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Black Iron's project worth another look amid rising iron ore prices

That’s the view of an article on SECFilings.com, the financial news and information platform
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Iron-ore has risen over 30% off its October 2017 lows to retest all-time highs on the way to US$80 per ton

Iron ore prices are revisiting their all-time highs thanks to strong demand and limited supply stemming from China, making Ukraine-focused Black Iron Inc (TSE:BKI) worth a second look.

That’s the view of an article on SECFilings.com, the financial news and information platform.

Iron-ore has risen over 30% off its October 2017 lows to retest all-time highs on the way to US$80 per ton.

"Chinese steel exports have fallen for the 18th straight month through January due to strong domestic demand and new air pollution controls," it says.

The Chinese  government ordered steel companies to cut production last year to improve air quality in about 30 cities, which lead many Chinese ironworkers to use higher-quality Australian iron-ore, which led to a nearly 20% jump in iron ore imports in January over the prior month.

Many analysts see these trends playing out well into 2018.

Black Iron chief executive Matt Simpson recently told SECFilings there were three reasons making now a great time to relaunch the Shymanivske iron ore project.

These are:

  • The front-line in Ukraine hasn’t moved in four years and there’s no reason to think that it will move anytime soon. With reduced geopolitical risk, the company will have an easier time finding financiers to bring the project back online.
  • Iron-ore prices have experienced a sharp rebound since early-2015, which has dramatically changed the project’s economics.
  • The exchange rate in Ukraine has significantly lowered its operational costs. At first, it was 8-to-1 with the US dollar, but it has fallen to 28-to-1 today. This means that the project has significantly lower costs than originally planned.

Simpson estimates that the company could conservatively generate an unlevered 36% after tax internal rate of return with a long-term iron-ore price of $62 per ton.

When current iron ore prices and reasonable leverage is applied, these returns could increase to around 65%, making the project extremely attractive.

The company’s management team has already floated the new economics to potential investors and several companies are under an NDA (non-disclosure agreement) to consider investment.

Black Iron shares eased 4.76% to C$0.10 each on the day.

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