Iron ore offtake deal greases the wheels of Strike’s Peruvian project

A two-year binding iron ore offtake agreement just signed will accelerate Strike Resources’ development of the significant Apurimac project in Peru.

The agreement incorporates a US$2 million prepayment facility to fund the first ore on ship at Apurimac – a development which allows Strike (ASX:SRK) to accelerate plans to expand iron ore sales to capitalise on current strong demand and premium prices for high grade lump iron ore.

The company expects to have a minimum 30,000 tonnes of iron ore on ship in May/June of this year and is initially targeting around 125,000 tonnes of sales per annum from specific portions of the project.

Once steady state operations are achieved, Strike said there was potential to significantly expand sales with ore from multiple sites at the project.

The present project profile targets the sale of a high grade Apurimac DSO product of around 65% iron with low impurities, delivered with a free on board target cost at Pisco port of less than US$70 per tonne.

Based on current iron ore prices and lump premiums, SRK is targeting a Cost and Freight (CFR) price of around US$180-$200 per tonne of its premium lump product – a significant, near term cashflow opportunity.

Terms of the agreement

All of this is enabled by the execution of a binding agreement for 100% of the iron ore currently being mined at Apurimac over an initial two-year term.

The offtake agreement, which provides a critical $2 million prepayment facility, was struck with Good Importing International (GII), an iron ore trading company involved in offtake into China from countries including Australia, Russia and South Africa.

GII has previously been involved as an offtake partner for a number of Australian iron ore producers including Mt Gibson Iron, Karara Mining, Pluton Resources and Shree Minerals.

The offtake agreement includes market reflective pricing referenced to relevant S&P Global Platts pricing indices and market-typical lump premium and impurity penalties, on a cost and freight basis for delivery into China.

The $2 million prepayment facility is payable in three tranches, with an initial US$100,000 payable on execution of the offtake agreement and US$1 million payable on Strike’s confirmation of a 15,000 tonne stockpile of crushed ore at the mine site.

The balance is payable upon a 20,000t stockpile being delivered to the Port at Pisco.

The payment will be offset against the proceeds of the first two shipments of iron ore from Peru. A profit share arrangement has been struck for the first shipment of ore, in consideration of the prepayment advance.

Strike managing director William Johnson said it was a significant milestone for the company, which has long held Apurimac and is also developing the Paulsens East iron project in WA’s Pilbara.

“With the execution of the offtake agreement, Strike has secured both a long-term purchaser for the iron ore being produced from its 100% owned Apurimac project, as well as having received a financing source that lowers capital allocation towards its Peruvian operations,” he said.

“It is a significant milestone for the company as it moves towards first revenue generation in an environment of high demand and prices for premium iron ore producers such as Strike.

“The company looks forward to announcing its first ore on ship in the near future.”

Production a long time coming

Strike has held Apurimac for more than 15 years, and the project has a JORC resource of 269.4 million tonnes at 57.3% magnetite iron ore with significant exploration potential.

A prefeasibility study was completed in 2008 and updated in 2010 and demonstrated clear potential for a world-class iron ore project with competitive capital costs and very low operating costs.

Apurimac is considered one of the highest-grade, largest scale magnetite projects in the world.

In March, Strike announced plans to spin out its battery metals assets into subsidiary Lithium Energy – a move designed to allow it to focus on iron ore interests while retaining significant exposure to the battery space.

This article was developed in collaboration with Strike Resources, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.