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Thursday, 15 November 2012
UPDATE: Black Iron says improved Shymanivske product to command higher price in the market
---Adds additional management comments ---
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, in a statement.
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.
VP of corporate development Aaron Wolfe says that on a capital sensitivity basis, capex actually went down when compared to the preliminary economic assessment - saving about $4 per tonne, as the new study is supporting 26% more production.
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, compared to a sale price of around $120 per tonne today, with average annual cash flow seen at $593 million.
"There are some real significant margins there. The iron ore price would have to go down below the $60 range for us not to break even. I haven't seen anyone predict prices that low - it is a very robust model," Wolfe tells Proactive Investors.
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. Average annual revenue over the life of the mine is estimated at over $1.1 billion.
"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," continued Simpson.
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."
Wolfe supports this, as he says that the numbers in the feasibility study are "very robust", with the company managing to increase production from its preliminary economic assessment, along with improving the grade and quality of its product - "commanding a higher price in the market."
The company noted today that it believes 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.
Wolfe says this mine life expansion will be part of "regular course"action as it works to advance the project.
Black Iron holds an exploration permit for the adjacent Zelenivske project, which it intends to further explore. 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.
An off-take agreement is targeted for the first half of next year, says Wolfe, with the company currently in non disclosure agreements with 19 strategic groups, and the publication of the BFS set to "go a long way" in terms of meeting due diligence requirements.
Physical construction of the mine is set to begin in the latter half of next year, with plant start-up and commissioning 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.