Champion Iron Limited press release
CHAMPION IRON REPORTS RECORD PRODUCTION FOR ITS FY2023 THIRD QUARTER WITH PHASE II REACHING COMMERCIAL PRODUCTION, AND ANNOUNCES THE POSITIVE FINDINGS OF THE DIRECT REDUCTION PELLET FEED PROJECT FEASIBILITY STUDY
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Record quarterly production of 3.0M wmt, EPS of $0.10 and EBITDA 1 of $118.2 million Bloom Lake Phase II expansion reaches commercial production Direct Reduction Pellet Feed ("DRPF") Project Feasibility Study resulting in an after-tax NPV of $738.2 million and IRR of 24.0%
MONTRÉAL , Jan. 26, 2023 /CNW/ - SYDNEY , Jan. 27, 2023 - Champion Iron Limited (TSX: CIA) (ASX: CIA) (OTCQX: CIAFF) ("Champion" or the "Company") is pleased to announce operational and financial results for the financial third quarter ended December 31, 2022 .
Conference Call Details
Champion will host a conference call and webcast on January 27, 2023 at 8:30 AM (Montréal time) / January 28, 2023 at 12:30 AM ( Sydney time) to discuss the results for the third quarter ended December 31, 2022. Call details are outlined at the end of this press release.
Champion's CEO, Mr. David Cataford , said: "In addition to reporting another quarterly production record, the Phase II expansion project reaching commercial production is a significant milestone that culminates years of work by our dedicated workforce. The Phase II investments at Bloom Lake should contribute to normalizing operating costs per tonne sold as we continue to ramp up the project towards nameplate capacity, which we anticipate achieving in the near term. Additionally, our commitment to reduce emissions in the steelmaking process continues as we announce the positive findings of the feasibility study which evaluated the further upgrading of Bloom Lake's iron ore concentrate to a DRPF quality iron ore product. The project, leveraging the rare purity of our resources, positions our Company to participate in the accelerating transition in the steel industry to reduce emissions, and offers the opportunity to generate significant returns on investments while creating additional positive impact with quality jobs for the region."
1. Highlights
Sustainability
No major environmental issues reported during the period; Environment and Climate Change Canada performed a regulatory audit of the Bloom Lake facilities and reported no instances of non-compliance; and In keeping with Champion's corporate values and recognizing the importance of their relationship with local communities, all employees completed training sessions on diversity and culture, developed in collaboration with the Company's First Nations partners.
Operations and Financial
Record production of 2,962,500 wmt of high-grade 66.0% Fe concentrate for the three-month period ended December 31, 2022 , representing an increase of nearly 50% compared to 2,013,200 wmt for the same period in 2021. Higher production during the period was driven by achieving commercial production of the Phase II concentrator in December. Quarterly production from the two concentrators was negatively impacted by third-party delays in delivering mining equipment, which impacted mining capacity, together with significant electrical failures and operational interruptions following abnormal weather events, impacting the greater Québec province in late December 2022 . Longer than planned shutdowns, as well as unplanned outages during the commissioning of the new crusher's conveyor systems, also negatively impacted production in the period; Revenues of $351.2 million ( $253.0 million for the same period in 2021), net cash flow from operating activities of $13.4 million ( $104.6 million for the same period in 2021), EBITDA 1 of $118.2 million ( $122.1 million for the same period in 2021) and net income of $51.4 million (EPS of $0.10 ) ( $68.0 million and EPS of $0.13 for the same period in 2021); Financial results during the quarter, compared to the prior-year period, were positively impacted by the increase in iron ore sold. This was offset by lower iron ore index prices compared to the same period last year, expected transitional start-up costs to support Phase II commercial production and higher operating costs. Volume of sales in the period was negatively impacted by significant electrical failures and operational interruptions following abnormal weather events in late December 2022 , resulting in delayed iron ore shipments due to power outages at the port of Sept-Îles; C1 cash cost 1 of $76.0 /dmt ( US$56.0 /dmt) 2 for the three-month period ended December 31, 2022 , compared to $59.5 /dmt ( US$47.2 /dmt) 2 for the same period in 2021. The higher cost was attributable to higher fuel and explosives prices, higher site-related G&A expenses attributable to inflationary pressures, higher maintenance costs due to unscheduled work during the commissioning of the new crusher's conveyor systems and delays in mining equipment deliveries, which contributed to incremental contractor spending at the mine to support higher production volumes. Unit cost during the period was also impacted by higher fixed costs to support the future run rate while production ramps up to nameplate capacity. The economic benefits of the Phase II expansion project should be progressive as throughput gradually increases towards Bloom Lake's revised nameplate capacity of 15 Mtpa 3 ; Available liquidity 1 of $476.0 million as at December 31, 2022 , including $166.3 million of cash and cash equivalents and short-term investments, compared to $586.4 million as at September 30, 2022 ; and Dividend of $0.10 per ordinary share paid on November 29, 2022 , in connection with the semi-annual results for the period ended September 30, 2022 , totalling $51.7 million . Additional details on the dividends and related tax information can be found on the Company's website at www.championiron.com under the section Investors – Dividend Information.
Phase II Milestones
Phase II plant demonstrated the ability to achieve nameplate capacity on several days during the period and achieved its commercial production in December 2022 ; While plant related work programs have been completed earlier than anticipated, off-site work programs, including third-party infrastructure, continue to advance with slight delays related to labour availability and late delivery of some key components; and The Company expects the Bloom Lake site's throughput and Fe recoveries to benefit from ongoing optimization work programs, mining equipment deliveries, and completion of ore crushing system commissioning, while off-site infrastructure capacity increases are advancing, positioning the mine to achieve its expected increased nameplate capacity in the near term 3 .
Direct Reduction Pellet Feed Project Feasibility Study
Announces positive results of the Feasibility Study, evaluating flowsheet modifications to the Phase II plant and infrastructure required to upgrade its current production to DRPF grade iron ore, resulting in an average life of mine production of approximately 7.5 Mtpa of DRPF quality iron ore at 69% Fe with combined silica and alumina content below 1.2% (the "Project"); Project construction period estimated at 30 months with total capital expenditures of $470.7 million , including additional power and port-related infrastructure, resulting in a Net Present Value ("NVP") of $738.2 million and Internal Rate of Return ("IRR") of 24.0% after-tax; Project could produce one of the highest DRPF quality products available on the seaborne market, which can expect to attract a substantial premium over the Company's current high-grade 66.2% Fe iron ore concentrate; Production of DRPF product would enhance the Company's ability to further contribute to the green steel supply chain by engaging with additional customers focused on the Direct Reduced Iron ("DRI") and Electric Arc Furnaces ("EAF") steelmaking route, which reduces emissions in the steelmaking process by approximately half, compared to the traditional steelmaking route using Blast Furnace ("BF") and Basic Oxygen Furnace ("BOF"); and Approval by the Board of an initial budget of $10 million to advance the Project during the remainder of calendar 2023 has been obtained, to be funded from existing liquidity, with a Final Investment Decision ("FID") to complete the Project pending securing additional power capacity and non-dilutive funding.
Other Growth and Development
The Kamistiatusset iron ore project's (the "Kami Project") feasibility study, which is evaluating the project's capability to produce Direct Reduction ("DR") grade pellet feed product, is expected to be completed in the second half of calendar 2023 3 ; and In collaboration with a major international steelmaking partner, a feasibility study evaluating the re-commissioning of the Pointe-Noire Iron Ore Pelletizing Facility to produce DR grade pellets is advancing, with an anticipated completion date in the second half of calendar 2023 3 .
2. Direct Reduction Pellet Feed Project
DRPF Product and Pricing
With an increased focus to reduce greenhouse gas emissions in the steelmaking processes, the steel industry is experiencing a structural shift in its production methods. This dynamic is expected to create additional demand for higher-purity iron ore products, as the industry transitions towards using reduction technologies to produce liquid iron, such as the use of DRI in EAF instead of BF-BOF.
Benefiting from high-purity reserves and resources, Bloom Lake is one of the few iron-ore deposits in the world capable of upgrading its product to DRPF quality iron ore, requiring both elevated Fe content and low impurities. The Project, proposing to produce 69% Fe with combined silica and alumina content below 1.2%, is expected to produce one of the world's highest purity DRPF quality iron ore. High purity DRPF product is a primary ingredient required in the green steel supply chain to produce high quality and complex steel in the DRI/EAF process, reducing CO 2 equivalent emissions by more than 50%, compared to the conventional steelmaking route utilizing BF-BOF.
DR grade iron ore is generally pelletized to produce DR grade pellets. DR grade pellets are then processed in a DR reactor, removing oxygen from the iron oxide concentrate to produce metallic iron (DRI or HBI), which can be a substitute or blended with scrap steel to produce steel in the EAF steelmaking method.
As DR grade quality iron ore represents a niche product in the iron ore industry, representing approximately 5% of the global seaborne iron ore production, pricing tends to be directly negotiated between producers and sellers without an available global pricing index. Due to its higher Fe content and lower impurities, pricing for DR grade iron ore product, used as a raw material input to make DR grade pellets, is expected to attract a significant premium over the traditional high-grade iron ore P65 index and correlate with the DR grade pellet indices. The Company believes, in tandem with several market experts, that the accelerating transition to reduce emissions in the steelmaking process will result in rising demand for DRPF products. As of result of this expected rising demand and product scarcity, the Company believes that its industry leading DRPF quality product will attract increasing premiums over time. Additionally, production of DRPF quality iron ore is expected to enable the Company to further diversify its customer mix, including steelmakers in closer proximity to Bloom Lake, which could result in freight advantages for the Company.
Project Feasibility Study Highlights
The Feasibility Study for the DRPF Project, conducted in partnership with BBA, evaluated the equipment and infrastructure required to upgrade the Bloom Lake phase II plant to produce approximately 7.5 Mtpa of DRPF quality iron ore at 69% Fe with combined silica and alumina content below 1.2%. To integrate the Project with Bloom Lake's existing infrastructure, the Feasibility Study evaluated additional onsite work programs, including modifications and tie-ins to the Phase II plant, a modification to its access road and an upgrade to the site's electricity transport and distribution systems. To facilitate the handling of two different quality iron ore products, the Feasibility Study also assessed modifications to the Société ferroviaire et portuaire de Pointe-Noire ("SFPPN") facilities, including additional conveyor systems and modifications to existing transfer towers.
The Project proposes to deploy proven technologies to regrind iron ore concentrate prior to submitting it to a reverse flotation process to further remove silica from iron oxides while reducing energy consumption and improving iron recovery compared to traditional flowsheets.
Benefiting from expected access to renewable hydro-electric power, the Project is designed to be carbon neutral, and is not expected to create any additional environmental impacts. In addition to the Project's anticipated positive local economic impact, the construction phase of the Project is expected to create ~ 150 jobs over a period of approximately two years with ~ 70 additional permanent quality jobs once completed.
| Item | C$ | US$ | | NPV | Pre-tax NPV 8% of $1,230.1 million
After-tax NPV 8% of $738.2 million | Pre-tax NPV 8% of $918.0 million
After-tax NPV 8% of $550.9 million | | IRR | Pre-tax IRR of 30.1%
After-tax IRR of 24.0% | | | Capital expenditures ("CAPEX") | $470.7 million | $351.3 million | | Estimated operating cost (over Bloom Lake's current Total cash cost) | $9.63/dmt DRPF | $7.19/dmt DRPF | | Production volume | Estimated average annual production of approximately 7.5 Mt DRPF quality iron ore at 69% Fe with combined silica and alumina content below 1.2% | | | Construction period | 30 months | | | Project estimated life | Project life estimated at 20 years | |
Capital Cost
| CAPEX Pre-Production | C$ million | US$ million | | Phase II circuit optimization | 348.1 | 259.8 | | Electrical upgrade and port-related infrastructure | 46.4 | 34.6 | | Contingencies | 76.2 | 56.9 | | Total | 470.7 | 351.3 |
Key Assumptions
| Item | Metric | Assumption | | Construction period | Months | 30 | | Project life | Years | 20 | | Operating costs (over Bloom Lake's cash cost) | C$/t | 9.6 | | Assumed Diesel price | C$/l | 2.0 | | Assumed Electricity tariff | C$/kwh | 0.05 | | Implied tax rate post allowances including provincial, federal and mining
duties | % | 36.3 | | Average foreign exchange rate | C$/US$ | 1.34 | | Conversion of 66.2% to DRPF | % | 96.0 |
Project Timeline and Funding
The Project, designed to be an extension to the operating Phase II plant, is expected to require minor modifications to its existing permits and will require an estimated construction period of approximately 30 months. To maintain the Project's timeline, the Board approved an initial budget of $10 million , to be funded from existing liquidity, to advance the Project during the remainder of calendar 2023. The Company expects to fund the remainder of the Project through existing liquidity, including cash flow from operations, and additional non-dilutive funding sources. The Board expects to review the Project's FID, pending securing additional power and non-dilutive funding.
3. Bloom Lake Mine Operating Activities
| | | Three Months Ended | | Nine Months Ended | | | | | | | | December 31, | | December 31, | | | | | | | | 2022 | 2021 | Variance | | 2022 | 2021 | Variance | | | | | | | | | | | | Operating Data | | | | | | | | | | Waste mined and hauled (wmt) | | 4,371,500 | 5,441,700 | (20 %) | | 14,550,400 | 15,440,800 | (6 %) | | Ore mined and hauled (wmt) | | 8,840,400 | 5,517,200 | 60 % | | 23,248,200 | 16,875,000 | 38 % | | Material mined and hauled (wmt) | | 13,211,900 | 10,958,900 | 21 % | | 37,798,600 | 32,315,800 | 17 % | | | | | | | | | | | | Strip ratio | | 0.49 | 0.99 | (51 %) | | 0.63 | 0.92 | (32 %) | | | | | | | | | | | | Ore milled (wmt) | | 8,503,400 | 5,161,000 | 65 % | | 22,628,300 | 16,068,000 | 41 % | | Head grade Fe (%) | | 28.5 | 30.6 | (7 %) | | 29.6 | 29.8 | (1 %) | | Fe recovery (%) | | 80.1 | 83.9 | (5 %) | | 79.6 | 83.3 | (4 %) | | Product Fe (%) | | 66.0 | 66.2 | — % | | 66.1 | 66.2 | — % | | Iron ore concentrate produced (wmt) | | 2,962,500 | 2,013,200 | 47 % | | 8,102,400 | 6,038,300 | 34 % | | Iron ore concentrate sold (dmt) | | 2,694,200 | 1,832,100 | 47 % | | 7,501,500 | 5,760,700 | 30 % |
Phase II Commercial Production
During the first quarter of the 2023 financial year, the Company successfully commissioned its second ore processing plant and the first shipment of concentrate produced from that plant was railed in May 2022 . In the second quarter, the last major on-site work programs relating to the Phase II infrastructure were completed, enabling the Company's two crushers to feed both processing facilities and reduce bottlenecks during maintenance periods. Commissioning activities progressed as scheduled during the three-month period ended December 31, 2022, enabling the Company to reach commercial production in December 2022 . The Company will continue to make adjustments and improvements in some areas to stabilize and optimize operations, including work to increase throughput and recovery ratio as well as activities to complete ore crushing system commissioning, positioning the Company to achieve nameplate capacity in the first half of calendar year 2023 3 . While major on-site work programs were completed ahead of schedule, off-site work programs, including third-party infrastructure, continue to advance with slight delays related to labour availability and late delivery of some key components. While Phase II demonstrated its ability to reach nameplate capacity on several operating days and achieved commercial production in December 2022 , production of the mining complex was limited during the period by the unplanned work during the commissioning of the new crusher's conveyor systems and third-party delays in delivering mining equipment, which impacted the Company's mine operations. Most of the on-site equipment required to increase mining capacity towards Phase II's expected nameplate capacity has now arrived on site and is in the process of being assembled.
Operational Performance
Third Quarter of the 2023 Financial Year vs Third Quarter of the 2022 Financial Year
In the three-month period ended December 31, 2022, 13.2 million tonnes of material were mined and hauled, compared to 11.0 million tonnes during the same period in 2021, an increase of 21%. The increase in material movement was enabled through the utilization of additional equipment compared to the same prior-year period, partially offset by a longer haul cycle as material was sourced from different pits, including those that deepened with mining activities over time. Delays in the delivery of haul trucks and drills limited the material mined and hauled in the three-month period ended December 31, 2022. Most of the equipment has now arrived at the site and is in the process of being assembled and commissioned.
The strip ratio for the three-month period ended December 31, 2022, was impacted by the limited number of available trucks due to delivery delays. The Company chose to reduce the waste mined and hauled and focused on ore in order to optimize plant operations in connection with transitional incremental feed requirements during the Phase II ramp-up period. The Company intends to gradually recover accumulated waste backlog in future periods. The iron ore head grade for the three-month period ended December 31, 2022, was 28.5%, compared to 30.6% 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 mine plan and the LoM head grade average.
The Company's average Fe recovery rate for the three-month period ended December 31, 2022, was negatively impacted by lower recoveries during the commissioning of the Phase II concentrator. This was expected at this stage of the Phase II commissioning. The improvement of the Phase II stability circuit during the three-month period ended December 31, 2022, allowed an increase in the Fe recovery rate, compared to the second quarter. The Company remains confident in its ability to reach the average LoM expected Fe recovery rate target of 82.4% at Bloom Lake, as detailed in the Phase II Feasibility Study, in the near term 3 .