Black Iron Inc (TSE:BKI) has outlined how the recent spike in iron ore prices due to a supply fall should support its economic projections for its Shymanivske project in Ukraine.
Last month, one of the planet's major producers, Vale experienced a disastrous tailings dam failure in Brazil, which caused at least 165 deaths.
READ: Black Iron hopeful of first off-take agreement announcement for Shymanivske project in new year
The miner then voluntarily shut ten of its iron ore mines, or around 40Mtpa (million tonnes per annum) production to minimize the risk of additional upstream tailings dam failure.
Brazil's regulatory authorities then ordered the company to shut its second-largest iron ore mine, resulting in a combined production loss of 70Mtpa, representing about 6% of global consumption.
"In response, iron ore prices spiked to the current US$87/T for benchmark 62% iron content fines and US$106/T for 65% iron content fines," noted Black Iron in Thursday’s statement. In the year to date, iron ore prices have lifted 25%.
"While analysts have mixed projections on how long the iron content benchmark price will stay at elevated levels, there is consensus that prices of iron content products - more specifically iron ore pellets - will increase for at least the next few years as the industry responds to lower supply. As a result, premium 68% iron pellet feed product, as planned to be produced by Black Iron, is expected to sell for a significantly higher price than benchmark iron ore for at least the next two to three years," it added.
Two-phase build
The Shymanivske project is expected to be built in two phases, with a capital investment of US$436 million for the first, which expected to produce 4 million tonnes a year.
An additional US$312 million is required to double the production capacity of Shymanivske project to 8 million tonnes a year and this could potentially be fully funded from the free cash generated by the phase 1 production.
A rescoped preliminary economic assessment (PEA) issued last year estimated that Shymanivske will have an unlevered after-tax net present value of US$1.66 billion using a 10% discount rate and an internal rate of return (IRR) of 36%.
The NI 43 101 resource estimate was put at 646 Mt (million tonnes) of measured and Indicated mineral resources, consisting of 355 Mt in the measured category, grading 31.6% total iron and 18.8% magnetic iron, and indicated mineral resources of 290 Mt grading 31.1% total iron and 17.9% magnetic iron, using a cut-off grade of 10%.
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