Champion Iron Ltd

Good morning, ladies and gentlemen, and welcome to the Champion Iron Limited third quarter results of the fiscal year 2023 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 zero for the operator. This call is being recorded on Friday, January 27, 2023. I would now like to turn the conference over to Mr. Michael Mercotte. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you, everybody in Australia, especially for dialing in on a long holiday period in the middle of the night. I'd like to thank everybody for joining us to discuss the third quarter results of our fiscal year 2023. I'd also like to direct people on this call to a presentation that management will be referring to, which is already posted at championiron.com under the events and presentation section. I'd also like to remind people that some of the matter will be discussed during the call. They contain forward-looking statements, risks, and assumptions. Also, if you'd like to refer to more regarding those forward-looking statements, please go to our MD&A, which is also available on our website. I'd also like to remind people that every reference to dollar amounts in the presentation are in Canadian dollars, unless otherwise stated. On the call today, joining me are David Catterford, our CEO, Alexandre Bello, our COO, and Danal Tamblay, our CFO. I'll turn it over to our CEO now for the formal presentation, and then we'll end the presentation with a Q&A session. With that, David.

Hi, thanks, Michael. Thanks, everyone, for joining in. I'm very happy today to be able to discuss the third quarter highlights and the third quarter results. I think we've got some exciting news that we've delivered, one on the Phase 2 and also on our future growth projects. If we look at the quarter, we produced roughly about 3 million tonnes and sold about 2.7 million tons at a cash cost of $76 per ton and generated revenues of $350 million. When we turn towards sustainability, one of the big highlights is the fact that we are hiring quite a lot of people this year and we want to make sure that we keep everybody safe. So we're putting significant amount of time and training to make sure that all our new employees ramp up quickly to the standards that we have at Champion to make sure that we can keep everybody safe. Also happy to report that there was no returns of any major environmental issues. So all the investments that were done in the past allows us to keep the site in pristine condition when we turn to environment. In terms of the relation with our host communities, so we've done quite a lot of work with our First Nations partners in the past quarter One that I'm extremely proud of is that all of our employees has participated in a cultural and a cultural and diversity training session with our First Nations partners of Waxhap-Manitanam. This is something that we've developed in partnership with our First Nations community and also allows us to have each one of our employees understand the realities of what's happening in the Waxhap community to help work with our partners in the future. Also, we had the newly elected officials of the Washtenaw Band Council visit Root Lake, again furthering our partnership and collaboration with the First Nations. If we turn towards the industry, in the past quarter, we saw iron ore prices soften slightly. So when you look at the P62 and the P65 index, modest declines of about 4% and 2% in the previous quarter. One of the big highlights during the quarter is also the fact that China has relaxed its COVID-19 measures. So we have seen some increased demand in China for the iron ore. If you look at the whole year, two of the highlights in 2022, especially if we turn to China, is that for a portion of the year, the Chinese steel mills were not making any money. There was negative margins. And also, they did not have any environmental restrictions in terms of the steel production. We do expect that to shift this year, and as the Chinese steel mills turn back into profitability and also have restrictions in terms of the environment, we do expect the premium for the high-grade material to increase over the course of the year. One of the final highlights for the quarter is the fact that the C3 index, so the freight index, has declined a further 14% during the quarter. So you've seen in this quarter where we've reduced our cost of shipping, and that should continue in the coming weeks as we benefit from these lower prices for the vessels that are on the water now and that are coming at Bloom Lake or in Point Noir to pick up the Bloom Lake material during the quarter. We turned to operations, so very happy to be able to declare that our phase two is now at commercial production, one of the highlights for the quarter. We produced close to 3 million tons during the quarter. One of the challenges we did have, well, actually there was a few during the quarter, one being the fact that it's always very positive when you deliver a plant ahead of schedule. but it makes all the periphery systems very challenged as you ramp up the full operations. What we saw during the quarter is there was some delays in terms of the delivery of our mining equipment, especially on drills and trucks. Drills is pretty much solved now. We're commissioning our last drill that just came in, and this will allow us to remove slowly the contractors that we have at site that are doing drilling, but you have to... appreciate the fact that when you have contractors drilling in a large operation like Bloom Lake, it's suboptimal in terms of performance and it's higher cost per ton because they don't have the same equipment as what we use to be able to do the drilling. So as we ramp down the contractors and use our own equipment, now that it's been delivered and commissioned, this should normalize our costs in terms of drilling and also improve our productivity at the mine. Secondly, we did receive now the trucks that were delayed. So they arrived at site recently. They are being assembled as we speak. As they come into production in the coming weeks, that's also going to allow us to ramp up the actual operations at the mine to make sure that we can deliver the full nameplate capacity of Bloom Lake in the near term. The positive from the quarters, we now know both plants are able to operate at the full main plate capacity. Now we just need to get the periphery systems and the mine to be able to supply those two plants so we could get to our full main plate production. In terms of financial highlights, we had revenues of $350 million for the quarter. We'll be able to run through that, but a slight delay in our sales is actually helping us because we will benefit from the higher iron ore prices that we see now for the vessels that are currently on the water. If we do a breakdown of our cash cost during the quarter, so there's some non-recurring elements that happened during the quarter. We did see the price increase to $76 per ton during the quarter. Part of that due to what we've mentioned, the higher cost at the mine. So even if we have a lower strip ratio, you'd expect that the mining costs would be lower. But because of the amount of contractors and the inefficiencies that we have at the mine, we actually saw those costs increase. There's still some phase two related inefficiencies that we're working through as well. And as we get to the full main plate capacity for the site, we'll be able to remove those costs from the system. We also had some hiring ramp-up costs that are associated in the quarter. That's also going to normalize over the next quarters and be able to be removed as we have our full workforce in place. We did have a larger-than-plan shutdown in Abdul Lake, so that impacted our costs during the quarter, and you've probably seen diesel prices as well ramp up. And to give you an order of magnitude, every $1 per liter increase in fuel costs actually translates into $6 per ton in our operating costs. So that's mainly due to the fact that we use diesel, yes, at the mine for our mining trucks, but also in the locomotives to be able to bring the material down to the port. It impacts also our flight costs when you look at the fly-in, fly-out, and even all the way to the food, because the food is more expensive to be able to have brought up to the site. So these are costs that will fluctuate depending on the diesel prices, but everything that's in our control, so to ramp up the site to nameplate capacity, manage our shutdowns better, and remove the hiring costs, these are all costs that we should be able to remove from the system as we get phase two up and running at the same capacity as phase one, and we get the site at nameplate capacity. If we look at our sales, as we mentioned, well, there was a small provisional price adjustment in the quarter. So there was a slight difference between what we expected and what we realized. We expected about 112 and realized 109. So that had a negative impact of about $4 million U.S. in the quarter, which translates to about $1.4 U.S. per ton sold in the third quarter. What we do see, though, is that we have about 1.7 million tons during the quarter that are associated to a price that we booked at $129 per ton. Those tons are on the water right now. And depending where the iron ore price comes to once we get out of the Chinese New Year, if the price remains where it is today, we could expect a positive original price in the next quarter. So we'll follow this closely and be able to report that at the next quarter. If we look at the average realized selling price, so why did we do better than the P65 index during the quarter? It's mainly due to the fact that we did book about those 1.7 million tons at $126 per ton at the end of the quarter. So that's a big positive compared to the average P65 of the quarter. So since most of our sales were done at the end of the quarter and shipped at the end of the quarter, this allows us to benefit from higher iron ore prices once those tons actually land to our clients' facilities. One of the negatives during the quarter is the amount of tons that were actually sold. So we sold less tons than we did produce. This is not due to inefficiencies in the system. It's mainly due to the fact that Quebec suffered from a major power failure during the Christmas period. Most of Quebec lost power for some a few hours, some a few days. We were mostly impacted at the mine and at the port, the port being the area where we were the most impacted. That translates into two vessels that we were not able to ship at the end of the quarter, which have since sailed in the beginning of January. But those two vessels, we could not load them because there was no power at the port. Same at the mine, that impacted our production as well. Since every time there's a power failure, well, yes, we lose production during the actual power failure, but it also takes some time to clean up the operations and started back up following a sudden halt like a power failure. We don't expect that to be a recurring issue. Quebec has one of the most robust grids in the world, but these were extreme abnormal weather during the Christmas period that translated to major power failures. In terms of cash in the corridor, so the main differences There's a change in working capital, a portion of that due to we did not receive payments for some of the vessels that left at the end of the quarter, which we've since received. And second, we did build up some inventory in terms of either concentrate or also some broken material to be able to feed both plants. We also paid a dividend during the quarter, so $51 million. and also invested in our operations roughly about $56 million to make sure that we can continue operations and keep the site in the same condition as it was before. So with that being said, our balance sheet is still in very good position and very well positioned for our growth projects, which we'll get into right now. The first growth project being the phase two, So again, very excited to announce that we've already reached our commercial production and now ramping up the site to be able to get to our full nameplate capacity. So we don't see any hurdles now to get the plant to be able to run at full nameplate capacity. And the final step is to get our mining operations ramped up to make sure that we can deliver the full 15 million tons per year at Bloom Lake. If we look at the other growth projects that we're working on, one being the feasibility study for the DR pellet feed, which we'll get into in the next slides. Second, we're continuing to advance our CAMI feasibility study. So that's ongoing right now. And also advancing our feasibility study for the pellet plant facility in Point Noir. So both of those are advancing, expected to be delivered in the second half of 2023. And we'll dive a little bit deeper into the DR pellet feed. The DR pellet feed is a project that we've been working on for quite some time right now. Very exciting project for the company and for shareholders. It's a project where we expect to produce roughly about 7.5 million tons of DR quality materials, some of the highest quality material in the world, with a maximum combined silica and alumina of 1.2%. Again, making this one of the best products in the world. And why is this important? This allows us to feed into the electric arc furnaces and benefit from much higher premiums than the current P65. In terms of benefits, as we just mentioned, well, this allows us to get into the electric arc furnaces, but also it allows us to go down the BOF, so the basic oxygen furnaces and blast furnaces, for those that want to start using higher-grade material to be able to reduce their CO2 emissions. So not every steelmaker is going to transition quickly towards electric arc furnaces. Some are still going to keep their blast furnaces and to be able to achieve their CO2 targets, there's companies in Japan and elsewhere in the world that are working to be able to use DRI material directly in their blast furnaces. So this type of material is going to be destined to producers that want to reduce their CO2 emissions. and that want to benefit from one of the highest quality materials in the world. You can see on this chart here that very few projects can actually deliver this kind of quality. And we will be one of the highest quality materials in the world. So what we've been seeing even in the DR space is that the quality has gone down in the past year. Very difficult for certain ore bodies to maintain the high quality high quality, low contaminants to be able to feed the electric arc furnaces. But we really have a pristine material at Bloom Lake. Once we've passed it through a flotation process, we remove pretty much every single contaminant apart from a little bit of silica. So it's a very clean material that will be able to help our partners reduce their emissions in their steel making processes. How do we do this? Well, we'll get into this a little bit later, but I think what's important to note as well is the significant demand increase that is coming in the next years. So as these electric arc furnaces that are currently being built actually get delivered, well, what we see is that there is no project of scale that have been announced to be able to produce DR material to be able to supplement this. there's a fixed amount of high quality scrap in the world. So there will be a very big deficit for this type of material. So we do see that translating into very high premiums for this type of material until eventually there's projects that can potentially balance a little bit more of the market. But what we've seen now, very few areas around the world can actually produce this type of material. And again, no projects have been sanctioned to be able to deliver more DR pellet feed. So we do see that as two positives for us to deliver our project in about 30 months to be able to supply a market that's in high demand and that will pay a high premium. In terms of process, it's a fairly simple process using some milling at the entry of the plant. then going into flotation to be able to remove the... We're actually floating the silica to produce our 69% material at the end. So again, a very simple process that will be built right next to our phase two plant right now. In terms of economics, the project, as we had disclosed following our pre-feasibility study, We have a project that's order of magnitude about $350 million US. The contingencies for this are roughly about $56, $57 million, which are included in the $350 million. So when you look at the operating costs of roughly about $7 US per ton and the potential premiums in the market in the order of magnitudes today of roughly $25 to $30 per ton, we do see that this project can be massively accretive for our shareholders and allow us to generate significant margins over the life of the mine by increasing the quality of our materials. In terms of positive impacts, if we factor in those premiums, which we do expect could have some significant upsides depending on where the demand is and how much this material is required to be able to supply the electric arc furnaces. But if we use those sort of numbers that we disclosed just a few minutes ago, the after-tax IRR is roughly about 24%. So a very accretive project for all of our shareholders. And it also allows us to potentially benefit from smaller shipping costs. And this has not been factored into this right now. So we do expect to potentially sell this material closer to home, which could also have a positive effect in terms of our shipping costs. So in terms of timeline and funding, so we do expect to potentially generate enough liquidity out of our own operations to be able to fully fund this project. But to be on the conservative side, as we've always been, we want to make sure a little bit like what we did for phase two to secure all the funding required to be able to do the project. So that way we can go through construction, even if there's some small hiccups in the iron ore price during the construction period. So the board has approved a preliminary budget of $10 million to allow us to be funded till the end of the summer and to maintain our timeline of 30 months to deliver the project. And during this time, we're gonna work to find the right non-dilutive funding source. So potentially a similar structure as what we had during the build of the phase two plant to make sure that we can have all the funds required to deliver this project. Again, I think the main highlight for the quarter is us reaching our commercial production at the Phase 2 plant, delivering the findings also of our feasibility study for direct pellet feed material, starting the project and starting the funding as well, and being able to potentially deliver a project in 30 months that will allow us to have half of our material upgraded to 69%. Very excited about this quarter, and I'll now turn it over to the questions from our friend, the analyst.

Operator, you can now open it up for Q&A.

Thank you, Sam. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. If you would like to withdraw your request, please press star followed by the number two. One moment, please, for your first question. Your first question comes from the line of Oris Welkdahl from Scotiabank. Please go ahead.

Hi, good morning. Maybe we could start with operational performance in the quarter. And specifically, I was wondering if we could get more color on costs. We saw the cost move up this quarter to 56 US a ton. I realize there's a lot of moving parts there. You're ramping up capacity, yet you've got some inefficiencies and some inflationary pressures. But can you give us sort of some idea on how much of that increase is structural? versus just transitory here and where you see perhaps costs settling down to once you reach that full nameplate?

Yeah, thanks for the question, Horace. If I look at this quarter compared to the past quarter, I'd say most of the increased cost is associated to transitionary costs. So I do feel we'll be able to bring the cost back down to... levels in the order of magnitude of $60 to $65 Canadian, again, depending where fuel prices end. But in these sorts of levels, I think that's an area where we do believe that we can get the operations back in. You have to appreciate that there has been some pretty large inflationary pressures on different parts of the business. But that being said, I do think that there's a lot of room to improve compared to the cost that we had in the previous quarter.

So that sort of 60 to 65 Canadian target, does that assume current, call it input costs for diesel and other consumables, or does that assume some deflation?

Well, depending if you use the 60 or the 65 target. That'll change, but realistically, if you look at the last quarter, if you remove the inefficiencies and you keep that diesel price, we should be able to have operations that run at those prices in the current diesel price environment. But if diesel prices do run back down, then I'm sure we'll be able to get our operations back to lower 60s prices.

Okay, perfect. And just switching gears in terms of the study that you released for the DRPF, a couple of questions there. First of all, you noted that the project's contingent on securing additional power. How much of an issue is that? Can you give us an idea?

Yeah, when you look at this project here, the impact that it has to be able to reduce CO2 emissions is massive. So this will allow our steelmaking clients to be able to reduce CO2 emissions more than the whole of the company at Tesla. So when you look at the impact that this project can have, it's high on the list in terms of priorities in Quebec to be able to help the decarbonization strategy. We've also heard the Prime Minister again two days ago, the Prime Minister of Quebec, say that in terms of the most important projects in Quebec, well, there's the battery sector, obviously, there's the green aluminum sector and the green steel sector. So that's in the forefront of what the Quebec government has announced and is continuing to announce. So I think we're very well positioned to be able to secure that power. And in the event that we would not be able to, I think you've seen our management team, we're extremely creative And we should be able to find a path, even if it takes a little bit more time to secure it with Quebec, we should find a path to be able to find a solution with our existing operations.

Is there currently available power in the Quebec grid?

Yeah, there's a whole lot of available power. It's just that there's been a review in Quebec on where they want to allocate this power. So we know the power is available. It's just a question of getting the actual power secured. So there's no investments required from the government to have to create more power to allocate it to this. Okay.

Do you expect that allocation to happen this year?

It's tough. It's not in our hands. So we're going to do everything we can to get the allocation this year. But again, as we mentioned, if ever we don't, we do feel that we'll have the capacity to have a project that makes sense with the existing power that we have right now. Okay.

Thank you very much. Thanks, Horace.

Thank you. Ladies and gentlemen, as a reminder, if you have a question, please press star followed by the number one. Your next question comes from the line of Alexander Pierce from BMO Capital Markets. Please go ahead.

Great. Thank you. So, David, in the feasibility report, can you break down what premiums you're assuming in terms of what you'd get over and above your existing product? uh and then maybe you touched on a little bit in the presentation about the alternative routes for the feed um does the feasibility study assume a certain portion goes into the eaf route eventually versus the blast furnace route and also maybe just building on from that can you just talk about the um the order of the projects do you before you make an investment decision on on this one do you want to see the results of the um the study on the pelletizer as well as CAMI first and tie it all together?

Yeah, thanks for the question, Alexander. So if I look at the first one, so we've disclosed an IRR, which probably allows you to back calculate the actual pricing that we've used for these numbers. Again, the last thing we want to do is to lock in a ceiling with our customers and be committed to a maximum premium. So that's why we've been a little bit less vocal about potential premiums because this is not an index-based sale. So if we look at our phase two project when we do the feasibility study, even if you put a certain iron ore price, if the index is higher, you'll be able to sell higher. But this is more on a negotiation base. What we factored in there, if you back calculate, is a premium in the order of magnitude of between $25 to $30 per ton, depending on the years. So this is what we factored into the study. But when you look at the potential that we do see, we do see potentials for that to be even higher as the demand increases. Because we don't necessarily want to commit to either electric arc furnaces or blast furnaces. We will sell to the customers where it makes most sense for us. So if a customer wants to use this in his blast furnace and he's willing to a significant premium for this material and we can help him decarbonize, for sure we're going to go down that route for a portion of our tons as well. But we don't see any hurdles in being able to sell this material in the future. Now, if you look at the order of projects, realistically, I think this one is a bit of a no-brainer. I think this one allows us to produce one of the purest materials on the world. It brings us right in the transition for the green steel. It puts us in a very good spot to be able to sell tons closer to home, so to reduce our freight costs. And the capex is something that we do feel is manageable out of our own operating cash flow. So when you look at the other projects, let's say that the actual pelletizer or the Cami project, I'd say that the pelletizer would only happen anyways if we did this project before. So we want to produce DR pellets out of that pelletizer, so we need to do the upgrading facility first. So that one, we don't need to wait for the study. And second, CAMI is going to be potentially very accretive for our shareholders. but it's a larger project than this one here. And by the time that we get the results from the study, we would already be about a third of the way in to our DR pellet feed project. I don't see Cami or the pelletizing feasibility being required for us to give the final go on the DRPF. I do think that this is where the company wants to go, and this is the most accretive path for shareholders as well.

Great. Thank you.

I hope I covered everything from your question there, Alexander.

Yeah, no, that's perfect.

Thank you. Your next question comes from the line of John Tomasov from John Tomasov's Very Independent Research. Please go ahead.

Thank you for taking my question. In your marketing, do you think the highest value added will be to tailor to specific glass furnace customers' specifications? and specific blast furnaces that are the minimum transportation distance in your marketing program?

Yeah, thanks for the question, John. So when we look at the way that we've designed our product, I think you're 100% correct. So even when we started Bloom Lake, we tailored the product that we make to make sure that it works with the Japanese market. So they had a maximum 4.5% silica requirement for their blast furnaces. And that's how we designed our process. Now, when we turn towards the new product, the DR pellet feed, well, this one I think has been tailored for everyone in the sense that it's gonna be probably the purest material on earth. So this will be required by either blast furnaces or electric arc furnaces. And the advantage that we have in being an exclusive high-grade producer and being, I'd say a bit smaller is that we are able to work with our clients to be able to deliver specific products. And I'll just turn to 2020 when we had one of our clients ask, can we make a little bit higher grade material? You probably saw that we delivered three vessels, at a specification of about 67.5% iron ore instead of our typical 66% to make sure that this material was the actual material that was required from our clients. So we've got that capacity to tailor a portion of our tons to meet our client specifications and the strategy to sell closer to home is definitely at the top of our list as well.

So we should not jump to an immediate conclusion For example, that middle at DeFasco Hamilton or Thyssen in Germany is closest, therefore their DR spec in the future would be better than somebody else's because it's closer?

Yeah, the issue with Hamilton, you probably know that ArcelorMittal has their own mine pretty close to ours. Our properties actually touch. And I do think they'll be self-sufficient to be able to have that material. Now, when you turn to Germany, that's obviously at the top of our list in terms of potential clients, because each one of them is going towards a transition to produce greener steel. I think they've got a very good market to be able to get a green steel premium from their clients as well. And I do think that it's a customer base that's going to be very important for us. We already sell into Germany, but I think we can definitely sell more into the future.

So you shouldn't have to bear the freight to go all the way to Japan or China or Asia, right?

Correct.

I can ask another question. After Vale's January 2019 catastrophe, the iron ore market appeared to be in deficit, and it was sort of like shooting fish in a bucket. In the September quarter and now in the December quarter, five seaborne majors are combined, breaking their 2018 quarterly output records. Of course, last year, world steel output fell. So as the majors have output growth, there needs to be steel output growth, which there wasn't last year. Do you have any hesitations about expansion in a market that appears to be potentially oversupplied? Or is your strategy that your costs and quality are so good you'll produce full out and somebody else has to be the one to shut down.

Yeah, for sure. We're not going to take an arrogant approach and thinking we can dislodge many tons from the majors. I think what we need to focus on is really the quality aspect of it. And when we look at the global output of iron ore, yes, the quantity has been pretty good, but the quality has actually gone down. And what we're seeing is not only in terms of iron ore, but in terms of higher FOS and higher alumina. Where we have a different proposition is the fact that we have basically no FOS and almost no alumina as well. So we really differentiate ourselves in terms of the type of material that we produce. The other positive that we have is we're an exclusive high-grade producer. So we don't have X amount of tons of low-grade, X amount or Y amount of tons of high-grade, and then have to push the low grade to allow our clients to have the high grades. So we've got a very good proposition, which our clients like, because they don't have to buy some lower quality material to have access to the high grade stuff. So would we push go on further expansions? We're obviously going to look at the market, how it evolves. For us to produce more or to get into the DR a great space, I think that makes a whole lot of sense because it's a market that will have a huge deficit. So even if the global iron ore output increases even much more than what it is today, I don't see the DR quality material increasing significantly. At least I have not seen anything being announced. So that puts us in sort of a niche market where I do think that we've got room to grow in the future. For the other potential expansions, we'll follow the market and see where it goes. But if quality continues to decline as what we're seeing now, we do think that there's going to be a good market for material from projects like TANI as well.

I could do one more. For sure, Vale, BHP, and Rio have a lot of sub-60 stuff, and they can't hold their 62 and 65 targets. Last night, Fortescue had their quarterly call. And they produce 189, 192 million tons of 56 to 59% subgrade. Their 22 million ton, 67% magnetite project coming on stream in the next quarter, they say is a different quality and it's purely incremental. They won't reduce the low-grade because they have the high-grade. Then they have a project in Gabon, Moringa, that's very high-grade hematite, much like Simandou. And that's a third market segment to them. And I don't necessarily agree with their approach, but they're going to produce flat-out And they say in all three market segments because they're separate market segments. The reason I'm posing the question to you is because some of the other companies are a little more aggressive or maybe to use your word arrogant and trying to go flat out in every quality niche.

I think the only niche that they're not hitting is the DR market. And I think what we'll see in the future is today's high grade is going to be tomorrow's low grade. So when you look at those projects, Well, they will be required for blast furnaces, but they cannot feed electric arc furnaces.

So I do think that even... They're in their back of the project to 67%. They grind to 30 microns.

They could, but they are... What they've announced, at least, is they will use this material to be able to blend other lower-grade materials. So depending which strategy they take, well, that'll fluctuate. But what they've announced is that this material will be able to blend up some of their lower-grade material with.

Thank you.

Thank you. Your next question comes from the line of Lucas Pipes from B-Rally Securities. Please go ahead.

Thank you very much. Good morning, everyone. Congratulations on reaching commercial production at Phase 2. On the topic of Phase 2, could you elaborate on when you would expect a nameplate there Would it be here in the current quarter, next quarter? Appreciate your perspective on timing. Thank you.

Yeah, thanks for the question, Lucas. So as we've announced, we've now got phase two at commercial production. What we need to do now is ramp up the full site to main plate capacity. So the major constraint there is the mine. We've got most of the equipment delivered at site and will be ramping up in this quarter. So we've announced also that we do expect that in the near term, we'll be at full nameplate capacity run rate. So I can't really give you more info on this one as we don't give guidance, but fully expect that in the near term we'll be able to be running at full nameplate capacity.

Okay, that's helpful. Do you have a sense of magnitude for how much production would be up quarter over quarter?

I think that's a similar question to the last one Lucas asked. Now, realistically, we'll be able to ramp up compared to the past quarter. To what extent, I can't disclose, but I think the teams are doing everything at site to make sure that we can ramp up those mining operations as quickly as possible so that we can deliver close to our nameplate capacity in the very near future.

I appreciate that, Colin. That is helpful. Thank you. Then, second question on the DR Great Feed project. Would this impact production during construction? I think construction is, it might be 30 months. Would this have an impact? Thank you.

Yeah, thanks for the question, Lucas. So maybe at the close to the end of those 30 months in construction, there will be some tie-ins between the phase two and this project. But we have designed this to have minimal impact on our operations. So the plant is going to be built beside the phase two project. And apart from those tie-ins, we don't expect any reduction in production.

Very helpful. Thank you. Then we'll sneak one last one in. The pellet plant project, restarting the facility, I think it's Point Noir. Would that run on natural gas? And if so, how much? Would appreciate your comment on that. Thank you.

Yeah, thanks for the question. I might have Alex to chime in just for the quantity, but we look at starting with liquefied natural gas. As you know, there's no pipeline of natural gas that comes into the region right now. There seems to be about one project missing for the government to potentially evaluate bringing a pipeline to the North Shore. As you know, there's a big aluminium smelter, there's ArcelorMittal's pellet plant, there would be this one. There's a few projects that would require natural gas as well. The beginning would be LNG and then potentially transitioning into natural gas in the future. For the quantity, Alex, do you have that at the top of your head? If not, Lucas, we'll do a quick follow-up after.

No, I think, David, it would be preferable that we do a follow-up just so I can show the number that's off track.

Super.

Yeah, we'll get to that, Lucas. I appreciate that. Awesome. Well, I really appreciate the color. And Dave, to you and the team, continue. Best of luck. Thanks a lot, Lucas.

Thank you. There are no further questions in the phone line at this time. Mr. Catafort, please continue for any closing remarks.

Yeah, thanks for everyone for participating today. I think big highlights, again, is the fact that we've reached our commercial production with the Phase 2, transitioning to one of the highest-grade materials in the world. Very excited about the future that we have at Champion, and we'll continue to work on various projects to make sure that we can generate as much revenues as we can for our shareholders, at the same time as working closely with the various communities, our First Nations partners, and all of our employees. So again, thanks a lot, everyone, and looking forward to a meeting with you at the next quarter.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.