Black Iron Inc. (TSX:BKI) (OTCPINK:BKIRF) (FRA:BIN) said its management recently hosted representatives from a company interested to secure offtake rights from the Shymanivske iron ore project at its site in Ukraine as part of the currently ongoing competitive offtake process involving several steel mills and global traders.
The group said companies are interested to secure the rights to purchase Black Iron's expected ultra high grade 68% pellet feed at a slight discount to market in exchange for making an investment towards project construction.
READ: Black Iron receives 'game-changing' US$100 million investment to help fund construction of Shymanivske project in Ukraine
As detailed in Black Iron's updated Preliminary Economic Assessment (PEA), an estimated US$452 million is required for project construction at Shymanivske and once financing costs, tax refund timing delays and working capital for start-up are added, the total funds required to be raised is estimated by Black Iron's financial advisor to be around US$505 million not including a cost overrun facility or guarantee that may be required by senior debt lenders of an additional ~5 to 15%.
The group said several term sheets have been received for the capital required for project construction. Black Iron is ideally seeking the balance of funds required for construction of the project to come from an off-take agreement with a steel mill or global trading house and is currently running a two-phased process.
The first phase of this process closed on October 9, 2020, and select groups have been invited to a second phase, which will likely include either virtual or in-person site visits as has recently occurred. Post signing of the offtake agreement, the company expects to enter into a binding agreement with a construction company to secure their investment. This is expected to be followed by banks, export credit agencies and the royalty investor conducting due diligence in parallel to Black Iron's completing an updated feasibility study and environmental impact assessment to secure the balance of funding for project construction.
Further to the December 22, 2020, announcement regarding Black Iron signing a US$100 million term sheet for a life of mine 6.75% royalty on the initial 4 million tons per annum (Mtpa) production, the Toronto Stock Exchange (TSX) has reviewed this transaction and conditionally approved the granting of 30 million warrants to Perpetual Iron LLC for facilitating and supporting negotiations with the investor.
These warrants have an exercise price of $0.31 and expire on December 30, 2025. Perpetual will only be able to exercise the warrants when the company enters into binding agreements with the investor. Ten million warrants will vest upon Black Iron entering into a binding definitive agreement with the investor and the balance of the warrants will vest upon the investor funding its investment. Should Black Iron not enter into a binding definitive agreement with this investor prior to December 22, 2022, all warrants issued to Perpetual will expire.
Iron ore top appreciating mainstream commodity of 2020
The company noted that iron ore is the top appreciating mainstream commodity of 2020 with a price increase of 97% to current $161 per tonne for feedstock with 62% iron content. Iron ore with 65% iron content is currently selling for around $173 per tonne and Black Iron plans to produce ultra-premium 68% iron content pellet feed that substantially reduces GHG emissions in the production of steel as compared to the more typical 62% iron ore fines used.
In Black Iron's PEA for Shymanivske, a highly conservative long term iron ore price of $62 per tonne for 62% iron content ore is used resulting in an after-tax net present value (NPV) using a 10% discount rate of US$1.4 billion.
This price increase is largely being driven by several countries spending hundreds of millions on major infrastructure projects such as roads, railways, 5G networks to get people back to work and stimulate economic recovery coming out of coronavirus (COVID191). These infrastructure projects tend to take multiple years to complete and this has led to an increase in the price people are paying today to lock in future iron ore prices on the Singapore Exchange.
Black Iron is an iron ore exploration and development company, advancing the 100%-owned Shymanivske project located in Kryviy Rih, Ukraine.
The project contains a NI 43-101 compliant mineral resource estimated to be 646 million tons (Mt) Measured and Indicated mineral resources, consisting of 355 Mt Measured mineral resources grading 32.0% total iron and 19.5% magnetic iron, and Indicated mineral resources of 290 Mt grading 31.1% total iron and 17.9% magnetic iron, using a cut-off grade of 10% magnetic iron.
Additionally, the Shymanivske project contains 188 Mt of Inferred mineral resources grading 30.1% total iron and 18.4% magnetic iron.
The project is surrounded by five other operating mines, including ArcelorMittal's iron ore complex.
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