Redondo Beach CA , Jan. 22, 2018 (GLOBE NEWSWIRE) -- SECFilings.com, a leading financial news and information portal offering free real time public company filing alerts, announces the publication of an article discussing Black Iron Inc.   (BKI.TO) (BKIRF), a development-stage iron-ore miner that made significant progress towards commercialization prior to the market’s sharp decline between 2014 and 2016. With the rebound in iron-ore prices and new Chinese environmental regulations, the company is uniquely positioned to benefit from its near-term production of ultrahigh-grade iron-ore product in a region that’s geographically ideal for exports to many steel producing regions.

The best value investing opportunities often come from industries that are experiencing a turnaround after a prolonged decline. In these situations, many investors have moved on to other opportunities and it takes time for the market to catch on to the new reality. The market for iron-ore could be one of these opportunities with a unique twist: New Chinese environmental regulations are favoring high-quality producers over low-cost producers and this is being reflected in iron content grade premiums and penalties.

Back on Track

The market for iron-ore has experienced a rollercoaster ride over the past several years. Between 2014 and 2016, iron-ore prices fell from nearly $140 per ton to a low of $40 per ton amid an increase in low-cost Australian production that outpaced Chinese demand.  Iron prices were further impacted by high cost Chinese miners continuing to operate at a loss since majority of these mines are owned by steel mills that import significantly more ore than is mined domestically resulting in further oversupply to depress global prices. The good news is that prices have doubled since then from $40 per ton to nearly $80 per ton and could be heading higher given the state of the global economy.

China has recently undergone an environmental crackdown that could divide the iron-ore industry. According to Reuters, Chinese regulators recently cancelled one third of domestic iron ore mining licenses, mostly belonging to low grade high emitting mines, to curb pollution.  Further, heavily polluting industries that operate in provinces like Hebei, Shanxi, and Shandong are being forced by regulators to reduce output and curb emissions over the winter heating season that runs from October to March. This means that mills have to either cut steel production or find ways to sustainably reduce emissions.

The good news is restrictions on emissions in China have driven the demand for higher quality feedstock.  For the steel industry this means products with high iron content as the higher the iron grade in the mill feed the less coal required to burn and subsequent emissions released per tonne of steel produced. This has helped companies that produce a higher iron content product like Brazil’s Vale, and Anglo-American (AAL.L) at the expense of lowest-cost and grade Australian mines like Fortescue or BHP Billiton..  

At today’s iron content premium of $7 to $8 per 1% iron, Black Iron’s ultra high grade 68% product will receive a $40 to $50 per ton premium over the ~$77 per ton benchmark price for a product that costs $31 per tonne to produce.  Even if benchmark iron ore prices fall, iron content premiums are likely to remain at or above current levels given global concerns to curb pollution.  

In a Good Place

Black Iron raised $38 million in an initial public offering on the Toronto Stock Exchange at $1.40 per share, completed a bankable feasibility study, several major permit milestones and received a $511 million construction finance commitment from Metinvest - the 9th largest iron-ore miner and 16th largest steel producer in the world - just before 2014. The company also had advanced discussions on prepaid offtake with a well financially backed international commodities trader to round out the financing required to construct the project.

What drew Metinvest and this commodity trader to Black Iron is production of an ultrahigh grade 68% iron content product and all major infrastructure including railway, port and power plus highly skilled relative low cost labour being in place close to the ore body.  Having all of the major infrastructure allows for the project to be built at a much lower capital cost, in a phased manner and relatively short time frame.