Overview

The objective of the Apurimac Iron Ore Project is development of a mine producing up to 20Mt of product per year.

Key project features:

•  Concessions totalling 59,000 hectares in the Southern Highlands of Peru.
• JORC Resource of 269Mt of iron ore at Opaban of 57.3% Fe (142 Mt Indicated at 57.84% Fe and 127 Mt Inferred at 56.7% Fe).
• Mineralisation predominantly high-grade, coarse-grained magnetite providing  comparatively high mass recoveries (>60%) at coarse grind size (>500 microns).
• Excellent exploration potential within current concessions with several targets containing ironstones grading >60%Fe in similar geological settings to Opaban.
• Base case of 15 – 20Mtpa of concentrate produced by open pit mining and processing 20 – 27Mtpa of ore with transport of the high grade (>66%Fe) product to the coast via a slurry pipeline for drying and shipment to customers.
• Estimated capital expenditure (2010) of US$ 2.6 – 2.9 billion, competitive with other major iron ore projects.
• Attractive life-of-mine operating expenses (2010) of US$ 17 – 20 per tonne of product
• Undulating topography at project mine site.
• Consolidation opportunities. 

Location and Geography

The Apurimac project is located in the Southern Highlands of Peru.  

Strike’s Interest

Strike holds its interest in this project through its 56% holding in Peruvian joint venture company Apurimac Ferrum SA (AF).  AF owns the project’s mineral concessions.  The other joint venture partner, D&C Group (D&C), holds 44% of AF.  D&C is a member of one of Peru’s premier business conglomerates.

Strike is providing funding to AF of up to US$27 million until mid-2012 under a loan agreement. D&C has the right to match this funding to move to 50% of AF or dilute to approximately 25% in mid-2012.

Studies

AF completed an initial Pre-feasibility Study (PFS) in 2008 based on the following primary parameters:

• 27Mtpa mining operation for 20Mtpa product.
• Coarse, wet magnetic beneficiation producing >68%Fe product with low impurities.
• Product transportation via slurry pipeline to coast for dewatering and export.
   

This study indicated the project is technically sound and hosted a number of competitive advantages, in particular:

• High grade for magnetite deposits with the average grade for the Opaban deposit of 57.3%Fe being almost double that for most magnetite deposits.  This means the proportion of ore which reports to the final product is significantly higher than for most other deposits (>60% compared with 30 – 35% for most magnetite deposits).
• Coarse-grained magnetite which means suitable concentrates can be produced at coarse grain sizes relative to most other magnetite deposits.  This significantly reduces the costs for grinding of the ore.
• Broad, continuous and regular deposit shape providing relatively low stripping (waste to ore) ratios for open cut mining.
• Sufficient water supply and reasonable local infrastructure.
• A suitable deep water port facility.
• Overall 3,500 metre fall to the coast providing pumping cost savings for the slurry pipeline.
   

Therefore further work was warranted to expand the resource base and refine the project analysis.

From mid-2008 till late 2009 no material project activities were undertaken due to a dispute with JV partners.  This dispute was resolved through negotiation and the partners have operated cooperatively and constructively since that time.

 During 2010 AF completed trade-off studies on the alternatives of production rates of 10 and 15Mtpa to produce either a concentrate or combined lump and fines products, to supplement the initial PFS.  The trade-off studies comprised:

• Process Plant and Port Filtration Facility Study – conducted by Ausenco
• Concept Mine Study – conducted by SRK Consulting
• Concentrate Pipeline Study – conducted by Ausenco PSI
   

The results showed the project’s capital costs are relatively insensitive to production rate, principally due to the significant portion of “fixed” costs associated with infrastructure.

Capital cost estimates for alternative production rates

Concentrate product

Lump & fines product

• The mine will have a strip ratio of between 1.2 and 1.8.
• A high conversion ratio (>80%) of resources to economically-recoverable material is likely based on current operating costs.  Mine sensitivity analysis indicates a robust project, relatively insensitive to mining costs, pit-design parameters and mining recoveries.
• The mine has a potential life, based on an optimised pit on current Indicated and Inferred Resources, of 18yrs for 10Mtpa, 12yrs for 15Mtpa and 9yrs for 20Mtpa production rates.
• The process plant and port facility for the 10 and 15Mtpa options offer advantages in reduced equipment sizing.  The “lump and fines” option provides a considerably simplified process circuit and, hence, reduced capital and operating costs.
   

Transport Options

Rope conveyor

AF has investigated the alternative of transporting ore to port using a rope conveyor.  This option has the potential for lower capital and operating costs than a railway option.  Rope conveyors offer large distances between supports and are currently used in similar downhill material transport applications over large distances in rugged terrain, including bauxite transport in the Caribbean.  In addition, this equipment could facilitate the lower-cost “lump and fines” product option. 

Railway

AF has also conducted a study to determine whether transporting an alternative product mix of lump and sinter feed by rail is preferable to transporting slurry via a pipeline.  The rail study considered the options of transporting 20Mtpa, 15Mtpa and 10Mtpa – the options being considered by the alternative production study.  Key outcomes from this study were:

• The final aligned track distance is 574km.
• The rail option includes 120 tunnels with a total distance of approximately 77km.
• 18 major bridges are required with lengths ranging from 45 to 980m.
• The estimated time line for design and construction of the rail line is 4 years.
• The total capital cost for the rail line at 20Mtpa is US$3 billion +20%.
• The operating cost is US$5.90 per tonne +/- 20% for 20Mtpa of product.
   

Financial modelling indicates the capital cost for this option is too high to be supported solely by the Apurimac Project.

JORC Resource 

The Apurimac project has a JORC resource of 269.4 Mt, consisting of:

• a 142.2 Mt Indicated Mineral Resource at 57.8% Fe; and
• a 127.2 Mt Inferred Mineral Resource at 56.7% Fe.

Combined Mineral Resources for Opaban 1 and Opaban 3 are summarised in the table below.

Combined total Mineral Resources for Opaban 1 and Opaban 3 

Full details of the basis for the Resource estimation are contained in Strike’s 11 February 2010 ASX Announcement Apurimac Project Resource Upgrade.

Community Relations

The Apurimac Project concessions are located on land farmed by various indigenous communities. Formal community approvals (generally through a community assembly) are required before commencing any activity on community land, including field visits, drilling and remediation works. The community engagement process involves the establishment of strong, on-going relationships based on mutual trust and respect, to ensure that exploration proceeds smoothly.  The relationship involves AF providing benefits to the communities to compensate them for using their land.

Establishing the required degree of trust is a gradual process.  The seasonal priorities of the communities’ agricultural and cultural activities generally take precedence over other matters. Before seeking a community’s consent it is necessary to inform them about the likely impact of exploration and any subsequent mining, and the benefits which could ultimately flow to them through sharing the rewards of a successful resource project.

AF has established a strong and experienced community relations team who also seek advice from leading Peruvian community relations consultants.  AF has developed strong working relationships on community issues with several major mining companies recognised for their good practice in this area.  A culture of sensitivity to community issues has been established throughout AF, which is essential to success in this field.

In 2008 AF obtained approvals from the communities on the Opaban 1 and 3 concessions for the drilling campaigns on which the current Resource is based.  AF’s relationships with these communities went into abeyance on the suspension of operations later that year.  Since resuming operations in late 2009, AF has made significant progress in re-building the relationships with these communities.  The key issues of compensation for past works and rehabilitation on the Opaban 1 and 3 concessions has been settled and AF is engaging positively with the relevant communities.   

AF has established community programs in conjunction with the Colcabamba community as part of the drilling program in that area.  These programs have been well received and recognized by the community, regional government and other communities as well planned and implemented and these are a pilot for AF community programs in all its concession areas.

Community negotiations are progressing in line with the exploration plan.   Approvals for access to satellite concessions in the Apurimac and Cusco regions have started to flow progressively from September 2011 which will enable reconnaissance and drilling programs to proceed as planned.

Metallurgy

The Apurimac iron ore has excellent metallurgical properties which provide significant advantages for the project. These properties include:

• The presence of potential direct shipping ore (DSO).
• Coarse-grained, friable (soft) magnetite is present at depth with:
  • coarse particle liberation size of at least 250 microns and potentially a large as 1mm (against an industry average of 30 – 40 microns) which reduces energy costs for the beneficiation process.
  • greater than 60% mass recovery (against an industry average of 30 – 40%).
  • no floatation circuit required at Opaban.
  • the possibility for dry magnetic separation to produce a “sinter fines” product.
     

The metallurgical testwork programs are designed to translate these advantages into reduced operating costs and improved project returns.

Exploration Potential

Historical work done by the Peruvian Government’s Department of Mines and the Takahashi Trading Company indicate potential iron ore mineralisation in the Apurimac project of 700Mt at 58% to 62% Fe. (The potential quantity of the target iron ore mineralisation is conceptual in nature.  There has been insufficient exploration to define an additional Mineral Resource in relation to that target iron ore.  It is uncertain whether further exploration will result in the determination of an additional Mineral Resource in relation to that target iron ore.)

The project resource of 269Mt is located entirely on two concessions: Opaban 1 and 3. To date 69 out of the 72 project concessions remain undrilled.

Drilling at Apurimac was suspended in late 2008 due to the Global Financial Crisis and joint venture disputes.  The disputes were resolved in the second half of calendar 2009 and partner relations have since been excellent.

In the first half of 2010 AF commenced preparations for a new drilling campaign.  An extensive community and environmental consultation and approval process is required to begin drilling.  This program is on-going.  The first concession to receive approval in the new campaign is Colcabamba, with drilling commencing in December 2010.

The present phase of the resource expansion project aims to identify at least 500 Mt of iron-ore mineralisation (including existing Mineral Resources).  Priority targets are:

• 300 to 350Mt at 56% to 62% Fe on the Opaban 1 and 3 concessions. The Opaban Resource remains open along strike and at depth as well as holding potential for parallel mineralised systems.  The existing Resource was established by drilling magnetic and gravity anomalies. It is planned to test several magnetic and gravity “highs” identified by the same surveys but as yet untested by drilling.
• Increasing the Indicated and Measured proportions of the Resource at Opaban 1 and 3 to the level which would support completion of mining reserve estimates.
• Ironstone outcrops and magnetic targets on the Colcabamba, Sillaccassa, Cristoforo and other high-priority “satellite” concessions.
• Pursing opportunities to consolidate concession holdings through acquisition, joint ventures or other transaction structures.
   

(The potential quantity of the target iron ore mineralisation is conceptual in nature.  There has been insufficient exploration to define an additional Mineral Resource in relation to that target iron ore.  It is uncertain whether further exploration will result in the determination of an additional Mineral Resource in relation to that target iron ore.)

JORC Code Competent Person Statement

 Of the JORC Indicated Mineral Resource of 142.5Mt at the Apurimac Project, 133.7Mt is on the Opaban 1 concession and 8.8Mt is on the Opaban 3 concession. The entire Inferred Mineral Resource of 127.5Mt at this project is located within the Opaban 1 concession. The information in this document which relates to Mineral Resources at the Opaban 1 and Opaban 3 concessions has been reviewed and confirmed by Mr Ian Cullen, B.Sc. (Geology), who is an employee of Strike Resources Ltd and is a member of the Australasian Institute of Mining and Metallurgy. Mr Cullen has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking, to qualify as Competent Persons as defined in the 2004 Edition of the “Australasian Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code).”  Mr Cullen consents to the inclusion in this document of the matters based on this information in the form and context in which it appears.