Champion Iron Limited press release

CHAMPION IRON REPORTS ROBUST FOURTH QUARTER AND FY2022 ANNUAL RESULTS AND DECLARES DIVIDEND

2022-05-26

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FY2022 EPS of $1.03 , EBITDA of $926M ; Declares a dividend of $0.10 per ordinary share; Ramping up the Bloom Lake Mine Phase II expansion project and evaluating growth opportunities

MONTRÉAL , May 25, 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 fourth quarter and fiscal year ended March 31, 2022 .

Conference Call Details

Champion will host a conference call and webcast on May 26, 2022 at 8:30 AM (Montréal time) / 10:30 PM ( Sydney time) to discuss the fourth quarter and annual results for the fiscal year ended March 31, 2022. Call details are outlined at the end of this press release.

1. Highlights

Health & Safety

No serious injuries or major environmental issues reported during the period; An employee recordable injury frequency rate of 2.98 for the 2022 fiscal year, which is in line with Québec's open pit industry performance; COVID-19 testing laboratory and prevention measures maintained in line with the Government of Québec's (the "Government") directives to mitigate risks related to COVID-19 and limit the spread of variants; Completed the Company's 2021 Sustainability Report, including Task Force on Climate-Related Financial Disclosure, available on the Company's website at www.championiron.com ; and Committing to greenhouse gas ("GHG") emissions reduction of 40% by 2030, based on 2014 emission intensity with additional consideration for the targeted nameplate capacity of 15 Mtpa. The Company is also committed to be carbon neutral by 2050.

Financial

Inaugural dividend of $0.10 per ordinary share paid on March 1, 2022 , in connection with the semi-annual results for the period ended September 30, 2021 , and an additional dividend of $0.10 per ordinary share declared by the Board of Directors in connection with the annual results for the period ended March 31, 2022 . Additional details on the dividends and related tax information can be found on the Company's website at www.championiron.com ; Revenues of $331.4M and $1,460.8M for the three-month period and year ended March 31, 2022 , respectively, compared to $396.7M and $1,281.8M for the same periods in 2021; EBITDA 1 of $197.9M for the three-month period ended March 31, 2022 , compared to $275.8M for the same period in 2021. EBITDA 1 of $925.8M for the year ended March 31, 2022 , compared to $819.5M for the same period in 2021; Net income of $115.7M for the three-month period ended March 31, 2022 (EPS of $0.23 ), compared to $155.9M for the same period in 2021 (EPS of $0.32 ). Net income of $522.6M for the year ended March 31, 2022 (EPS of $1.03 ), compared to $464.4M for the same period in 2021 (EPS of $0.97 ); Net cash flow from operating activities of $4.3M for the three-month period ended March 31, 2022 , representing an operating cash flow per share 1 of $0.01 , compared to $228.6M or $0.46 for the same period in 2021. Net cash flow from operating activities of $470.4M for the year ended March 31, 2022 , representing an operating cash flow per share 1 of $0.93 , compared to $624.4M or $1.30 for the same period in 2021; Cash on hand 1 and restricted cash of $396.4M as at March 31, 2022 , compared to $543.4M as at December 31, 2021 and $680.5M as at March 31, 2021 , reflecting the ongoing construction of the Phase II expansion project, working capital changes and the semi-annual dividend payment on March 1, 2022 ; and US$400.0M general purpose revolving facility agreement signed on May 24, 2022 (the "Revolving Facility"), which refinanced the previous Phase II credit facility (the "Credit Facility"), providing increased financial flexibility and enabling the Company to lift the restricted cash covenant of $43.7M , and reduce its cost of capital. The Revolving Facility was underwritten by sophisticated global financiers, including Societe Generale, The Bank of Nova Scotia , The Toronto-Dominion Bank and The Royal Bank of Canada acting as mandated lead arrangers. The Company drew US$180M on the Revolving Facility, equivalent to the Credit Facility balance as at March 31, 2022 .

Operations

Production of 1,869,000 wmt of high-grade 66.2% Fe concentrate for the three-month period ended March 31, 2022 , compared to 2,011,400 wmt of high-grade 66.5% Fe concentrate for the same period in 2021. Production of 7,907,300 wmt of high-grade 66.2% Fe concentrate for the year ended March 31, 2022 , compared to 8,001,200 wmt of high-grade 66.4% Fe for the same period in 2021; Fe recovery rate of 82.7% and 83.2% for the three-month period and year ended March 31, 2022 , respectively, compared to a Fe recovery rate of 82.6% and 83.5%, respectively, for the same periods in 2021; and Free on Board ("FOB") total cash cost 1 of $60.0 /dmt ( US$47.4 2 /dmt) (C1) and $58.9 /dmt ( US$47.0 2 /dmt) for the three-month period and year ended March 31, 2022 , respectively, compared to $54.4 /dmt ( US$43.0 2 /dmt) and $54.2 /dmt ( US$41.0 2 /dmt), respectively, for the same periods in 2021.

Growth and Development

Ongoing feasibility study evaluating the reprocessing and infrastructure required to commercially produce a 69% Fe Direct Reduction ("DR") pellet feed product. The study of this proposed project, scaled to convert approximately half of Bloom Lake's increased nameplate capacity, is expected to be completed in mid-2022; Announcement of the entering into an acquisition agreement for the Pointe-Noire Iron Ore Pelletizing Facility located in Sept-Îles, Québec (the "Pellet Plant") on May 17, 2022 , and announcement that the Company had entered into a memorandum of understanding with a major international steelmaking partner to evaluate the recommissioning of the Pellet Plant to produce DR grade pellets; and Advancing the Kamistiatusset iron ore project's (the "Kami Project") feasibility study, expected to be completed in the second half of calendar 2022, whereby the project is being evaluated for its capability to produce DR grade pellet feed product.

Phase II Milestones

Phase II commissioning achieved ahead of schedule in late April 2022 , despite pandemic-related challenges, positioning the Company to ramp up towards commercial production by the end of calendar 2022; Completion of the first rail shipments containing 24,304 wmt of high-grade 66.2% Fe iron ore concentrate from the Phase II project on May 3, 2022 ; and Cumulative investments of $625.2M , including deposits, deployed on the project as at March 31, 2022 .

Champion's CEO, Mr. David Cataford , said: "Delivering robust operational and financial results for our 2022 fiscal year, while completing our Phase II expansion project is a significant achievement highlighting our team's professionalism and perseverance. This year we will work to double Bloom Lake's nameplate capacity and further position our Company's contributions towards green steelmaking solutions. In addition to ongoing feasibility studies for our DR pellet feed project and the Kami Project, we also partnered with a global leader in the steel industry, in order to evaluate the opportunity to re-commission our recently acquired Pellet Plant in Pointe-Noire and produce DR pellets."

2. Bloom Lake Phase II Commissioning

During the three-month period ended March 31, 2022, the Company advanced the work required to commission its Phase II project. As such, the Company completed its first rail shipments containing 24,304 wmt of high-grade 66.2% Fe iron ore concentrate from the Phase II project on May 3, 2022. The Company's first saleable Phase II high-grade iron ore concentrate is expected to be shipped from the port of Sept-Îles in the first quarter of the 2023 fiscal year. This significant milestone represents a tangible step towards realizing Bloom Lake's potential to become one of the largest global suppliers of high-purity iron ore.

As the Company anticipates reaching commercial production at Phase II by the end of calendar 2022 3 , project milestones achieved and related works undertaken during the three-month period ended March 31, 2022 included:

Water-based commissioning of multiple process systems and all ancillary services at the plant; Obtained provincial government approval for future expansion of the tailings facilities to accommodate the full life of mine plan, while awaiting final federal government authorization; Continuation of construction works; and Commissioning of the plant at the end of April 2022 , with first rail shipments completed on May 3, 2022 .

3. Decarbonization Initiatives

As part of its ongoing efforts to minimize the environmental impact of its operations, the Company committed to GHG emissions reduction of 40% by 2030, based on 2014 emissions intensity with additional consideration for the targeted nameplate capacity of 15 Mtpa. The Company further committed to be carbon neutral by 2050. This GHG target is in line with the Paris Agreement 2 degrees Celsius scenarios, the Canadian government GHG reduction and the Science Based Targets initiative ("SBTi") frameworks. Towards this effort, the Company implemented a working group mandated to identify emissions reduction initiatives and evaluate resources required to deploy a program to reach its GHG emissions reduction objectives.

Recent initiatives include a partnership with Tugliq Energy Co. to initiate testing of electric pickup trucks designed for mining operations in Northern climates, which are expected to reduce emissions.

4. Bloom Lake Mine Operating Activities

| | | Three Months Ended | | Year Ended | | | | | | | | March 31, | | March 31, | | | | | | | | 2022 | 2021 | Variance | | 2022 | 2021 | Variance | | | | | | | | | | | | Operating Data | | | | | | | | | | Waste mined and hauled (wmt) | | 5,071,700 | 3,796,300 | 34% | | 20,512,500 | 15,481,100 | 33% | | Ore mined and hauled (wmt) | | 5,388,200 | 5,636,100 | (4%) | | 22,263,200 | 21,571,700 | 3% | | Material mined and hauled (wmt) | | 10,459,900 | 9,432,400 | 11% | | 42,775,700 | 37,052,800 | 15% | | | | | | | | | | | | Strip ratio | | 0.94 | 0.67 | 40% | | 0.92 | 0.72 | 28% | | | | | | | | | | | | Ore milled (wmt) | | 4,904,100 | 5,237,800 | (6%) | | 20,972,100 | 20,598,700 | 2% | | Head grade Fe (%) | | 30.3 | 30.7 | (1%) | | 29.9 | 30.7 | (3%) | | Fe recovery (%) | | 82.7 | 82.6 | —% | | 83.2 | 83.5 | —% | | Product Fe (%) | | 66.2 | 66.5 | —% | | 66.2 | 66.4 | —% | | Iron ore concentrate produced (wmt) | | 1,869,000 | 2,011,400 | (7%) | | 7,907,300 | 8,001,200 | (1%) | | Iron ore concentrate sold (dmt) | | 1,889,900 | 1,971,100 | (4%) | | 7,650,600 | 7,684,500 | —% | | | | | | | | | | | | Financial Data (in thousands of dollars) | | | | | | | | | | Revenues | | 331,376 | 396,702 | (16%) | | 1,460,806 | 1,281,815 | 14% | | Cost of sales | | 116,658 | 110,299 | 6% | | 458,678 | 428,882 | 7% | | Other expenses | | 26,648 | 14,591 | 83% | | 84,871 | 43,693 | 94% | | Net finance costs | | 2,269 | 5,430 | (58%) | | 11,045 | 22,428 | (51%) | | Net income | | 115,653 | 155,934 | (26%) | | 522,585 | 464,425 | 13% | | EBITDA 1 | | 197,938 | 275,764 | (28%) | | 925,817 | 819,477 | 13% | | | | | | | | | | | | Statistics (in dollars per dmt sold) | | | | | | | | | | Gross average realized selling price 1 | | 207.1 | 220.0 | (6%) | | 225.9 | 182.3 | 24% | | Net average realized selling price 1 | | 175.3 | 201.3 | (13%) | | 190.9 | 166.8 | 14% | | Total cash cost (C1 cash cost) 1 | | 60.0 | 54.4 | 10% | | 58.9 | 54.2 | 9% | | All-in sustaining cost 1 | | 70.5 | 65.1 | 8% | | 73.1 | 62.8 | 16% | | Cash operating margin 1 | | 104.8 | 136.2 | (23%) | | 117.8 | 104.0 | 13% |

Operational Performance

Fourth Quarter of the 2022 Fiscal Year vs Fourth Quarter of the 2021 Fiscal Year

In the three-month period ended March 31, 2022, 10,459,900 tonnes of material were mined and hauled, compared to 9,432,400 tonnes during the same period in 2021, an increase of 11%. The current strip ratio is in line with the revised mine plan, which includes preparation for Phase II operations. The increase in material movement was enabled through the utilization of additional operational equipment compared to the same prior-year period, offset by a longer haul cycle as material sourced from different pits, including those that deepened with mining activities over time, contributed to a longer haul cycle year-over-year.

The iron ore head grade for the three-month period ended March 31, 2022 was 30.3%, compared to 30.7% for the same period in 2021. The variation in head grade is attributable to the presence of some lower-grade ore being sourced and blended from different pits, which was anticipated and is in line with the mining plan and the LoM head grade average.

Additionally, the Company's average Fe recovery rate remained stable quarter-over-quarter as a result of a constant recovery circuit.

Bloom Lake produced 1,869,000 wmt of 66.2% Fe high-grade iron ore concentrate during the three-month period ended March 31, 2022, a decrease of 7%, compared to 2,011,400 wmt of 66.5% Fe during the same period in 2021. The slightly lower production is attributable to a lower head grade and lower throughput. The plant processed 4,904,100 tonnes of ore during the three-month period ended March 31, 2022, compared to 5,237,800 for the same prior-year period. The throughput for the period was negatively affected by the operational inefficiencies caused by the COVID-19 Omicron variant, together with minor unplanned maintenances.

2022 Fiscal Year vs 2021 Fiscal Year

On March 24, 2020 , the Company announced the ramp-down of its operations following Government directives in response to the COVID-19 pandemic. Operations gradually ramped up following the Government's announcement in April 2020 that mining activities were to be considered a "priority service" in Québec. Early actions implemented by the Company in response to the COVID-19 pandemic minimized its impact on the Company and its operations. Once Government restrictions were lifted, the Company accelerated its mining activities and fully resumed its production capacity.

The Company mined and hauled 42,775,700 tonnes of material during the year ended March 31, 2022, compared to 37,052,800 tonnes for the same period in 2021. This increase in material mined and hauled is attributable to the utilization of additional operational equipment compared to the same prior-year period and the negative impact of the COVID-19 pandemic on several of the Company's other activities early in the comparative period. The strip ratio increased to 0.92 for the year ended March 31, 2022, compared to 0.72 for the same period in 2021. The strip ratio is consistent with the revised mine plan which includes preparation for Phase II operations.

The iron ore head grade of 29.9% for the year ended March 31, 2022 was attributable to different sourcing pits, compared to 30.7% for the same period in 2021 and is consistent with the LoM head grade average.

The plant processed 20,972,100 tonnes of ore during the year ended March 31, 2022, an increase of 2% over the same period in 2021. The iron ore concentrate produced remained stable during the year ended March 31, 2022 despite a lower head grade, compared to the same period in 2021, as a result of continuous improvements and operational innovations allowing the Company to increase throughput stability and reach a higher level of mill productivity.

5. Financial Performance

A. Revenues

Fourth Quarter of the 2022 Fiscal Year vs Fourth Quarter of the 2021 Fiscal Year

During the three-month period ended March 31, 2022, 1,889,900 tonnes of high-grade iron ore concentrate were sold at the CFR China gross average realized price 1 of US$164.1 /dmt, before freight and other costs and provisional pricing adjustments, compared to US$173.9 /dmt for the same prior-year period. The decrease in gross average realized selling price 1 mainly reflects lower index prices during the three-month period ended March 31, 2022, compared to the same prior-year period. Despite lower index prices, the gross average realized selling price 1 of US$164.1 /dmt represents a premium of 15.9% over the benchmark IODEX 62% Fe CFR China Index ("P62") price for the period, compared to a premium of 4.2% for the same period in 2021.

The gross average realized selling price 1 of US$164.1 /dmt was slightly lower than the IODEX 65% Fe CFR China Index ("P65") average price of US$169.7 /dmt for the period due to the negative impact of sales based on backward-looking iron ore prices, when prices were substantially lower than the P65 index average for the period. The gross average realized selling price 1 also reflects the positive impact of sales at a determined price based on the average forward price of US$185.7 at the expected settlement date for 691,100 tonnes which were in transit at the end of the period.

The average C3 Baltic Capesize Index ("C3") for the three-month period ended March 31, 2022 was US$22.9 /t compared to US$18.0 /t for the same period in 2021, representing an increase of 27%, which contributed to higher freight costs in the three-month period ended March 31, 2022, compared to the same prior-year period. The freight costs variation relative to the C3 index during the period was mainly due to the timing of the vessels' booking. A dynamic also arose where the lower C3 index during the period, likely due to lower Brazilian shipments, had somewhat disconnected with other bulk freight indices. As a result, vessel operators were not willing to book vessels using the C3 index when prices were low. The Company expects to benefit from the quarter's low freight index in the upcoming period for sales contracts based on fixed backward-looking indexes.

The net average realized selling price 1 of US$139.1 for the three-month period ended March 31, 2022 was negatively impacted by a higher C3 index. Freight and other costs represented 23% of the gross average realized selling price for the period, compared to 13% for the same period in 2021, which represents a variation of US$14.2 /dmt. Provisional pricing adjustments on previous sales, which were directly correlated to the increase in the P65 index early in the quarter contributed to increasing the net average realized selling price 1 . During the three-month period ended March 31, 2022, the final price was established for the 856,200 tonnes of iron ore that were in transit as at December 31, 2021. Accordingly, during the three-month period ended March 31, 2022, net positive provisional pricing adjustments were recorded as an increase in revenues for the 856,200 tonnes, representing a positive impact of US$12.2 /dmt for the period, compared to US$8.4 /dmt for the same period in 2021.

After taking into account sea freight and other costs of US$37.2 /dmt and the positive provisional pricing adjustment of US$12.2 /dmt, the Company obtained a net average realized selling price 1 of US$139.1 /dmt (CA$175.3/dmt) for its high-grade iron ore delivered to the end customer. Revenues totalled $331,376,000 for the three-month period ended March 31, 2022 compared to $396,702,000 for the same period in 2021, reflecting the lower net average realized selling price 1 as well as the negative volume impact attributable to the COVID-19 pandemic.

2022 Fiscal Year vs 2021 Fiscal Year

For the year ended March 31, 2022, the Company sold 7,650,600 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$101.8 /dmt and a high of US$264.2 /dmt during the year ended March 31, 2022, the Company sold its product at a gross average realized selling price 1 of US$181.1 /dmt. The gross average realized selling price is comparable to the average P65 high-grade index of US$179.9 /dmt for the period. The Company expects its iron ore concentrate pricing to continue tracking the P65 index in the long term.

Combining the gross average realized selling price 1 with the positive provisional pricing adjustment of US$7.5 /dmt, the Company sold its high-grade iron ore at a price of US$188.6 /dmt during the year ended March 31, 2022, compared to the P65 high-grade index average of US$179.9 /dmt. Deducting sea freight and other costs of US$35.3 /dmt, the Company obtained a net average realized selling price 1 of US$153.3 /dmt (CA$190.9/dmt) for its high-grade iron ore. The increase in freight and other costs in the year ended March 31, 2022, compared to the same period in 2021, negatively impacted the net average realized selling price 1 for the period by US$14.8 /dmt. As such, revenues totalled $1,460,806,000 for the year ended March 31, 2022, compared to $1,281,815,000 for the same period in 2021, mainly as a result of a higher gross average realized selling price 1 , partially offset by higher freight and other costs and the negative impact of foreign exchange rates.