 113,000 tonnes at 60.8% Fe, 6.9%, SiO2, 3.4% Al2O3, and 0.10% P (at a cut-off grade of 58% Fe) has been delineated from the high-grade hematite rich detrital material9 at surface north of the hematite ridge (refer Figure 3).

1. Refer Strike's ASX Announcement dated 4 September 2019: Significant Upgrade of JORC Mineral Resource into Indicated Category at Paulsens East Iron Ore Project
2. Refer Strike's ASX Announcements dated 14 October 2020: Discovery of High Grade Iron Rich Detritals at Surface at
   Paulsens East and 15 July 2020: High-Grade Rock Chip Samples Confirm Resource Upside Potential at Paulsens East Iron Ore Project

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20220204 SRK ASX Updated Paulsens East Feasibility Study - Optimised Staged Production and Lower Capex and Opex Costs.docx

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Figure 2: Paulsens East Hematite Ridge

Project Production Details

Strike plans a production schedule of up to 2 Million tonnes per annum (Mtpa) of Direct Shipping Ore (DSO) over a ~3.5 year LOM, which is underpinned by the Probable Ore Reserve of 6.2Mt (within the current Indicated Mineral Resource of 9.6Mt).

In order to provide a capital efficient ramp up of mining operations and to de-risk any potential port constraints, Strike proposes to adopt a two-stage approach to the commencement of its mining of iron ore at Paulsens East, with the first 400,000 tonnes of planned production to be exported through Utah Point at Port Hedland and subsequent production through the Port of Ashburton at Onslow.10

Stage 1 Production and Export Through Utah Point, Port Hedland

Given the outcropping nature of the high grade Paulsens East hematite ridge, which in parts lends itself to a very low strip ratio together with the presence of high-grade surface detrital iron ore, it is proposed that initial mining operations focus on these two areas of mineralisation.

Up to 400,000 tonnes of ore will be crushed and screened from these areas to produce DSO Lump and Fines products, with an estimated average Lump product grade of ~62% Fe and Fines product grade of ~59% Fe. Metallurgical test work indicates that a 75/25 (or higher) Lump/Fines split can be expected. Lump ore typically attracts a price premium compared to Fines.

Mining, crushing and screening and haulage operations will be undertaken by specialist contractors with overall supervision and management provided by Strike's 'Owner's Team'.

The detrital ore requires no drill and blast activities and will be undertaken predominantly through very shallow trenching and screening operations.

The processed Lump and Fines products will be trucked from the mine to the Utah Point MultiUser 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.

Strike has received formal confirmation of capacity allocation from the Pilbara Ports Authority (PPA) at Utah Point for 200,000 tonnes per financial year.11

1. Refer also Strike's ASX Announcement dated 13 September 2021: Paulsens East Iron Ore Mining Operation Optimised
2. Refer also Strike's ASX Announcement dated 28 October 2021: Export Allocation Received for Paulsens East

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