Arms Boom Meets Steel Revolution: A New Era for Salzgitter, Strategic Resources and SSAB

SALZGITTER: THE HUNGER FOR CLEAN IRON ORE PELLETS

With the SALCOS (Salzgitter Low CO₂ Steelmaking) program, the MDAX-listed Salzgitter Group is consistently driving the transition from blast furnace steelmaking to climate-friendly steel production. At the heart of the first expansion phase is a DRI plant (the acronym stands for direct reduction) on the factory grounds in Salzgitter with a capacity of just over 2 million metric tonnes of directly reduced iron per year. Production is scheduled to begin in the first half of 2027. The total investment for the first phase amounts to EUR 2.7 billion, of which approximately EUR 1 billion comes from public funding. In direct reduction, iron ore is processed into sponge iron using hydrogen instead of coal, producing virtually no CO₂—only water. To ensure the plant operates at full capacity, Salzgitter needs one thing above all else: high-quality, low-carbon iron ore pellets. The Group has therefore already signed a memorandum of understanding with the Swiss mining company Ferrexpo regarding the supply of such pellets and is also collaborating with Binding Solutions on pelletization technology. Both steps demonstrate that Salzgitter is actively seeking reliable, climate-friendly pellet suppliers—a need that is likely to increase rather than decrease over the coming years.

Operationally, 2025 was not an easy year for Salzgitter. Revenue fell by 5% to approximately EUR 7.9 billion, operating profit dropped to EUR 376 million (previous year: EUR 445 million), and the bottom line showed a small pre-tax loss of EUR 28 million. The dividend was temporarily suspended. However, a significant turnaround is on the horizon for 2026. Management has already raised its full-year forecast twice. This improvement is driven, on the one hand, by the Group's own efficiency program, which had already achieved EUR 97 million of the EUR 122 million in savings targeted for 2026 by mid-year. On the other hand, one-time factors are also playing a role: the full consolidation of Hüttenwerke Krupp Mannesmann (HKM) as well as a surprisingly high earnings contribution from the copper producer Aurubis, in which Salzgitter holds a stake of just under 30%.

Sentiment on the capital market has shifted accordingly. While the average analyst consensus, with a price target of EUR 58.80, is close to the current level of EUR 57.40, the more recent estimates, updated following the half-year results, are significantly more optimistic. Deutsche Bank sees the fair value at EUR 63, JPMorgan Chase at EUR 64, and Jefferies as high as EUR 66. Only UBS remains more cautious with a price target of EUR 56. Salzgitter is hoping for additional tailwinds from the new EU trade defense measures against global steel overcapacity, which have been in effect since July 1. Another, still small but growing pillar of the business is armor steel. Salzgitter has established a "Task Force Defense" and is thus entering a market as the third supplier, alongside SSAB and Dillinger Hütte, which, according to CEO Gunnar Groebler, cannot be served by a single manufacturer given NATO's rearmament goals. So far, this business accounts for less than 1% of the Group's revenue—but the potential is considered considerable.

STRATEGIC RESOURCES: VANADIUM AND TITANIUM - SO IRON DOESN'T BREAK

Salzgitter's need for low-carbon iron ore pellets raises the question of who can supply this material. One possible candidate is Strategic Resources, a Canadian commodities company whose share price of around CAD 0.23 (EUR 0.13 in Frankfurt) suggests that the market has not yet discovered its value. In 2019, the Montréal-based company secured several project options in Finland. Starting in 2020, well-known Canadian commodities investor Ross Beaty came on board through his Lumina Group and sought to shape the company into a vehicle for establishing Western vanadium production. The centrepiece was to be the Mustavaara project in northern Finland, a vanadium-iron-titanium deposit operated by Rautaruukki Oy between 1976 and 1985, which at the time accounted for about 10% of global production. Both vanadium and titanium are added to high-grade steel to increase its strength and resistance to heat and cold.

The decisive structural shift came in December 2022. As part of a so-called reverse takeover—in which the smaller, already publicly traded company formally acquires a larger one to provide it with access to the capital market—Strategic Resources merged with BlackRock Metals. This added BlackRock Metals' project in Québec to the portfolio: a fully permitted vanadium-titanium-iron ore deposit with a net present value (after taxes) of approximately CAD 1.9 billion and a planned mine life of 39 years—with the potential to extend to over 100 years. This currently contrasts with a market capitalization of just CAD 13 million.

Phase 1 of the BlackRock project calls for the construction of a pelletizing plant with an annual capacity of 4 million metric tonnes at the deep-water port of Port Saguenay in Québec, which will process purchased iron ore concentrate into so-called DR-grade pellets. These are precisely the high-quality pellets that are specifically suited for direct reduction—exactly the material that Salzgitter is also seeking for its SALCOS plant. The necessary capacity expansion from 1 to 4 million metric tonnes is in the final stages of the permitting process; the authorities have already given the green light for the mine itself and the smelter. Furthermore, Javelin Global Commodities, an international commodities trader, is on board as a purchasing and marketing partner and has also offered the prospect of working capital financing of up to USD 150 million.

In an interview with IIF host Lyndsay Malchuk, Strategic Resources CEO Sean Cleary explains the plans to build the processing plant in Québec.

https://youtu.be/ha8A2-FPIwk

It is not just Ross Beaty—founder of Pan American Silver and now chairman of Equinox Gold, another billion-dollar corporation—who is convinced of Strategic Resources' success. The renowned commodities fund Orion Mine Finance and Investissement Québec, the provincial government's investment arm, have also made significant investments; each holds approximately 41% of the company's shares. The Québec provincial government is also actively involved. It is financing a CAD 110 million belt conveyor system at the port, as well as additional supply infrastructure valued at CAD 170 million.

The most recent evidence that the Finnish operation can also play a central role in the production of green steel in the future came just a few weeks ago. At the end of June, Strategic Resources announced that the vanadium-rich magnetite concentrate from Mustavaara had been selected for the FutSteel research project at the University of Oulu. FutSteel is a research project with a budget of EUR 17 million, running through 2029, which, in collaboration with the Swedish-Finnish steel group SSAB, is investigating the transition of the Raahe steel mill to a hydrogen-based, low-carbon production chain. CEO Sean Cleary viewed the selection as confirmation that Mustavaara possesses a high-quality concentrate that will become increasingly important for the global supply chain.

There is currently no direct supply relationship between Strategic Resources and Salzgitter. Nevertheless, German steel executives are unlikely to have overlooked who intends to produce the urgently needed DR-grade pellets at Port Saguenay—especially since another potential advantage would arise from the European Carbon Border Adjustment Mechanism (CBAM) for low-carbon imports from Canada. Given a market valuation that amounts to only a fraction of the project's value, the situation is a perfect fit for patient investors. However, significant price volatility must still be expected with Strategic Resources, because while the dominant major shareholders serve as a seal of approval for the business model, they also limit the number of freely tradable shares. As a result, the stock is not only small-cap but also extremely illiquid.

SSAB: EUROPE'S QUASI-MONOPOLIST IN ARMOR STEEL

SSAB, which, as a research partner, validated the Mustavaara concentrate for its FutSteel program, is also considered a steel stock with a unique monopoly position. Through its Armox brand, SSAB is effectively the only manufacturer of armor steel in Europe that is fully certified to NATO standards. Forecasts indicate European demand of up to 8 million metric tonnes—actual production capacity currently stands at less than 500,000 metric tonnes per year. Virtually every Western defense program, from Leopard 2 to Boxer to Puma, relies on this single supplier. In addition, the company is benefiting from the EU trade defense measures against global steel overcapacity, which have been in effect since July; management hopes these will improve the supply-demand balance in Europe.

The latest figures were solid. In the second quarter, revenue rose 7.3% year-over-year to SEK 27.5 billion (previous year: SEK 25.6 billion), and earnings per share climbed from SEK 1.86 to SEK 2.09. The improvement was driven by higher prices, up 6% on average compared to the previous quarter, and as much as 7% in the SSAB Americas division, as well as higher sales volumes. However, SSAB expects a seasonally driven slowdown in the third quarter due to planned maintenance work across all steel divisions.

Surprisingly, analysts have not yet factored the defense boom into their models. The average price target stands at SEK 112.20, which is not much higher than the current price of SEK 105. SSAB CEO Johnny Sjöström himself provided one reason for this when he explained in March that the expected boost from German defense and infrastructure programs has so far had little impact on the figures. The bottleneck, he noted, lies not in demand but in the defense industry itself. It cannot ramp up its production capacity fast enough to actually absorb the available armor steel.

GET IN BEFORE THE MARKET DISCOVERS THE STORY

The three companies cover different segments of the same value chain. Salzgitter demonstrates just how strong the demand for low-carbon iron ore pellets is among European steel groups—and has regained operational ground with its latest upward forecast revision. In addition, with its new "Task Force Defense," the Lower Saxony-based company is pushing into precisely the segment where SSAB still holds a virtual monopoly—with the goal of eroding that monopoly in the medium term, even though the German group is still in the very early stages here. SSAB could weather a new competitor, as the market for armor steel is set to experience strong structural growth in the coming years. Strategic Resources, with the BlackRock project and its Finnish Mustavaara operations, is positioned exactly where the needs of both steel companies could be met—backed by prominent investors such as Ross Beaty, Orion Mine Finance, and the Province of Québec. For investors, this means the defense and decarbonization story is real. Only the timing of when this narrative will actually translate into revenue and earnings is harder to pinpoint than the headlines about the European defense boom might suggest. Savvy investors are already positioning themselves, because the opportunities associated with this will not remain hidden from the market forever.