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Monday, 16 September 2013
Black Iron derisks iron ore project further with deal securing access to deep water port
Black Iron (TSE:BKI) has announced an agreement securing access to a deep water port facility in Ukraine for the handling of 9.5 million metric tonnes of iron ore per year from its Shymanivske project, taking another crucial step in de-risking the asset.
The Protocol of Intent Agreement was signed between a subsidiary of Black Iron and the Sea Terminal at Port Yuzhny, for guaranteed access to the port's rail car dumper, stockyard, and port loading facilities.
The preliminary deal takes effect immediately, Black Iron said in a statement Monday, and remains in place until a full commercial contract is signed, expected sometime in the middle of 2015 - closer to the sart of production at Shymanivske given that the contract would be on a "take or pay" basis.
"We are extremely pleased to have executed this port protocol agreement, which represents another significant milestone in the development of our Shymanivske Iron Ore project," said president and CEO, Matt Simpson. "This PIA provides Black Iron with confirmed access to the international iron ore markets and substantially de-risks the Shymanivske project."
Port Yuzhny is the deepest of the five major shipping ports located on the Black Sea in Ukraine. According to Black Iron's statement, large cape-sized vessels up to 259,000 tonnes have been loaded at Port Yuzhny with 170,000 tonnes being loaded at the berth, and the remaining vessel capacity topped off via floating bridge cranes.
Vessels can then access Turkish steel mills directly, or European mills by crossing into the Mediterranean Sea as well as access the growth markets of India and China by passing through the Suez Canal, which can accommodate vessels up to 240,000 tonnes.
The company announced a completed NI 43-101 compliant bankable feasibility study on the Shymanivske project late in 2012, which outlined an operation producing 9.2 million tonnes per year of high-grade 68 per cent iron ore concentrate, projecting a 45.9 per cent internal rate of return, $3.5 billion net present value at an 8 per cent discount rate and 2.2 year payback for a capital investment of $1.1 billion.
Black Iron says it continues to progress on its timeline to production, reaping the benefits of its recently-announced definitive development agreement with Metinvest B.V. as it works to complete similar protocal of intent agreements in support of other core infrastructure needs, such as rail, power, water, gas and land.
The deal with Metinvest brings an initial investment of $20 million in the Toronto-based explorer and developer, with potentially hundreds of millions to follow.
The initial investment gives Metinvest a 49 per cent shareholding of Black Iron Inc’s holding company, BKI Cyprus, which holds Black Iron's development stage Shymanivske project and the exploration stage Zelenivske project, both located in Kryviy Rih, Ukraine. More eye-catching for investors is the commitment from Metinvest to match dollar-for-dollar all the equity financing Black Iron raises, up to $536 million. Assuming a debt equity split of 60/40, this leaves only $250 million now needing to be raised, with the company still having 100 per cent of its off-take available on the Shymanivske project.
Shares of Black Iron, whose flagship project is surrounded by five other operating mines, including ArcelorMittal's iron ore complex, have advanced over 21 per cent in the last month, after the Metinvest deal was announced, currently sitting at 20 cents.