Steel decarbonisation is behind schedule. Analysis indicates about 75% of emissions from steel need to be eliminated by 2035 if we are to keep within a 1.5 degree scenario. Based on where the industry is at present, swifter progress is clearly needed.
While positive strides are being taken on new processes to clean up steel production, for the time being there are only two proven ways of reducing CO2 emissions: using higher-purity iron ore in existing blast furnaces or switching to electric arc furnaces - a less polluting technology which does not consume coal in the steel making process, but one which also requires steel scrap or very high purity iron to make Direct Reduced Iron ("DRI")- as a feedstock.
Both methods are therefore expected to consume vast quantities of high-purity iron ore over the coming years. At COP-26, held in November 2021, Agora Energiewende, a recognised group developing industrial transformational strategies, suggested that the required shift in the steel industry to decarbonise would trigger substantial demand for DRI. In fact, their analysis concluded that DRI demand would increase to 390 Mtpa by 2030, representing an approximate demand growth of 320% from today's production levels.
But a potential lack of high-purity iron ore to produce DRI, particularly in light of events in Ukraine (Russia and Ukraine are the world's fourth and fifth largest producers respectively of high-purity iron ore) poses a potential problem for steelmakers. Adding to this recent shock to the supply chain of high-purity iron ore products, includes two major dam failures in recent years in Brazil, which continues to impact supply from the largest producing hub of high-purity iron ore globally.
Enter Champion Iron, a Canada-focused high-purity iron ore producer.
Listed on the ASX, TSX under symbol CIA and available to trade on the OTCQX under symbol CIAFF, Champion today produces around 8 million tonnes of high-purity iron ore from its Bloom Lake mine in Québec's Labrador Trough, which it acquired in 2016.
But the company is by no means done there: it is shortly set to commission a second phase at Bloom Lake, which will see nameplate capacity double to 15Mtpa. And there's plenty more headroom for further growth.
For CEO David Cataford, the rush to decarbonise steel and accompanying rise in demand for high-purity material means Champion is well placed to establish itself as one of North America's leading iron ore producers.
"With governments focused to decarbonise their economies, we produce one of the commodities that is going to have the highest increase in demand over the next few years," said Cataford
"For the past 10 years, we've seen the premium increase for high-purity iron ore, because it allows steel mills to be more productive. What we've seen over the past few years is that not only it allows steel mills to be more productive, but it also allows them to reduce their CO2 emissions in the steelmaking process," he said.
"Steel production today around the world accounts for roughly 8% of the CO2 emissions. There's a clear shift required in the steel industry and governments are aligned globally to reduce CO2 emissions, which is creating pressures for the steel industry" he said.
With the spotlight also on miners to curb their own emissions, Champion's ability to access the hydroelectric hub in Québec means that the company boasts amongst the lowest CO2 intensity per tonne of iron ore in the high-purity space worldwide.
"The game changer for a producer like Champion is the Scope 3 emissions; the amount of CO2 emissions that we allow our customers to reduce today. When a customer buys our material, instead of buying lower grade iron ore in the market, once we get phase two up and running, we're going to allow our customers to reduce their emissions by roughly about 2 million tonnes of CO2 per year - This is the equivalent of over 420,000 cars annually," said Cataford.
Such emissions savings puts Champion in a strong position in the event of carbon taxes, such as the EU's forthcoming Carbon Border Adjustment Mechanism.
"If we use $100 per tonne of carbon tax as an example, then this 2 million tonnes of CO2 reduction equates to a $200 million potential in carbon tax reductions for our customers. So you can see that our product is going to create significant value for our clients and should benefit our shareholders," said Cataford.
And heightened geopolitical tensions mean Champion's location in a tier one jurisdiction makes the company more attractive than ever to potential customers, said Cataford.
"When we see conflicts, like what we're seeing now, or when we saw events like what happened in the past in Brazil with the dam breaches, that puts a flag up for our various customers from where they actually want to supply their high-purity iron ore."
"Since the beginning of the conflict in terms of short term impact, we've had quite a lot of demand to be able to supply our customers or new potential customers with high-purity iron ore. I think there's going to be a long-term shift in terms of the actual supply chain, and we're seeing a lot of customers want to align themselves long term with stable jurisdictions like Canada," said the CEO.
Next steps
With the phase two at Bloom Lake set to be delivered as early as April, 2022, three months ahead of schedule, Cataford's focus is now twofold: preparing for a further production ramp up in the likely event of higher demand for high-purity iron ore and increasing the value of Champion's product.
On the latter, Champion is set to deliver a feasibility study in mid-2022 on a project that will take 8 million tonnes of its product and upgrade it from 66.2% to 69% Fe.
"We are doing this because there's a significant premium in the market today to go to 69% Fe material, and we see that premium potentially increasing in the future," said Cataford.
The company is also working on a technology called cold bonded pelletizing - currently at commercial pilot plant stage - which is designed to produce pellets that can potentially supply either electric arc or blast furnaces.
"These pellets, instead of being fired up and heated, which consumes a significant amount of energy, will use an organic binder to be able to cure them at room temperature. So that not only reduces operating costs, but also makes a significant reduction in CO2 emissions," said Cataford.
In terms of the company's future production profile, Champion's portfolio packs more than enough punch to keep volumes rising for many years to come.
"We hold the equivalent of about 10 Bloom Lakes in our portfolio, just a few kilometres away," said Cataford.
Champion plans to deliver a feasibility study at the end of the year on one such project - called Kami - with production targeted at 8Mt.
The company's lofty ambitions are underpinned by strong financial foundations; Champion not only benefitted from over US$4.5 billion invested in Bloom Lake mainly by previous owners, but it boasts a net cash position of just over C$110 million as at the end of December 31, 2021. This compares to the Company's current market capitalization of approximately US$3 billion. With robust profitability and financial position, the Company paid an inaugural dividend of C$0.10/share in January 2022.
"We have started our strategy to return capital to shareholders, but we're really focused on creating value for our shareholders through growth in light of our vision for the rising demand of high-purity iron ore products," said Cataford.
