The small but experienced team behind Cyclone Metals believes their game-changing US$138 million deal with iron ore heavyweight Vale could provide hope for other juniors needing access to capital for significant projects.

Under the two-phase binding commercial agreement signed mid-month, Vale can provide up to $138 million to earn 75% of the junior's large-scale Iron Bear iron ore project in Canada's Labrador Trough.

The multimillion-dollar deal is the culmination of months of collaboration between the two companies, who share a common vision for the decarbonisation of the steel industry by supplying large volumes of ultra-high quality iron ore.

Cyclone CEO Paul Berend said the landmark deal was the first of its kind and could pave the way for entrepreneurial juniors with tier one projects to attract early-stage investment from mining majors or large venture capital funds.

"It's the first deal of its kind in the iron ore space – a major producer coming in and agreeing to fund the full project development cycle from exploration through to a decision to mine," he said.

"It's quite unique.

"And it opens up new sources of funding for juniors, if they're able to meet the expectations of these larger players – it also means that very large scale and capital-intensive projects can get off the ground."

The scale of the Iron Bear project - a 16.6Bt resource grading 29.3% iron considered one of the world's largest undeveloped magnetite deposits - meant a partner with very deep pockets was required to fund the development capital.

So the Cyclone team took an atypical approach, leveraging the steel industry experience brought by Paul Berend, Cyclone's CEO, and Paul Vermeulen, Cyclone's vice president technical and steel markets.

Berend was previously GM corporate strategy for steel major ArcelorMittal, GM business development for Rio Tinto's iron ore division, and has worked as a mining turnaround expert for Tier 1 consultancies including McKinsey and Company, Partners in Performance, and Hatch. Vermeulen is a highly credentialled metallurgical engineer, formerly the blast furnace manager of Iscor (now ArcelorMittal South Africa), and Principal Technical Marketing at Rio Tinto Iron Ore.

The pair started by asking what steelmakers need rather than on the mineral resource.

The answer lay in the looming shortage of premium direct reduction (DR) products which enable steelmakers to produce low-carbon steel, amid increasing regulations and incentives such as Europe's Carbon Border Adjustment Mechanism (CBAM).

DR pellets attract a circa $60/t premium to the 62% benchmark iron ore price and analysts tip the global iron ore pellets market will double by 2035. There are only four companies in the world who produce DR pellets, and Vale is by far the largest with approximately 60% of the market.

Cyclone focused on Iron Bear's metallurgy to prove that it could produce DR grade concentrates and pellets. The scale of the project meant that it could "move the needle" for a major like Vale.

The company designed an innovative metallurgical process and subsequently built a pilot plant at Corem in Quebec City. The pilot plant started producing a DR concentrate, grading 71.3% iron and 1.1% silica in April 2024.

In October, the junior successfully produced its first DR pellets from Iron Bear sediment, achieving world-class specifications, grading 67.5% iron, ultra-low deleterious elements and excellent metallisation and physical properties.

The quality of these iron ore products derived from the Iron Bear sediment impressed Vale's metallurgical experts and Vale started due diligence with Cyclone in May 2024. This led to a non-binding Memorandum of Understanding in November 2024 which was translated into a binding commercial agreement in February 2025.

Iron Bear strategically located

Iron Bear lies in the iron ore hub of the Labrador Trough, home to operations owned by Champion Iron, Tata Steel, Arcelor Mittal and Rio Tinto's Iron Ore Company of Canada (IOC).

The project is 25km from open access heavy haul rail that's directly connected to the open access Pointe Noire iron ore export port.

It's also within 70km of a low-cost hydropower option at Menihek and is 25km by road from the town of Schefferville.

Vale meanwhile has a significant presence in Canada with over 12,000 employees and its base metals division is headquartered in Toronto.

Berend said four key elements made Iron Bear appeal to Vale.

"The Iron Bear project has got scale, it's in a good jurisdiction, it has access to infrastructure, and renewable energy," he said.

"Most importantly we designed, with our partner Vale, a gated development plan to bring the Iron Bear Project to decision to mine – so there is a clear pathway to production."

Berend said Iron Bear was also strategic for North America given the fresh US focus to revive its manufacturing sector which depends heavily on its domestic steel sector.

"The US and Canada both have vast reserves of natural gas, which is fantastic for low cost and low carbon steelmaking," he said.

"If the US/Canada leveraged the ultra-clean iron ore from Iron Bear and their natural gas to produce steel on a large scale - the Chinese and the Russians would structurally not be able compete."

Moving forward at Iron Bear

According to the Iron Bear development deal, Vale will spend US$18 million to fund phase one work including a preliminary feasibility study, mineral resource drilling and environmental baseline studies.

Berend said a 25,000m drilling program was planned, to get a better picture of the magnetite resource, and investigate the project's haematite potential.

If Vale elects to move to phase two, the pair will form a joint venture to develop Iron Bear with Vale funding up to a further US$120 million for a comprehensive work program, including a bankable feasibility study, establishing Impact Benefit Agreements (IBA) with First Nations and environmental mitigation studies.

Vale will be granted an initial 30% equity interest in the JV, which will increase to 75% once at least US$120 million has been spent.

Upon a decision to mine, Vale can either elect to acquire Cyclone's remaining 25% of the JV at fair value, or carry Cyclone to production with no dilution.

Strong support

The market is showing its support for Cyclone, demonstrated by its market capitalisation soaring from A$16 million in November to $68.5 million this month.

Berend stressed that the Iron Bear team has delivered its all of its initial development milestones presented to the market in June 2023 within the designated timelines and budgets, and that this was the key reason the Iron Bear project garnered support from Perth brokers and ultimately Vale.

"Through the partnership with Vale, the Iron Bear project has now secured a clear pathway to get into production and potentially to become a world leader for the supply of low-cost and ultra-low carbon iron ore products," he said.

"Vale dominates the rapidly growing market for low carbon and direct reduction iron ore products and is an ideal partner and future operator for the Iron Bear project."