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USA News Group - Back in the first quarter of 2020, China imposed economic lockdowns to combat the spread of coronavirus—an action that initially hit global prices of iron ore. But since reopening, China's economy has significantly bounced back into growth, causing a major swing in demand for steel production, and a record breaking August for iron imports.
Global steel production recovered in response, pushing steel and iron producers such as Cleveland-Cliffs Inc. (NYSE:CLF), ArcelorMittal (NYSE:MT), Vale S.A. (NYSE:VALE) and Rio Tinto Group (NYSE:RIO) to respond to rising demand, while also pushing further demand for materials such as fluorite from producers like Ares Strategic Mining Inc. (TSXV:ARS) (OTCQX:ARSMF).
A key ingredient in the making of steel, the issue of the fluorite (or "fluorspar") supply is integral to steel's resurgence. Earlier this year, price increases in China suggested a coronavirus supply disruption. Domestically, the only currently producing fluorspar mine is the Lost Sheep mine in Utah, owned and operated by Ares Strategic Mining Inc. (TSXV:ARS) (OTCQX:ARSMF).
The firm has begun investing in the upgrade of the Lost Sheep mine's facility, with expanded mine designs, and a new high capacity plant to significantly increase production capacity, make Ares the only domestic supplier of products such as acidspar and metspar. Ares projects that the equipment to upgrade operations will only cost roughly US$3 million to acquire and install.
Bolstering their ambitions, Ares also recently announced a new fluorspar discovery on Lost Sheep's permitted mining area, with very promising results. The newly discovered zone connects two known mining sites on the property and expands the preliminary mining plan scope. All 5 drill holes within the new zone intersected fluorspar mineralization, with boundaries still remining open.
"The high grade results from the last drill program gave us a great insight into the geology and layout of the subsurface fluorspar mineralization, and directed the Company towards locations where high-grade fluorspar was likely located," said James Walker, President and CEO of the Ares Strategic Mining. "The first drill holes have confirmed that Ares' geological assessment were correct… Ares can now consider expanding its proposed production capacity and processing facilities at its mine and anticipates secondary and tertiary mining operations at other sites alongside its Giant Little Pit operation."
The news of the discovery further encouraged Ares' management and shareholders, as Walker added: "The Company and its staff are excited at the tangible near-term and long-term prospects, and are looking forward to commencing operations and being the only domestic supplier of metspar and acidspar to the U.S."
STEEL DEMANDS REBALANCING THE FLUORSPAR VALUE CHAIN
Prior to China's v-shaped recovery, predictions were being made regarding a rebalance of fluorspar's value chain.
Known also in the industrial space as fluorite, fluorspar is used to produce and trade globally two primary commercial grades: metallurgical and acid-grade.
Acid-grade product normally sells at a premium, and is used in making hydrofluoric acid and aluminum, while metallurgical (aka "met-spar") is primarily used in steel production.
Using a flotation method, Ares can upgrade its product easily from the natural occurring metspar to the premium acidspar, which comes with a nearly $200/tonne increase in price.
From an environmental standpoint, Ares's Lost Sheep product contains no sulphides or arsenic, unlike currently imported fluorspar from other parts of the world.
Steel mills require roughly 15-20lbs of fluorspar per ton of steel, while aluminum producers require 50-60lbs of high-grade fluorspar per ton of aluminum.
Ares has already established a customer base that exceeds US$10 million, and is in discussions with four major offtake partners. The mine is currently supplying small shipments of metgrade fluorspare to steel producers, however, Ares states that all of their metspar customers have also requested acidspar products.
In the US steel space, iron ore miner Cleveland-Cliffs Inc. (NYSE:CLF) shocked the market in September, with their plans to become a steel giant through the acquisition of ArcelorMittal USA from ArcelorMittal (NYSE:MT).
The unexpected transaction set Cleveland-Cliffs stocks ablaze, as shares went up 13.4% in midday trading, while ArcelorMittal shares soared more than 10%.
As the largest US producer of iron ore pellets, Cleveland-Cliffs announced a $1.4 billion purchase of ArcelorMittal's US assets, while recognizing that steel production in the US is recovering as auto plants resume operations.
"We have been through a very profitable quarter and very strong in terms of the recovery of demand particularly in automotive," said Cleveland-Cliffs CEO Lourenco Goncalves.
Following the deal, Cleveland-Cliffs will now be the largest flat-rolled steel producer in North America, with approximately 17 million net tons in 2019 of combined shipments—which could require between 255-340 million pounds of fluorspar to produce.
Internationally, the scramble for steel production continues to cause effects on the market as a whole. Rio Tinto Group (NYSE:RIO) is in the midst of a significant decision on whether or not they'll engage on a costly but coveted African project that "represents a major threat to long-term iron-ore prices." Ahead of that decision, the metal giant is set to develop bonded area operations for blending iron ore at China's port of Dalian.
While Rio Tinto is looking to increase its iron production and retain the distinction of the world's largest iron ore producer, the previous world leader, Vale S.A. (NYSE:VALE) is embroiled in a case from federal prosecutors in Brazil to cancel an agreement between the company and the Brazilian government following a tailings dam collapse in Brumadinho.
However, some of the mines linked to the dams in the case are vital to Vale's plans to recover lost iron ore production and grow capacity to 400 million tonnes per year. At this level, Vale would regain its status as the world's largest producer of the steel-making raw material.
Looking ahead, the resurgence of demand from China, has Vale exploring new options to prioritize exports from Brazil to China in the future, including a new deep water port, much like Rio Tinto's ambitions. Ultimately, China remains in the driver's seat of the global steel market.