Champion Iron Limited

Good morning, ladies and gentlemen, and welcome to Champion's first quarter results of the financial year 2025. 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 zero for the operator. This call is being recorded on Wednesday, July 31, 2024. I would now like to turn the conference over to Mr. Michael McCarty. Senior Vice President, Corporate Development and Capital Markets. Please go ahead, sir.

Thank you, Operator, and thank you, everyone, for joining the call with us here today to discuss our quarterly results. Just for everyone's benefit, if you would like to see this presentation, it is available on our website at championiron.com under the Events and Presentation tab of our website. I'd also like to highlight that our team will be making forward-looking statements throughout this call. If you'd like to read more regarding our forward-looking statements, risk and assumptions, you can also consult our MD&A, also available on our website. Joining me here today is our CEO, David Catterford, who will do the formal portion of this presentation. Our Executive Chairman, Michael O'Keefe, will do closing remarks. And I'm also joined here by other executives, including Alexandre Bello, our COO, and our CFO, Donald Trombley. With that, I'll turn it over to David for the formal portion of the presentation. David?

Thanks, Michael. Thanks, everyone, for being here today. I'm happy to be able to discuss our Q1 fiscal year 2025 results. If we look at the highlights, one of the highlights for the quarter is definitely the fact that we've managed to produce roughly about 3.9 million tonnes during the quarter and have record sales as well of just over 3.4 million tonnes. So I'm very proud of what the team has been able to achieve and how we rebounded from the Q4 2020 for fiscal year. In terms of cash costs, relatively flat quarter-on-quarter. We'll be able to get into that a little bit later at just shy of $77 per ton. And these results allowed us to generate about $180 million of a bid that year in the quarter. We did all of that with no significant workplace incidents and no major environmental issues. So, again, producing clean tons out of Bloom Lake. In terms of community governance and sustainability, very proud to have hosted the Minister of Mines at our head office down in Montreal. The Minister was here to announce a new program to help local contractors step up their game to be able to work in areas or in companies like Champion. So, good alignment for us to work with the government to help local suppliers, local contractors be able to increase the level of their companies to be able to come and work with us. It allows us to strengthen our relationship with the local communities. In terms of our operations, as we mentioned, quarterly production of about 3.9 million tons, an increase of 18% over the previous quarter. We also acquired additional mining equipment and rail cars. The additional mining equipment is to be able to continue working on our current mine plan and at the same time preparing to be able to eventually increase our nameplate capacity beyond the 15 million tons per year. The additional rail cars do the same, and they also add some added flexibility to be able to bring down not only the stockpiled tons that we have at bloom right now, but also potentially future tons that we'll be able to increase when we'll be able to increase over our nameplate capacity. In terms of sales, about 3.4 million tons of sales during the quarter, allowing us to achieve a record, but still shy of us matching our current production. So, we'll continue to work with IOC, but we do see positive results in terms of the increased capacity on the rail. Now, if we go back to subsequent events to the quarter, but that you've all seen in recent press releases, There was a significant forest fire that came close to the operations of Bloom Lake that caused us to evacuate the mining site. We had to react pretty quickly, but I think a good testament of the one preparation that we had, because following the forest fires last year in the region, we did build pretty significant contingency plans and emergency plans to be able to, one, evacuate our people, two, protect our infrastructure, and happy to report that even if the forest fires came close to the operations, there was no impact to any of our infrastructure. You can see a picture right there of someone hosing down some trees. We had to cut down bands around the site as well, bands around some critical infrastructure that we have, but very proud of the way that the teams reacted and how quickly we managed to evacuate a significant portion of our workforce while continuing to work to protect the site. The impact, roughly about one week's production when you look at the downtime and the ramp-up. But happy to say that right now we're back to pre-forest fire levels in terms of production. If we look at the operations overview, so moved quite a lot of tons during the quarter. Our iron recovery a little bit shy of our targets. In quarters where we have significant shifts, if you compare Q4 to Q1, there's a pretty big increase in tonnage, very positive, but at the same time more difficult to be able to tune in the recovery circuit when that happens. We're able to achieve our best results when we're fairly stable, fairly flat. So we should be able to increase that in the coming quarters and be able to go back to our over 80% iron recovery. In terms of the industry, we saw the P65 index decrease by about 7% during the quarter, and we did see some elevated exports out of Brazil and Australia, but still saw all the iron ore that was produced being consumed. So, very happy that our material is still in high demand from our various customers. We saw also the premium for the P62 increase for the P65 over the P62 increase during the quarter. Still low compared to historical numbers, but a positive sign that fits with the correlation that when the iron ore price goes down, typically the spread for the P65 to P62 increases. If we turn to provisional price adjustments, there was a positive impact during this quarter. If you remember, we had 1.8 million tons at the end of last quarter on the 31st of March that were booked at $113 per ton. We managed to realize about 124 for those tons, which makes a positive impact of about $21 million during the quarter. If we look at the 30th of June, we had, again, about 1.8 million tons on the water at the end of this quarter, and the expected price was around $119 per ton for those tons. In terms of the average realized selling price, so there was a negative impact when you account for the 1.8 million tons that were on the water at a sub 120 US dollars per ton, compared to the 126 average for the quarter. But we still managed to realize close to the P65 index during the quarter, even with that element, allowing us to achieve about 125 US dollars per ton, looking at the net realized price of about 136 Canadian dollars per ton. If we look at our costs, so we did see some improvements on our costs associated to the higher production and sales. So there was a positive impact there. It was a little bit reversed by the non-cash items, non-cash items being the re-evaluation of the stockpile when we account for the cost. So spreading down the costs over the 3 million tonnes that we have stockpiled. and also an impact on the shutdown that was done in the Q4 fiscal year 2024. If you remember, there was two major shutdowns that were done during that quarter, and those costs are spread over two quarters as the shutdowns typically last for about six months. So when we look at the impact for the quarter, roughly about flat compared to the previous quarter, but if you remove the non-cash items, we did about $5 per ton better. In terms of the financial highlight, as we mentioned, about $180 million of EBITDA. And when we look at the net income, just over $80 million, allowing us to continue our growth initiatives and to reinvest in the assets. Looking at our cash change, so a little bit lower cash than what might have been expected in the market, mainly due to the fact that there was a change of about $100 million in working capital. The bulk of that was mainly vessels that were or that left the port at the end of June, which we've since gotten paid at the beginning of July. So more of a timing effect than a real long-term potential issue. So we should see that change in working capital switch in this current quarter. In terms of our balance sheet, so if we include those receivables, and include the working capital. We're in a net cash position of about $18 million. So, very healthy balance sheet to allow us to continue our growth initiatives. In terms of growth initiatives, if we go to the DRPF project update, which is the main project that we're working on right now, happy to report that we're still targeting on time on budget. So, the work is advancing as planned. Our main focus right now is to finalize all of the building to make sure that we are prepared to work inside for the winter. So that's going along very well. And as you can see on the next slide, we have most of our long lead items, so the equipment that is currently being built at our supplier's facilities, and everything is on track in terms of long lead items. So, all in all, I feel very confident we'll be able to deliver the project in the second half of 2025 calendar year and be within the budget of $470 million that we've laid out. Now, this project, again, is key for our growth and evaluation of our product. So, the main goal is to be able to sell our material to steelmakers that will eventually be making lower carbon steel. we can see that there's significant amount of these contracts that are being signed or that have been signed to be able to deliver tons starting 2025, 2026 of lower carbon steel. We have seen, as mentioned previously, that the various governments, if you look at Canada, Australia, UK, US, looking to build infrastructure with lower carbon steel. We're seeing all of that start to materialize starting next year. So our project is going to be very well-timed to be able to tap into that market in the future. So very happy of the way that the project is advancing and also the way that the various contracts for lower carbon steel are advancing as well. One other element that's a very big highlight for the previous quarter is is the fact that high-grade iron ore is now part of the list of critical minerals in Canada. If you remember last year, high-grade iron ore was positioned in Quebec and in Labrador as a critical mineral, but now we've also managed to include this in the list on the federal level. So, we're continuing to evaluate the potential positive this has for our growth initiatives, being the current work that we're doing on our projects and also potential future work. But we see this as extremely positive that the government of Canada now recognizes hybrid iron ore as critical for decarbonization and part of the list of the minerals they want to support to be able to achieve lower carbon economy. So, again, very positive for our – growth projects, and we'll be able to come back to the market once we finalize all the various elements and all the different impacts this can have on projects like what we have at Cami or others. And I'd like to thank all of our staff for achieving those results. I'd say the results for the quarter are very positive, but really the highlight is the way that we reacted during the forest fires. So very proud of the way that we all got together, not only ourselves, but helping local communities as well, strengthening our relationship with them, with First Nations and with the Quebec government, showing our credibility as well in the way that we react in various critical situations. So very proud of the way that the team has managed to navigate through that. And that being said, I'd like to turn it over to you for the Q&A portion of the call.