Welcome to this presentation about Rana Gruber's performance in the Q3 of 2022. My name is Gunnar Moe, and I am the CEO of Rana Gruber. With me today is our CFO, Erlend Høyen, who will give you additional insight into the financial result of the quarter. After this presentation, we will move to our capital markets update, where we will give you more go more into depth about the range of topics, including some of those briefly covered in this Q3 presentation. I will start today's presentation by giving you a quick overview of the highlights of the quarter. Then I will cover the production of the quarter and our safety KPIs. After this, Erlend will take you deeper into the financial results.
Towards the end of the presentation, I will sum up and make a few comments about the outlook before we move on to Q&A. For those of you who follow us online, you may ask your questions by using the Q&A function in the webcast solution, and we will answer them at the end of the session. The Q3 was a good quarter for Rana Gruber. We had a record high production of 469,000 metric tons of iron ore concentrate, and I'm happy to say that once again, it was without related injuries. While total costs remain stable. Now a few more words about the production of the quarter. As mentioned, the iron ore concentrate production totaled 469,000 metric tons, and this is the largest amount produced in one quarter in the history of Rana Gruber.
The production increase was partly due to continuous work to improve the capacity of the processing plant, but it was also due to operational adjustments ensuring a more stable quality of the ore transported to the processing plant, which enables better utilization of the plant. Concentrate amounted to 442,000 metric tons of the produced volume, and in addition to this, 27,000 metric tons of magnetite concentrate and 1,100 metric tons of the Colorana were produced. Due to the timing of shipments, the volume sold in the quarter were moderate compared to the volumes produced. We have stored masses of produced volumes, and these volumes will be shipped in later quarters. The amounts of stored volumes are expected to normalize during the first half of 2023.
In the quarter, we continued the development of the next mining level, Level 91. Production drilling is planned to begin towards the end of 2023. Blasting and full production of the mining level is expected to begin in 2024. Now some words about our safety KPIs. The quarter saw a continuation of the positive trend from the previous quarters. There have been no injuries leading to absence from work for the past two and a half years. Once again, this confirms that our tailored safety measures have been successful and provide a healthy work environment in Rana Gruber. I will now leave the word to our CFO, Erlend Høyen, to take us through the financial results of the quarter.
Thank you, Gunnar. Good morning, everyone. The revenues for the quarter came in at NOK 230.5 million. Higher than the Q3 of 2021. [audio distortion] fall in the price of iron ore from the Q2 to the Q3 of 2021. We also saw a decline in the price this year, but it was not as substantial as it was last year. I will say more about the booking of revenues in our capital markets update later in this session. The operating profit ended at NOK 64 million, up from negative eight in the Q3 of 2021. The difference is also mainly explained by the fall in the price of iron ore in the Q2 to Q3 of 2021.
Total cash costs ended at NOK 240.6 million. That's okay. This corresponds to 435 NOK per metric ton produced. Despite the ongoing inflation that we see all around us, this is the lowest cash cost per metric ton produced the company has since we went public almost two years ago. This is a result of continuous focus on high production levels as well as cost efficiency. Over to the adjustment of the EPS for the quarter. In accordance with our dividend policy, the adjusted net profit is based on the IFRS net profit before tax. This is then again adjusted from our hedging portfolio in iron ore and foreign exchange. The adjustments will therefore relate to positions with maturity three-plus months after the reporting date.
The board of directors can also adjust for extraordinary events which is not part of core business. The adjustment of the net profit is necessary to enable a more accurate evaluation of our performance for a given quarter, excluding accounting effects from quarters which does not relate to the production or the sales for the quarter. For more information regarding our adjustments, please see the appendix in the quarterly reports. In this quarter, the pre-tax profit was adjusted by NOK 6.2 million related to the unrealized change in the hedging portfolio of iron ore and U.S. dollar with three-plus months maturity after reporting date. The adjusted net profit amounted to NOK 55.4 million , which gives an EPS, adjusted EPS of NOK 1.49 .
Based on this, the board of directors decided to pay out a dividend of NOK 1.5 per share for the Q3 of 2021. Let's have a look at the cash flow and our financial position. The total cash flow from operation amounted to NOK 69.9 million . CapEx for the period was NOK 46.4 million. NOK 31.7 million of this was related to maintenance CapEx. Mainly the new development of the Level 91 that Gunnar talked about, as well as installing the new spirals that we have for the Fe65 project. NOK 14.7 million in CapEx was related to maintenance CapEx.
Of the financial activities, NOK 56 million was payout of dividends for the Q2, and NOK 6.7 million was payment of principal portion of the lease liabilities that we have. In sum, total cash flow for the quarter was negative by NOK 35.9 million. Let's have a look at the financial position. Our interest-bearing debt towards financial institutions only consists of lease and rent obligations. Apart from this, we still have no long-term bank debt, and we hold an unused credit facility of NOK 100 million. After the dividend distribution for the Q2 of this year, our equity ratio was 45.5% at the end of the Q3, and we had a cash holding of NOK 339 million in the company.
That concludes the review of the financial performance for the quarter, and I will leave the word back to Gunnar for his final remarks.
Thank you, Erlend. We have now given you an overview of the Q3. To sum up, the quarter has been characterized by record high production, reduced cost per ton, and progress with our strategic projects. Allow me now to make some comments about the future. Iron ore is essential to build infrastructure, buildings, and a range of other products. The long-term market outlook remains positive. In the short term, the market demand may be more volatile, especially due to the handling of COVID-19 in China. China is the main global demand driver. We have seen that COVID-related restrictions have reduced the global demand. We are planning several investments related to our ongoing strategic projects. The CapEx related to these projects will increase in the coming years.
For the zero carbon emissions project, we are currently in the process of identifying the most suitable solutions and suppliers. We will not finance these projects with either new interest-bearing debt or share issues. The plan is to finance the projects with earnings from operations and lease obligations for vehicles and mobile machinery. We also expect the zero carbon emission projects to be partly financed through a public financial support scheme, and we are in close dialogue with Enova about the project. We will go more into depth about these topics in the capital markets update after this session. The completion of the development project is expected to be within a previously communicated timeframe. With stable production, vast resources, strategic offtake agreements with Cargill, a solid financial position, and investments in strategic projects, the outlook for Rana Gruber remains positive.
Thank you, Erlend Høyen and Gunnar Moe. We will now answer questions from the audience. Please note that you may still ask questions during this session online. I will come with a microphone for those who have questions now. We will take three or four questions now, and I will take the other one after the capital markets day.
You had a quite impressive increase in production, and you also saw a significant reduction in cost. How much of that is attributable to higher grades, and how much is more long-lasting cost reductions?
You can answer the production one. The decrease in the cash cost per ton is more a result of the increased production rather than decrease in cost. Because if you look at the cost for the Q3 last year, they're roughly in line with the other. In absolute money, we spent the same amount, but the increase in production came without an increase in cost, showing the benefit of maintaining and keeping high production. The increase in the production we believe to be stable.
Any other questions from the audience? I could take one from the web. We see some other miners toning down expectation on dividends or trimming dividend payments outright. My question is, given this worsening macro outlook that we're seeing with recession knocking at our door, can we assume that you will continue to focus on cash returns and keep your dividend in line with market?
Yeah. There's nothing in our strategy now that should change our dividend policy. That stays firm.
Yeah. Here's some questions about Fe65, but I think we will come back to that in the Capital Markets Day. Same, we'll say on CapEx. Can you say something about our demand from China?
Well, as I said, the demand from China is regulating the price of the iron ore. That's the main. It hasn't got anything to do with the demand for our product. It's related to the price of the product. I think that's all I can say about this topic at the moment.
Yes. Any other questions? I think we could sum up and take a short break.
Yeah. Thank you all for participating at the Q3 presentation, and we will now have a short break before moving on to our capital markets update, and we will be back in approximately five minutes. Please stay tuned for you on the web.
Rana Gruber is an iron ore producer in the north of Norway. The company extracts the mineral from local mines and transports it by rail to the company's processing plant. Steel is a vital component of modern societies. We need it to make everything, such as cutlery, cars, trains, construction materials, even binder clips. Steel is made of the natural mineral iron ore, which is extracted from mines around the world. The demand for iron ore follows the demand for steel.
We extract iron ore from our mines in north of Norway and refine the raw materials in our processing plant.
After the iron ore is refined through a mechanical process, it is shipped to European steel producers.
As steel is a vital component of modern societies, there will be a continued demand for iron ore. A major challenge for the entire mining industry is carbon emissions.
The industry is responsible for up to 7% of total global emissions. Any producer in the industry has a strong obligation to reduce its carbon footprint.
Rana Gruber has an ambitious goal to become the world's first carbon-free iron ore producer by the end of 2025. This means electrification of the company's entire operations. Drilling, transport, processing, everything needs to run on renewable energy. The company has a robust plan in place to reach this goal.
Rana Gruber has a favorable location near the local hydro power plant. Since this gives us reliable access to renewable power, the goal is to use this advantage to eliminate carbon emissions from our operations.
To electrify operations and become carbon free, Rana Gruber needs to replace mining machines and vehicles that run on fossil fuels with new machines and vehicles that run on electricity. The company also needs to replace fossil fuel-driven rail transport with a sustainable alternative. Rana Gruber has already come a long way to reaching the goal of becoming carbon free. The company has partnered with the electric mining machinery supplier, Sandvik, which will provide the company with electric drilling rigs and hauling equipment. Rana Gruber also has a partnership with a local hydropower plant, which supplies Rana Gruber with renewable hydropower.
Our company has among the industry's lowest carbon emissions with 9.29 kg CO2 equivalents per ton produced iron ore today. We want to go even further and eliminate all carbon emissions by the end of 2025.
As long as there is demand for steel, there will be a demand for iron ore. The industry needs to reduce its carbon footprint. If Rana Gruber reaches its goal and becomes the world's first carbon-free iron ore producer, it will pave the way for an entire industry.
If we reach our goal, we hope to be an example for the future of mining.
Okay, everyone. We will now start the capital markets update. Welcome to new listeners. My name is Vegard Nerdal, and I'm Controller and Investor Relations in Rana Gruber. I will now take you through the program for today. First, our CEO, Gunnar Moe, will give you a brief overview of our business. We move to the strategy update. Gunnar will tell us more about work to insource work streams. We move to Nancy Stien Schreiner, our Environment and Sustainability Manager. After these updates, Jan Ove Stene from our electric machinery supplier, Sandvik, will tell us about the demand for electric mining equipment and Sandvik's ability to supply this demand. After this, our COO, Stein Tore Liljenström, will tell us about our resource and reserves, and then we will have a short break.
After the break, Leon Davies from Cargill Metals will tell us about the iron ore market. After this, our CFO, Erlend Høyen, will tell us more about financial topics. After this, we will conclude this with a Q&A session. We ask that you save your questions for these sessions. At the end, Gunnar Moe will sum up some main takeaways before you're all invited for lunch in the floor above us. Now, I leave the word to you, Gunnar Moe.
Thank you, Vegard. My name is Gunnar Moe, and I am, as mentioned, the CEO of Rana Gruber. Welcome, everyone, to this capital markets update. Welcome also to those following us on the web. I am pleased to see you all here today. I'm also very happy that Leon Davies from Cargill Metals and Jan Ove Stene from Sandvik were able to join us. Your contribution is very much appreciated. As Vegard said, I will first give you a brief overview of our business. Rana Gruber is the only iron ore producer in Norway. We have one of the industry's lowest carbon emissions today, and our aim is to be the first carbon-free iron ore producer. The favorable location of our deposits enables an energy-efficient logistics.
As you can see on the map here, the deposits are located only 32 kilometers from the processing plant. The deposits are also higher above the sea level. This enables short downhill transport of the ore to the processing plant and port. This requires minimal amounts of energy. We have vast resources and reserves, and this enables mining operations for decades to come. We have also proved a stable production level year after year. Our operations consist of three separate activities. The first is mining of iron ore from local open pit and underground mines. The second is railway transport of iron ore from our mines to our processing plant. The third is extraction of Hematite and Magnetite in the processing plant, and also production of Colorana products. As you can see, we operate it at the beginning of the value chain.
After we have produced iron ore concentrate and Colorana products, they are shipped to a range of different industries. These industries are largely independent of each other and use our products to make a range of different end products. Let me elaborate a little bit on this. We have, as mentioned, three products, Hematite, Magnetite, and Colorana. We have an offtake agreement with Cargill for our entire Hematite production. Under this agreement, Cargill is committed to buy and market all our Hematite. This amounts to more than 90% of our total production. Cargill is one of the world's largest commodity traders, and since Cargill has a leading market position, it is able to identify the right buyers and the best prices. Currently, our Hematite is distributed to three European steel producers, which utilize the products to make steel.
Steel, again, is used for a variety of end products, such as cars, buildings, and infrastructure. Our Magnetite is sold to eight chemical producers. They use our Magnetite to make water treatment chemicals, and these chemicals are used in public water purification systems. Colorana is used for both colorants and highly advanced products such as brake linings, magnetic stripes, and colorants. Customers for Colorana are within a diverse group of industries or market segments, such as concrete, paint, plastics, the automotive industry, heat management, and toner production. Now let's turn to strategy updates. A mining company will always look for ways to optimize operations and reduce costs per ton. This involves finding out which activities one should insource and which activities one should outsource to external providers. We have already insourced the exploration drilling, and we are now in the process of insourcing the development of new mine tunnel infrastructure.
We expect to have both machinery and personnel ready to start this in-house activity next year. The decision to insource these activities was based on the long-term mining plan. Since we are getting closer to exhaust the resource in the open pit mine, we will enter into a new phase. Now we will focus more on underground mining in the Ørtfjell deposit. This has consequences for both exploration drilling and development of new mine tunnel infrastructure. Since we know less about the rock masses underground, exploration drilling will become part of our day-to-day operations. Since we will work more underground, the development of new mine tunnel infrastructure will also become part of our day-to-day operations. These activities used to be done from time to time when we needed it. Now that these activities are needed continuously, it is more cost-effective to conduct these activities in-house.
There are three benefits of insourcing these work streams. The first and main benefit is reduced costs. The second and benefit is more predictability related to costs. There are two reasons why insourcing will improve cost predictability. Firstly, we will avoid business cycles in the construction industry. Secondly, we will recruit local workers. Our subcontractors use non-local workers who often face logistical challenges when traveling to our site, especially in the wintertime when challenging weather conditions prevent crossing the Saltfjellet passes by car, and sometimes even prevent flights from landing at the local airport. These challenges have led to unpredictable costs, which will cease with local workers. The third advantage of insourcing is more influence on the terms and conditions of the workers needed. This again gives operational stability. We have previously defined three strategic development projects.
The aim of the first is to increase the minimum iron content in our Hematite product to 65%. The aim of the second is to increase our Magnetite production, and the aim of the third project is to eliminate carbon emissions from our production. I will now say some words about the project to increase the current minimum iron content in our Hematite from 65% to a minimum of 65%. The market prices for Hematite concentrate depend on the iron content. From January 2021 until the end of September 2022, products with a minimum iron content of 65% has on average been priced $23.5 higher per metric ton than products with a minimum iron content of 62%.
The market prices for hematite within these characteristic categories are tracked by the indices called Platts 65% Fe and Platts 62% Fe. The price difference reported in these two indices is due to higher demand for hematite with higher iron content. The higher demand is due to environmental advantages with higher iron content and the environmental responsibilities facing the steel industry. The industry needs to reduce its carbon emissions, and most European steel mills aim to reduce emissions by around 30% before 2030 and to be carbon neutral before 2050. To achieve these goals, the steel mills need changes in both the production methods and the raw materials used. Hematite with higher iron content will enable steel mills to use less hematite concentrate in their production, which again leads to less carbon emissions and waste.
To put it simply, environmental advantages impact demand, and this gives premium pricing for hematite products with higher iron content. This is why Cargill has encouraged us to increase the minimum iron content in our hematite product from around 63% to 65%. We are doing several things to be able to produce hematite with a minimum iron content of 65%. Firstly, we do considerable R&D work to find the optimal production method so that we do not sacrifice much production volume for higher iron content. Everyone can produce hematite with a higher iron content by sacrificing production volumes. If we are to take advantage of the premium pricing, we need to keep up our high production volumes. Secondly, we are making investments in the processing plant based on the R&D work.
The delivery of some of the equipment has been delayed due to global supply chain challenges. In addition, some of the relevant upgrades have to be implemented during the annual care and maintenance, which takes place in July, so this takes time. The final measure in this project is preparing the market to receive our improved product. For even if we reach our goal, this will not contribute to our top line overnight. The pricing based on the Platts 65% Fe index depends on approval of the product quality by the steel mills that receives this. Cargill therefore reaches out to steel mills so that some willing to pay for our improved product will be ready to receive it.
Once the steel mills have approved of the product quality, we can negotiate the contractual terms and base the pricing of our hematite concentrate to Platts 65% Fe. We expect this to happen during 2025. To give you an idea of the process, we can have a look at these two graphs. The graph on the left-hand side shows the development of iron content in our hematite production in 2022. We see that before the summer, there was no significant development and a high variability in the iron content. Here at the vertical line, we had the annual care and maintenance of the mine and processing plant. During this period, we had small adjustments in the plant. On the right-hand side of the graph, we see that this has already given results. There is both less variability and an upward trend.
The graph on the right-hand side shows the development after the annual care and maintenance. We expect that the adjustments we made during the annual care and maintenance will continue to pay off. When we have finalized the upgrade of the processing plant and installed all the new equipment, we expect to take the last few steps to produce hematite with an iron content of at least 65%, and we expect this to happen before the end of 2024. Now some words about our second strategic development project, namely to increase our magnetite production. As I mentioned earlier, our magnetite concentrate is sold to European chemical producers, which use the magnetite to make water treatment chemicals. These chemicals are used to purify water in public water purification systems. There are two reasons why we want to increase our magnetite production.
The first reason is that there is a high demand for our high Magnetite. Magnetite is usually utilized in steel production, but since we do not use any chemicals in our production, our Magnetite is clean and therefore suitable for product used in water purification. The demand for water treatment products based on Magnetite is very high, and we often get requests from players wanting to buy our products. With our current production level, we cannot supply this demand. The second reason we want to increase our Magnetite production is that our revenues from Magnetite provide security in times with fluctuating prices for Hematite. To increase the Magnetite production, we have completed the design of processing plant and planned the organizing of the upgrade. The next step is to order the equipment needed.
Today, we produce, as mentioned earlier, 100,000 metric tons per year, and the plan is to increase this production volume by 50% by the end of 2024. Before we move to the third development project, let me sum up on the first two. We are on track with both the Fe65 Project and the M40 Project. We are in the process to upgrade the processing plant, and we expect to complete both projects before the end of 2024. Nancy will now tell you more about the project to become carbon-free.
Thank you, Gunnar. My name is Nancy Stien Schreiner, and I'm the Environment and Sustainability Manager at Rana Gruber. Today, Rana Gruber has among the industry's lowest carbon emissions with 9.29 kg CO2 equivalents per ton produced iron ore. We want to go even further and eliminate all the carbon emissions by the end of 2025. There are four reasons why we want to become carbon-free. The first is social responsibility. The mining industry is responsible for 4%-7% of global carbon emissions. At Rana Gruber, we take our responsibility seriously. We want to pave the way for the industry and become the world's first carbon-free iron ore producer. The second reason is that by replacing an annual consumption of five million liters diesel with renewable power, we expect to reduce operating costs.
The third reason is that we expect a future price premium for iron ore concentrate, which is produced in a more sustainable way, since this will also help the steel mills to reach their emissions goals. The fourth reason we want to become carbon-free is that we expect this to make Rana Gruber a more attractive investment. One of our benefits for achieving an industry-leading carbon footprint is the location of our deposits. As Gunnar explained, the deposits are located close to the processing plant and port, which are located next to each other. The deposits are also higher above sea level. This enables a short downhill railway transport of the ore, which requires minimal amounts of energy. In addition to this, Rana Gruber is located in an area with good access to renewable power.
Eliminating emissions means that our mining equipment, vehicles, railway, and underground mine heating facility must be electrified or else be replaced with a non-fossil fuel alternative. This is a difficult challenge, as the machinery needs to handle large and heavy masses of iron ore. We may divide our execution plan into three parts, that which concerns the underground mine, that which concerns the open pit mine, and that which concerns the railway transport. For the underground mine, we have started the gradual process of replacing equipment. We have also started the planning of the on-site infrastructure needed for electrified operations. The new infrastructure involves both an efficient charging structure and safety measures. Even though accidents are rare, the batteries in electric vehicles are combustible items. The utmost priority for Rana Gruber is to secure the safety of our employees.
We will make the investment needed to maximize safety. We work closely with the external advisors and suppliers to identify and plan the best solution for the on-site infrastructure. For the open pit mine, the production in Ørtfjell will continue with today's operation facilities until we have exhausted the reserves of the deposits in 2024. Future open pit production in the Stensundtjern deposit will be carbon free. We have not yet decided whether we will operate it, the mine ourselves, or if we will leave it to external providers. For the railway transport, there is an ongoing project with SINTEF and other players to investigate the pros and cons of electricity-based solutions and hydrogen-based solution. We expect their recommendation to be ready in the first half of 2023. We want to be at the forefront of sustainable mining.
We will therefore commit to the highest ESG standards and continue to prioritize the health and safety of our employees. We hope to continue to score high on awards. Before I leave the word to Jan Ove, let me sum up. In 2021, we were responsible for 9.29 kg CO2 equivalents per ton produced iron ore. The main driver behind this was transportation, followed by fuel and energy-related activities. The goal is to be carbon-free at the end of 2025. Our favorable location makes this possible. We have a robust plan to reach our goal, and we are working hard to have everything in place for the deadline we have set for ourselves.
Thank you, Nancy. I'm happy to introduce Jan Ove Stene, Managing Director and Territory Manager of Sandvik Group. He will now give us more insight into electric mining equipment.
Yes, I will. Thank you for the invitation to participate in Rana Gruber's Capital Market Day, and pleased to be here. As mentioned, my name is Jan Ove Stene. I'm located here in Norway and representing Sandvik here in the capital market day. I belong to a business area within the Sandvik Group, Sandvik Mining and Rock Solutions. Thank you. First of all, I will give you a glance of Sandvik over 2021 figures. We are currently 39,000 employees. 2021 numbers had SEK 86 billion in revenue. We have globally 68 research and development centers globally, and we have sales in about 150 countries around the globe.
Each year, we are actually using around SEK 3.5 billion in research and development to keep us in a market leading position when it comes to global technology. I will come into that later on. We have currently 5,520 active patents, which we are monitoring and taking care of. Currently, we have three business areas: Sandvik Manufacturing and Machining Solutions, Sandvik Mining and Rock Solutions, where I come from, and then we have Sandvik Rock Processing Solutions. For these three business areas, we hold a world leading position with a technology leadership. Within Sandvik Mining and Rock Solutions, and also Sandvik Rock Processing Solutions, it's a really strong focus around electrification and battery technology. As I mentioned, we are among the leading manufacturing company when it comes to battery electric vehicles, and this is globally.
What we see currently is that there is a very, very high global demand within the mining industry for battery electric vehicles and also electrification. Due to this, Sandvik is now heavily ramping up our production to cope with the high global demand seen. It's not only Rana Gruber looking into electrification of an underground mine. It's a global trend. What is good to see is that Rana Gruber is actually, what I would say, a frontrunner in this electrification, with a goal to be fossil-free in 2025. We within Sandvik, we have committed ourselves to assist Rana Gruber with that process. Yeah. Our battery electric vehicles and electrical equipment are produced at our production units in USA, Canada, and Finland. We also have our own battery technology focusing on a very low risk for burst out gases, fire, and such things.
This battery technology we acquired through an acquisition of Artisan, which is a leading battery electric vehicle factory in USA, located in California. That acquisition took place in 2019. With that battery technology, we also are able to focus a lot on the underground mining safety. This is something an underground mine will like to avoid, or have to avoid, is the fire risk. If you can use battery technology with a very low risk factor, you are also able to control it in a much better way. There are currently different solutions for the battery technology as such. If you look into it, the risk level differs. Our technology is actually the one which has the highest safety as such.
What we see currently as a shift in the underground mining industry is a clear direction to a sustainable underground mine, and this is actually coming from electrification. It's also a trend for more and more automation, much more using data and to look at the data in a analytics way, and also end-to-end optimization of the production. This is actually what we are currently doing together with Rana Gruber. We are carrying out an in-depth analysis of the mine together with Rana Gruber, to see how we can do the electrification at the mine, with a focus on productivity, profitability, and sustainability. What is actually the benefits with the electrification in the mine? Yes, the benefit is that you can actually have a reduction of the ventilation up to 30%.
In a mine, underground mine, ventilation is a very high cost factor. You actually also increase the ramp-up speed up to 2x using a battery technology, replacing it from the fossil engines you are normally using today. You also reduce the CO2 emission and the safety for the workers with the zero diesel particles in the air. You also have an increased productivity with the faster load time and much faster acceleration out from the loading zone. Automation allows you to operate the equipment more or less, operator-free. You can do it outside the mine, you can do it in the mine, you can actually be here in this location and operate equipment at the mine site. The data, and to analyze the data, gives you a much better maintenance view, production optimization and all this, and also then end-to-end optimization.
Its currently three main drivers for electrification in the mining industry. Focus on the workers' health, as Nancy mentioned, where you remove the diesel particulates, you reduce the heat due to the fact that the engines is not giving so much heat as the normal engines used today. You reduce also the noise level a lot. It's improved mine economics because ventilation, as I mentioned, is a very high cost contributor in a underground mine today. Cooling and productivity. Another reason for electrification on the mines today is the mines are going deeper and deeper, and the heat is increasing. Of course, productivity and global sustainability. You are removing the greenhouse gases. Fossil fuel use is not there any longer, and you also have the energy efficiency.
In November 2022, we signed a cooperation agreement and a letter of intent with Rana Gruber, where we are going to build a long-term development plan with clear targets for successful relationship. Develop the work process for the next phases mentioned by Gunnar earlier today, and also to establish a clear fleet strategy. To enable Rana Gruber to be fossil-free in 2025. As I mentioned, it's currently extremely long and high demand for battery electric vehicles. Doing this together with Rana Gruber, we are also there to secure that they can do the electrification with and within the time frame 2025.
Commit jointly to determine the need for training and educational Rana Gruber's personnel because this is a new technology and, personnel need training and also education to utilize the equipment in the best possible way, and also to handle the battery in a safe way. Bring up product and application development needs together for the way forward. This has been done now during 2021, 2022, where we conduct a TransforMine study. As you can see, the purpose of the TransforMine is to assist strategic customers realize best practice as sustainable safety, cost, and productivity benefits and performance within their operations. This study is now almost coming to an end. We are currently going through the result together. From there, we take it to the next steps. To summarize, Sandvik is there to support Rana Gruber with the journey forward. Thank you.
Thank you, Jan Ove. We will now continue with Stein Tore, who will tell us more about our resource and reserves, our exploration drilling, and our five iron ore deposits.
Thank you, Vegard. My name is Stein Tore Liljenström, and I am the COO of Rana Gruber. In December last year, we presented a report with an updated estimate of our resources and reserves. The report was prepared by Micon International in accordance with the Pan-European Reserves and Resources Reporting Committee standard for the public reporting of exploration results, mineral resources, and mineral reserves. PERC in short. Before I proceed with the results of the report, let me quickly remind you of the resource and reserve distinction. The resources are the total estimated amount of iron ore in our deposits. The reserves are the amounts of resources that we are reasonably confident are both technically feasible and economically profitable to extract. The updated ore estimates shows that we possess a vast resource base exceeding 444 million metric tons.
Of these 444 million tons of resources, 94 million tons have been classified as reserves. These estimates indicates that we can operate our mines for several decades to come. Gunnar mentioned, we have an ongoing exploration drilling program. The purpose of the exploration drilling is to expand the resource and reserve bases. More detailed knowledge of the geological and physical properties of the rock masses also provides more precision in the long-term mine planning, which we aim to expand beyond 2040 in accordance with our long-term perspective. Gunnar also mentioned the exploration drilling was previously handled by external providers, but now it's carried out by in-house personnel. The Ørtfjell deposit, which you see in the picture here, is our main deposit. This deposit is on Rana Gruber's own property.
It is where we have the existing infrastructure, including the silo, crusher, railway, and a network of roads. The deposit contains 72% of our total resources and 69% of our reserves, and it will be mined for decades, as I mentioned. In addition to the main deposit in Ørtfjell, within our property, there are three smaller deposits in areas called Finnkoteng, Ørtvann, and Stensundtjern in this area. We also have exploration license in one further deposit in an area called Dunderland, up here in the picture. This is outside our property, but we have the exploration license. Finnkoteng, Ørtvann, and Dunderland together contains 20% of our resources, but none of these has yet been classified as reserves. None of these are then a part of the current mine plan. Stensundtjern contains only 8% of the resource, but 31% of the reserve.
We are currently in the process of obtaining operating license for this deposit. We plan to take advantage of the resource without making heavy investments in new infrastructure. As the Ørtfjell deposit is close to our silo, crusher, and railway, with which the ore is transported down to the processing plant, we will probably end up transporting the ore from Stensundtjern to Ørtfjell with trucks and mining equipment. In this way, we will maximize the value of the existing infrastructure rather than investing in new one. We expect to start mining in Stensundtjern deposit in 2024. To sum up, we already have a vast resource and reserve base, and we are working to increase the reserve base even further. We are able to utilize our existing infrastructure to conduct mining operations for decades.
Thank you, Stein-Tore. Now there will be a 10-minute coffee break. So please help yourself and we'll start up in 10 minutes. I think everyone's back. I would like to introduce Mr. Leon Davies, Sustainability Lead and Atlantic Customer Lead of Cargill Metals. Leon will now tell us more about the iron ore market.
Thank you. Good morning. Yeah, I'm Leon Davies. As Vegard said, I look after sustainability for Cargill Metals globally. I'm also the customer lead for all of our business across the Atlantic. I've worked in the steel industry for the last 18 years, spending the majority of that time either buying or selling iron ore. Apologies for the really boring slide. We'll skip through this one. Cargill Metals have got many decades of experience in the metals industry. We've got about 150 employees in our business globally, spread across multiple locations. Each year we sell more than 50 million tons per year of iron ore and six million tons per year of steel.
As a group, Cargill overall has around 155,000 employees working in about 70 different countries. I'm gonna spend a few minutes now talking about the iron ore market, both in terms of what we're seeing today in the short term, but also then going on to some of the longer term trends that we see impacting the years ahead. Iron ore's been through a few pretty volatile years and 2022 has been no different. We've seen over recent months the market really grinding down to levels where today we see Platts on a 62 basis in the high $80s, which is not dissimilar to the low points we saw around Q4 last year. At the same time, we've seen quite a lot of volatility in the freight market.
We haven't this year witnessed the highs that we saw in freight in Q4 last year, where we saw this quite unusual situation where containerized freight spiked to extremely high levels of demand driven by the COVID spending binge, which created an unusual scenario of some materials which would normally move in container freight being pushed into the dry bulk segment and therefore pulling more demand into that segment and pushing up the entire freight market to pretty high levels. Today, container freight has returned back to its pre-COVID levels and reversed some of that trend.
However, what we do see today still is the C3 number, which is the freight cost in capesize vessels from Brazil to China, sitting in the sort of high teens level and the reason behind that level staying relatively high is that about two-thirds of the current C3 price is driven by high fuel prices, high bunker prices. For reference to that, in recent years, when we've seen very weak freight markets, we've seen the C3 price less than half of that of where it is today. This is a very relevant factor when you're thinking about the cost structure of iron ore miners. There's a lot of production here in the Atlantic, but you have to think that iron ore price is set in China, therefore, high freight environments shifts the cost structure up for a lot of those producers.
If we think about China today, it's in something of a balancing act at present. It's been a difficult few months for the market. The zero-COVID policy stance of the central government has definitely disrupted a lot of the economic activity in the country, and that has really driven sentiment to turn increasingly negative. You have to balance this with the desire to maintain a stable economy, which has resulted in a lot of stimulus measures being targeted at the market. Trying to second-guess Chinese government policy is pretty difficult, but the market's watching very closely right now for signs of government softening its zero-COVID policy. You see a huge amount of speculation around, you know, as and when the shackles will come off.
Sentiment in the Chinese property market has been particularly weak, and the recent economic data in October was disappointing, which would really suggest that there's depressed spending at present on infrastructure projects. You've got to balance this with the desire to, you know, provide support for the real economy, which could well result in further stimulus being targeted at the market. You know, the Chinese property sector is huge and is of critical importance to the steel industry and the overall economy in general. If we look into steel, you know, 2021 and the start of this year was really a very good period for steel makers globally.
The vast majority of people are enjoying very healthy margins in, you know, what's a classically cyclical industry. Through the course of this year, the headwinds have been growing, and that's due to a combination of the zero-COVID policies in China, but also the inflationary pressures that the world is facing, you know, and that have been accelerated by the energy crisis resulting from the situation in Ukraine. The result of this has been a deterioration in steel markets through the course of 2022. You know, really, steel mills are suffering from the combination of weakening demand, eroding demand at the same time as very high energy prices, both for gas, for power, but also for coal.
We've seen also quite an unusual situation recently where metallurgical coal's actually been trading at a discount to thermal coal, which is completely decoupled from the normal market behavior, and that's been pulling some of the supply of met coal into thermal coal, tightening an already tight segment. Recently, we started to see some reductions in energy prices, and that's certainly giving a little bit of improvement and help to support the steel margins right now. Iron ore, on the other hand, is in quite an interesting time. There's a few factors that we really need to think about. Firstly is if we look at the Chinese port inventory levels right now, they're actually sitting at relatively low levels over here compared to the levels where they were a year ago.
on top of that, and perhaps equally important, is thinking about the inventory levels which are sitting at steel mills. As the steel mills have been going through this more bearish period, they've been running down their own inventories at site and operating on a hand-to-mouth basis. What the Chinese industry has the benefit of is this huge port market which they can tap into on any given day and restock or buy material on a hand-to-mouth basis. This is quite interesting in terms of, you know, where you can foresee a scenario where sentiment starts to turn more positive and a lot of steel mills suddenly turn and pour into a port market at potentially to restock at the same time when your inventory levels there are actually.
They're relatively low compared to what it might have been at previous points. We also need to think about the supply side of iron ore, and it's faced a number of challenges. The shipment pace from Brazil continues to fall behind expectations and has done so ever since the Vale Brumadinho dam tragedy in early 2019. Coupled with this, we also see, you know, a lot of other issues. There's the increase in tariffs on Indian iron ore exports has virtually stopped the entire flow of Indian iron ore fines into the China market this year, driven also further by the strong demand in there to feed their own growing steel industry.
We've also recently seen a bit of a factor in the bottom right chart there, where Chinese domestic concentrate production has also been curtailed due to some safety concerns related to in the mines there. You know, coupled with this, we're now heading into the season where the market's much more prone to disruption. You know, we have the prospect of heavy rainfall that starts soon in Brazil that impacts both mine production and logistics there, and at the same time, the season where the Pilbara region of Australia is, you know, relatively exposed to cyclones disrupting the supply there as well. While the steel industry is in a very difficult moment, I think it's also fair to summarize that the iron ore market is relatively tight right now.
What does this mean for Rana Gruber ? Well, as I said, we sell 50-odd million tons a year of iron ore, so we're selling somewhere in the region of 50 million tons a year of iron ore into the Chinese steel industry. That means we've got a very large global customer base and we always have the option to sell Rana Gruber material into China as a backstop if we require. That was a pretty useful lever right at the start of COVID, where we saw, you know, a sudden curtailment of production of some of our customers in Europe, and we needed to divert a few vessels into the Chinese market. That was quite easy to do.
For the past couple of years now, we've sold every single ton that Rana Gruber has produced and sent to us into the European market. We've really focused our efforts on growing further the European customer base, as Gunnar mentioned before. That's been pretty successful. We've seen, you know, growing demand for Rana Gruber products into the key target market to the extent that, you know, we're foreseeing greater demand than supply at present. As we start to think about some of the longer term market trends, I think you have to look to the past to think about the future. We've seen three very distinctive eras in the steel industry. There were the pre-2000 industrial era.
Again, you have to think about China there as being a relatively small player in the market. In fact, in 2000 China was about 10% of global steel production and a relatively small importer, largely consuming domestic iron ore. Iron ore prices were pretty stable but also pretty low and there was little differentiation between different grades of iron ore because there was an abundance of supply of high grade iron ore. Many miners really struggled to survive through this period. We then moved into the 2000-2010 era of the supercycle. We got this dramatic demand expansion in China as they expanded their production and consumption of steel.
Supply chains across the mining industry were really stretched to their breaking point as companies were scrambling to meet this growing demand. China increased its consumption of iron ore so quickly, the iron ore grades that were available in the market started to deteriorate. This oversupply of high grade iron ore quickly disappeared, which started to fuel a little bit more of differentiation between the different grades. The following decade was what we think about as the era of ferrous commodities. The benchmark price ended in 2010 and was replaced by index-linked pricing. At the same time as that, the ferrous derivatives market started to rapidly grow, first in Singapore and then onshore in China.
China launched the Dalian Commodity Exchange iron ore contract in 2013, and it traded 33 million tons of iron ore on its first day. It peaked at around 1 billion tons in a single day, and today it's settled at around 100 million to 150 million tons per day, which, to give you some context, is comparable to the entire annual consumption of the European steel industry. This has been, you know, enormously disruptive to how the iron ore market operates, how it structures, how it's priced.
We really do talk about iron ore, we talk about China, and the influences on the price and the market there become increasingly complex. Today, as I mentioned, the start of this century, China was less than 10%, around 10% of the steel industry. Today, it's a little over 50% of global steel production. It consumes the vast majority of the seaborne trade of iron ore. Its influence can never be underestimated. We're now moving into the new era, which we're thinking about, which is decarbonization. In our view, this has the ingredients to be as every bit as disruptive to the market as what we've seen over the last two phases. We also go into a period with a lot of different uncertainties.
You know, we've talked about the Chinese COVID policy this year and the impact that's having, about the impact of the war in Ukraine and the geopolitical uncertainty. We also face, you know, the growing pressures, and the daily news we see around climate change and the impact of that. We also see, you know, an increasing trend of resource scarcity. You're seeing countries now increasingly scrambling to secure access to this critical resources for the economies of the future. This is leading to quite a different period. What we see three main themes that are starting to emerge. The first thing is that we're seeing value chains starting to really now converge around carbon.
This is to a degree going to drive a period of de-globalization. The last 30 years have been characterized by globalization, you know, the growth of efficiency gains. It was entirely logical to ship raw materials from one side of the world, produce steel in the other, and produce automobiles, fridges or whatever, ship them back to the other side of the world. In a world with high carbon prices and decarbonization, this is just not gonna be the way forward. The economics will not stack up and we're seeing trade policies like the CBAM coming in, which will target eroding of what we think about as carbon leakage.
Very soon in the future, the way we think about it is that exporting steel, exporting scrap, exporting high-grade iron ore from your local region will feel like you're importing carbon to replace it, and therefore it doesn't feel very logical. People are gonna want to do less of that. You're already seeing protectionism around, for instance, scraps, scrap resources, in certain regions. The second thing is that we see a shortage of green steel, where we've got a significant potential imbalance coming. In Europe alone, there's about 26 announced projects over the next decade for the transition to low CO2 steel making, by 2032. But the challenges of delivering these projects are gonna be vast. They're gonna require huge amounts of capital.
They're gonna require a lot of technology risk and a lot of complexity to deliver scarcity of engineering resources, etc. At the same time as this is happening, we've seen a huge amount of commitments made by countries, by companies about reducing their Scope one, two, and three emissions by the end of this decade. We start to see a scenario where by 2030, the demand for green steel will start to vastly outstrip the supply of green steel in the European steel industry. The third theme we see is a growing need for green and transparent supply chains.
We see, you know, when we look at downstream customers and consumers, that there's a growing pressure to have greater visibility of not just how the products that they're buying are made, but also how the raw materials and feeds into those products are being produced. Consumers are increasingly applying pressure on steel mills to ensure that the products they meet meet the standards that they demand. It's fair to say that opacity that has for a long time existed in the ferrous steel industry will not be accepted in future. A huge pressure to operate clean, green, transparent supply chains right up to the very top of the value chain. We think, you know, this era of disruption will certainly lead to there being winners and losers in the market.
I think the economics of the green transition are a concern to many today, but the security of green steel, green raw materials, green supply chains means that we see big downside risks for those companies that move too slowly. The window is closing to be a first mover. So it's really a question of, you know, if you want to go green, you better move now. Because if you think it's expensive today, wait five years and see how expensive it will be. You know, so at Cargill, we're really delighted to continue our work with Rana Gruber. It's a really exciting time for the company.
We're really, you know, excited to see the implementation of the plans to become the first carbon-free iron ore miner in the world, which I think will be a huge achievement and generate a lot of excitement across the ferrous industry. It's not just also, though, about what Rana Gruber can do for their own emissions, but it's about the impact that Rana Gruber can have on our downstream customers by delivering a high-quality product, which, as Gunnar mentioned before, will allow our customers in turn to reduce their own carbon emissions. Yeah, an exciting few years ahead. Thank you.
Thank you, Leon, and thank you for your insights. We now continue with Erlend, who will tell us more about the financial topics.
Hi again, everyone. Thank you, everyone. My name is Erlend Høyen, and I am the CFO of Rana Gruber. Our financial targets for value creation remains firm. Our continuous focus on cost-efficient operations enables a low financial leverage. This enables a strong cash generation. This again enables us to fully fund our CapEx needs through operations and to deliver on our dividend policies. Today, I will go through more into depth into these topics and a couple of other ones.
We have a strong focus on cost efficiency. Even though the global inflation has impacted our costs in the last few quarters, we see that the Q3 of 2022 had the lowest cash costs per metric tons produced since we went public. This is a result of the continuous work that we do to keep up high production, as well as keeping focus on our cost levels. On the right-hand side of the graph, you can see a breakdown of our cash costs for 2022 full-year figures. We see that mining is by far the largest cost driver, followed by administration and processing. We have a solid financial platform, and we have a policy to not have any long-term bank debt.
As you can see on the graph on the left-hand side, we've had a positive leverage development, the last couple of years, and we are now free of all long-term bank debt. Being free of long-term bank debt enable us to have a sufficient capital buffer, for the investments needed to deliver on our strategic projects, the development of new mining levels, and as well as the replacement of equipment and machineries, even when the market is volatile. We also have an unused credit facility of NOK 100 million, and by the end of the Q3, we had a equity ratio of 45.5% and a cash holding in the company of NOK 339 million. Now some words about CapEx going forward.
We plan investments related to our ongoing projects, the Fe65 project, the M40 project, and the zero carbon emission project, and the CapEx related to these projects will increase in the coming years. The Fe65 project and the M40 project depend on an integrated process to upgrade the processing plant. The total CapEx estimated for these projects is between NOK 80 million-NOK 90 million . Of these, we have already invested NOK 10 million now in 2022. As Nancy said earlier, we are currently in the process of identifying the most suitable solutions and suppliers for the zero carbon emission project. Sandvik, you have already met today, but we need to decide on several solutions from other suppliers as well, in order to have everything we need.
This makes it difficult to communicate an exact number for the CapEx needed in this particular project at the current time. What we do know is that we will not finance either of these projects with either new interest-bearing debt or share issues. The plan is to finance these projects through earnings from operation and lease obligations. We also expect that the zero carbon emission project will be subject to governmental support, and we are in close dialogue with Enova regarding this project. As Gunnar and Nancy mentioned earlier, all of these three projects are expected to be within the previously communicated timeline. Since the listing on Euronext Growth in 2021, more than NOK 600 million has been paid out in dividends.
This has provided a solid direct return on the Rana Gruber share, with a distribution of NOK 16.47 per share, including the Q3 of 2022. We aim to pay out 50%-70% of the adjusted net profit over time to quarterly dividends, determined by the board of directors, and the board of directors also has the option to allocate up to 30% of the estimated dividends to repurchase of own shares. The rationale behind the dividend policy is that Rana Gruber is a mature mining company. Most of the heavy infrastructure investments were done from the 1960s up till the 1990s, and this is part of what enables us to have a strong cash flow generation in the current days.
Of course, we need to develop new mining levels, and we do continuously need to work on improving the operations, but unlike the situation of a mining company in the startup phase, most of the major investments have already been done. We often get a question about the price mechanism and booking of revenue, so I'll try to explain this here. The final price for any shipment of Hematite concentrate is settled three months after the shipment has left our port in Mo i Rana. For a shipment taking place in January, the final price will be settled in April, and for a shipment taking place in February, the price will be settled in May, and so on.
This three-month lag between the initiation of a shipment and the settlement of the price of the shipment is a well-established standard in the industry. The final price for any shipment is based on the average spot price for the settlement month reported by the Platts 62% Fe index, which had been mentioned earlier today. Since the 62% Fe index is an index for cargo delivered at port in China and we only deliver FOB, the settlement involves an adjustment for freight as well as other minor elements related to the actual characteristics of the particular cargo and the end customers. The freight index that is used in the settlement is the C3 index, which Leon mentioned on the Baltic Dry Index. For illustrations, let's have a look at this table.
Today we reported the revenues for shipments taking place in the Q3, as well as the final settlements for shipments that left our port in the Q2. If you have a look at the first shipment, which took place in July, we see that the final settlement for this shipment is settled three months after in October. Even though we know the final price of these shipments, the revenue reported today is not based on the final price. They are based on what the forward price for October was at the end of the last day in September. The same applies for the second shipment. The third and fourth shipment took place in August, and the final price for these shipments will be settled when we know the November average.
The revenues from these shipments reported today are based on what the forward price was for November at the end of the Q3, by the September 30th. The same mechanism applies for the last two shipments. The difference between the revenues booked for shipments taking place in a quarter and the settlement price of these shipments is based upon the changes on the Platts index, compared to the forward prices used in the reporting. This difference impacts results in the following quarter. That means in every quarter that we present, the revenues will be based partly on the estimated value for our shipments that is based on the forward prices, as well as partly adjustments for the settlement prices for the previous quarter. Finally, some word about our hedging.
We have hedging positions both in related to iron ore and U.S. dollar, which is the currency that we sell most of our products in. The purpose of our hedging positions is to just secure a sustainable and stable cash flow that enables our needed investments and compliance with our dividend policy. As stated in our hedging policy, we may secure up to 50% of the annual production volume for a period of up to 24 months. This translates to a hedging portfolio covering up to around 750,000 metric tons. Our assessments of whether we should hedge or not are based on several factors, one of them being expectations about large changes in the iron ore market.
Our expectations about changes is based on continuous conversations with strategic partners and analysts, as well as sudden movements that we see in the world. We typically try to stay away from hedging when we see an upwards trend in the market. Other factors taken into consideration is whether the market is in a position where securing a small portion of the sales volume would support a large portion of the operating costs. Finally, the timing of large investments and cash draws will also be taken into consideration when we evaluate whether or not to hedge. According to IFRS, changes in the portfolio value is included in the P&L under net financial income and expenses. Let's sum up the financial topics. We have a solid financial position.
This enable us to be compliant with our dividend policy, invest in our strategic projects, develop new mining levels, and do all the necessary CapEx replacements for machinery and equipment. That's all from me now.
Thank you, Erlend Høyen. We now have some time for questions. Are there any questions from the audience, or shall I start with the received ones from the web? Hans Arne.
Hello. Hans Arne from Clarksons. I have a question for Leon Davies from Cargill. Seeing the low port inventories, seeing the low steel mill inventories, and in general, seeing that Vale is struggling to ramp up from Brazil to China. Technically, it looks to me that the market will be short iron ore concentrate or so on for the next 12-18 months. Can you elaborate if I'm right in reading your figures? To me, it looks like iron ore is going to move upwards even with a slow China.
I mean, if I knew the answer to that question, I'd already be retired. I think that it's very difficult to call some of the policy decisions and that's key because that's what sets sentiment. I think what you can see is the ingredients there where if certain circumstances came together, then certainly you could see iron ore moving upwards given the factors that you laid out there. Certainly, you know, demand for high grade concentrates is always somewhat influenced by steel margin, and driven and secondly by the energy costs.
You know, in a situation where you have expansion of steel margins going forward, which isn't necessarily gonna be the case, then you see an enhancement in demand for the high grade corrective types of ores. I know we don't really make price forecasts, Hans Olav. That's not our job. That's for the investment banks out there.
Kenneth Syversen in Pareto Securities. Two questions from me. First on the green premium. How should we think about the green premium a company with zero pollution could attract? That's the first one. The second one is on China actually. Given the weak housing data you see now in China, what is the timeline from housing project startup and steel demand? If you have any thoughts there, it will be appreciated. The third and final is more on the Rana. How to think about CapEx for the next level on the mining project there?
I think on the green premium, it's difficult to be too precise at this stage. I would say a little bit anecdotally what we see in the market. I think there's pretty well-publicized reports around the green premiums to be achieved by buying new hydrogen-based steelmaking projects coming in in Scandinavia. There's also we see you know rumors in the market that some of the products which are available in the market and packaged as low carbon steel today are selling in with you know premiums in excess of EUR 100 per ton over the what you might call the gray steel index for hot rolled coils.
that already sets a little bit of a line in the sand that those triple digit premiums for steel exist today. and where they go in future, I guess, well, is difficult to be too precise. you know, as I said, we see there's gonna be an imbalance in terms of the demand for these solutions and the supply and availability of them as we move towards the sort of second half of this decade. what does that mean then for green producers in the mining industry, et c? It's difficult to be too precise, but you are starting to move into an era where there is a willingness to pay, and there is a need for solutions to be delivered. Your second question has really stumped me.
I can't be too precise because we have a whole team in China who are looking at trading and analytics. I'm gonna pass a little bit on that question. What I would say is that I think sentiment is very important. Everybody's looking for those forward indicator points. Everyone's looking at, for instance, the new loan data that comes out, what stimulus packages are coming, what forward sentiment is like, which means that the actual lag of spending to underlying demand might be much shorter than the cycle time from spending through to apparent demand.
Regarding the CapEx level on the next mining level, there is a reason why we insource that activity. That is the predictability of the costs on the CapEx on every level. We do not get influenced by changing times in the entrepreneur business. The next CapEx next mining level will be in the same level on CapEx as the previous one.
Any other questions? I have one question I will like to test it on Leon Davies.
Why do you pay the shipping cost in the same range as you will ship to Asia when you ship to Europe?
Okay. Good question. I used to be an iron ore buyer for a European steel mill, so I sat on the other side of the table in the past. At the iron ore contract, the plus index is CFR Qingdao contract. That's where the market price is set. The game from there is how much of the freight benefit you can claw back. When we talk about C3 is, as I said, it's the Capesize assessment from Brazil to China in 170,000-180,000 ton vessels. You know, achieving C3 net back versus as a comparison to shipping in a smaller vessel from the North Atlantic actually is not a bad outcome.
It's all really the game with our customers is all really about how you get the right balance between what your net back price can be. You can never move away from the fact that there isn't any kind of liquid CFI European reference point. The only market reference point is CFR China, so that's the starting point for every negotiation.
Do you want to say something?
No. He explained the mechanism, and that's the way it is for every producer in the European segment. That's the way it is.
Yes.
In order to be compatible with every other supplier in Europe, we have to link this into our contracts.
Here's one question about. There's a lot of talk about artificial intelligence these days. Can drones powered by artificial intelligence machine learning be used to explore new fields? I think Stein Tore should take that one.
Short answer is no. I can elaborate a little bit. In order to, as I understand, explore new fields means exploring new iron ore.
In terms of drones, you need to drill long holes into the ore itself, extract material from the ore body and inspect it. No, it's a good question, but it's not feasible to use drones to find information deep underground.
Thank you. I think either Gunnar or Erlend should take the next one. What of the following options do you prefer? Withhold profits and increased automation and equity, distribution dividends, buyback of your own shares and strengthen your equity?
Can you take it one more time?
Keep back equity, pay back dividends or buy back shares. What do you prefer?
I guess we would say that we prefer a balance. We both have to take into consideration the capital we need to do the strategic projects and to deliver on our strategy to be debt-free for once. On the other side, we have both Norwegian and international investors that we have to take care of. There's a balance there as well between the buyback and to continue to pay out dividends. I would say we as a company don't have any clear preference. We try to stick to what we feel that our biggest owners and the market wants the most, as I think we have showed by implementing both.
If you look at the track record, the track record so far has been dividends through signals that we have gotten through our biggest shareholders. Obviously that is something that could change going forward if that's something that's requested by the market.
Yeah. You touch upon, hedging strategy.
Are you sure you have the optimal hedging strategy? What are the main risk for the company?
I would try to reference the same thing as Leon said. If we knew that, we would be retired by now. I think that what we try to communicate with our hedging strategy is that we are not trying to speculate on the market. We're not trying to see whether or not we could beat the market or not. We have a strong cash flow focus on our hedging. We are a long-term mining company, so being.
Having hedging strategy that support our cash needs going forward and being able for us to draw the big and the long lines that we need in being able to do the necessary investments when we need them at the right time is the important background for a lot of the rationale behind the hedging.
Yes. That was all the questions from the web. Are there any new questions from the audience?
There's more. More questions.
Is there more?
Can the cost from being the forerunner of green solution be higher than the benefits?
Well, we don't know, but we don't think so. As Leon mentioned, if you're too late, you could be too late. You have to be an early mover to show that you will be in the front of the development. That has been our signaled strategy all the time, and we still believe that's the right way to go. From the investigation so far, I can't say that there are any reason why we should be struggling with financing the products. We also believe and suspect that the revenue from the premium from producing a product that the steel industry is craving for will be substantial.
Yeah. Erlend, you touched upon CapEx for the strategic project.
Could you say something about the level of maintenance CapEx?
We typically run around NOK 40 million- NOK 50 million in maintenance CapEx per year, and a part of that is traditionally transition of classical diesel-driven equipment that will be more towards the zero carbon emission projects. In the last years, we have been using roughly NOK 40 milion-NOK 50 million in typical maintenance CapEx.
Given the cost pressure we are seeing across the industry and raw material prices that are still sky high, how do you see development in cash costs towards the end of 2022 and into 2023?
I think that for our cost base, obviously there will be fluctuations that everyone in this room knows, related to the mass removal. As you saw, the mining operation is the operation that draws the most cash cost. But I think that what we do see is that a lot of the parts that has been increasing a lot for us, diesel, explosives and input factors like that, they are starting to ease out and not continuously increasing at the moment. I would expect them to be stable going forward.
Yeah. I have one question to Stein Tore Liljenström regarding Fe65 project. Will you be able to increase the quality to 65% and still produce the same total volumes as you do today?
Yes. Again, short answer, we believe so. It's not easy, but it's. We have done a lot of R&D around that topic. How much capacity do you lose when you increase the quality? Every figure points towards that we are able to keep up the productivity of iron ore concentrate.
Yes. One question, I think, Gunnar could take this. Are you sure the demand for green steel products will increase in a world that potentially is heading towards a recession?
Yes. I think so. I'm quite sure. The things that happens geopolitical now, will not influence on the way going forward on green steel demand, so I'm quite sure.
Yeah. A question to Sandvik.
Yes.
Can you guarantee that you will be able to deliver the machinery that Rana Gruber needs to became carbon free before entering into 2026?
I mean, we have committed ourselves to have Rana Gruber as a strategic partner.
Good.
We are now completing the TransforMine study. I cannot predict the outcome of that, but I will say yes, we can.
Perfect. That was all for now. I will leave the word to Gunnar who will.
Yes. Thank you, Vegard. I would like to sum up this in three points. Firstly, we are on track with our strategic development projects before the end of 2024. That stays firm. We expect to increase the minimum iron content in our Hematite production to 65%, and also to increase our Magnetite production by 50%. Before the end of 2025, we expect to be the world's first carbon-free iron ore producer. Secondly, we already have vast resources and reserves, and we are working to increase the reserve base and resource base further. We are able to utilize our existing infrastructure to conduct mining operations for decades to come.
Finally, we have a solid financial position, and this enables attractivity and predictability, dividend distributions, investments in strategic projects, development of new mining levels, and necessary replacements of machinery and equipment. Thank you very much for your attention, and you are all invited for lunch in the floor above us, so please enjoy. Thank you again.