Hole-in-one! The Paulsens East project in WA will produce high-grade direct shipping ore that needs very little processing and commands premium market prices. Picture: Getty Images
Mining
Special Report: WA iron ore company Strike Resources has completed a feasibility study for its Paulsens East project in the Pilbara, bringing first ore production a step closer.
The Paulsens East iron ore project will allow developer Strike Resources (ASX:SRK) to immediately capture the benefit of sustained, high iron ore prices from mid-2021.
“The iron ore price is very strong which is being driven by Chinese stimulus to their economy and this is pushing up demand for steel and consequently iron ore,” managing director, William Johnson said.
“And then there is a supply constraint in Brazil due to continued issues with tailings dams and COVID-19: these two factors, demand growth in China and reduced supply from Brazil are keeping prices high” he said, adding the company expects iron ore prices to stay elevated for some time.
A feasibility study has demonstrated that the Paulsens East project has robust economics.
Net pre-tax cashflow for the project is forecast at $167m over its first four years from production of 6 million tonnes, and this gives a net present value of $140m for the project.
Production for Paulsens East will run at a rate of 1.5 million metric tonnes per year.
About 75 per cent of the project’s production is lump ore with a high iron content of 62 per cent that attracts premium prices, and the remainder is an iron ore fines product.
This type of high-grade iron ore requires very little processing beyond crushing and screening.
“The Benchmark iron ore price (for 62% Fe Fines CFR China) is currently $US115 per tonne and we have based our feasibility study on an average Benchmark price of US$100 per tonne over the life of the mine, on the assumption that prices will eventually decline from current levels.” said Johnson.
“At these prices there is a very good margin in the project,” he said “If current prices are sustained, we forecast that we could generate pre-tax net cashflows of over $60 Million in the first full year of production”.
The low capital cost of the project of $15.7m supports its low technical risk profile.
Average cash costs for the Paulsens East project are $US64.80 per tonne, according to the feasibility study.
“A couple of months ago we signed a major agreement with the land’s traditional owners which was a major milestone, and the completion of the feasibility is another key milestone,” he said. “With the agreement with the traditional owners now signed and the feasibility study completed, we are now focussing on obtaining the necessary approvals and permits to start mining in 2021”.
There is low technical risk in the project, as mined ore will require minimal processing, and can be easily trucked to a dedicated out-loading facility for at Port Hedland.
Current oil prices are keeping trucking costs down, and Strike Resources has received competitive quotes from road haulage companies to transport its product to port.
“There is an advantage to trucking the ore to Utah Point at Port Hedland which is already set up to handle large amounts of iron ore from junior producers like us,” said Johnson.
“We do not have to make any investment in port infrastructure which is already there,” he said.
Discussions with customers for off-take agreements for Paulsens East iron ore are well advanced, and Strike is targeting first shipments from Port Hedland in the first half of 2021.
Strike Resources is also developing a longer term, very large high-grade magnetite iron ore project in Peru, together with some battery mineral projects including its very promising Solaroz lithium brine project in Argentina which is located right next door to Orocobre’s Olaroz project (ASX:ORE).
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.
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