Champion Iron Limited

Good morning, ladies and gentlemen, and welcome to Champions Q3 results of the Financial Year 2025 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 is being recorded on Thursday, January 30, 2025. I would now like to turn the conference over to Michael Marcotte Senior Vice President, Corporate Development. Please go ahead.

Thank you, Operator, and thank you, everybody, for joining our call today. Before we get going, I'd like to turn people to our website at championiron.com, where you can find the presentation to be used on this webcast under the Events and Presentations tab. I'd also like to remind people that throughout this webcast, we'll be making forward-looking statements. If you'd like to read more with regards to our forward-looking statement, Risk and Assumptions, You can visit our MD&A, also available on our website. Joining me today are many of our executives, including our CEO, David Catterford, who will be making the formal presentation, our COO, Alexandre Bello, and our CFO, Donald Tremblay. With that, I'll turn it over to David, and we'll finish with a Q&A portion. David.

Thanks, Michael. Thanks, everyone, for being on the call. So if we go through the highlights of the quarter, as you probably saw, it was a more challenging quarter for us, but despite the challenges, we still managed to produce just over 3.6 million tons during the quarter and sell just short of 3.3 million tons. A bit unfortunate because when you look at the quarter, we were on a run rate to have a record sales and also record railed material. You probably saw that we had about 1.4 million tons railed in November. So we do know that the work that has been done on the actual logistics side is starting to pay off and looking forward to the next months so that we'll be able to start destocking our stockpile. During the quarter, we had no significant environmental issues. Unfortunately, we had one accident in the construction site with one worker who is now stabilized and we're working with the site. all the contractors to make sure that we can continue the project while keeping everybody safe and offered support to this worker and others that were around as well. In terms of community and sustainability, well, we continued working with our First Nations partners and also started consultations with the CAMI project. So we started meeting with the various communities, First Nation communities, and really strengthening our partnership with the Newfoundland and Labrador communities. If we turn to our operations, as we mentioned, we had an event at our loadout. I'd just like to highlight that when you look at our operations since 2018, the first time that we have such an event that was unplanned and had our site, at least our loading capacity, stopped for about 14 days. It was the first time there was an event also on the silo of the loadout. One of the challenges was to find the right way to be able to get people in safely to do the modification. We found a plan. We were able to get in to repair, and we've made modifications at the loadout. So if ever there was an event again, well, we would be in a position to be able to do the work much quicker. So that was unfortunate because we lost around 14 days of shipping. And again, if we wouldn't have had those 14 days, we would have been in a position to sell more tons than what we've actually produced. In terms of our operations, well, one highlight is the fact that we had a record quarter in terms of the waste mined and hauled and the ore mined and hauled. So the investments that we've made on the mining equipment is paying off because we're able to stabilize the mine and be able to keep it healthy and at the same time deliver all the tons required to the plants to be able to eventually increase our production. During the quarter, we had some little variation in terms of the P65 index. So when you look at the price for the quarter, a slight increase of about 3.3%. one of the main highlights during the quarter has been around the C3 freight index that's decreased by just short of 20%. Unfortunately, we don't see those results during the quarter because that reduction happened more on the backside of the quarter, but we will be able to benefit from those reductions in the coming months and coming quarters as we shift vessels to our clients. In terms of provisional price adjustments, so one negative for the quarter, around $4 US per ton negative on the 3.3 million tons that were sold during the quarter. At the end of this quarter, we had about 1.7 million tons still in transit with an expected settling price of around $110 US per ton. In terms of the realized selling price, that was one of the elements that we got hit a little bit during the quarter. mainly due to the fact that since we've started phase two, we have not signed long-term contracts for our material produced with the phase two due to the fact that we are completing a flotation plant to allow us to produce one of the highest grade materials in the world. We're really focusing on signing contracts for this DR quality type material, but because this project will be delivered before the end of this calendar year, and we'll start selling tons a few months after of this type of material. Well, we were in a position where we did not want to sign longer-term contracts for the current concentrate, and this means that we're more exposed to the spot pricing and the spot scenario. When we look at the spot purchases on the concentrate, especially on the Canadian conch, whether it's us or our neighbors, well, we see that there has been discounts to sell into the Chinese market. This is not due to the fact that Our quality has changed. It's really an appetite for the P65 material with a bit higher silica. We should be in a position once we get the flotation plant up and running to be able to not only remove those negatives, but at the same time also increase the premiums for our material. In terms of our operating costs, still high compared to where we would like to be. When you look at the quarter, as we mentioned, it was more challenging. There was some extra maintenance that was done during the outage for the logistics side, and the volume effect also impacted us during the quarter. Also some slight rehandling of material on the stockpile. So when you look all in all, we were just shy of $79 Canadian dollars per ton delivered in the vessel. In terms of our revenues, around $363 million with an EBITDA of $88 million. One of the elements where we missed sort of the consensus in terms of forecasted EPS, mainly due to the fact that when you look at our current debt facility, our debt facilities in U.S. and the exchange rate for the Canadian dollar versus the U.S. has changed quite a lot during the quarter, especially at the end of the quarter. So we had to re-rate the debt. in Canadian dollars, and that had a negative impact of about $21 million, around $0.04 per share. So that's one of the main reasons that we had a miss on the EPS, but this was a non-cash element during the quarter. In terms of our cash change, as you saw, our cash went from $180 to about $90 million in the quarter. One, we did pay a dividend, $52 million. We invested quite a lot in our flotation plant during the quarter, around $70 million. And as you know, the third quarter of the financial year is typically the quarter where we have the highest costs in terms of other capex, mainly due to the dikes work that we do during the summer months and also on the waste dumps. So if you look at our feasibility study for the Phase 2 project, in the first years there were some investments that were being made at the waste dump the new waste dump that we're building and also the improvements on the tailings facility. So that's still on track to be delivered over the next years and does have a capex impact short term. But when we look at longer term, once that is completed, well, it's going to be built for the life of mine of the project. In terms of our balance sheet, we did increase the net debt. One of the main reasons, there's around $100 million that's associated to mobile equipment part of it for the 400 rail cars that we purchased and also certain mining equipment with lease financing with Caterpillar and with Komatsu. So that accounts for around $100 million of the debt variation and also a reduction in our cash really showed the net debt position change. But when you look at our balance sheet, still very healthy to allow us to finalize our flotation plant to deliver that and to fully benefit from those premiums going forward. When we look at our cash position as well, as we mentioned, well, the last quarter would have been a record in terms of railing capacity and in terms of sales should we not have had the event of the loadout. So we do know that the investments that were made on the logistics side, whether it's the new locos that came in from the rail provider and also the rail cars that came in on our side, the logistic improvements that we've made in the coordination with IOC and ourselves, well, all those elements are starting to pay off because we would have been in a position to ship and sell more tons that were produced and start destocking the materials. January and February are typically months that are a little bit more complicated in terms of logistics due to the weather and sometimes some elements freezing. Sometimes there's some mitigation that we actually put in place to lower a little bit the amount of tons per rail car to be able to minimize the risk of freezing. But once we get through those two months, so we're almost out right now, well, we'll be in a position to really start destocking our stockpile. in terms of our growth projects so the two main ones that we're working on right now uh is really the flotation plant and the cami project if we turn to the drpf project so still on track to be able to deliver the project within the budget of 471 million dollars work is being done over the next month to be able to finalize this just over 180 million left to invest to be able to finalize the project. In terms of timelines, still on track to deliver the project in the second half of 2025, targeting December. We did have some delays associated to the accident that happened in December. Had to shut down the construction for a while to be able to make sure we keep everybody safe and also repair the various elements that were broken during the month. But with that being said, we're still on target to be able to deliver the project in December of this year. In terms of CAMI, one of the big highlights during the quarter, so in December we signed an agreement with Nippon Steel and Sojids to continue evaluating the CAMI project and to have them come in as partners within the project. Sold down 30% to Nippon Steel and 19% to Sojids for valuation of about $500 million Canadian. Very happy also to have seen the communication from Nippon Steel that they looked around the world to be able to find the right type of material for their green steel transition. And as they've mentioned, CAMI was the best project that they found around the world to be able to invest in. So when we look at the current transaction, well, it allows us to continue working on the CAMI project, whether it's the feasibility study the permitting and making sure the champion shareholders don't have to invest but this will mainly be done by the by the partners over the next years so if we look at that the timeline on Kami well right now finalizing the permitting which should take about two years and also the feasibility study and once that is done well then we'll be in a position to see what are the next steps so do we look at going towards an FID, or do we look at continuing improving the project? But again, very proud to have partners as credible as Nippon Steel and SOGES, and really telling in terms of the growth profile in terms of DRI within the world. So for Nippon Steel and SOGES to come in and secure this at this time really shows that they have views that there's going to be a shortage of this type of material over the next years. and they want to make sure to secure one of the best materials in the world. At CAMI, as we mentioned, the next steps right now will be continuing to meet with local communities, meeting with government officials on the provincial side and the federal side to see what are the areas that we can continue improving on the project and making sure that we can, as we mentioned, permit the project and be able to evaluate the next steps. Just to put Cami in perspective, as we've had in the past, well, the highlights is that Cami is about middle of the pack when you look in terms of investments or capex intensity within the high-grade space of what we've seen over the past years and really positions Bloom Lake in an interesting area because we have serious companies, steel manufacturers that came in on evaluation that essentially put Bloom Lake at a valuation of roughly about $5 billion U.S. or $12 Canadian per share. So it really highlights the earning power that Bloom Lake is going to have over the next few years. When we look at Bloom Lake, 2025 calendar year is a year where we finalize the flotation plant, quite a lot of investment being done. But come 2026 calendar year, our earning power really increases significantly. and our capex spend really decreases. So we do see the potential over the next years of generating quite a lot of cash with Bloom Lake. And as we mentioned in terms of the sort of macro environment in terms of steel growth, When we read about or look what's happening in terms of steel, not a lot of growth forecasted. Where we do see growth is in the DRI space, which is really where we're investing to get to. So when we look at the DRI around the world, especially in the Middle East and in Europe, quite a lot of new projects that are coming along to be able to produce steel. electric arc furnace steel. So that is definitely the market that we're targeting to be able to address. Maybe just a final note before I pass it on to the Q&A portion. Quite a lot of noise in the market right now associated to US and Canadian tariffs that might be coming along. As you know, we do not sell any tons into the US. When we look at our potential exposure, a little bit around maintenance due to the parts that we potentially buy within the U.S., but very limited compared to other companies in terms of the tariffs impact. So that being said, well, thanks, everyone, for being on the call, and I'll turn it over to you for the Q&A portion.