Strike eyes potential for premium iron product at Paulsens East
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Strike continues to progress its Paulsens East DSO iron project towards production and has identified the potential to produce a premium product.
Mining permit application and other government approvals are well advanced while three potential offtake partners have been shortlisted from the multiple offers received.
Recruitment of key operational staff for Paulsens East is underway, with a number of key recruitments already made in mine site management, transport logistics and finance.
To top it off, Strike Resources (ASX:SRK) has completed metallurgical test work that indicates the potential to upgrade the current direct shipping ore (DSO) products to a higher value premium product.
DSO minerals are already high-value products that require only minimal processing such as crushing before they are exported, which keeps costs low.
However, the company’s test work has indicated that the current DSO products – which have a lump grade of 62 per cent iron and a fines grade of 59 per cent iron – can be upgraded to a premium product through the use of an optional beneficiation circuit.
This will consist of one or more ore-sorters that can be ‘bolted on’ to the standard crushing and screening circuit and would act to upgrade the grade and quality of the lump and fines products even further.
While this will increase capital costs, it will also deliver a higher premium price for the iron ore produced by the company, which will add significantly to the projected cash flows over the project life of mine.
Given that Paulsens already features very attractive economics at the $US100/t iron ore price point, the current iron ore price of $US168/t and the potential to produce a higher value product could further elevate these numbers. Furthermore, at least 75% of the Paulsens DSO product is expected to be Lump ore, which is currently attracting record high premiums in the market over Fines products – based on Fe content of 62% for the Strike product, the current premium being paid for Lump ore would imply an uplift of ~ USD32 per tonne of Lump ore compared to Fines, once the Paulsens Lump product is established in the market.
The Company is also taking another look at potentially exporting its ore through Onslow rather than Port Hedland, which would significantly reduce haulage costs given the substantially lower transport distances involved in transport to Onslow versus Port Headland ( ~230 km vs ~600 km).
“The company is highly encouraged by work that has indicated the potential to create a higher value addition to project economics through lowering transport costs and creating a higher value premium product for sale,” managing director William Johnson said.
“Furthermore, the premium attached to lump iron over fines has increased significantly over the last few months, which is highly positive given that at least 75% of the Paulsens East DSO product is expected to be lump ore.
“Current activity is focussed upon securing all the necessary approvals and permits
required to commence site operations, advancing negotiations with potential contractors,
finalising all engineering designs and entering into final off-take agreements with one or
more selected partners.”
The Paulsens East project in WA’s Pilbara region includes a feasibility study that forecasts net pre-tax cashflow at $167m over its first four years from production of 6 million tonnes of iron ore.
This is sourced entirely from the ore reserve of 6.2Mt grading 59.9 per cent iron and could be increased further given that the project has a broader resource of 9.6Mt at 61.1 per cent iron with additional exploration upside.
Internal rate of return and net present value, both measures of a project’s profitability, were estimated at 213 per cent and $140m respectively.
These are all calculated on the assumption of a $US100/t iron ore price.
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.