Effective November 21, 2017

Preliminary Economic Assessment of the Re-scoped
Shymanivske Iron Ore Deposit

Since late 2016, there are strong indications that the iron ore market is evolving and favouring higher iron grade products (i.e. >62% Fe), such as BKI’s ultra-high grade of 68% Fe product, at the detriment of lower grades. This is mainly driven by Chinese steel mills seeking to become more efficient and reduce their environmental footprint. There is a prevailing sentiment that this trend will not subside and higher grade iron ore will continue to attract greater premiums.

Given these factors, BKI has taken the initiative of seeking to advance the Project by building it in phases with initial reduced scale, hence lower initial capital requirements to construct the Project. This is economically viable in BKI’s case given the close proximity of major infrastructure including rail, power, water and ports coupled with the use of local highly skilled low cost labour to construct and operate the Project.

The re-scoped Project considers a mining and mineral processing operation having an initial nominal capacity of 4.0 Mtpa of dry 68% Fe blast furnace pellet feed concentrate. The flowsheet and process equipment for the initial 4.0 Mtpa of concentrate will be replicated in order to double the production capacity with construction starting in Year 3 to allow for production of 8.0 Mtpa starting in Year 5 of production. This present re-scoped PEA replaces the previous 2014 Feasibility Study NI 43-101 Report as the current Report for the Shymanivske Project.

The capital cost estimate in this PEA has been prepared with an accuracy of +/- 35% as per industry standards.

Geology & Mineralization

The Property is situated in the Kryvyi Rih iron ore basin, located in the Dnepropetrovsk region of Ukraine. The iron formation on the Property is of the Lake Superior-type. This type of iron formation consists of banded sedimentary rocks composed principally of bands of iron oxides, magnetite and hematite within quartz or chert-rich rock, and contains variable amounts of silicate, carbonate and sulphide lithofacies. Such iron formations have been the principal sources of iron throughout the world.

Exploration & Drilling

Black Iron initiated exploration of the Property in 2011 and conducted Phase I and Phase II diamond drilling programs. The Twin Drilling Program (Phase I) comprised 22 holes, aggregating 6,042 m of drilling. Immediately following Phase I, the Phase II Drilling Program was initiated. It consisted of 48 holes aggregating 11,435 m of drilling and included seven holes (totaling 695 m) that were drilled to acquire larger diameter core for comminution testwork. Total Black Iron drilling aggregated 70 holes in 17,477 m of drilling. The primary purpose of the Phase I Program was to collect material for metallurgical testwork by drilling a selection of drill holes as close as possible to historic locations and at a similar attitude. The secondary goal of the drilling program was to validate historic drilling completed on the Property. The purpose of the Phase II program was to provide additional information in order to advance deposit interpretation and support an updated and upgraded categorized Mineral Resource estimate.

Mineral Resource Estimates

A summary of the NI 43-101-compliant Mineral Resources is provided in Table 1-1 below. The Mineral Resource estimate for the Shymanivske deposit was completed using block sizes of 10 m x 20 m x 15 m and is based on 215 historical diamond drill holes, drilling from Black Iron’s twin hole program (22 holes), and its definition-drilling program (41 holes). A cut-off grade of 10% Femag was determined to be appropriate for the purposes of this Report and was chosen on the basis of a preliminary review of the parameters that would likely determine the economic viability of a large open-pit operation. This cut-off compares well to similar projects and neighboring mines in the area.
Table 1-1: Categorized Mineral Resource Estimate for the Shymanivske Iron Ore Deposit (Cut-off Grade of 10% Femag)

Capital & Operating Costs

The Shymanivske Iron Ore Project scope covered in this Study is based on the construction of a facility having a nominal production capacity of 4.0 Mtpa of concentrate in Phase 1 followed by an increase to 8.0 Mtpa via the addition of a second processing line in Phase 2 (construction starting in Year 3 for operation in Year 5).
The total Phase 1 capital cost is estimated to be $407.6M and the total pre-production capital costs at $451.5M.
The total Phase 2 capital cost was estimated to be $364.3M.

Pit Optimization

A pit optimization analysis was conducted to determine the cut-off grade and the extent to which the deposit can be mined profitably. Since this Study is at a PEA level, NI 43-101 guidelines allow Inferred Mineral Resources to be used in the pit optimization analysis and mine plan.

Economics

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.

  • The resource is defined by approximately 37,000 meters of historical drilling.
  • Potential for resource expansion from further drilling at depth.
  • National Instrument 43-101 compliant resource report and engineering studies completed.

Sensitivity Analysis

A sensitivity analysis was performed whereby the initial capital cost, annual operating costs and product selling price were individually varied between +/-25% to determine the impact on the Project NPV at a 10% discount rate and for the IRR. The sensitivity analysis was performed on a pre-tax basis only.

Conclusions

The re-scoped Shymanivske Project demonstrates a significant benefit in executing the Project in two phases, namely by providing a significant reduction of initial capital required. The concentrate produced by the Project is of high Fe grade (68%) and is low in deleterious elements such as alumina and phosphorus. This attracts significant price premiums when compared to the benchmark 62% Fe fines. This is driven primarily by Chinese steelmakers trying to increase efficiency, reduce overall costs and most importantly reduce their greenhouse gas emissions. Furthermore, the Shymanivske concentrate is of fine particle size making it readily usable for any pelletizing operation as pellet feed.
View PEA Report (PDF)
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