Champion Iron Limited press release

CHAMPION IRON REPORTS RECORD IRON ORE SALES IN ITS FY2025 FIRST QUARTER AND ADVANCES THE DRPF PROJECT

2024-07-30

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

Canada NewsWire

Quarterly production of 3.9M wmt, record sales of 3.4M dmt, revenue of $467M , EBITDA of $181M 1 and EPS of $0.16 DRPF project advancing as planned for an expected commissioning in calendar H2 2025, including an additional $58M deployed in the quarter and cumulative investments to date of $154M High-purity iron ore added to the Canadian government's critical mineral list

MONTRÉAL , July 30, 2024 /CNW/ - ( Sydney , July 31, 2024 ) - Champion Iron Limited (TSX: CIA) (ASX: CIA) (OTCQX: CIAFF) ("Champion" or the "Company") reports its operational and financial results for its financial first quarter ended June 30, 2024 .

Champion's CEO, Mr. David Cataford , said, "I am proud of our people who efficiently deployed our emergency protocols in response to nearby forest fires. Their actions prioritized the safety of our employees and contractors by completing a rapid preventive evacuation of Bloom Lake and enabled a swift return to site as fires subsided." Mr. Cataford added, "With respect to our operations, I am happy to report robust quarterly production, record sales and strong financial results for the period. In conjunction with this, we continue to advance our DRPF project, which is expected to significantly reduce emissions in steelmaking, support higher premiums for our products and aligns with the government of Canada's recent recognition of high purity iron ore as a critical mineral."

Conference Call Details

Champion will host a conference call and webcast on July 31, 2024, at 9:00 AM (Montréal time) / 11:00 PM ( Sydney time) to discuss the results of the financial first quarter ended June 30, 2024. Call details are set out at the end of this press release.

1. Quarterly Highlights

Operations and Sustainability

No serious injuries or major environmental incidents reported in the three-month period ended June 30, 2024 ; Quarterly production of 3.9 million wmt (3.8 million dmt) of high-grade 66.3% Fe concentrate for the three-month period ended June 30, 2024 , up 18% from the previous quarter and up 14% over the same period last year. Production during the period benefited from work programs completed to solidify operations and no major scheduled semi-annual shutdowns; Record quarterly iron ore concentrate sales of 3.4 million dmt for the three-month period ended June 30, 2024 , up 16% from the previous quarter and up 34% from the prior-year period; The Company continues to seek improvements from the rail operator to receive contracted haulage services to ensure that Bloom Lake's production, as well as iron ore concentrate currently stockpiled at Bloom Lake, is hauled over future periods. Iron ore concentrate stockpiled at Bloom Lake reached 3.0 million wmt as at June 30, 2024 , up from 2.7 million wmt as at March 31, 2024 ; and Following a preventive evacuation of Bloom Lake in response to nearby forest fires on July 12, 2024 , the Company announced a gradual return of its workforce on July 15, 2024 , and confirmed that the events did not impact its facilities and third parties' infrastructure. With forest fires subsiding in the region, operational cadence subsequently returned to levels experienced prior to recent events.

Financial Results

Gross realized selling price of US$125.3 /dmt 1 , compared to the P65 index average of US$126.1 /dmt in the period; Net realized selling price of US$99.2 /dmt 1 , representing a 20% increase quarter-on-quarter, and 15% year-on-year; C1 cash cost of $76.9 /dmt 1 ( US$56.2 /dmt) 2 , comparable quarter-on-quarter, and representing a decrease of 5% year-on-year; EBITDA of $181.2 million 1 , an increase of 113% quarter-on-quarter, and 175% year-on-year; Net income of $81.4 million , an increase of 215% quarter-on-quarter, and 388% year-on-year; EPS of $0.16 , an increase of 220% quarter-on-quarter, and 433% year-on-year; Strong cash position of $294.7 million as at June 30, 2024 , including $259.9 million in cash and cash equivalents and $34.8 million in restricted cash for the previously declared dividend payment, an overall decrease of $105.4 million since March 31, 2024 , mainly due to the timing of customer payments associated with the concentration of sales at the end of the quarter, progress on the DRPF project, and tax payments primarily related to the previous financial year; and Available liquidity to support growth initiatives, including amounts available from the Company's credit facilities, totalled $860.8 million 1 at quarter-end, compared to $942.1 million 1 as at March 31, 2024 .

Growth and Development

The DRPF project, upgrading half of Bloom Lake's capacity to DR quality pellet feed iron ore grading up to 69% Fe, remains on schedule and on budget, with commissioning scheduled for the second half of calendar year 2025; Completed first key construction milestones of the DRPF project as planned, with quarterly and cumulative investments of $58.5 million and $153.8 million , respectively, as at June 30, 2024 , out of the estimated total capital expenditures of $470.7 million ; High-purity iron ore was added to Canada's critical minerals list, joining other minerals such as nickel, copper and cobalt, recognizing its positive impact in reducing GHG emissions in steelmaking and its importance in the green steel supply chain; Received an additional hydroelectric power allocation from Hydro-Québec, providing access to renewable power that will enable the Company to support growth initiatives required for the green steel supply chain and further decarbonize its operations over time; and Acquired additional mining equipment, to be delivered in the near term, which should increase mine production capacity, including stripping activities, and ordered additional railcars to increase the Company's rail shipment flexibility. These additions are also expected to support the Company's ongoing commitment to address the bottleneck of operations and potentially increase Bloom Lake's production and sales beyond its current nameplate capacity in the future.

2. Bloom Lake Mine Operating Activities

During the three-month period ended June 30, 2024, the Company delivered strong operating results with both plants producing at their nameplate capacity. With no major semi-annual shutdowns at the two processing plants and despite a planned two-day annual power interruption during the three-month period ended June 30, 2024, the Company continued to solidify its operations, benefiting from improved mining equipment availability and plants performance, following major maintenance activities completed in the previous quarter. During the three-month period ended June 30, 2024, the Company exceeded its previous record for iron ore concentrate sold. However, as volumes transported continued to be lower than production, the iron ore concentrate stockpiled at Bloom Lake increased by 0.4 million wmt since March 31, 2024, reaching a total of 3.0 million wmt as at June 30, 2024.

The Company continues to seek improvements from the rail operator to receive contracted haulage services to ensure that Bloom Lake's production, as well as iron ore concentrate currently stockpiled at Bloom Lake, is hauled over future periods.

During the three-month period ended June 30, 2024, the Company continued to analyze work programs and investments required to structurally increase Bloom Lake's nameplate capacity beyond 15 Mtpa over time. The recently acquired additional mining equipment is expected to support the mine production capacity, as the Company evaluates opportunities to address the bottleneck of operations, and prepare for an increase of stripping activities in the future, per the mine plan. In July 2024 , the Company ordered additional railcars to increase rail haulage flexibility over time as part of considerations to potentially increase production beyond Bloom Lake's existing nameplate capacity.

In June 2024 , Société Ferroviaire et Portuaire de Pointe-Noire, a Company's rail and transshipment service provider, concluded a 5-year collective bargaining agreement with its workers, providing additional stability for the Company's operations.

| | | Q1 FY25 | Q4 FY24 | Q/Q Change | | Q1 FY24 | Y/Y Change | | | | | | | | | | | Operating Data | | | | | | | | | Waste mined and hauled (wmt) | | 6,733,700 | 6,498,700 | 4 % | | 5,198,500 | 30 % | | Ore mined and hauled (wmt) | | 10,779,300 | 9,471,200 | 14 % | | 9,593,500 | 12 % | | Material mined and hauled (wmt) | | 17,513,000 | 15,969,900 | 10 % | | 14,792,000 | 18 % | | Stripping ratio | | 0.62 | 0.69 | (10) % | | 0.54 | 15 % | | Ore milled (wmt) | | 11,084,300 | 9,349,100 | 19 % | | 9,895,600 | 12 % | | Head grade Fe (%) | | 29.1 | 28.7 | 1 % | | 28.8 | 1 % | | Fe recovery (%) | | 79.3 | 80.2 | (1) % | | 78.2 | 1 % | | Product Fe (%) | | 66.3 | 66.1 | — % | | 66.1 | — % | | Iron ore concentrate produced (wmt) | | 3,876,500 | 3,275,400 | 18 % | | 3,397,200 | 14 % | | Iron ore concentrate sold (dmt) | | 3,442,800 | 2,968,900 | 16 % | | 2,563,500 | 34 % |

During the three-month period ended June 30, 2024, 17.5 million tonnes of material were mined and hauled, compared to 14.8 million tonnes during the same period in 2023 and 16.0 million tonnes during the previous quarter, representing an increase of 18% and 10%, respectively. The increased production at the mine site was attributable to higher utilization and availability of mining equipment, and reduced trucking cycle time associated with the construction of additional ramp accesses in the previous quarters.

The stripping ratio of 0.62 for the three-month period ended June 30, 2024, was higher than 0.54 for the same prior-year period, which was negatively impacted by forest fires and, consequently, by the focus on critical activities required to feed the plants. The stripping ratio for the three-month period ended June 30, 2024, was slightly lower than the 0.69 achieved in the previous quarter, when lower mills availability enabled the reallocation of mining equipment to move additional waste materials. The Company plans to maintain higher stripping activities in accordance with the LoM plan over the next quarters.

During the three-month period ended June 30, 2024, the two plants at Bloom Lake processed 11.1 million tonnes of ore, compared to 9.9 million tonnes for the same prior-year period and 9.3 million tonnes in the previous quarter, an increase of 12% and 19%, respectively. Ore processed during the three-month period ended June 30, 2024, was positively impacted by lower maintenance activities, as the major semi-annual shutdowns were performed at both plants during the previous quarter.

The iron ore head grade for the three-month period ended June 30, 2024, was 29.1%, compared to 28.8% for the same period in 2023, and 28.7% 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 79.3% for the three-month period ended June 30, 2024, compared to 78.2% for the same period in 2023, and 80.2% during the previous quarter. With continuous efforts made to optimize its recovery circuits, the Company expects ongoing and future work programs to improve recovery rates over time.

With higher Fe recovery and comparable head grade, Bloom Lake produced 3.9 million wmt (3.8 million dmt) of high-grade iron ore concentrate during the three-month period ended June 30, 2024, an increase of 14% compared to 3.4 million wmt (3.3 million dmt) during the same period in 2023, and an increase of 18% compared to 3.3 million wmt (3.2 million dmt) during the previous quarter.

3. Financial Performance

| | | Q1 FY25 | Q4 FY24 | Q/Q Change | | Q1 FY24 | Y/Y Change | | | | | | | | | | | Financial Data (in thousands of dollars) | | | | | | | | | Revenues | | 467,084 | 332,673 | 40 % | | 297,162 | 57 % | | Cost of sales | | 264,911 | 227,496 | 16 % | | 208,485 | 27 % | | Other expenses | | 21,159 | 20,425 | 4 % | | 19,645 | 8 % | | Net finance costs | | 8,259 | 8,831 | (6 %) | | 6,926 | 19 % | | Net income | | 81,357 | 25,791 | 215 % | | 16,657 | 388 % | | EBITDA 1 | | 181,160 | 85,099 | 113 % | | 65,805 | 175 % | | | | | | | | | | | Statistics (in dollars per dmt sold) | | | | | | | | | Gross average realized selling price 1 | | 171.6 | 166.3 | 3 % | | 168.8 | 2 % | | Net average realized selling price 1 | | 135.7 | 112.1 | 21 % | | 115.9 | 17 % | | C1 cash cost 1 | | 76.9 | 76.6 | — % | | 81.3 | (5 %) | | AISC 1 | | 91.6 | 88.0 | 4 % | | 94.1 | (3 %) | | Cash operating margin 1 | | 44.1 | 24.1 | 83 % | | 21.8 | 102 % |

A. Revenues

Revenues totalled $467.1 million for the three-month period ended June 30, 2024, compared to $297.2 million for the same period in 2023, mainly due to an increase in sales volume to 3.4 million tonnes of high-grade iron ore concentrate, from 2.6 million tonnes for the same prior-year period, representing a 34% increase. Last year's sales volume was negatively impacted by railway interruptions and reduced services capacity due to the forest fires in June 2023 . The year-over-year increase in revenues was also attributable to a 17% increase in the net average realized selling price, driven by positive provisional pricing adjustments on sales recorded during the previous quarter which were finalized at a higher price than expected, and a weaker Canadian dollar offsetting higher freight costs.

Positive provisional pricing adjustments on prior quarter sales of $27.9 million ( US$20.8 million ) were recorded during the three-month period ended June 30, 2024, representing a positive impact of US$6.0 /dmt over 3.4 million dmt sold during the quarter, due to an increase in the P65 index prices early in the period. During the three-month period ended June 30, 2024, a final average price of US$124.2 /dmt was established for the 1.8 million tonnes of iron ore that were in transit as at March 31, 2024, and which were provisionally priced at US$112.8 /dmt.

The gross average realized selling price of US$125.3 /dmt 1 for the three-month period ended June 30, 2024, was in line with the P65 index average price of US$126.1 /dmt for the period. The 1.8 million tonnes in transit as at June 30, 2024, which were evaluated using an average forward price of US$119.4 /dmt, had a negative impact on the gross average realized selling price, which was partially offset by certain sales contracts using backward-looking iron ore index prices, when the index was higher than the P65 index average price for the period. The P65 index premium increased to 12.8% over the P62 index average price of US$111.8 /dmt during the quarter, compared to a premium of 11.7% in the prior-year period, mainly impacted by favourable steelmaking profit margins. The P65 index premium over the P62 index in the current quarter was up from a premium of 10.0% in the previous quarter.

Freight and other costs of US$32.1 /dmt increased by 24% during the three-month period ended June 30, 2024, compared to US$25.8 /dmt in the same prior-year period. This increase was driven by a significantly higher average C3 index of US$25.8 /t for the period, compared to US$21.1 /t for the same period last year. This can likely be attributed to the conflict in the Red Sea which impacted freight routes during the period, and a much higher demand for vessels in the Atlantic due to the unseasonably elevated supply of iron ore from Brazil . A year-over-year increase in demurrage expenses, resulting from a combination of higher demurrage rates and delayed shipments caused by lower than contracted railway services, also negatively impacted the Company's freight and other costs during the three-month period ended June 30, 2024.

After taking into account sea freight and other costs of US$32.1 /dmt and the positive provisional pricing adjustments of US$6.0 /dmt, the Company obtained a net average realized selling price of US$99.2 /dmt ( C$135.7 /dmt 1 ) for its high-grade iron ore shipped during the period.

B. Cost of Sales and C1 Cash Cost

For the three-month period ended June 30, 2024, the cost of sales totalled $264 .9 million with a C1 cash cost of $76.9 /dmt 1 , compared to $208 .5 million with a C1 cash cost of $81.3 /dmt 1 for the same period in 2023, and $227 .5 million with a C1 cash cost of $76.6 /dmt 1 in the previous quarter. Quarterly C1 cash cost per dmt sold was impacted by mining and processing costs, change in concentrate inventory valuation, as well as land transportation and port handling costs incurred during the period.

Mining and processing costs for the 3.8 million dmt produced in the three-month period ended June 30, 2024, totalled $47.9 /dmt produced 1 , representing a significant decrease of 17% compared to $57.6 /dmt produced 1 in the previous quarter. This improvement in mining and processing costs was attributable to better plants' performance which positively impacted fixed production costs, as well as lower maintenance activities as the major semi-annual shutdowns of the facilities were performed in the previous quarter. These improvements were partially offset by slightly higher mining costs. Land transportation and port handling costs for the three-month period ended June 30, 2024, represented $25.3 /dmt sold 1 , slightly down from the previous quarter at $26.0 /dmt sold 1 . Fixed costs at the port facilities in Sept-Îles were amortized over a higher sales volume and the Company benefited from volume discounts on port duties. Despite these positive factors, C1 cash cost remained comparable to the previous quarter due to the impact of the change in concentrate inventory valuation. The higher mining and processing costs incurred in the fourth quarter of the 2024 financial year, with lower production volume and higher maintenance activities, have had, and will continue to have, an impact on the cost of sales in upcoming quarters through the change in concentrate inventory valuation.

Mining and processing costs per dmt produced 1 for the three-month period ended June 30, 2024, decreased by 5% compared to the same period last year, mainly due to fixed costs amortized over a higher volume of concentrate produced. Land transportation and port handling costs for the three-month period ended June 30, 2024, were also down by nearly $4 /dmt sold. The change in concentrate inventory valuation partially offset these decreases.

C. Net Income & EBITDA

For the three-month period ended June 30, 2024, the Company generated EBITDA of $181 .2 million 1 , representing an EBITDA margin of 39% 1 , compared to $65 .8 million 1 , representing an EBITDA margin of 22% 1 , for the same period in 2023. Higher EBITDA was mainly due to higher gross profit.

For the three-month period ended June 30, 2024, the Company generated net income of $81 .4 million (EPS of $0.16 ), compared to $16 .7 million (EPS of $0.03 ) for the same prior-year period. The year-over-year increase in net income is attributable to higher gross profit partially offset by higher income and mining taxes.

D. All In Sustaining Cost & Cash Operating Margin

During the three-month period ended June 30, 2024, the Company realized an AISC of $91.6 /dmt 1 , compared to $94.1 /dmt 1 for the same period in 2023. The decrease was attributable to higher iron concentrate produced and sold, which favourably impacted the Company's C1 cash cost, offset by higher sustaining capital expenditures mainly related to mining activities, tailings management and mining equipment rebuild program associated with the Company's expended fleet that were required to support the mine plan in future years. Refer to section 5 — Cash Flows for details on sustaining capital expenditures.

The Company generated a cash operating margin of $44.1 /dmt 1 for each tonne of high-grade iron ore concentrate sold during the three-month period ended June 30, 2024, compared to $21.8 /dmt 1 for the same prior-year period. The variation is due to a higher net average realized selling price combined with a lower AISC for the period.

4. Exploration Activities

During the three-month period ended June 30, 2024, the Company maintained all of its properties in good standing and did not enter into any farm-in/farm-out arrangements. During the three-month period ended June 30, 2024, $2 .6 million in exploration and evaluation expenditures were incurred, compared to $2 .7 million for the same prior-year period. During the three-month period ended June 30, 2024, exploration and evaluation expenditures mainly consisted of work done in Newfoundland and Labrador