Black Iron

Putting the Shymanivske Iron Ore Project into Production

This Black Iron Inc. profile is part of a paid investor education campaign.*

Overview

Black Iron Inc. (TSX:BKI,OTC:BKIRF,FWB:BIN) is developing an iron ore mine in Ukraine ranked by market intelligence group CRU as having the lowest projected operating costs and second-lowest capital intensity of all iron ore pellet feed development projects in their database. The company has access to a highly-skilled labor force and excellent infrastructure which could help reduce the overall capital costs of the project. Black Iron has signed a memorandum of understanding with Glencore (LSE:GLEN) to engage in formal negotiations to finance the construction of the Shymanivske iron ore project in exchange for potentially securing the offtake of up to four million tonnes.

Black Iron’s 100 percent owned Shymanivske iron ore project is located in Kryviy Rih, Ukraine, 330 kilometers southeast of Kiev and 450 kilometers west from the conflict in the Donbass. Black Iron is confident that the conflict won’t pose a threat to the project as the front line has not moved in over five years and there are no benefits for Russia to push deeper into the country since it has secured the naval base on the island of Crimea. Ukraine is the seventh-largest producer of iron ore globally and is strategically located between markets of Europe, Russia, Asia and the Middle East.

Ukraine’s newly elected government has made moves to eliminate corruption at all levels and continues to improve its ranking. According to the World Banks’ “Ease of Doing Business Index” for 2020, the Ukraine is ranked 64 out of 190 countries. The country has also moved towards closer European integration with the signing of the “Ukraine-European Union Association Agreement” in June 2014. These initiatives are bringing economic and geopolitical stability to the country, making it an attractive mining jurisdiction, according to the World Bank. Black Iron’s senior management has good relationships with Ukraine’s new government and recently met with the President, Prime Minister and several other important ministers, who are highly supportive of the project.

The Shymanivske project has excellent access to skilled labor (city of 750,000 located eight kilometers from the project), power (30 kilometers to the substation), rail (two kilometers from the project) and ports (five are located between 230 kilometers and 430 kilometers away). The project’s proximity to the required infrastructure was factored into Black Iron’s 2017 preliminary economic assessment (PEA), which outlined a two-phased mine development plan that allows for a relatively quick and lower initial capital construction cost to achieve positive cash flow through production.

The first phase of development is expected to produce 4 million tonnes of ultra-high-grade 68 percent iron concentrate per year before expanding to 8 million tonnes per year in the fifth year of production. The project also boasts encouraging economics such as an after-tax NPV of US$1.7 billion and an IRR of 36 percent based on a conservative long-term iron ore price of US$62 per tonne for 62 percent iron product. The iron produced from the Shymanivske deposit can be concentrated to a 68 percent purity with very low impurities, making it ideal for the production of more environmentally sustainable high-grade steel. The higher the iron content, the lower the greenhouse gas emissions generated in the production of steel.

Black Iron is currently in the process of obtaining the surface rights for its mine, refinery and tailings facilities. The company is also in the process of securing offtake agreements and financial partners to help fund the development of the mine with the aim of being in production by 2023. To date, Black Iron has signed a non-binding offtake agreement with Glencore, in exchange for an investment into project construction, for the full phase one planned annual production of 4 million tonnes. The company is currently in advanced discussions with other interested parties to secure the balance of funding required for project construction.

Black Iron is led by an experienced management team and board with a history of developing iron ore deposits for companies like Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) and Consolidated Thompson Iron Mines Limited. Notable members of the team include CEO Matt Simpson, who has worked for Rio Tinto and Hatch Ltd. and was in charge of designing, constructing and operating large mines. Chairman Bruce Humphrey, who is the former Chairman of Consolidated Thompson iron ore and COO of Goldcorp. Lending additional credibility to the future importance of the project is Director Pierre Pettigrew, the former Canadian Minister for Foreign Affairs and International Trade.

Black Iron’s Company Highlights

  • Ukraine has demonstrated its desire to move closer to European integration and is combating corruption within the country.
  • The World Bank ranks Ukraine 64 out of 190 countries in its 2020 “Ease of Doing Business Index”, which is an improvement over its 156-place ranking 10 years ago.
  • The country is a mining-friendly jurisdiction with strong local and national support.
  • In 2014, Black Iron brought the project to the brink of starting construction having secured US$511 million from the world’s ninth-largest iron ore mining company, Metinvest. Metinvest divested their ownership back to Black Iron in 2016 when they fell under temporary financial distress.
  • Black Iron temporarily put the project on care and maintenance when war broke out in eastern Ukraine.
  • The project is over 450 kilometers away from the conflict zone where the front line has not moved in over five years, which has resulted in the return of foreign investors to Ukraine including Brookfield Asset Management.
  • Black Iron’s Shymanivske iron ore project is located close to steel mills located in Europe, Turkey, Russia, Asia and the Middle East.
  • The project is also located in an established mining region surrounded by seven operating iron ore mines owned by ArcelorMittal, Metinvest and Evraz.
  • The project has excellent access to skilled labor, power, rail and ports.
  • The Shymanivske deposit has a measured and indicated resource of 646 million tonnes grading 31.6 percent iron and an inferred resource of 188 million tonnes grading 30.1 percent iron.
  • The 2017 PEA suggests phased development of the mine, creating a low-capital construction scenario.
  • Phase one development to produce 4 million tonnes of ultra-high-grade 68 percent iron concentrate per year before expanding to 8 million tonnes per year in the fifth year of production.
  • The PEA outlined an after-tax NPV of US$1.7 billion and an IRR of 36 percent.
  • The iron produced from the Shymanivske deposit can be concentrated to a 68 percent purity, making it ideal for production of more environmentally sustainable steel.
  • There is potential to expand the resource to the north, south and at depth.
  • Black Iron’s cost to mine, process, rail and load a ship is estimated at US$31 per tonne for an ultra-high-grade 68 percent iron content product (top four percent globally)
  • Black Iron is currently securing the balance of the funding and land required for construction.
  • Black Iron plans to be in production by 2023.
  • A non-binding offtake agreement with equity investment has been signed for the full phase one production of 4 million tonnes with Glencore and there is substantial interest from other groups to round out the balance of funding required for construction.
  • Black Iron is led by an experienced management team and board with a history of creating value at companies like Rio Tinto and Consolidated Thompson.

Shymanivske Iron Ore Project

The Shymanivske iron ore deposit is strategically well-positioned in Ukraine between markets in Europe, Asia and the Middle East. The project is located 330 kilometers southeast from Ukraine’s capital Kiev, in the heart of the KrivBass iron ore mining district. The property is located in the southern half of the KrivBass district and is surrounded by two open-pit iron ore mines owned by ArcelorMittal (NYSE:MT), Metinvest and Evraz Steel. There are currently seven operating open-pit iron ore mines in the district located within 40 kilometers of Black Iron’s Shymanivske deposit.

The Shymanivske project also has access to all of the infrastructure necessary to have a successful mining operation. The project is two kilometers away from the national railway and power is 30 kilometers away. The railway provides Black Iron with access to five ports located 230 kilometers to 430 kilometers from the property. The company also has access to a highly-skilled workforce located eight kilometers away from the city of Kryvyi Rih, which is home to 750,000 people.

Black Iron Mining Permit

2017 PEA

In December 2017, Black Iron released a re-scoped PEA for its Shymanivske project. The report is based on a two-phased build-out of the mine and production plant. The first phase of the operation is expected to produce 4 million tonnes of ultra-high-grade 68 percent iron concentrate per year before expanding to 8 million tonnes per year in the fifth year of production. Phasing the build is expected to significantly reduce the up-front construction costs and time.

Black Iron plans to update the 2017 PEA in the near term as the company pushes the project towards production.

Black Iron Updated 2007 PEA

Resources

The Shymanivske deposit is a banded-iron formation that primarily consists of magnetite with hematite. The iron band thickness of the deposit ranges between 40 meters and 80 meters with an overburden up to 21.2 meters and a low strip ratio of 0.6:1. The ore body is low in phosphorus, manganese and aluminum.

Black Iron Inc Total defined mineral resources

Ground gravity and magnetic surveys show the potential for an expansion of iron ore mineralization at the north end of the property. This area has not yet been drill tested and is not included in the current resource estimate. Black Iron plans to complete a future drill program at this site with the aim of expanding the resource from its current 20 years of mine life.

Path to Production

Black Iron needs to secure US$436 million to fund phase one of construction out of which $175 million (40 percent) is expected to be equity and $260 million (60 percent) debt. The company has strong interest from a number of steel mills and large trading companies, including Glencore, to fund the bulk of the equity required for project construction in exchange for securing product offtake. Commercial discussions have commenced with these groups.

To date, Black Iron has signed a non-binding MOU with a subsidiary of Glencore. Under the terms of the agreement, Glencore may make an investment to help fund the construction of the project in exchange for securing up to the full phase one planned annual production of 4 million tonnes. The agreement also outlines cooperation between the two companies to balance the funds required to construct the project.

Expressions of interest to provide the $260 million of debt for construction are currently being received mainly from European-based banks and export credit agencies that are intrigued by the project’s robust economics. The funds potentially provided by Glencore and others are expected to go towards acquiring the required surface rights among other project construction-related expenses.

Black Iron Shymanivske Project Timeline

In addition to securing project construction funding, Black Iron also needs to secure the surface rights for its mine, refinery and tailings facilities, which are owned by various agencies in Ukraine’s government. The company expects to first sign a MOU on the transfer of this land and then move to a binding contract in early 2020. From there, Black Iron plans to pursue its construction and operating approvals as it builds out its mine infrastructure.

Black Iron Inc. Path to Production

Black Iron’s Management Team

Matt Simpson — CEO and Director

Matt Simpson is the former General Manager of Mining for Rio Tinto’s Iron Ore Company of Canada, where he managed a team of over 620 people and multi-hundred million dollar per year budget. He has also worked for Hatch where he designed and constructed global metallurgical refineries.

Les Kwasik — COO 

Les Kwasik has over 40 years of hands-on experience in building and operating mines globally with companies such as INCO (Vale) and Xstrata Colombia. He has constructed nine mines over his career including two in the former Soviet Union.

Paul Bozoki — CFO

Paul Bozoki is the former CFO of CD Capital Partners, operating in the Soviet Union and Ukraine.

Bill Hart — SVP Corporate Development

Bill Hart has 30 years of experience selling iron ore while working for Rio Tinto, Cliffs Natural Resources and, most recently, Roy Hill Holdings Ltd.

Ivan Markovich — VP Government and Community Relations

Ivan Markovich has an extensive network of Ukraine government relationships.

Bruce Humphrey — Chairman

Bruce Humphrey is the former chairman of Consolidated Thompson Iron Ore and Chief Operating Officer of Goldcorp.

Dave Porter — Director

Dave Porter is the former VP of Rio Tinto’s Iron Ore Company of Canada and COO of Algoma Street.

John Detmold — Director 

John Detmold is the Chairman and Founder of Invecture Group S.A. de C.V., which owns Frontera Copper Corporation.

Pierre Pettigrew — Director

Pierre Pettigrew is the former Canadian Minister for Foreign Affairs and International Trade.


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