Champion Iron Limited press release

CHAMPION IRON REPORTS RECORD PRODUCTION IN ITS FY2024 THIRD QUARTER, APPROVES THE DRPF PROJECT AND ANNOUNCES THE RESULTS OF THE KAMI PROJECT STUDY

2024-01-30

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

Canada NewsWire

Record quarterly production of 4.0M wmt, surpassing Bloom Lake's expanded nameplate capacity, revenue of $507M , EBITDA of $247M 1 and EPS of $0.24 Advanced work programs in connection with the final investment decision for the DRPF Project Positive results from the Kami Project Study, positioning the Company to consider strategic partnerships to advance the project

MONTRÉAL , Jan. 30, 2024 /CNW/ - ( Sydney , January 31, 2024 ) - 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 third quarter ended December 31, 2023 .

Champion's CEO, Mr. David Cataford , said: "We are excited to implement key elements of our expansion strategy, with the receipt of an allocation of additional hydroelectric power from Hydro-Québec and our recently secured additional financing. Central to this, our Board provided a final investment decision for the DRPF project. This carbon neutral project, which remains on schedule to be completed in calendar H2/2025, positions the Company and the region to contribute to the accelerating green steel transition, particularly considering the recent decisions by the governments of Québec and Newfoundland and Labrador to include high-purity iron ore on their critical mineral lists. Bloom Lake demonstrated its ability to produce at or above its recently expanded nameplate capacity, resulting in a quarterly production record and robust financial results. Our team also achieved another important milestone by announcing the details of the Kami Project Study which evaluated the construction of a 9.0M wmt per year DR quality iron ore operation. The Study enables the Company to consider strategic partnerships prior to advancing the project, providing an opportunity to capitalize on the growing demand for green steel."

Conference Call Details

Champion will host a conference call and webcast on January 31, 2024 , at 9:00 AM (Montréal time) / February 1, 2024 , at 1:00 AM ( Sydney time) to discuss the results for the financial third quarter ended December 31, 2023 . Call details are outlined at the end of this press release.

1. Quarterly Highlights

Operations and Sustainability

No serious injuries and no major environmental incidents reported in the quarter; Published Champion's 2023 Annual Modern Slavery Statement, highlighting the Company's commitment to upholding human rights; Production exceeded Bloom Lake's recently expanded nameplate capacity, resulting in a record quarterly production of 4.0 million wmt (3.9 million dmt) of high-grade 66.3% Fe concentrate for the three-month period ended December 31, 2023 , up 17% from the previous quarter, and 36% over the same period last year; Record quarterly iron ore concentrate sales of 3.2 million dmt for the three-month period ended December 31, 2023 , up 12% and 20% from the previous quarter and the prior-year period, respectively; and While Bloom Lake's production capacity increased during the period, exceeding its expanded nameplate capacity, the rail operator did not haul at contracted levels. This haulage shortfall resulted in the inability to ship all of the iron ore concentrate produced during the period. Additionally, rail service was interrupted for several days after heavy rains in late December. Accordingly, iron ore concentrate stockpiled at Bloom Lake increased by 0.8 million wmt to 2.4 million wmt during the three-month period ended December 31, 2023 . The Company is engaging with the rail operator to receive contracted haulage services to ensure that Bloom Lake's increased production, as well as iron ore concentrate currently stockpiled at Bloom Lake, is hauled over future periods.

Financial Results

Gross realized selling price of US$144.0 /dmt 1 , compared to the P65 index average of US$138.7 /dmt in the period; Net realized selling price of US$115.6 /dmt 1 , representing a 15% increase quarter-on-quarter, and a 20% increase year-on-year; C1 cash cost of $73.0 /dmt 1 ( US$53.6 /dmt) 2 , a decrease of 1% quarter-on-quarter, and 4% year-on-year, respectively; EBITDA of $246.6 million 1 , an increase of 59% quarter-on-quarter, and 109% year-on-year, respectively; Net income of $126.5 million , an increase of 94% quarter-on-quarter, and 146% year-on-year, respectively; EPS of $0.24 , an increase of 85% quarter-on-quarter, and 140% year-on-year, respectively; Strong cash position at quarter-end with $387.4 million in cash and cash equivalents as at December 31, 2023 , an increase of $70.8 million since September 30, 2023 ; Procured a new US$230 million term loan, maturing in November 2028 with no principal repayment before June 2026 (the "Financing"). Repaid the US$180 million outstanding balance from the Company's existing US$400 million revolving facility, with the proceeds of the Financing, and extended its maturity from May 2026 to November 2027 ; Available liquidity, including amounts available from the Company's credit facilities, totalling $937.6 million 1 at quarter-end, compared to $645.9 million 1 as at September 30, 2023 , to support growth initiatives; and Paid the fifth semi-annual dividend of $0.10 per ordinary share on November 28, 2023 , totalling $51.8 million .

Kamistiatusset Project (the "Kami Project" or the "Project") Study Highlights

The Kami Project Study (the "Study") evaluated the construction of mining and processing facilities to produce Direct Reduction ("DR") grade pellet feed iron ore from the mining properties of the Kami mine located in the Labrador Trough in southwestern Labrador and Newfoundland . The Study details a 25-year life of mine with average annual DR quality iron ore concentrate production of approximately 9.0M wmt per annum at above 67.5% Fe; Project construction period is estimated at 48 months, following a final investment decision, and it benefits from permitting work completed by the Project's previous owner; Total capital expenditures of $3,864 million , resulting in a Net Present Value ("NPV") of $541 million and Internal Rate of Return ("IRR") of 9.8% after-tax, based on conservative pricing dynamics compared to prevailing iron ore prices; NPV of $2,195 million and IRR of 14.8% after-tax, based on the previous three calendar year average of the P65 index price; Benefiting from expected access to hydroelectric power and significant investments to reduce its GHG emissions, including a near pit crushing facility and conveyor circuit for ore and waste, the Project is expected to have an emission intensity of approximately 6.7 kilogram of CO 2 per tonne of DR grade pellet feed iron ore produced, positioning the Project as potentially one of the lowest emitting producers of DR grade pellet feed iron ore locally and globally; and Completion of the Study enables the Company to evaluate the Project in relation to its portfolio of other organic growth opportunities, while aiming to maintain a prudent balance sheet and avoid equity dilution. The Company expects to continue optimizing the Project, engage with stakeholders, evaluate opportunities to improve its economics, advance permitting and work on strategic partnership opportunities prior to considering a final investment decision.

Direct Reduction Pellet Feed Project Update

With significant available liquidity and allocation of additional hydroelectric power from Hydro-Québec, securing access to renewable power required for the DRPF project, the Board provided a final investment decision to proceed with the DRPF project on January 30, 2024 (Montréal time); The DRPF project final investment decision secures the project's expected commissioning in the second half of calendar year 2025, a timeline which is subject to completing key construction milestones in mid-2024 calendar year; and Project remains on budget, with quarterly investments of $31.0 million and a cumulative investment of $59.9 million , as at December 31, 2023 , from the total capital expenditures of $470.7 million as estimated in the results of the study released in January 2023 .

Other Growth and Development

Recognizing its positive impact in reducing GHG emissions in steelmaking and its importance in the green steel supply chain, high-purity iron ore was listed on the province of Québec's and Newfoundland and Labrador's critical minerals lists, joining other minerals such as nickel, copper and cobalt; and Advanced a study, which is expected to be completed in the near term, in collaboration with a major international steelmaking partner, to re-commission the Pointe-Noire Iron Ore Pelletizing Facility (the "Pellet Plant") to produce DR grade pellets.

2. Kami Project Study

Project Description

The Kami Project is a DR grade quality iron ore project near available infrastructure, situated only a few kilometers south-east of the Company's operating Bloom Lake mine, in the Labrador Trough geological belt in southwestern Labrador and Newfoundland , near the Québec eastern border. The Study evaluated the construction of mining and processing facilities, including a concentrator, tailings facilities and related infrastructure to produce DRPF iron ore from the mining properties of the Kami mine.

The Project is expected to benefit from several competitive advantages including:

a sizeable high-purity iron resource, significantly de-risked by the Project's previous owners; location near available infrastructure and Bloom Lake, enabling potential synergies; potential Project ranking as one of the lowest emitting high-purity iron ore projects, both locally and globally, by leveraging expected access to hydroelectric power; a supportive Newfoundland and Labrador government which identified high-purity iron ore within their critical minerals plan; and advanced permitting work completed by the previous owner.

The Study did not incorporate prospects for potential economic support from governments to encourage development of critical minerals, preferential funding opportunities or other economic incentives, which could improve economics and influence a final investment decision.

Economic Summary and Key Assumptions

| KEY ASSUMPTION SUMMARY | UNIT | | | | Mineral reserves | M dmt | 643 | | | Production life of mine | Years | 25 | | | Average annual production | M dmt | 8.6 | | | Average annual production wet | M wmt | 9.0 | | | Average Fe In-situ grade to plant | % | 29.2 % | | | Average Fe metallurgical recovery | % | 76.4 % | | | Average concentrate grade sold | % Fe | DR quality iron ore above 67.5% | | | Average stripping ratio | Waste:Ore | 1.6 | | | MACROECONOMIC AND MARKET ASSUMPTIONS | | C$ | US$ | | P65 Index CFR China Iron ore price (Kami iron ore concentrate gross realized price is based on (i) P65 index and (ii) an additional premium for DR grade quality iron ore) | $/dmt | 156.0 | 120.0 | | Average shipping cost | $/dmt | 28.6 | 22.0 | | Average foreign exchange rate | C$:US$ | 1.30 | | | CAPITAL COSTS | | C$ | US$ | | Construction period | Months | 48 | | | Initial CAPEX | M | 3,864 | 2,972 | | OPERATING COST PER TONNE SOLD | | C$ | US$ | | Total cash cost (C1 Cost) | $/dmt | 76.1 | 58.5 | | Total AISC | $/dmt | 89.5 | 68.9 |

| ECONOMIC RESULTS | BASE PRICE SCENARIO | MARKET PRICE SCENARIO

(3-Year Trailing Scenario: CY2021-2023) | | | | | C$ | US$ | C$ | US$ | | P65 Index CFR China Iron ore price (Kami iron ore concentrate gross realized price is based on (i) P65 index and (ii) an additional premium for DR grade quality iron ore) | 156.0 | 120.0 | 197.9 | 152.2 | | C3 Index price ($/wmt) | 28.6 | 22.0 | 31.2 | 24.0 | | PRE-TAX | | | | | | NPV in M at 8% discount rate | 1,482 | 1,140 | 4,034 | 3,103 | | IRR | 12.1 % | 18.0 % | | | | AFTER-TAX | | | | | | NPV in M at 8% discount rate | 541 | 416 | 2,195 | 1,688 | | IRR | 9.8 % | 14.8 % | | | | Payback period (years) | 7 | 5 | | | | All other assumptions besides P65 index and C3 index are held constant | | | | |

Mine

The Kami Project is planned as a conventional open-pit mine combined with an In-Pit Crushing System ("IPCS") for waste rock. Mining operations will utilize drills, haul trucks coupled with hydraulic shovels, and a semi-mobile waste IPCS, with the ore crusher located at the pit exit on the East side. The Project contains the Rose pit, which is to be split into three phases. The peak mining rate is expected to be 81.0 Mtpa over a life of mine of 25 years. A total of 643 Mt of ore will be mined at an average total iron ore grade of 29.2% with a total of 1,019.5 Mt of combined waste and overburden, resulting in a stripping ratio of 1.6 tonnes of waste per tonne of ore mined.

Concentrator Plant

The proposed Kami concentrator plant is based on the flowsheet developed and contained in previous studies completed by the Project's former owner, the 2023 test work and input from the Company and its advisors' engineering teams and manufacturers. The proposed concentrator is designed to process ore grading at 29.2% total Fe over a 25-year mine life. The test work conducted during 2023 resulted in the redesign of a revised process flowsheet that will enable the production of a DR quality iron ore concentrate at or above 67.5% Fe and below 2.5% SiO 2 + Al 2 O 3 , with an iron recovery of 76.4%, allowing an average life of mine production of 9.0M wmt per year.

The flowsheet includes proven and modern technologies for processing iron ore, including a gyratory crusher, autogenous mill, gravity separation circuit consisting of spirals and Reflux ™ Classifiers currently operating in the Bloom Lake Phase II concentrator, a magnetic separation circuit consisting of a ball mill, and low intensity magnetic separators. The flowsheet will also include regrind mills and a reverse flotation circuit that will enable the production of DR quality iron ore concentrate.

Infrastructure and Regional Advantages

The Kami Project is expected to benefit from access to renewable hydroelectric power, water, roads, existing rail and port facilities in a proven regional labour market in a mining friendly jurisdiction with a long history of supporting iron ore operations.

The Kami Project is located directly south of Bloom Lake's existing and operational rail loop infrastructure, with access to end markets via port and rail. Rail access for the Kami Project is expected to consist of three separate segments. The first segment, a new rail spur, will be required to connect the mine site to the Quebec North Shore & Labrador ("QNS&L") railway line north of the Wabush - Labrador airport. The second segment would utilize the existing QNS&L railway, connecting Wabush to the Arnaud junction in Sept-Îles, Québec. The third and last segment, the existing Arnaud railroad, connects the Arnaud junction to the Société Ferroviaire et Porturaire of Pointe-Noire ("SFPPN") port facilities in Sept-Îles, currently utilized by Bloom Lake, where unloading facilities will be upgraded. Once unloaded, the DR quality iron ore will be stockpiled, then loaded onto vessels to supply the Company's global customers. Modifications are expected to be required to the existing railway segments and port infrastructure to accommodate the increased capacity from the Kami Project.

Tailings Management

The Tailings Management Facility ("TMF") will consist of a total of five centerline construction method dams built in nine total embankment stages over the life of the facility. Tailings slurry will be pumped from the plant in two streams, coarse and fines. In addition, the TMF will enable the storage of solid waste tailings from the processing plant, as well as operational, storm and snow water management. Contact water, consisting of runoff and embankment seepage, will be collected with collection ditches.

DRPF Quality Iron Ore and Pricing

The Project is expected to produce a DR quality iron ore. With an increased focus on reducing GHG 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 alternative technologies to produce liquid iron, such as the use of Direct Reduced Iron in Electric Arc Furnaces instead of Blast Furnaces and Basic Oxygen Furnaces.

As DR grade quality iron ore is 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 buyers 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 correlates 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 a 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. In addition to Bloom Lake's expected production of DRPF quality iron ore, the potential production of Kami Project DRPF quality iron ore would further enable the Company to diversify its customer mix, including steelmakers in closer proximity to the Port of Sept-Îles, which could result in freight advantages for the Company.

The Study's base case economic assumption utilizes a conservative blended net realized price based on a P65 index price of US$120.0 /t for the life of mine, a C3 index price of US$22.0 /t and a conservative premium for DR quality iron ore. The P65 index price of US$120.0 /t utilized in the Study compares to the trailing three calendar years' average price of US$152.2 /t and the trailing five calendar years' average price of US$136.5 /t.

Project Timeline

The Project benefits from the permitting work completed by its previous owner and has an estimated construction period of approximately 48 months following a final investment decision. The Kami Project is one of several organic growth opportunities currently being considered by the Company. The Company will continue to optimize the Project, engage with stakeholders, evaluate opportunities to upgrade its economics, advance permitting and consider strategic partnerships prior to considering a final investment decision.

Study and Qualified Persons

The Study will be filed under the Company's profile on SEDAR+ at www.sedarplus.ca , the ASX at www.asx.com.au and the Company's website at www.championiron.com within 45 days of the date of this news release. The following Qualified Persons participated in the preparation of the Study:

André Allaire, P. Eng. – BBA Inc. Christian Beaulieu , P.Geo. – consultant for G Mining Services Inc. Alexandre Dorval , P.Eng. – G Mining Services Inc. Mathieu Girard , P.Eng. – Soutex Siavash Farhangi , P.Eng. – WSP Canada Inc. Marie-Hélène Paquette, P. Eng. – AtkinsRéalis Inc. Emmanuelle Millet , P. Geo. – AtkinsRéalis Inc. Tarek Khoury , P. Eng. – Systra Canada Inc.

Each of these Qualified Persons has reviewed and approved, or has prepared, as applicable, the disclosure of the scientific and technical information contained in this news release that is relevant to their area of responsibility and verified the data underlying such technical information. Reference is made to the Study that will be filed under the Company's profile on SEDAR+ at www.sedarplus.ca , the ASX at www.asx.com.au and the Company's website at www.championiron.com .

Mineral Resource and Mineral Reserve Estimates

The following table presents the mineral resource estimate for the Kami Project, estimated at a cut-off grade of 15% Fe, inside an optimized open-pit shell based on a long-term reference P62 index iron price of US$95 /dmt ( C$124 /dmt) and P65 index iron ore price of US$115 /dmt ( C$150 /dmt). An exchange rate of 1.30 C$ /US$ was used. The open-pit measured and indicated mineral resources for the Kami Project, including the Rose and Mills Lake pits, are estimated at 975.5 Mt with an average grade of 29.6% Fe, and the open-pit inferred mineral resources at 163.0 Mt with an average grade of 29.2% Fe. Mineral resources that are not mineral reserves have not demonstrated economic viability.