Strike Resources share price wanes despite moving closer to an off-take agreement

The Strike Resources Limited (ASX: SRK) share price may be a victim of buy the rumour, sell the fact. It slumped even as the market rallied.

iron ore asx share price represented by chunk of iron ore

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The Strike Resources Limited (ASX: SRK) share price may be a victim of buy the rumour, sell the fact.

Shares in the iron ore hopeful fell 2.9% to 16 cents even as the broader market rallied hard with the S&P/ASX 200 Index (Index:^AXJO) jumping 2% at the time of writing.

The sell-off comes on the back of news that Strike Resources took a step forward in completing its off take agreement at its t Paulsens East project in Western Australia.

Strike Resources share price outperforming

But Strike Resources shareholders are unlikely to be too fussed. The stock is still sitting on 170% gains over the past month.

The miner announced today that it completed a test pit and collected approximately three tonnes of bulk samples. The rock samples will be used for marketing, metallurgical test work and plant design.

The excavation exposed the multiple bands of high-grade hematite iron ore, which extend to depth and three kilometres east to west along strike.

Striking while the iron's hot

The test pit is close to the eastern edge of the three kilometre long outcropping hematite ridge. This ridge contains the Joint Ore Reserves Committee Code (JORC) Indicated Mineral Resource of 9.6 million tonnes at 61.1% iron ore content.

Some of the samples were taken to ALS Ltd's (ASX: ALQ) labs in Perth for testing. The results will help Strike Resources design of the mine crushing and screening circuit at Paulsens East.

Samples were also sent to potential customers who have expressed interest in securing an offtake agreement with Strike Resources. Management said that this was a key step in advancing discussions to a final agreement.

Are stars aligning for Paulsens East?

"The test pit excavation and bulk sample extraction are important steps in the advancement of the high grade Paulsens East Iron Ore Project," said Strike Resources' managing director, William Johnson.

"The excavation clearly highlighted the bands of high-grade hematite iron ore, which extend from the top of the ridge to depth and which make up the three kilometre long outcropping ridge.   

"Testwork on the sample material will allow us to optimise our final plant design and the production of Lump and Fines samples, which will be representative of our final products, will be important for concluding agreements with our potential customers."

Strong interest in the sector

Investors interest in iron ore is burning hot as the price of the gravity-defying price of the commodity is stuck above US$120 a tonne.

Analysts have been continually upgrading their forecast for the iron ore price over the next three years. They may be forced to keep playing catchup the longer the iron ore price stays at current levels as their 2021 forecasts are well below the spot price.

The growing optimism towards the steel making ingredient is the key reason behind the Fortescue Metals Group Limited (ASX: FMG) share price and Rio Tinto Limited (ASX: RIO) share price rally.

Motley Fool contributor Brendon Lau owns shares of Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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