Champion Iron Limited

Good morning, ladies and gentlemen, and welcome to the Champion Iron fourth quarter and year end results for the fiscal year 2023 conference call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded today, Wednesday, May the 31st, 2023. And I would now like to turn the conference over to Michael Marcotte, Senior Vice President of Corporate Development and Capital Markets. Please go ahead, sir.

Thank you, operator, and thank you, everybody, for joining our call to discuss our fourth quarter and fiscal 2023 results. Just before we get going, I'd like to turn everybody to our website at championiron.com, where you can find the presentation link under the events and presentation section that we'll be discussing today. I'd also like to mention that throughout this call, we'll be making forward-looking statements, and you can read more about our risks and forward-looking statements in our MD&A, also available on our website. I'd also like to highlight that every number that we'll be discussing on the call today are going to be in Canadian dollars unless otherwise stated. And now with that said, I'll just introduce you to people in the room here with us. So David Catterford, our CEO, We're going to be going over the formal presentation today and the Q&A. Closing remarks will be held by our chairman, Michael O'Keefe. We also have other executives here in the room, including Alexandre Bello, our COO, and Donald Tremblay, our CFO. With that, I'll turn it over to David.

Thanks, Michael. Thanks, everyone, for being here. Very happy to be able to discuss this past quarter's results. If we look at the highlights for the quarter, I think the one element, as we had mentioned in the past, We got most of our mining equipment delivered and assembled as well. So we're starting to see the results from this and we managed to move quite a lot more materials in the mine and which allowed us to continue a ramp up and produce close to 3.1 million tons during the quarter. So another record that we've managed to hit and well on track to be able to reach our full nameplate capacity run rate by August of this year. Also happy that we're continuing our capital return strategy. and declared our dividend of 10 cents after the board meeting yesterday. If we look in terms of sustainability, another highlight I think is the fact that we had no major environmental issues since 2018. So all of the investments that were made at site and that we continue to make every year allows us to keep the site safe in terms of environment and allows us to have a great environmental record. Also, I would like to highlight the fact that the teams have done a fantastic job, even if there was the end of COVID and also a pretty heavy construction year with the phase two ramp up and also finishing all the work, which allowed us to have a very good safety record. So the teams did a fantastic job to make sure that we could keep everybody safe at site. In terms of community and sustainability, one of the highlights during the past few weeks is the fact that we hosted three Quebec ministers at site, the Minister of Economy, Minister of First Nations, and also Minister of Employment. So it's great to host one of our larger shareholders at site, the government of Quebec, and to continue to have their support as well. So interesting to see their perspectives and allow them to see all the great work that we're doing at Bloom Lake. In terms of ESG, also very proud to say that we've delivered and published our 2022 sustainability report where we align ourselves with the GRI, SASB and TCFD. So the team has done a fantastic job in making sure that we can disclose properly all the great work that we're doing in ESG. which allows us to have a great rating compared to certain of our peers and allows us to have a very good environmental and ESG record published. If we look at the market, you saw probably in the month of January, February and March the iron ore price rally. So it went up by about 27% for the P62 and 23% for the P65. And we also saw the freight rates decline by about 12%. So, freights have been at a pretty good price now, even if these were the winter months where it typically cost us more at Bloom Lake. But as you'll see, we managed to have a pretty good freight rate during the quarter. So, if we turn to our actual operations, as we mentioned, one of the highlights being the fact that we produced close to 3.1 million tons. continuing a ramp up to be able to be at full nameplate capacity run rate by August of this year. And also the fact that we moved 1 million tons more in the mine. So you can see that the mining equipment that was delivered and assembled is ramping up as well, and we're in good position to be able to move the material required to be able to hit our nameplate capacity. So the mine is in a healthy state. You probably saw our strip ratio also increase slightly. We're now pretty much in line with the targets for the year. We did have a small backlog accumulated in the past quarter, but that will be able to be smoothed out over the next years. and we do feel that the mine is in very healthy shape to make sure that we can continue our ramp-up and deliver after that our full nameplate capacity. In terms of Phase 2, as we mentioned, the ramp-up is continuing. The issues that we had were the delivery of mining equipment and also some work that needed to be done on the crushing facilities. If we just go back a few years, I think it's important to note that We did have a few quarters when we started phase one that we had more difficulty on the crushing side. If you remember, we had a chute that was not performing. We were not delivering the tons. And the team quickly found a solution, implemented the solution, and we've never talked about that since because that's behind us now. We're doing the same now with our phase two on the crushing facility for the phase two. So we did have some hiccups during the past quarters. the team has found the solutions to be able to solve this, have implemented most of them, and continuing to implement the others during this quarter now to allow us to hit our full, namely, capacity. And the final piece of the puzzle was the logistics. We do have some third-party logistics, either on the rail and at the port. And what we can say on this is the fact that the new stacker reclaimer is now operational, not at full capacity, but it's operational at the port of Setil. I was there last week, and it's a very impressive equipment to be able to see in operation, the largest stacker reclaimer in the eastern part of North America. So very great equipment that is just finalizing the ramp up now. And also, we had three locomotives that had to be delivered. These locomotives are now in Matan, just across the river from Setil, and will be delivered in the coming days. With all these elements, we're still pretty confident that we'll be able to reach full nameplate capacity run rate by August of this year. In terms of financial highlights, well, we generated quite a lot of revenue in the past quarter, which allows us to continue working on our growth strategies, and at the same time allowed us to declare a 10 cent dividend, continuing our capital return strategy with our shareholders. If we turn over to cost in terms of the financial elements, so you can see that our costs have pretty much peaked now in this past quarter. Realistically, we started seeing some benefits associated to the higher production that was produced at site, but we did have some inventory that was still at higher prices and that were sold during the quarter. So that's why you see a negative on that side and why our costs have increased slightly compared to the previous quarter, but as we continue our ramp up and as you've also seen diesel prices correct, we do feel that we'll be able to get our costs lower than what you've seen now and get them back in line to where we had expected in the coming months. So very confident we'll be able to continue reducing our costs in the coming months. In terms of provisional price adjustment, so we did see a positive provisional price adjustment we had forecasted about 130 bucks per ton, uh, delivered tons at around 136. So that gave a positive provisional price of roughly about 3.4 us dollars per ton. One thing to note though, is that at the end of the quarter on the 31st of March, uh, we had booked tons at $140 per ton. And since then the price has declined. So, uh, we can expect a negative provisional price adjustment in the next quarter. but keep in mind that a portion of those tons that were not sold are going to the Japanese market, so will be subject to backward looking, so that impact won't be as big as if we had all of our tons that were subject to forward looking. In terms of the average realized selling price, so as we mentioned, the freight rate, even if it was the more costly month, so January, February, March, where we typically have larger ice premiums, where we typically have higher costs for the shipping, we managed to secure all of our ships for an average of about 28 bucks per ton, and when you look at the Canadian net realized price, managed to reach about 150 Canadian dollars. If we look at cash, so your company's in very good health right now, we essentially doubled our cash in the previous quarter, going from $166 million to about $327 million on the 31st of March. That increase of cash, and if we also include the working capital, has put us in a net cash position. So we went from net debt to net cash. So you can see that the company is in very good health to continue our dividend strategy, but also to allow us to continue our growth strategy at the same time. If we turn our focus to growth, one of the highlights in the past quarter is the fact that the board has authorized an extra $52 million spend for the DRPF project. This allows us to keep our timeline of August 2025 to deliver our first tons of 69% material. Just to remind everyone, our target is to be able to take half of the tons of Bloom Lake, so essentially all of the Phase 2 tons, build a facility beside the Phase 2 or an expansion to the Phase 2 project and be able to increase the grade of 7.5 million tons to 69%, allowing us to sell into the DR market. Why is this important? Well, the DR market is one of the markets that's growing the most in the world right now. There's more projects that have been announced and are being built in the next years than what has been built in the last 20 years. So it's interesting to see that there's quite a lot of facilities being built to the extent that there is a deficit or a targeted deficit of more than 100 million tons by 2030. And every month we're continuing to see new DRI projects being announced, but we don't see any new supply. So that's very interesting to see this dynamic because we do feel that what we forecasted as premiums is conservative in terms of the DR market, and we do feel that's going to be an extremely accretive project for all of our shareholders. Another element that's interesting as well is that to be able to do the energy transition, there's quite a lot of steel that's required. Steel is one of the only metals that's required in any solution that you potentially have to be able to convert dirtier energy into clean energy. The study shows that there's over 3.5 billion additional tons of steel required by 2050 just for the decarbonization of the power sector. And one interesting fact as well is that in most developed economies, governments typically have a pretty big role in this power generation. And it's very difficult to imagine that these 3.5 billion additional tons that will be used to be able to decarbonize the energy will will be done with dirty steel. So more likely they will require greener steel to be able to build this infrastructure to make sure that it's not a hypocritical way to be able to do the energy transition. So this also potentially creates more demand on the cleaner steel by different government bodies around the world and different energy suppliers. Just to remind everyone as well, the interesting element is the fact that the tons that we produce allow the steel industry to decarbonize. So to the extent that for this project to be able to decarbonize the power sector, while it's over 7 billion tons of CO2 emissions that would be produced if we use the typical route to make steel, if we use the DRI-EAF route and using tons from Bloom Lake to be able to supply this, It's nearly half the CO2 emissions that could be reduced in this steelmaking to be able to decarbonize the world. It's always interesting to decarbonize elsewhere, but what's also important is the fact that at Bloom Lake we do have one of the lowest CO2 intensity iron ores in the high-grade space in the world. So very proud to say that the investments that were made at site allow us to be a leader in terms of CO2 emissions per ton of iron ore produced. And also finally, I think it's important to note as well that our two other main projects, either the CAMI project and the pelletizing facility in Pointe Noire, we are continuing our feasibility studies and still on track to be able to deliver the results by the end of this calendar year. So even if we are finalizing the ramp up of phase two, working on our DRPF project as well. We are continuing the other growth potentials within our company to be able to create more value for our shareholders in the future. With that being said, I would like to thank all of our staff and the teams to be able to deliver these results that you see in the document now, and I'm more than happy to answer any questions or comments from the people in the group.