Yes. Good morning and welcome to Rana Gruber's Capital Markets Day and third quarter report. My name is Vegard Nerdal. I'm Investor Relations and Controller in Rana Gruber. It's great to see new faces and also old faces. I will also welcome those of you tuning in on the web today. Our agenda today: we first will hear from Gunnar Moe, our CEO, who will give you an introduction to Rana Gruber and the third quarter results. Then we will welcome our guests and partners from Cargill Metals, Sijin Cheng, and Andrew Kirby. They will give us an insightful view on the global market, green steel, and the market outlook. After this, our Chief Operating Officer, Stein Tore Liljenstrøm, will give an update on the operation and our strategic initiatives. After that, our Environment and Sustainability Manager, Nancy Stien Schreiner, will give a detail on sustainability impact and various initiatives.
At the end, our CFO, Erlend Høyen, will take us through the financials and the capital allocation strategy, and Gunnar will give us final remarks and a short summary of everything. After Cargill has presented, we will have a 10-minute short break so you can refill some coffee and stretch your legs. Security: we haven't planned any evacuation, but if so will happen, the exit is in the back. So just keep calm and follow the flow. Toilets are outside this room. After the event, we will welcome everyone to a light lunch just outside, and there will be opportunities to speak with the management in Rana Gruber and, of course, the Cargill team. We have left some rocks outside as well, taken from the mine.
So if you want to feel and see the most beautiful iron ore in the world, it's a great opportunity to do that today. Questions: We will open for questions at the end of the session. For those who are online, it's open to ask questions through the web player. All right, then we're kicking it off. So I will introduce Gunnar Moe.
Yes, dear all, good morning and welcome to Rana Gruber's Capital Markets Day and presentation of the third quarter results. My name, as already told, is Gunnar Moe, and I'm the CEO of the company. I'm here today together with some good colleagues in addition to our friends from Cargill. We are truly happy to see you all here today, giving us the opportunity to give you all a deep dive into our company, the strategic priorities, and plans. There is a headline of today's Capital Markets Day, and that is Rana Gruber's transition to producing high-grade iron ore. This will enable the steel industry to decarbonize its activities, while for us, this move will increase our competitiveness and capture value. A Capital Markets Day is also an event where you start reflecting on what you said you were going to do and what you have achieved.
We are about to complete two or three key strategic priorities presented when we listed the company. We have built a strong company with a robust financials and balance sheet and distributed more than NOK 1.3 billion in dividends. I look forward to telling you what we are going to do next. Rana Gruber plays an important role in building the world as a supplier of high-quality iron ore to European steel mills. No doubt about it, the world needs steel, an instrumental building block in the modern society as we know today. Our product is key in the process of making cars, buildings, bridges, and constructions. However, the steel industry is one of the biggest emitters globally, accounting for 8%-10% of global carbon emissions. Both steel mills and the entire value chain must work on reducing the carbon footprint in order to meet critical decarbonization targets.
The most important thing we can do is supplying the steel industry with iron ore of higher iron content, enabling the steel mills to substantially reduce their emissions. Being a part of this will give Rana Gruber a role as the preferred partner for the steel industry and lead the way for a more sustainable ferrous industry. As I will show you on the next slides, we have a unique position in the iron ore industry. Most of you know us quite well. After being listed at the Oslo Stock Exchange since 2021 and as the only iron ore producer in Norway. In brief, we produce two types of iron ore concentrates: hematite and magnetite, with an annual production capacity of 1.85 million tons. Our activities are located around the city of Mo i Rana, with both open pit mines and underground mining operations.
The headline on the CMD is how Rana Gruber will move towards higher-grade iron ore production. So let me take a few minutes to explain to you why this is on the top of our agenda. The transition to high grade is happening now, and we are in a pole position to capitalize on increased demand. I'm sure that our friends from Cargill will provide some more insight and context to what we call the race for grade. In simple, it is expected that the demand for high-grade iron ore will increase rapidly as this is a must-have in green steel production. How does this work? To reach net zero emissions by 2050, steelmakers must switch from coal-consuming blast furnaces to a more sustainable direct reduced iron production method, also called DRI. However, DRI technology requires a higher grade of iron content than blast furnaces used today.
We have already started on the journey of lifting the iron content of our production and will now show you our progress. One of our strategic priorities the past years has been to produce iron ore with higher iron content. The red line showcases that we, over the past four years, have lifted our iron content from 62% to 64%. But we will not stop there. Increased iron content is the most efficient way of decarbonizing the industry, and we are targeting high-grade production around 67%. Why? It's quite simple, actually. This move can cut emissions by up to 75% for steel mills globally, and Rana Gruber increases its competitiveness for the future. This race for grade will, of course, impact prices, and we expect a more segmented market going forward. This chart shows the global prices for iron ore of two different qualities.
The red is the index for iron ore of 65%, and the light pink is the index for iron ore of 62%. Over time, higher iron content has provided price premiums. The demand for iron ore of high iron content will split these two markets. Steel mills will demand iron ore of more than 65% iron content, while there will come more lower-grade supply to the market. The most significant shift is expected to happen in 2030, when many steel mills may substitute their blast furnaces with a direct reduction method of producing steel. Let's turn to look at what makes us in a unique position to make this transformation. We have proven that we can increase the iron content, and we know that we can proceed to be part of this instrumental shift in our industry.
Our ambition to produce high-grade iron ore is enabled by solid operations and proven track record. Already, our production has an industry-low emission profile. We have vast resources for decades. We have a strong history and tradition of mining activities, and we have a solid safety profile. One of our advantages is our location in the middle of Norway, with a short sailing distance to European steel mills, compared with ships sailing all the way from, for instance, Brazil or Canada. In 2020, we entered a 15-year-long strategic partnership with Cargill, one of the leading commodity traders globally, for an offtake of our iron ore. We work closely with Cargill on all aspects of the customers and markets, enabling us to focus on production. We have, over time, seen that we have strengthened our customers' relationship among the European steel industry.
The key drivers have been our high-quality and increasing iron content and reliable supply. So who are our customers, and where does iron ore from Rana Gruber end up? Rana Gruber covers the mining, transportation, and processing part of the iron ore value chain. However, our two main products follow two different routes. Our hematite product follows our offtake agreement with Cargill, with mainly customers among the European steel mills. Magnetite, rich on iron, is sold by us to specialized applications, ending up in the water purification industry. With this backdrop, I will take you through some of our important operational and financial performance over the last years. Our capabilities and value proposition have materialized in solid operational and financial results over time. On the production side, we deliver close to the production capacity of our current infrastructure.
Since listing in 2021, we have been highly profitable, delivering close to NOK 2 billion in net profit. We stay highly committed to our dividend policy, distributing attractive shareholder returns in the high range of the policy, equaling an annual dividend yield of between 12% and 22%. I will now summarize everything and how we create value. My key message is that Rana Gruber has a strong foundation for sustainable long-term value creation. Let me take you through the key pillars of our long-term value creation. We have a high and sustainable long-term production capacity enabled by continuous exploration and development. We have a long history of operational excellence and efficient operations with enhanced cost focus going forward. We have attractive strategic initiatives to unlock earnings growth potential backed by increasing demand for high-grade iron ore.
We have a robust financial position supported by low leverage and strong cash conversion, and we prioritize shareholders' returns with a strong track record of consistent quarterly dividends. Let's move on from the company introduction to a short summary of our third quarter results. The results were released this morning. Please note that the full quarterly presentation is available on our IR web and attached to this presentation as well. First, we have again proved our operational capacity and excellence with strong production of 478,000 tons of iron ore concentrates. For the third quarter, we are delivering record high magnetite production. Rana Gruber is exposed to global markets for iron ore. Through the quarter, hematite prices softened due to macroeconomic outlook and strong production volumes from Australia and Brazil.
Rana Gruber stays committed to our dividend policy of distributing 50%-70% of our adjusted net profit, and the board of directors decided to pay out the quarterly dividend at NOK 1.45 per share for the third quarter of 2024. This corresponds to 60% of adjusted net profit. As mentioned, we continue the strong production trend from the previous quarter. Magnetite production, on the other hand, is increasing, and we are on track to reach 150,000 tons this year. Compared to the quarterly production of magnetite over the past 12 months, we have now produced more than 70% more this quarter. This is in line with our goal for the strategic project of lifting our magnetite production, which we will update you on later today. The right-hand chart displays the price development for our two main products, magnetite and hematite.
Prices for magnetite trended higher to a record high level. However, hematite prices trended lower due to the macroeconomic outlook and strong production volumes from Australia and Brazil. Revenues for the quarter were impacted by the weaker market for hematite after the summer and amounted to NOK 389 million , partly offset by strong production and sales. Furthermore, we were able to retrieve higher revenues from increasing the magnetite production and supported by high sales figures. Our cash cost ended at the total of NOK 279 million for the quarter, which corresponds to NOK 584 per metric ton produced, or approximately $56. Last year's cash cost was positively impacted by gains from electricity hedges, which reduces the 2023 comparison. Stable and efficient production brought cash costs down from high levels seen in the second quarter.
We reported adjusted earnings per share of NOK 2.41, resulting in a dividend distribution of, mentioned earlier, NOK 1.45 per share. This is the 15th quarter in a row with dividends since we became public, distributing a total of more than NOK 1.3 billion to our shareholders. Now, I'm happy to hand over the stage and words to our strategic partner, Cargill, with Sijin Cheng and Andrew Kirby, who will provide us with an updated view on the market, the trends in the market, and the latest developments. Thank you.
Thank you. The pointer is over here. Thank you very much. All right, great. So my name is Sijin Cheng. I'm very happy to be here. I am the head of Cargill's Metals Analytics, and we look at the broader iron ore and steel market trends. And this will be if we could go to the next slide, which is myself.
We will start off by talking about some of the global trends, kind of following up on the previous comments on how so far this year, iron ore prices have been trading within a range, but have also weakened, especially more recently. After we talk about how we got here because of these global, but especially Chinese economic trends, I will also be having Andrew Kirby join me to talk about the markets that Rana Gruber serves more specifically, so the trends that are more granular to Rana Gruber here. If we look at iron ore prices so far this year, we actually had highs of $130 earlier in the year, at the beginning. Then we had two episodes where iron ore prices actually dropped quite quickly and quite sharply. In September, we actually had the year-to-date lows of about $90 per ton.
How did we get to a point where iron ore prices were trading these more volatile developments? You would probably notice that there was also quite a lot of cyclical volatility in Chinese property markets. That's where we're going to start. China is actually about 75% of global seaborne iron ore shipments and about 55% of global steel demand. What happened so far in 2024 is actually quite a weak set of Chinese indicators. If you look at where those weak spots have come from, they're really representative of both some of the longer-term trends, but then also various cyclical factors that affected 2024 specifically. We all know that the China property market has been in a downturn since 2021.
Even though there are some structural trends underlying that, there is also a very intentional deleveraging campaign that started in 2021 that has not fully sort of run its course, let's put it this way. That actually had a big knock-on effect on China's local governments in 2024. This is the reason why we saw a particular set of weak indicators this year. Because homebuyers are not buying additional property or new property, they're choosing existing homes. Developers are not buying new land. They're not paying the local governments. Therefore, the local governments run out of revenue, essentially, to operate investment projects, to pay public workers, to basically provide the very needed liquidity for the Chinese economy. One very interesting aspect of the Chinese economy, and for steel demand, actually, is that the local governments operate almost like a corporate arm.
It runs large amounts of infrastructure, employs a lot of workers. It's really in the middle of investment and consumption. When you have the revenue of local governments drop by multiples over the course of the past couple of years, it has a big impact on the economy. Now, how is that different in 2024? Why is it that 2022 we had a COVID shutdown? 2023, you sort of had continuation of the same trend. What happened so far this year is the central government also forced the local governments to pay back some previously owed debt. So there's an additional deleveraging campaign put on the local governments, and it started at the end of 2023. This is why we actually had really a very pronounced sense of liquidity struggles that really cast a pall on the entire economy.
So this is the context for the stimulus that has been passed at the end of September and also in October. If you have been looking at the Chinese capital markets, for example, there has been really a big rally since the end of September, and that was because of the announcement of the stimulus. So what happened was the leadership finally decided that they've had enough, essentially. This deleveraging was well-intentioned, but has really just put a very tight grip on the economy, and therefore, you have to resolve the liquidity crisis. Therefore, there are a lot of details in the recent sort of package that's being announced. It's not fully done yet, but essentially, a lot has been announced and a lot more will be forthcoming. And one of the things that they're really trying to target is to resolve the liquidity crisis facing the economy today.
So if you sort of take away that forced deleveraging campaign, if you also find additional financing channels for the local governments, and again, these are not entirely market-driven. They're very regulatory. They're essentially decisions that Beijing can make that can increase the liquidity situation for local governments relatively quickly. So I think one of the, if you've been looking at some of the commentary around that, one of the very common criticisms of the stimulus package is it doesn't include a cash handout to the population. It's not like the rescue package during COVID passed by the U.S., for example. It's probably also not the same as what the U.K. did. But I think what that misses probably is the fact that local governments, it's a major employer. It's actually going to address the problem of lower consumption and lower income through helping out the local governments.
Now, this is not going to be an end-all, be-all campaign, and there's still, it will take time to sort itself out, and some of the effect is going to be more indirect. But we really think that that's going to be the main driver for the Chinese economy in 2025 and also the driver for Chinese steel demand. So we'll leave that a little bit to the later discussion. But very similarly from what we talked about of the broader economy, you can see that the trend in hot metal production is actually very similar to iron ore prices in 2024. So essentially, if you have strong Chinese steel demand as a major steel producer, it's going to have very strong hot metal production and also other means of production, but that's a big part of it. And that is a driving force behind iron ore prices.
So when China over the summer had demand problems, there were some supply catalysts that also triggered a sell-off. That's when the steelmakers really cut production in earnest. That's July, August, September, and that's when iron ore prices really fell off. So what happened so far in October is a bit of a, not a reversal, but sort of a shift from that trend. As we were talking about, there was the stimulus package. The supply chain was very, very lean, and it led to a short-covering rally and a replenishing of the supply chain. So hot metal production picked up, and so did iron ore prices. Now, another aspect of what a drag, a weaker Chinese steel demand can have on the global markets is the impact on the global steel markets or global steelmakers.
So when China's own domestic demand is on the weak side, it's going to find a home for the extra steel in the international markets. And because China has been shifting over the past decade or so from producing very simple long steel for construction to now producing higher-end commercial grade, but also some sort of better products in flat steel. So that's used in car making, that's used in home appliances, in machinery. And you can see that Chinese flat steel exports have really surged in 2024, slightly better margins, weaker domestic demand. Therefore, we push it out. And the impact that's going to have, of course, is when Chinese producers are the lowest-cost steelmakers, it's also going to be exporting those low prices and low margins globally.
That's why so far in 2024, we actually saw sort of a slightly weaker Chinese hot metal production and almost no change to global hot metal production, even though global steel demand was actually slightly higher. All of that extra increase in the demand was met by China. So in order for this to turn around, you have to have a turnaround in Chinese steel demand, and therefore, everybody can get back to having normalized margins. And I think this also sort of sets us off to talk about Europe in particular.
Yeah, good morning, everyone. Andrew Kirby, General Manager for Cargill in Europe and Africa. Picking up on Gunnar's points, I just wanted to touch briefly before handing back to Sijin on what happens in those markets that Rana Gruber are a little more present and relevant to.
So we saw the 100 million number in terms of steel exports. That has hit Europe quite hard. So European steel mills are facing some headwinds. Those headwinds mean that capacity utilization has dropped, which has meant that demand for iron ore in the European space has dropped. So there's some real headwinds facing the industry. Margins are low. This is at a time where CO2 is looming large on the horizon and technological shift is required. And I'll go into that in a little more detail later on.
The European steel industry, on the back of a difficult set of trading conditions, is starting and has put in place protectionist measures to look after the slightly higher cost, higher regulation operations that we see in Europe to enable those European steelmakers to find a stable footing for them to be able to make the transitions to a lower carbon, more sustainable way of making steel. And again, we'll go into that in a little more detail. So the narrative that we're trying to explain here in summary is one of we've seen weak demand for steel in China. We've seen excess production in China be exported to a rate of 100 million tons. The quality of that steel is better than ever. It's also in coil form, which ships well. That pushes Chinese steel into Europe or to those markets that can then displace more expensive European steel.
So we see some very difficult conditions. I'm going to hand back to Sijin before we pick up some of the more detailed threads that the European and Middle East steel industry is facing and how it's responding. Thank you.
Thank you. Thanks very much, Andrew. So picking up on those threads, so for China's steel to turn around, first of all, of course, the stimulus has to have its desired impact. And what are the desired impacts? If we look at the main segments of Chinese sort of the transmission from the macroeconomy to steel, first of all, the biggest impact is going to be felt on infrastructure. So if you had local governments who had no money to spend on the projects, actually, they were actively taking money from projects to pay for salaries. Now you can go back to normal and actually implement projects.
We're not talking about the pace of growth that China used to experience, say, 10 or 15 years ago. We're talking about a normalization and a back to recovery. Property market is a bit of a challenge still. It's an uphill battle, that's for sure. There are structural trends like an aging population, demographics that are less friendly to the property market. But even there, you can see that people are just completely not buying homes. China is still selling a lot of homes. It's just that a lot of them are existing homes, and they need to have more confidence in the new home sector so that they can get the construction cycle going again. So it will take more government sort of action in the property market, but they are buying apartment inventories, for example, to build affordable housing or turn into affordable housing.
There are things that they're doing there to tighten the property supply and demand as well. Finally, when it comes to manufacturing, I know something on top of a lot of people's minds will be what's going to happen when Trump takes the White House and you have the tariffs, supposedly 60% on Chinese manufactured goods or all Chinese goods, really. A lot of that is manufacturing. What is the balance between what China can stimulate domestically and what's going to happen externally that's going to be a set of headwinds? Of course, it's quite a tough challenge for China. The trade war 2.0 is not going to be the same as the first trade war. It's tougher. It's more comprehensive. It could happen very quickly, unlike the last time, which happened over many months through many, many different negotiations.
It could be that we get there as soon as, say, January. But I think it's maybe froze a little bit. Okay, here we go. Thank you. You just need to stand in there. That'll work. So I think for manufacturing, there is still work to be done, but altogether, that's pointing towards a normalization and recovery. So Chinese steel demand was actually down year on year in 2024, a few percentage points, small single digits. And we're projecting that in 2025, China's demand is going to be probably flat to having upside because China's stimulus package is also a dynamic package. It's not going to just stop right here if the economy keeps weakening because of tariffs or because of other challenges. There's a lot of commitment to bringing up Chinese growth over the course of this year. So what does it mean for the 2025 iron ore markets?
On the supply side, we are going to see additional growth in 2025 coming from major miners. Some of them are just planned scheduled capacity increases. You would also have a bit of a loss in some of the project shutdowns or issues or challenges. But altogether, we're going to see maybe 2-3 percentage points of iron ore total supply increase in the seaborne market. Now, one thing to really emphasize, and this will tie into Andrew's comments later, that a lot of this new growth is going to be lower grade material, so lower than a 62% mainstream mid-grade material. A portion of this will be higher grade, but the vast majority of the increase that we can see in 2025 is actually lower grade.
If you have a recovery of demand, if you have better margins, it will not be as favorable to low grade than in a low-priced environment, low margins environment. Supply side is probably steady. On the demand side, as we were saying, hot metal production is very likely to recover in both China and outside of China. The World Steel Association is also projecting a single-digit growth for ex-China world, basically world steel demand, but specifically about ex-China as well. What does it mean altogether for iron ore on the supply side and demand side? It means we still have quite a bit of iron ore in the system, of course, but demand is going to look better than 2024. This probably sets us up for ore prices to trade within a range.
If China's recovery is better, if margins are stronger, you're going to have stronger demand for iron ore, of course. But then it's also quite dependent on the macro headlines and headwinds as well. All right. So over to Andrew.
Thank you. What I would say, just as a comment for those here in person, Sijin and I will be here for the break and for lunch so we can take more questions and answer any detailed comments in those sessions as well as the formal Q&A. Gunnar touched upon this earlier in his presentation, and I wish to be respectful to the analyst population as well here. We see the iron ore price development as being a little more nuanced than the bulk analysts would have you believe.
Our contention is one that most analysts look at iron ore as a global commodity, as one particular product, and iron ore is iron ore, and therefore it can be used. And probably for quite good reason. For the last 50 years, global steel has been a story of the blast furnace. Blast furnace is excellent technology. It's been the bulk of the production route, only 100 million tons of DRI in the last 10 years produced per year. However, our contention is one that we see bifurcation developing, as Gunnar has alluded to, in the space. And we see that bifurcation, particularly around high-grade materials, a pronounced shortage leading to much higher pricing. Supply and demand remains robust. The fundamental theory is the same.
However, in this segment, with greater demand driven by higher DR production, we further see greater price pressure, so upwards price pressure for high-grade materials. We see big shifts occurring in Europe as we stand today. And I'm going to touch upon some of those projects that you can tangibly see to demonstrate why we have this belief. We also see a different cost curve developing for those higher-grade producers. That in itself is not so much of a worry if you have the belief in higher-grade pricing that supports slightly higher costs. This isn't, however, just a story of green steel. It's also a story of asset renewal. Most of Europe's steel assets in the Middle East are aged, older, some of them, than Rana Gruber as a company. So you don't necessarily need to believe in the green steel story.
You need to believe in a transition around energy and a fundamental requirement to renew aging assets. If you are a steelmaker and you face the dilemma of how to deal with an aging asset, difficult competitive environments, but regulation change that's forcing you to be more effective in your emissions, so reduce the carbon intensity of your production, the obvious technological trend is to move to direct reduction. It is a proven technology. It can be operated with natural gas and operates successfully. A record was set this week in the U.S. for daily production at a very efficient and low-cost point. So we see the demand in DR shaping the near region, that region where Rana Gruber are mostly operating with most relevance, as Gunnar mentioned earlier, because of the very compact, short supply chains and the ever-increasing strictness around EU ETS. So some big developments.
I'm going to pick a few of these. I've already touched on them. So the regulatory environment in Europe is changing. There are no major surprises in what I'm going to say to you here. We may see slight slippage in some of the time scales. But ETS is fixed. It's a part of life as a steelmaker. It is part of your everyday thought process. Prices are low right now, approximately EUR 70 per tonne of carbon, down from a high of just over EUR 100. However, the free allowances are reducing. Those free allowances that heavy industrial users receive reduce year on year and will transition to zero in the early 2030s. So that in itself becomes a driver for change. CBAM is being successfully implemented, perhaps more successfully than we had anticipated, but it is there. It is working. It is robust.
ETS is now hitting shipping, and that shipping implication will ramp up. We're in the early years of its implementation, but those costs will increase year on year, as well as the FuelE U surcharges around the carbon intensity of the fuels used in shipping, so the regulatory environment, in summary, it is as expected. Carbon is getting more expensive. The polluter is paying. Therefore, the pressure to change is real and valid. Green steel, as I said, this is not the whole story. You don't need to believe fully in a transition to green steel, but green steel is still demanded by customers, particularly those customers that have customer-facing applications. There is a premium for what classes as green steel. It's lower than it was. It's lower than it was primarily as a result of lower steel margins. Currently, EUR 60-EUR 80, approximately.
There is not a great deal of this. There's not a great deal of genuinely low CO2 tons in the market, but what is there is commanding a premium, and that premium is part of the rationale and the business case for steelmakers to be able to make that transition towards new technology, and then technology evolution, as Gunnar has already mentioned, the big shift is DR, so direct reduced iron. Proven technology been in existence for many years. We've had one DR shaft in Europe for many, many years in Germany. It's off the shelf. You can buy it from credible OEM manufacturers. It operates on natural gas. It operates as a hybrid. It is there. It is available.
Most importantly, it provides a very clear line of sight to reductions in carbon intensity by at least 50% if we get all the way to 100% hydrogen, to nearly 100% reduction in CO2. No one's currently operating at 100% hydrogen, but clearly the pathway is there. We know hydrogen is a wonderful reducer of iron ore. Simultaneously, we're also seeing, where possible, and this is somewhat dependent on end market application and product requirements, a shift away from reduction of iron in Europe to scrap melting. So we are seeing increasing numbers of electric arc furnaces being built to consume scrap steel. Both of those technological trends added together demonstrate a reduction in the demand for those grades typically used by the blast furnace. The DR process is not as forgiving in terms of the grades it is able to consume.
Clearly, an electric arc furnace does not consume raw iron ore. So in the context of that technological shift, we see a reduction in the demand for traditional blast furnace grades. And again, this is where we start to see the increased demand for higher-grade products, particularly in the Europe and Middle East space. So with this, this slide here is a little busy, but what I want to use this slide for is to demonstrate some of the tier-one European steelmakers' plans that are happening today. These are tangible plans that you can go and visit and see. And we have examples of both of the technological steps that I mentioned on the previous slide. Close to my heart, the U.K. is very close to stopping all blast furnace operations.
The site in South Wales closed, and they have just appointed design engineers to build the electric arc furnace. So we've seen a reduction there in that demand. The other integrated site in the U.K. is in negotiations with the U.K. government about the level of subsidy required to convert to electric arc furnace. Again, further demand. If you go to Germany and Salzgitter, Salzgitter have the SALCOS program. This is Salzgitter transitioning to low carbon intensity steelmaking. That construction is visible. You can go and see what they're doing. So this is happening. And there are examples across the rest of Europe here. One of the larger customers of Rana Gruber is Tata Steel. They've recently secured a fairly substantial amount of government subsidy for part conversion of their existing blast furnace operations to direct reduction. Again, all of this is tangible evidence of the industrial footprint transition.
So this is what's happening in traditional European steel markets. What is also very relevant to Rana Gruber are the proximate markets in Middle East, North Africa, where we are starting to see some fairly substantial greenfield developments in steelmaking. Why in the Middle East? Well, steel has always found its home near an energy source. The Middle East has abundant energy, be it in the form of natural gas and potentially solar. So similarly, looking at a busy slide again, but a snapshot of projects up and coming in the Middle East. So quite a considerable growth in both pellet and DR manufacturing routes, some of which have already started. As Cargill, we will be in Dubai next week for a large conference to meet these players and discuss the progress of these developments. It is clear they are moving at pace.
There is considerable amounts of capital available for these projects and represents for Rana Gruber a new attractive market that, however, can only be served with a higher-grade product. We could expand this table two or three times if you were to pick up all of the announcements around new projects in the region. This is a snapshot, but I think it's clear the scale of the ambition in that part of the world and the very clear technological choices being made by those project developers. In conclusion, and I'll ask Sijin to join me for this to our piece, we put together three or four very simple concluding points, and we'll take you through them now.
Yeah. I mean, just to repeat the points we were making earlier, we think that we have not seen the end of the China stimulus. This is really a work in progress.
And this will also just increase the demand for steel, which is fundamentally the most positive driver for overall iron ore prices. And we should also see margins. Again, we're not talking about a return to those very supply-constrained periods of margins growth, right? But we're talking about a return to modestly positive margins so that the market can operate on a balanced basis. So these are a snapshot of our current assumptions. Of course, if we see any additional stimulus in China, if we see better growth somewhere else, or on the other hand, if we see very, very strong trade restrictions coming from the U.S., all of these could change. But if we just look at the number of tons going into the market and the number of tons that are most likely going to be consumed, this is going to return to a more balanced market state.
It almost looks contradictory in the next two points. At a global level, we see approximate supply and demand for iron ore being in balance. However, more specifically in the higher-grade space, those products with sub-3% total silica plus alumina, we see demand in the mid-term definitely outstripping supply. That's as a result of the very tangible shifts that we see in our industry. You can go across Europe, Middle East, and to an extent North America and see this shift. It is happening. It is not one solely driven by green steel. It's a necessity in the industry with a number of drivers that sit behind it. Hopefully, we've given you a flavor of those. That concludes our presentation. As I say, we'll be around, and we're happy to take questions in the designated Q&A session later on. Thank you very much.
Thank you.
Thank you. Questions will be taken at the end. We will now have a short coffee break, 10 minutes. We'll be back at 5 past 10. Welcome back. Let's just jump right straight to it and go over to the production. And I will introduce our Chief Operating Officer, Stein Tore Liljenstrøm.
Thank you, Vegard. My name is Stein Tore Liljenstrøm. I'm the Chief Operating Officer at Rana Gruber. I'd like to start by giving you a brief overview of our mining operation and production. Rana Gruber conducts mining operations both in open pits and underground. Our main deposits are located around the area of Storforshei and Ørtfjell, just northeast of the city of Mo i Rana. We have mineral rights for significant land areas, and our large resource base is estimated to support production for several decades. In other words, we have a lot of juice in the tank.
We efficiently transport iron ore from our mines by rail to our processing plant, which is where it's refined into magnetite and hematite concentrates before being loaded onto ships for transportation to our customers. What separates us from other players in the industry is our highly efficient operations. The mines are located only 30 kilometers away from our processing plant at Gulsmedvik in the city of Mo i Rana. Not only are the mines so close to both the processing facility and the harbor, but the transportation is mainly downhill from the mining area, meaning that we can effectively move large amounts of volumes at lower costs with minimal emissions. The mining business is not something you plan on a day-to-day basis. Running operations on this scale requires strict planning and development over long time periods. Typically, exploration activities happen around 10 years before the product is on the market.
From there, a lot of planning and development needs to be mapped out before we can drill the blast holes to prepare the actual extraction of the ore. At Rana Gruber, we are always planning years ahead. We're currently in the final stages of mining at the Ørtfjell open pit and preparing to begin operations at Stensundtjern, which I will come back to later. The underground mining operations, the gray indicated with the gray color here, are currently operating on level 123. Levels refers to level above sea level. Hence, the reference zero is at sea level, so that's the reference point. We just started our production at level 91, the new main level, which will be the main source of underground resources in the years to come. In addition to level 59, we will start operations in around 2028, so we're moving downwards in the mine.
Now, to further map out our production beyond 10 years, I will show you an example of what we are looking at the next slide. As mentioned, we currently produce on level 123 and level 91, as you can see illustrated here in this representation of the whole central ore body in the Ørtfjell area. The next main underground level will be 59. We expect to start the development or tunneling phase for that level during the later part of 2025. So we're drilling down to reach that new main level in the ore body you can see represented there. To plan for further production below level 59, the geological information needs to be verified with more exploration drilling. And you can see that indicated with the drilling pattern you see down to the depth of the ore body.
Indication so far is that the ore continues towards the depth, but more information is needed in order to plan for continuous mining in this central part of the ore body. In addition, the exploration program also explores other promising areas for future underground mining, such as Kvannevann and a large deposit west of this current underground mine structure. So this summarizes briefly our current operations and plans. Moving on, I would like to elaborate on our strategic projects that I think most of you are familiar with. Yes. Yeah. So our strategic projects are nearing completion. We're approaching the 65% iron content in our hematite concentrate. We expect to achieve this during the first half of 2025. For the M40 increased magnetite production, I'm happy to announce that we've seen a steady increase in the production volume, as Gunnar mentioned in his part.
This will continue to increase going forward. We have a few installations and other improvements on the agenda, but these are only minor adjustments. We consider this project as completed. I'll come back to the expected further increase in magnetite production later. As for decarbonization, we are still in the test phase of the electric machinery. We have, as previously communicated, pushed the timeline for electrification slightly down the road. We remain fully committed to achieve this, whilst at the same time see that there is a need for more gradual phasing. It should also be mentioned that high-grade iron ore, highlighted by Cargill as well, has a significant impact on the CO2 emissions for the whole value chain of the steel. Here we can have an opportunity to really make a difference.
Nancy will provide a more detailed overview of our sustainability work and initiatives. Before diving into the specifics of each project, I want to quickly point out the reasoning behind the initiatives. As Gunnar pointed out in the intro, there has historically been a significant premium for the 65 iron content versus the 62. Parts of this have already been realized through the increased quality of our product over the recent period, while the next step is to be linked to the Fe65 index, which will in turn result in even higher prices for us. When it comes to magnetite, the black powder you see there, this is already a premium product, both because it's already an ultra-high-grade iron ore concentrate and due to its very beneficial properties for use in the chemical industry. Compared to hematite, we therefore see a significant price premium over time.
Further development on the mine plan towards more magnetite-rich ore bodies can further boost the production of this high-grade product. The most significant project is our effort to increase the iron content of our concentrates, the Fe65 project being the most important. To reduce carbon emissions in the steel industry, the steel mills need to use more high-grade iron ore, both in traditional blast furnaces and the new DRI technology mentioned earlier. Increasing the iron content in our production involves several measures in the processing plant, installing new equipment and processing units. Our aim, and also what the recent track record shows, is to increase the quality step by step over time. We completed several upgrades last year and over the course of 2024. We've installed increased milling and screening capacity in the hematite circuit, as well as major improvements in the magnetite plant.
Later in November, this month, we will install additional high-intensity magnetic separator capacity, which is an important component to further enhance the iron grade of the hematite. The measures we've done so far have resulted in an iron content above 64%, and we aim to be at 65% during the first half of 2025, as I mentioned. Worth mentioning is that not only have we increased the quality of the product, we have at the same time increased and kept the production at high levels. In mineral processing theory, this is a bit counterintuitive. Normally, you will decrease the volume and you increase the grade. But we have been able to keep the grade, to keep the volume and increase the grade of the product. So that's a great achievement. As for pricing, being linked to the Fe65 index relies on the customers approving our product quality.
Once this happens and they see a stable production at levels, we can be linked to the Fe65 index, which demands a higher price. We expect the first sale of this Fe65 product to be during 2025, and here are some important points. We are not stopping at 65 Fe. We have confirmation from lab tests in the laboratory scale that our iron ore from the mine has the quality properties to be processed into the before-mentioned high-grade iron ore concentrate, and recently, we ran a full-scale pilot test in the processing plant, much larger than the laboratory test. We did this in October, which confirmed these very beneficial properties, so upon reaching 65, we will therefore continue to improve the quality step by step towards our target of high-grade iron ore concentrates with a favorable gangue mineral content.
As emphasized earlier in the presentation, this is the way forward for us to be a premium producer also in the future. So I will go a little bit off manuscript because I would like to show you this picture here on the screen. It seems mysterious, but actually, you can see this is from a microscope. So the size of the particles is around one millimeter in size. So the dark particles here are pure hematite. So if you could extract only the dark particles, you will see an iron grade of 69%. So this is the key to the Rana ore that few people understand, that the hematite minerals are so easily liberated from the waste rock. You can see waste rock here with a few hematite grains still attached to it. You will not put that in the product because that will lower the iron grade.
So there is a balance to be had. But the most beneficial properties of the iron ore, which is the secret to the iron ore, is what you see in this picture. The hematite is so easily liberated from the waste rock. And also, that's the case for the magnetite. That's why we can produce such a high-grade magnetite quite easily. Very easy, actually. So this is a key picture in the presentation. So over the past years, we had a fruitful collaboration with the NTNU, the Norwegian University of Science and Technology in Trondheim. And to further boost our utilization potential of the iron ore, we aim to continue this going forward.
The partnership helps us build a solid foundation and understanding of the intrinsic properties of the minerals we process, as I showed you in the picture, and will help to the decision-making of finding the right process for improving the quality towards high-grade. It should also be mentioned that in addition to increased quality, we aim to keep production at stable high levels. This is not easy, but we see the potential for doing that. Research from the scientists at NTNU helps us optimize and facilitate a production where the aim is to find the perfect point between quality and volume. And we believe we're well on track for this development. Boosting volumes and iron content of our product are crucial in our transition towards a high-grade iron ore producer. Yeah, speaking of high grade, our M40 product is a success.
I'm happy to share with you the magnetite we produce is already an ultra-high-grade product with an iron content of more than 71%. The magnetite is a highly specialized product sold entirely to the chemical industry for use in water treatment systems. The special characteristics of the product make it high in demand and hence a very high price premium for the magnetite. This is one of the reasons we decided to increase the production volumes of magnetite in the first place. And this year, we have installed several new and improved separator machines in the magnetite plant. And with only minor enhancements remaining, we now have a production line capable of producing higher volumes towards our targets. Currently, we're producing at a run rate of 160,000 tons per year.
Our aim for 2025 is 175,000 tons, approximately, before we could see a lift up to above 200,000 tons in 2026, which is approximately a double in production we had last year. One of the reasons for that is that the new open pit at Stensundtjern, expected to commence production next year, will further lift the magnetite volumes because it has more magnetite in the ore itself. On that note, I also want to elaborate a bit more on the mine plan at Stensundtjern. We are now finalizing the plans for the upcoming operations at Stensundtjern. We're also in the final phase of negotiation with a local contractor to operate the open pit on our behalf. As mentioned, being rich in magnetite, we look forward to starting the mining operation here. As we mentioned last year, operation at Stensundtjern entails an increased transportation distance.
That's also a key point. As the crusher station and the ore silos are located at Ørtfjell, our current open pit mine, so you can see there is quite a distance from Stensundtjern up to the Ørtfjell area where we have the infrastructure today. As illustrated, the distance is approximately 13 km. Eventually, this will lead to a higher operating cost due to increased transportation distance and the fact that open pit mines require a higher degree of waste rock removal when we start mining in the initial phase. But keep in mind, the higher concentration of magnetite at Stensundtjern compared to the current open pit at Ørtfjell will have a positive revenue contribution. So it will offset the effect to some extent. To further mitigate the expected higher operating cost, we are considering reactivation and upgrade of the old crusher silo and train transportation infrastructure at Storforshei.
So you can see there is an old structure here which has a potential to be upgraded and that will significantly decrease the distance for transporting the ore. A continuation of mining in this area is therefore a viable option post-mining the Stensundtjern. We have stipulated a timeline for the development schedule here, and we expect to have an investment decision by the first quarter of 2025. We haven't decided, but we are looking into the infrastructure there. Once operation in the second half of 2025, Stensundtjern will be an important source of resource for Rana Gruber in the years to come, further boosting the magnetite production. So to summarize our operational and strategic priorities, I want to rewind to what we said last year. We have done tests. We were hopeful that we could achieve a higher iron content in our hematite product, above 65%.
I'm not going to quote President Trump, but rather President Obama. The answer is yes, we can. In other words, we know for sure we can produce a high-grade hematite product of around 67% iron content. So we're entering into the race for grade to become part of the global and quite narrow elite of high-grade iron ore concentrate producers. Combine this with a significant uptick in the magnetite production and exploration activities to ensure efficient production in the long run. I'm confident that Rana Gruber will be a significant player pushing the green transition in the global steel industry. So with that, I'm leaving the note green. And we'll now leave the floor to Nancy, who will give us an update on our sustainability impact and initiatives.
Thank you, Stein Tore. My name is Nancy Stien Schreiner, and I'm the Environment and Sustainability Manager at Rana Gruber.
To start, I want to emphasize that increasing iron ore content isn't just a goal for us. It's a great opportunity for the steel industry as a whole to reduce emissions. When we supply high-grade iron ore, we enable steelmakers to produce more efficiently and sustainably. In simple terms, higher-grade iron ore leads to less energy consumed per ton of steel, which means lower emissions across the entire value chain. Let's also touch on the shift from coal to hydrogen. Many industries are still heavily reliant on coal as a reducing agent. But the future of steel is in green iron and steel, which can be produced using direct reduced iron or DRI. This process traditionally uses gas, but we are seeing promising moves toward using green hydrogen.
When steelmakers switch to hydrogen-based production, especially with their renewable energy sources, they can significantly cut their CO2 footprint, bringing the entire industry closer to the net zero targets. As you can see on the graph on the right-hand side, it showcases the potential reduction impact to increasing iron content in the input factors for steelmakers. By focusing on high-grade iron ore, we are positioning ourselves as not only a supplier, but a key contributor to the steel industry's transition to greener production. Through each ton of higher-grade ore we produce, we are supporting a cleaner, more sustainable steelmaking process and helping to reduce the environmental impact on a global scale. Although we set high ambitions for our future sustainability impact, I also want to point out where we are today.
One of our standout achievements is maintaining an exceptionally low carbon footprint, which is just above seven kilograms of CO2 equivalents per ton of iron ore produced. This is one of the lowest emissions rates globally, setting us apart in an industry where emissions reduction is both a challenge and a responsibility. Key to this achievement is our access to renewable energy. All the electricity we use comes from hydropower, which not only reduces our emissions, but also ensures a stable, sustainable energy supply. Logistics is another crucial factor. Our proximity to European markets minimizes both transport distances and time, reducing costs, fuel consumption, and ultimately our environmental impact. This efficient supply chain strengthens our competitive edge while aligning with our sustainability goals.
Our commitment to low emissions, access to renewable energy, and optimized logistics positions us as a preferred partner for customers who prioritize reducing their environmental footprint throughout the value chain. However, we are not stopping at that. At Rana Gruber, we are not only fortunate to have substantial land assets, but these areas also hold significant development potential for renewable energy. This is particularly relevant for solar and hydropower, two of the most promising options in terms of sustainability and efficiency for our industry. What's equally important is that we are taking a low-risk approach by partnering with third-party specialists. These partners assume the investment responsibility, allowing us to scale renewable energy integration into our operations without the heavy upfront capital demands. These partnerships also help us focus on what we do best while still advancing toward a more sustainable and self-sufficient energy profile.
By capitalizing on these land resources and engaging with the specialist partners, we are creating a pathway to power our operations with more renewable energy, further reducing our environmental footprint and building resilience against energy market fluctuations. In short, our approach isn't just about meeting today's demands, but setting up a sustainable foundation for the future. One of the key elements of our commitment to sustainable practice is our adoption of TSM, or Towards Sustainable Mining. This globally recognized initiative helps mining companies like ours manage environmental and social risk more effectively. By implementing TSM, we are setting a clear standard for engaging with our stakeholders, such as local communities and indigenous populations. TSM also aligns with several of the United Nations' Sustainable Development Goals, which provides a structural framework to assess and guide our sustainability efforts.
These goals help ensure our work contributes positively to global sustainability targets while addressing the specific needs and challenges of our industry. By the end of this year, we will have completed the responses to all available TSM protocols, seven out of the eight, which are rigorous guidelines for measuring our performance across various environmental and social dimensions. We are also pleased to announce that these grades will be made public at the year-end alongside other companies in the industry. TSM uses a tiered grading system. You can see it on the right side here, from AAA to C, with the highest score AA and AAA, only awarded for truly exceptional efforts. We are looking forward to sharing our results with you. With our sustainability initiative setting a strong foundation, we are not only safeguarding the environment and strengthening community relationships, but also enhancing long-term value.
This commitment to responsible practice aligns with our support and supports our strategy. Now, let's shift focus to our financial performance and the initiative driving our growth and profitability. I leave the floor for you, Erlend. Thank you.
Thank you, Nancy, and good morning, everyone. My name is Erlend Høyen. I am the CFO of Rana Gruber. I will take you through the financial slides, and we'll have a look at our capital allocations going forward. We will have a look at CapEx and our priorities there, and we will also have a look at our cost development and financial position. So let's start with an overview of some key aspects to our financial strategy. As we have detailed throughout today's presentations, we have a CapEx program focused on several initiatives designed to enable further earnings growth, drive our sustainability effort, and support long-term stable mining production.
Over the years, Rana Gruber has built a strong foundation by maintaining cost-efficient operations, which supports free cash flow. We have a robust balance sheet with low debt and ample liquidity, further strengthened by an unused credit facility, and lastly, we remain highly committed to our attractive dividend policy, prioritizing consistent shareholder returns as we have demonstrated over time. Switching over to CapEx, let's look at our primary CapEx areas for the next year. As we have outlined earlier in today's presentations, we have several key strategic initiatives aimed at supporting our long-term production capacity and enabling future revenue and earnings growth. These initiatives are centered around three main areas of the mine life cycle, and our first priority will be to continue the development of level 91, as well as to start on level 59, which will be the two main sources of our underground mine for the next decade.
In addition, we are also pursuing further investments in exploration activities in the Ørtvann and Kvannevann area, as Stein Tore has talked about, increasing the iron ore content, general plant maintenance, as well as the use of electric machines. Breaking down the CapEx for this year and going forward, in 2024, we have worked with a total investment program of NOK 240 million. This has been allocated to several key projects, the Fe65 and M40 projects Stein Tore has talked about. We have the decarbonization that Nancy has touched upon. Then we have the maintenance part, as well as the mine development part. Looking ahead, we will continue our mine development and exploration activities to ensure a strong base for long-term production capacity. We are also striving to achieve an even higher grade of iron ore, positioning ourselves to meet the future demands of the iron ore industry.
And lastly, we are continuing our efforts towards decarbonization, but as previously announced, we are now aiming at a more gradual phasing of new equipment and technology to secure a profitable and operationally viable implementation. Now, switching over to the cost side and how we are working to ensure a continued efficient operation and cost management. As you can see on the slide on the left-hand side, we have consistently delivered good margins over time. However, we have, over the past year, seen an increase in our cash cost, which peaked in the second quarter this year. Taking a deeper look at the right-hand side at our cash cost, still the mining operation is our biggest cash area, followed by support functions as well as processing.
And this is a slide we have showed several times previously, but we have provided a quite more detailed breakdown of our cash costs in the appendix. So for those of you who want to take a look at that, feel free to do that afterwards. And a more detailed breakdown is also something that we will provide on a quarterly basis going forward as well. So hopefully, providing you with a bit more insight in our cash cost base. As always, our top priority is maintaining a high and stable production. At the same time, we strive to maintain high efficiency and are increasing our focus on cost management throughout the whole operation going forward. And in order to remain competitive, we have established a cost target, which will guide ourselves on an operational level from day-to-day basis.
Our target is to maintain a cash cost level of no more than $50-$55 per metric ton, obviously trying to stay in the lower range of this part. To achieve this, we have identified several areas where we believe it is possible to extract positive benefits going forward. Firstly, we will increasingly focus our efforts toward value generating production activities. This will be done through channeling both internal and external resources more towards our core operational activities. We are postponing and reducing several non-production initiatives. We are reducing the use of consultants and other external support that is not critical to our short-term operational capabilities, and secondly, over the last years, we have insourced several activities such as tunneling, rock support activities, and road and mine maintenance.
We have talked about these initiatives before, but we are now at a stage where we are confident that we will be able to start tapping into the positive operational synergies that this has to offer. Through planning and prioritization, we will have a more effective utilization of our machine park going forward. At the same time, we are more flexible between our operational areas going forward, enabling us to reduce the use of overtime as well as the need for extra hire going forward. Switching over to our financial position, while we continue to invest in growth and development, we also maintain a strong financial position. Over time, we have delivered on our distribution policy and funded our CapEx program without increasing leverage, sustaining a high equity ratio of above 50%.
Given the current market outlook and our stable high production and focus on cost management, we are confident in our ability to continue funding planned investments over free cash flow and at the same time maintaining an attractive dividend shareholder distribution, as we have done in the past. At the same time, we also see that we have flexibility to increase leverage if needed and the ability to adjust and prioritize our investment decisions to focus on the most value-creating initiatives going ahead. I've already mentioned our commitment to our shareholder distributions, and for most of you, you know that we have a policy to pay out between 50%-70% of our adjusted net profit on a quarterly basis and a clear priority to continue this going forward as well, as we have done since our listing in 2021, as you can see here.
As you can see on the left-hand side of the chart, the quarterly dividends, as well as the increased share price since our listing, have yielded significant returns. To the right-hand side, you can also see that we have a quite good track record of performing in the higher range of our dividend policy over the 15 quarters that we have paid out dividends. To wrap things up, we have a CapEx program in place to support sustainable long-term production and to extract value from our existing production. Supporting our operational and financial performance, we are enhancing our focus on cost efficiency, having established a clear ambition to stay between $50-$55 per metric ton in cash cost. We have identified several specific areas with improvement potential to reach this target.
Our financial position remains robust with low leverage, providing financial flexibility to support dividends and investment capacity going forward. Lastly, we have a strong track record of delivering consistent shareholder returns, and we are strongly committed to our distribution policy going forward. For those of you who are wondering about the picture to the right, this is obviously the blueprint that our financial department has provided Stein Tore with for his building of his high-grade factory. It's quite simple, but as he said, it is quite simple, although it's all in the details. I think with that picture lingering and the final remarks, I think I will leave the word over to you, Gunnar, for some concluding remarks.
Thank you, Erlend.
Looking back at what we've achieved since our listing on the Oslo Stock Exchange, I have to say I'm proud at where we are today and excited for what lies in front of us as well. I'd like to round up today's presentation by reminding you of our key investment highlights. A key enabler for us to be relevant is our natural resources. We have a vast resource base with iron ore holding the properties to be refined to high-grade quality and enough quantity to ensure production for decades. We've been through almost four years of increasing iron content, proving our execution capabilities. We're also on an organization built on a proud history with highly efficient production and expertise developed over the past 60 years. This has resulted in the state-of-the-art mining operations.
Together, this puts us in a pole position to become part of the global elite, producing high-grade iron ore. Decarbonization of the steel industry requires high-grade iron ore, as mentioned many times before today, and pushing demand for higher quality iron ore concentrates. We already have a market-leading position with low carbon-emitting production and a clear strategy toward high-grade production of iron ore of around 67%. On the commercial side, we have a strong traction with a long-term relationship with blue-chip customers among European steel mills, supported by an attractive off-take agreement and strategic partnership in place with Cargill.
This setup enables us to deliver both strong financials with a robust balance sheet and financial flexibility, as well as very attractive returns to our shareholders with a dividend policy of 50%-70% of adjusted net profits, which has delivered, as mentioned earlier, 140% total return since our listing. So what more can we ask for? Before we open up for questions, I'd like to show you a video from our recent 60-year anniversary.
[Foreign language]
Yes, you can see we are at the top of the world at Mount Everest as well. With that, we're at the end of today's presentation, and I really hope you all have enjoyed the time with us here today, and thank you very much for attending.
Yes, over to the fun part, the Q&A session. Shall we start with some questions from the audience, or shall we start with some from the web? Anyone ready?
Thank you. Roald Ross with Clarkson Securities.
I have a question about Stensundtjern and the production. You're aiming at 1.85 million tons. Is that possible without Stensundtjern, with the depletion of the open pit mine next summer? Will the underground mine be sufficient to reach that volume, or is that implied in the numbers that Stensundtjern will be added on? Thank you.
The Stensundtjern deposit will come instead of the Kvannevann mine that we ran today. So you can't produce all the volume underground, but we have, of course, a plan for that. So we also have an overlap of these two production areas. So that's 1.85 million tons of finished ore is the end production. 1.8 million tons from the open pit is going to come from Stensundtjern at some time in 2025. But we have an overlap. So we produce on the open pits in the Kvannevann area still, and we'll do that most of this year.
Okay. And in practice, do you see a sort of a ramp-up transition period with a potential dip, or is that more of a risk and not the plan?
It's always a risk, but of course, we will plan not to take this risk. The production will go at a steady pace.
Okay, thanks. Just last question on that point in regards to CapEx, the plan is north of NOK 200 million. That's without Stensundtjern. Is it possible to give any color or some wording around a potential? I know the investment decision isn't yet, but is there any guidance or anything to say about it?
Regarding the CapEx that is locked into Stensundtjern, if we utilize a new infrastructure or the old infrastructure down at Storforshei, the CapEx in Stensundtjern is in the range that we have already announced. It won't be more. It's not a lot of CapEx in Stensundtjern operation. If we utilize the old infrastructure down at Storforshei, it will come additional CapEx. We have to now look into these numbers later on.
Thank you.
Erlend, will you elaborate on the CapEx and the Stensundtjern?
No, not. I guess we can say that since the open pit will be run by a contractor, the CapEx is on their side. It will be an operational expense from our side. So as Gunnar said, minor sort of like infrastructure investments will be needed to be done, but sort of like a bigger push will only come if we do the refurbishment of the infrastructure.
Yeah.
How long should we expect the quality acceptance period for the Fe65 product to take? And do you think you could be linked to the 65 index during 2025?
I think we said a little bit about this earlier today. Our aim is to place some part of the volume within 2025.
The difficult part is it's very difficult to say for how long a period do our customers need to see that we produce on a constant level of above 65. That's difficult, but there are different routes to place a 65 product in, for instance, new markets. But this is what we are working together with Cargill on, so the timeline of this is very difficult to say,
And 200,000 tons of magnetite in 2026, is that kind of a peak, or is that a long-term capacity?
The ore body, especially in Stensundtjern, is richer on magnetite. So we already know that we will produce more magnetite, and as you see, we are quite confident of 200,000 tons in 2026, and it can be more. It is a little bit difficult to predict, but we are quite sure that the volume of magnetite will increase substantially.
Just on the magnetite, is there any additional CapEx associated with increasing up to 200,000, or is it just the ore that's of better quality?
It's just the ore. The investments in the magnetite circuit have already been done. There are small, minor investments that are lacking, will be done in 2025, but there's only small CapEx. So the things that we have invested in the magnetite circuit have the capacity of adapting more volume of magnetite rich ore.
And I don't think I remember all the names of the places, but if you do decide to take the longer transport instead, how much more will that be on a per ton basis? How much more costly?
It will be a bit more, just walk away from the microphone.
No, it will obviously be a bit more expensive, but not to a magnitude that we are not confident that we will stay within the target that we have set between 50 and 55. Talking like $2, $3, $4? More in the $2 range. But sort of like due to the long distance, obviously diesel and sort of like the weather will play a sort of like huge part of it. So the transport will be more affected by the volatility in diesel prices going forward for that part. But there are an offset of a high volume of magnetite that will cover most of the increasing OpEx on the running of the Stensundtjern. Yeah, and as well, there are also other things in the sort of like isolated open pit that will go to sort of like a more beneficial cost side.
a slight increase, but not of a significant magnitude, is, I think, what we will say today.
Any other?
Hey, thank you very much. Great presentation. Really exciting times. You pay out a lot of dividends. How did you end up at the 50%-70% range? You say you have a ton of juice in the tank, and the CapEx seems to be very high ROI. So why not just reduce dividends a lot and invest more and produce more? Where is sort of the bottleneck? Sorry for the stupid question. I mean, it would be pretty cool to just double production or go much more aggressive. So can you elaborate a bit on that?
To double production isn't that easy. So our main goal is not to increase production substantially, but to increase the grade.
As mentioned many times before, the quality of the high grade is much more valuable than just increasing volume. To achieve this, we think that we will be able to do this at the same time as we can pay out high dividends. That policy remains stable. I'm not sure if I can elaborate a little bit more on it, but if there will be a change of dividend policy, that's not up to me. We are committed to the 50%-70%, and always with a target of 70.
A question related to the cash cost. When you are reporting on cash cost, I assume you have not included the transport cost. Can you say something about the transport cost and the expectation going forward?
Second question, when it comes to the price uplift on the higher grade, when are you expecting that to materialize in the P&L? Is it in 2025, 2026, 2027? When you say transportation, you're probably looking into the freight cost on the ship.
We mainly deliver to the European market, and as you may saw in a message last week or a couple of weeks ago, we locked in the prices for freight at around $22 because that's a level that we are confident with, so those costs are always there. We can't do anything about it, and how that will move, that's linked to the activity from Brazil and Australia and to China. We don't know how that will change, but that is a part of our risk management policy in order to take down the risk also on the freight.
So we are confident of the volume of the level between 22 and 25 is okay for us. Regarding the prices, the premiums for higher grade, well, first of all, we have to, I've told you about the 65, we have the goal to have some kind of premium of a small volume this year and hopefully increasing. The high grade premium, if you're looking at 67, depends on when we produce 67. So we have to come back to that timeline.
Any other? I think it's on.
Okay, just thank you very much for a very nice presentation, Maria Riesberg from Exxon. I was just wondering, your goal is to upgrade to 67. What kind of investment or CapEx do we talk about to do that upgrading? Thank you.
We are looking into that this and the next year.
That's why we announced now that we are going for being a high grade producer. There are different routes to come there. And we have to be sure of the industry design in order to what kind of investments we are looking for. So I can't give you any numbers today. But as long as we're quite sure that the premium for high grade will be substantial and it will cover the investments needed to go there. But we have to come back to the timeline and the CapEx number later.
Any other?
I have one question from the web to the Cargill team. How will the Chinese iron ore production adapt to Simandou, Vale, and other growth projects? And what do you expect the Chinese export to be in 2025 of steel? Take this.
So the first question is about Chinese iron ore production adapting, right?
So, Chinese iron ore is about, if you look at the total usage, it's about 20% of Chinese total iron ore demand. So, the vast majority of imports would be still from seaborne markets. And domestic production, which is a type of concentrate, has been relatively constrained in the past few years because Chinese producers are higher cost. And there tend to be. It's very easily affected by environmental protection campaigns, by safety campaigns. Basically, underground mines are all subject to these fairly stringent safety checks. So, we actually saw that in 2024, for example, some of the previously anticipated expansion plans are actually not really realized. Total year-on-year production is about flat. So, this year, all of the incremental growth is going to come from imports. And in 2025, there again will be some expansion plans, but it's very subject to cost and prices.
I think the mainstream forecast is for Chinese iron ore production to only rise by a couple of million tons max in 2025, meaning that any, again, a 1% increase in Chinese steel production would be a large amount that's not going to be met by domestic production. Having said that, the reason why Simandou comes into the discussion is it's a very large high-grade mine that is expected to come online. The guidance has been sort of end 2025, beginning of 2026. I think 2026 is probably a safer bet. It doesn't directly affect domestic production in China necessarily, but it will have an impact, of course, on the global markets. I think the ramp-up initially will be fairly gradual. I think over time, that is a major greenfield project that will have an impact, but not in 2025, most likely.
And the second, I think there's another half or?
I think, yeah, the Chinese export of steel.
Yeah, I suppose. Yeah, probably steel exports. So a couple of drivers, as we were saying, if Chinese domestic demand is weak, you're going to see higher exports. Again, you also need to have decent global demand as well for the export to be sustained. So altogether, we think that there's going to be a sustained high level of exports. However, I think we're looking at a year-on-year decrease of the total amount of exports from very, very high levels, but down a notch, very likely.
The reason for that is the exports in 2024 raised a lot of eyebrows, caused a lot of competition in global markets, and therefore we see more trade cases being put on China, some of which are going to be more effective in curbing some of the exports at the margins. It's very hard for these individual trade cases to work just sort of one-to-one. They're going to, a lot of times, they simply change trade flows as opposed to affect the total volumes. But some of them are probably going to have a marginal impact. So altogether, I think a slightly smaller share of Chinese steel exports is probably beneficial to the global industry.
Perfect. I have another one in Norwegian, but I will try to take it in English, and I think maybe the Cargill team should try to answer it as well with Mr.
Trump as the president. Do you expect any implications for the steel industry in the U.S., high-grade iron ore?
Thanks. Interesting question. The U.S. is actually somewhat of an island when it comes to steel and raw materials. The bulk of U.S. iron ore production is inland in Minnesota, northern Minnesota. It lends itself to being high grade, but it does not lend itself to being exported particularly well. The logistic costs are just too prohibitively high to make it a valid case. You only see very small flows of pellets of northern U.S. to Europe. That being said, there are a couple of big developments that could be interesting under a Trump regime. We are, if you believe the press, towards the closing stages of the U.S. Steel takeover by Nippon Steel. In theory, that might complete before the end of this calendar year.
Whether or not a Trump administration are going to support the continuation of that transaction remains unclear. As everywhere else is transitioning, so is the U.S. steel industry. It is also largely constructed in the post-war period. Some of the assets are somewhat aged, and the U.S. is transitioning to new technologies, particularly DR, particularly in the south of the U.S. where gas supplies are abundant and there is a potential for carbon capture and sequestration. In the case that the U.S. continues with that transition and forgoes the prolongation of blast furnace assets, there will be potentially the requirement, somewhat uniquely for the U.S., to import some high-grade material, which is unheard of. In the last 50 years, the U.S. is a balanced or net exporter.
So it very much remains to be seen exactly how Trump's environmental policies affect those investment decisions that the U.S., much the same as Europe, is required to take purely on the basis of having to renew aged industrial assets.
Thank you. Any questions from the audience? Then I have one last, and I think Stein Tore will have it. You touched upon it, but what is our expected lifetime of our current mines? And yeah, you have.
The current mines? Yeah, and a resource. On the resource base, we have 400 million tons. So that's a lot. It depends on how we develop that resource base. In the short term, we have a 10-year solid mine plan, and we are planning for beyond 10 years. So Stensundtjern has a 10-year lifetime. And we're looking into what comes after the Stensundtjern.
I briefly mentioned, I think, maybe I forgot, the Ørtvann deposit, which we are drilling next summer. Promising, very high-grade, magnetite-rich ore. So it all depends on how we choose to develop the 400 million tons of resource. But it would be safe to say that we have resources for decades. Oh, yeah. Yeah. No worries. A lot.
Yes. If there aren't any new questions, I think we'll wrap it up, and there will be some light lunch served outside. Of course, the entire team will be available for any other questions. Yeah, good to see you all here today. Thank you.
Thank you very much.