Champion Iron Limited press release

CHAMPION IRON REPORTS RECORD PRODUCTION FOR ITS FY2024 FIRST QUARTER

2023-07-27

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

Canada NewsWire

Record quarterly production of 3.4M wmt, revenue of $297M , EBITDA of $66M 1 and EPS of $0.03 Approximately 1.3M wmt of stockpiled iron ore concentrate inventories accumulated during the recent forest fires, expected to be gradually sold as rollingstock capacity increases in the upcoming quarters

MONTRÉAL , July 27, 2023 /CNW/ - ( SYDNEY , July 28, 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 first quarter ended June 30, 2023 .

Conference Call Details

Champion will host a conference call and webcast on July 28, 2023, at 9:00 AM (Montréal time) / 11:00 PM ( Sydney time) to discuss the results for the financial first quarter ended June 30, 2023. Call details are outlined at the end of this press release.

Champion's CEO, Mr. David Cataford , said: "Our people and partners once again demonstrated their agility by mitigating the impact of one of Québec's largest forest fires in recent history on our operations and sales. Despite such unexpected challenges, with the delivery of the final mining equipment required to complete the Phase II ramp-up, we reported record quarterly production of 3.4M wmt, representing over 90% of Bloom Lake's expanded nameplate capacity. While quarterly financial results were significantly affected by the severe forest fires, we expect to benefit from the sales of stockpiled iron ore concentrate in the coming quarters as we gradually increase our shipping capacity with the recent delivery of additional rolling stock."

1. Highlights

Sustainability and Health & Safety

No serious injuries during the quarter and no major environmental issues reported in the period, or since the recommissioning of Bloom Lake in 2018; and Received the "Sollio Groupe Coopératif – Community Involvement" award at the prestigious Les Mercuriades 2023 competition organized by the Federation of Québec Chambers of Commerce _, _and the 2023 "Community Relations" award from the Québec Mining Association, recognizing the Company's approach towards developing relationships with First Nations communities.

Operations and Finance

Record quarterly production of 3.4 million wmt of high-grade 66.1% Fe concentrate for the three-month period ended June 30, 2023 , an increase of 49% and 10%, compared to the same period last year and the previous quarter, respectively. The increase in production was attributable to the strong performance of Phase II since achieving commercial production in December 2022 . Ongoing optimizations are expected to enable Bloom Lake to reach its expanded production nameplate capacity of 15 Mtpa in the near term; Quarterly iron ore concentrate sales of 2.6 million dmt for the three-month period ended June 30, 2023 , up 27% from the same period in 2022, but down 17% from the previous quarter due to the impact of forest fires north of Sept-Îles, Québec, which caused railway interruptions from May 30 to June 10, 2023 , and reduced capacity for the remainder of the period; Financial results for the three-month period ended June 30, 2023 , were negatively impacted by a lower IODEX 65% Fe CFR China Index ("P65"), compared to the previous quarter, and the negative provisional pricing adjustments on volume in transit as at March 31, 2023 . Lower than expected shipments in June 2023 as a result of forest fires, combined with record production during the quarter, increased iron ore concentrate inventories at Bloom Lake to 1.3 million wmt as at June 30, 2023 . The iron ore concentrate inventories are expected to be gradually shipped and sold in the upcoming quarters as the railway returns to normal capacity and the recently delivered locomotives are commissioned; For the three-month period ended June 30, 2023 , the cost of sales was $81.3 /dmt 1 ( US$60.5 /dmt) 2 , compared to $84.1 /dmt 1 ( US$65.9 /dmt) 2 for the same period in 2022, positively impacted by increased production and lower fuel prices and offset by the increase in rail and port costs. Rail costs were impacted by semi-annual price indexations based on trailing fuel prices when prices were higher, while port handling costs were impacted by fixed costs at the port terminal in Sept-Îles amortized over fewer shipped tonnes. Cost of sales per dmt sold for the quarter was slightly higher than the cost of sales per dmt sold of $79.0 /dmt 1 ( US$58.4 /dmt) 2 for the previous quarter , mainly due to the impact of lower shipments on higher fixed costs for port handling. The Company expects the remaining Phase II ramp-up inefficiencies, which negatively impacted operating costs per tonne, to normalize in the near term as the focus increases on optimizing operations with the ongoing commissioning of new mining equipment and increases in throughput. Additionally, the Company expects to benefit from lower fuel prices in the upcoming rail cost indexation adjustments and a return to normal shipments as the railway and rolling stock capacity improves; Revenues of $297.2 million for the three-month period ended June 30, 2023 ( $279.3 million for the same period in 2022), net cash flow from operating activities of $49.3 million (net cash flow used in operating activities of $32.2 million for the same period in 2022), EBITDA of $65.8 million 1 ( $94.9 million 1 for the same period in 2022) and net income of $16.7 million with EPS of $0.03 ( $41.6 million with EPS of $0.08 for the same period in 2022); and $250.3 million in cash and cash equivalents and short-term investments as at June 30, 2023 , compared to $187.1 million at the same time in the 2022 calendar year and $327.1 million as at March 31, 2023 . Available liquidity, including amounts available from the Company's credit facilities, totalled $579.2 million 1 at quarter-end, compared to $673.7 million 1 as at March 31, 2023 .

Direct Reduction Pellet Feed Project ("DRPF Project") Update

The DRPF Project remains on schedule for potential completion by the second half of calendar year 2025, pending a final investment decision; and Initial budgets approved by the Board of Directors enabled the Company to advance detailed engineering work, order long-lead equipment and initiate on-site activities during the period, in preparation for upcoming civil work programs.

Other Growth and Development

The Company continues to evaluate organic growth opportunities, including the feasibility study for the Kamistiatusset iron ore project (the "Kami Project") to produce a Direct Reduction ("DR") grade pellet feed product, and a study, in collaboration with a major international steelmaking partner, evaluating the re-commissioning of the Pointe-Noire Iron Ore Pelletizing Facility in order to produce DR grade pellets. Both studies are expected to be completed by the end of 2023.

2. Bloom Lake Mine Operating Activities

| | | Three Months Ended | | | | | | June 30, | | | | | | 2023 | 2022 | Variance | | | | | | | | Operating Data | | | | | | Waste mined and hauled (wmt) | | 5,198,500 | 5,606,000 | (7 %) | | Ore mined and hauled (wmt) | | 9,593,500 | 6,193,100 | 55 % | | Material mined and hauled (wmt) | | 14,792,000 | 11,799,100 | 25 % | | | | | | | | Stripping ratio | | 0.54 | 0.91 | (41 %) | | | | | | | | Ore milled (wmt) | | 9,895,600 | 6,022,200 | 64 % | | Head grade Fe (%) | | 28.8 | 31.0 | (7 %) | | Fe recovery (%) | | 78.2 | 80.2 | (2 %) | | Product Fe (%) | | 66.1 | 66.1 | — % | | Iron ore concentrate produced (wmt) | | 3,397,200 | 2,282,600 | 49 % | | Iron ore concentrate sold (dmt) | | 2,563,500 | 2,013,900 | 27 % |

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. As forest fires subsided in the region, railway services resumed on June 10, 2023 , although at partial railway capacity for the remainder of the financial period in the 2023 calendar year. Railway services are expected to return to normal capacity in the near term, after the completion of repairs to the damaged electrical poles and wires over several kilometers.

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 managing 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. 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 day. As at June 30, 2023 , the Company had 1.3 million wmt of iron ore concentrate in inventory at the Bloom Lake site. The Company expects its stockpiled iron ore concentrate at Bloom Lake to be shipped and sold over several upcoming quarters with the railway resuming full capacity and the three additional locomotives received in June 2023 being currently in commissioning. The Company 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. Phase II produced at nameplate capacity for thirty consecutive days during the three-month period ended June 30, 2023. Short-term challenges, including delivery delays and the commissioning of mining equipment, created inefficiencies across the site, negatively impacting the plant's ability to reach its full expanded nameplate capacity in the 2023 financial year. Ongoing work programs continue to optimize and synchronize operations, and adapt maintenance practices to obtain the expected reliability required to achieve Bloom Lake's expanded nameplate capacity on a consistent basis. With the delivery and assembly of the remaining required mining equipment during the three-month period ended June 30, 2023, and current work programs aimed at increasing throughput and ore recoveries, the path towards Bloom Lake reaching its expanded nameplate capacity of 15 Mtpa in the near term has significantly improved.

Work on third-party infrastructure continued to advance in the three-month period ended June 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 construction and commissioning of the new stacker reclaimer and associated conveyors should be completed shortly, which is expected to positively impact the Company's vessel loading time in the upcoming weeks. Moreover, the three additional locomotives required to support the expanded production capacity were delivered in late June 2023 and their commissioning is currently ongoing. This should enable the Company to increase its shipping capacity in the near term.

Operational Performance

In the three-month period ended June 30, 2023, 14.8 million tonnes of material were mined and hauled, compared to 11.8 million tonnes during the same period in 2022, an increase of 25%. This is also a 4% improvement over the volume mined and hauled in the previous quarter. The increase in material movement can be attributed to the contribution of recently commissioned new equipment. The Company intends to see additional benefits from this new mining equipment in the upcoming months. The stripping ratio for the period was impacted by forest fires as fuel inventories were prioritized for critical activities as well as fleet performance, and was slightly lower than the Company's plan for the 2024 financial year. With reduced mining equipment capacity in the earlier part of the quarter, the Company, as planned, reduced mined waste to optimize plant operations in connection with transitional incremental feed requirements during the Phase II ramp-up period. The Company intends to gradually increase its stripping ratio in future periods to recover the waste backlog accumulated during the 2023 financial year.

The plants processed 9.9 million tonnes of ore during the three-month period ended June 30, 2023, compared to 6.0 million tonnes for the same period in the 2022 calendar year, and 9.1 million tonnes in the previous quarter, representing an increase of 64% and 9%, respectively. The increase in ore milled was driven by the progress of the Phase II ramp-up to reach Bloom Lake's expanded nameplate capacity of 15 Mtpa.

The iron ore head grade for the three-month period ended June 30, 2023, was 28.8%, compared to 31.0% for the same period in 2022. The variation in head grade was expected and attributable to lower-grade ore being sourced and blended from different pits. This was anticipated and is in line with the mine plan and the LoM head grade average.

The Company's average Fe recovery rate of 78.2% for the three-month period ended June 30, 2023, compared to 80.2% for the same period in 2022, was negatively impacted by the lower head grade. The Company remains confident in its ability to reach the average LoM expected Fe recovery rate target of 82.4% in the near term at Bloom Lake, as detailed in the Phase II feasibility study.

With higher processed ore partially offsetting lower head grade and lower recovery, Bloom Lake delivered a record production of 3.4 million wmt of high-grade iron ore concentrate during the three-month period ended June 30, 2023, an increase of 49%, compared to 2.3 million wmt during the same period in 2022, and a 10% increase in production compared to the previous quarter. Management expects to benefit from optimization work programs and recent equipment additions, which should result in improved combined production of Bloom Lake's plants in the near term.

3. Financial Performance

| | | Three Months Ended | | | | | | June 30, | | | | | | 2023 | 2022 | Variance | | | | | | | | Financial Data (in thousands of dollars) | | | | | | Revenues | | 297,162 | 279,321 | 6 % | | Cost of sales | | 208,485 | 169,407 | 23 % | | Other expenses | | 19,645 | 15,605 | 26 % | | Net finance costs | | 6,926 | 4,190 | 65 % | | Net income | | 16,657 | 41,554 | (60 %) | | EBITDA 1 | | 65,805 | 94,930 | (31 %) | | | | | | | | Statistics (in dollars per dmt sold) | | | | | | Gross average realized selling price 1 | | 168.8 | 190.4 | (11 %) | | Net average realized selling price 1 | | 115.9 | 138.7 | (16 %) | | C1 cash cost 1 | | 81.3 | 74.0 | 10 % | | AISC 1 | | 94.1 | 93.5 | 1 % | | Cash operating margin 1 | | 21.8 | 45.2 | (52 %) |

A. Revenues

Revenues totalled $297.2 million for the three-month period ended June 30, 2023, compared to $279.3 million for the same period in 2022, as higher sales volume over the same prior-year period was more than offset by a lower P65 index price and negative provisional pricing adjustments. Lower freight and other costs as well as a weaker Canadian dollar, compared to the same period last year, and certain sales using backward-looking iron ore index prices partially mitigated the impact of lower prices.

During the three-month period ended June 30, 2023, 2.6 million tonnes of high-grade iron ore concentrate were sold, compared to 2.0 million tonnes for the same period in 2022. Sales volume was up 27% over the prior-year period due to incremental production driven by Phase II achieving commercial production in December 2022 , but was negatively impacted by twelve days of railway interruptions from May 30 to June 10, 2023, due to forest fires in Québec and reduced services capacity for the remainder of the first quarter of the 2024 financial period.

The gross average realized price was US$125.7 /dmt 1 during the first quarter of the 2024 financial year, down from US$149.6 /dmt 1 for the same period last year due to lower P65 index prices. During the three-month period ended June 30, 2023, the P65 index averaged US$124.0 /dmt, a decrease of 23% from the same quarter last year, representing a premium of 11.7% over the IODEX 62% Fe CFR China Index index average price of US$111.0 /dmt. Last year, the high-grade premium over the P62 index averaged 16.2%. Weakening steel mills' profitability in China led to a decline in high-grade iron ore premiums for the quarter, compared to the same period in 2022.

The gross average realized selling price of US$125.7 /dmt 1 was slightly higher than the P65 index average price of US$124.0 /dmt for the period, due to certain sales contracts using backward-looking iron ore index prices, when prices were higher than the P65 index average for the three-month period ended June 30, 2023. This was partially offset by the 1.4 million tonnes in transit as at June 30, 2023, that were provisionally priced using an average forward price of US$121.2 /dmt, which was lower than the P65 index average price for the period.

The average C3 Baltic Capesize Index ("C3") for the three-month period ended June 30, 2023, was US$21.1 /t compared to US$30.2 /t for the same period in 2022, representing a decrease of 30%, contributing to lower freight costs in the three-month period ended June 30, 2023. When contracting vessels on the spot market, Champion typically books vessels three to five weeks prior to the desired laycan period due to its distance from main shipping hubs. Although this creates a delay between the freight paid and the C3 index, the effect of this delay is eventually reconciled since Champion ships its high-grade iron ore concentrate uniformly throughout the year. Additionally, the Company has multiple freight agreements based on an agreed-upon premium above the loading month average C3 index to further reduce price volatility.

Provisional pricing adjustments on previous quarterly sales, which were impacted by the significant decrease in the P65 index during the quarter, negatively impacted the net average realized selling price. During the three-month period ended June 30, 2023, an average price of US$123.5 /dmt was established for the 2.0 million tonnes of iron ore that were in transit as at March 31, 2023, and which were previously evaluated using an average expected price of US$141.1 /dmt. Accordingly, during the three-month period ended June 30, 2023, net negative provisional pricing adjustments of $46.8 million ( US$34.9 million ) were recorded, representing a negative impact of US$13.6 /dmt over the total volume of 2.6 million dmt sold during the period.

After taking into account sea freight and other costs of US$25.8 /dmt and the negative provisional pricing adjustment of US$13.6 /dmt, the Company obtained a net average realized selling price of US$86.3 /dmt ( C$115.9 /dmt) 1 for its high-grade iron ore shipped during the period.

B. Cost of Sales

For the three-month period ended June 30, 2023, the cost of sales totalled $208 .5 million, compared to $169 .4 million for the same period in 2022 for a cost of sales per tonne sold of $81.3 /dmt 1 during the period, compared to $84.1 /dmt 1 for the same period in 2022.

The cost of sales per dmt sold for the three-month period ended June 30, 2023, was negatively impacted by higher rail and port costs due to semi-annual price indexations driven by fuel costs for rail services, the impact of lower shipments during the quarter to amortize mostly fixed costs at the port facilities in Sept-Îles, higher maintenance costs driven by the utilization of contractors to fill vacant positions and longer than expected shutdowns. The Company also incurred rehandling costs at the mine site during the period. This was partially mitigated by lower fuel costs used in mining activities and higher production levels.

Mining and processing costs over the 3.3 million dmt produced in the three-month period ended June 30, 2023, totalled $50.3 /dmt produced, a decrease of 10% compared to $55.8 /dmt produced in the fourth quarter of the 2023 financial year, reflecting the positive impact of increased production volume on the Company's controllable fixed costs.