Champion Iron Limited press release

CHAMPION IRON REPORTS RECORD PRODUCTION FOR ITS FY2023 SECOND QUARTER

2022-10-26

TSX - Toronto Stock Exchange · Iron · Aluminium · Manganese · Copper · Zinc · Australia · Production & Operations

Canada NewsWire

Record quarterly production of 2.9M wmt, adjusted EPS 1 of $0.06 and EBITDA 1 of $84.3 million ; Bloom Lake Phase II expansion ramping-up as scheduled, contributing towards reducing operating costs metrics; Declares a dividend of $0.10 per ordinary share

MONTRÉAL , Oct. 26, 2022 /CNW/ - Champion Iron Limited (TSX: CIA) (ASX: CIA) (OTCQX: CIAFF) ("Champion" or the "Company") is pleased to announce operational and financial results for the financial second quarter ended September 30, 2022 .

Conference Call Details

Champion will host a conference call and webcast on October 27, 2022 at 8:30 AM (Montréal time) / 11:30 PM ( Sydney time) to discuss the results for the second quarter ended September 30, 2022. Call details are outlined at the end of this press release.

Champion's CEO, Mr. David Cataford , said: "Our record production is attributable to the hard work and dedication of our team as Phase II continues to ramp-up as scheduled, despite the challenging environment. As a result, our iron ore volumes sold in the quarter increased by nearly 43% year on year. With Phase II on track to reach commercial production by the end of the calendar year, the higher production volumes are also contributing towards normalizing our operating costs per tonne sold. In addition, our team is finalizing the feasibility study evaluating the production of a Direct Reduction ("DR") pellet feed product, which will be the foundation towards our potential transition to higher value products in the green steel supply chain."

1. Highlights

Sustainability

No major environmental issues reported during the period; Partnership with Innu Takuaikan Uashat Mak Mani-Utenam and Comité sectoriel de main d'oeuvre de l'industrie des mines, to implement training programs aimed at increasing collaboration between Innu partners and Champion; Workshops and commemoration activities aimed at familiarizing Champion's employees with the Innu culture were organized on the National Day for Truth and Reconciliation on September 30, 2022 , as part of an annual commitment, in line with our Company's values; and Fundraising organized by the Company at Fermont and Montréal attracted record participation, with more than 240 individuals running or walking in an event benefiting Cancer Fermont, a charitable organization improving the quality of life of local residents fighting cancer, as well as a significant donation to l'Envol-Maison de la Famille Sept-Îles, a help center which provides support for struggling local families.

Operations and Financial

Record production of 2,857,300 wmt of high-grade 66.1% Fe concentrate for the three-month period ended September 30, 2022 , driven by the commissioning of Phase II, compared to 2,089,100 wmt of high-grade 66.3% Fe concentrate for the same period in 2021; C1 cash cost 1 of $65.9 /dmt ( US$50.5 /dmt) 2 for the three-month period ended September 30, 2022 , comparing favourably with the cash cost 1 of $74.0 /dmt for the previous quarter ended June 30, 2022 , as the Company begins to benefit from higher production volumes generated from the Phase II project; Record iron ore concentrate sold for the three-month period ended September 30, 2022 , contributing to revenues of $300.6 million ( $331.0 million for the same period in 2021), net cash flow from operating activities of $87.1 million ( $374.1 million for the same period in 2021), EBITDA 1 of $84.3 million ( $200.0 million for the same period in 2021) and net income of $19.5 million (EPS of $0.04 ) ( $114.6 million and EPS of $0.23 for the same period in 2021); Financial results during the quarter were positively impacted by the higher iron ore volumes sold, and were more than offset by decreasing iron ore index prices, expected transitional start-up costs to support Phase II commercial production, anticipated lower recovery circuit rates in relation to the Phase II ramp-up, scheduled seasonal tailings related work programs and increased operating costs attributable to global inflationary pressures. The economic benefits of the Phase II expansion project should be progressive as throughput gradually increases towards Bloom Lake's revised nameplate capacity of 15 Mtpa; Available liquidity 1 of $586.4 million as at September 30, 2022 , including $277.4 million of cash and cash equivalents and short-term investments, compared to $571.0 million as at June 30, 2022 ; and Dividend of $0.10 per ordinary share declared on October 26, 2022 (Montréal time) / October 27, 2022 ( Sydney time), in connection with the semi-annual results for the period ended September 30, 2022 .

Phase II Milestones

Commissioning activities continue as scheduled, including ongoing system optimization work related to commercial production, scheduled to commence by the end of calendar 2022 3 , with nameplate capacity anticipated to be achieved in calendar 2023 3 ; and Last major on-site work program in relation to the Phase II equipment has been completed, enabling the Company's two crushers to feed both facilities and reduce bottlenecks during maintenance periods.

Growth and Development

The feasibility study evaluating the reprocessing and infrastructure required to convert approximately half of Bloom Lake's increased nameplate capacity of 15 Mtpa towards commercially producing a 69% Fe DR pellet feed product is nearing completion; In collaboration with a major international steelmaking partner, a feasibility study evaluating the re-commissioning of the Pointe-Noire Iron Ore Pelletizing Facility (the "Pellet Plant") to produce DR grade pellets is advancing, with an anticipated completion date in the second half of calendar 2023; The Kamistiatusset iron ore project's (the "Kami Project") feasibility study, whereby the project is being evaluated for its capability to produce DR grade pellet feed product, is expected to be completed in the first half of calendar 2023; and Freight agreements signed, contracting two vessels per month, from January 2023 to December 2023 , expected to reduce the Company's freight premium volatility by using an agreed-upon price premium above the average C3 Baltic Capesize Index per tonne, plus an additional seasonal premium for winter conditions.

2. Bloom Lake Mine Operating Activities

| | | Three Months Ended | | Six Months Ended | | | | | | | | September 30, | | September 30, | | | | | | | | 2022 | 2021 | Variance | | 2022 | 2021 | Variance | | | | | | | | | | | | Operating Data | | | | | | | | | | Waste mined and hauled (wmt) | | 4,572,900 | 5,299,600 | (14 %) | | 10,178,900 | 9,999,100 | 2 % | | Ore mined and hauled (wmt) | | 8,214,700 | 5,713,900 | 44 % | | 14,407,800 | 11,357,800 | 27 % | | Material mined and hauled (wmt) | | 12,787,600 | 11,013,500 | 16 % | | 24,586,700 | 21,356,900 | 15 % | | | | | | | | | | | | Strip ratio | | 0.56 | 0.93 | (40 %) | | 0.71 | 0.88 | (19 %) | | | | | | | | | | | | Ore milled (wmt) | | 8,102,700 | 5,679,800 | 43 % | | 14,124,900 | 10,907,000 | 30 % | | Head grade Fe (%) | | 29.5 | 29.1 | 1 % | | 30.2 | 29.4 | 3 % | | Fe recovery (%) | | 78.6 | 83.3 | (6 %) | | 79.3 | 83.1 | (5 %) | | Product Fe (%) | | 66.1 | 66.3 | — % | | 66.1 | 66.3 | — % | | Iron ore concentrate produced (wmt) | | 2,857,300 | 2,089,100 | 37 % | | 5,139,900 | 4,025,100 | 28 % | | Iron ore concentrate sold (dmt) | | 2,793,400 | 1,953,900 | 43 % | | 4,807,300 | 3,928,600 | 22 % |

Phase II Commissioning

During the first quarter of the 2023 financial year, the Company initiated and advanced the commissioning of Phase II and at the end of April 2022, the first of two Phase II plant production lines was commissioned. The first shipments were railed on May 3, 2022. In June 2022, the Company successfully started the second line as scheduled in the ramp-up sequencing of the project. Accordingly, both operating lines were in service at the end of the first quarter. During the three-month period ended September 30, 2022, commissioning activities progressed as scheduled. The Company made adjustments and improvements in some areas to stabilize operations (including work to increase throughput and the recovery ratio) and reach expected performance, positioning the Company to achieve, as scheduled, commercial production by the end of calendar 2022 3 and nameplate capacity in calendar 2023 3 . The last major on-site work program relating to the Phase II equipment was completed during the three-month period ended September 30, 2022, enabling the Company's two crushers to feed both facilities and reduce bottlenecks during maintenance periods. Final minor on-site work programs are expected to be completed as planned during the third and fourth quarters of the 2023 financial year. While on-site work programs are being delivered ahead of schedule, off-site work programs, including third-party infrastructure, continue to advance as scheduled.

Operational Performance

Second Quarter of the 2023 Financial Year vs Second Quarter of the 2022 Financial Year

In the three-month period ended September 30, 2022, 12.8 million tonnes of material were mined and hauled, compared to 11.0 million tonnes during the same period in 2021, an increase of 16%. The increase in material movement was enabled through the utilization of additional equipment compared to the same prior-year period, offset by a longer haul cycle as material was sourced from different pits, including those that deepened with mining activities over time. The lower strip ratio for the three-month period ended September 30, 2022, is in line with the revised mine plan in connection with transitional incremental feed requirements during the Phase II ramp-up period.

The iron ore head grade for the three-month period ended September 30, 2022, was 29.5%, compared to 29.1% for the same period in 2021. The variation in head grade is attributable to the presence of some higher-grade ore being sourced and blended from different pits, which was anticipated and is in line with the mine plan and the LoM head grade average.

The Company's average Fe recovery rate for the three-month period ended September 30, 2022, was negatively impacted by the anticipated lower recoveries during the commissioning of the Phase II concentrator, but is in line with Management's expectations at this stage of the Phase II commissioning. The slight decrease in the Fe recovery rate during the three-month period ended September 30, 2022, compared to the first quarter, was due to a higher proportion of tonnes processed by the second concentrator together with stability impacts on Phase I attributable to the finalization of the Phase II tie-in program, as the utilization of the second plant is increasing over time. The Company expects to reach a stable Fe recovery circuit when Phase II achieves commercial production, anticipated to occur by the end of calendar 2022 3 .

During the three-month period ended September 30, 2022, operational activities were impacted by a scheduled semi-annual maintenance on the second concentrator, while no shutdown occurred in the same prior-year period. A shutdown is now planned every quarter, alternating between the two concentrators and related facilities. A non-recurring 20-day scheduled shutdown of specific equipment was required for the tie-in of the first crusher to the A-Frame dome as part of the Phase II project ramp-up, which also impacted operational activities in the quarter. Despite these factors, Bloom Lake produced 2.9 million wmt of high-grade iron ore concentrate during the three-month period ended September 30, 2022, an increase of 37%, compared to 2.1 million wmt during the same period in 2021. The Company achieved record production in connection with the commissioning of the second plant at the mine site. Higher throughput and head grade also contributed to higher production volumes, despite a lower global recovery. The commissioned Phase II project's production compares favourably to the scheduled production volumes. The plants processed 8.1 million tonnes of ore during the three-month period ended September 30, 2022, compared to 5.7 million tonnes for the same prior-year period. The throughput for the period was positively affected by higher availability of mined ore and the commissioning of Phase II operations in the previous quarters.

First Six Months of the 2023 Financial Year vs First Six Months of the 2022 Financial Year

The Company mined and hauled 24.6 million tonnes of material during the six-month period ended September 30, 2022, compared to 21.4 million tonnes for the same period in 2021. This increase in material mined and hauled is attributable to the commissioning of additional operational equipment compared to the same prior-year period. The strip ratio was 0.71 for the six-month period ended September 30, 2022, compared to 0.88 for the same period in 2021, and is consistent with the revised mine plan.

The iron ore head grade of 30.2% for the six-month period ended September 30, 2022, was attributable to different sourcing pits, compared to 29.4% for the same period in 2021, and is consistent with the LoM head grade average. The lower average Fe recovery rate for the six-month period ended September 30, 2022, was attributable to the commissioning of the Phase II concentrator as detailed above.

The plant processed 14.1 million tonnes of ore during the six-month period ended September 30, 2022, an increase of 30% over the same period in 2021, and produced 5.1 million wmt of high-grade iron ore concentrate, compared to 4.0 million wmt for the same period in 2021, mainly attributable to the commissioning of the Phase II project.

3. Financial Performance

| | | Three Months Ended | | Six Months Ended | | | | | | | | September 30, | | September 30, | | | | | | | | 2022 | 2021 | Variance | | 2022 | 2021 | Variance | | | | | | | | | | | | Financial Data (in thousands of dollars) | | | | | | | | | | Revenues | | 300,621 | 331,006 | (9 %) | | 579,942 | 876,414 | (34 %) | | Cost of sales | | 199,841 | 110,884 | 80 % | | 369,248 | 231,730 | 59 % | | Other expenses | | 16,839 | 20,313 | (17 %) | | 32,444 | 34,873 | (7 %) | | Net finance costs | | 10,765 | 1,012 | 964 % | | 14,955 | 5,399 | 177 % | | Net income | | 19,530 | 114,596 | (83 %) | | 61,084 | 338,935 | (82 %) | | EBITDA 1 | | 84,331 | 200,013 | (58 %) | | 179,261 | 605,752 | (70 %) | | | | | | | | | | | | Statistics (in dollars per dmt sold) | | | | | | | | | | Gross average realized selling price 1 | | 157.0 | 218.8 | (28 %) | | 171.0 | 249.4 | (31 %) | | Net average realized selling price 1 | | 107.6 | 169.4 | (36 %) | | 120.6 | 223.1 | (46 %) | | C1 cash cost 1 | | 65.9 | 56.2 | 17 % | | 69.3 | 58.2 | 19 % | | All-in sustaining cost ("AISC") 1 | | 81.9 | 73.6 | 11 % | | 86.8 | 73.1 | 19 % | | Cash operating margin 1 | | 25.7 | 95.8 | (73 %) | | 33.8 | 150.0 | (77 %) |

A. Revenues

Second Quarter of the 2023 Financial Year vs Second Quarter of the 2022 Financial Year

During the three-month period ended September 30, 2022, 2.8 million tonnes of high-grade iron ore concentrate were sold at a gross average realized price 1 of US$120.6 /dmt, before freight and other costs and provisional pricing adjustments, compared to US$174.6 /dmt for the same prior-year period. The decrease in gross average realized selling price 1 reflects lower index prices during the three-month period ended September 30, 2022, compared to the same prior-year period. Despite lower index prices, the gross average realized selling price 1 of US$120.6 /dmt represents a premium of 16.7% over the benchmark IODEX 62% Fe CFR China Index ("P62") price for the period, compared to a premium of 7.2% for the same period in 2021.

During the three-month period ended September 30, 2022, the IODEX 65% Fe CFR China Index ("P65") for high-grade iron ore fluctuated from a high of US$131.5 /dmt to a low of US$107.2 /dmt. The P65 index average price for the period was US$115.5 /dmt, a decrease of 39% from the same prior-year quarter, resulting in an average premium of 11.8% over the P62 reference price of US$103.3 /dmt. The gross average realized selling price 1 of US$120.6 /dmt was higher than the P65 index average price for the period of US$115.5 /dmt due to sales based on fixed backward-looking iron ore prices, when prices were higher compared to the P65 index average for the current period. This factor was partially offset by the negative impact of 1.3 million tonnes which were in transit as at September 30, 2022, provisionally priced using an average forward price of US$112.3 /dmt, which was lower than the P65 index average price for the period. After accounting for sea freight and other costs and provisional pricing adjustments, the Company's net realized FOB selling price 1 was US$83.2 /dmt, compared to US$134.7 /dmt for the same period in 2021.

The average C3 Baltic Capesize Index for the three-month period ended September 30, 2022, was US$24.0 /t compared to US$31.7 /t for the same period in 2021, representing a decrease of 24%, which contributed to lower freight costs in the three-month period ended September 30, 2022, compared to the same prior-year period. The lower freight rates for the three-month period ended September 30, 2022, can be partially attributed to decreased fuel prices and lower iron ore shipments from Brazil . Simultaneously, the partial removal of COVID-19 lockdowns in China reduced port congestion, further influencing the decreasing freight rates, with lower seaborn iron ore volumes as marginal suppliers facing profitability challenges curtailed operations. Champion typically contracts vessels three to four weeks prior to the desired laycan period. This creates a natural delay between the freight paid and the C3 route index price. The effects of these delays are eventually reconciled since the Company ships its high-grade iron ore concentrate uniformly throughout the year.

Provisional pricing adjustments on previous sales, which were directly correlated to the decrease in the P65 index during the quarter, contributed to decreasing the net average realized selling price 1 . During the three-month period ended September 30, 2022, a final price of US$116.2 /dmt was established for the 0.7 million tonnes of iron ore that were in transit as at June 30, 2022, and which were previously evaluated using an average expected price of US$138.4 /dmt. Accordingly, during the three-month period ended September 30, 2022, net negative provisional pricing adjustments of $20.9 million were recorded as a decrease in revenues for the 0.7 million tonnes, representing a negative impact of US$5.3 /dmt over the total volume of 2.8 million dmt sold during the current period, comparable to the negative impact for the same period in 2021.

After taking into account sea freight and other costs of US$32.1 /dmt and the negative provisional pricing adjustment of US$5.3 /dmt, the Company obtained a net average realized selling price 1 of US$83.2 /dmt (CA$107.6/dmt) for its high-grade iron ore delivered to the end customer. Revenues totalled $300 .6 million for the three-month period ended September 30, 2022, compared to $331 .0 million for the same period in 2021, reflecting the lower net average realized selling price 1 partially offset by a significantly higher sales volume and the weakening Canadian dollar.

First Six Months of the 2023 Financial Year vs First Six Months of the 2022 Financial Year

For the six-month period ended September 30, 2022, the Company sold 4.8 million tonnes of iron ore concentrate, mainly to customers in China , Japan , South Korea and Europe . While the high-grade iron ore P65 index price fluctuated between a low of US$107.2 /dmt and a high of US$185 /dmt during the six-month period ended September 30, 2022, the Company sold its product at a gross average realized selling price 1 of US$132.7 /dmt before sea freight and other costs and provisional pricing adjustments. The P65 index average price for the six-month period ended September 30, 2022, was US$137.3 /dmt, a decrease of 35% from the same period in 2021, resulting in an average premium of 14.2% over the P62 index reference price of US$120.2 /dmt. The gross average realized selling price 1 is lower than the average P65 high-grade index of US$137.3 /dmt for the period due to sales provisionally priced using an average forward price of US$112.3 /dmt at the end of the period, which was significantly lower than the average P65 index for the period. The Company expects its iron ore concentrate pricing to track the P65 index in the long term.