Monsters of Rock: Lynas backer eyes share of green steel supply chain with Grange, Rio banks on copper

Grange Resources secures support of Japanese commodities trader for Southdown magnetite project in WA as it moves to acquire 30% minority partner
High grade mine is expected to benefit from transition to ‘green steel’
Rio Tinto gains approval to acquire minority shareholders in Turquoise Hill, doubling stake in Oyu Tolgoi copper mine

A Japanese company known for backing rare earths giant Lynas (ASX:LYC) has re-emerged in the Australian market as a proposed offtake partner for a high grade iron ore development on WA’s south caost.

Grange Resources (ASX:GRR) is one of a handful of companies producing pellets for direct reduced iron steel plants, a low emissions form of steelmaking expected to pay high premiums and grab a growing market share as the world chases net zero targets in hard to abate sectors like steel production.

WoodMac expects demand for DRI grade iron ore will need to expand five-fold by 2050 if the steel sector is to make its contribution to ‘Net Zero’.

But there are not a whole lot of projects in the pipeline.

Tasmanian miner Grange has one of the few pre-development projects of note at its Southdown deposit near Albany. It has sat untouched for years due to high capex and weak iron ore market conditions.

But Grange has been making moves to get it ready for an investment decision in recent times in the face of changing iron ore market dynamics.

A DFS is poised for the end of the March quarter. And Grange has removed a roadblock to production for the 388Mt reserve by buying out its 30% minority partner SRT Australia.

Alongside that Japan’s Sojitz, part of the JARE consortium with the Japan Organization for Metals and Energy Security, which bankrolled Lynas’ Mt Weld rare earths mine, has entered an offtake rights agreement for 30% of Southdown’s future production for 20 years plus an option for another 20.

Grange says the SRT deal is conditional on Australian FIRB approval, but noted that Sojitz’ commitment supported financing for the development.

A PFS earlier this year laid out a 5Mtpa 69.5% Fe development with a 28 year mine life and potentially 50 years for the whole resource.

That scale, halved from previous studies a decade ago, would reduce the upfront capex from $2.9b to $1.39b, Grange said in March.

Grange Resources (ASX:GRR) share price today:

Rio banks on copper

Rio Tinto (ASX:RIO) has ended a year of frustration by securing the support of minority shareholders for its buyout of their stake in Turquoise Hill Mining.

Rio needed a 66% and two-thirds majority including its own 51% holding as well as a simple majority of the non-Rio shareholders for the vote to pass.

It will double Rio’s share of the massive Oyu Tolgoi copper and gold mine in Mongolia to 66%. A multi-billion dollar underground development will make the operation the fourth largest copper mine globally by the end of the decade with a production capacity of 500,000tpa.

It is one of a number of major copper deals that has been chased by global mining giants this year amid a run on the commodity for its future demand profile from electric vehicles and renewables.

One third owned by the Mongolian Government, who Rio placated with a deal to progress the block cave expansion in January, the minority shareholders in Toronto-listed Turquoise Hill were facing a massive cash call to cover their share of the build costs if they didn’t approve the Rio deal.

Rio’s initial C$34 per share bid and a subsequent C$40 bid were rejected by TRQ getting independent committee approval for a C$43 a share, US$3.3 billion offer.

That still drew the ire of major minority shareholders Pentwater Capital and SailingStone Capital Partners, the latter of whom said in September that Rio’s US$41 a share (C$56) balance sheet valuation of its Turquoise Hill interest should be the minimum starting point for a deal.

Turquoise Hill said valid ‘dissent notices’ were filed by owners representing less than 17.5% of the stock. Dissent rights are a common clause in Canadian takeovers which provide investors who disagree with the offer price to get a court determination on the value of their stock.

They will receive a floor price of C$34.40.

Rio Tinto shares fell 0.78% amid a broader 1.5% drop across the ASX material sector today, with a number of iron ore and base metals plays on the outer.