Is something big happening at Black Iron Inc (BKI)?

A few months ago we recommended our first stock: Black Iron Inc (TSX:BKI). To summarize: this is a near production high-grade Iron Ore play with an asset worth almost $2B. Since then, Iron Ore has moved up, and economies have partially reopened. Infrastructure spending is still high in China, and a trade war between China and Australia seems to be heating up. To add to all this, the steel market saw some consolidation with Cleveland Cliffs acquiring ArcelorMittal for $1.4B. This is in fact the same ArcelorMittal that has a producing Iron Ore mine sharing a border with Black Iron Inc.

Right now BKI is in a pivotal position, where they have everything in place and are ready to obtain production financing and move forward. Recent news from Black Iron Inc shows us their progress on this:

Black Iron Inc. (“Black Iron” or the “Company”) (TSX: BKI) has set October 9, 2020 as the submission date for expressions of interest to be received from steel mills and global traders to secure the rights to purchase its initial entire expected annual production of 4 million tonnes of pellet feed, in exchange for making a substantial investment towards construction of the Shymanivske iron ore project (the “Project”). There are several multi-billion market capitalization companies participating in this competitive process given their interest in Black Iron’s very low expected operating and construction costs to produce an ultra premium 68% iron content product in close proximity to several steel mills.

Upon review of the expressions received, a subset of the steel mills and global traders who submit the most compelling investment and offtake proposals will be invited to participate in a second round of due diligence. The selected steel mills and global traders will then be provided more detailed technical and legal information, as well as be invited to conduct site tours, either in person or virtually depending on travel preferences and constraints. Upon completion of the second round, targeted for mid Q1 2021, binding submissions to invest and secure offtake rights will be sought.

Black Iron’s management are also well advanced in the negotiation of terms for a potential royalty investment valued at multiple times the Company’s current market capitalization. The main benefit of including a royalty investment as part of the capital structure is it is less dilutive for existing shareholders given the investment amount relative to today’s market capitalization. Should this royalty investment be secured on attractive terms, it has the potential to displace the offtake investment as the main source of equity required for Project construction. For clarity, Company management will still seek to secure an offtake investment to round out the equity required for Project construction and product purchase agreements often required by debt investors. It is possible, this royalty could be finalized prior to the end of this year.

Finally, Black Iron management are also very close to finalizing a Heads of Agreement with a second construction company that will include an investment package valued at ~US$60 million. Black Iron expects to conclude a binding construction / investment agreement after the offtake investment has been secured.

Further updates on the results of these processes will be announced as continued progress is made.

This is very significant, as these off-take agreements will ensure certainty of revenue, and the value of the stock is no longer speculative. We still remain bullish on this company, and believe the stock is tremendously undervalued.

For those who didn’t get a chance to read it, here is the report we mentioned earlier: