Strike Resources Limited · ASX:SRK
Strike Resources — Sydney Mining Club (March 2007)
52 slides from Strike Resources's conference presentation, March 2007
Slide 1: Sydney Mining Club: an outline of the international iron ore industry and a new entrant: Strike Resources
Sydney Mining Club: an outline of the international iron ore industry and a new entrant: Strike Resources Professor Malcolm Richmond Director, Strike Resources March 2007
Slide 2: This presentation covers three topics
This presentation covers three topics Some broad observations of the mining industry in general and more specifically : iron ore A summary and introduction to Strike Resources (SRK) A number of more general issues surrounding the Peruvian economy and mining industry March 2007 2
Slide 3: Part A: A brief look at the industry we're in
Part A: A brief look at the industry we’re in… A brief overview Chinese economic outlook The world iron ore industry Conclusion: successful business for the next decade March 2007 3
Slide 4: Five points germane to the mining industry's future
In a recent address I raised five points germane to the mining industry’s future Looking out, the shift in future demand is reasonably well understood, however, the shift in supply less so 1. Strong post 2001 economy is underpinned by globalisation generally and outstanding growth in China. Much o
Slide 5: Five points (Cont'd)
Five points (Cont’d) 4. The industry is now quite concentrated and thus a cautious supply response (to high prices) is likely; exacerbated, by an industry-wide diminished engineering/construction capacity 5. The successful business “styles” of the first and second tier mining firms won’t alter their
Slide 6: Sustained demand-led upturn centred around China
(i) For the mining industry, a sustained, demand- led upturn centred around China well into the next decade Current world growth rates in materials/metals are at historical highs, largely due to burgeoning Chinese demand China’s importance in shaping long term demand for minerals and metals: W
Slide 7: China's materials hunger expected to continue
China’s materials’ hunger expected to continue - industrial performance is remarkable The “work shop for the world” label is not without some validity. Few feel IP output will ease in the short term Industrial production; % change yoy 20% Industrial production; % change Y-O- 15% 10% 5% Y 0% USA Ja
Slide 8: China's growth parallels other Asian countries
China’s strong economic growth has parallels with other well-performing Asian countries G D Growth in the 60’s and 80’s; Singapore, 15.0 P Japan, South Korea and Taiwan offer interesting parallels 10.0 i n c China’s economic growth has been 5.0 r e extraordinary but based on sound a fundamentals
Slide 9: China's dominance continues - steel of particular note
The inexorable rise in China’s dominance continues - steel is of particular note The impact of the years of metals intensive growth has been reasonable. Growth in the developed world has been virtually zero. 1980 1990 2000 2006 Steel 6% 9% 16% 32% Copper 5% 7% 12% 23% Nickel 2% 4% 6% 18% China’s s
Slide 10: Some uncertainties for China when looking ahead
Finally, some uncertainties for China, when looking ahead Rates of growth of domestic demand for most materials should remain well into the next decade but will ease Environmental damage in China - poor governance, bank viability are hurdles State will probably crack-down on new supply capacit
Slide 11: World exploration: a turning point
(ii) World exploration: a turning point in attempting to find new ore bodies Protracted declines in the levels of expenditure on mineral exploration is a major concern - however, expenditures are now rising and will probably continue to do so The extent of the effort is, not surprisingly, wideni
Slide 12: Inflation in traditional mining areas a major problem
(iii) Inflation in most traditional mining areas (both capital and operating) a major problem 14 recent mine or mine/rail/port expansions (almost all brownfield) in Africa, Brazil and Australia were listed by Merrill Lynch, together with their expected costs 06 05 Change • New capacity being measu
Slide 13: International iron ore supply curve will shift upwards
The international iron ore supply curve will shift significantly upwards Curve has been shifting downwards at about 4% p.a. ($US real) for a long time - lately reversed - estimates suggest a doubling of costs in three to four years 20 15 NMDC -India Index 10 KUMBA 5 RIO TINTO BHPB CVRD 0 50 100 15
Slide 14: Mineral replacement costs have risen considerably
Mineral replacement costs have risen considerably. suggesting a high safety net Current costs are well in excess of both long term trends and replacement costs, although the latter are rising rapidly A myriad of disparate hurdles to bring new capacity on line Commodity Price Current Cost of Comm
Slide 15: Survey reveals severe shortages of skilled people
Recent survey reveals severe shortages of skilled people - cost rises will continue Cost inflation in Pilbara, Eastern Australia rising to 20/40% p.a.! 0 5 10 15 20 25 30 35 40 45 Industrial Unrest Shortages of New Graduates Infrastructure blockages Cost of other inputs Cost of Construction Equipm
Slide 16: A lean industry structure minimising damaging surplus
(iv) A lean industry structure that will minimise periods of damaging surplus Most of today’s (much fewer) mining CEO’s have experienced prolonged periods of low returns in a fragmented industry with periods of over production. Admittedly, when demand has been at, only 2% p.a. it is easy to over-s
Slide 17: Some specific comments on iron ore
Some specific comments on iron ore…
Slide 18: World steel; China's influence extends to iron ore
Firstly, world steel; China’s influence has been extraordinary and this extends to iron ore Between 1970 and 2000 virtually no world growth - Incremental crude steel growth in 5y post 2000 China’s impact has been extraordinary periods since 1969 China’s performance: 300 268 250 Domestic growth
Slide 19: Iron ore prices have risen over 100%
Iron ore prices have risen over 100% during the last 18 months Like many other commodities, China’s IRON ORE PRICE A$/Fe unit demand rise has impacted on iron ore A$ price 1.00 0.95 Chinese demand is up three-fold during 0.90 0.85 the last five years 0.80 0.75 Only recently has demand and supp
Slide 20: Sharp price rise attracting new independent supplies
The sharp price rise is attracting some “new independent supplies” Some are a little speculative - others well down the track, three continents…. Targetted Annual Ore Possible Output - Resource/Grade Long Term MMX/Brazil 35mta 1.0B / High(ish) Strike/Peru + 20mta (with intention To be proven/hig
Slide 21: Iron ore customers and steel industry consolidation
Iron ore’s customers and customer’s customers have widely differing distribution; steel industry will continue to consolidate Steel, like other smelting sectors, for example, is starting to change - Arcelor Mittal a harbinger? Steel Steel (% combined market share of top 4 companies.) March 2007 21
Slide 22: Focussed business proposition for new iron ore entrants
Not surprisingly, a focussed business proposition for new Iron ore entrants offers promise A major traded commodity - now around 700 mta in total (China imports about half of this). This market likely to grow at an attractive rate (5/9%) well into the future - requiring around 50-60 mta of new cap
Slide 23: New iron ore entrants (Cont'd)
New Iron ore entrants (Cont’d) Both China and Japan mills make no secret of a general desire to diversify - if mills are presented with realistic opportunity to do so Some significant upside to the market situation is possible I. the Chinese supply of iron ore (around 250 mta) is very exposed (i
Slide 24: Introducing Strike Resources Limited (SRK)
Introducing Strike Resources Limited (SRK) The information in this presentation that relates to exploration results has been compiled by Mr Hem Shanker Madan who is a Member of The Australian Institute of Mining and Metallurgy. Mr Madan is the Managing Director of the Company. Mr Madan has in excess
Slide 25: Executive Summary
Executive Summary The global market for iron ore is likely to Strike has secured rights to a potential remain attractive. major high grade (62%+Fe) iron ore resource. Early stage thinking is that Strike’s target A 20Mta production rate will ensure is up to 20Mt per year production by conside
Slide 26: Strike Capital Structure
Strike Capital Structure $11 m cash and liquid assets – sufficient for next 12 – 18 months. Issued capital: Shares on Issue: ~ 61 million Listed 20c Options: ~ 18.5 million Unlisted 20c and 30c Vendor Options: 3.5 million Unlisted 96c Directors Options: 5.1 million Unlisted $1.20 Emplo
Slide 27: Strike has secured major interest in two world class deposits in Peru
Strike has secured a major interest in two world class deposits in Peru Located in Peruvian Andes close to large population centres and infrastructure. Strike is earning a 68% economic interest (75.5% controlling interest) Resource estimates from previous work conducted by Peruvian Ministry of E
Slide 28: Deposits lie in the Peruvian Andes approximately 430km from coast
The deposits lie in the Peruvian Andes approximately 430km from the coast March 2007 28
Slide 29: Apurimac deposits near regional airport at Andahuaylas
The Apurimac deposits are located near a regional airport servicing the town of Andahuaylas (15km away, population ~250,000) March 2007 29
Slide 30: Opaban deposit
Opaban 1 deposit March 2007 30
Slide 31: View from airport to Opaban deposit
View from airport to Opaban 1 deposit March 2007 31
Slide 32: Massive iron ore outcrop (Opaban 1)
Massive iron ore outcrop (Opaban 1) March 2007 32
Slide 33: Broken stock of high grade iron ore (Opaban 1)
Broken stock of high grade iron ore (Opaban 1) March 2007 33
Slide 34: Substantial water supply near Apurimac Project area
Substantial water supply (for slurry pipeline) near Apurimac Project area March 2007 34
Slide 35: Promising resource outlook at Apurimac
Promising resource outlook at Apurimac Low lying, flat tabular iron ore bodies Multiple “Pods” Mineralisation commences at (or near) surface lending to open cut mining with uncommonly low waste to ore ratio A mixture of magnetite and hematite - mostly high grade (+ 62% Fe) March 2007 35
Slide 36: Drilling and geophysics confirm deposit potential
Drilling and Geophysics on 2 of the 21 Apurimac concessions confirms deposit potential Detailed geophysical work and 31 diamond core holes (2,667m) drilled in 2005 2,168m in 21 holes with RC drilling completed December 2006 Resource target 210-260 Mt (Opaban 1) + 60% Fe 2.2km in length W
Slide 37: 2006 drilling results at Apurimac for Opaban 1
Strike recently announced 2006 drilling results at Apurimac for Opaban 1 deposit The following selected drill results from “Opaban 1”, six of thirty four holes confirm that mineralisation commences at, or near, the surface. Hole No Intersection / Total Average Cumulative Fe Grade Intervals (metres
Slide 38: Cuzco deposits
Cuzco deposits Cuzco deposits are located 80km south of the historic city of Cuzco Total magnetic intensity image of Cuzco concessions showing deposits (in red) highlighted by magnetic anomalous area Surface sampling shows grades are likely to be ~64%Fe Reconnaissance drilling about to comme
Slide 39: View across Cuzco deposit
View across Cuzco deposit Iron ore outcrops March 2007 39
Slide 40: Outcropping iron ore at Cuzco deposit
Outcropping iron ore at Cuzco deposit March 2007 40
Slide 41: Cuzco promising resource outlook
Cuzco promising resource outlook Flat tubular radial bodies within a 4km diameter circular area around an intrusive core Mineralisation commences at surface lending to open-cut mining with low waste-to-ore ratio Work done to date: Geophysical surveys Surface sampling March 2007 41
Slide 42: Strike's scoping studies and related issues
Strike’s scoping studies and related issues
Slide 43: Strike's 2007 Work Programme - seven critical studies
Strike’s 2007 Work Programme - encapsulated in seven critical studies $7 milion budgeted for 2007 studies and drilling 17,000 metres drilling scheduled across Apurimac and Cuzco regions well underway First goal is a robust ore body model Negotiations with local inhabitants and leaders of aff
Slide 44: Strike's grade - high, silica manageable
Strike’s Grade – High. Silica slightly elevated but easily manageable through simple processing Fe SiO2 Al203 P (%) (%) (%) (%) CARAJAS 67 0.9 0.95 0.03 SSF 66 3.6 0.7 0.03 Aust Range Hi : High grade 64 3.2 1.5 0.05 Av Grade 60 4 1.7 0.08 Low Grade 57 5.6 2.6 0.04 Strike 63 5.5 1.2 0.04 Resources (t
Slide 45: High grades suggest a simple process flowsheet
High grades suggest a simple process flowsheet that will yield a highly marketable product Preliminary review of drilling data shows: Ore is likely to be high grade (+62% Fe) and close to Direct Shipping quality Put another way, key issue is to remove, say, 3% silica (resulting in a correspond
Slide 46: Transport via 350-400km pipeline; southern Peru port sites
Transport via 350-400Km pipeline seems attractive; Southern Peru has a number of port sites Slurry pipeline technology has progressed substantially Samarco’s history in Brazil has proven successful (400km long, 15 mta+ throughput) Antamina’s pipeline in Peru (+300km) starts at a much higher al
Slide 47: Marketing/Sales - China bias
Marketing/Sales - China bias China Desk established to develop early relationships with potential buyers in China Managed by an ex-Rio Tinto iron ore marketing specialist Ore quality has the potential to offer significant advantages as a sinter blend due to expected high grade - hematite/magne
Slide 48: Strike has an experienced board of directors
Strike has an experienced board of directors John Stephenson – Chairman Exploration Director Rio Tinto Australasia. 35+ years managing exploration. Shanker Madan (MD) BHP, Rio Tinto, Hamersley Iron. 30+ years iron ore experience. Malcolm Richmond Managing Director Development Hamersl
Slide 49: Peru: attractive country for mineral exploration and mining
Peru : A traditionally attractive country for mineral exploration and mining Mining industry (at 6% of GDP) an important and successful driver of economy today - accounting for around 50% of exports Like Australia - “mixed reviews” in terms of its social impact South America continues to be No
Slide 50: Peru offers a generally good environment for the industry
Peru offers a generally good environment for the industry A stable investment environment No discrimination against foreign investment Government backed Legal Stability Agreements including 10-15 years lock-in for tax rates, funds repatriation rules, etc A long established mining history - e
Slide 51: Growing agreement on how to operate successfully in Peru
There seems growing agreement on how to operate successfully in Peru Virtually all mines have negotiated agreements with impacted local communities A “Self Imposed Tax” for local infrastructure support is an accepted mining company cost. March 2007 51
Slide 52: Conclusion - Strike offers attractive strengths
Conclusion - Strike offers attractive strengths - An industry with considerable potential for a significant entrant, where a good resource base suggest a 20mta production rate is feasible The combination of a sound domestic infrastructure, low stripping ratios, high ore grades, efficient pipelin