- License revocation and production cuts involving world’s largest iron ore producer have already contributed to upward price trends in the iron ore market
- Existing shortage in pellet production feed expected to worsen as a result of recent events in Brazil
- These latest market developments are creating positive conditions and opportunities for industry representatives like Black Iron that already benefit from strategic advantages
The world is anticipating an annual iron ore production loss of 70 million metric tons after Brazilian state regulators revoked the license for the second-largest iron ore mine owned by Vale (NYSE: VALE) – the world’s largest iron ore miner – on February 5, Bloomberg reported (http://ibn.fm/qnD6o). The 30 million metric tons of production lost at this mine are in addition to Vale’s earlier announcement that it is taking 10 of its mines with upstream tailings dams out of production, representing 40 million metric tons of production. The license revocation is providing strong indications that company operations are not going to return to normal in the near future. Vale SA came under strict government scrutiny after a fatal accident caused the death of over 150 people and halted mining operations on January 25, 2019.
As a result of the license revocation and suspension of operations, Vale declared force majeure on some of its contracts.
Analysts are already noticing market dynamics resulting from the announced cuts and the revocation of Vale’s mining license. The benchmark price of 62 percent iron content ore went up more than $15 per metric ton since January 25 to the current $90 per metric ton. Iron ore mining companies noted a corresponding significant increase in share prices, with Ukraine-based Ferrexpo up 32 percent, Australia’s Fortescue Metals up 27 percent and Canada’s Champion Iron up 37 percent, while Vale’s share prices have dropped about 24 percent since January 24, a day before the accident.
The latest market dynamics will undoubtedly impact industry representatives like Black Iron Inc. (TSX: BKI) (OTC: BKIRF) (GR: BIN). Black Iron is a Canadian iron ore exploration and development company that’s working on advancing production at its wholly owned Shymanivske Iron Ore Project. The site is located in central Ukraine and is surrounded by five operating iron ore mines owned by majors including ArcelorMittal and Metinvest.
The Shymanivske project holds a mining allotment permit for a large iron ore deposit. It is estimated to contain approximately 646 million tons (Mt) measured and indicated mineral resources that consist of 355Mt measured mineral resource grading 31.6 percent total iron and 18.8 percent magnetic iron. There’s also a 290Mt indicated mineral resource grading 31.1 percent total iron and 17.9 percent magnetic iron. Finally, the project features 188Mt of inferred mineral resource grading 30.1 percent total iron and 18.4 percent magnetic iron.
This highly developed mining region already features all of the costly major infrastructure required to advance iron ore mining projects. There is a rail line with confirmed surplus capacity within one mile, electrical power tie-in only 20 miles away and several sea ports located 150 to 260 miles from the mine site. In addition, the district is known for the highly skilled labor force coming from the city of Kryvyi Rih, with its population of 650,000 people located only six miles from site.
At its Shymanivske Iron Ore Project, Black Iron aims to produce high grade 68 percent iron ore concentrate with few impurities at a very low cost, which it expects to sell for a premium price once in production.
Iron ore concentrate is one of the key resources required by the steel industry. Black Iron’s concentrate can be used both in sinter and highly valued pellet production. Prior to the latest Brazilian development, there was already a shortage of pellet feed. The supply/demand gap is set at 133Mt against the current base of approximately 400Mt consumed by 2035. According to Zion Market Research, the global iron ore pellet market was valued at $25.22 billion in 2017 and is expected to reach $50.12 billion by 2024 (http://ibn.fm/u3Fkn).
Black Iron is working on advancing its project on several fronts, including off-take agreements and construction funding. In addition, Back Iron is negotiating with Ukraine’s Ministry of Defense on the transfer of a land parcel required for the company’s processing plant. The project has already attracted the interest of multiple steel mills and international traders willing to make a significant equity investment in return for long-term purchase contracts.
The technical and scientific contents of this article have been reviewed and approved by Matt Simpson, P.Eng., CEO of Black Iron, who is a Qualified Person as defined by NI 43-101.
For more information, visit the company’s website at www.BlackIron.com