SRK 0.00% 13.0¢ strike resources limited

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  1. 643 Posts.
    bell potter buy 1InitiatingCoverage
    Date of issue
    01.11.06
    Drill-out of Apurimac & Cuzco magnetite iron ore deposits is off to a good start
    Strike has the right to earn a 51% interest in two potentially substantial and high grade
    magnetite-hematite iron ore projects at Apurimac & Cuzco in the southern Andes of Peru,
    by staged payments of US$41M. Strike estimates resources at 730Mt & 500Mt respectively,
    based on preliminary estimates by the Peruvian Ministry of Energy & Mines (PMEM). Strike
    has commenced a drill-out of the preliminary PMEM resources to validate them as JORC
    standard, and is off to a good start with promising results at the Apurimac project.
    Superior high grade magnetite iron ore mineralisation
    If the proposed drill-out is successful in validating the PMEM preliminary resource estimates
    the deposits would contain substantially more metal than most of Strike’s peer group of
    emerging Australian iron ore producers. This is mainly due to the standout feature of
    unusually high grade magnetite mineralisation at Apurimac & Cuzco (estimated by PMEM at
    60%-66% & +64% iron respectively), and compares favourably with the significantly lower
    grades of many of the emerging Australian magnetite iron ore producers (with grades
    between 30%-35%). The relatively remote Apurimac & Cuzco projects location is partly
    off-set by the advantages of favourable deposit geometry, and low impurities.
    Portfolio of resource projects in uranium, copper-gold & iron.
    Strike also has a portfolio of uranium, copper-gold and other iron projects in Australia &
    Indonesia. The most notable of these is the Bigrlyi South uranium project, in the NT, which
    is in proximity to the high grade Bigryli uranium deposit of Energy Metals Ltd (EME).
    Initiating research with a Buy 2 recommendation and a price target of $2.35
    We regard Strike as a promising emerging iron ore company, with the potential for
    substantial growth. However, we view the earlier resource estimates by the PMEM as very
    preliminary in nature, based solely on surface sampling, and until Strike is able to validate
    these estimates through a proposed drill-out we recognise that substantial resource risk
    exists and consequently an investment in Strike is highly speculative at this stage. In
    assessing value it is premature to use DCF & capitalisation of earnings as a basis for
    valuation in the absence of a sizeable JORC resources and mining studies. At this early
    stage we have assessed potential value by reviewing the market values of Strike’s peer
    group of emerging iron ore companies. Subject to a successful drill-out of the Apurimac &
    Cuzco resources, on a comparative basis assessed market value is $2.35 and we set a 12
    month price target of $2.35. This peer group review is tabulated in this report.
    InitiatingCoverage
    Date of issue
    01.11.06
    Drill-out of Apurimac & Cuzco magnetite iron ore deposits is off to a good start
    Strike has the right to earn a 51% interest in two potentially substantial and high grade
    magnetite-hematite iron ore projects at Apurimac & Cuzco in the southern Andes of Peru,
    by staged payments of US$41M. Strike estimates resources at 730Mt & 500Mt respectively,
    based on preliminary estimates by the Peruvian Ministry of Energy & Mines (PMEM). Strike
    has commenced a drill-out of the preliminary PMEM resources to validate them as JORC
    standard, and is off to a good start with promising results at the Apurimac project.
    Superior high grade magnetite iron ore mineralisation
    If the proposed drill-out is successful in validating the PMEM preliminary resource estimates
    the deposits would contain substantially more metal than most of Strike’s peer group of
    emerging Australian iron ore producers. This is mainly due to the standout feature of
    unusually high grade magnetite mineralisation at Apurimac & Cuzco (estimated by PMEM at
    60%-66% & +64% iron respectively), and compares favourably with the significantly lower
    grades of many of the emerging Australian magnetite iron ore producers (with grades
    between 30%-35%). The relatively remote Apurimac & Cuzco projects location is partly
    off-set by the advantages of favourable deposit geometry, and low impurities.
    Portfolio of resource projects in uranium, copper-gold & iron.
    Strike also has a portfolio of uranium, copper-gold and other iron projects in Australia &
    Indonesia. The most notable of these is the Bigrlyi South uranium project, in the NT, which
    is in proximity to the high grade Bigryli uranium deposit of Energy Metals Ltd (EME).
    Initiating research with a Buy 2 recommendation and a price target of $2.35
    We regard Strike as a promising emerging iron ore company, with the potential for
    substantial growth. However, we view the earlier resource estimates by the PMEM as very
    preliminary in nature, based solely on surface sampling, and until Strike is able to validate
    these estimates through a proposed drill-out we recognise that substantial resource risk
    exists and consequently an investment in Strike is highly speculative at this stage. In
    assessing value it is premature to use DCF & capitalisation of earnings as a basis for
    valuation in the absence of a sizeable JORC resources and mining studies. At this early
    stage we have assessed potential value by reviewing the market values of Strike’s peer
    group of emerging iron ore companies. Subject to a successful drill-out of the Apurimac &
    Cuzco resources, on a comparative basis assessed market value is $2.35 and we set a 12
    month price target of $2.35. This peer group review is tabulated in this report.
    Strike Resources (SRK) Buy 2
    First rate iron ore potential in Peru
    Chart: SRK vs ASX 300
    INVESTMENT DATA
    Share Price $1.725
    Issued Capital
    Ordinary Shares 48.4m
    Options 31.4m
    Fully Diluted 79.3m
    Market Capitalisation $136.8m
    52 Week Low/High $0.16 / $1.88
    Valuation $2.35
    Price Target (12 months) $2.35
    Return On Equity (FY06) -129%
    Shareholders Funds / Total
    Assets (June 06)
    90%
    Net Cash / Shareholders
    Funds (June 06)
    77%
    Top 20 shareholders hold 49% of issued
    shares.
    Stephen Thomas
    �� [email protected]
    IGO ASX 300
    $0.01
    $0.48
    $0.96
    $1.43
    $1.90
    Nov-04 May-05 Nov-05 May-06 Nov-06
    500
    24125
    47750
    71375
    95000
    Bell Potter Securities Research Email [email protected]
    Website www.AFS Licence No. 243480 ABN 25 006 390 772 bellpotter.com.au
    2
    Company & Peru JV Background
    Strike listed on the ASX in March 2000 as internet technology company Fast Scout Ltd
    (and Virtual Web Pty Ltd, a wholly owned subsidiary), and changed its name to Strike
    Resources Ltd in mid January 2006, following the change of principal activities to mineral
    exploration & development.
    Strike has recently completed legal and technical due diligence on the Apurimac & Cuzco
    projects and the Peruvian company Apurimac Ferrum SA (AF), that holds the projects. We
    understand AF is presently equally owned by the private Peruvian companies D&C Group
    SAC (D&C Group) and Minera los Andes y el Pacifico SA (MAPSA), which discovered the
    deposits in 1961 and formed a JV with the D&C Group in 1997 to jointly develop the
    projects. We understand the Peruvian JV partners work well with each other although
    Strike was recently suspended from ASX trading whilst a dispute between the Peruvian
    parties was resolved by Strike.
    In summary, Strike can earn a 51% interest in the Apurimac & Cuzco iron ore projects by
    the expenditure of US$41M, over a 5 year earn in period. This comprises an initial US$5M
    investment into AF, US$1.5M to acquire a further 2.9% interest in AF from D&C Group &
    MAPSA, and US$17.25M to exercise an option over each of the Apurimac & Cuzco
    projects. AF will have control of operating budgets and mining activities on the projects.
    A drill-out of the Apurimac resources commenced in late 2005, and Strike is off to a good
    start by identifying a 210Mt-260Mt resource target at one of the first of 21 tenements at
    Apurimac to be drilled. The next priority is to start a drill-out at the Cuzco project.
    Company Projects - Apurimac & Cuzco iron ore deposits
    These are potentially substantial iron ore deposits
    Based on reports compiled by the Peruvian Minister of Energy and Mines (PMEM) (dated
    1974), Strike estimates the Apurimac project contains a resource of 730Mt of high grade
    hematite and magnetite iron ore grading between 60% and 66% iron. The resource is
    spread between 21 tenements, located close to the city of Andahuaylas, approximately
    500km south east of Lima, in Peru’s southern Andes (Figure 1).
    Based on reports compiled by the Peruvian Minister of Energy and Mines (PMEM) (dated
    1974), Strike estimates the Cuzco project contains a resource of 500Mt of high grade iron
    ore (principally magnetite) grading at plus 64% iron. The resource is spread between 6
    tenements, located south of the city of Cuzco, approximately 650km south of Lima &
    450km from the coast, in Peru’s southern Andes (Figure 1).
    We view the earlier resource estimates by the PMEM as very preliminary in nature, based
    solely on surface mapping & sampling with no drilling results available at that stage, and
    until Strike is able to validate these estimates through a proposed drill-out we recognise
    that substantial resource risk exists. We understand the iron ore deposits in the Apurimac
    & Cuzco projects are unique metamorphic skarn deposits in limestone in the contact
    region of intrusive monzonite and granodiorite rocks. Most of the deposits outcrop as
    massive hematite and hematite-magnetite deposits having been variably oxidised.
    Recent drill-out & gravity surveys by independent consultants (AMEC)
    The start of the proposed drill-out has been carried out by AMEC Consultants (Peru) for
    Apurimac Ferrum in 2 of the 21 tenements at the Apurimac project in late 2005 (a total
    of 31 holes were drilled). This commenced the validation of the 730Mt preliminary
    resource estimate by PMEM referred to above. The AMEC results to date support the
    earlier PMEM resource estimates on these 2 tenements, and also suggest that gravity
    surveys are a semi-quantitative indicator of the dimensions of high grade magnetite
    mineralisation. The drilling has delineated high grade magnetite iron ore to depths
    greater than 80m & 130m below surface in the respective tenements.
    Furthermore, AMEC Consultants have indicated that following this first phase of drilling
    the Apurimac deposits appear to have material that may potentially be suitable for blast
    furnace use as lump ore, or alternatively the ore could be crushed for use as sinter feed or
    manufactured into high grade pellets.
    Bell Potter Securities Research Email [email protected]
    Website www.AFS Licence No. 243480 ABN 25 006 390 772 bellpotter.com.au
    Adelaide
    08 8359 2722
    Melbourne
    03 9256 8700
    Brisbane
    07 3221 3500
    Mornington
    03 5975 6666
    Perth
    08 9322 5899
    Cairns
    07 4051 4122
    Geelong
    03 5229 2016
    Hobart
    03 6231 1677
    Southport
    07 5532 1311
    Sydney
    02 9255 7200
    Toll Free
    133 788
    ABN 25006390772 Website www.bellpotter.com.au Email [email protected]
    3
    Company Projects - Apurimac & Cuzco iron ore deposits
    In the first of the Apurimac tenements evaluated (Opaban III) intercepts of continuous
    mineralisation varied from 22.6m to 107.0m (mostly commencing at or near surface).
    The iron ore grades varied from 58.6% to 65.5% iron, and averaged 62.3% iron (16
    holes).
    In the other tenement evaluated (Opaban I) the intercepts of continuous mineralisation
    varied from 29.5m to 132.3m (mostly commencing at or near surface). The iron ore
    grades for lump material varied from 45.6% to 63.4% iron, and averaged 55.0% iron (15
    holes) (where the +6.3mm fraction represents lump material). It should be noted that the
    limited number of holes drilled in the centre of the gravity anomaly/deposit at Opaban I
    returned thicker intersections of higher grade iron ore mineralisation, and on this basis we
    expect further drilling to lift the overall grade to approximately 60% iron.
    Strike has updated resource estimates following the independent AMEC work
    Strike has estimated a JORC compliant inferred resource of 21Mt grading 63% iron,
    based on the drilling and gravity anomaly in Opaban III. Strike believes the resource at
    Opaban III is of sufficient size and grade to potentially support trucking of up to 1Mtpa,
    that may generate near term cash flow.
    Strike has estimated a resource target of between 210Mt-260Mt at Opaban I, based on
    the widely spaced drilling and a gravity anomaly (which is an order of magnitude 10 times
    larger than that encountered at Opaban III). Based on mapping & extensive surface
    sampling Takahashi Trading estimated a resource target of greater than 270Mt at
    Opaban I, in 1961.
    We note the AMEC Consultants have indicated a resource potential of 104Mt to 122Mt
    at Opaban I (where the AMEC estimate is more conservative and is limited to 150m area
    of influence around the broadly spaced drill holes).
    Substantial exploration potential
    The southern portion of Opaban III and 19 additional tenements remain to be drill tested.
    The tenements include prominent gravity anomalies at Los Andes, Cristofano 22
    (adjoining Opaban I) & Pampachiri (40km south of Opaban I).
    No drilling has yet been undertaken at the Cuzco project (located 160km east south-east
    of the Opaban I concession). The priority for early work at the Cuzco project is a detailed
    gravity survey over large areas of outcrop and magnetic anomalies prior to drilling.
    Company Projects - Bigrlyi South uranium project, NT
    Strike has a 75% interest in 5 exploration tenements in the northern part of the
    prospective Ngalia Basin, located 390km north-west of Alice Springs, in the NT (Figure 2).
    The Ngalia Basin hosts the high grade Bigrlyi deposit, 5km to the north of the Strike
    tenements (resource of 8.4Mlbs U3O8). Strike regards all tenements covering the
    prospective Mt Eclipse sandstone, which hosts the Bigrlyi uranium deposit, as prospective.
    Strike proposes to explore for uranium mineralisation using detailed structural analysis
    and modern exploration methods.
    Company Projects - Paulsens East iron ore project, WA
    Paulsens is located 140km west of Tom Price, and 15km from a bitumen road to the port
    of Dampier (350km), in the Pilbara region of WA.
    Iron ore mineralisation occurs as a ridge rising up to 60m above the valley floor, extends
    for a strike length of 3,000m and varies in width from 6m to 12m in a single continuous
    outcrop. The mineralisation occurs as a hematite conglomerate in a hematite matrix. The
    company has sampled the outcrop at various points along the length of the ridge and the
    grades average 65.3% iron (average of 19 samples).
    Company Projects - West Java Cu - Au project, Indonesia
    The project is located 100km south-west of Jakarta, accessible by bitumen road via
    Serang. Strike has identified epithermal gold vein targets and potential Au stock work
    systems in extensive argillic & silicic alteration in granodiorites. Historic rock chip
    sampling from the tenements has returned several high grade results in the 12g/t to 62g/t
    gold range.
    Bell Potter Securities Research Email [email protected]
    Website www.AFS Licence No. 243480 ABN 25 006 390 772 bellpotter.com.au
    Adelaide
    08 8359 2722
    Melbourne
    03 9256 8700
    Brisbane
    07 3221 3500
    Mornington
    03 5975 6666
    Perth
    08 9322 5899
    Cairns
    07 4051 4122
    Geelong
    03 5229 2016
    Hobart
    03 6231 1677
    Southport
    07 5532 1311
    Sydney
    02 9255 7200
    Toll Free
    133 788
    ABN 25006390772 Website www.bellpotter.com.au Email [email protected]
 
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