MARKET ANNOUNCEMENT

Tuesday, 4 July 2006

Peru Iron-Ore Update

The Company refers to its market announcements dated:

• 24 May 2006 relating to the proposed acquisition of up to a 51% interest in two iron ore projects -The Apurimac Project (Apurimac Project) and the Cuzco Project (Cuzco Project) in Peru from Minera los Andes y el Pacifico S.A. (MAPSA) and;
• 7 June 2006 relating to the Company's subsequent receipt of notice of an alleged competing claim and injunction lodged by Peruvian company, D & C Group S.A.C. (D&C) with respect to both such projects.

Since the date of the latter announcement, representatives of the Company travelled to Peru to investigate these matters, determine the Company's position, and if possible, facilitate a resolution of these competing claims.

The Company is pleased to advise that as a consequence of negotiations between all parties involved, that settlement has now been reached whereby the dispute between MAPSA and D&C has been resolved and whereby Strike has retained its right to acquire a 51% (or greater) interest in the Apurimac Project and Cuzco Project.

SUMMARY

• Strike has the right to earn a 51% (or greater) interest in the Apurimac Project or the Cuzco . Project or both (at Strike's election) through the acquisition of up to a 51% (or greater) shareholding in Apurimac Ferrum S.A. (AF) a Peruvian company that will hold one or both Projects.
• The shareholding balance in AF will be held by MAPSA and D&C in equal shares:
• A binding agreement (the Agreement) has been executed by Strike, D&C, MAPSA and AF governing the terms upon which Strike will earn a shareholding interest in AF.
• A binding settlement agreement (the Settlement Agreement) has been executed by AF and all of its current shareholders, which are MAPSA and D&C, pursuant to which the shareholders have agreed to cease all litigation, the existing arbitration in connection with the title to the concessions in the Apurimac Project and Cuzco Project and any administrative proceedings they have filed in such regard.
• AF will in addition to holding the 14 mining tenements (of 11,913 ha in total) comprising the original Apurimac and Cuzco Projects hold a further 13 mining tenements (of 11,500 ha in total) all of which are located in proximity to the tenements comprising the Apurimac and Cuzco Projects and are prospective for iron ore. Strike will as a consequence of exercising its option over one or more of the Projects also earn a 51% interest (or greater) in these additional tenements through its proposed 51% (or greater) shareholding in AF;
• Strike will appoint three out of five directors to the board of AF and will have operational control of mining activities on the Projects.
• D&C and MAPSA have agreed to advance US\$10 million loan/equity into AF if Strike exercises its options to move to a 51% interest in AF.

Further details about the terms of the new Agreement are outlined below.

www.strikeresources.com.au

STRIKE RESOURCES LIMITED (formerly Fast Scout Limited) Level 14, 221 St Georges Terrace, Perth WA 6000 T | (08) 9214 9700 F | (08) 9322 1515

A.B.N. 94 088 488 724

ASX Code: SRK

BACKGROUND

• MAPSA and D&C had in July 2004 entered into an option agreement in connection with the tenements comprising the Apurimac and Cuzco Projects. As per the terms therein, in the event D&C exercised its option under the option agreement the tenements would be transferred into a new company in which MAPSA and D&C would have shareholding interests.
• The company into which these tenements were to be transferred pursuant to the option agreement is AF, which was incorporated by D&C and MAPSA in August 2004.
• D&C exercised the option under the option agreement in December 2005; however, MAPSA disputed the exercise of the option. Such dispute led to the initiation of litigation, administrative proceedings and an arbitration, which have now been settled by D&C and MAPSA as per the Settlement Agreement facilitated by Strike.
• The Settlement Agreement provides a period of time for D&C and MAPSA to implement the terms and conditions therein (in order to cease all litigation, the arbitration and administrative proceedings) and a term for MAPSA to transfer the tenements comprising the Apurimac and Cuzco Projects into AF. The Settlement Agreement is an integral part of the Agreement and, therefore, cannot be amended by the parties thereto without Strike's approval.
• AF in its own right holds a further 13 mining tenements covering 11,500 hectares in total all of which are located in proximity to the tenements comprising the Apurimac and Cuzco Projects and are prospective for iron ore.
• The Agreement reflects the terms upon which Strike can become a shareholder in AF and accordingly supersedes and replaces the agreement entered into between Strike and MAPSA the subject of the Company's market announcement dated 24 May 2006.

TERMS OF AGREEMENT

Conditional Agreement

The Agreement is subject to completion of satisfactory due diligence by Strike on or before 15 September 2006, which includes (but is not limited to) the conduct of technical, financial, accounting, operational and legal due diligence into AF (including an audit of AF's financial position, books and records), its tenements, the Apurimac Project, the Cuzco Project and any other matter considered by Strike as relevant to a decision as to whether to proceed with the transaction.

The Company notes that the Agreement is still subject to Strike completing such due diligence to its satisfaction and at the date of this announcement such due diligence has not been completed. Accordingly there is no quarantee that due diligence will be completed to the satisfaction of Strike or that the transaction will proceed.

The acquisition by Strike of a shareholding interest in AF has been structured on a staged basis as follows:

Stage 1 - Share Investment During Earn-In Period

• $(i)$ Strike has the right to progressively earn an initial 9.62% shareholding in AF by investing US\$5 million into AF during a 5 year earn-in period (Earn-In Period) which shall commence after completion of satisfactory due diligence by Strike as referred to above;
• $(ii)$ Strike shall earn a 0.38% shareholding interest in AF for every US\$0.2 million invested into AF (on a post investment basis), to earn a total of 9.62% shareholding in AF after completion of such total investment (on a post investment basis);
• $(iii)$ Strike shall have a minimum investment commitment of US\$1.4 million into AF spread over 4 tranches during the first 12 months of the Earn-in Period prior to which it shall not be entitled to withdraw from the Agreement. By such expenditure, Strike shall earn a 2.69% shareholding in AF.
• $(iv)$ Thereafter, Strike shall at its election invest US\$0.5 million every 6 months into AF to increase its shareholding interest up to the total of 9.62% stated above.
• $(v)$ Whilst Strike shall be free to withdraw from the Agreement at any time after investing the US\$1.4 million minimum investment commitment stated in (iii), should it decide to proceed thereafter but withdraw during any subsequent 6 month period, it shall be required to invest the balance of the US\$0.5 million required for that 6 month period stated in (iv).
• $(vi)$ The US\$5 million to be invested by Strike into AF shall be applied by AF as working capital to fund the exploitation of the tenements of AF including the conduct by AF of an initial drilling programme of 1500 metres on the Apurimac Project and 1500 metres on the Cuzco Project within 12 months from the commencement of the Earn-in Period.

Stage 2 - Share Acquisition from D&C and MAPSA

In addition to the US\$5 million share investment in AF able to be made by Strike, D&C and MAPSA have agreed to equally sell to Strike, shares held by them in AF equivalent to a total of 2.88% of AF's issued capital for a US\$1.5 million consideration. This sale will occur in two tranches with one-third to be sold no later than one year after the commencement of the Earn-In Period and the balance to be sold no later than two years after the commencement of the Earn-In Period.

Accordingly, after the completion of Stages 1 and 2, Strike shall hold a total of 12.5% of the issued capital of AF by having invested US\$5 million into AF to receive 9.62% of the issued capital of AF and having purchased 2.88% of the issued capital of AF from MAPSA and D&C for a consideration of US\$1.5 million.

Stage 3 - Working Capital Loan During Earn-In Period

Once Strike has contributed the US\$5 million into AF (Stage 1) and paid the US\$1.5 million consideration (Stage 2), but before Strike exercises any of its Options described below under Stage 4 - Exercise of Options, if further funds are required by AF to conduct any mining activity as determined by its board, then Strike may provide or cause a financial institution to provide a maximum of an additional US\$5 million as an interest bearing loan to AF net of any Peruvian withholding taxes that might apply.

The loan shall either be repaid by AF within 12 months or if unpaid in whole or part, shall be capable of conversion to equity in AF by Strike in accordance with an agreed dilution formula. For example, if the full US\$5 million loan is converted into equity in AF, Strike will increase its shareholding interest in AF from 12.5% (post Stage 1 and 2) to 22.2% (post loan conversion/Stage 3).

Stage 4 - Exercise of Options

During the Earn-In Period. Strike shall have the following Options - granted by D&C and MAPSA prorata to their respective shareholding interests in AF - to acquire an additional 38.5% shareholding interest in AF, taking its shareholding interest in AF to 51% (or greater if D&C and/or MAPSA are further diluted as a consequence of the Stage 3 - Working Capital Loan being converted by Strike into equity in AF):

• Option 1: for the Apurimac Project tenements, Strike may elect to pay US\$8.625 million $(a)$ to D&C and US\$8,625 million to MAPSA: and/or
• $(b)$ Option 2: for the Cuzco Project tenements, Strike may elect to pay US\$8.625 million to D&C and US\$8.625 million to MAPSA.

If Strike elects to exercise one but not both Options, then the tenements corresponding to the Option/Project that was not exercised by Strike (together with any related assets, liabilities and information on such Project) shall be transferred into a new Peruvian incorporated company in which the shareholding interests shall be the same as the shareholding interests of the parties in AF immediately prior to the exercise of the Option. The parties have also agreed that any new mineral tenements applied for by AF after the date of the Agreement shall remain in AF and not be transferred to the new Peruvian company.

Further Working Capital

$(1)$ Each of D&C and MAPSA have agreed to provide an interest bearing loan to AF of US\$2.5 million out of the funds they receive from Strike upon Strike's exercise of each of the Options. to be repaid at the third, fourth and fifth anniversary after advancement.

If Strike exercises both Options, each of D&C and MAPSA have agreed to provide loan funds of US\$5 million to AF or a collective total of US\$10 million.

Whilst such loans remain outstanding, AF shall not raise any further loan funds except with the consent of all the parties.

Where AF decides to issue further capital, MAPSA and D&C can elect to convert any outstanding loan amount to equity in AF where their post conversion interest in AF is determined in accordance with an agreed dilution formula.

• $(2)$ In the event Strike exercises any of its Options under Stage 4, MAPSA and D&C may also invest monies into AF as equity only in order to maintain their shareholding interest in AF at the time that the Option(s) is (are) exercised by Strike. That is, to ensure that post exercise of the Options, Strike shall have a 51% interest and each of MAPSA and D&C shall have a 24.5% interest in AF
• Where MAPSA and D&C have invested monies into AF under (2) above as equity then the $(3)$ amount of the loans from MAPSA and D&C as contemplated in (1) above shall be reduced by such monies already invested by each party into AF.

Accordingly if Strike exercises both Options, each of D&C and MAPSA have agreed to provide loan/equity funds of US\$5 million to AF or a collective total of US\$10 million.

$(4)$ Once Strike has contributed the US\$5 million under Stage 1 into AF and Strike has further exercised one or both of the Options under Stage 4, if further funds are required by AF to conduct any mining activity then each party shall be obligated to contribute its proportionate share of such funding according to its shareholding interest in AF at such time or otherwise such party shall be diluted in accordance with an agreed dilution formula.

Shareholder Agreement, Share Pledge and Assignment of Voting Rights Agreement

The Agreement contemplates that the parties will enter into a formal Shareholders' Agreement to reflect at least the same terms and conditions detailed in the Agreement and other matters usually incorporated in such agreements to regulate the rights and obligations of the parties to the other in their capacity as shareholders of AF.

The Agreement also contemplates that that D&C and MAPSA will, respectively, enter into formal Share Pledge and Assignment of Voting Rights Agreements with Strike, granting a pledge to Strike during the Earn-In Period over whatever number of their shares is necessary so that Strike will always be able to exercise, at its sole discretion, the voting rights for 70% of the total number of voting shares in AF exclusively in connection with the following matters:

• $(a)$ the approval of all operating budgets to be implemented by the board of AF;
• $(b)$ the approval of any and all mining activities to be carried out by AF;
• the approval of all capital increases within AF proposed by the board of AF; and, $(c)$
• $(d)$ the election of directors as proposed by the Agreement and management officers of AF.

Share Usufruct Agreements

After the Earn-In Period, and provided Strike has exercised the Options, both D&C and MAPSA will each enter into an agreement over whatever number of their shares is necessary so that Strike will always be able to exercise, at its sole discretion, the voting rights for 70% of the total number of voting shares in AF exclusively in connection with any decisions to be made relating to AF capital increases and election of AF's board of directors.

Such Share Usufruct Agreements shall be in force until AF's capital has increased either by US\$50 million (where Strike has exercised both Options) or US\$25 million (where Strike has exercised only one Option).

The parties have agreed that until such time as the foregoing agreements are executed, the Agreement shall govern them and the terms of their relationship.

Miscellaneous

• $(1)$ Strike will appoint three out of five directors (including an independent President) to the board of AF and will have control of operating budgets and mining activities on the Projects.
• $(2)$ Various warranties and representations have been made by D&C and AF as to the financial position of AF including that AF will have no more than US\$600,000 in debt payable to D&C and all other third parties as at the date Strike shall be required to provide notice as to satisfaction or otherwise of due diligence on the transaction.

The parties have agreed that such debt payable to D&C shall accrue interest and shall be discharaed as follows:

• US\$ 100,000 will be paid by AF to D&C out of funds provided by Strike to AF as $(i)$ working capital under Stage 1, by no later than 31 March 2007; and
• $(ii)$ the balance (of up to US\$ 500,000 plus accrued interest) shall be paid by AF to D&C by no later than the expiry of the Earn-In Period.

• $(3)$ The parties have agreed that if Strike withdraws from the Agreement it shall remain liable for any payment required to be made to any government authority in relation to any obligation arising during the time in which Strike is in control of mining activities in connection with maintaining relevant tenements in good standing and for payments to third parties or employees to which AF might become liable as a consequence of Strike's control over AF's mining activities and operations.

• $(4)$ The parties have agreed that no party shall be entitled to assign any of its right or interest under the Agreement, the proposed Shareholders' Agreement or transfer its shares in AF during a term of two years from the date of execution of the Agreement (the No Transfer Period). The No Transfer Period shall not be applicable to any assignment or transfer from a party to a related party of that party, provided the related party assignee/purchaser assumes the same obligations as the assignor/transferor under the Agreement and the proposed Shareholders' Agreement.

• $(5)$ Rights of pre-emption over each party's shares have also been given to the other parties in the case of a proposed share transfer by a party to a third party.
• $(6)$ A mechanism has been provided in the Agreement to allow minority shareholders to be given the right to include in any transfer by a selling shareholder the right to include in such transfer their own shares in AF, at the same price and on the same terms and conditions offered by a prospective purchaser to the selling shareholder.
• $(7)$ The Agreement provides that in the event that after the Earn-In Period, at any time MAPSA's shareholding in AF falls to 10% or below due to dilution then MAPSA shall have the option to sell the interest it has as soon as it falls to 10% or below back to AF in return for a perpetual royalty of US\$0.30 per tonne on iron ore production from the Apurimac Project or Cuzco Project.

Project Plan

The parties have agreed that during and after the Earn-In Period, the board of AF shall have absolute control of any and all mining activities to be performed by AF and that AF shall apply its exploration expenditure towards (inter alia) the following objectives:

• $(a)$ The conduct of exploration works to define a minimum JORC-compliant Inferred iron-ore resource of 100 million tonnes;
• Complete a feasibility study for a Sponge Iron plant; $(b)$
• The conduct of pre-feasibility and feasibility studies for mining of ore; $(c)$
• $(d)$ The conduct of transportation studies;
• $(e)$ The conduct of port and other infrastructure studies;
• $(f)$ The conduct of mine production studies;
• $(q)$ The establishment of trial mining and transportation pilot programmes;
• $(h)$ The conduct of financial and technical studies on proposed production models; and
• $(i)$ The conduct of marketing studies for proposed production models.

Capital Raising

Subject to completion of satisfactory due diligence, the Company anticipates that it will be required to raise capital to meet its commitments outlined above.

Given that:

$(i)$ the US\$6.5 million investment commitment (being the US\$5 million investment in AF under Stage and the US\$1.5 million to acquire shares in AF from MAPSA and D&C under Stage 2) is not required immediately as the time period for such expenditure is spread over a 5 year period;

• $(ii)$ the Company has the ability to withdraw from the Agreement with a minimum expenditure commitment of approximately US\$1.4 million; and
• $(iii)$ an acquisition of up to a further 38.5% shareholding in AF (requiring a further US\$34.5 million) under Stage 4 is at the option of the Company during the five year Earn-In Period,

the Company anticipates that it will initially raise an amount less than the amount of US\$6.5 million referred to above.

However, the extent of the raising and pricing of the same cannot be determined at this stage. The Company cannot also confirm whether it will be able to raise the capital required. The extent and success of any future capital raisings will be a function of, amongst other matters, of the state of the capital markets at the time of raising, the pricing for such capital raising and the appeal of the projects to the capital markets.

Until such time as the capital raising to fund at least the minimum expenditure commitment of approximately US\$1.4 million is completed, the Company will use its existing cash reserves to advance matters within an amount that is prudent given the other capital commitments of the Company with respect to its Australian and Indonesian mineral exploration and development projects.

Conclusion

The Company is pleased that it has been able to negotiate a settlement involving all parties without the need to resort to costly and time consuming litigation.

The Company is also pleased that it has managed to retain the right to earn a 51% (or greater) interest in the two projects upon terms that in its opinion are comparable with the original agreement signed with MAPSA.

In particular, the Company is pleased that under the new Agreement, a portion of the funds paid by it to exercise either Option 1 (with respect to the Apurimac Project) or Option 2 (with respect to the Cuzco Project) will now be advanced back to AF by the recipients of such funds, thereby alleviating to a degree the requirement for further capital to be initially raised to advance the commercial prospects of AF.

The Company however recognises that considerable work needs to be undertaken, both at the due diligence stage and at the exploration and development stages to confirm and commercially exploit deposits of such potential magnitude.

The Company will continue to keep the market informed of its progress in advancing these related projects.

For further information:

Shanker Madan Managing Director T | (08) 9214 9700 E | [email protected]

Victor Ho Company Secretary T | (08) 9214 9700 E | [email protected]