Vale feels the price divergence
Brazilian mining group Vale’s latest quarterly results show how far basic and premium products are diverging. At the end of October, the company reported an average price for iron ore fines of USD 85.10/t, down 10% from the same quarter last year. For iron ore pellets, by contrast, Vale achieved USD 134/t, up 2%. The group sold 8.72 million tonnes of pellets during the quarter. For the full year, management expects pellet production to be in the middle of its 30 to 34 million tonne range. Net profit nevertheless fell 53% to USD 1.275 billion. Although revenue rose slightly by 2%, production costs increased by 20%, mainly due to higher diesel, fuel and freight costs.
Champion Iron and the costs of transformation
The path to green steelmaking is no sure thing, even for established producers. Champion Iron’s latest quarterly results demonstrate this. In the quarter ended September, the company shipped its first commercial cargo of ore for direct reduction. In this process, iron is produced using gas or hydrogen instead of coke. Despite record sales volumes of 4.49 million tonnes, the Québec-based company posted a net loss of CAD 48.4 million. Significantly lower ore prices (the realised selling price fell by 30%) and higher freight and fuel costs were the main burdens. Added to this were start-up costs and efficiency losses during the commissioning of the new quality grade.
Strategic Resources plans the direct premium supply chain
Unlike the established producers, Strategic Resources is targeting the direct reduction segment from the outset. A 2024 pre-feasibility study envisages a pellet plant at the deep-water port of Port Saguenay. It is intended to produce 4 million tonnes of pellets for direct reduction annually. The company is targeting the niche that makes blast-furnace-free steel production possible in the first place. So far, the site is permitted for 1.5 million tonnes. For the larger plant, Strategic Resources needs an amendment to its environmental permit. At the end of May, the company answered the outstanding questions from Québec’s environment ministry. At the time, management expected a positive decision “in the coming months”. This is a prerequisite for the project to enter the construction phase.
BlackRock is also set to supply battery metals
The venture is not limited to iron. The associated BlackRock project near Chibougamau also includes vanadium and titanium, and Québec has already issued the environmental permit for the mine and processing plant. In April, Strategic Resources signed a letter of intent with US battery developer Tyfast Energy. Together, the two companies aim to examine whether vanadium from BlackRock can be processed into battery material. Tyfast is developing lithium-vanadium-oxide anodes intended to enable fast charging, a long service life and high performance in cold conditions. They are intended for mining machinery, specialist vehicles and defence applications, in other words for uses involving high sustained loads. For this purpose, Strategic Resources is assessing raw material and processing routes from its vanadium deposits, while Tyfast handles material qualification and application testing. Initial trials are planned at laboratory and pilot scale. CEO Sean Cleary sees this as putting the company on the path to moving further up the value chain in Canada. If successful, Strategic Resources could establish a second pillar alongside the steel market over the long term.
Conclusion: Between permitting and capital requirements
The price reporting agency Fastmarkets expects the price premium for direct reduction-grade ore to widen further, partly due to the EU’s carbon border levy. According to its figures, ore with an iron content above around 67% accounts for only about 4% of global supply. At the same time, European electric steelworks’ hot-rolled coil capacity is expected to rise from 5 million tonnes in 2025 to more than 19 million tonnes by 2030. According to a Fastmarkets model, those using pellets with an iron content of 65% rather than 67.5% will pay around EUR 41/t more for hot-rolled coil as early as 2026. The reason: More iron is lost in the slag, and the steelworks also needs additional lime and electricity. By 2035, this disadvantage is expected to rise to around EUR 85/t. The new ore from the major Simandou project will also only ease pressure on the market for blast furnace-grade ore, as it does not meet the requirements for direct reduction.
Whether Strategic Resources can benefit from this shortage now hinges on two hurdles. First, the decision by the authorities in Québec on the permit amendment is still pending. Second, the company must finance construction costs of around USD 470 million, with Société Générale as lead bank set to arrange the debt component of around USD 300 million. One basis for this is the contracts signed with commodities trader Javelin Global Commodities in 2024: Javelin is to procure the ore concentrate for the plant over 10 years and market up to 4 million tonnes of pellets per year. Javelin has also indicated that it may provide a working capital credit facility of up to USD 150 million. As at June 30, Strategic Resources had CAD 1.7 million in cash. The project is therefore not yet fully financed. The company is currently in an exciting phase and merits detailed analysis.
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