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Thursday, 7 March 2013
Seeking Alpha writer sees potential big gains for Black Iron investors
Black Iron (TSE:BKI) shares rose sharply on Thursday after earlier this week being written up in a bullish article on influential financial markets blog Seeking Alpha, with the piece written by contributor James West.
"Black Iron is a near-term iron ore project in the Ukraine that is part of the Forbes and Manhattan group of companies. If there's one thing an investor can be certain of, it's that Forbes and Manhattan are the industry leaders in building iron ore companies for sale to majors," West wrote.
He takes notes of the Forbes and Manhattan investors who invested in Consolidated Thompson Iron Mines at 22 cents a share, who were "no doubt ecstatic" when the company was acquired by Cleveland Cliffs in May 2011 for $4.9 billion or $17.25 a share, representing a return of more than 7,700 percent.
It took five years and $1 billion in capital raising, West said, but stands "as a textbook example of building shareholder value."
"That process is being repeated with Black Iron on an expedited basis. In December last year, the company published a feasibility study that put the Shymanivske Iron Ore Project in the top quartile of near-term iron ore projects globally in respect of IRR, while being in the bottom quartile in terms of CAPEX required per tonne of capacity."
Indeed, 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.
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 this year.
"Financing discussions are advancing, and it is anticipated that the structure will resemble that of Forbes and Manhattan's success story Alderon Iron Ore Corp. (TSX: ADV, NYSE: AXX), consisting of 60% in debt and 40% equity," West wrote.
Physical construction of the mine is set to begin in the latter half of 2013, 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.
Black Iron shares gained almost 10 percent today to 34 cents, and is up almost 20 percent in the last six months.