Thermodynamic calculations based on the ideal system NiO - Fe203 - H2(g) - CO(g) - H2O(g) - CO2(g) show that it is not possible to selectively reduce nickel oxide in the presence of hematite because ferronickel is the zero-valent nickel-containing product. The calculations show that temperature, reducing atmosphere composition and oxide to reductant ratio have a marked effect on the nickel content of the ferronickel alloy and the amount of nickel reporting jn the alloy. The general trends based on the calculations correlltte well with experimental observations.