Thursday 15 November 2012

Black Iron releases bankable feasibility with projected 45.9% IRR for Shymanivske project


Toronto-based Black Iron (TSE:BKI) has released its highly anticipated bankable feasibility study (BFS) on its Shymanivske iron ore project in Kryviy Rih, Ukraine, which projects a whopping pre-tax 45.9% internal rate of return (IRR) and a net present value of US$3.5 billion. 
"The operation outlined by this BFS for the Shymanivske project clearly illustrates the potential for a high-value, low net cost iron ore development project," said the iron ore miner's president and CEO, Matt Simpson. 
The study, done by WorleyParsons Canada Services and two other firms, outlines an operation producing 9.2 million tonnes per year of high grade 68% iron ore concentrate -  “well above” the benchmark of 62.0 per cent.
The US$3.5 billion net present value was estimated with an 8% discount rate, and total capital costs, excluding sustaining capital of US$689 million, were projected at $1.09 billion.
The project, with proven and probable reserves of 448.2 million tonnes at a grade of 31.1% iron and a measured and indicated resource of 645.8 million tonnes at 31.6% iron, is expected to have a mine life of 16 years. 
The total average operating costs over these 16 years were calculated at $43.97 per tonne, with average annual cash flow seen at $593 million, and average annual revenue over the life of the mine at over $1.1 billion. 
The NI 43-101 report estimated 2.2 years to payback, at an 8% discount rate, with revenue generation projected to start by the first quarter of 2016. 
"The projected high NPV, net cash flows, and relatively low unit cost for concentrate arise from Black Iron's advantages, which include an iron ore deposit with significant existing infrastructure (railway, power lines and port) in addition to access to low-cost skilled labour.
"We continue to deliver on our objective timetable and our results to date, coupled with this engineering study, make a compelling case for expediting the development of the Shymanivske project."
Indeed, the Shymanivske property is surrounded by existing infrastructure, including access to power, rail and port facilities, which the company said will allow for a quick development timeline to production. 
Two operating mines - ArcelorMittal’s Kryviy Rih iron ore complex and YuGOK, owned by Evraz and Smart Holding - are "essentially adjacent" to Black Iron’s asset, and have been successfully producing a high quality concentrate for years. 
Earlier this year, the company announced final metallurgy results from Shymanivske, after which it said it is confident the project could provide "a premium product for either the global pellet plant feed market or Asian steel mills."         
On the basis of this work completed for the feasibility study, it is estimated that the process weight recovery of 32.7% would yield a project life of 16 years at an average strip ratio of 1.63:1, according to the current estimated resource. 
The company said it believes that additional exploration and definition drilling could expand the existing resource at the property, and upgrade the 188.3 million tonne inferred resource to the measured and indicated category - potentially adding up to 5 years to the project's life. 
In fact, Black Iron also holds an exploration permit for the adjacent Zelenivske project, which it intends to further explore to determine its potential. The addition of resources from Zelenivske, together with successful exploration in the north end of Shymanivske, would support an even higher annual production rate - which would further boost the already strong net present value, the company said. 
Even using different currency exchange rates, the currency sensitivity analysis shows the project's net present value still ranged from US$3.3 to US$3.8 billion, at a discount rate of 8%.
And at a discount rate of 6%, the net present value jumps to US$4.3 billion. 
"We are pleased with the level of engineering expertise and rigour behind this BFS," added COO George Mover. 
"Through the process, we implemented several improvements to the work completed last year for our Preliminary Economic Assessment. We have found and verified solutions to optimize the process flow sheet, to reduce the stripping ratio through mine phasing, and to increase our weight recoveries."
Mover said that as a result, the company is now considering an initial operation with 26% higher annual production, and 16% lower operating costs than in the previous study.
"The relatively low-unit operating cost of production, coupled with close proximity to Turkish, European, and Middle East customers, means that this operation has the potential to remain profitable despite fluctuations in the iron ore price," he concluded. 
CEO Simpson told Proactive Investors in a prior interview that an off-take agreement is expected for the first half of next year, with physical construction of the mine to begin in the latter half of next year. The plant start-up and commissioning is projected for the fourth quarter of 2015. 
Black Iron has also investigated an alternative production scenario, which would include the production of high-grade iron ore pellets, it said, and is not included as part of the bankable feasibility study announced today. 

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