Black Iron Inc
CEO: Matt Simpson
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About: Black Iron is a Canadian iron ore exploration and development company advancing its 100% owned Shymanivske Project located in Krivyi Rih, Ukraine, to production.
WSA: Good day from Wall Street, this is Juan Costello, Senior Analyst with the Wall Street Analyzer. Joining us today is Matt Simpson, CEO for Black Iron Incorporated. The company trades on the Toronto Stock Exchange, ticker symbol BKI and here in the US is BKIRF. Thanks for joining us today Matt.
Matt Simpson: Thanks for having me on Juan.
WSA: So starting off please give us a history and overview of the company for some of our listeners that are new to your story?
Matt Simpson: Black Iron IPO’d on the Toronto Stock Exchange in March of 2011 and raised about $38 million at a $1.40 a share. Over the next three years we did all the traditional de-risking including diamond drilling, feasibility studies and pilot plant test work. I think more interesting for your listeners is that in 2013 we negotiated a deal with a company called Metinvest, which is one of the largest iron ore and steel companies in the world and the largest company in Ukraine to finance half of the plant’s construction valued at about US$511 million. Additionally, we also had one of the world’s largest trading houses on site looking at doing a prepaid off take for just shy of over US$300 million.
So by late 2013 we had almost $800 million raised and were about ready to start construction when Russia invaded Ukraine and it caused us take a big pause. The reason we’re here today, Juan, talking about the story again is that it’s been four and a half years since that initial invasion into Ukraine, which is about 250 miles away from where we’re located, and the frontline hasn’t really moved since. Iron ore prices have nicely rebounded over the past two years. And the exchange rate in Ukraine, which used to be pegged at UAH8 to US$1, is now ~UAH27 to US$1 which makes Black Iron’s cost to build and our cost to operate about two-thirds of what they were before.
WSA: So bring us up to speed on some of your recent news as you had a study done regarding the Shymanivske Project and some of the other key activity there?
Matt Simpson: The plan is no longer to build a big $1 billion capital,10 million ton per year operation because its going to be hard to raise that amount of money. And we’re very fortunate in that we don’t need to unlike almost every other iron ore development project out there simply because we’re surrounded by major infrastructure. The mine is located only one mile from the national railway, high voltage electricity power lines run beside the rail which accesses multiple sea ports and what we do need to construct will be done using labour that comes from a city of 750,000 people living only six miles from site where a skilled electrician or mechanic makes a fraction of rates you’d see here in North America. So the plan going forward is to build a 4 million ton a year plant and it’ll cost about $436 million to do that. And because it’s a project that generates so much free cash flow we’ll be able to fully self-fund a future expansion to 8 million tons per year concentrate production.
WSA: What are some of the key trends that you’re seeing right now in this sector and how are you positioning the company to capitalize?
Matt Simpson: The biggest trend that we’re seeing in the iron ore sector right now is that the grade premiums relative to the benchmark of 62% iron content product have increased by two to three times over the past year and a half. So historically you’d pay about $2 to $3 per 1% above or below 62% iron content product and you’re currently paying closer to between $5 and $7 per 1%. In our case Juan we’re making a 68% iron content product which is in the top 4% of all products produced globally so that’s 6% above the benchmark price. And with premiums today being around $6 per 1% we’d see about a $30 to $36 a ton premium over the current ~$68 per ton benchmark price.
So we’d be able to sell the product for about $100 per ton and make it for $30 per ton. What’s really driving the grade premium is around the world people are much more concerned about the environment and the higher the iron content, the less coal is burned to produce a ton of steel.
WSA: That’s a very key point. And so what are some of the other factors Matt that you feel make Black Iron unique from some of the other players in the sector and able to kind of jump the hurdles as far as the political situation there?
Matt Simpson: The biggest thing to ensure a profitable iron ore project is major infrastructure access. If you need to build rail, it costs in the order of about $5 million per mile, if you need to build power lines, you’re probably $2 to $2.5 million per mile. And most of our competitors are several hundreds of miles away from rail and/or power. In our case, the government-owned railway runs just over a mile away from our property so very, very close, and high voltage power lines run right beside the rail. Using that rail, we can access five deep sea ports ranging from about 120 to about 250 miles from site.
So that makes a huge difference because just building a rail alone can easily be $300 to $500 million for a new development whereas in our case because we are so close it allows for the project to be built in much smaller phases requiring significantly less capital.
WSA: So what are the key goals and milestones that you’re hoping to accomplish over the course of the next six to 12 months?
Matt Simpson: The two biggest things that we’re really focused on right now are securing a cornerstone equity investor for construction and the surface rights for both where the ore body is located, which is owned by the local city council, and some adjacent land that’s owned by the federal government required for our processing plant, tailings and waste-rock. Really good progress has been made on both fronts. On the cornerstone equity side, we have a number of groups signed up under nondisclosure agreements and are starting to arrange site visits for a few of those groups. So that’s quite exciting! And on the land front there are several meetings with high ranking government officials including an upcoming meeting with several Ministers and the Deputy Prime Minister.
WSA: Great and perhaps you can talk a little bit about your background and experience, Matt, and discuss who the key management team there is?
Matt Simpson: My background is I’m a chemical engineer with an MBA. I started my career with a company called Hatch, which is a global engineering consulting firm. I used to design metallurgical plants and I did construction in Australia for a number of years. I then worked for Rio Tinto, mostly at the Iron Ore Company of Canada, which is one of the largest iron ore mines in North America. My last role was general manager of the mine where I had about 650 people that reported to me and managed about US$300 million year in spend.
Other key people on our team include the COO Les Kwasik, who has 40 years of experience and during that time built nine different mines in several countries including Russia. Black Iron’s VP Government Relations, Nikolay Bayrak, used to be a member of parliament in Ukraine so is well connected politically.
WSA: Certainly, so when it comes to investors and the financial community, Matt, what are some of the key drivers there that you wish they better understood about you guys and what’s that main driver that you try to convey to investors when you’re speaking with them?
Matt Simpson: The main thing I want to convey to investors is, this is a company that’s fully de-risked and was on the brink of construction back in 2014 and for reasons completely outside of management’s control, had to hit the pause button. And now with the relaunch of the project there is a major investment opportunity for people to get involved in a de-risked turnaround story that trades at the price of an early stage exploration project.
WSA: Great, and so once again joining us today is Matt Simpson, the Chief Executive Officer for Black Iron Incorporated, which as mentioned trades on the Toronto Stock Exchange, ticker symbol BKI and here in the US, BKIRF currently trading at $0.11 a share Canadian and market cap is about $17 million Canadian. And before we conclude here Matt to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
Matt Simpson: This is a fully de-risk story that’s trading at a dismal market cap. It is a company that historically had a market cap multiple times higher than where we are today and was able to attract two of the largest companies in the steel sector to invest in its construction when we didn’t have such a favorable exchange rate. With the current Ukraine exchange rate of ~27UAH to US$1 coupled with highly skilled, low cost, local labor this is a great project that will get financed to be built and investors that get in early will ride a really nice return wave.
WSA: Well, we certainly look forward to continue to track the company’s growth and report on your upcoming progress and we’d like to thank you for taking the time to join us today Matt and update our investor audience on Black Iron Inc. it was great having you on.
Matt Simpson: I appreciate the opportunity, Juan.