Metivest’s investment of $20 million into Canada-registered Black Iron’s projects in Ukraine gave hope to the latter that it will finally be able to develop its iron ore deposits. However, Black Iron needs further investment to reach production stage, which may still be difficult to achieve in an investor-cautious environment.
In July of
2013, Ukrainian steelmaker and miner Metinvest, with 71.25 percent belonging to
billionaire Rinat Akhmetov and 23.75 percent with lawmaker Vadim Novinsky, agreed
to invest in two of Black Iron’s iron projects in the Kryvyi Rih area –
Shymanivske and Zelenivske. In exchange for its $20 million investment, Metinvest
receives a 49 percent stake in the projects. The company has an option to
increase its stake in both projects to 51 percent when output reaches 9.2
million tons per year of iron ore concentrate for three consecutive months.
Black
Iron’s Shymanivske deposit has 646 million tons of measured and indicated
resources, while Zelenivske deposit needs further studies to determine its
potential. Metinvest may additionally invest up to $536 million in the Shymanske
iron ore deposit, which needs an estimated $1.1 billion to finance the project.
“Since
Metinvest joined the project, (Toronto-listed) Black Iron’s share price has risen by 15 percent,” said Roman Topoliuk, metals and
mining analyst at Kyiv-based investment house Concorde Capital. “At some points the increase reached up to 60
percent compared to July of 2013,” he added.
After the
deal, Black Iron moved more dynamically on mine infrastructure and pre-production
development.
On Jan. 15,
the company announced that it secured access to a rail transportation network
to transport 20 million tons of iron ore a year from its Shymanivske project to
the port of Yuzhny on Ukraine’s Black Sea coast.
Black Iron
is still in the process of acquiring land to construct its iron ore plant and
other infrastructure needed to mine and enrich iron ore.
According
to a feasibility study completed in January, the company expects the internal
rate of return to be 48 percent with a two-year
payback period following the launch of operations. The project’s net
present value is $3.3 billion with an 8 percent discount rate.
Shymanivske
has an estimated mine life of 14 years at an annual output rate of 9.9 million
tons of 68 percent iron ore concentrate, the study found. “When production
starts, Black Iron’s share of world’s iron ore raw materials market will be
at one percent,” Topoliuk said.
Further
exploration and expansion upside “could see the mine life grow to north of 40
years when the full Shymanivske and Zelenivske deposits are considered,” Black
Iron’s investor relations manager Michael McAllister told the Kyiv Post. The
company expects to start commercial production at the mine in early 2017.
McAllister
says the company plans to export all of its iron ore output to Turkey, Europe
or the Middle East, since there it has “a delivered cost advantage relative to
producers in Australia, North or South America.” He also added that they are
seeing interest for Black Iron’s potential iron ore production from growing
markets in the Middle East and Asia right. Yet, the company is still seeking
partners for potential off-take agreements.
While Black
Iron aims to start production in the nearest future, its plans are being delayed
by insufficient financing. In its latest feasibility study, the company moved
the date of project commissioning from the last quarter of 2015 to the end of
2016. Analysts suggest more delays could take place down the road.
“Black Iron
faces high risks of further delays, as the project’s production volumes are not
contracted yet, while the market is cautious to invest into the weakened metals-and-mining
sector,” said Olexander Martynenko, head of corporate research at Investment
Capital Ukraine.
Kyiv
Post staff writer Nataliya Trach can be reached at [email protected]
