Shares in Perth headquartered explorer Strike Resources Ltd have surged 34.7 per cent today following the company's announcement that it has entered into a binding agreement to acquire up to 51 per cent interest in two related iron ore projects.
Shares in Perth headquartered explorer Strike Resources Ltd have surged 34.7 per cent today following the company's announcement that it has entered into a binding agreement to acquire up to 51 per cent interest in two related iron ore projects.
The Apurimac project and the Cuzco project are located in Peru with Strike acquiring an interest in the two projects from Minera los Andes y el Pacifico S.A.
The Apurimac and Cuzco deposit's are estimated to have 730 million tonnes and 500 million tonnes of high grade iron ore respectively.
The acquisition by Strike of an interest in the two projects has been structured on a three stage basis.
The company anticipates that it will be required to raise capital to meet its expenditure commitments for the Stage 1 transaction outlined in the market announcement below.
Strike Resources issued a trading halt on Monday pending the release of today's market announcement.
At market close, shares in the company were up 12.5 cents to 48.5 cents.
Below is the full market announcement:
Apurimac and Cuzco Iron Ore Projects: Peru
The Company is pleased to advise that it has entered into a binding agreement (Agreement) to acquire up to a 51% interest in two related iron ore projects - The Apurimac Project (Apurimac Project) and the Cuzco Project (Cuzco Project) in Peru from Minera los Andes y el Pacifico S.A. (MAPSA). The Agreement is subject to completion of the conditions outlined below.
The Company is excited by these two projects which have been structured to allow Strike a staged ability to progressively earn a controlling interest in potentially world class high grade iron ore deposits.
Project Summary
Based upon a report issued by the Peruvian Ministry of Energy and Mines, the following is a summary of these iron ore projects:
1. The Apurimac Deposit
Estimated deposit size of 730 million tonnes of high grade hematite and magnetite iron ore
Iron grades of between 60-66% Fe;
Average analyses of Silica (2-5%) and Alumina (0.2-0.8%);
Nine mining tenements having a total area of 7388 hectares
Tenements are located approximately 38kms south of the city of Andahuaylas in Peru's southern Andes.
2. The Cuzco Deposit
Estimated deposit size of 500 million tonnes of high grade iron ore (principally magnetite);
Iron grades of 64% + Fe;
Average analyses of Phosphorus (0.09%), Silica (5.06%) and Sulphur content (0.3%);
Five mining tenements having a total area of 4526.17 hectares;
Tenements are located approximately 150km SSW from the city of Cuzco in Peru's southern Andes.
(It is noted that the potential quantity and grades referred to above are conceptual in nature; there has been insufficient exploration to define a JORC compliant Mineral Resource; it remains to be ascertained if exploration will result in the determination of a Mineral Resource) Further exploration will be required to determine the full iron ore potential of the two deposits.
The Company confirms that the Agreement with MAPSA was executed in Peru by the Managing Director of Strike, Mr Shanker Madan.
Conditional Agreement
The Agreement with MAPSA is subject to completion of satisfactory due diligence by Strike (as outlined below) which includes the conduct of due diligence on the mineral deposits within the two projects, into MAPSA, its title to the tenements comprising the two projects, any competing claims and their status, and any other matter considered relevant by Strike as to whether to proceed with the transaction.
The Company notes that the agreement with MAPSA is still subject to Strike completing such due diligence to its satisfaction and at the date of this announcement such due diligence has not been completed. Accordingly there is no guarantee that due diligence will be completed to the satisfaction of Strike or that the transaction will proceed.
The Company confirms that it has been provided with a number technical reports relating to these projects which the Company will review as part of its due diligence.
Interest Acquisition
The acquisition by Strike of an interest in the two projects has been structured on a three stage basis with Strike having the option to proceed with any one or more of such stages.
A summary of these staged transactions is as follows:
Stage 1 Transaction
Strike has the right to earn a 51% interest in the Apurimac Project to the extent of 100 million tonnes of iron ore production from such project by:
(a) paying to MAPSA the sum of US$50,000 within 10 days from the date of execution of the Agreement;
(b) paying to MAPSA the sum of US$50,000 within 10 days from the date of completion of satisfactory due diligence by Strike (by 30 August 2006);
(c) Strike incurring expenditure of US$5,000,000 in relation to the two projects (in such manner as Strike elects) within a period of 5 years (Earn-In Period);
(d) Strike making a cash payment of US$500,000 to MAPSA by no later than 10 business days from the first anniversary of the date of payment made under (b) above; and
(e) Strike making a cash payment of US$1,000,000 to MAPSA by no later than 10 business days from the second anniversary of the date of payment made under (b) above;
Stage 2 Transaction:
Strike has the right to earn a 51% interest in the Apurimac Project (and the tenements therein) by:
(a) Strike electing to pay MAPSA the sum of US$15 million to MAPSA during the Earn-In Period; and
(b) Strike completing its US$5,000,000 commitment under clause (c) of Stage 1 above.
Strike's payment obligations in (d) and (e) (if still outstanding) under the Stage 1 Transaction cease upon Strike electing to make the US$15 million payment under the Stage 2 Transaction.
Stage 3 Transaction:
Strike has the right to earn a 51% interest in the Cuzco Project (and the tenements therein) by:
(c) Strike electing to pay MAPSA the sum of US$20 million to MAPSA during the Earn-In Period; and
(d) Strike completing its US$5,000,000 commitment under clause (c) of Stage 1 above.
Strike's payment obligations in (d) and (e) (if still outstanding) under the Stage 1 Transaction ceases upon Strike electing to make the US$20 million payment under the Stage 3 Transaction.
Completion of the Stage 2 Transaction is not subject to completion of the Stage 3 Transaction and vice versa.
Strike can move to the Stage 2 Transaction and or Stage 3 Transaction without completing the Stage 1 Transaction.
MAPSA is in the process of transferring all of its right title and interest in and to the tenements within the projects to two newly incorporated local companies (Tenement Companies), one holding the Apurimac Project tenements and the other holding the Cuzco Project tenements.
Upon completion of such restructuring by MAPSA, under the Agreement, all references to Strike earning a 51% interest in the Apurimac Project and or the Cuzco Project (and in the tenements comprising such projects) shall be read and construed as being a reference to Strike earning a 51% shareholding in the respective Tenement Companies.
All expenditure incurred after Strike has earned its 51% interest in either or both of the Tenement Companies (as the case may be) is to be contributed by both parties as fresh capital shared in proportion to Strike's and MAPSA's respective share interest in that relevant company at that time and from time to time. If a party elects not to contribute to expenditure in such circumstances, its shareholding interest will be diluted on a pro rata basis.
Strike and MAPSA are required to reach agreement in relation to allowing a third party to invest into the venture (i.e. the Tenement Companies or the projects). However, Strike and MAPSA are free to assign their interest subject to the following conditions:
(a) During the Earn-In Period, MAPSA cannot deal with the 51% interest in the projects or Tenement Companies (as the case may be) the subject of Strike's earn-in under the Agreement;
(b) If a third party makes a bona fide offer to acquire a party's rights or interest under the Agreement, a 3 month right of first refusal is granted to the remaining party to match the third
party's offer or to receive assignment of the same on no less favourable terms;
(c) Both parties reserve the right to assign the whole or part of their interest under the Agreement to a third party company, which proposes to seek a public listing on an approved stock exchange, or a third party company already listed on an approved stock exchange, which proposes to undertake a new issue of shares to its shareholders and or the public.
Project Plan
It is the intention of Strike to apply its exploration expenditure commitments towards the following objectives:
1. Confirm and prove up the iron ore deposits of the projects to a JORC compliant status and in particular the "Opaban" ore body contained within the Apurimac deposit to an "Indicated" status to the extent of at least 100 million tones of direct shipping iron ore;
2. Conduct a trial mine and transportation pilot study;
3. Conduct a feasibility study for exploitation of high grade iron ore from the projects for one or more of the following activities:
(a) the creation of a "Sponge Iron" or "Direct Reduction Iron" plant through furnaces utilising natural gas potentially available from the Camisea gas pipeline approximately 80km from the Apurimac deposit;
(b) the construction of a slurry pipe line for an up to 6 million tonne per annum pellet plant at the Peruvian coast town of Chala, which is approximately 480km by road from the Apurimac deposit;
(c) the creation of an up to 25 million tonne per annum direct shipping operation via the construction of a railway line to the Peruvian coast at Chala.
Under the Agreement, Strike will gain 51% of the net profits derived from production on the projects
during the Earn-In Period.
Capital Raising
Subject to completion of satisfactory due diligence, the Company anticipates that it will be required to raise capital to meet its expenditure commitments for the Stage 1 Transaction outlined above. Given that the full US$6,500,000 expenditure commitment is not required immediately as the time period for such expenditure is spread across a 5 year period and given that the Company has the ability to withdraw from the agreement at any time, the Company anticipates that it will initially raise an amount less than the full amount of US$6,500,000 required under the Stage 1 Transaction. However, the extent of the raising and pricing of the same cannot be determined at this stage. The Company cannot also confirm whether it will be able to raise the capital required to proceed with the Stage 1 Transaction. The extent and success of any future capital raisings will be a function of, amongst other matters, of the state of the capital markets at the time of raising, the pricing for such capital raising and the appeal of the projects to the capital markets.
Until such time as the capital raising to fund the Stage 1 Transaction is completed, the Company will use its existing cash reserves to advance matters within an amount that is prudent given the other capital commitments of the Company with respect to its Australian and Indonesian mining projects.
Should the Company determine to proceed with the Stage 2 or Stage 3 Transactions with respect to the Apurimac and/ or Cuzco Projects respectively, the extent of the capital raisings required by the Company will be significant. Again, the extent of the raising and pricing of the same cannot be determined at this stage. The Company cannot also confirm whether it will be able to raise the capital required to proceed with the Stage 2 or Stage 3 Transactions.
Conclusion
The Company is excited by the Agreement with MAPSA as the iron ore potential is significant, not only by Australian, but by world standards.
The Company however recognises that considerable work needs to be undertaken, both at the due diligence stage and at the exploration and development stages to confirm and commercially exploit deposits of such potential magnitude. The Company has accordingly determined to adopt a staged approach to such matters and the Agreement with MAPSA reflects this.
The Company will continue to keep the market informed of its progress in advancing these related projects.
