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Black Iron’s New Preliminary Economic Assessment Shows Highly Favourable Returns Including 36.1% IRR Post Tax

Black Iron’s New Preliminary Economic Assessment Shows Highly Favourable Returns Including 36.1% IRR Post Tax

TORONTO, ONTARIO–(Marketwired – Nov 21, 2017) – Black Iron Inc. (“Black Iron” or the “Company”) (BKI.TO) (BIN.F) has received the results from BBA Inc. (“BBA”) for a new Preliminary Economic Assessment (“PEA”) that incorporates, among other things, a two-phased build out of the mine and production plant along with updated iron ore selling prices and Ukraine’s favourable currency exchange rates for its Shymanivske iron ore project in Kryviy Rih, Ukraine (the “Project”). The updated PEA outlines a first phase operation producing 4Mtpa of ultra high-grade, low impurity, 68% Fe concentrate expanding to 8Mtpa starting in the fifth year of production. By phasing the build, it significantly reduces the up-front construction costs while still being highly economic given all high cost major infrastructure including railway, powerline and deep-sea port are located in very close proximity to the deposit. Using this phased build strategy coupled with Ukraine’s highly favourable exchange rate of 28 Hryvnia to US$1, results in a projected pre-tax, post royalty, internal rate of return (“IRR”) of 42.6%, a payback period of 2.6 years and a US$2.12 billion net present value (“NPV”) at a 10% discount rate. The post tax unlevered economics show a compelling 36.1% IRR, 2.9 year payback period and US$1.66 billion NPV at a 10% discount rate.

Matt Simpson, Black Iron’s CEO, commented: “The operation outlined in the re-scoped PEA for the Shymanivske Project continues to clearly demonstrate the potential for a high-value, low net cost iron ore development project. Use of ultra high-grade 68% iron content product in the production of steel is a value-added product to customers as it increases blast furnace productivity and reduces specific greenhouse gas emissions. By building the Project in phases, it also allows for a portion of the costs for the second phase expansion to 8Mtpa to be funded using internal cash that is expected to be generated from operations during the first phase which is expected to reduce dilution, maximize shareholder returns and reduce project financing risks. As a result of these improvements, the Project’s access to significant existing infrastructure (railway, power lines and port), and the availability of a relatively low-cost, skilled labour pool, the re-scoped PEA continues to project extremely attractive and robust economics.”

The primary reason for releasing a new PEA to replace the 2014 feasibility study (“BFS”), is to be able to communicate to investors, in a cost effective and timely manner, that the Project’s economics remain very strong, even with the benchmark 62% iron content product selling for US$62/t (CFR Port in China) as compared to the spot plus broker outlook of US$95/t back in 2014. Iron content premiums and penalties relative to the 62% iron content benchmark, have significantly increased over the past year due to greater global concerns on reducing pollution and are currently ranging between US$7 to $8 for each 1% iron unit above or below 62%. At the reference date of November 10th 2017, Black Iron’s ultra high-grade 68% product is indicated to receive a total premium of approximately $46.85/dmt over the 62% iron content benchmark price. This premium includes the iron grade premium as well as the net premium for other deleterious elements. The table below summarizes the key highlights of the re-scoped PEA.

PEA Highlights (all currency is US$)

IRR (pre-tax unlevered)
IRR (after-tax unlevered)42.6%

NPV at 10% discount (pre-tax unlevered)
NPV at 10% discount (after-tax unlevered)$2.12 billion
$1.66 billion

Projected Years to Payback (at 10% Discount Rate, pre-tax)
Projected Years to Payback (at 10% Discount Rate, after-tax)2.6 years
2.9 years

Nominal Annual Production Rate:Phase 1
Phase 24 Mt
8 Mt

Capital Cost to build:Phase 1
Phase 2$435.8 million
$312.2 million

Long Term Benchmark Iron Ore Price (62% Fe CFR Port in China)$61.88 /dmt

Final Product Iron Grade68% Fe

Black Iron Projected Sale Price FOB Ukraine Port Yuzhny
(Including product quality adjustments and net shipping costs)$97.19/dmt

Life of Mine FOB OPEX
(Includes mining, beneficiation, rail, ship loading and G&A costs)$31.46/t

Estimated Plant Construction Duration:Phase 1
Phase 22.3 years
2.3 years

Proposed Initiation of Phase 2 Construction Post Phase 1 StartupYear 3

Measured and Indicated Resources (at 18.8% Mag Fe, 31.6% Total Fe)
Inferred Resources (at 18.4% Mag Fe, 30.1% Total Fe)645.8 Mt
188.3 Mt

In-Pit Measured and Indicated Resources (at 19.0% Mag Fe, 31.2% Total Fe)
In-Pit Inferred Resources (at 19.6% Mag Fe, 31.2% Total Fe)480.0 Mt
27.0 Mt

Strip Ratio (life of mine)0.6:1.0

Estimated Mine Life (based on in-pit resources)20 Years

Exchange Rate28UAH:US$1

The re-scoped NI 43-101 PEA will replace the 2014 BFS as the current technical report for the Project. Significant portions of the PEA report remain unchanged from the 2014 BFS, including sections relating to geology, exploration, drilling, sampling and data verification, and the mineral resource estimate.

Ukraine has a corporate tax rate of 18% and an effective mining royalty rate of 8% of net selling price as of the effective date of the PEA. Consistent with practice in the industry, the capital cost estimate in this PEA has been prepared with an intended accuracy of +/-35%.

Details and Assumptions

The PEA assumes a product selling price of US$108.73/dmt of concentrate, CFR China. This price was calculated using the 36-month trailing average price of US$61.88/dmt for the Platts IODEX 62% Fe, CFR North China, adding the three-month trailing average iron grade premium of US$7.21/dmt per 1%Fe above 62% Fe, which equates to $43.28/dmt for Black Iron’s 68% Fe product, and applying a trace element premium (for silica, phosphorus and alumina), net of penalties, of $3.57/dmt of concentrate. The realized selling price for a ship loaded at Port Yuzhny (FOB) assumed in the financial analysis is US$97.19/dmt. The final price is determined after applying the current actual shipping cost of US$11.54/dmt to deliver product to North China.

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