Champion Iron Limited press release

CHAMPION IRON REPORTS ITS FY2024 SECOND QUARTER RESULTS, DECLARES DIVIDEND AND ADVANCES THE DRPF PROJECT

2023-10-25

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

Canada NewsWire

Record quarterly production of 3.45M wmt, revenue of $388M , EBITDA of $155M 1 , EPS of $0.13 Declared a dividend of $0.10 per ordinary share DRPF Project remains on schedule with completion of work programs

MONTRÉAL , Oct. 25, 2023 /CNW/ - ( Sydney , October 26, 2023 ) - Champion Iron Limited (TSX: CIA) (ASX: CIA) (OTCQX: CIAFF) ("Champion" or the "Company") is pleased to announce its operational and financial results for the 2024 financial year second quarter ended September 30, 2023 .

Conference Call Details

Champion will host a conference call and webcast on October 26, 2023, at 9:00 AM (Montréal time) / October 27, 2023 , at 12:00 AM ( Sydney time) to discuss the results for the financial second quarter ended September 30, 2023. Call details are outlined at the end of this press release.

Champion's CEO, Mr. David Cataford , said: "Thanks to its agility, our team achieved a new quarterly production record of 3.45 million wmt. Following the quarter end, our team realized the full potential of Bloom Lake with production levels now reaching its expanded nameplate capacity of 15 Mtpa in the most recent 30 days. Our operating costs per tonne are also on track to continue improving as we benefit from continuous optimization work programs. Additionally, we remain confident in our ability to advance the Direct Reduction Pellet Feed Project ("DRPF Project") to potential completion by the second half of calendar 2025. This project will not only continue to benefit the Québec Côte-Nord region, but it is also essential for supplying a critical raw material required for the accelerating shift towards green steelmaking."

1. Highlights

Sustainability and Health & Safety

No serious injuries and no major environmental incidents reported in the quarter;

Appointed Ms. Jessica McDonald to the Board at the Company's Annual General Shareholders' Meeting held in August 2023 . Ms. McDonald brings extensive leadership and directorship experience to the Company and this appointment enabled Champion to exceed the 30% female Board representation threshold that the Company committed to in its 2022 Sustainability Report;

Recognized National Day for Truth and Reconciliation on September 30 for the second year in a row, by organizing full day workshops and commemoration activities aimed at familiarizing Champion's employees with the Innu culture;

Concluded a 10-year financial partnership with the Innu Nikamu Festival, one of the most important events celebrating First Nations music and art in North America , to help promote and increase awareness of the Innu culture and language; and

Participated in several community engagements, including fundraising events to support local residents fighting cancer and struggling local families, sponsorship of the annual First Nations and Québec Regional Economic Circle, contributions to local facilities to promote First Nations employment and several 2023 scholarships offered in sports, arts and recreation to encourage young people from the Innu community to pursue their studies.

Operations and Finance

Achieved a record quarterly production of 3.45 million wmt of high-grade 66.1% Fe concentrate for the three-month period ended September 30, 2023, an increase of 21%, compared to the same period last year due to the continued solid performance of Phase II since achieving commercial production in December 2022. Record production was realized despite several days of unscheduled outage related to a major crusher ore belt failure in one of the Company's conveyor systems, affecting the availability of the Phase II concentrator;

Realized a record quarterly material mined and hauled of nearly 17 million wmt for the three-month period ended September 30, 2023, up 14% from the previous quarter, enabled by the contribution of additional mining equipment commissioned during the financial year. Ore milled by both plants reached a new high at 10 million wmt for the three-month period ended September 30, 2023, up 4% from the previous quarter, enabled by ongoing infrastructure optimization. With the solid performance of the mine and the processing plants, the Company continues its progress towards reaching its expanded 15 Mtpa production nameplate capacity;

Quarterly iron ore concentrate sales of 2.9 million dmt for the three-month period ended September 30, 2023, comparable to the same period in 2022, and up 12% from the previous quarter, as railway capacity gradually resumed after the June 2023 forest fires. Shipments during the period were also impacted by the railway service provider's annual planned maintenance lasting several days, together with a few days' outage caused by a train derailment in the northern switching yard, which fortunately caused no injuries or negative environmental impact. As a result, the Company had 1.6 million wmt of iron ore concentrate stockpiled at Bloom Lake as at September 30, 2023 . With additional locomotives in service and rail operations resuming at full capacity after the scheduled maintenance in September 2023 , the Company expects its tonnage sold to meet and possibly exceed tonnage produced as it clears iron ore concentrate inventories at the mine site in upcoming periods;

Cost of sales was $73.7 /dmt 1 ( US$55.0 /dmt) 2 , a decrease of 9% for the three-month period ended September 30, 2023, compared to $81.3 /dmt 1 ( US$60.5 /dmt) 2 in the previous quarter, positively impacted by semi-annual railway services trailing fuel price adjustments and by higher shipment volumes amortizing fixed handling costs at the port. The cost of sales per dmt sold slightly increased, compared to $71.5 /dmt 1 ( US$54.8 /dmt) 2 for the same period in 2022, and continued to be negatively impacted by the utilization of contractors to fill vacant positions, higher maintenance costs driven by planned and unplanned maintenance activities and below normal run rate shipment levels to amortize mostly fixed costs at the port facilities in Sept-Îles;

Revenues of $387.6 million for the three-month period ended September 30, 2023 ( $300.6 million for the same period in 2022), net cash flow from operating activities of $162.2 million ( $87.1 million for the same period in 2022), EBITDA of $155.0 million 1 ( $84.3 million 1 for the same period in 2022) and net income of $65.3 million with EPS of $0.13 ( $19.5 million with EPS of $0.04 for the same period in 2022);

Strong cash position and liquidity at quarter-end with $316.5 million in cash and cash equivalents and short-term investments as at September 30, 2023 ( $277.4 million as at September 30, 2022 ), an increase of $66.2M since June 30, 2023 , and available liquidity, including amounts available from the Company's credit facilities, totalling $645.9 million 1 at quarter-end, compared to $579.2 million 1 as at June 30, 2023 ; and

Fifth consecutive semi-annual dividend of $0.10 per ordinary share declared on October 25, 2023 (Montréal time) / October 26, 2023 ( Sydney time), in connection with the semi-annual results for the period ended September 30, 2023 .

Direct Reduction Pellet Feed Project Update

Cumulative investments totalled $28.9 million , as at September 30, 2023, from previously approved initial budgets, including ongoing detailed engineering work and on-site activities, in preparation for upcoming civil work programs; and

Work programs completed to date secured the project completion timeline, scheduled for the second half of calendar year 2025 pending a final investment decision, which is expected in the near term.

Other Growth and Development

The Company continues to pursue organic growth opportunities, with the Kamistiatusset iron ore project (the "Kami Project")'s feasibility study, evaluating the viability to produce a Direct Reduction ("DR") grade pellet feed product, and an additional study, in collaboration with a major international steelmaking partner, to re-commission the Pointe-Noire Iron Ore Pelletizing Facility (the "Pellet Plant") to produce DR grade pellets. Both studies are expected to be completed in the near term; and

Issued a technical report in respect of Bloom Lake prepared pursuant to National Instrument 43-101 – Standards of Disclosure for Mineral Projects ("NI 43-101") and Chapter 5 of the ASX Listing Rules entitled "Mineral Resources and Mineral Reserves for the Bloom Lake Mine, Fermont , Québec, Canada ", prepared by BBA Inc., SRK Consulting (U.S.), Inc., Soutex and Quebec Iron Ore Inc. and dated September 28, 2023 (the "2023 Technical Report"), confirming the 18-year LoM, based on the mineral reserves, with an opportunity to extend operations beyond the LoM plan, with a 40% increase to the measured and indicated resources and a 360% increase to inferred resources.

2. Bloom Lake Mine Operating Activities

| | | Three Months Ended | | Six Months Ended | | | | | | | | September 30, | | September 30, | | | | | | | | 2023 | 2022 | Variance | | 2023 | 2022 | Variance | | | | | | | | | | | | Operating Data | | | | | | | | | | Waste mined and hauled (wmt) | | 6,264,600 | 4,572,900 | 37 % | | 11,463,100 | 10,178,900 | 13 % | | Ore mined and hauled (wmt) | | 10,593,600 | 8,214,700 | 29 % | | 20,187,100 | 14,407,800 | 40 % | | Material mined and hauled (wmt) | | 16,858,200 | 12,787,600 | 32 % | | 31,650,200 | 24,586,700 | 29 % | | | | | | | | | | | | Stripping ratio | | 0.59 | 0.56 | 5 % | | 0.57 | 0.71 | (20 %) | | | | | | | | | | | | Ore milled (wmt) | | 10,339,700 | 8,102,700 | 28 % | | 20,235,300 | 14,124,900 | 43 % | | Head grade Fe (%) | | 28.2 | 29.5 | (4 %) | | 28.5 | 30.2 | (6 %) | | Fe recovery (%) | | 77.8 | 78.6 | (1 %) | | 78.0 | 79.3 | (2 %) | | Product Fe (%) | | 66.1 | 66.1 | — % | | 66.1 | 66.1 | — % | | Iron ore concentrate produced (wmt) | | 3,447,200 | 2,857,300 | 21 % | | 6,844,400 | 5,139,900 | 33 % | | Iron ore concentrate sold (dmt) | | 2,883,800 | 2,793,400 | 3 % | | 5,447,300 | 4,807,300 | 13 % |

Impact of Forest Fires

Forest fires emerged on May 28, 2023 , north of Sept-Îles, Québec, resulting in railway service interruptions between Bloom Lake and the port of Sept-Îles between May 30 and June 10, 2023 . There was no damage to Champion's facilities and no significant damage was identified to the railway following inspections by its operator besides the destruction of the power and communication line on the affected rail sections. As forest fires subsided in the region, railway services resumed at partial capacity on June 10, 2023 , until they returned to normal levels during the quarter ended September 30, 2023 , after repairs to the damaged electrical poles and wires over several kilometers were completed. As a result, shipments and sales were impacted in the first half of the 2024 financial year.

Despite supply chain challenges caused by multiple highway closures impacting operations, Bloom Lake operated continuously throughout the railway interruptions and stockpiled iron ore concentrate at the mining complex. The Company responded to the situation by triggering its emergency response plan and managed supply chain risks by focusing mine operations on critical activities required to feed the two plants. This impacted the Company's ability to move waste and generate blasted ore inventory in the first quarter of the 2024 financial year. The Company also used its crusher's stockpiles to supply the two plants during that period and suffered from a short power outage which impacted operations for a full day.

As at September 30, 2023 , the Company had 1.6 million wmt of iron ore concentrate in inventory at the Bloom Lake site. Although the recent commissioning of three additional locomotives received in June 2023 had a positive impact on the volume of concentrate transported to Sept-Îles, it was offset by an annual planned maintenance shutdown of the railway facilities lasting several days and its reduced capacity in the first half of the quarter, as well as a few days' outage caused by a train derailment. The Company and its rail service provider are working diligently to maximize the transportation of tonnes from Bloom Lake to Sept-Îles. The Company expects its stockpiled iron ore concentrate at Bloom Lake to be shipped and sold over several upcoming quarters. The Company also expects to incur additional rehandling costs in future periods to reclaim the iron ore concentrate from the stockpile.

Phase II Update

Phase II reached commercial production in December 2022 and the Company continued to make improvements to stabilize and optimize operations. As expected when delivering a project of this scale, the Company faced challenges, including delays in deliveries and commissioning of mining equipment, creating inefficiencies across the site, which negatively impacted the Company's ability to reach its full expanded nameplate capacity. Phase II produced at nameplate capacity for thirty consecutive days for the first time during the first quarter of the 2024 financial year. Considering its success in increasing its production at the mine and ore material milled quarter after quarter, and ongoing work programs, the Company continues its progress towards reaching its expanded 15 Mtpa production nameplate capacity on a consistent basis. Those programs aim to increase throughput and ore recoveries, optimize and synchronize operations, and adapt maintenance practices.

The main Phase II work on third-party infrastructure was completed in the three-month period ended September 30, 2023, further positioning the Company to benefit from additional flexibility and capacity to handle the Company's expanded nameplate capacity at the port facilities in Sept-Îles. The recent commissioning of the stacker reclaimer and associated conveyors, and three additional locomotives required to support the expanded production capacity should positively impact the Company's shipment capacity and vessel loading time.

Operational Performance

Second Quarter of the 2024 Financial Year vs Second Quarter of the 2023 Financial Year

In the three-month period ended September 30, 2023, 16.9 million tonnes of material were mined and hauled, compared to 12.8 million tonnes during the same period in 2022, an increase of 32%, attributable to the contribution of additional equipment commissioned during the financial year. This also represents a 14% improvement over the volume mined and hauled in the previous quarter due to a higher utilization of mining equipment associated with an increase in the number of operators and better equipment availability. The stripping ratio of 0.59 for the three-month period ended September 30, 2023, is comparable to the same period in 2022, and increased as planned, compared to 0.54 in the previous quarter.

During the three-month period ended September 30, 2023, an unscheduled outage related to a major crusher ore belt failure in one of the Company's conveyor systems negatively impacted the availability of the Phase II concentrator for several days. Despite this situation, the two plants processed 10.3 million tonnes of ore during the three-month period ended September 30, 2023, compared to 8.1 million tonnes for the same prior-year period, an increase of 28%, driven by the progress of the Phase II ramp-up to reach Bloom Lake's expanded production nameplate capacity of 15 Mtpa. Material processed by the two plants also increased by 4%, compared to 9.9 million tonnes in the previous quarter, and reached the two mills feed nameplate capacity during the three-month period ended September 30, 2023.

The iron ore head grade for the three-month period ended September 30, 2023, was 28.2%, compared to 29.5% for the same period in 2022, and 28.8% during the previous quarter. The variation in head grade was within expected normal variations in the mine plan.

The Company's average Fe recovery rate was 77.8% for the three-month period ended September 30, 2023, compared to 78.6% for the same period in 2022, and 78.2% during the previous quarter. In the context of constrained rail capacity, the Company adjusted the mine plan to process more challenging ore from some areas, which negatively impacted recovery rates during the period. The Company remains confident in its ability to reach the average LoM expected Fe recovery rate target of 82.0% in upcoming quarters at Bloom Lake, as detailed in the 2023 Technical Report.

Despite the impact of an unscheduled outage lasting several days to repair a conveyor system, and lower head grade and recovery, the two processing plants delivered a record production of 3.45 million wmt of high-grade iron ore concentrate during the three-month period ended September 30, 2023, an increase of 21% compared to 2.9 million wmt during the same period in 2022 and an increase of 1.5% compared to the previous quarter.

First Six Months of the 2024 Financial Year vs First Six Months of the 2023 Financial Year

The Company mined and hauled 31.7 million tonnes of material during the six-month period ended September 30, 2023, compared to 24.6 million tonnes for the same period in 2022, an increase of 29% driven by additional mining equipment in operation.

The stripping ratio was 0.57 for the six-month period ended September 30, 2023, compared to 0.71 for the same period in 2022, slightly lower than the Company's plan for the 2024 financial year. The Company strategically focused on mining ore in the first months of the 2024 financial year with a reduced mining equipment capacity and limited fuel reserves caused by supply challenges related to the June 2023 forest fires, as fuel inventories were prioritized for critical activities.

The two plants processed 20.2 million tonnes of ore during the six-month period ended September 30, 2023, an increase of 43% over the same period in 2022, and produced a record of 6.8 million wmt of high-grade iron ore concentrate, compared to 5.1 million wmt for the same period in 2022, benefiting from the Phase II ramp-up.

The iron ore head grade of 28.5% for the six-month period ended September 30, 2023, is consistent with the LoM head grade average. The lower average Fe recovery rate for the six-month period ended September 30, 2023, was mainly attributable to the processing of more challenging ore from some areas in the pits and to a slight backlog in the recovery circuit maintenance due to significant efforts deployed on solving conveying challenges in the past months. Significant improvements were made to increase the reliability and productivity of the Company's crushed ore conveying systems which should allow the Company to resume its proven ability to stabilize and optimize its recovery circuits.

3. Financial Performance

| | | Three Months Ended | | Six Months Ended | | | | | | | | September 30, | | September 30, | | | | | | | | 2023 | 2022 | Variance | | 2023 | 2022 | Variance | | | | | | | | | | | | Financial Data (in thousands of dollars) | | | | | | | | | | Revenues | | 387,568 | 300,621 | 29 % | | 684,730 | 579,942 | 18 % | | Cost of sales | | 212,584 | 199,841 | 6 % | | 421,069 | 369,248 | 14 % | | Other expenses | | 20,192 | 16,839 | 20 % | | 39,837 | 32,444 | 23 % | | Net finance costs | | 11,634 | 10,765 | 8 % | | 18,560 | 14,955 | 24 % | | Net income | | 65,281 | 19,530 | 234 % | | 81,938 | 61,084 | 34 % | | EBITDA 1 | | 155,036 | 84,331 | 84 % | | 220,841 | 179,261 | 23 % | | | | | | | | | | | | Statistics (in dollars per dmt sold) | | | | | | | | | | Gross average realized selling price 1 | | 169.4 | 157.0 | 8 % | | 169.1 | 171.0 | (1 %) | | Net average realized selling price 1 | | 134.4 | 107.6 | 25 % | | 125.7 | 120.6 | 4 % | | C1 cash cost 1 | | 73.7 | 65.9 | 12 % | | 77.3 | 69.3 | 12 % | | AISC 1 | | 99.1 | 81.9 | 21 % | | 96.7 | 86.8 | 11 % | | Cash operating margin 1 | | 35.3 | 25.7 | 37 % | | 29.0 | 33.8 | (14 %) |

A. Revenues

Second Quarter of the 2024 Financial Year vs Second Quarter of the 2023 Financial Year

Revenues totalled $387.6 million for the three-month period ended September 30, 2023, compared to $300.6 million for the same period in 2022, due to a higher IODEX 65% Fe CFR China Index ("P65"), lower freight and other costs, a weaker Canadian dollar over the same prior-year period and a slight increase in sales volume to 2.9 million tonnes of high-grade iron ore concentrate, compared to 2.8 million tonnes for the same period in 2022.