Tuesday, 15 January 2013

Black Iron shares gain over 23% this week as investors gear up for news on Ukraine project

Black Iron (TSE:BKI) shares have been on the rise this week, up more than 23% in the last five days as the company works toward securing an off-take agreement for its Shymanivske iron project in the Ukraine in the first half of this year. 
Shares in Black Iron were up more than 8% this afternoon to 40 cents. Its stock has doubled in the last six months.  
Last November, the iron ore explorer released its highly anticipated bankable feasibility study (BFS) on its Shymanivske project in Kryviy Rih, Ukraine. 
The study projected a whopping pre-tax 45.9% internal rate of return (IRR) and a net present value of US$3.5 billion. 
Completed by WorleyParsons Canada Services and two other firms, the feasibility report outlined 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 told Proactive Investors 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 Shymanivske property is surrounded by existing infrastructure, including access to power, rail and port facilities, which the company has 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. 
The company 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. 
An off-take agreement is targeted for the first half of 2013 with the company having been in non disclosure agreements with 19 strategic groups as of late November. The publication of the BFS is 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 this year, with plant start-up and commissioning projected for the fourth quarter of 2015. 
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 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.

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