| Black Iron (“BKI”) announced on 21st July it has closed the previously reported offering, raising C$11.5m (subject to approval by the TSX). The proceeds will be used to complete key milestones for the company on the path to production including a Feasibility Study for Shymanivske iron ore project in Ukraine as well as an Environmental Impact Assessment. We view this as another important step that should pave the way towards development. Shymanivske is ranked as the lowest cost undeveloped pellet feed project globally. It is expected to produce a high-grade (68% Fe), low-impurity, magnetite pellet-feed concentrate, potentially producing 30% less CO2 relative to 62% fines, even before considering potential Direct Reduction pellet uses (our April initiation can be viewed here). The company’s Preliminary Economic Assessment returned a US$1.4B NPV10% with a 34% post-tax IRR based on a phased approach. Phase 1 of the project will produce 4Mtpa, with further expansion to 8Mtpa (Phase 2 - operational in year 5) to significantly reduce upfront construction costs (Phase 1: US$452m in PEA). | |
Funds used to progress multiple fronts at Shymanivske | BKI will use the proceeds from the raise to complete the Feasibility Study for Shymanviske; complete the Ukrainian TEO; complete an Environmental and Social Impact Assessment; relocate and construct a new Ukrainian military firing range and ammo depot to secure land required for the project; as well as working capital and general corporate purposes. These are all important steps towards developing the project and should create a strong pipeline of news flow as they are achieved. Upon completion of the Feasibility Study we expect Black Iron to finalise financing terms for the project, with expressions of interest already received from major European banks for debt funding. | |
Iron market remains tight as majors struggle to boost output | Recent quarterly updates from major iron ore producers have highlighted the inability to increase output further even through a record price environment. Rio Tinto, the world’s biggest iron ore miner, reported a 12% drop in exports during Q2 2021 year on year. Meanwhile Vale has cited delays restarting several operations and BHP is undergoing major maintenance at Port Hedland, its main iron ore loading facility in Western Australia. This is despite BHP’s realised sale price being up 52% for the year to US$160/t. Anglo American, with its higher quality ore more akin to Black Iron’s, achieved a realised price of US$210/t. We believe these market dynamics bode well for Black Iron both from a supply front as well as realised prices for higher quality products. Iron continues to trade near all-time highs at ~US$200/t, with the green premium driving a further ~USS$34/t premium between Iron62%Fe and Iron65%Fe. | |
Valuation: C$1.48/sh DCF-based target price using 0.5x NPV12% We adjust our valuation for Black Iron post-raise to reflect the updated share count and cash balance. Using a US$100/t FOB iron price and 12% WACC (vs 10% used in the PEA) we derive a DCF for Shymanivske of US$846m, to which we apply a 0.5x target P/NPV multiple to account for the project’s PEA-level estimates and unfunded status. Adjusting for cash, G&A and options/warrants, we arrive at a Dec’21E target of C$1.48/share, offering 260% upside from the current share price. If Black Iron were to achieve current iron ore prices whilst in operation, the company could trade as high as C$7.26/sh, providing significant further upside to the green iron project.
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