Black Iron inches closer to securing land for planned mine

Black Iron (BKI CN), a Canadian iron ore exploration
and development company, reported on March 14 that it has been offered rights
to an “ideal” parcel of land that it needs in order to develop the Shymanivske
mine project. The land parcel will host the processing plant, tailings and
waste rock, the company said in its press release, adding that it was offered via
a plan developed by Ukraine’s Ministry of Defence. To secure rights to this
land, Black Iron needs to finalize discussions with the ministry on relocating
its facilities currently there, the press release said.

Black Iron said in a March 12 press release that it
expects to start plant construction by the end of 2019. The company said that
at today’s iron ore prices, the after-tax rate of return for this project is
almost 70%, because its product – the 68% Fe pellet feed material – will
command prices significantly higher than the benchmark 62% Fe index.

Dmytro Khoroshun: Black
Iron’s progress toward the construction’s start is welcome, but we would not be
surprised if it occurs towards the end of 2019, in part to allow for the
political dust to settle in Ukraine.

We think that the 70% after-tax return rate cited on
March 12 is too high. Using the current market inputs (62% Fe benchmark index
at USD 87/t, USD 4/t per % of Fe quality premium) together with the USD 3.57/t net
premium for other elements used by the company in its 2017 Preliminary Economic
Assessment (PEA), we obtain the CFR China price for Black Iron’s pellet feed at
USD 114.6/t. Keeping other parameters, particularly the costs, as they were in
the 2017 PEA, this product price results in a pre-tax IRR of 46% and an
after-tax IRR of 39%.

Conversely, we estimate that a 70% after-tax IRR
cited by Black Iron on March 12 would require the price for Black Iron’s pellet
feed to be USD 179/t, which seems much higher than the current market price.