Black Iron negotiates offtake and financing with Cargill

Black Iron (TSX: BKI; US-OTC: BKIRF) will grant Cargill offtake rights for an initial ten years on the first four million tonnes of annual production from its Shymanivske iron ore project in the Ukraine, and Cargill will provide a US$75 million finance facility for construction.

The two companies, long active in the country, now plan to iron out and complete a binding agreement, which will include a profit-sharing component and align the interests of both parties, Black Iron says.

In terms of the profit share, the proposal sees Black Iron receiving 100% of the 65% iron content fines benchmark price, currently about US$230 per tonne, and then share with Cargill a portion of the incremental sale price of its 3% higher (68%) iron content and low impurity magnetite product.

“Black Iron had eight companies participate in our offtake process so it was highly competitive,” Matt Simpson, the company’s CEO, tells The Northern Miner. “Normally, offtake deals are based on a price discount being provided to the buyer of iron ore and this leaves little incentive if the buyer is a major trading company to work hard to maximize the iron ore sale price as they tend to be volume/transaction focused.”

The project has a National Instrument 43-101 compliant resource of 646 million measured and indicated tonnes consisting of 355 million measured tonnes grading 32% total iron and 19.5% magnetic iron, and 290 million indicated tonnes grading 31.1% total iron and 17.9% magnetic iron, using a 10% magnetic iron cut-off grade. Shymanivske also has 188 million inferred tonnes grading 30.1% total iron and 18.4% magnetic iron.

“To secure funding for project construction it is critical to have an anchor investor,” Simpson writes in an email. “This announcement is the lynchpin that sets into motion the ability to move to binding contracts for senior debt and royalty agreements previously announced by Black Iron.”

Senior debt lenders like banks, he adds, “want to know who will be buying Black Iron’s product to ensure they are credit worthy [and] Cargill is the fifth-largest privately owned company in the world with estimated revenues (Wikipedia) of $115 billion, so very credit worthy. … Senior debt lenders also want to know what the basis to price the produce will be so they can determine ‘coverage ratios,’ (that is, how much money will Black Iron make to be able to service its debt repayments.”

The deposit, discovered in the 1920s, has an estimated 20-year mine life. Under the most recent mine plan, the final pit would be roughly 1.2 km long, 750 metres wide and 300 metres deep.

The mine is expected to have a conventional flowsheet with a gyratory crusher, a secondary crusher and high-pressure grinding rollers.

The project was shovel-ready in early 2014, the company says, but had to be put on ice when Russia annexed Ukraine’s Crimean Peninsula on the Black Sea, and Russian-backed separatist forces launched a civil war to bring the country’s two easternmost provinces — in the Donbass region, 400 km east of Black Iron’s project — into the neighbouring Russian Federation.

Shymanivske is 330 km southeast of Kiev, and lies in the heart of central Ukraine’s KrivBass iron ore mining district. The deposit is in the southern part of KrivBass and is less than 2 km from two open-pit iron mines owned by ArcelorMittal and Metinvest/Evraz Steel. These two mines are also primarily magnetite quartzite deposits. According to Black Iron, there are seven operating open pit mines in the district.

Shymanivske’s 68% iron content magnetite pellet feed “is anticipated to reduce emissions generated in the production of steel by an estimated 30% as compared to the more commonly consumed 62% iron content hematite fines,” Black Iron says.

Over the last year, Black Iron’s shares have traded in a range of 7.5¢ and 76¢, and at presstime in Toronto were trading at 59¢.

The junior has about 263 million common shares outstanding for a market cap of about $155 million.