Taking a big picture approach has paid off for ASX-listed junior Cyclone Metals, which struck a win-win multimillion dollar deal with iron ore giant Vale this month to advance its Iron Bear project in Canada's Labrador Trough.

CEO Paul Berend and the small Cyclone team used their steelmaking expertise to prove Iron Bear's world-class 16.6 billion tonne iron ore resource can produce strategically important direct reduction (DR) pellets, integral to the low carbon steelmaking sector.

Their rapid progress caught the attention of Vale, the dominant player in the premium seaborne iron ore market, which began a comprehensive due diligence process in April 2024.

The result is a non-binding memorandum of understanding which sees Vale essentially gain an option on Iron Bear as part of a broader, US$120 million plan to reach a decision to mine.

Under phase one, Vale will contribute up to US$18 million to fund development activities to derisk Iron Bear, featuring a prefeasibility study, further drilling and environmental baseline studies.

If Vale opts to continue with phase two, it will gain an initial 30% in the new Iron Bear joint venture, moving to 75% on a decision to mine or when its contribution reaches $120 million.

The pair aim to finalise a formal agreement within 90 days.

"We designed this deal structure to align the interests and strategic objectives of Vale and Cyclone," Berend said.

"I think we've got the right balance in terms of making it a win-win."

Berend said a lot of thought had gone into the MOU framework, which held four key highlights.

"Number one is that it unlocks a world-class iron ore asset by providing the resources that it needs, both technically and financially, with a partner who has a clear strategic vision," he said.

Iron Bear, acquired by Cyclone less than two years ago, is considered one of the world's largest undeveloped magnetite deposits with a 16.6Bt resource grading 29.2% iron.

"The second thing is that it's a hybrid private equity and public markets type deal which is completely unique in the junior mining space," Berend said.

"The benefit of this structure is that it provides the right incentives for both JV partners to get into production … and that is key for a successful partnership.

"The third part is that Vale started working with us six months ago, so they've literally been beside us whilst we were developing the project, doing geological assessments, collecting cores, doing metallurgical test work.

"The last point is that there's a shared vision as to what low carbon steelmaking could look like and probably will look like in the future … and that is a key main driver."

The pair are also aligned on sustainable mining practices, including plans for dry stack tailings at Iron Bear.

Low carbon future

It was only last month that Cyclone announced it had successfully produced Direct Reduction pellets from Iron Bear, achieving world-class specifications for the product which sells at a circa $70/t premium to the 62% benchmark iron ore price.

Amid growing incentives to produce low carbon steel, demand is forecast to double by 2035 for DR pellets, which are required for direct reduction iron electric arc furnaces (DRI-EAF) that use hydrogen or natural gas.

"Green" steel, with near-zero carbon emissions, is produced when renewable hydrogen is used in the furnaces instead of natural gas.

Thanks to the ultra-low deleterious elements in the Iron Bear deposit, Cyclone has also shown it can produce other premium products including DR concentrate grading 71% iron and 1.1% silica, plus blast furnace pellets.

Vale is similarly committed to decarbonise steelmaking and has committed to reduce 15% of net scope 3 emissions, related to its value chain, by 2035.

The world's biggest iron ore miner expects to produce up to 330 million tonnes of iron ore in 2024 and up to 42Mt of pellets.

Iron Bear's features

The scale of Iron Bear meant Cyclone needed to attract a major partner to develop the project.

The deposit's size is enhanced by its prime location, proximity to infrastructure, low stripping ratio and relatively low mining cost.

Iron Bear lies 70km from low-cost hydropower and close to open access heavy haul rail, which runs to the open access Point Noire iron export facility.

The iron ore-rich Labrador Trough is host to producers Champion Iron, Rio Tinto's Iron Ore Company of Canada and Tata Steel.

Vale also has a large presence in Canada, with its base metals division headquartered in Toronto.

Shareholders to shine

Cyclone shareholders have the chance to show their support for Iron Bear's progress through a non-renounceable pro rata offer, designed to raise A$5.6 million.

The capital raising is fully underwritten by RM Corporate Finance.

It keeps Cyclone's options open to continue progressing Iron Bear, although Berend is confident of finalising the commercial agreements with Vale.

"They approached us to engage on this journey earlier than we had expected [to attract a potential JV partner], but it was a very detailed and thorough process," Berend said.

Importantly, the deal is structured so the partners' objectives are aligned – to get Iron Bear to a decision to mine.

"We put a lot of thinking in to make sure that's the case," Berend said.

"That's where the big payout is for our current shareholders.

"That's also where Vale wants to get to, so we've very well aligned the interest of both organisations and that makes it a lot easier to form joint teams and work together."

Stars align

Looking ahead, Berend said the Vale deal would bring the companies' skill sets together. 

"Vale is a world class operator with unparalleled expertise in the high-grade iron ore space, which they really dominate," he said.

"The junior space, or very early-stage development and exploration, is a bit of a black box for them."

Berend brings experience of turning around distressed mining and steel assets and has a laser focus on achieving decision to mine.

He was also previously general manager business development for Rio Tinto's iron ore division, GM corporate strategy for steel major ArcelorMittal, director Australasia at Hatch and has worked at consultancies including McKinsey and Company and Partners in Performance.

He's looking forward to tapping into Vale's technical and operational expertise to further enhance the profitability and sustainability of the Iron Bear project.

"We can do even better, I believe, than what we've achieved so far," he said.

"I think everyone is excited about the prospect of working together and acting with integrity to achieve our noble purpose.

"Iron Bear has got all the ingredients - it's got the resource, the market, the quality is unique, the infrastructure is there, it's got potential, it's got hydro power, it's got all the stars aligned very well.

"So if we execute well, there should be an outstanding result."