Metal oxides are directly reduced by charging metal oxide-carbonaceous agglomerates to a shaft furnace, passing said pellets downwardly countercurrent to a flow of hot gases in a reduction zone, wherein the agglomerates are heated to 2000.degree.-2400.degree.F. and reduction effected while the agglomerates maintain their integrity, and then transferring the reduced pellets to a melting zone. In the melting zone, having a controlled atmosphere, the pellets melt and a mass of molten metal and slag is formed and then discharged from the melting zone.