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Black Iron steadfastly de-risking Shymanivske iron ore project in Ukraine

The project is situated in a developed iron ore mining region with well-established infrastructure
Smelter
BigPicture
iron ore is used in the steel making industry
Project is large and low cost and adjacent to five existing iron producers
Good infrastructure
A premium product
Strong management with proven iron ore success

What Black Iron does

Black Iron Inc (TSE:BKI) is developing the Shymanivske iron ore project in Ukraine between the markets of Europe, Russia, Asia and the Middle East.
It located in Kryvyi Rih, a developed iron ore mining region with well-established infrastructure, which is well away from the conflict zones.

The deposit, which has a resource defined from around 37,000 meters (m) of historical drilling, lies less then 2km from two open pit iron ore mines owned by ArcelorMittal and Metinvest/Evraz Steel.  There is potential to expand the resource via more drilling.

An NI-43 101 resource estimate has shown 646 Mt (million tonnes) of measured and Indicated mineral resources, consisting of 355 Mt in the measured category, grading 31.6% total iron and 18.8% magnetic iron with a further 188Mt in the inferred at 30.1% iron, which will be concentrated to around 68% iron.

Robust economics

A re-scoped preliminary economic assessment (PEA)  last year estimated that Shymanivske will have an unlevered after-tax net present value of US$1.66 billion using a 10% discount rate and an internal rate of return (IRR) of 36% .

The report envisages a  two-phase build of the mine and production plant. The first phase, put at a capital investment of US$436 million, will see production of 4Mtpa (million tonnes per annum) of ultra high-grade, low impurity, 68% iron concentrate (top 4% globally) with expansion to 8Mtpa starting in the third year of production and operational by year five. The firm has said it expects 60% of this investment to be debt, with around 40% equity.

An additional US$312 million is required to double the production capacity to 8 million tonne, which could potentially be fully funded from the free cash generated by the phase 1 production.

Black Iron says that by phasing the build, it significantly reduces up-front construction costs while still being highly economic given all high cost major infrastructure including railway, powerlines and the deep-sea port are all very close.

Glencore subsidiary

In February this year, the Toronto-based company announced a non-binding memorandum of understanding (MOU) with a subsidiary of  commodities giant Glencore (LON:GLEN), which would see the latter invest to help fund construction of the project in exchange for offtake of up to the full phase one planned annual production of 4 million tonnes.
The terms and the amount are still to be negotiated.

"Matt Simpson, Black Iron CEO, said: "I am excited to welcome Glencore as an offtake investor for construction of the Shymanivske project as well as their agreement to work with us to help secure additional financing. Glencore's involvement significantly strengthens our capability and draws on their extensive international network, experience and market knowledge."

The MOU also allows Black Iron to give offtake to other equity investors subject to the investment terms offered being equal or superior to those proposed by Glencore.

Making progress to secure key land

Recently, the group has made substantive progress with the land required to actually build the project. The Ukrainian Ministry of defence has developed a plan to transfer some land for use for a processing plant, tailings and waste rock.
The area is well away from any communities and is surrounded by operating iron ore mines owned by ArcelorMittal and Metinvest. To secure the rights, Black Iron must finalize with the MOD a compensation package expected to entail the construction of new barracks and replacement of facilities that will need to be relocated. The estimated cost of relocating these facilities is already included in the US$436 million estimated for capital costs in the PEA  (preliminary economic assessment).

Iron ore prices holding steady

Benchmark iron ore prices continue to hold in the mid $80 per tonne range, not least due to the increase in Chinese steel production,  which is well above the long-term $62 per tonne used in the firm's PEA, which augurs well for the project.

Inflection points

Offtake deal(s)

Securing land

What the CEO says:

Matt Simpson, in September last year, told Proactive: "It's great to see the project continue to move ahead." He added that he believed the next six to nine months would be pivotal.

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