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Are You Capitalizing on Rising Iron-Ore Prices?

The market for iron ore is hot with sales price up over 30% year to date outpacing every other mainstream commodity including gold’s recent 17% rally to US$1500 per ounce! Big mining companies with massive iron mines have seen a rally of investor support because of their low valuations, high earnings and big dividends. Rio Tinto’s share price for example has increased 35% year to date and is at its 10 year high, Australia’s Fortescue Iron Ore is up 125% year to date and Ukraine’s Ferrexpo Iron Ore is up 40% year to date whereas the share price of most juniors is just starting to move presenting a big opportunity for investors.

Despite a recent pullback to ~US$90 per tonne, due to trade tensions ramping up between the United States and China, current prices are supported by fundamentals thanks to strong global steel demand and limited iron ore supply caused by a tailings dam failure in Brazil and cyclones in Australia. According to Reuters, steel production reached a record high of 85 million tonnes in April, up 12.7% from a year earlier, and for the first four months of 2019, steel output was 10.1% above the same period last year.

For those uncertain about the potential gains in iron ore, consider one well known mining company focused completely on iron ore: Toronto Stock Exchange (TSX) listed Champion Iron’s share price jumped 265% year to date as seen below.

Champion Iron Share Price

That’s just one good reason to look at iron ore focused companies right now and why I suggest you take a hard look at Black Iron Inc. (TSX: BKI; OTC: BKIRF; FRANKFURT: BIN) which is developing an iron ore project in Ukraine ranked the lowest cost undeveloped iron ore project globally by both CRU and Wood MacKenzie.

Black Iron’s Unique Position

Black Iron Inc. (TSX: BKI; OTC: BKIRF; FRANKFURT: BIN) is a junior Canadian mining company advancing its 100% owned iron ore project located in Ukraine to production. The project is located in an established mining region surrounded by five operating iron ore mines owned by majors including ArcelorMittal, Metinvest and Evraz.

Location, Location, Location

For large production rate mining projects, to cost effectively mine and process the ore, you need ready access to railway and a deep seaport to move the product to markets, a secure power source and a reliable skilled labor force. Being able to access all these at low cost makes or breaks the project.

Exceptional infrastructure access along with the very high 68% iron content purity of its final product is where Black Iron really differentials itself.

Black Iron’s project has confirmed access to major infrastructure including:

  1. State-owned rail line with surplus capacity only two kilometers from site
  2. Railway connects to five ports on the Black Sea located only 230 to 430 kilometers away for export of iron ore to steel mills located in Turkey, Europe, Middle East and Asia
  3. Surplus of low-cost electricity readily accessible from high voltage power lines that run beside the company’s property
  4. Paved roads to site connect with the city of Kryvyi Rih (population 750,000) which is only eight kilometers away and has a highly skilled work force where a person makes about $5.00 an hour

This project’s location in Ukraine is ideal.

Based on completion of a recent technical and economic study, Black Iron’s cost to mine, process, rail and load a ship is estimated at only US$31 per tonne. Using a very conservative long-term iron-ore price of US$62 per tonne (~30% lower than the current actual ~$90 per tonne price) results in a 36% after tax internal rate of return (IRR) and US$1.7 billion net present value (NPV at a 10% discount rate) for a company with current market capitalization of only ~US$13 million (~CND$18 million). Full details can be found in the NI 43-101 compliant technical report entitled “Preliminary Economic Assessment of the Re-scoped Shymanivske Iron Ore Deposit” effective November 21, 2017 (the “PEA”), under the Company’s profile on SEDAR at (www.sedar.com).

It’s worth noting that the price of iron ore shown in the chart above and as quoted in internet articles and bank research reports typically contains 62% iron. Black Iron plans to produce an ultrahigh grade 68% grade iron ore which is in the top 4% globally and currently commands ~US$24 per tonne premium over the 62% iron benchmark price. Using today’s iron ore selling price of ~US$90 per tonne, Black Iron would sell its premium iron ore for ~$115 per tonne. When current iron ore prices are used the return on investment is exceptional!

The company’s management team has already shown these economics to large steel mills and global trading houses resulting in the signing of a memorandum of understanding with Glencore, one of the world’s largest trading companies with US$87 billion market capitalization, for offtake in exchange for significant construction investment.

Tormont 50 recently initiated coverage of Black Iron. The report was authored by Jim McFadden who worked as an analyst with Bear Stearns and Goldman Sachs prior to heading JP Morgan’s North American equity proprietary trading desk. In the report, Jim states: “BKI’s (Black Iron) current EV (enterprise value) of US$9 million seems far too low given the economic opportunities described… given BKI’s tremendous economic opportunities, the company should currently trade at perhaps a US$100 million enterprise value, implying a present fair share price of about C$0.75 per share or US$0.55-US$0.60 per share. Furthermore, as Shymanivske construction gets closer, we think the market will start putting perhaps a 1x multiple on the company’s projected annual EBIDTA of around US$385 million." A copy of this report can be found on Black Iron’s website (www.blackiron.com).

Looking Ahead

Black Iron (TSX: BKI; OTC: BKIRF; FRANKFURT: BIN) is a junior mining company that has put itself in a unique position as a turnaround investment opportunity that’s ready to move into production as a producer of high-grade iron-ore. Their Ukraine iron ore projects represents a potential US$1.7 billion asset with highly capable management and an impressive board at a current market capitalization of only US$11 million (CND$15 million). Given exceptional project economics, coupled with supportive comments from Ukraine’s President on development of Black Iron’s project being a priority, investors may want to consider taking a hard look at this stock as it pursues its options with financiers to bring this exciting iron ore project into production.

The technical and scientific contents of this note have been reviewed and approved by Matt Simpson, P.Eng., CEO of Black Iron, who is a Qualified Person as defined by NI 43-101.

Cautionary Statement

The PEA is preliminary in nature, and it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the PEA will be realized.

This document contains forward-looking information. Forward-looking information is based on what management believes to be reasonable assumptions, opinions and estimates of the date such statements are made based on information available to them at that time, including those factors discussed in the section entitled ‘‘Risk Factors’’ in the Company’s annual information form for the year ended December 31, 2018 or as may be identified in the Company’s public disclosure from time to time, as filed under the Company’s profile on SEDAR at www.sedar.com. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.