Champion Iron Ltd

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.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Orest Waukoda from Scotiabank. Please go ahead.

Hi, good morning. I wanted to ask a question about your CapEx. The sustaining capital system over the last two quarters looks pretty elevated relative to quarters before that and certainly versus the technical report. If we just exclude the DPRF growth capital, just wondering if we should expect sort of the run rate that we've seen in the last two quarters of about $110 million a quarter, excluding DPRF, or should we expect that to fall back down towards the $60 million a quarter level? moving forward. Obviously, you're making lots of investments here. I'm just wondering how much is left to go.

Yeah, thanks for the question, Horace. So when you look at the last quarter, really a bit abnormal when you look at the investments on the mining equipment and also on the rail cars. So that was one of the elements. But the number that you mentioned, the sort of $60 million per quarter, is more in line towards the investments that will be made in terms of CAPEX and more in line with our feasibility studies. as you correctly point out. I think that the rail cars and the mining equipment is really abnormal portion that we've seen in the last quarter.

Okay, and just as a follow-up, the DPRF product that you're bringing on, was any of that intended to go to U.S. customers?

Right now, it was not intended to go to U.S. customers. It's always a potential that we have, but if it is to go to the U.S., we would need to solve the pelletizing portion. So they typically buy more pellets than actual pellet feed. When we look at the potential customers in the Middle East, North Africa, and in Europe, well, they actually have pelletizing capacity and need the pellet feed. So that was more the market that we were intended, at least to start the project.

Okay. And with startup of that plant now within, call it 10, 11 months, Can you give us an update of where you are in terms of signing contracts? Are negotiations underway, or do you need to be closer to production?

Yeah, we started negotiations more than a year ago, so traveling quite a lot to Europe, Middle East, and North Africa to meet the various steel mills. A lot of positive discussions. We forecast probably signing our first contracts in October or November of this year. to make sure that it's before we start selling the cargos in calendar 2026.

Okay, thank you.

And your next question comes from Alexander Pierce from BMO Capital Markets. Please go ahead.

Great morning, David Moynall. So you mentioned in your comments, David, that the shipping run rate did seem to improve ahead of the loadout issues. I just wonder whether you could provide a bit of an update for us in terms of how quickly you think you can get those additional stockpile tons down the rail over and above your production rate. Thanks.

Yeah, thanks for the question. When we look at the current rail operator and the production within the line, so you've probably seen the guidance for IOC in terms of tons. If they're on the lower end of the guidance, that gives us a whole lot of flexibility to be able to bring down more tons during this calendar year. We'll be able to see that portion, but even if they hit the higher end of their guidance, we're still in a position to start bringing down tons from our stockpile. If you look at the last quarter, if there wouldn't have been a hiccup, we probably would have gotten around 3.8 million tons down. So a benefit of close to 200,000 tons during the quarter. But we do see that continuing to improve because we're going to get out of the winter months, and that's typically when we're able to increase the amount of tons per rail car and at the same time increase the amount of tons that go down. So I think 2025 is going to be a good year in terms of destocking the stockpile.

Great. Thanks, Dave. And then maybe I can just ask a second question, which is just around maintenance. Now, you flagged, given the issues in the last quarter, you undertook more maintenance, I think, and then But typically, Q4 is the maintenance quarter. So do you expect a more maintenance-light quarter this time in Q4?

Yeah, thanks for the question. So the work that we did is more complicated elements that is not necessarily going to impact the length of our main shutdowns. When we have those big shutdowns, as you can imagine, they're planned a few months ahead of time. We need the parts to be able to do all the work. We need the various contractors and the expertise. Now we benefited from the time that was, I'd say, available to us to do some light maintenance in certain areas that maybe will lighten a little bit the cost in terms of the maintenance, but definitely won't change the timeline. If you look at our shutdowns, Typically, the schedule is driven by the maintenance that we do within the mills, and we can't really do any of that work or change any of that work in short-term sort of events like what we have now because we didn't have any time to prepare, and it would have been a bit futile to change the liners within our mill right now. So slight improvements, but I don't think it's going to change much the timeline of our shutdowns in Q4.

Understood. Thank you.

And your next question comes from Nick Guile from B. O'Reilly. Please go ahead.

Okay. Thanks, Operator, and good morning, everyone. Just on CAMI, congratulations on the agreement with Nippon. That's really great to see. I was wondering if you could remind us on the estimated cost of the feasibility study in total and then net to champion.

The cost in terms of the feasibility study, when we look at the work that needs to be done, we need to do some geotechnical drilling. We also need to, and we say feasibility study, but I bunch up the permitting within it as well because there is some cost associated to the permitting work that we're doing. And there's also some improvements from our pre-feasibility study that have to be done on infrastructure at the port and infrastructure to get the electrical line in place. Very happy, you probably saw the announcement as well, that Quebec and Newfoundland seem to have come to an agreement in terms of power between the two provinces. So that really helps also in terms of what we're looking at to bring power in the Labrador City area. When you look high level, the cost to be able to finalize all that, you're in the order of magnitude of about $60 million. And when you look at the way that we structured the deal, well, this amount is going to be invested more by the partners, so Champion should not have to put any of its own cash within the next two years to be able to continue advancing the project.

David, that's really helpful. I really appreciate all the detail there. My next question is just maybe more on the operating cost side, still a little higher than you'd like. You've done some extra maintenance. It seems like volumes could be looking stronger in the quarters ahead. So how should we think about the impact of greater fixed cost absorption? And is there any way to quantify the cost impact of rehandling volumes?

Yeah, so the cost impact of rehandling the volumes is a few dollars per ton to get it there, a few dollars per ton to bring it back. So there is an impact associated to those tons that we've had to stockpile at site. When you look at the improvements of volume, there's definitely a few dollars also associated to volume increase. The real game changer for us as well is once we start de-bottlenecking the project, because then we can really absorb even more some of the fixed costs. But the one thing we need to get in place properly is the logistics to make sure that when we do invest to de-bottleneck the plants, well, we're actually able to bring down those tons and we're not stuck in a stockpiling scenario again. One thing I just want to keep highlighting on the logistics is that if you go back a few years before Phase 2 came on, we never talked about logistics issues. So as soon as that is settled, well, we do feel that we'll be able to bring down the tons that are being produced in an uninterrupted way and in a very stable way. It's taken longer than it should have, and as you know, it's been a struggle on our side. But once that is in place, we should be in a position to bring down all the tons de-bottleneck the site and bring our costs down to a level closer than what we've disclosed in the past.

Again, I really appreciate all the color. So continued best of luck.

Once again, if you have any questions, press star 1. Your next question comes from Craig Hutchinson from TD Cowan. Please go ahead.

Hey, good morning, guys. Just on the DRPF commissioning, can you give us a sense of how long that commissioning process will take? And then once you are commissioned, is the plan to sort of blend your product across, you know, the phase one and phase two initially until you get a sort of price set for the DR material? And then maybe just a follow-up. If you guys were selling DR product right now, can you give us a sense of just what the market price is for that product over above maybe the 65% index, if there's any clarity on that?

Thanks. Yeah, thanks for the question, Craig. So, I mean, 12 months seems short, but it can be pretty long in terms of what can happen in the world. Right now, if we look at our current strategy on the commissioning and the ramp-up of the flotation plant, It's to have two separate products. The way that we want to approach the ramp-up is to be able to focus more on volume than quality, which is a bit opposite than what we've done with Phase 1 and Phase 2. If you remember, when we started Phase 1 and Phase 2, our target was make sure every single car goes on spec at 66% so that we can have the credibility in the market to be a high-grade producer. When we integrate the flotation plant, We want to try to minimize the amount of volume that is disrupted by this ramp up and make sure that we can eventually get to that 69%. Now, if the market stays where it is as today, I'm pretty sure the strategy is going to be to blend 100% of the material and have a new product that is entry-level DR grade and be able to sell 100% of our tons on that. If we do see that there's a potential shortage on scrap, and people need metallics are willing to to pay more for the 69 percent than the entry-level DR well then we'll keep the products separated and what's interesting is when you look at our infrastructure we're going to have the flexibility to adapt very quickly and our clients are the way that we're going to look at structuring our contracts is going to be in a way that also gives us that flexibility and we've got the potential added value if we get to 69% versus 67.5. But as you can imagine, if you look at the current market now with DR pellet premiums at around $45, the premium that we would get for our material is lower than what we've put or forecasted in our feasibility study. But where we have advantages is in terms of the shipping portion. That's an added benefit compared to that feasibility study. So our markets are really to try to sell into Middle East, North Africa, and Europe. And by doing that, we'd save $4 to $5 US per ton in terms of shipping prices right now on top of the FE units, on top of the premium. So it's still a project that's very accretive for our shareholders, but that added flexibility is going to allow us to look at where the market is in 12 months and really make sure that we create the most value with that material.

I appreciate that. Is there, just as a follow-up question, is there an actual price, quotable price today for, an entry-level DR-grade product? Any sense on what that pricing would be today versus the 65% index if that information is out there?

Yeah, unfortunately, the information is not out there. The only one that we can sort of disclose is that $45 per ton for an entry-level DR-grade pellet. That is the sort of official number, but there's nothing on concentrate that's sort of public yet.

All right. Thanks, guys.

Thank you, Greg.

At this time, we have no other questions. Oh, we have a follow-up question. Your next question comes from Oris Waukoda from Scotiabank. Please go ahead.

Thanks for taking the follow-up. David, did I hear you say in the preamble that in the current market, the 65% product was taking a discount in China relative to the, call it the spot price? I'm just wondering if that is continuing here in the, calendar first quarter?

Yeah, thanks for the question, Orest. So yes, that's exactly what I said. There's a current first spot cargoes sold in China right now with Canadian conch. There is a discount of a few dollars per ton, and we do forecast that to still be there in the next quarter. Then again, things can change very quickly with China, as you've seen. We've had premiums in the past to the P-65s, Now we're more in a slight discount portion. But, again, it really depends on the appetite that China has for this type of material and when you look also at their steel margins. They seem to be favoring a little bit more low-grade right now, and that's what we've seen. So that's why we've seen this slight discount come in.

Okay. Thank you very much.

At this time, we have no other questions. Please proceed with any closing remarks.

Yeah again thanks a lot everyone for being on the call as you know it's been a challenging six months when you look at the forest fires you look at the impacts in production that we had the accident as well at site during our construction I'm very proud of how the teams have been able to work together to make sure that we can minimize those impacts but again what I do feel is that we're starting to get in a position now to get back towards our operational excellence as you've seen us do from 2018 to 2022 and really getting that sort of ramp up phase behind us in terms of logistics to make sure that we can benefit 100% from the tons that are sold or that are produced at Bloom Lake. Looking forward to calendar 2025 for us to finalize our various projects and to get into position in 2026 to really increase our earning power and really make sure that we can deliver proper results to our shareholders. And this is the year that we'll continue evaluating what's the best way to return capital to shareholders because most of the big CapEx elements are going to be behind us at the end of this calendar year. So, again, thanks a lot, everyone, for your support. Looking forward to speaking in the next quarter and wish you a great day.

Ladies and gentlemen, this concludes the conference. You may now disconnect your lines.