Black Iron rallies on Glencore MOU

Black Iron Inc. [BKI-TSX; BKIRF-OTC; BIN-FSE] said Wednesday February 20 that it has signed a non-binding memorandum of understanding with a subsidiary of Glencore Plc [GLEN-LSE; GLCY-OTC] that could result in financing for the construction of the Shymanivske Iron Ore project in Ukraine.

The MOU envisages Glencore making an investment to help fund construction of the project in exchange for securing the offtake of up to the full Phase one planned annual production of 4 million tonnes. The terms and amount have still to be negotiated.

Additionally, the MOU outlines cooperation between Black Iron and Glencore to leverage their relationships to source the balance of funds required to construct the project.

On Wednesday, Black Iron shares jumped 35.3% or $0.03 to 10 cents on volume of over 2.8 million. The shares trade in a 52-week range of 4.5 cents and 12 cents.

Black Iron is an iron ore exploration and development company, engaged in the advancement of its 100%-owned Shymanivske Project in Kryvyi Rih, Ukraine.  The Shymanivske Project contains a NI 43-101-compliant resource estimated at 646 million tonnes of measured and indicated resources. That includes a measured resource of 355 million tonnes, grading 31.6% total iron and 18.8% magnetic iron, and an indicated resource of 290 million tonnes, grading 31.1% total iron and 17.9% magnetic iron, using a cut-off grade of 10% magnetic iron.

Additionally, the Shymanivske Project contains 188 million tonne of inferred mineral resources, grading 30.1% total iron and 18.4% magnetic iron.

Black Iron said the project is located in a highly developed iron ore mining region with well-established infrastructure located well away from conflict zones. The company plans to produce a 68% iron content pellet feed concentrate with very low levels of trace elements that can be used to produce high-quality iron ore blast furnace pellets for premium direct reduction grade pellets.

News of the preliminary agreement comes as analysts have been weighing the possible impact on iron ore prices of a deadly tailings dam breach at a Brazilian mine operated by Vale SA [VALE-NYSE], the world’s largest producer of iron ore and nickel.

The Brumadinho dam breach, which occurred on January 25, 2018, killed at least 65 people.  Another 279 have been declared missing according to published reports.

Vale announced that it will be curtailing 40 million tons of iron ore concentrate production capacity as it moves to shut down any remaining mines that have similar style tailings dams to the one which failed.

The price of iron ore reacted to the news by jumping to $83/tonne from $74/tonne.  Some analysts have been expecting pellet premiums to test recent highs of $90/tonne

In its press release on Wednesday, Black Iron said the MOU allows for the allocation of offtake to other equity investors subject to the investment terms offered being equal or superior to those proposed by Glencore. Black Iron is currently in discussions with other companies that have expressed strong interest in securing a supply of the ultra high-grade iron ore concentrate expected to be produced from the project in exchange for providing construction financing.

“I am excited to welcome Glencore as an offtake investor for construction of the Shymanivske Project as well as their agreement to work with us to help secure additional financing,” said Black Iron CEO Matt Simpson.

Glencore is a metal trading giant, based in Switzerland. “Glencore’s involvement significantly strengthens our capability and draws on their extensive international network, experience and market knowledge, Simpson said.