Champion Iron Limited

Good morning, ladies and gentlemen, and welcome to the Champions Third Quarter Results of Financial Year 2024 conference call. At this time, all lines are in a 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 0 for the operator. This call is being recorded on Wednesday, January 31, 2024. I would now like to turn the conference over to Michael Marcotte, VP Investor Relations, please go ahead.

Thank you, operator, and thank you, everybody, for joining us today to discuss our Q3 results of the financial year 2024. Before we get going, I just want to point everybody to our website where you can find the presentation that will be used for this session on the investor tabs and events and presentation. We'll also be making forward-looking statements throughout this call, and for more information on forward-looking statements, you can also look at Ethereum DNA, also available on our website. Joining me here today is our CEO, David Catterford, our COO, Alexandre Bello, our CFO, Donald Tremblay. Our CEO, David, will make the formal portion of this call, and then we'll follow up with Q&A as well towards the end. With that, I'll turn it over to David.

Hi, everyone. Thanks for being here today. Bonjour tout le monde. Merci d'être présent ici aujourd'hui. So if we look at the third quarter highlights, I think the biggest highlight for us is the fact that we've managed to surpass our nameplate capacity and deliver roughly about 4 million tons during the quarter. So very big achievement that we've managed to do, and we'll be able to run through what that means for us. A little bit underwhelming has been the delivery on the rail operator of allowing us only to sell about 3.2 million tons. we'll be able to address that portion a little bit further into the call as well. As we've always said, when those plants are running smoothly, it also allows us to tweak the recovery circuit and increase our iron recovery. So another highlight during the quarter is the fact that we've managed to achieve 81.4% iron recovery, just shy of our 82% target. But, again, we feel confident we'll be able to achieve that once we continue operating in a stable manner and able to tweak that recovery circuit. But we now know that the plant can deliver over the nameplate capacity. What that means in terms of our cash costs, our cash costs were trending in the right direction, going from roughly about $74 to $73. So we've improved slightly the cost, but we'll be able to – go through the different elements that are entailed in this. So very happy of the highlights that we managed to achieve during the quarter. What's important as well when we deliver record production is to not only have record tons, but also produce clean record tons. And if we look at the quarter, we exceeded over 500,000 hours work without a recordable injury, and also managed to deliver those tons without any significant environmental issues. So, very proud that we've managed to produce 4 million clean tons during the quarter. In terms of the work that we've done with the community, I think it's been also a very big quarter. We've managed to continue strengthening our partnership with the First Nations, delivering on different projects that we're doing within the community. So, very proud of what we've managed to achieve with our partners from Waushatna Nitenam. We also had a visit from the Minister of Natural Resources and Forests at Bloom Lake where we were able to discuss what we do and how important our material is to decarbonize the steel industry and decarbonize the world. So turning back to operations, you probably saw during the quarter that the P62 and the P65 increased slightly, so about 12.5% and 11% respectively. And we managed to fully benefit from that increase of pricing during the quarter. We see that the margin for the P65 is still fairly depressed compared to historical numbers. Again, pointing towards weak steel output in Europe and the lack of environmental controls in the steel industry in China. But we still see that the iron ore price right now has been fairly healthy during the quarter. That's been a little bit offset by the higher shipping costs, so one reason being the events happening in the Red Sea and also an increase in the C3 index, but we've seen that since being reduced a little bit. If we turn to the underwhelming portion of the corridor, being the rail operator, So this has been a little bit more complex during the quarter. We are working very closely with the rail operators so we can get the contractual tons that we have agreed on, but it has been a challenge and has pushed back a little bit our view on when we believe we'll be able to bring down our stockpile. So during the quarter, we increased by 800,000 tons our stockpile at site, bringing our current stockpile to about 2.4 million tons. The element that is positive is we've had significant space at Bloom Lake to be able to stockpile material, but that has increased our costs at site and has made things a lot more complicated for us. So continuing to work very closely with the rail operators so we can get the agreed tonnage down on the rail. In terms of our operations, when we look at the highlights of the quarter, so not only do we produce 4 million tons, but we also increased the material mined and moved at site. We increased our strip ratio. And even if we produce that high level, we've managed to keep the mine healthy by moving all the tons of waste that we needed. We still have a slight backlog from the beginning of the ramp up that we'll be able to work on in the coming quarters, but the mine is in a very healthy position right now. And another element that's very important is even if we've produced a record production during the quarter, every ton that we've produced has been of high-grade quality. Again, showing the fact that the Bloom Lake material is extremely good to be able to help our clients produce more, decarbonize, and we'll be able to go through the next steps of our decarbonization portion. What does that mean in terms of financial highlights? An EPS of about 24 cents per share, a bit of a cost of 250 million, So very good quarter, allowing us to generate cash to be able to position ourselves very well for our growth initiatives. In terms of our costs, so we saw them trend slightly lower, a little bit higher than where we would like them to be. The main highlights for the quarter is the higher sale volume, but because we had to move quite a lot of tons, we had to rely on certain contractors at the mine to be able to do this, which increased a little bit our costs. and also got into the winter period where the snow removal started and other elements consuming a little bit more energy at site. But we still feel confident when we'll be able to produce and ship the same amount of tons and improve the operations at Bloom Lake, we'll be able to bring our costs below the $70 mark. In terms of provisional price adjustment, as you know, always a little bit of noise during the quarter. This quarter was positive. We had about 1.3 million tons on the water at the end of last quarter, where we had forecasted a price of about 126 US dollars per ton. We managed to achieve roughly about 135, giving us $12.3 million US of positive provincial price adjustment. If we look for the next quarter, so we have about 1.8 million tons that is subject to a provisional price, and the expected price that we had at the end of the quarter was roughly about 150 US dollars per ton. If we look at our average realized selling price, a little bit higher than the P65 index due to timing elements during the quarter, but we did see our freight and the damage increase due to logistics issues, mainly on the rail and also the higher C3 impact, as we mentioned a little bit earlier due to the impacts in the Red Sea. But all in all, as we've mentioned, we've seen this come down slightly in the month of January, And if we go back to last quarter, allowed us to have a net realized price of about 157 Canadian dollars. What does that mean in terms of our cash position? Well, it allowed us not only to pay our dividend, but to invest in the mine, also invest in our CapEx projects for the growth initiatives, and allowed us to increase the cash by just over $70 million during the quarter. In terms of balance sheet, so very well positioned for the next steps of growth. We have roughly about $400 million of cash in the bank. And if you account for the inventory that we have at site minus the logistics and freight costs, we have a value of about $200 million post logistics and taxes at site, making our cash balance roughly about $600 million. So again, very well positioned to be able to continue our growth initiative to create more value for our shareholders. You probably saw in the past quarter that we've continued working with our great partners at the various banks that are in our loan facility syndicate. We managed to secure a new term loan of about $230 million US, allowing us to repay the revolving facility and have a full $400 million revolving credit facility available Again, positioning us very well to be able to work on our growth initiatives. We turn to the past quarter in terms of why we would want to produce higher grade iron ore and why we would potentially take an FID on producing 69% iron at Bloom Lake. One of the main highlights during the quarter is the fact that at COP28, we saw a lot of governments recognize the fact that if you want to decarbonize, you can't only work on electric vehicles, you have to also work on various elements, one being steel. And we have several countries, including Canada, Germany, UK, and US, all pledged to procure green steel for public infrastructure construction. The big advantage is this is a little more price agnostic, Once the government's pledged to be able to use green steel, they'll need this green steel to be able to build their infrastructure. So if you put this on top of all the contracts that we've seen last year between steel purchasers to be able to use, whether it's in car manufacturing or in various other businesses that require green steel, on top of these governments also pledging to procure green steel for public infrastructure, we see that it's all pointing in the right direction to have a healthy premium for green steel and also for the ingredients that come into green steel. We also have the United States and Latin America that announced measures to introduce a similar mechanism to Europe in terms of the CBAM, the Carbon Border Adjustment Mechanism. So again, pointing in the same direction that it's important to produce low CO2 intensity material like what we do at Bloom Lake and be able to participate in a lower CO2 steel environment. So again, pointing in the right direction to be able to create significant premiums for the higher grade type material that decarbonizes the world. What we saw also in the last quarter, very impressed by and proud to have worked alongside different governments to be able to show how important high-grade iron ore is to decarbonizing the world and also our country here in Canada. And this has made not only Quebec, but also Newfoundland leaders in terms of recognizing the high-grade iron ore as critical and strategic. So we're now part of the list of critical minerals here in Quebec and also in Newfoundland, allowing us to view the importance that we have for various governments to deliver projects in terms of high-grade iron ore. This has allowed us also with Hydro-Québec or with the Quebec government to be one of the only companies that had access to hydroelectric power blocks to be able to do our projects modification of phase two to increase the grade to 69%. So if we turn to this project, we had hinted in the past quarters that there was certain elements that needed to be achieved for us to have final investment decision on the plant number two modification to bring it up to 69%. So when we look at this project, it was roughly about 470 million Canadian dollars to be invested for us to take half of our tons and upgrade them to 69% to then be able to enter the electric arc furnace market and also the green steel market. So by having the power and also increasing our credit facility, making sure that our balance sheet is robust, allowing us to do the project, we got the final investment decision yesterday from our board and are now on track to be able to deliver our project by the second half of calendar 2025. So this will then position Bloom Lake as producing one of the highest grade materials in the world on half of our tons and being able to enter the DR market. Other initiatives that we're working on, so we're continuing to work on our feasibility study for a pelletizing facility in Point Noir and also continuing to work with our partners that we've invested in binding solutions to be able to produce a coal bonded pellet. We're now at the pilot plant phase where we're producing material that we'll be able to ship to our various clients so they can test it in their steel making process. But we're very optimistic on the next steps of this coal bonded pelletizing. And once we have more data from our clients on how it reacted in their steel plants, or more their steel capacity, we'll be able to come back to the market in terms of next steps with this project. If we turn to last quarter, another highlight as well has been the delivery of a feasibility study for the Cami project. So this is a significant resource, just a few kilometers away from Bloom Lake, situated in Labrador, so in Newfoundland, in a very mining-friendly jurisdiction. and that has a long history of supporting iron ore operations. If we look at the highlights of the study, it's roughly about a 9 million ton per year DR-grade pellet feed that would be over or above 67.5% FE, with currently a 25-year mine life. It includes equipment similar to what we have at Bloom Lake, so proven technology to be able to produce this, And one of the other advantages as well is we've managed to have a project that would have an even lower CO2 intensity than what we have at Bloom Lake, making this a leader in terms of CO2 intensity per DR grade type material. If we turn to the economics, so the initial capex for the project is just shy of about $3 billion a US and a C1 cash cost to produce DR grade material would be sub 60 US dollars delivered in the vessel in Pointe-Noire. So very robust operating cost. And when you look at the capex required to build a project, it gives a good view on what it costs to build a project in a top tier jurisdiction. Again, showing the big advantages that we have at Bloom Lake and also allowing us to have a good potential project in the pipeline to be able to bring more DR grade in the market. The next steps in terms of this project is to be able to continue working with groups that would potentially need this material and that would like to partner up to be able to evaluate the next steps. So now that we have our feasibility study in place, we'll be able to continue the discussions with the various groups that are interested in being able to partner in this project. And once we have a potential partnership, come back to the market and be able to explain the next steps. If we look at where this project positions itself in terms of high grade iron ore or DR quality iron ore. So we see that the capital intensity is roughly about 331 US dollars per ton. I mean, we've just delivered a feasibility study at the peak of inflation, but I think it was important to have conservative numbers that reflect what it would cost to build a project today. and be able to eventually look at the different ways that we can potentially improve the economics of the project. So all in all, I think a fantastic quarter where we've managed to hit a record production of clean tons here at Bloom Lake, allowing us to view the next steps of our growth initiatives. I think it's positioning us very well in everything that we control and being able to work on the next steps mainly on the logistics side to make sure that we can match everything here at Bloom Lake with what we do to make sure that we can bring all these great tons to our clients in the future. So thanks, everyone, for being on the call. We'll now turn it over to the Q&A portion.