Champion Iron Limited press release

CHAMPION IRON REPORTS ITS FY2022 THIRD QUARTER RESULTS, DECLARES AN INAUGURAL DIVIDEND AND ADVANCES THE BLOOM LAKE PHASE II EXPANSION PROJECT

2022-01-26

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

Canada NewsWire

Announces an inaugural dividend payment of $0.10 per ordinary shares; Quarterly Production of 2.01M wmt, Net Income of $68.0M , EPS of $0.13 and EBITDA of $122.1M

MONTRÉAL, Jan. 26, 2022 /CNW Telbec/ - Champion Iron Limited (TSX: CIA) (ASX: CIA) (OTCQX: CIAFF) ("Champion" or the "Company") is pleased to announce operational and financial results for the fiscal third quarter ended December 31, 2021.

Conference Call Details Champion will host a conference call and webcast on January 27, 2022 at 8:30 AM (Montréal time) / January 28, 2022 at 12:30 AM ( Sydney time) to discuss the results for the fiscal third quarter ended December 31, 2021. Call details are outlined at the end of this release.

1. Highlights

Health & Safety and Sustainability

No serious injuries reported and no major environmental issues during the period; Health and safety awareness campaigns are in place and continuous improvement efforts are deployed throughout the organization; Fully operational 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 the Omicron variant; In commemoration of its First Nation communities' tragic and painful history, Champion declared that September 30 , the National Day for Truth and Reconciliation, will be treated as a statutory holiday for all its employees; In collaboration with our partners, contributed a significant donation to Cancer Fermont, a charitable organization improving the quality of life for local residents fighting cancer; and In support of the International Day for the Elimination of Violence against Women, the Company sponsored "Autour d'elles", a shelter for local women who are victims of domestic violence, and "Hommes Sept-Ils", a help center which provides support for local men facing personal challenges.

Dividend on Ordinary Shares

The Board of Directors (the "Board") declares an inaugural dividend of $0.10 per ordinary share in respect to the semi-annual results for the period ended September 30, 2021 , payable on March 1, 2022 , to registered shareholders at the close of business in Australia and Canada on February 8, 2022 (local time). The ordinary shares will begin trading on an ex-dividend basis at the open of trading in Australia and Canada on February 7, 2022 .

Financial

Revenues of $253.0M and $1,129.4M for the three and nine-month periods ended December 31, 2021, respectively, compared to $329.5M and $885.1M for the same periods in 2020; EBITDA 1 of $122.1M for the three-month period ended December 31, 2021, compared to $214.6M for the same period in 2020. EBITDA 1 of $727.9M for the nine-month period ended December 31, 2021, compared to $543.7M for the same period in 2020; Net income of $68.0M for the three-month period ended December 31, 2021 (EPS of $0.13 ), compared to $120.8M for the same period in 2020 (EPS of $0.25 ). Net income of $406.9M for the nine-month period ended December 31, 2021 (EPS of $0.80 ), compared to $308.5M for the same period in 2020 (EPS of $0.65 ); Net cash flow from operating activities of $105.6M for the three-month period ended December 31, 2021, representing an operating cash flow per share 1 of $0.21 , compared to $188.2M or $0.40 for the same period in 2020. Net cash flow from operating activities of $467.1M for the nine-month period ended December 31, 2021, representing an operating cash flow per share 1 of $0.92 , compared to $394.9M or $0.83 for the same period in 2020; and Cash on hand 1 and restricted cash of $543.4M as at December 31, 2021, compared to $567.5M as at September 30, 2021 and $680.5M as at March 31, 2021.

Operations

Record production for a quarter with scheduled maintenance of 2,013,200 wmt of high-grade 66.2% iron ore ("Fe") concentrate for the three-month period ended December 31, 2021, compared to 1,922,100 wmt of high-grade 66.4% Fe concentrate for the same period in 2020. Production of 6,038,300 wmt of high-grade 66.2% Fe concentrate for the nine-month period ended December 31, 2021, compared to 5,989,700 wmt of high-grade 66.3% Fe for the same period in 2020; Fe recovery rate of 83.9% and 83.3% for the three and nine-month periods ended December 31, 2021, respectively, compared to a Fe recovery rate of 83.6% and 83.8%, respectively, for the same periods in 2020; and Free on Board ("FOB") total cash cost 1 of $59.5 /dmt ( US$47.2 2 /dmt) (C1) and $58.6 /dmt ( US$46.9 2 /dmt) for the three and nine-month periods ended December 31, 2021, respectively, compared to $56.2 /dmt ( US$43.1 2 /dmt) and $54.1 /dmt ( US$40.4 2 /dmt), respectively, for the same periods in 2020.

Growth and Development

Ongoing feasibility study evaluating the reprocessing and infrastructure required to commercially produce a 69% Fe direct reduction pellet feed product. The study of this proposed project, scaled to convert approximately half of Bloom Lake's expected nameplate capacity following the completion of the Phase II Expansion Project ("Phase II"), is expected to be completed by mid-2022; and In connection with the Company's strategy to evaluate its growth alternatives within its property portfolio, the Kamistiatusset iron ore project's (the "Kami Project") updated feasibility study is advancing and expected to be completed in the second half of calendar 2022.

Phase II Milestones

Several critical construction items were completed, including the major tie-in between Phase I and Phase II, enabling the advancement of the expected commissioning of the project to April 2022 , with commercial production anticipated by the end of calendar 2022; Receipt of the majority of the 450 railcars required for the Phase II production volume, enabling the Company to gradually ship more iron ore concentrate to Sept-Îles; Advancing remaining work programs, with more than 400 individuals actively working on the project despite challenges related to the COVID-19 pandemic; and Capital expenditures and start-up costs of $93.7M and advance payments and deposits related to existing port, rail and transboarding infrastructure totalling $27.4M incurred in the three-month period ended December 31, 2021, with $534.3M invested to date.

Champion's CEO, Mr. David Cataford , said: "I am honored to recognize our First Nation communities' difficult history by declaring that the National Day for Truth and Reconciliation will be treated as a statutory holiday for all our employees. Our people's perseverance and agility have always been our Company's strength, and it has enabled us to report record production for a quarter with scheduled maintenance, resulting in strong profitability, despite the challenges imposed by the pandemic. As our Company continues to focus on growth opportunities to meet the rising demand for high-grade iron ore products, the near completion of the Phase II expansion project and our cumulative efforts to operate sustainably creates the stability required to continue deploying our capital returns strategy by declaring an inaugural dividend."

2. Dividend on Ordinary Shares

The Board declared an inaugural dividend of $0.10 per ordinary share on January 26, 2022 (Montréal time) / January 27, 2022 ( Sydney time) in respect to the semi-annual results for the period ended September 30, 2021 , payable on March 1, 2022, to registered shareholders at the close of business in Australia and Canada on February 8, 2022 (local time). The ordinary shares will begin trading on an ex-dividend basis at the open of trading in Australia and Canada on February 7, 2022.

The Board will evaluate any potential future dividends concurrently with the release of the Company's semi-annual and annual results.

For shareholders holding ordinary shares on the Australian share register, the dividend will be paid in Australian dollars. The dividend amounts received will be calculated by converting the dividend determined to be paid using the exchange rates applicable to Australian dollars five business days prior to the dividend payment date as published by the Bank of Canada .

For additional details on ordinary dividends, visit our website at www.championiron.com .

3. Bloom Lake Phase II Update

The Phase II project aims to double Bloom Lake's nameplate capacity to 15 Mtpa of 66.2% Fe iron ore concentrate by completing the construction of the second plant, which was partially built by the mine's former owner. Based on the new optimized mine plan, the Bloom Lake mining rate would also be increased to accelerate the supply of ore to the expanded facilities, while maintaining a life of mine ("LoM") of 20 years. On June 20, 2019 , the Company announced the findings of the updated Bloom Lake Feasibility Study (the "Feasibility Study"), including proven and probable mineral reserve estimates of 807.0 Mt (346.0 Mt of proven reserves and 461.0 Mt of probable reserves) at an average grade of 29.0% Fe.

Bloom Lake Phase II reserves are based on the technical report titled "Bloom Lake Mine – Feasibility Study Phase II", prepared pursuant to National Instrument 43-101 – Standards of Disclosure for Mineral Projects ("NI 43-101") and the Joint Ore Reserves Committee Code (2012 edition) by BBA Inc., Soutex and WSP Canada Inc., having an effective date of June 20, 2019 and filed on August 2, 2019 . Bloom Lake Phase II mineral reserves include Bloom Lake Phase I mineral reserves as of the effective date of the mineral reserve estimate reported in the Feasibility Study. The Company is not aware of any new information or data that materially affects the information included in the Feasibility Study and confirms that all material assumptions and technical parameters underpinning the estimates in the Feasibility Study continue to apply and have not materially changed. The Feasibility Study is available under the Company's filings at www.sedar.com , on the ASX at www.asx.com.au or the Company's website at www.championiron.com .

During the three-month period ended December 31, 2021, $93,696,000 in capital expenditures and start-up costs and $27,358,000 in advance payments were incurred for the Phase II project, with $534,270,000 invested to date, including $97,011,000 in advance payments and deposits related to existing port, rail and transboarding infrastructure.

As at December 31, 2021, the Company had total cash on hand 1 and restricted cash of $543,404,000 . The Company also had a total undrawn credit facility of US$220,000,000 , a financing agreement with Caterpillar Financial Services Limited for an undrawn amount of US$56,639,000 , to fund Phase II mining equipment, and a seven-year loan agreement with Fonds de Solidarité des Travailleurs du Québec for an undrawn amount of $45,000,000 , as at December 31, 2021, maturing on May 21, 2028 . Additionally, the Company had an undrawn term loan of $30,000,000 with Investissement Québec to partially finance a total investment of $85,000,000 related to upgrades at Société Ferroviaire et Portuaire de Pointe-Noire and budgeted in the overall Phase II capital expenditures. Accordingly, as at December 31, 2021, the Company had a total $425,723,000 of undrawn available financing.

Based on the foregoing and the utilization of ongoing operational cash flows, the Company is fully funded for the remaining work programs required to complete the Phase II project estimated at $105,530,000 , including deposits. Despite a challenging health context, the Company continues to advance the project with final work programs required for ongoing commissioning. With critical construction work programs completed and with more than 400 individuals actively working on the project, the Phase II project commissioning schedule is moving forward to April 2022 , with commercial production anticipated by the end of calendar 2022. As the Company approaches the end of the project, it is currently carrying out other important steps, such as commissioning the mill and finalizing its hiring campaign.

Milestones The construction is progressing well with several critical construction work programs completed in the three-month period ended December 31, 2021, including the successful tie-in between the Phase I and Phase II projects. The Company continues to advance the remaining work programs despite operational challenges related to the global pandemic. Project milestones that were achieved and related works undertaken during the three-month period ended December 31, 2021 include:

Finalization of the detailed engineering; Completion of the major tie-in between the Phase I and Phase II projects; Completion of the Jean River crossing, required to accommodate a second rail track siding; Receipt of the majority of the 450 railcars, which will allow to gradually ship more iron ore concentrate to Sept-Îles; and Commencement of pre-operational verifications.

4. Bloom Lake Mine Operating Activities

| | | Three Months Ended | | Nine Months Ended | | | | | | | | December 31, | | December 31, | | | | | | | | 2021 | 2020 | Variance | | 2021 | 2020 | Variance | | | | | | | | | | | | Operating Data | | | | | | | | | | Waste mined and hauled (wmt) | | 5,441,700 | 4,957,600 | 10% | | 15,440,800 | 11,684,800 | 32% | | Ore mined and hauled (wmt) | | 5,517,200 | 5,183,000 | 6% | | 16,875,000 | 15,935,600 | 6% | | Material mined and hauled (wmt) | | 10,958,900 | 10,140,600 | 8% | | 32,315,800 | 27,620,400 | 17% | | | | | | | | | | | | Strip ratio | | 0.99 | 0.96 | 3% | | 0.92 | 0.73 | 26% | | | | | | | | | | | | Ore milled (wmt) | | 5,161,000 | 5,193,700 | (1%) | | 16,068,000 | 15,360,900 | 5% | | Head grade Fe (%) | | 30.6 | 29.7 | 3% | | 29.8 | 30.6 | (3%) | | Fe recovery (%) | | 83.9 | 83.6 | —% | | 83.3 | 83.8 | (1%) | | Product Fe (%) | | 66.2 | 66.4 | —% | | 66.2 | 66.3 | —% | | Iron ore concentrate produced (wmt) | | 2,013,200 | 1,922,100 | 5% | | 6,038,300 | 5,989,700 | 1% | | Iron ore concentrate sold (dmt) | | 1,832,100 | 1,891,300 | (3%) | | 5,760,700 | 5,713,500 | 1% | | | | | | | | | | | | Financial Data (in thousands of dollars) | | | | | | | | | | Revenues | | 253,016 | 329,545 | (23%) | | 1,129,430 | 885,113 | 28% | | Cost of sales | | 110,290 | 108,506 | 2% | | 342,020 | 318,583 | 7% | | Other expenses | | 23,350 | 9,135 | 156% | | 58,223 | 29,102 | 100% | | Net finance costs | | 3,377 | 11,323 | (70%) | | 8,776 | 16,998 | (48%) | | Net income | | 67,997 | 120,771 | (44%) | | 406,932 | 308,491 | 32% | | EBITDA 1 | | 122,127 | 214,579 | (43%) | | 727,879 | 543,713 | 34% | | | | | | | | | | | | Statistics (in dollars per dmt sold) | | | | | | | | | | Gross average realized selling price | | 195.0 | 194.8 | —% | | 232.1 | 169.2 | 37% | | Net average realized selling price 1 | | 138.1 | 174.2 | (21%) | | 196.1 | 154.9 | 27% | | Total cash cost (C1 cash cost) 1 | | 59.5 | 56.2 | 6% | | 58.6 | 54.1 | 8% | | All-in sustaining cost 1 | | 76.0 | 64.8 | 17% | | 74.0 | 62.0 | 19% | | Cash operating margin 1 | | 62.1 | 109.4 | (43%) | | 122.1 | 92.9 | 31% |

Operational Performance

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

In the three-month period ended December 31, 2021, 10,958,900 tonnes of material were mined and hauled, compared to 10,140,600 tonnes for the same period in 2020, an increase of 8%. The current strip ratio is in line with the mine plan in connection with the preparation for the Phase II operations. The strip ratio of 0.96 achieved in the comparative period ended December 31, 2020 reflected the Company's efforts to recover the waste backlog accumulated during the first quarter of the 2021 fiscal year when Champion's operations were negatively impacted by the Government's imposed COVID-19 directives. The overall increase in material movement was enabled by additional equipment in operation compared to the same period last year, offset by a longer haul cycle as the material was sourced from different pits.

The iron ore head grade for the three-month period ended December 31, 2021 was 30.6%, compared to 29.7% for the same period in 2020. The increase in head grade is attributable to the presence of higher-grade ore being sourced and blended from different pits, when compared to the prior year, which was anticipated and is in line with the mining plan and the LoM head grade average.

Bloom Lake produced 2,013,200 wmt of 66.2% Fe high-grade iron ore concentrate during the three-month period ended December 31, 2021, an increase of 5%, compared to 1,922,100 wmt of 66.4% Fe for the same period in 2020. The record production for a quarter with scheduled maintenance is essentially a result of higher head grade and stable mill productivity.

First Nine Months of the 2022 Fiscal Year vs First Nine Months of the 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 32,315,800 tonnes of material during the nine-month period ended December 31, 2021, compared to 27,620,400 tonnes for the same period in 2020. This increase in material mined and hauled is mainly attributable to 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 nine-month period ended December 31, 2021, compared to 0.73 for the same period in 2020. The strip ratio is consistent with the mine plan for this period of the year and the preparation for Phase II project operations.

The plant processed 16,068,000 tonnes of ore during the nine-month period ended December 31, 2021, an increase of 5% over the same period in 2020. The variation reflects the impact of the COVID-19 imposed ramp-down in the comparative period and the higher mill throughput rate achieved for the current period. The continuous improvements and operational innovations allowed the Company to increase throughput stability and reach a higher level of mill productivity. The iron ore head grade of 29.8% for the nine-month period ended December 31, 2021 was attributable to different sourcing pits, compared to 30.6% for the same period in 2020 and is consistent with the LoM. Based on the foregoing, the iron ore concentrate produced remained stable during the nine-month period ended December 31, 2021, compared to the same period in 2020.

5. Financial Performance

A. Revenues

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

During the three-month period ended December 31, 2021, 1,832,100 tonnes of high-grade iron ore concentrate were sold at the CFR China gross average realized price of US$154.8 /dmt, before provisional sales adjustments and shipping costs. The gross average realized selling price of US$154.8 /dmt represents a premium of 41.2% over the benchmark IODEX 62% Fe CFR China Index ("P62") price for the period, compared to a premium of 12.4% for the same period in 2020. The gross average realized selling price of US$154.8 /dmt was higher than the IODEX 65% Fe CFR China Index ("P65") average price of US$128.9 for the period due to the positive impact of sales based on backward-looking iron ore prices, when prices were substantially higher than the P65 index average for the period. The gross average realized selling price also reflects sales at a determined price based on the average forward price of US$142.3 at the expected settlement date for 856,200 tonnes which were in transit at the end of the period.

During the three-month period ended December 31, 2021, the global economic recovery, rising fuel prices and decreased vessel availability, due to high levels of port congestion in Asian ports, contributed to the rising sea freight index, when compared to the previous comparative period. The average C3 Baltic Capesize Index ("C3") for the period was US$31.0 /t compared to US$15.6 /t for the same period in 2020, representing an increase of 99%. As a result, the Company incurred higher freight costs in the three-month period ended December 31, 2021, compared to the same period in 2020. The freight costs variation relative to the C3 index during the period is mainly due to the timing of the vessels' booking. The Company expects to benefit from the recent decline in the freight index in the upcoming period as it contracts vessels three to four weeks prior to the desired laycan period.