While Sydvaranger is progressing as scheduled, with a PEA planned for Q1’25 and a DFS by mid-2025, Dannemora has encountered a new hurdle with power supply, introducing additional uncertainty and delays for both the final investment decision and project financing, as well as the commencement of essential site preparations. On top of this, iron ore prices have seen a subdued quarter but the company’s positioning in high-grade iron ore production aligns with positive long-term market trends. While the case in GRANGEX may now require additional patience from investors, we maintain our view on the high revaluation potential in GRANGEX, with an rNPV-based fair value to SEK 70 per share, contingent on the resolution of these critical obstacles at Dannemora.
Johan Widmark | 2024-11-07 12:00
PEA in Q1 and DFS expected in mid-2025
GRANGEX’s efforts to restart production at Norway’s largest and Europe’s third-largest iron ore mine, Sydvaranger, have progressed over the quarter. Following the completion of an Optimization Study for the Sydvaranger mine restart in Q3, a Preliminary Economic Assessment (PEA) is scheduled for January 2025. The PEA will provide an early assessment of the project’s economic viability, based on estimated costs and revenues. The primary objectives are to explore the feasibility of a rapid restart of ore production, achieve positive cash flow with minimal investment, and produce an ore concentrate specifically suited for direct reduction processes. In addition, the assessment will examine possibilities for reducing the permitted volume of tailings deposited in the fjord outside Kirkenes. A full Feasibility Study for Sydvaranger is expected to follow in mid-2025.
Unexpected power issue cause for concern
During the quarter, GRANGEX has encountered challenges regarding the power supply for Dannemora, as Vattenfall and Svenska Kraftnät, despite ”intensive efforts” from GRANGEX, have not been able to confirm their ability to deliver the necessary power to the mine. This is a source of concern. Until GRANGEX gains clarity on this issue, it will be unable to proceed with project financing, which is why the procurement process for Dannemora has slowed down. Given that public institutions in Sweden are not known for moving quickly, except when it comes to imposing regulatory restrictions, we see a risk that this process may be prolonged, potentially positioning Sydvaranger as GRANGEX’s first producing mine. For now, we have chosen to delay the timetable for Dannemora by six months.
Short term headwind but long term support for iron ore
During the quarter, the 65% iron ore concentrate price index initially showed weak performance, with small premiums for high-grade concentrate due to low global steel demand and production surpluses. Fully integrated blast furnace steel mills have lowered demand for high-grade ore by using lower-grade iron ore. However, China’s recent stimulus measures to boost housing and investment have positively impacted the iron ore price index, with sharp increases in the 65% and 67.5% concentrate indices. The European steel industry’s transition and China’s carbon reduction targets are expected to drive demand for high-grade ore, supporting a positive long-term price trend for Sydvaranger’s and Dannemora’s products.
Pushing the major financing further down the line
The GRANGEX share has had surprising difficulty moving closer to fair value, primarily due to uncertainties surrounding the company’s future financing needs and the sheer scale of these requirements. The new uncertainty regarding power supply for Dannemora, which is in turn delaying the company’s ability to secure major financing for the project, now seems to be forcing further postponements—effectively requiring investors to muster even more patience as they await a rebuild of confidence in the stock.
Key milestones for investors
As the Sydvaranger deal has been closed and the updated DFS for Dannemora published, we now look forward to:
• Resolution of the power issue at Dannemora
• Final investment decision and commencement of drainage of Dannemora
• PEA study on the new conditions for Sydvaranger with a higher-quality product than before in Q1’25
• Updated DFS for Sydvaranger by mid 2025
• the major capital raise in 2025
• Production start in Dannemora now in 2027
• Final Investment Decision for Sydvaranger
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