Strategic Energy Resources and Fortescue JV at Myall Creek
In a financially valuable and strategically important development, Strategic Energy Resources (ASX:SER) has executed a farm-in and joint venture agreement with FMG Resources Pty Ltd, a subsidiary of Fortescue Metals Group Ltd (ASX:FMG) to explore the group’s Myall Creek Copper-Gold Project in the renowned Olympic Dam IOCG (iron ore copper-gold) corridor of South Australia.
Fortescue is one of Australia’s largest iron ore producers with a market capitalisation of nearly $25 billion.
However, FMG has recently flagged its intention to diversified into copper-gold exploration, targeting projects prospective for these metals in Western Australia, South Australia and Ecuador.
Fortescue will spend $1.5 million on exploration over five years, including a minimum of 1500 metres of drilling at Myall Creek (EL6140 and EL5898) to earn an 80% interest in the project.
As the map indicates below, much of SER’s tenements are already abutted by Fortescue, which obviously sees the broader region as highly prospective.
FinFeed suggested in November that there appeared to be a strong likelihood of an approach by Fortescue given the strategic benefits offered by the location of SER’s territory.
The area around Myall Creek came under the microscope in August 2018, being the focus of a substantial body of work by the Geological Survey of South Australia (GSSA).
In August, the GSSA published a report — Roopena Basin: Sedimentary basin formation associated with Mesoproterozoic mineralising event in the Gawler Craton.
It notes that both Olympic Dam and Prominent Hill are spatially associated with sedimentary rocks deposited synchronous with volcanism, which suggests an active sedimentary basin may be significant in the formation of IOCG mineralisation.
Further demonstrating the extent of the IOCG system, the Prominent Hill Copper-Gold Project lies to the north of Olympic Dam, while the $3 billion Oz Minerals’ (ASX:OZL) Carrapateena copper-gold project is much closer to Myall Creek, as it is situated south of Olympic Dam.
This adds weight to the proximal location of Myall Creek as Carrapateena is a 4.2 million tonnes per annum project with an estimated mine life of 20 years.
Also positive for SER’s EL6335 licence
Providing further proof that this region is still one of the prime exploration targets in Australia, it was only late last year that BHP made the Oak Dam West discovery which lies between Olympic Dam and Carapateena.
It could be argued that Fortescue’s move is just as significant for SER’s EL6335 licence, which was just awarded in April, prompting a surge of 30% in the company’s share price.
The following 12 months share price chart demonstrates the impact that regular promising newsflow has had over the last six months or so, triggering strong share price support.
However, being a tangible financial commitment by a world-class iron ore producer, the joint venture agreement could be the most significant share price catalyst that has emerged in the last 12 months.
Fortescue to manage exploration
Under the agreement Fortescue will manage exploration, satisfy all expenditure requirements and keep the tenements in good standing.
After Fortescue has earned-in, a joint venture will be formed under which each party will contribute pro-rata (FMG 80%, SER 20%) to further exploration and development or be diluted in accordance with industry standard formula.
At Myall Creek, SER and Fortescue are targeting Iron Oxide Copper-Gold (IOCG) mineralisation in the Proterozoic basement and sediment-hosted mineralisation in the overlying sediments.
Key IOCG host rocks are present within the project area and overlying sediments include a 15 kilometre zone with anomalous copper in historic drilling.
Exploration results the next share price catalysts
Underlining the significance of having a world-class partner, SER executive chairman, Stuart Rechner said, “SER welcomes Fortescue joining the Myall Creek Copper-Gold Project, bringing its substantial exploration and technical capability having discovered and developed some of the most significant mines in the world.”
Not only is Fortescue’s involvement strategically and financially beneficial, but it is also an endorsement of the quality of SER’s landholding.
While this development could well trigger significant share price momentum, there is also the prospect that other catalysts will come into play as exploration results come to hand.