Vale commits to US$138m deal to advance Cyclone’s Iron Bear project

Cyclone Metals signs binding agreement with Vale to develop its Iron Bear project in Labrador, Canada
Vale can provide up to US$138m to fund development activities over two phases to earn 75% of the iron ore project
Iron Bear now has clear pathway to produce low-cost, ultra-low carbon iron ore products

Special Report: Development of Cyclone Metals’ Iron Bear project in Canada is looking very likely after it signed a binding commercial agreement with Vale, the world’s third largest iron ore producer.

Under the agreement, the Brazilian mining giant has the right to provide up to US$138m of funding in two phases to earn 75% of Iron Bear.

Once a decision to mine is achieved, Vale will have the right to acquire Cyclone’s remaining 25% JV equity interest at a “fair market value”, subject to Cyclone’s shareholders’ approval if required.

Alternatively, Vale can elect to arrange production capex funding on a non-dilutionary basis for Cyclone. In this case, Cyclone retains 25% of the Iron Bear JV with no dilution.

In the event where Vale elects to buy out Cyclone’s remaining 25% in the Iron Bear JV, but Cyclone’s shareholders’ approval is withheld, then Cyclone must provide its share of the production capex or be diluted

It follows on the memorandum of understanding reached between the two companies in November 2024.

The Iron Bear project in Labrador has a resource of 16.6Bt just down the road from Bloom Lake complex mined by the $3 billion-capped ASX-TSX Champion Iron (ASX:CIA).

Test work to date has established that ore from the project can be used to produce a direct reduction grade concentrate grading 71.3% iron and 1.1% silica oxide and DR-grade pellets containing 67.5% iron and 1.6% silica oxide delivered at a pilot plant in Quebec last quarter.

“Project Iron Bear has now secured a clear pathway to get into production, and to become a world leader for the supply of low cost and ultra-low carbon iron ore products,” chief executive officer Paul Berend 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.”

Commercial agreement

Under the two-phase agreement, Vale will initially contribute US$18m to fund the Iron Bear Phase 1 work program, which includes a pre-feasibility study, resource drilling and environmental baseline studies.

Phase 1 will be deemed complete when the full Phase 1 contribution has been received by Cyclone, or when the Phase 1 work program has been substantially completed.

Once this is achieved, Vale can then elect to trigger Phase 2. If it doesn’t, the iron ore major will not earn an interest in the project.

Phase 2 will see Vale and CLE form a joint venture to develop Iron Bear with Vale granted an initial 30% equity interest.

In this phase, Vale will fund the JV’s development activities up to US$120m.

These include a bankable feasibility study, environmental impact studies, establishing impact benefit agreements with First Nations and generally de-risking the project.

Vale’s interest will increase to 75% when it completes the expenditure of funds or when it elects to progress Iron Bear to decision to mine.

The Brazilian major can then elect to acquire Cyclone’s remaining 25% stake at a fair market value or arrange production capex funding on a non-dilutionary basis for Cyclone.

This article was developed in collaboration with Cyclone Metals, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.