Champion Iron Limited press release

Champion Iron Reports Robust Results for its FY2022 Second Quarter, Advances the Bloom Lake Phase II Expansion Project and Redeems Remaining Preferred Shares

2021-10-27

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

Canada NewsWire

Quarterly Production of 2.1M wmt, Net Income of $114.6M , EPS of $0.23 and EBITDA of $200.0M

MONTRÉAL, Oct. 27, 2021 /CNW/ - Champion Iron Limited (TSX: CIA) (ASX: CIA) (OTCQX: CIAFF) ("Champion" or the "Company") is pleased to announce operational and financial results for the second quarter ended September 30, 2021.

Conference Call Details

Champion will host a conference call and webcast on October 28, 2021 at 8:30 AM EDT (Montréal Time) / 11:30 PM AEDT ( Sydney time) to discuss the results for the second quarter ended September 30, 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; 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; In line with our Company's values, and out of respect and in recognition of the ancestral landholders' bond with the natural environment, the Company organized workshops aimed at familiarizing its employees with the Innu culture. Additionally, the Company participated and contributed to the commemoration activities that took place in the Uashat mak Mani-utenam community for the inaugural National Day for Truth and Reconciliation on September 30, 2021 ; Launch of the women's mentoring program dedicated to improve the integration and recruitment of more women into the Company's workforce; and Completion of the Company's 2021 Modern Slavery Statement and its 2020 Sustainability Report, both available on the Company's website at www.championiron.com .

Financial

Revenues of $331.0M and $876.4M for the three and six-month periods ended September 30, 2021 , respectively, compared to $311.0M and $555.6M for the same periods in 2020; EBITDA 1 of $200.0M for the three-month period ended September 30, 2021 , compared to $199.0M for the same period in 2020. EBITDA 1 of $605.8M for the six-month period ended September 30, 2021 , compared to $329.1M for the same period in 2020; Net income of $114.6M for the three-month period ended September 30, 2021 (EPS of $0.23 ), compared to $112.2M for the same period in 2020 (EPS of $0.24 ). Net income of $338.9M for the six-month period ended September 30, 2021 (EPS of $0.67 ), compared to $187.7M for the same period in 2020 (EPS of $0.40 ); Net cash flow from operations of $374.1M for the three-month period ended September 30, 2021 , representing an operating cash flow per share 1 of $0.74 , compared to $131.4M or $0.28 for the same period in 2020. Net cash flow from operations of $361.5M for the six-month period ended September 30, 2021 , representing an operating cash flow per share 1 of $0.71 , compared to $206.7M or $0.44 for the same period in 2020; Full redemption of the remaining $125.0M balance of the total $185.0M of the Company's subsidiary, Quebec Iron Ore Inc. ("QIO"), the Company's subsidiary, preferred shares held by Caisse de dépôt et placement duQuébec which terminated preferred share dividend payments and reduced the overall cost of capital; Drawdown of $20.0M on the loan agreement with Investissement Québec, supported by the Fonds du développement économique ("IQ Loan") to finance the upgrade of Société Ferroviaire et Portuaire de Pointe-Noire's ("SFPPN") existing port and transboarding infrastructures; and Cash on hand 1 and restricted cash of $567.5M as at September 30, 2021 , compared to $466.7M as at June 30, 2021 and $680.5M as at March 31, 2021 .

Operations

Production of 2,089,100 wmt of high-grade 66.3% iron ore ("Fe") concentrate for the three-month period ended September 30, 2021 , compared to 2,268,800 wmt of high-grade 66.1% Fe concentrate for the same period in 2020. Production of 4,025,100 wmt of high-grade 66.3% Fe concentrate for the six-month period ended September 30, 2021 , compared to 4,067,600 wmt of high-grade 66.3% for the same period in 2020; Fe recovery rate of 83.3% and 83.1% for the three and six-month periods ended September 30, 2021 , respectively, compared to a Fe recovery rate of 85.2% and 83.8%, respectively, for the same periods in 2020; and Free on Board (''FOB'') total cash cost 1 of $56.2 /dmt ( US$44.6 /dmt) (C1) and $58.2 /dmt ( US$46.8 /dmt) for the three and six-month periods ended September 30, 2021 , respectively, compared to $48.5 /dmt ( US$36.4 /dmt) and $53.1 /dmt ( US$39.1 /dmt), respectively, for the same periods in 2020.

Growth and Development

Commencement of a feasibility study, following laboratory work testing, to evaluate the reprocessing and infrastructure required for the commercial production of a 69% Fe Direct Reduction pellet feed product; Advances in work related to the Kamistiatusset iron ore project (the "Kami Project")'s updated feasibility study, which is expected to be completed in the second half of 2022, in connection with the Company's strategy to evaluate its growth alternatives within its property portfolio; Completion of the Lac Lamêlée South property acquisition and the 1.5% net smelter return royalty on the Company's Moiré Lake property and Fermont Properties portfolio, which includes the Consolidated Fire Lake North project; Collaboration with Caterpillar Inc. ("Caterpillar") and Toromont Cat to develop, test and implement advanced drilling technologies aimed at optimizing Bloom Lake's operational productivity and reducing energy consumption; Receipt of a $6.2M government grant during the three-month period ended September 30, 2021 , as part of a grant of up to $21.8M , related to the Company's greenhouse gas emissions and energy consumption reduction initiatives; In anticipation of the Phase II growth project completion, the Company amended terms of its marketing agreements to maintain existing relationships and develop new ones with customers globally; and Agreement for a freight contract signed for one vessel per month, from August 2021 to December 2022 . The freight contract is expected to reduce the Company's freight premium volatility with a certain agreed-upon price premium above the average C3 Baltic Capesize Index ("C3") per tonne plus a seasonal additional premium for the winter condition.

Phase II Expansion Project ("Phase II") Milestones

Several critical construction items completed, including the major tie-in between Phase I and Phase II, enabling the Company to evaluate a potential accelerated completion schedule for the project currently expected by mid-2022; Advancing remaining work programs, in challenging times, with more than 400 individuals actively working on the project to maintain or accelerate the expected completion schedule; and Capital expenditures and start-up costs of $110.5M and advance payments to SFPPN totalling $14.1M incurred in the three-month period ended September 30, 2021 , with $413.2M invested to date.

Champion's CEO, Mr. David Cataford , said: "I commend our team for maintaining a safe work environment and upholding our strong community relations, enabling our Company to deliver another robust operational and financial quarterly result. Our employees and partners continue to demonstrate their agility and motivation as we completed several critical work programs in challenging times for the Phase II expansion project, which is expected to double our nameplate capacity at Bloom Lake. With such significant progress, our team is actively evaluating a potential accelerated completion schedule for the project currently expected by mid-2022. With this growth project and our product development, our Company affirms its strategy to actively participate in reducing emissions in the steel making process. In turn, pursuing capital return strategies and other organic growth opportunities can also be facilitated with our preferred shares now fully redeemed, contributing to lowering our Company's cost of capital."

2. 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 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 entitled "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 September 30, 2021, $110,532,000 in capital expenditures and start-up costs and $14,104,000 in advance payments were incurred for the Phase II project, with $413,216,000 invested to date, including $69,653,000 in advance payments related to existing port, rail and transboarding infrastructures.

As at September 30, 2021, the Company had total cash on hand 1 and restricted cash of $567,514,000 .

The Company maintains a total undrawn credit facility of US$220,000,000 , a financing agreement for an undrawn amount of US$75,000,000 in connection with the funding of Phase II mining equipment and a seven-year loan agreement with Fonds de Solidarité des Travailleurs du Québec of $75,000,000 , of which $45,000,000 remains undrawn as at September 30, 2021. Additionally, the Company's investment of $85,000,000 related to upgrades at SFPPN and budgeted in the overall Phase II capital expenditures, is partially financed through a term loan of up to $70,000,000 , signed on July 21, 2021 with Investissement Québec and supported by Fonds du développement économique. As at September 30, 2021, $50,000,000 of the IQ Loan remained undrawn. The IQ Loan annual interest rate is 3.7%. Accordingly, as at September 30, 2021, the Company had a total $470,860,000 of undrawn available financing.

Based on the foregoing and the utilization of ongoing operational cash flows, the Company is fully funded for the remaining Phase II construction project, which is currently scheduled for completion by mid-2022, with an estimated $220,584,000 remaining to be spent, including deposits.

Milestones

The progression of construction works accelerated significantly in August and reached its peak during the three-month period ended September 30, 2021 . With several critical construction work programs completed, including the major tie-in between the Phase I and Phase II projects, the Company is evaluating a potential accelerated completion schedule for the project currently expected by mid-2022. The Company continues to advance remaining work programs, in challenging times, with more than 400 individuals actively working on the project. Project milestones that were achieved and related works undertaken during the three-month period ended September 30, 2021 include:

Completion of 97% of the detailed engineering; Steel structure erection in the concentrator, along with equipment installation, progressed as planned; Mechanical installation of the load-out conveyors from the concentrator to the train loading station completed; New overhead line electrical distribution for the mine continued; and Completion and handover of the Mamu accommodations complex, hosting a total capacity of 300 people.

3. Bloom Lake Mine Operating Activities

| | Three Months Ended | Six Months Ended | | | | | | | | | September 30, | September 30, | | | | | | | | | 2021 | 2020 | Variance | 2021 | 2020 | Variance | | | | | | | | | | | | | | Operating Data | | | | | | | | | | Waste mined and hauled (wmt) | 5,299,600 | 4,114,400 | 29 | % | 9,999,100 | 6,727,200 | 49 | % | | Ore mined and hauled (wmt) | 5,713,900 | 6,070,000 | (6) | % | 11,357,800 | 10,752,600 | 6 | % | | Material mined and hauled (wmt) | 11,013,500 | 10,184,400 | 8 | % | 21,356,900 | 17,479,800 | 22 | % | | | | | | | | | | | | Strip ratio | 0.93 | 0.68 | 37 | % | 0.88 | 0.63 | 40 | % | | | | | | | | | | | | Ore milled (wmt) | 5,679,800 | 5,562,600 | 2 | % | 10,907,000 | 10,167,200 | 7 | % | | Head grade Fe (%) | 29.1 | 30.9 | (6) | % | 29.4 | 31.1 | (5) | % | | Fe recovery (%) | 83.3 | 85.2 | (2) | % | 83.1 | 83.8 | (1) | % | | Product Fe (%) | 66.3 | 66.1 | — | % | 66.3 | 66.3 | — | % | | Iron ore concentrate produced (wmt) | 2,089,100 | 2,268,800 | (8) | % | 4,025,100 | 4,067,600 | (1) | % | | Iron ore concentrate sold (dmt) | 1,953,900 | 2,063,400 | (5) | % | 3,928,600 | 3,822,200 | 3 | % | | | | | | | | | | | | Financial Data (in thousands of dollars) | | | | | | | | | | Revenues | 331,006 | 310,994 | 6 | % | 876,414 | 555,568 | 58 | % | | Cost of sales | 110,884 | 102,739 | 8 | % | 231,730 | 210,077 | 10 | % | | Other expenses | 20,313 | 10,426 | 95 | % | 34,873 | 19,967 | 75 | % | | Net finance costs | 1,012 | 4,530 | (78) | % | 5,399 | 5,675 | (5) | % | | Net income | 114,596 | 112,164 | 2 | % | 338,935 | 187,720 | 81 | % | | EBITDA 1 | 200,013 | 198,972 | 1 | % | 605,752 | 329,134 | 84 | % | | | | | | | | | | | | Statistics (in dollars per dmt sold) | | | | | | | | | | Gross average realized selling price | 218.8 | 162.8 | 34 | % | 249.4 | 156.6 | 59 | % | | Net average realized selling price 1 | 169.4 | 150.7 | 12 | % | 223.1 | 145.4 | 53 | % | | Total cash cost (C1 cash cost) 1 | 56.2 | 48.5 | 16 | % | 58.2 | 53.1 | 10 | % | | All-in sustaining cost 1 | 73.6 | 57.2 | 29 | % | 73.1 | 60.7 | 20 | % | | Cash operating margin 1 | 95.8 | 93.5 | 2 | % | 150.0 | 84.7 | 77 | % |

Operational Performance

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

In the three-month period ended September 30, 2021, 11,013,500 tonnes of material were mined and hauled, compared to 10,184,400 tonnes for the same period in 2020, an increase of 8%. The increase in waste mined and hauled is attributable to a higher strip ratio, as per the mine plan in connection with the preparation for Phase II project operations. The increase in material movement was enabled by the Company's ongoing mining equipment rebuild program and equipment maintenance, which provided a higher equipment utilization rate and additional equipment availability.

The iron ore head grade for the three-month period ended September 30, 2021 was 29.1%, compared to 30.9% for the same period in 2020. The decrease in head grade, when compared to the prior year period, was anticipated and is attributable to the presence of lower-grade ore sourced and blended from different pits, and is in line with the mining plan and the LoM head grade average.

Bloom Lake produced 2,089,100 wmt of 66.3% Fe high-grade iron ore concentrate during the three-month period ended September 30, 2021, a decrease of 8%, compared to 2,268,800 wmt of 66.1% Fe for the same period in 2020. The lower production is attributable to lower head grade, which was partially compensated by higher throughput.

First Six Months of the 2022 Fiscal Year vs First Six 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.

The Company mined and hauled 21,356,900 tonnes of material during the six-month period ended September 30, 2021, compared to 17,479,800 tonnes for the same period in 2020. This increase in material mined and hauled is attributable to the negative impact of the COVID-19 pandemic on several of the Company's other activities in the comparative period and to a higher strip ratio in the current period, as per the mine plan in connection with the preparation for the Phase II expansion project's operations. This increase in material movement is the result of a higher equipment utilization rate and additional equipment availability. The Company benefited from its previous and continuous investments in the mining equipment rebuild program, enabling it to maximize productivity.

The strip ratio increased to 0.88 for the six-month period ended September 30, 2021, compared to 0.63 for the same period in 2020. The strip ratio is consistent with the mine plan for this period of the year.

The plant processed 10,907,000 tonnes of ore during the six-month period ended September 30, 2021, an increase of 7% over the same period in 2020. The higher throughput is attributable to the combination of the COVID-19 imposed ramp-down in the comparative period and the higher mill throughput rate 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 29.4% for the six-month period ended September 30, 2021 was attributable to different sourcing pits, compared to 31.1% for the same period in 2020 and is consistent with the LoM.

Iron ore concentrate produced remained stable during the six-month period ended September 30, 2021, compared to the same period in 2020.

4. Financial Performance

A. Revenues

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

During the three-month period ended September 30, 2021, 1,953,900 tonnes of high-grade iron ore concentrate were sold at the CFR China gross average realized price of US$174.6 /dmt, before provisional sales adjustments and shipping costs. The gross average realized selling price of US$174.6 /dmt represents a premium of 7.2% over the benchmark IODEX 62% Fe CFR China Index ("P62") price, compared to a premium of 3.4% for the same period in 2020. The gross average realized selling price reflects the sales at a determined price based on the average forward price of US$141.5 at the expected settlement date for 781,900 tonnes which were in transit at the end of the period. The forward price was at a significant discount compared to the average IODEX 65% Fe CFR China Index ("P65") for the period. This factor was partially offset by 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 Company believes that global carbon emissions reduction efforts will support the demand for high-grade raw materials, including iron concentrates and pellets. The Company has the ability to fully benefit from the premium pricing of its high-grade product.

During the three-month period ended September 30, 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. As a result, the Company paid higher freight costs in the three-month period ended September 30, 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.