Two phase build:
· Phase 1 – 4 million tonnes per annum
· Phase 2 – 8 million tonnes per annum
68% iron ore concentrate
Post tax 36% internal rate of return and a $1.7 billion USD net present value at a 10% discount rate
Black Iron’s re-scoped Preliminary Economic Assessment (“PEA”) incorporates a two-phased build out of the mine and production plant. The first phase entails production of 4Mtpa of ultra high-grade, low impurity, 68% Fe concentrate with expansion to 8Mtpa starting in the third year of production and operational by year five. By phasing the build, it significantly reduces the up-front construction costs while still being highly economic given all high cost major infrastructure including railway, powerline and deep-sea port are located in very close proximity to the deposit. Using this phased build strategy coupled with Ukraine’s highly favourable exchange rate of 28 Hryvnia to US$1, results in a projected pre-tax, post royalty, internal rate of return (“IRR”) of 42.6%, a payback period of 2.6 years and a US$2.12 billion net present value (“NPV”) at a 10% discount rate. The post tax unlevered economics show a compelling 36.1% IRR, 2.9 year payback period and US$1.66 billion NPV at a 10% discount rate.
Use of ultra high-grade 68% iron content product in the production of steel is a value-added product to customers as it increases blast furnace productivity and reduces greenhouse gas emissions. By building the Project in phases, it allows for a portion of the costs for the second phase expansion to 8Mtpa to be funded using internal cash that is expected to be generated from operations during the first phase which is expected to reduce dilution, maximize shareholder returns and reduce project financing risks.
The PEA assumes a product selling price of US$97.19/dmt of 68% iron content concentrate for a vessel loaded at Ukraine Port Yuzhny Free On Board (FOB). This price was calculated using the 36-month trailing average price of US$61.88/dmt for product containing 62% iron content delivered (i.e. CFR) North China, adding the three-month trailing average iron grade premium of US$7.21/dmt per 1% Fe above 62% Fe, which equates to $43.28/dmt for Black Iron’s 68% Fe product, and applying a trace element premium (for silica, phosphorus and alumina), net of penalties, of $3.57/dmt of concentrate. Shipping costs to north China of US$11.54/dmt are then subtracted resulting in the FOB selling price.
The life of mine strip ratio is estimated at 0.6:1 and average operating costs over the 20 years of operation are estimated at US$31.46/dmt FOB to produce the ultra high-grade 68% iron ore concentrate.
The total capital expenditure to develop the mine, concentrator, infrastructure and tie-ins is estimated at US$435.8 million to produce an initial 4Mtpa of ultra high-grade 68% Fe concentrate. Construction of the expansion to 8Mtpa will start in year three of operations, and will be completed in year five at a cost of US$312.2 million. The capital cost estimate excludes the sustaining capital cost of US$348.3 million spread over the life of mine and closure costs of US$27.9 million.
The Project is able to exhibit superior projected economics due to its close proximity to major infrastructure including, railway, electrical power and a deep-sea port coupled with exceptional access to highly skilled cost effective labour.
The PEA assumes a long term selling price of US$61.88/dmt for product containing 62% iron content delivered (i.e. CFR) North China adjusting using a premium of US$7.21/dmt per 1% Fe above 62% Fe, which equates to $43.28/dmt for Black Iron’s 68% Fe product, and applying a trace element premium (for silica, phosphorus and alumina), net of penalties, of $3.57/dmt of concentrate. Shipping costs to north China of US$11.54/dmt are then subtracted resulting in the FOB selling price of $97.19/dmt. The economic return at various 62% iron benchmark prices and grade premiums are shown in the table below. As can be seen, the projected economics are spectacular at higher iron ore prices while still being quite compelling in depressed pricing scenarios.
Conditions considered to be extreme (combinations of low and high 62% benchmark price and %Fe grade premium) are highlighted in brown in the above table as they are considered unlikely to occur.
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