Champion Iron Limited

Good morning, ladies and gentlemen, and welcome to the Champions Q4 and year-end results of the Financial Year 2024 Conference Call. At this time, online is 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 the star zero for the operator. This call is being recorded on Friday, May 31, 2024. I would now like to turn the conference over to Michael Mercotte. Please go ahead.

Thank you, Operator, and thank you, everyone, for joining us to discuss our Q4 results today. Before I turn it over to our team to discuss these results, I'd just like to go over a few elements, including where you can find this presentation that we'll be referring to, which is on our website at championiron.com under the Investors section, Event and Presentation. I'd also like to highlight that we'll be making forward-looking statements throughout this presentation. You can read more about these forward-looking statements, risk and assumptions, and RMDNA, which is also available on our website. I'd also like to remind people that we'll be referencing to Canadian dollars for all figures, unless otherwise stated. Joining me on this call today is David Catterford, our CEO, who is going to be doing the formal presentation. We also have our COO, Alexandre Bello, and our CFO, Donald Tremblay, And our executive chairman, Michael O'Keefe, will also do closing remarks. With that, I'll turn it over back to David, our CEO, for the presentation.

Thanks, Michael. Thanks, everyone, for being here. So very happy to be able to discuss the fourth quarter of fiscal year 2024 that just completed our sixth year of operation here at Bloom Lake. And we'll be able to see that we've done quite a lot in the past six years. In terms of the highlights for the quarter, we produced about 3.3 million tons and sold about 3 million tons during the quarter. Cash cost of about $77 per ton and a bid of roughly about $85 million. In terms of sustainability, I think the main highlight once again this quarter is the fact that no major environmental issues were reported at site. So since the recommissioning in 2018, there's been no major environmental issues reported at site. So the investments that were made have really paid off because we have a very sound site in terms of environment. If we turn to community governance and sustainability, one of the big highlights during the quarter is the five-year collective bargaining agreement that was signed with our unionized employees. The impact of that contract is roughly about $1 per ton Canadian on our operating costs But realistically, we had some catch-up in terms of salaries when we compare with our neighbors, and we want to stay competitive in the talent war to get the best employees to allow us to deliver the results like we have in the past six years. We've also appointed Mr. Ronnie Beaver to the board of directors, which brings decades of valuable experience in the mining industry. In terms of ESG disclosure, well, you've seen that we've now published our 2023 sustainability report. quite a few highlights that we can be very proud of within the company. One, we maintained our positioning as leading First Nations employer in the region, and we continue to work very closely with our First Nations partners to make sure that we can operate in a sustainable way. We also have 100% compliance with our tailings monitoring program, so all the investments that were made in the past really help us to stand out in terms of one of the safest tailings infrastructures in the world. We also have a very big highlight, 99% water re-usage rate at Bloom Lake. So again, we've invested to be able to protect the environment and we're a leader also in terms of water re-usage. And the final highlight is that we've managed to reduce by about 8.7% our GHG emissions year over year. In terms of operations and when we look at the iron ore price, so you've seen that it's been pretty volatile in fiscal year 2024. But when you look at the sort of average for the year, it's been pretty healthy in terms of iron ore price. So we saw a dip in Q4, but we've since seen the price recover if you look at the past two weeks. In terms of freight, there has been some impact due to the Red Sea and the conflicts in the Middle East. but we've also seen the C3 index stabilize today in the orders of about 23, 24 US dollars per ton. In terms of opportunities at Bloom Lake, so as you know, one of the main challenges we have is to work with the rail operator so that we can match our production with the logistics and also start bringing down our stockpile. Today, our stockpile lies at about 2.7 million tons at site, continuing to work with the rail operator to be able to not only match our production but start bringing down those tons. Happy to report that the first train conductors will come into the project as of June of this year. The second group comes into August. So as of June, we should be in a position to match the production with the capacity. And as of August, we should be in a position to start bringing down tons from our stockpile, as we had mentioned at the January meeting. So, again, a little bit disappointing in terms of the performance of the rail operator, but realistically, I think we're on the right track to be able to solve that issue and put that behind us. In terms of quarterly production, roughly about 3.3 million tons, and that allowed us to have a full year of 14.2 million tons. which is roughly about 95% of our nameplate capacity. If we look at the operations a little bit more in detail, one of the highlights is we have increased our strip ratio, so the mine is healthy. We have moved about 0.69 as our strip ratio during the quarter, and we moved about 6.5 million tons of waste during the quarter. So again, following the mine plan, and the mine is in a very healthy position right now. In terms of financial highlights, so for the quarter, about $330 million in revenues for the full year, $1.5 billion, which allowed us to have $85 million of EBITDA during the quarter, and just over $550 million of EBITDA for the full year. In terms of cash costs, so you've seen it increase slightly during the quarter. We were on a good trend. bringing down our operating costs as we were ramping up the project. As you've seen during the past quarter, the main elements that impacted our cash costs was one, the lower production. So the main area for us to reduce our costs is to have the right production during the quarter. Second element was the two major shutdowns. And if you remember Q3 of fiscal year 2024, we delivered a run rate of roughly about 16 million tons per year. but we had quite a lot of equipment that we pushed to sort of its maximum that we had to repair during the fourth quarter. That was to be expected. If we want to de-bottleneck the facilities, we need to understand what equipment we need to work on and when that equipment fails. So we had a lot of run-to-fail strategy for pumps, for pipes, for conveyors, for various elements at the plant. So this quarter we had two major shutdowns and also had quite a lot of downtime that was unplanned, but that allowed us to be able to pinpoint the different elements that we need to work on to de-bottleneck the site. We're currently working on those right now, and in the coming quarters we should start seeing improvements in terms of our nameplate capacity, and our target eventually is to be able to de-bottleneck between 17 and 18 million tons per year. If we look at provisional price adjustment, so if we go back to the 31st of December 2023, we had forecasted to settle 1.8 million tons that was still on the water at roughly about $150 per ton, and we settled those tons at about $136. So the delta of about $13 per ton for the 1.8 million tons that were on the water had a negative impact of about $24 million. you divide that by the 3 million tons that were sold during the quarter, has an impact of about $8 per ton. On the flip side, when you look at the 31st of March, we had forecasted to settle the next 1.8 million tons that was still in transit at about $113 per ton, but you've seen in the past weeks that the price has recovered, and we should be able to see a positive provisional price adjustment in the current quarter. If we look at the net realized price, so you can see that our gross realized price was lower than the P65 index during the quarter. This is not due to the fact that we're getting significant discounts for our material or because we have lower quality. We still maintained high quality and still sell our tons at our premium, but the 1.8 million tons that were still in transit that we had to book at the end of the quarter at $113 US had a negative impact for our average during the quarter. But as we mentioned, that should reverse in the next quarter as we potentially have a positive provisional price adjustment. In terms of cash, while we increased slightly the cash during the quarter by about $13 million and continue to invest in our flotation plant, investing about $35 million. If you look at our balance sheet, we're still in a very good position to be able to continue our flotation plant. We're in a net cash position of about $56 million. And when you look at our balance sheet and the projects that we have in line, well, it allowed us to declare our sixth consecutive semiannual dividend of $0.10 per share. If we turn to our growth projects, so the main focus for us right now is obviously the flotation plant that we're working on, also continuing to speak with various groups to be able to bring in a partner for the CAMI project. There's been quite a lot of interest from different strategic groups, so continuing our discussions on that and also starting the permitting process for the CAMI project here in Newfoundland. So very happy to announce that we're Continuing on that project, no significant capex to be invested in the next two years as we go towards the permitting, but again, do feel that this is one of the best resources in the world to produce DR grade material in the future. The second project, apart from the DR flotation plant that we're working on right now, is bringing Bloom Lake over 15 million tons per year. So as you know, in the past quarter, We saw a little bit of noise in terms of reliability and us repairing various equipment, but as we do that, we should be in a track in the coming quarters to be able to increase our nameplate capacity beyond the 15 million tons per year. If we look at our flotation plant, happy to report that we're still on track to deliver the project on time and on budget. We spent now about $95 million and we still have roughly about $375 million to invest to be able to deliver the project in the second half of 2025. The other highlight is that we are continuing our discussions with various potential clients to be able to position that material with the right type of clients that are, as we had mentioned in the past, closer to home to minimize our impact on shipping. I think it's very well-timed because when we look at the market, we're starting to plot on the world map all the different projects that are being worked on for new DRI facilities to be able to service the electric arc furnaces. And we can see that there's over 160 million tons of DRI quality iron ore that will be required to supply what has been announced now in terms of DRI capacities. So we see that the bulk of that is going to be in Europe and Middle East, which is where we're spending most of our time discussing with various clients to be able to position our material for the future. So we do think that investing in this flotation plant is where we need to go. That's where we're going to benefit potentially from the highest premiums for our type of material. And what's interesting is yet again, when we look at the end of this quarter, well, we don't see any projects being announced to be able to produce or to fill in that gap of 160 million tons of DR quality iron ore. So we're very well positioned with what we're doing at Bloom Lake to be able to service that and fully benefit from the premiums in the future. That being said, well, I'd like to thank our staff for making all these results possible for another great year, fiscal year 2024, and ramping up fully towards not only our nameplate capacity, but also over our nameplate capacity. That being said, I'll turn it over to the Q&A portion of the call.