STRIKE RESOURCES LIMITED — Capital/Financing Update 2009

Jun 10, 2009

Thursday, 11 June 2009

MARKET ANNOUNCEMENT

COMPLETION OF FEASIBILITY STUDY

Strike is pleased to announce the completion of a feasibility study for its Berau Thermal Coal Project (Berau Project) in East Kalimantan, Indonesia.

The feasibility study focussed on the development of an open-cut contract mining operation with production scaling up from 1.5 Mt per annum (Mtpa) to 3 Mtpa, with transportation 30kms by road to a new port for barging approximately 90kms down the Segah River to the coast and on to an established coal trans-shipment location approximately 30km offshore.

The Berau Project currently has a JORC Code compliant Coal Resource of 20.8 million tonnes (Mt) of coal with a calorific value of 5,605 kcal/kg gross as received (GAR), comprising 1.8Mt of Measured Coal Resource, 8.6 Mt of Indicated Coal Resource and 10.4 Mt of Inferred Coal Resource.

The Company also has an exploration target within the Berau Project estimated to contain additional mineralisation of 10–15 Mt1 of coal.

Based on the current JORC Resource and the exploration target the Company is targeting 7–9 years' production from the mine.

The feasibility study was completed at a cost of approximately A$1.7 million using a number of international and local Indonesian consulting firms.

The study has confirmed that the Berau Project has the potential to generate an annual operating surplus of approximately US$33m, with:

• total capital cost of approximately US$19m;
• average operating costs of approximately US$41 per tonne;
• a projected coal price of approximately US$52/tonne, FOB ship (current prices are approximately US$55-57/tonne);
• 3 Mt peak production per year;
• a run of mine coal product of medium calorific value of 5,400-5,600 kcal/kg GAR with low sulphur - 0.66%, as received (AR); ash - 7.3%, AR and total moisture - 16.6%, AR; and

1 The basis for the target additional coal is set out under the heading "Exploration Target - Nyapa East Block Drilling Campaign" on pages 9 - 10 below. The potential quantity and quality of the target additional coal is conceptual in nature. There has been insufficient exploration to define a JORC Mineral Resource in relation to that additional target coal. It is uncertain whether further exploration will result in that target additional coal being converted into an additional JORC Mineral Resource of the quantity or quality envisaged.

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STRIKE RESOURCES LIMITED A.B.N. 94 088 488 724

• a development timetable of 8 months from receipt of development approvals to production.

Strike is currently undertaking a tender process with respect to the provision of contract mining services, the construction of infrastructure at the mine and barge port sites and for the road from the mine to the port. Strike is also awaiting environmental approvals and the conversion of the mining concession from Exploration to Production/Operation status, as provided under Indonesia's new Mining Law.

Strike is targeting the commencement of construction of mine and infrastructure facilities in August 2009, with first production in May 2010.

Summary of Feasibility Study

The feasibility study included mine planning, infrastructure (mine, transportation and barge port) and marketing studies completed by a number of international and local Indonesian consulting firms:

• a resource review and development of a life of mine plan by Minarco-MineConsult;
• a detailed transportation study from the mine site to the barge port site by TransTek Engineering;
• a detailed mine and port infrastructure study by TransTek Engineering;
• a ground survey of the terrain between the mine and proposed barge port site to determine the course of the road corridor by TransTek Engineering;
• an assessment of proposed barge port locations and hydrological and geotechnical assessment of the proposed mine pits by Golder Associates; and
• a marketing study on the present marketability of the coal from the Berau concession by Coal Marketing International.

The results of these studies are summarised below:

Project Overview

The Berau Project is located 40 kilometres south-west of Tanjungredeb (Berau) and 350 kilometres north of Balikpapan, East Kalimantan, Indonesia.

Strike holds a 100% interest in this project.2

Subject to obtaining all regulatory approvals, mining is targeted to commence in May 2010. Mining will be an open-pit operation undertaken by a contract miner. Coal will then be transported by truck along a 30km road (to be constructed) to a barge port (also to be constructed) on the Segah River, where it will be stockpiled. Barges will

then collect the coal and transport it 90km the coast and then on to a trans-shipment point 30km offshore, where the coal will be offloaded to ships for delivery to customers.

2 Via a Cooperation Agreement with the concession holder under which Strike has an exclusive right to conduct mining activities, including the right to conduct general survey activities, explore for, exploit, mine and sell all coal, methane gas and other minerals in the concession.

There is an established coal mining industry in the region. Other coal operators regularly barge coal down the Segah River for trans-shipment.

It is envisaged that the coal will be sold to one or more power station operators and/or industry consumers in South East Asia, as is normal for coal of this quality sold from this region. Approximately 16 Mt of similar-quality coal is sold from this region every year.

Capital Costs

The total capital cost for the Berau Project is estimated at US$18.6 million (including contingencies), broken down as follows:

Item	US$m(+/-15%)
Mine plant, infrastructure and land	3.20
Road construction and land access	8.10
Barge port	5.10
Other	2.20
Total capital cost	18.60

Operating Costs

Total operating costs per tonne of coal mined are estimated to be US$41.23 (+5/-10%).

Estimated operating costs for contract mining were based on 8 recent bids, by disregarding the highest and the lowest bids and averaging the remaining 6 bids. A similar process was undertaken to estimate costs of road haulage, barging and ship loading. A breakdown of these costs is shown below.

Item	US$/tonne
Overburden	17.76
Coal mining	0.73
Coal handling/crushing	1.50
Coal hauling	4.65
Coal barge loading	0.65
Barging/trans-shipment	4.00
Stevedoring	0.60
Concession royalty	3.00
Government royalty	2.38
Administration	1.75
Compensation	0.75
Marketing	0.15
Licence fee	0.15
Quality control	0.25
VAT	2.91
Total operating cost per tonne	41.23

Mine Plan

A life-of-mine plan for the deposit located on the western side of the Kelai River (Nyapa West Block) has been developed with consultants Minarco-MineConsult. The mine pit will cover an area of approximately 124 hectares and is estimated to have 8.8Mt of run-of-mine (ROM) coal at an average strip ratio (over the life of the pit) of 9.2:1 (i.e. 9.2 bank cubic metres of overburden will be mined for every 1 tonne of coal).

The Company will develop a mine plan for the deposit located on the eastern side of the Kelai River (Nyapa East Block) once further infill drilling is completed (as outlined later in this announcement).

Proposed Nyapa West Block open cut mine

The diagram below shows the practical pit design for the deposit on the western side of the Kelai River.

The mine will be designed to target production of 1.5 Mt of coal in the first year, expanding to produce at a rate of 3Mtpa in subsequent years.

Mining will be an open-pit operation undertaken by contract miners. Equipment used will be conventional truck and shovel, with some blasting as necessary. Mined coal will be blended on site to meet customer specifications.

Transport Infrastructure

Road

• A road will be constructed for the transport of the coal to the barge port. The route has already been identified and mapped. Approximately half of the road will utilise existing logging roads, which will reduce construction time and costs.
• Subject to approvals for the construction of the road being received, construction of the road will take approximately seven months. The road route crosses land which is mostly community and government owned, with some private holdings.
• Negotiations with the various landowners to allow access are underway, and are estimated to be completed by August 2009.

Barge Port

• A site for the barge port on the Segah River has been identified. A purchase agreement for the port site has recently been executed with the site owner.
• The total area acquired for the barge port is approximately 8 hectares.
• The port site will accommodate a 60,000 tonne stockpile, with capacity for expansion.
• Coal will be loaded onto 5,000 tonne barges by conveyor.
• The port will also have a fuel discharge facility so that fuel for mine operations can be offloaded from barges and transported to the mine by truck.

The illustration below shows the proposed facility to be constructed on this land.

The schematic diagram below shows the proposed layout of port infrastructure.

The Segah River is used extensively for transporting coal by miners in the region. The following photograph illustrates a similar coal-loading facility on the Segah River to the facility proposed by Strike.

Coal will be barged 90 km down the Segah River to the coast and then a further 30km to an offshore trans-shipment point. Here it will be loaded onto ships for delivery to customers. The following picture illustrates a ship-loading operation similar to the one to be conducted by Strike.

Life of Mine

Based on the current JORC Resource and the exploration target, the Company is targeting 7-9 years production from the mine, at an annualised production rate of 3Mtpa (with an initial ramp up phase starting at 1.5 Mtpa).

Cashflow Forecast

The Company has forecast a long-term sale price for coal (FOB Ship) of US$52/tonne for sale of coal from the Berau Project. The Company's forecast compares with current coal prices of approximately US$55-57/tonne.

Assuming a price received per tonne of coal sold of US$52, the mine is forecast to produce an annual operating surplus of US$33 million at the rate of 3Mtpa. At US$60 received per tonne of coal sold, the annual cash operating surplus increases to US$57 million.

Coal Sales and Pricing

Coal from Indonesia of similar quality to that from the Berau Project is extensively traded on world markets and is primarily used as fuel for power stations.

Coal of a similar calorific value to that to be mined from the Berau Project is currently selling for approximately US$55-57 per tonne.

Strike has used a price of US$52 per tonne for budgeting and forecast purposes. This is based upon:

• an analysis of current prices received for similar coal;
• a review of various market forecasts;
• a report commissioned from a coal marketing consultant specialising in Indonesian coal; and
• discussions with potential customers in Taiwan, India and the Philippines.

Project Timing

Various Government approvals and land acquisition/access agreements are required before Strike can commence construction of the mine and transport infrastructure. In particular, Strike is awaiting environmental approvals and the conversion of the mining concession from Exploration to Production/Operation status, as provided under Indonesia's new Mining Law.

Strike is targeting commencement of construction of mine and infrastructure facilities in August 2009, with first production in May 2010.

Resources and Reserves

The JORC Code compliant Coal Resource and Coal Reserve were estimated by independent consultants, Minarco-MineConsult Pty Ltd and were based upon a 5,500 metre diamondcore drilling campaign completed in March 2009, which built upon previous drilling campaigns totalling 4,500m.

Drilling has been conducted to the west (Nyapa West Block) and east (Nyapa East Block) of the Kelai River, which passes through the concession.

Concession	Coal Resources (Mt)
Blocks	Measured	Indicated	Inferred	Sub-Total
Nyapa West	1.8	8.6	3.6	14.0
Nyapa East	-	-	6.8	6.8
Total	1.8	8.6	10.4	20.8

Coal Resources

The in-situ coal at Nyapa West is of sub-bituminous rank, with the following average qualities:

• medium calorific value 5,605 kcal/kg, GAR;
• total moisture 16.6%, AR;
• ash 5.8%, air dried basis (ADB); and
• sulphur 0.71%, ADB.

The coal in the Nyapa East Block is of a similar quality.

Coal Reserves

From the total 20.8 Mt Coal Resource outlined above, a Coal Reserve of 7.7 Mt has been estimated by Minarco-MineConsult. The 7.7 Mt Coal Reserve is classified as a Probable Reserve and is located within the Nyapa West Block.

Probable	Calorific Value kcal/kg	Total Sulphur	Ash	Total Moisture
Reserves	(GAR)	(AR)	(AR)	(AR)
7.7 Mt	5,546	0.66%	7.3%	16.6%

Coal Resources are reported inclusive of Coal Reserves: that is Coal Reserves are not additional to Coal Resources.

Exploration Target - Nyapa East Block Drilling Campaign

Strike is seeking to expand the resource base outlined above.

In particular, within the Nyapa East Block the deposit comprising the 6.8Mt JORC Inferred Resource remains open and untested along a further 2km strike to the south-east and the "nose" of the syncline, where intermittent occurrences of outcropping coal have been mapped. This is depicted in the following map.

Map of Berau concession showing geology and drilling

So far 9 coal seams have been identified in the area. Of these 9 seams, there are two seams within the Nyapa East Block which average 4.1m and 4.5m in thickness.

Such seams appear to be a continuation of the seams encountered within the Nyapa West Block on the other side of the Kelai River, but appear to thicken as they cross under the river into the Nyapa East Block.

Strike is encouraged by the occurrence of these relatively thick seams within the Nyapa East Block as they indicate the potential for:

• a lower strip ratio once mining commences in that block; and
• the continuity of the deposit along strike for 2km to the southeast where coal outcrops have already been identified.

In addition, whilst in the Nyapa West Block the nominal depth to which the Coal Resources were estimated was -100m reduced level (RL), in the Nyapa East Block drilling has so far been limited to only -50m RL. Therefore there is potential to further expand the resource in the Nyapa East Block through deeper drilling.

Strike has therefore commenced a 4,000m drilling campaign on the Nyapa East Block with the following objectives:

• obtain geotechnical information to determine mining conditions and to plan an opencut mine on the Nyapa East Block, in addition to the mine currently planned for the Nyapa West Block;
• convert some or all of the current 6.8Mt Inferred Resource to Measured status; and
• delineate an additional resource to the southeast of the currently-drilled areas.

This drilling campaign is expected to be completed within the next 4 months3 .

Production Forest

Government-owned Production Forest overlaps parts of the concession in the northwest and the southeast. Government permission is required to mine from areas designated as Production Forest. Obtaining the relevant permits typically takes one to two years.

Approximately 50% of the 8.6Mt Indicated Resource in the Nyapa West Block lies in a Production Forest. The Mine Plan has been designed to mine coal from outside the Production Forest area in the first year, moving into the Production Forest area once permission is received.

Should permission to mine from the Production Forest area take longer than anticipated, Strike may move its mining operations along strike to the Nyapa East Block where an Inferred Resource of 6.8 Mt is located (outside of Production Forest areas) and which Strike is currently seeking to expand through the drilling program referred to above.

Project Financing and Coal Off-Take Sales

Strike advises that an agreement with a joint venture consortium developing a 300 megawatt Indian power station to exclusively conduct due diligence and evaluation of the Berau Project in relation to entering into a joint venture and off-take agreement with Strike has expired.

The joint venture consortium presented an offer for the acquisition of 100% of the Berau Project for a lump sum cash amount based upon the current Measured and Indicated Coal Resource, together with a royalty per tonne of coal produced for any further delineation of coal beyond that currently in the Measured and Indicated Resource categories.

3 The potential quantity and quality of the target additional coal in this section of this announcement is conceptual in nature. There has been insufficient exploration to define a JORC Mineral Resource in relation to that additional target coal. It is uncertain whether further exploration will result in that target additional coal being converted into an additional JORC Mineral Resource of the quantity or quality envisaged.

In light of Strike having recently completed the feasibility study and gaining a better understanding of the Berau Project's economics, the sale of a 100% interest upon the terms proposed by the consortium was not acceptable to Strike.

As the parties were not able to reach an agreement within the stipulated exclusivity period, Strike is now able to consider project financing and off-take opportunities from other parties.

In this regard, Strike is continuing to explore securing coal off-take agreements with potential customers.

Conclusion

Strike is very encouraged by the Berau Project economics demonstrated by the feasibility study and the apparent strengthening of the thermal coal market, which is supported by recent increases in thermal coal prices. The Company is focussing its efforts on achieving necessary approvals to commence mining and construction and discovering additional coal mineralisation in the Berau Project concession through an ongoing drilling campaign.

For further information:

Shanker Madan Managing Director T | +61 8 9214 9700 E | smadan@strikeresources.com.au

The information in this document that relates to Coal Resources was compiled by Mr William Park (BSc (Geology), BEcon, MAIG) who is a member of the Australian Institute of Geoscientists and, to the extent that the information in this document relates to Coal Reserves, was compiled by Mr Michael Trainor (BE (Mining), MAusIMM) who is a Member of The Australian Institute of Mining and Metallurgy. Mr Park and Mr Trainor are employees of Minarco-MineConsult Pty Ltd*. Mr Park and Mr Trainor have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are 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 Park and Mr Trainor consent to the inclusion in this document of the matters based on their information in the form and context in which it appears.*

The information in this document that relates to target mineralisation and expectations about potential to increase mineable coal has been compiled by Mr Shanker Madan. Mr Madan holds Honours and Masters Science degrees in Applied Geology and is a member of the Australian Institute of Mining and Metallurgy. Mr Madan is Managing Director of Strike Resources Limited. Mr Madan 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 a Competent Person as defined in the JORC Code. Mr Madan consents to the inclusion in this document of the matters based on his information in the form and context in which it appears.