Lucky Strike poised for big things in 2021 (and beyond)
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Special Report: Quizzed on his 2020 highlight, it’s probably unsurprising that Strike Resources managing director William Johnson’s first thought is the iron ore price.
There’s no secret that the red rock has been on a hot streak this year. A combination of supply constraint and disruption out of Brazil, coupled with Chinese stimulus designed to mitigate the effects of the pandemic, has pushed prices up to the benefit of many.
Among them all, Strike Resources (ASX:SRK) may well be one of the best placed to benefit.
The owner of the Paulsens East project in the Pilbara, Strike’s feasibility study on Paulsens East was revealed to market in November.
It revealed a low-cost iron ore project – just $15.7 million is estimated in pre-production capital expenditure, with an internal rate of return of 213%.
Net cashflows before tax are estimated at $167 million, and the project has a net present value of $140 million based on an assumed average benchmark iron ore price of US$100 per tonne over an anticipated four-year mine life.
As of this morning, iron ore prices sat above US$151. It’s little wonder Johnson intends for the company to Strike while the iron is hot – obvious pun intended.
“This extremely strong market for iron ore is one of the key drivers for us in terms of the advantage we have at Paulsens East,” he said.
“Everything we see at a macroeconomic level coming out of China, and even the supply constraints out of Brazil – it’s enough for us to believe that prices are going to stay strong for a long time.
“That’s very encouraging for us in terms of getting our projects underway.”
But getting a project to a point where mining can begin is a huge challenge, and it’s this work which has occupied much of Strike’s work in 2020 with a view to production in the New Year.
Of the company’s work this year, Johnson cites the achievement of a Native Title Agreement with the Puutu Kunti Kurrama and Pinikura (PKKP Group) peoples – the traditional owners of the land on which East Paulsens sits – as a circumstantially important development.
It was on PKKP land that the Juukan Gorge disaster unfolded earlier this year, a decision which resulted in the loss of historically significant Indigenous rock shelters and led to a clear out at the top of Rio Tinto.
This event occurred in the midst of negotiations between Strike and the PKKP regarding the development of Paulsens East. It is a point of pride for Johnson that, notwithstanding the difficulties that this created for Strike at the time, he and his team were still able to reach a mutually beneficial agreement with the traditional owners.
Also under Strike’s belt is the all-important mining lease, leaving it well placed to tackle 2021 as an iron ore producer.
“We’re in the final stages of getting all the permits and approvals we need so we can get into production next year,” Johnson said.
Having listed in 2004, Paulsens East looms at Strike’s first production project, and it’s not something that’s lost on management.
“Basically, this will the transformation of Strike Resources from an exploration company into a production company – that’s going to be significant for us,” Johnson said.
“There’s a significant opportunity with the climate for iron ore at the moment for us to get into production and generate some significant cashflow for the company.”
Paulsens East itself is nothing to be sneezed at – the project has an initial projected mine life of four years, targeting 1.5 tonnes per annum with extremely robust numbers at current prices.
But it’s the presence of the 100%-owned, undeveloped Apurimac iron ore project in Peru, which makes the case for Paulsens East cashflow even more compelling.
Strike has held on to Apurimac for 15 years, and the project has a JORC resource of 269.4Mt of high-grade 57%Fe magnetite iron ore. A prefeasibility study in 2008 confirmed the project’s potential to produce 20Mt per annum at a very low operating cost of less than US$20 per tonne.
At one stage that year, a third party made an offer for the project which valued it at over $500 million. Johnson said cashflow from Paulsens East could be key to finally unlocking the value on ground in Peru.
“There’s tremendous long-term potential for the company to leverage the value of the Peru project,” he said.
Strike also has rights to acquire 90% of the Solaroz lithium brine project in Argentina’s Salar de Olaroz Basin, directly adjacent to the Sala de Olaroz lithium brine project operated by Orocobre (ASX:ORE) and Tokyo-listed Toyota Tsusho Corporation – project of global significance.
With cashflow on the cards and a suite of bigger picture projects in the deck, Strike Resources looks like it will be one to watch into 2021 and beyond.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.