Black Iron inches closer to securing land for planned mine

15 March 2019

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.

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