Mr. Sean Cleary reports

STRATEGIC RESOURCES ANNOUNCES ROBUST ECONOMIC RESULTS FROM ITS IRON PELLET PLANT STUDY

Strategic Resources Inc. has released results from the prefeasibility Class 5-level engineering study conducted by BBA on its four-million-tonne-per-annum (tpa) merchant pelletizer project. The project will be located on the company's existing leased area at the Federal Port of Saguenay, where the provincial and federal governments are currently building a $111-million multiuser conveyor system, which the project would utilize. The project will focus on direct reduction (DR)-grade pellet feed that will be used in the green steel industry and is the only greenfield advanced development project of its kind in Canada.

Highlights:

• A robust economic project with an after-tax IRR (internal rate of return) of 25 per cent.
• Ability to generate $173-million (U.S.) of annual EBITDA (earnings before interest, taxes, depreciation and amortization) assuming a $70 (U.S.)/tonne DR grade pellet premium.
• An initial capital cost of $470-million (U.S.) to build the project (AACE International (Association for the Advancement of Cost Engineering) Class 5 estimate).
• A 25-month construction timeline with commissioning starting in month 27.
• Pelletizing conversion costs of $16.31 per tonne of pellets.

Strategic intends to work with its major shareholders, including Investissement Quebec, to decide on the best strategy to finance this project. Strategic is continuing dialogue with iron concentrate producers, iron concentrate traders and financing groups in order to secure iron ore concentrate feed and potential financing partnerships.

Sean Cleary, chief executive officer, commented: "Market fundamentals are extremely positive and the direct-reduction-grade pellet market premiums have been strong over the last number of years. Management and our large shareholders believe this approach delivers higher returns with less capital. The Port Saguenay location offers Strategic a significant advantage versus other pelletizing operations in North America, given its access to natural gas and ability to produce greener iron products."

Project description

The project is an iron ore pellet project (DR grade) near available infrastructure, situated on the Port of Saguenay Industrial Development site, in Quebec. The study evaluated the construction of the pellet processing facilities, including the storage of the feed material and final products, and all related infrastructure to produce DR-grade pellets from iron ore concentrates.

The project is expected to benefit from several competitive advantages, including:

• Location near available infrastructure, including natural gas and hydroelectric power;
• The Port of Saguenay is an all-year-operational deep-sea port with access to the Great Lakes and the Atlantic;
• A supportive provincial government, which identified high-purity iron within its critical minerals plan;
• Existing permits for the establishment of a metallurgical facility, which includes a pellet operation.

The project consists of a pelletizer at the Port Saguenay site to process iron ore concentrate into DR-grade pellets in order to supply the growing global electric arc furnace steel production market. The process flow sheet includes the multiuser conveyor system, iron ore concentrate and pellet receiving, handling and storage areas, and a four-million-tonne-per-annum Metso pelletizing plant.

Study summary

The economic evaluation of the pelletizer was performed using a discounted-cash-flow model on a pretax and posttax basis. The capital and operating cost estimates were developed based on using first-quarter 2024 costs and assume a constant cost basis throughout the cash flow model. The internal rate of return on total investment was calculated based on 100 per cent equity financing. The net present values were calculated with a discount rate of 8 per cent and an assumed 50-year project life.

Iron ore and DR pellet pricing

The project is expected to produce a DR-grade pellet. There is an increased focus on reducing global greenhouse gas emissions in the steelmaking processes as the steel industry experiences a structural shift in its production methods. This dynamic is expected to create additional demand for higher-purity iron ore products, as the industry transitions toward using alternative technologies to produce liquid iron, such as the use of direct reduced iron (DRI) in electric arc furnaces instead of blast furnaces (BF) and basic oxygen furnaces.

The market is expected to experience significant growth in pellet demand in the coming years and forecast global pellet demand could reach over 180 million tonnes by 2027 (source: Macquarie). Notably, almost all new pellet demand will be coming from the DRI market segment. This highlights the need for investment in new pellet production to meet the growing demand for the DRI market. With the planned DRI expansion and reduction in BF output, it points to strong market fundamentals for agglomerated iron ore (BF and DR pellets) this decade. Higher grade premiums and value in use (VIU) index prices should be realized due to the potential pellet deficits.

The study's base case pricing is based on recent market pricing and does not account for potential stronger demand by the time the pelletizer is completed.

Initial capital cost description and build-up

The pelletizer scope and costs are based on an indicative order of magnitude estimate provided by Metso for the design, supply, delivery and installation of a four million tpa pellet plant. The initial capital cost is minus-30 per cent/plus-50 per cent AACE International Class 5. The Metso proposal represents 57 per cent of the total project capital requirement. BBA has performed an independent assessment of the pelletizer costs based on internal data and adjusted the Metso proposal to allow for winterization, civil works and growth. The contingency associated with initial capital costs has been set at $42-million and is made up of 20 pre cent on direct and indirect costs, excluding the pellet plant, plus 5 per cent on the pellet plant cost.

Project timeline

The project benefits from the permitting work completed and has an estimated construction period of approximately 25 months following a final investment decision. Initial commission would occur in month 27 and commercial production would occur in month 30.

Strategic will continue to finalize the requested information from the provincial government as part of the application to amend its existing environmental authorization for the project. The timeline for the completion of the amendment once submitted is approximately six months.

Next steps and recommendations

To progress the project development plan, Strategic will consider various steps which may include process test work, confirmation of iron concentrate and additives supply, development of the engineering, including the material handling systems and certain feasibility, basic and detailed levels of engineering for the plant, certain site geotechnical and environmental work, application to modify the existing environmental authorization, details on the contract strategy, finalizing Metso scope and contract, finalizing agreements on services with the port authority, natural gas supply, electricity supply, additional land leasing for the storage areas, and final construction and ramp-up schedules, among other activities related to the project development.

Notes

The project as described above is an independent economic scenario from the BlackRock National Instrument 43-101 feasibility study (FS), which was effective on Nov. 18, 2022. The project will not exploit any of the company's own mineral reserves. It is possible that the full BlackRock project, as was described in the FS, could benefit from the project infrastructure in the future, but the potential benefits are unknown at this time.

Corporate update

Kurt Wasserman from Orion Mine Finance has resigned from the board of directors. He will remain as a board observer. Victor Flores, Orion Mine Finance's former board observer, has taken Mr. Wasserman's board of directors position.

About Strategic Resources Inc.

Strategic Resources is a critical-mineral exploration and development company focused on high-purity iron and vanadium projects in Canada and Finland. The company is developing its flagship BlackRock project, which is a fully permitted and ready-to-construct mine, concentrator and metallurgical facility located at a seaport in Quebec with full access to the St. Lawrence Seaway. The company's head office is in Montreal, Que.

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