Double Nigerian steel billet price forecast for Agbaja

Kogi Iron Limited and its Nigerian subsidiary KCM Mining (ASX: KFE, 'Kogi', 'the Company') are pleased to provide an update on the results of the 2022 updated Agbaja project market feasibility study conducted by leading global commodity price forecaster, Fastmarkets.

Kogi Iron Chairman Craig Hart commented: "This updated steel billet price forecast for Nigeria by respected global commodity price forecaster Fastmarkets resets the value proposition of the Agbaja Iron and Steel Project. The disruption to the European Steel market caused by the Ukraine war will be felt for at least the next decade.

Moreover, there is likely to be systemic and ongoing change occasioned by the decarbonisation trend across Europe which will impact not only the availability of competitive steel scrap but also its price. Kogi Iron's vision to provide a sustainable import replacement solution for Nigeria's domestic steel market is now more compelling than ever."

The Fastmarkets report is another significant step in the evaluation of the project's economics and, together with other work being undertaken as part of the Feasibility Study, the report will be an important document regarding the project's capability to raise project capital.

Since the initial Fastmarkets 2018 study (refer ASX Announcement 16 January 2019) and the 2021 Scoping Study (refer ASX announcement 13 December 2021), a number of events and factors influencing the value proposition of the Agbaja Project have occurred at a global, local and company level.

A more detailed list of these factors include:

Fastmarkets were commissioned in February 2022 to consider the impact of these factors and to provide the Company with a platform to assist evaluation of key project economics, appropriateness of plant sizing, general marketing strategies and other matters critical to progressing the Feasibility Study that is presently underway.

Steel and scrap steel prices contained in the most recent Fastmarkets report are significantly higher than any previous forecasts. The 2022 Fastmarkets report forecasts long-term average billet price of US$1,024/tonne Nigeria DDP (nominal; Delivered Duty Paid) Lagos over the period 2023 to 2032. This compares to US$441/tonne FOB (Free On Board) Black Sea and US$476/t ex-works Lokoja forecasted in the Fastmarkets 2018 report and US$550/tonne ex-works Lokoja assumed in the 2021 Kogi Iron Scoping Study.

Pricing of other project inputs including, but not limited to, scrap steel, energy and shipping are also likely to increase over the same forecast period. However, the sensitivity analysis in the Agbaja financial model, as disclosed in the 2021 Scoping Study, demonstrated that the project is far more sensitive to steel billet product pricing than to input costs.

In the ASX Announcement "Agbaja Leveraged by Higher Steel Billet Prices" released on 23 March 2022 the Company advised the market that it had commissioned Fastmarkets to provide a comprehensive market feasibility study, updating a similar study completed in 2018 with the output to be utilised in the ongoing Agbaja Steel Project's Feasibility Study. In conducting the study, Fastmarkets undertook analysis of the steel industry in Nigeria and West Africa, with specific reference to:

The objective of the Fastmarkets study was also designed to update the overall level of potential market demand and forecasted pricing for planned steel billet production from the Agbaja Steel Project.

Key Results from the Fastmarkets Study

Fastmarkets have made the following general observations:

Since the advent of Covid-19, the Ukraine/Russia war, global supply chain disruption, increased inflation, a drop in commodity demand from China and various other significant global events there is prevailing global economic uncertainty. The Company recognises that additional Fastmarkets updates will be likely nearer to the completion of the Feasibility Study.

Fastmarkets key inputs to the forecast of Nigeria pricing is based on several drivers, namely:

Given the present global steel market uncertainty, the Company requested Fastmarkets provide interim information on a number of demand/pricing scenarios and the following three cases were determined by Fastmarkets.

Fastmarkets' forecasts that the billet price in 2032 would be US$1,258/tonne (ex-works Nigeria/ddp Lagos) in nominal terms under the base case, and US$997/tonne and US$1,444/tonne under the low- and high-case, respectively.

Plant Sizing Supports Import Replacement Market

At the time of preparing the 2018 Fastmarkets study, Kogi Iron was planning a facility with nameplate capacity of 1.5 Mtpa. Given the size of Nigerian demand, export markets or replacement of local production would have been substantially needed to place all the Agbaja production. The current plant design now scales that back to 0.5 Mtpa capacity and suggests all production can be reasonably placed in Nigeria, with exports not necessary. This confirms the scope and size of the plant and the capital expenditure basis that was included in the 2021 Scoping Study Report.

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Kogi Iron Limited published this content on 19 June 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 June 2022 00:03:08 UTC.