Champion Iron Limited

Good morning, ladies and gentlemen, and welcome to the second quarter results of the financial year 2024 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 has been recorded on Thursday, October 26, 2023. I would now like to turn the conference over to Michael Marcotte. Please go ahead.

Thank you, operator, and thank you, everybody, for joining us on this call today to discuss our Q2 results. Before we get going, I'd like to turn people over to our website at championiron.com, where you can find the presentation we'll be using today under the event and presentation section. I'd also like to remind people that we'll be making forward-looking statements throughout this call, and if you want to read more about these, you can go on our MDNA, also available on our website. Joining me today is our CEO, David Catterford, who will be making the formal presentation. Also joining me is Alexandre Bello, our COO, and Danal Tremblay, our CFO. After David's formal presentation, we'll be doing a Q&A session. With that, I'll turn it over to David.

Hi, thanks, Michael. Thanks, everyone, for being on the call. Very happy to be able to discuss the Q2 of fiscal year 2024. Two of the main highlights during the quarter, one is we're continuing to improve the production at our site and achieving roughly about 30 days of full nameplate capacity at the operations. So things are beginning to stabilize and we'll be able to tweak the final elements to be in full nameplate capacity. And second, the fact that we've been able to reduce our costs to roughly about $74 Canadian dollars delivered in the vessel per We had mentioned previous quarter that we felt that the costs had peaked, and happy to report that with the improved operations, our costs are starting to come down. If we turn to sustainability, I think it's important to produce tons, but it's very important to produce clean tons, and happy to report as well that all the investment and the work that we've done on the health and safety side has allowed us now to exceed 500,000 hours worked without any recordable injuries. So a lot of focus to be able to improve our results on safety, and we see that these elements are now paying off. In terms of the work that we're doing with the community, I'm very happy to say that we've aligned ourselves with one of the largest North American First Nations festivals. So this is directly in Mayurtenam, so with the community of Ouachap Mayurtenam with which we work, Happy that we've announced a 10-year partnership with the festival to be able to be present and also to support financially their great festival. Also did our second year of official holiday for the National Day of Truth and Reconciliation. So we had significant activities at site and at the head office to be able to learn more about our partners and to have great speakers discuss about the past and also the potential future of working with First Nation communities. We believe it's extremely important to continue improving on that relationship. As you've seen, permitting has become more and more complicated. Operating in lands that are on traditional First Nation lands is also more complex. So happy to have one of the best partnerships with the First Nations to be able to continue our growth strategy. If we look at the market, so it was a, in terms of the iron ore price, it's been pretty stable in the past quarter. The P62 and P65 have been fairly stable. You have seen the premium for the higher grade shrink closer to about 10% right now, which is abnormal if you look at the historical results since the index was created. That can be explained by three sort of main elements, one being that the steel output is out of Europe has not fully recovered. We're roughly about 10% below previous year in terms of crude steel production and pig iron production. Also, we have not seen significant environmental restrictions out of China, so that usually affects the premium. and we've seen steel margins out of China also be fairly depressed, which typically causes lower premiums for high-grade and lower discounts for low-grade. We do not feel that's a long-term event, but in the short term, we've seen that depress the premium. Mind you, the price is still pretty healthy. It's been hovering between $125 and $130 per ton during the quarter. In terms of the production, so record production of 3.45 million tons during the quarter, there were some elements that caused us to be lower than our nameplate capacity during the quarter, mainly one conveyor that had a pretty significant failure that we were able to repair, and also that that event affected mainly the phase two concentrator for several days during the quarter. But again, as we mentioned on the highlights section, happy to report that we've been operating in about nameplate capacity for a run rate of about 30 days. So we've been able to fix up most of the hiccups associated to these different elements. The strategy that we've been taking as well, as we've been doing since the beginning, is being very conservative on the – maintenance side and making sure that when there's a hiccup like that, we fix it for good. We don't just do a little patch and then start back up the operation. So it takes a little bit more time, but it allows us to then fix the problem and be able to move to the next hiccup so that eventually we'll be able to have a stable operation. In terms of operations, I'd like to turn your attention as well to another great record that we achieved during the quarter. We had mentioned when we started up phase two that there was a challenge to be able to secure all the mining equipment and to be able to get that mining equipment up and ready and have workers being able to operate them. We had a record of about 17 million tons moved at the mine in the past quarter. So we can see now that all the mining equipment is up and running. Operators are there. and we're hitting records in terms of material moved at the mine. So very happy with the way that operations are ramping up, and now that we're in a more stable operation, we'll be able to tweak the final elements, which is the iron ore recovery and the maintenance portion, so that we can be in a stable main plate capacity for the next years and allow us to start working on our de-bottlenecking projects to be able to improve the tonnage from Bloom Lake. In terms of financial highlights, one note, roughly about $155 million of a bid during the quarter, and second, as we mentioned, the cash cost that has reduced during the quarter. If we turn to the cash cost, main elements that allowed us to reduce the cost is, one, the volume. So we've always mentioned that a more stable and a higher volume will allow us to dilute down all of our fixed costs. We also had operational improvements at the mine, as we have our own operators. Well, obviously, we don't need as many contractors, and that reduces long-term costs. And the teams have done a great job in improving also the operations at the mining side. And we do have some improvements on the logistics costs as well that have allowed us to bring the cost down from $81 to roughly about $74 per tonne. In terms of provisional price adjustment, it's been a pretty smooth quarter on that sense. We had about 1.4 million tons on the water expected to be delivered at $121 per ton. We managed to sell them at 122. So a very small provisional price impact, positive $1.6 million US, which gives roughly about a 50 cents per ton. Right now, well, at the end of September, we did expect a settlement price of about $126 per ton for the 1.3 million tons on the water. And if you look at the current prices, they've hovered between 125 and 130. So if things continue this way, it should be another pretty smooth quarter in terms of provisional price. If we look at our realized price, realized selling price, you can see that we got a small premium to the P65 index during the quarter. So again, reflecting the fact that we can sell our material at the higher premium. That'll obviously evolve in the future as we start selling 69% material in the next few years. But for now, we do still manage to hit a premium compared to the P65. If we look at our cash, well, our cash improved by just over $65 million during the quarter. There was a positive change in the working capital by about $40 million last we generated quite a lot of cash from our operations as well. And on the spend side, we did invest in our operations, mainly on the tailings, dikes, and at the mine garage, all planned elements. And as you know, typically, sustaining costs are higher for us during the summer months, as this is when we do all the work for our tailings and the work that we do on our dikes. What does that do for our balance sheet? So you can see that our balance sheet is in a pretty robust position. We have net cash of about $27 million and we also have roughly about $170 million on the ground at Bloom Lake if you account for the 1.6 million tons that is currently sitting at Bloom Lake. We do feel that right now the logistics side seems in balance with our production. So things have improved on the rail line, but still in a tight operational spot to be able to bring down the stored inventory at site. We do feel that in the next quarters, we'll be able to start bringing down that material and evaluate. It'll take roughly about a year to be able to bring down that material once we start bringing it down. So it will stay at site for some small time, but I think the positive note is that we feel that the rail is now in a position to bring down all the tons that are being produced. So we should have a better equilibrium between the tons produced and the tons that are sold. When you look at the results, the cash that we generated and also our balance sheet, That has allowed us to announce our fifth consecutive semi-annual dividend of $0.10 per share. So we're very happy to continue our capital return strategy with our shareholders. If we turn to the market in terms of demand for our product and for the higher-grade products, what's interesting is we've been talking for a few years now about the fact that we feel the market is going to require more green steel and steel. the users will be able to pay or will be willing to pay for this material in the future. We're starting to see contracts now being announced. The sector is where we track more of these green steel premiums in the auto and auto supply sector, in the energy sector, in the home appliances. These seems to be the ones that we're seeing the largest premiums for green steel. Prices range from roughly about $40 US per tonne for material that uses DRI all the way to 200 to 300 euros per ton for some users out of Europe. So we do feel that there is or there are some people that are willing to pay the premiums for this type of material. And when you look at the type of consumers that want this, right now it's typically users that are not that impacted by the price of steel. but they can market their products after saying that it's a greener product. So we're thinking of companies like BMW that are able to pass on easily the premium to the customers to be able to market this type of material. So we're starting to see these contracts come, and I think it's the perfect timing because as this market evolves, in just under two years we'll be able to deliver our 69% material that should be able to fetch a very high premium product. During the quarter, we also announced our new 43-101, so it was important for us to keep the definition drilling at Bloom Lake to be able that we can maximize the tons over the future. We still have an 18-year mine life, but what we've announced in the past quarter is that we've improved significantly our resources at Bloom Lake, increasing our measured and indicated resources by 40%. and the inferred resources by 360%. Why is this important now if we're not converting them to reserves? It's to really make sure that we design the right mine plans to make sure that we can access those tons in the future and potentially be able to operate decades after our current 18-year mine life. So very happy with the results that we've been able to achieve with the resources at Bloom Lake. In terms of our growth projects, so the feasibility studies are still on track to be able to be delivered in the coming months. So I'm very happy with the progress and with the work that the team has been doing. And we'll be able to report to the market once we have the results for the CAMI project and for the pelletizing facility in Point Noir. If we turn to our next growth project, the one that is the most advanced, The DRPF, so we do have cumulative spending up to date of just under $30 million, continuing to advance the detailed engineering and ordering our long lead items to make sure that we hit our calendar H2 2025 commissioning date. Right now, we have not taken a final investment decision yet. The two elements that we are still working on is the securing of the energy block to be able to operate this plant. and also finalizing the debt package with our current financial partners to be able to have all the cash in the bank to be able to finalize the project. So things are moving ahead smoothly. We do still expect a delivery time in line with what we have mentioned in the past and just working to finalize those elements to be able to come back to our board for a final investment decision. That being said, I'd like to thank our team and all the supporting teams that have helped us achieve those results. I think they've done a fantastic job in making sure that we can produce clean tons and that we're able to eventually stabilize our operations so that we can start working on all of our de-bottlenecking projects to continue creating value for our shareholders. That being said, I'll turn it over to the Q&A portion of the call.