Paulsens East Iron Ore Project

Paulsens East Iron Ore Project (Pilbara, Western Australia) (Strike 100%)

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

Project Economics and Assumptions

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

Financial Metrics

Unit

Study Outcome

Study Outcome

Benchmark

Iron Ore Price

US$115/t[2]

Benchmark

Iron Ore Price

 US$100/t[3]

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 C1[4] Costs

US$/t

64.8

Table 2: Study Operating Metrics

Key Assumptions

Unit

Study Input

Benchmark

Iron Ore Price

US$115/t LOM

Study Input

Benchmark

Iron Ore Price

 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).

If the Benchmark Price is assumed to be at recent levels (US$115/t[5]) for the LOM, the forecast operating net cashflow is $279 Million and pre-tax NPV is $227 Million over the four year LOM.

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 tonne[6] (62% Fe Fines, delivered CFR China) (Benchmark Price) has been assumed 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 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 ~$25 Million[7].

Project Location

The Paulsens East Project (granted Mining Lease M 47/1583) is located ~10 kilometres from Northern Star Resources Limited’s (ASX:NST) Paulsens Gold Mine, ~200 kilometres west of Paraburdoo (where a key ‘FIFO’ airport is located), ~ 233 from Onslow and ~600 kilometres by road from Port Hedland (refer Figure 1)[8].

Figure 1: Paulsens East Project Location, West Pilbara.

The Project consists of a three-kilometre-long outcropping high-grade hematite ridge, 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]  Including 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).

Figure 2: Paulsens East Hematite Ridge, facing North
Figure 3: Paulsens East satellite image
Figure 4: Paulsens East Ridge, facing East
Figure 5: Paulsens East Ridge, facing South

Project 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), or the Port of Ashburton at Onslow for export to customers.

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

Strike is targeting a Project development and execution timetable for first ore production to commence in 2022.

Figure 6: Paulsens East Hematite Conglomerate
Figure 7: Paulsens East Rock Chip Sample

For further background information about Paulsens East, please refer to Strike’s previous ASX market announcements as follows:

[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.

[5]    As at 28 October 2020

[6]    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

[7]     Subject to compliance with Australian tax laws

[8]     Refer Strike’s ASX Announcement dated 4 September 2019: Significant Upgrade of JORC Mineral Resource into Indicated Category at Paulsens East Iron Ore Project