Champion Iron Limited

Good morning, ladies and gentlemen, and welcome to Champion Iron for Clear 2024 results conference call. At this time, all lines are in the 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. Now, I would like to turn the conference over to Michael Marcotte. Michael, please go ahead.

Thank you, operator, and thank you, everybody, for joining our call to discuss our Q1 results of the fiscal 2024 year. We apologize for starting a little bit late. We had a little bit of a technical issue. Before we get going, I'd just like to turn everybody to our website where you can find the presentation which we'll be discussing today at ChampionIron.com. We'll also be making forward-looking statements throughout this call, and you can go see our MD&A with regards to these forward-looking statements and risk and assessments. also available on our website. Now, all figures on this call is in Canadian dollars unless otherwise stated. Joining me on this call today is our CEO, David Catterford, who will be doing the formal presentation of the webcast, and then we'll turn it over to people for Q&A at the end. Also joining me or us is Alexandre Bello, or COO, and Donald Tremblay, or CSO. I'll now turn it over to David for the formal portion. Thank you. David. Hi, everyone.

Thanks a lot for waiting these... Long five minutes before the call started. Very happy to be able to announce the results for the past quarter. As you probably noticed, it's a bit of a mixed quarter, but I think we did a good job and very proud of the teams to have navigated through these forest fires. I mean, this was one of the most significant forest fires in the past hundred years here in Quebec and in Canada. And I think the results are still fairly positive despite what we saw. We'll go a little bit more into detail with the elements of these forest fires. But I think when we look at the quarter, the main highlights is obviously the 3.4 million tons that we produced, reaching over 90% of our nameplate capacity here at Bloom Lake. So the ramp-up is going according to plan. We will have a discussion on costs but costs were coming down if we remove the volatility of these logistics issues during the quarter and I'm very happy with the way that the teams have managed to navigate through this. When we look at the financial results these were obviously impacted by the fact that we were not able to send down all of the tons that were produced but these tons are stockpiled at the site and we'll be able to go through the plan to be able to get them to the market. if we look at the environment uh very proud to say that again another quarter without any major environmental issues so since the commission recommissioning of bloom lake in 2018 we've done an excellent job in keeping the environment safe and have invested significant capex over the past years to make sure that we can continue to operate in such a safe way for decades to come in terms of the community uh also very happy as you've probably seen in the past quarters We've announced that we're working very closely with our local communities, with First Nations, but it's always good to be recognized by our peers. And we have the Mining Association of Quebec and also the Federation of Quebec Chambers of Commerce that recognize us as the best company working with local communities this year. So very proud to have that. And this will not only help us to continue to operate, but also help us significantly when we look at potential growth initiatives because, as you know, these days it's very important for companies, especially mining companies, to work with their local communities. In terms of the industry, well, in the past quarter, you probably saw the iron ore price dip a little bit, around 11% decrease for the P-62 and the P-65. We also saw the sea freight increase about 16% during the quarter, as we saw volumes from Brazil increase following seasonal impact increases. seasonal factors impacting the production, but we still see the freight rates significantly lower than where we saw the high last year. So still in an area that allows us to have significant margins for our material. And as we ramp up the nameplate capacity and also bring down the tons from Bloom Lake, we do expect to fully benefit from the high-grade premium for our material. In terms of forest fires, so as we mentioned on the highlights page, significant forest fires here in Quebec that impacted production a little bit less. The fire was pretty far away from the mine. Where it impacted production is that for some time, we were not able to haul up explosives or fuel. As you can imagine, these are the first things that are cut from roads when there's potential forest fires near the roads. So this made us take some decisions on how we manage the mine to be able to save some fuel to make sure that we don't stop production. but that caused some little hiccups at site, which impacted a little bit our production. Still happy with the 3.4 million tons that we produced, but we could have done a little better if we had not been impacted by the forest fires. When we look at the real impact, it was really associated to the logistics. So the QNSL, or the rail line operated by IOC, was shut down for some time and running at a slower pace following that as they ramp back up and rebuild the infrastructure that was destroyed by the forest fires. The actual track was not impacted, but all of the communication systems around were impacted at certain areas around the rail. But very happy to be able to say, though, that, one, the fires did not come close to our actual operations, so there's no impact for our equipment. And also when we look at local communities, everybody managed to stay safe. There was some evacuations in areas near Satil, near the port, but since then people have returned home and there was no impact to their actual home except for the moving out and moving back in. When we look at the impact associated to the rail stoppage and the rail decreased capacity for a short period of time, that caused us to stockpile roughly about 1.3 million tonnes of of our high-grade material at Bloom Lake. This is all material that is at the same spec as what we produce, so roughly about 66.2%, fully sellable material, but is currently stockpiled here at Bloom Lake. As our third-party carriers receive their rolling stock and bring this into production, we do feel that we'll be able to gradually bring down this material in the quarters to come. When we look at the operations, as we mentioned, very proud that we managed to reach a record production of 3.4 million tons on track to be able to deliver our full nameplate capacity run rate in the near future. And very happy with the way that the mine is progressing now that we've received most of the mining equipment to be able to deliver all of our tons. One drill that's still missing that will allow us to remove certain contractors that are a site that are costing us a little bit more. But when we look at the trucks and at the loading equipment, we do have sufficient equipment to be able to deliver on our mine plan, which is the ore and the waste and the ore required to be able to achieve full nameplate capacity. You probably see the iron recovery being slightly lower than our target. This is something that we'll be able to optimize once we've reached full nameplate capacity. Very difficult to be able to optimize that while we're in ramp-up mode because the equipment needs to be tweaked once we have our full run rate, and there's some modifications that will need to be done. This is on an operations level, not on a CAPEX level. but operations-wise, there's things to tweak to be able to maximize the iron recovery, but we don't see any reason why we would not be able to achieve that once we've had a full nameplate capacity. We do believe the equipment and the design will be able to allow us to reach full recovery. In terms of revenues, well, that was impacted mainly by the fact that we have about a million tons less of sales than we should have in the quarter, mainly associated to the forest fires. but we'll be able to fully benefit from that in the coming quarters as we bring this material to our clients. If we look at costs, this is where I think the teams did a great job, even though we were navigating through these forest fires. The higher production impacted positively our costs, reducing the costs significantly, bringing us closer to our sub-$70 target. target here short term. And when we look at the diesel and explosive prices, they've also dropped in the quarter, exposes by about 10%, diesel a little bit more. So that's also helped soften the price. Where we were impacted during this quarter is the volume effect at the port. So at the port, we have fixed costs every quarter. And this was spread over 2.5 million tons instead of being spread over roughly 3.4, 3.5. So that was one of the impacts that negatively impacted our costs. And secondly, the inventory build is the other element. So we had to move inventory at the site and that caused us some extra costs during the quarter. But we do feel that we'll be able to bring our costs down in the coming quarters once we solve those logistics issues associated in this quarter. Another area where we were impacted during the quarter, you probably saw that at the end of March, we had booked a price of $140 per ton. That price softened very quickly once the last quarter ended. And the final price that we've achieved for this material was roughly about $123. So that had a negative impact of about $35 million US because it was, we had a roughly about 2 million tons on the water. And because this was spread on only 2.6 million tons during the quarter, well, that had a negative impact of about $13.5 per ton. When we look at this quarter, the price that we booked was about $121, and we've seen prices a little bit higher in the past week. So if things stay the way they're at, we should be able to see a positive provisional price adjustment at the end of this quarter. But again, if we take a little step back, and we look at what we achieve. Again, this quarter, we achieved roughly about the P65 index. So if you look on a larger time period, we always pretty much get the P65 benchmark, and that's our target. There is some noise on the short term, but we do get the full P65 index when you look at the yearly results. In terms of cash, well, the cash reduced a little bit during the quarter, mainly due to the fact that our sales were much lower than expected. We did pay the dividend this quarter, so about $52 million, and there was some sustaining expenditures associated to the work at Bloom Lake for phase one and two, and also the work that we've started now on the DR pellet feed project. If we look at our balance sheet, still very well positioned to allow us to continue our growth initiatives and as we'll go through these various growth initiatives in the next slides, you'll be able to see that we do have some significant value creation for our shareholders in the coming years. We just talked about operations. If we take a little step back and look at the market and more specifically on the DR grade material, What we're seeing right now is more and more subsidies from governments around the world to be able to convert blast furnaces into electric arc furnaces. We've now seen Germany be able to join that journey to be able to convert blast furnaces to electric arc furnaces, but that still poses the question, where is the feed going to come from? And when we look at different assumptions on where the market will be, Most assumptions, even in a conservative way, see DRI material grow from 5% to roughly about 25% in the market by 2050. That's a significant increase of DRI required to be able to supply these electric arc furnaces. And when we look at where else the material can come from, well, realistically, there won't be enough scrap to be able to supply all of these, and especially not enough scrap of high enough quality And this model also assumes that there's quite a significant amount of blast furnaces that use carbon capture, which we'll see where that lands. But regardless where that lands, we do see a significant increase for DRI in the coming years. If we look at quantifying that, What is going to be required by 2050 is roughly about an additional 350 million tons per year of high purity iron ore required to make DRI. Just to put that in perspective, that's roughly about 40 new average scale mines of high grade material or about 20 mines equivalent to Bloom Lake. And if you take into perspective the fact that bringing on a new mine of high grade takes between 12 to 15 years in today's day and age, I mean, 2050 is pretty much tomorrow, and we have seen no projects of scale being announced to be able to produce this type of material. So there's going to be a demand of roughly about 20 Bloom Lakes in the future without any other projects apart from the one that we're working on at scale that we've seen being announced in the market. So we see that as a very positive potential for Champion shareholders to benefit from higher premiums for this high-grade type material. And this is pretty much the path that we're on to be able to create more value for our shareholders. And if you look at our growth initiatives, they're aimed at either increasing the quality of what we have at Bloom Lake or maximizing value for the material that we make or potentially adding new tons of DR grade into the market. How to do this? Well, we have two significant feasibility studies that we're working on right now. We're still on target to deliver those by the end of this calendar year, so by the end of December 2023. And this is the pellet plant in Point Noir, the feasibility study to be able to build an 8 million ton per year pellet plant in Point Noir. And the second one being the CAMI project, so to be able to have roughly about 8 million tons per year of DR-grade material from the CAMI assets. So these are the two projects that we are working on feasibility studies that we should be able to deliver by the end of this year. If we look at our growth initiative, this is the DR pellet feed project to bring our material to 69%, essentially the highest grade material in the world, and allowing our clients to decarbonize their operations and also benefit from increased productivity at the same time. When we look at this project, we're still on target to be able to deliver it by August of 2025. So we've started ordering long lead items. We've worked on the detailed engineering during the quarter, and we're still very confident we'll be able to reach this timeline. The only element that's missing for us to be able to officially announce that we'll deliver this project in August of 2025 is to have full investment decision And to have that, we need to have the power allocation from the Quebec government for our project. When we look at the criteria required to be able to get power here in Quebec, basically high level, what the government has mentioned is we need to have a good relationship with our local communities and it needs to benefit local communities. And as we've mentioned early on the call, while we've just been recognized as the best company in Quebec in terms of community relations, It needs to decarbonize, and as we've disclosed previously, this project will help our clients decarbonize by roughly about 5 million tons of CO2 emissions per year. So we largely tick that box. It needs to create value for Quebec, which this also does. So we tick pretty much all the boxes. When we look at timeline to be able to get power allocation here in Quebec, the government had announced that this would happen in June and then postponed to July. But realistically, the new CEO for Hydro-Québec comes in on the 1st of August. So we do expect that probably in August or September, we should have some official news on this. And then we should be in a position to have full investment decision from our board to be able to go forward to deliver this project by August of 2025. That being said, I'd like to thank all of our staff who've done an incredible job in being able to navigate through these challenging times. And even if we were impacted, to be able to have positive results in this challenging quarter, I think is quite a testimony of the skill that we have within our company to be able to not only deliver projects, but also deliver on our operations. So that being said, I'd like to turn it over to the Q&A portion of the call.