ThREE Consulting LLC | Jim Kennedy | Green Steel Companies

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The only North American Green Steel project moves toward feasibility phase

Jim Kennedy

President

ThREE Consulting LLC

www.ThREEConsulting.com

Contact:

314.494.1638

jkennedy@threeconsulting.com

Interview conducted by:

Lynn Fosse, Senior Editor

CEOCFO Magazine

Published – July 12, 2021

CEOCFO: Mr. Kennedy, your site tagline is, “Understanding the larger issues.” What does that mean Three Consulting?

Mr. Kennedy: Three Consulting is the combination of a number of things that I have been working on over the last decade. It includes mining of basic commodities like iron, extraction of high-tech material like rare earths, other critical materials and nuclear energy. This work became increasingly geopolitically-centric as I explored the global markets and the many failings of the US system as it relates to critical materials and technology transfers.

CEOCFO: You have been researching it and now what?

Mr. Kennedy: This all came about from the acquisition of an iron ore mine in late 2001. I started working on redeveloping the iron ore mine and in the process of evaluating mineralogy we discovered that the deposit was very rich in rare earth elements and that caused me to go on a journey of discovery. As early as 2009 I engaged with the federal government and tried to alert them to the risk associated with our nations complete failure to be current or active in this space (rare earths). In addition to providing a lot of information to the federal government over the last decade, I have consulted financial companies, mining companies, and governments, on the geopolitical implications of rare earths.

This included an invitation to speak at the United Nations in 2014 on issues related to critical materials and the related element thorium, which is a nuclear fuel (https://www.youtube.com/watch?v=fLR39sT_bTs&t=14s ).

In short all of this stemmed from a mining project that we sold back in 2012 and through a lot of circumstances we now own the entire project again and we are doing high level engineering work related to redeveloping the mine as a green steel project and of course recover the rare earth resources that are associated with it. It was a 15 year walk down the path of discovery and it has culminated in potentially the first truly economic hydrocarbon-free Green Steel project in the world.

CEOCFO: Is that because of the resource?

Mr. Kennedy: The mine we bought in 2001 happened to be the highest-grade magnetic iron ore deposit in the world. The mine failed in 2001 for a lot of reasons including falling iron ore prices for a number of decades and US interest rate policies that pushed the dollar up against foreign currencies making the mine less competitive.

The biggest problem, however, was that the mine was an orphan iron producer in North America. In North America the market for virgin iron units has dropped by 70% as integrated steel production continues to be displaced by recycled steel from Electric Arc Furnaces. The remaining integrated steel producers primarily utilize their own iron ore mines, so there is no domestic ready / steady market for Pea Ridge.

The mine’s geographic location, in the center of the USA, makes the economics of exporting to China or other large markets risky.

The Pea Ridge deposit had a lot going against it but the plus side of the ledger was quite favorable. Despite being an underground mine, Pea Ridge has a history of being a relatively low-cost producer of super-high-grade iron ore. This high-grade ore concentrate did have a number of specialty and chemical uses, but the markets were small and the former mine owners did not control the distribution of these high value products. Since the mine’s closure the KLAB/Karuna mine in Sweden supplies 100% of these specialty markets in the U.S.

Now that we control the project again and we have the benefit of over a decade of accumulated feasibility and engineering work, we are in a position to develop this project as a true green steel project and control the distribution of these specialty and chemical products.

CEOCFO: What has been the interest in the project?

Mr. Kennedy: The amount of investment dollars looking for green investments continues to grow. Governments and investors are demanding a bold shift in decarbonizing our economy. U.S. steel production represents about 6% of our national CO2 emissions. This Administration and the DoE have made this a priority.

The basic process of making steel with hydrogen is a decades-old proven technology. The technology and chemistry are similar to the current hydrocarbon process. In either process you are utilizing an atom that wants to attach itself to oxygen under the proper thermal conditions. The heated / energized atom strips off the oxygen from the iron ore (iron in its natural state is Fe2O3 or Fe3O4, basically rust) and you end up with pure Fe or metal. Historically the steel industry has used carbon as the reduction gas resulting in CO, CO2, NOX, SOX and heavy metals in the exhaust emission. With hydrogen you only have H2O emissions (no coal or natural gas that generate sulfur, heavy metals or resulting nitrous oxide production).

Using hydrogen, you can produce ultra-clean steel and eliminate all of the traditional emissions associated with steel making. This is not a new idea and it is not a technology reach. The problem has always been exclusively the economics. The cost of producing hydrogen as a reduction agent is about 30% more that the cost of any carbon-based reduction agent – based on industrial electric energy costs.

CEOCFO: What prompted you to explore Green Steel?

Mr. Kennedy: On two different occasions when I was discussing the rare earth issue with “green mandate’ investment fund managers, I happened to mention we owned a rare earth resource as part of a much larger high grade iron ore mining project. When I started telling them about the iron ore side of the project and they said “Wow.” They asked if there was any way to make that a green project because it sounded exciting. I had been dreaming about doing this for ten or twelve years and had not found anyone interested in funding this sort of green project. Both of these green mandate fund directors told me that if I could prove the economics, they would fund it.

CEOCFO: Where are you in that process?

Mr. Kennedy: I am working with my longtime partner in crime, John Kutsch, who is the executive director of Thorium Energy Alliance, and an all-around excellent engineer. We started working on that maybe twelve weeks ago and half way through the process we realized there was a Department of Energy Grant that was seeking to fund the exact thing that we were working on so we did a late-night college cram session. We completed and submitted a DoE FOA request for assistance in producing a set of fully integrated feasibility studies to determine the economics of the project. If the DoE FOA is granted in our favor, we can complete the integrated feasibility work within 16 months. Since our initial discussions with the green mandate funds there have been other potential investors expressing interest, including an international steel producer.

Upon confirmation of our economic projections via these feasibility studies, we have ready investors who would fund the development of the project. If the DoE acts quickly steel production could begin as early as 2025/26.

CEOCFO: Having worked with the government is your reputation helpful when looking at a grant or is it just the plan they see on the paper?

Mr. Kennedy: Working with the government this long, the government and I have much lower opinions of each other. A lot of decisions about who is going to get a grant are made long before opportunities are announced. For example, in the Pentagon’s recent funding decision related to national security and rare earths, a group of folks inside and outside the Pentagon had decided to channel much of the money into a previously twice bankrupt project -- funding it for a third time and expecting different results. It was all prebaked into the funding – the winners were pre-selected. We tried calling out the Pentagon on this, but the funding fell under some special type of secretive funding structure where nothing can be reviewed or evaluated.

The government has a bad reputation for preloading funding opportunities, but in this case, we are dealing with a Department of Energy grant that has been around for a number of years. In this particular case the Department of Energy is trying to achieve a number of things that are very important to them. One of the top priorities of the Department of Energy in this particular grant, which is FOA-0001817, is to stabilize the existing nuclear fleet. What does that have to do with making green steel? Everything.

There are two reasons why the nuclear fleet is economically unstable, one is mindless, selfish, stupid CEOs borrowing money against fully paid-off nuclear reactors so they could use the money to buy back their own shares for self-enrichment. That damage was done long ago. The larger, insurmountable problem facing these reactors today is that various states give renewable energy dispatched priority which means that during a sunny day when the air conditioners are running and electric fees are at their maximum, the guys that are producing wind and soar get to jump to the front of the line. This forces nuclear power stations to schedule energy production based on expected renewable production. Because renewable energy is so variable, it is almost impossible to predict what the coming month’s renewable load will be, so the production schedule for nuclear energy is reduced in proportion to the ‘anticipated renewable load’. On a day-to-day basis, if the estimated load falls short, due to overcast skies or a windless day, the nuclear energy company has to make up all of the missing energy by running natural gas turbines -- which is the most expensive ways to produce energy.

Renewables are essentially bankrupting the nuclear sector by stripping out all the high-paying lucrative electric fees during peak. In short, nuclear energy gets pushed out of the high profit peak-energy markets and has to cover the costs when there is a shortfall.

What we did was design an economic model around green steel that also met one of the DOEs primary goals of economically stabilizing the nuclear fleet. Our project does this through providing guaranteed offtake for nuclear energy during off-peak -- when rates are at their lowest. During off-peak hours our project would take twice as much energy as it actually needs for hydrogen production at a wholesale rate. Less than half of the energy would be used to produce hydrogen and the remaining portion would be used to charge a hydroelectric battery: an old-fashioned pump storage facility. During peak hours, when energy prices are very high, the pump storage facility would dispatch the stored energy to produce hydrogen. Because the pump storage facility is much like the battery on your phone, our project can also commit to taking any displaced nuclear, or curtailed renewable, energy that enters the grid during peak hours. So, in general terms, we are able to significantly lower the cost of hydrogen production 24/7/365 and the regional nuclear facility can schedule its energy production at optimal loads.

CEOCFO: Is the technology and the equipment to do all of this available today or do you need to develop other equipment and technology?

Mr. Kennedy: Everything that we are employing in this project is a proven commercial technology. Nothing is left to chance, nothing is wishful thinking, nothing is dependent on a technology that has not found its way out of a laboratory yet. Everything is proven at a commercial scale.

The trick is to secure reliable, uninterruptable energy at 70% of current industrial rate, typically $.04 per kwh. This is the parity-price point for hydrocarbons and electrically produced hydrogen.

Nobody else has identified the primary source for low-cost electric energy because no one outside the energy generation industry understands how much displaced energy results from the introduction of highly variable renewable energy – or how to capitalize on it.

As an aside, most everyone think renewables are great. What they don’t understand is that renewables are destabilizing all base-load systems – with the exception of natural gas…

This excess energy can have very low, or even negative pricing associated with it. The next problem is that you can’t power an energy intensive industrial process based on the intermittent surges of low-cost energy.

You need to store it. This is the brick wall for most people – conditioned to think in terms of chemical battery storage. They just cannot get their heads around how to store energy at the thousands or tens of thousands of megawatts level. The solution is old – very old.

We solve the problem by acquiring the underutilized nuclear capacity of regional nuclear reactors during off-peak hours. The excess capacity only exists because the nuclear power facilities are forced to reduce energy production capacity in anticipation of intermittent renewable energy production. We provide off-take guarantees and purchase any excess renewable energy at wholesale rates and store it in a hydroelectric pump storage facility. The large facility can store up to 10,000 megawatts of energy, to be released when needed.

In this scenario, everyone wins. The nuclear facilities operate at optimal efficiency levels and any excess renewable energy gets put to good use.

That is a huge leap that no one has taken. It is a virtuous and sustainable solution that stabilizes our nuclear fleet, utilizes curtailed renewable energy and allows for the economic production of hydrogen as a reduction gas (see: https://www.aist.org/AIST/aist/AIST/SteelNews/greenmillpresentation.pdf).

The integrated solution will allow us to operate at parody with traditional hydrocarbon and eliminates nearly all input pricing volatility. Coal, natural gas prices are replaced by water and iron ore volatility is eliminated through the integration of our mining operation. This will prove to be very attractive to the steel industry once they see its potential. In the steel industry margins can be horrible for long periods. When market prices move against the steel industry, they really lose a lot of money fast.

That is why the DoE grant and the green mandate investment funds are so important. Our project can demonstrate how and why other steel makers should make the transition. Our solution basically eliminates nearly all of the input price fluctuation risk associated with steel production.

CEOCFO: Is there a plan B for you if you do not get the grant?

Mr. Kennedy: If the DOE does not provide funding for the feasibility work, we will be forced to proceed with the project under traditional hydrocarbon technology. For investors, that is the lowest risk path forward.

Either way we have a very high margin project with essentially no ‘beta’ risk and we did it the old-fashioned way. The project is fully integrated so rather than run an iron ore mine that during good times can mark-up iron ore to ridiculous levels, we transfer the super high quality iron ore into our finished steel product at cost. By doing that and a few other things, we are able to show that our economic profile, economic pricing for finished goods, would have been profitable every day of every year over the last twenty years. That is something that almost no steel maker can say. That is how economically robust the integrated design is for this particular project.

If the DoE does not provide funding the project will become just one more CO2 emitting hydrocarbon project and the U.S. will surrender any claims of leadership in the green new economy.

CEOCFO: Hopefully they will.

Mr. Kennedy: Right now, in the real world there is only two true green steel projects on this planet. Both of them are in Sweden, both of them will get a tremendous amount of state funding and both of them are based on iron ore deposits that are chemically identical to our resource. These are two excellent mine to metal projects. One of them is fully integrated and the other one not fully integrated but they do start from the mine and get all the way to a finished steel product.

This is the only other project in the world and it is the only potential project in the US. If we do not get funding in this immediate round from the DOE, it is impossible for the US to be competitive in this space. If we are not launched as a green steel project in the near-term, then the window of opportunity will have closed and Sweden will have taken and rightly earned the title and the crown and everything that goes with it and the US will continue to be a laggard follower on the technology.

ThREE Consulting LLC | Jim Kennedy | Green Steel Companies | Rare Earths Minerals | The only North American Green Steel project moves toward feasibility phase | CEO Interviews 2021 | Industrial Companies | Rare Earths, Thorium, Energy Policy, National Security, Lanthanides, Industrial Technology, Rare Earth Thorium Policy, Rare Earth Refinery Cooperative, thorium energy, safe nuclear, energy policy, lanthanides, consultant, mining, ThREE Consulting LLC Press Releases, News

“It was a 15 year walk down the path of discovery and it has culminated in potentially the first truly economic hydrocarbon-free Green Steel project in the world”.

Jim Kennedy

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