Apurimac Project

The Apurimac project is located 16km from the town of Andahuaylas, the largest town in the Apuirmac province of Peru with a population of 250,000 people.

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In July 2008 the Company completed a Pre-Feasibility Study (PFS) for the Apurimac Iron Ore Project (the Project), in Peru.

The PFS, which took nearly a year to complete at a cost of approximately A$2.75 million, focused upon the development of a 20 million tonne per annum (20Mtpa) mining operation with iron ore concentrate transported to the coast for shipment via a slurry pipeline. 

The PFS confirmed that the Project has the potential to become a highly profitable world class iron ore operation, with:

·                 JORC Indicated Resource of 133 million tonnes (Mt)

·                 Average operating costs of approximately US$14.5 per tonne

·                 Total capital cost of approximately US$2.3 billion

·                 High quality product grading +68%Fe, very low in Alumina, Phosphorous and other impurities

 

First production from the Project is scheduled for the first half of 2012.  Strike is now focussing on expanding its resource inventory in Apurimac and the commencement of a Bankable Feasibility Study (BFS).

DETAILS OF PRE-FEASIBILITY STUDY

In August 2007, Strike commenced its PFS programme, under the overall supervision of Strike Director Professor Malcolm Richmond, to support a 20 Mtpa mining operation from its Apurimac Project area. The PFS included a series of studies project managed by Sinclair Knight Mertz (SKM).  These studies covered the following broad areas:

 

STUDY

PRIME RESPONSIBILITY

Geology, Mining and Resource

Snowden Group

Mineralogy, Petrology and Characterisation

CSIRO

Process system design and testing

Sinclair Knight Merz

Plant and Site, Mechanical, Electrical, Power Supply, Port and Mine

Sinclair Knight Merz

Infrastructure Mine and Port

Sinclair Knight Merz

Port facilities Marine

COSAPI S.A.

Pipeline Design

Pipeline Systems Incorporated (PSI)

Community and Environment

Sinclair Knight Merz

Risk Analysis

Sinclair Knight Merz

Capital Cost Estimate and Operating Cost Estimate

Sinclair Knight Merz

 

The results of these studies are summarised below:

 

OPERATING COSTS

Average operating costs (excluding contingency, royalty and depreciation charges) per tonne of dry concentrate at full production are estimated (with an accuracy of +25%/-10%) to be US$14.49 per tonne.

An additional provision for contingency or ‘risk’ costs has been estimated at $1.45 per tonne.

 

Operating Costs

 

Cost US$/t dry

Description

Concentrate

Process, General and Administration

0.93

Reagents and Consumables

1.03

Infrastructure

0.40

Power

2.74

Spares

2.78

Mining and Geology

6.30

Port Operations

0.32

Total

14.50

Contingency

1.45

Total incl. Contingency

15.95

 

These operating costs are extremely competitive when compared with current and planned producers in Australia.  Furthermore, this competitive advantage is likely to improve over time due to significantly higher inflationary pressures in the mining sector in Northern Australia compared to that in Peru.

Operating Cost Comparison with Australian Iron Ore Companies

 

Company

Cash costs before royalties

A$/t FOB

Strike Resources (US$/t)

16

Fortescue Metals (FMG)         – DSO

24

BHP (US$/t)

29

Rio Tinto (US$/t)

30

Midwest Corporation              – DSO

38*

Murchison Metals                    – DSO

38*

Mount Gibson                           – DSO

42

Portman                                    – DSO

42

Grange Resources                  – BFO

45

Gindalbie Metals                      - DSO

48

 Source: BBY Limited (from Company Reports and Forecasts)

* Includes A$9 capital charge for rail and port

DSO = Direct Shipping Ore               BFO = Beneficiated Feed Ore

 

 

CAPITAL COST ESTIMATES

Total direct and indirect costs for the project including engineering, procurement and commissioning are estimated (with an accuracy of +25%/-10%) to be approximately US$2.3 billion.

An additional provision for contingency or ‘risk’ costs (which also includes an allowance for further possible savings, presently under review) has been estimated at US$200 million.

 

Capital Cost by area

 

Description

Cost US$M

Mine Site and off site infrastructure

           361,082

Process Plant

           341,971

Tailings

      48,329

Concentrate Pipeline

           489,962

Port

           280,962

Water Supply

            34,886

Electrical and Communications

            54,654

Total Indirects

           692,765

Total

    2,304,611

Contingency

           200,555

Total incl. Contingency

   2,505,166

 

 

Indirect costs include (among other items) an allowance for Engineering, Procurement, Construction Management (EPCM), equipment freight and insurance, customs duties, start-up and commissioning.

The capital cost estimates were developed from a detailed work breakdown structure of each process, with costs for equipment based upon budget quotations from major suppliers.  A selection of contractors and suppliers were interviewed to compile relevant information for setting applicable rates and costings.  A field survey in Peru was also completed, to check the correctness of rates.

 FINANCIAL EVALUATION

Financial analysis by Strike confirms that the Project economics are potentially highly attractive.

The capital and operating cost estimates from the studies, together with a conservative assumption of an average price of US$60 FOB per tonne of concentrate, suggest the Project will generate an operating cash surplus in the first full year of production of approximately US$890 million.  If iron prices maintain their current levels (equivalent to approximately US$94 FOB), operating cash surplus in the first full year of production is forecast to reach approximately US$1.44 billion and would be sufficient to repay the Project’s capital cost within 2 years.

 

GEOLOGY AND RESOURCE

The focus of this study has been the Opaban I and Opaban III deposits, which were previously announced by Strike to represent a JORC Inferred Resource of 172 million tonnes at 62.28% Fe.

The Resource Estimate by Snowden Group has now provided a significant re-rating of the resource, from Inferred to Indicated status, delivering a total JORC Indicated Resource of 133,530,000 tonnes, more than 93% of which has been included in the mine plan.

 

JORC Indicated Resource Estimate

Location

Tonnes

Fe%

AI2O3%

SiO2%

P%

S%

Opaban I

125,000,000

59.26

2.12

7.87

0.04

0.14

Opaban III

8,530,000

62.08

1.37

4.58

0.07

0.25

Total/Average

133,530,000

 59.40

2.07

7.66

0.04

         0.15

                                                                                                               

The main Opaban I deposit is an iron-skarn deposit, tabular-shaped and generally flat-lying.  Drilling has so far defined the dimensions of a mineralised body as being approximately 1,600 metres long by 300 metres wide, in a zone in which massive iron oxide deposits occur in several locations along a 5 kilometre northwest trend.

 

TRANSPORTATION

The transportation of ore will be by slurry pipeline from the mine site to the port.  The pipeline route has been determined and is 363 kilometres in length.  This route is shown in Annexure A.

The pipeline will consist of 26/22 inch diameter, unlined, API X70 steel pipeline with two pump stations, one valve station and five choke stations.

The pump stations will be located one at the mine site and one located 85 kilometres along the pipeline route.  The pump stations will provide the energy to transport the concentrate through the pipeline. 

The valve station will be required to isolate the pipeline system into two separate parts when the pipeline is shut down, reducing the static head in the pipeline system to approximately 4,000 metres of iron ore concentrate. 

The chokes will be required to dissipate energy (dynamic head) in the pipeline as the iron-ore concentrate descends from approximately 4,000 metres off the Peruvian Altiplano.

 

MINING INFRASTRUCTURE

A conceptual mine study into the Opaban I and Opaban III resources has been developed upon the basis that additional resource inventories are identified to support a production rate of 20Mtpa over 20 years.

This study has provided:

·                 Conceptual pit designs and infrastructure

·                 Conceptual site layout, including location of main waste dump and haul roads

·                 Conceptual mining schedule aimed at optimising value during the extraction of the Opaban I and Opaban III resources and conceptual satellite deposits

·                 Estimation of operating costs and capital costs for the mining operation

 

Mine strip ratios have been estimated at 1.71 for Opaban I and 0.66 at Opaban III.  A more detailed geotechnical drilling programme will be required to ensure the correct pit slope angle is used.  A highly conservative angle of 35 degrees has been used for the study, so the potential exists to steepen the slope and therefore reduce the strip ratio and further reduce mining costs.

 

MINERALOGY, PETROLOGY AND CHARACTERISATION

CSIRO were commissioned to complete characterisation of the mineralogical and petrological characteristics of iron oxides from the various ore types found in the Opaban I deposit.

The work identified four important characteristics:

·                 The iron mineralogy is made up of 60% hematite and 40% magnetite

·                 The ore is coarse grained

·                 There is widespread internal fracturing within the grains

·                 The gangue minerals comprise silicates which are, relative to iron minerals, very soft

 

Magnetic (low intensity and high intensity) test work on reverse circulation chip samples was very successful and has returned product grades at coarse crushing with particle sizes of 80% passing 125 and 250 microns as follows:

Metallurgical Test Work Results

 

Product

 

Grade

 

Fe

68.02 %

to

68.28%

Al2O3

0.30%

to

0.35%