Champion Iron Limited press release

Champion Iron Reports Record Net Income, EPS and EBITDA for its FY2022 First Quarter

2021-07-28

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Net income of $224.3M , EPS of $0.44 and EBITDA of $405.7M ; Phase II expansion remains on track for completion by mid-2022 and redeems $60.0M of its outstanding preferred shares

MONTRÉAL, July 28, 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 first quarter ended June 30, 2021.

Conference Call Details Champion will host a conference call and webcast on July 29, 2021 at 8:30 AM EDT (Montréal Time) / 10:30 PM AEST ( Sydney time) to discuss the results for first quarter ended June 30, 2021. Call details are outlined at the end of this press release.

1. Highlights

Health & Safety

An employee recordable injury frequency rate of 2.7, which is in line with Québec's open-pit industry standards; and Fully operational COVID-19 laboratory and measures maintained in line with the Government of Québec (the "Government") directives to mitigate risks related to COVID-19.

Financial

Revenues of $545.4M for the three-month period ended June 30, 2021 , compared to $244.6M for the same period in 2020; Record EBITDA 1 of $405.7M for the three-month period ended June 30, 2021 , compared to $130.2M for the same period in 2020; Record net income of $224.3M for the three-month period ended June 30, 2021 (EPS of $0.44 ), compared to $75.6M for the same period in 2020 (EPS of $0.16 ); Cash flow from operating activities before change in working capital items of $248.4M for the three-month period ended June 30, 2021 , compared to $82.5M for the same period in 2020. Cash used in operating activities totalled $261.1M for the current period and included income and mining taxes payment, resulting in net cash outflow from operations of $12.6M , compared to net cash flow from operations of $75.3M for the same period in 2020; Redemption of $60.0M of Quebec Iron Ore Inc. ("QIO"), the Company's subsidiary, preferred shares on June 30, 2021 held by Caisse de dépôt et placement du Québec, expected to reduce future dividend payments and overall cost of capital; and Cash on hand 1 and restricted cash of $466.7M and receivables of $283.3M as at June 30, 2021 , compared $680.5M and $98.8M , respectively, as at March 31, 2021 .

Operations

New 3-year collective agreement reached on June 23, 2021 , maintaining the Company's strong partnership with its workers; Production of 1,936,000 wmt of high-grade 66.3% iron ore ("Fe") concentrate for the three-month period ended June 30, 2021 , compared to 1,798,800 wmt of high-grade 66.5% Fe iron ore concentrate for the same period in 2020; Fe recovery rate of 82.9% for the three-month period ended June 30, 2021 , compared to 82.3% for the same period in 2020; and Free on Board (''FOB'') total cash cost 1 of $60.1 /dmt ( US$48.9 /dmt) (C1) for the three-month period ended June 30, 2021 , compared to $58.4 /dmt ( US$42.2 /dmt) for the same period in 2020 mainly due to increased costs of the scheduled and completed semi-annual maintenance program.

Growth and Development

Acquisition of the Kamistiatusset iron ore project (the "Kami Project") and commencement of work related to revising the project's scope and its feasibility study; and Completion of the acquisition of the Lac Lamêlée property and the 1.5% net smelter return royalty on the Company's Moiré Lake property and Fermont Properties portfolio.

Phase II Expansion Project ("Phase II") Milestones

Construction work is progressing as planned, with more than 300 individuals actively working on the Phase II project, which is expected to be completed by mid-2022; and Capital expenditures of $77.9M and advance payments to Société Ferroviaire et Portuaire de Pointe-Noire ("SFPPN") and Quebec North Shore and Labrador Railway ("QNS&L") totalling $40.3M were incurred in the three-month period ended June 30, 2021 , with $288.6M invested to date.

Champion's CEO, Mr. David Cataford , said: "We owe another strong quarterly financial result to our workforce dedicated to the success of our Company. Through their efforts and with an increased focus on reducing global emissions in the steelmaking industry, Champion is benefiting from the rising demand and premium pricing for Bloom Lake's high-grade iron ore. I am also pleased to report that our Phase II expansion project, which is expected to double our nameplate capacity, remains on target for completion by mid-2022."

2. Response to the COVID-19 Pandemic

Since the beginning of the pandemic, the Company has consistently and proactively deployed several measures in its efforts to mitigate risks related to COVID-19, in line with or exceeding Government guidelines.

In a collective effort to improve immunity against COVID-19, including the Company's ongoing participation in the Côte-Nord Industry Vaccination Center, the Québec vaccination campaign is progressing rapidly. According to daily data published on the website of the Institut National de Santé Publique du Québec, approximately 73% of Québec's population has received a first dose of vaccine and 63% are considered adequately vaccinated as at July 25, 2021 .

Although the Company is managing its operations to mitigate risks related to COVID-19, given the significant uncertainty regarding the ultimate impact that the pandemic will have on the overall economy and the demand for iron ore concentrate, the extent to which it could impact operations and cash flows in the future remains uncertain and will depend on future developments, such as the duration of the pandemic, the emergence of variants, the efficacy and availability of vaccines and regulatory actions to contain the virus.

There has been no material change to the estimated impacts of the COVID-19 pandemic on the Company's ongoing and future operations and results since the filing of the 2021 annual MD&A on May 27, 2021 . Refer to section 4 of the annual MD&A for the year ended March 31, 2021 . The Company's full COVID-19 plan is available on its 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 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.

During the three-month period ended June 30, 2021, $77,925,000 in capital expenditures and $40,338,000 in advance payments were incurred for the Phase II project, with $288,580,000 invested to date, including $30,549,000 in advance payments to SFPPN and $25,000,000 to QNS&L.

The Company had total cash on hand 1 and restricted cash of $466,711,000 as at June 30, 2021. In addition, the Company maintains a total undrawn credit facility of US$220,000,000 , a master lease agreement for an amount up to US$75,000,000 in connection with the financing 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 June 30, 2021. Investments of $85,000,000 related to required upgrades at SFPPN, included in the overall Phase II capital expenditures, will be partially financed through a term loan of up to $70,000,000 signed on July 21, 2021 with Fonds du développement économique du Québec. Based on the foregoing and using ongoing operational cash flows, the Company is now fully funded for the construction of the Phase II project which is scheduled for completion by mid-2022.

Milestones

In connection with the construction work that is progressing as planned, there are currently more than 300 employees, consultants and subcontractors on-site to meet the Bloom Lake Phase II completion objectives. Project milestones that were achieved and related works undertaken during the three-month period ended June 30, 2021 include:

Commencement of load-out conveyors' installation; Mechanical and electrical installation of the mill recirculation conveyors; Erection of structure steel in the milling and screening area; Excavation of the crushed ore conveyors' bunker; Continuation of piping installation inside the plant; Continuation of electrical work; and Delivery of some major mining equipment.

The progression of construction work accelerated significantly in May and should continue to increase and reach its peak during the second fiscal quarter until October 2021 . The ongoing hiring campaign to support the Phase II expansion is progressing as planned and the project is scheduled for completion by mid-2022.

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 ("JORC") 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 .

4. Bloom Lake Mine Operating Activities

| | Three Months Ended | | | | | | | | June 30, | | | | | | | | 2021 | | 2020 | | Variance | | | | | | | | | | | Operating Data | | | | | | | | Waste mined and hauled (wmt) | 4,699,500 | | 2,612,800 | | 80 | % | | Ore mined and hauled (wmt) | 5,643,900 | | 4,682,600 | | 21 | % | | Material mined and hauled (wmt) | 10,343,400 | | 7,295,400 | | 42 | % | | | | | | | | | | Strip ratio | 0.83 | | 0.56 | | 48 | % | | | | | | | | | | Ore milled (wmt) | 5,227,200 | | 4,604,600 | | 14 | % | | Head grade Fe (%) | 29.6 | | 31.3 | | (5) | % | | Fe recovery (%) | 82.9 | | 82.3 | | 1 | % | | Product Fe (%) | 66.3 | | 66.5 | | — | % | | Iron ore concentrate produced (wmt) | 1,936,000 | | 1,798,800 | | 8 | % | | Iron ore concentrate sold (dmt) | 1,974,700 | | 1,758,800 | | 12 | % | | | | | | | | | | Financial Data (in thousands of dollars) | | | | | | | | Revenues | 545,408 | | 244,574 | | 123 | % | | Cost of sales | 120,846 | | 107,338 | | 13 | % | | Other expenses | 14,560 | | 9,541 | | 53 | % | | Net finance costs | 4,387 | | 1,145 | | 283 | % | | Net income | 224,339 | | 75,556 | | 197 | % | | EBITDA 1 | 405,739 | | 130,162 | | 212 | % | | | | | | | | | | Statistics (in dollars per dmt sold) | | | | | | | | Gross average realized selling price | 279.7 | | 149.2 | | 87 | % | | Net average realized selling price 1 | 276.2 | | 139.1 | | 99 | % | | Total cash cost (C1 cash cost) 1 | 60.1 | | 58.4 | | 3 | % | | All-in sustaining cost 1 | 72.6 | | 64.8 | | 12 | % | | Cash operating margin 1 | 203.6 | | 74.3 | | 174 | % |

Operational Performance

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 impacts on the Company and its operations.

During the three-month period ended June 30, 2021, operational activities were impacted by a scheduled and completed semi-annual maintenance program. The next semi-annual maintenance is scheduled for the third quarter of the 2022 fiscal year.

In the current period, the Company and its mine site workers agreed on the terms of a new 3-year collective agreement on June 23, 2021 , maintaining the Company's strong mutually beneficial partnership with its workers. The negotiation process did not affect the Company's operations.

In the three-month period ended June 30, 2021, 10,343,400 tonnes of material were mined and hauled, compared to 7,295,400 tonnes for the same period in 2020, an increase of 42%. 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 as per the mine plan in connection with the preparation for the Phase II project operations. The increase in material movement was enabled by the Company's ongoing mining equipment rebuild program, which provided a higher equipment utilization rate and additional equipment availability, and the commissioning of an additional haul truck during the second quarter of the 2021 fiscal year.

The strip ratio increased to 0.83 for the three-month period ended June 30, 2021, compared to 0.56 for the same period in 2020. The strip ratio is consistent with the mine plan for this period of the year.

The iron ore head grade for the three-month period ended June 30, 2021 was 29.6%, compared to 31.3% for the same period in 2020. The decrease in head grade is attributable to the presence of some lower-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.

The Bloom Lake plant processed 5,227,200 tonnes of ore during the three-month period ended June 30, 2021, compared to 4,604,600 tonnes for the same period in 2020, representing an increase of 14%. 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 recently completed quarter. The continuous improvements and operational innovations saw the Company increase throughput stability and reach a higher level of mill productivity, enabling the Company to capitalize on elevated iron ore prices.

Bloom Lake produced 1,936,000 wmt of 66.3% Fe high-grade iron ore concentrate during the three-month period ended June 30, 2021, an increase of 8%, compared to 1,798,800 wmt of 66.5% Fe for the same period in 2020. The higher production is attributable to the mining of higher ore tonnages, and both higher throughput and recovery performance at the plant.

5. Financial Performance

A. Revenues

During the three-month period ended June 30, 2021, 1,974,700 tonnes of high-grade iron ore concentrate were sold at the CFR China gross average realized price of US$228.3 /dmt, before provisional sales adjustments and shipping costs. The gross average realized selling price of US$228.3 /dmt represents a premium of 14.2% over the benchmark IODEX 62% Fe CFR China Index ("P62") price, compared to a premium of 15.5% for the same period in 2020. The gross average realized selling price reflects the sales at a determined price, as well as the forward price of US$232.3 at the expected settlement date for 1,156,100 tonnes which were in transit at the end of the period. The gross average realized selling price of US$228.3 /dmt is lower for the quarter, compared to the average IODEX 65% Fe CFR China Index ("P65") of US$232.3 /dmt. The difference is due to the fact that 25% to 40% of iron ore sales are not subject to provisional pricing and are based on backward-looking iron ore prices, which were approximately US$40 /dmt lower than the current spot price.

Further to recent discounting, required to compete with low pellet pricing and Chinese domestic concentrates priced lower than seaborne ones, the Company now has the ability to fully benefit from the premium pricing of its high-grade product and, in some cases, realizing a supplementary premium to the index. The Company believes that global carbon emissions reduction efforts will support the demand for high-grade raw materials including concentrates and pellets. As such, the Company expects its iron ore concentrate pricing to continue tracking the P65 index in the long term. In addition, the Company should continue to benefit from the current period prices for its contracted volumes based on previous months' P65 prices in the upcoming fiscal period ending September 30, 2021 . Other factors influencing the Company's realized price included the increasing demand for low silica and alumina products, due to rising coking coal prices and falling levels of iron ore inventories at Chinese ports, further tightening iron ore availability.

During the three-month period ended June 30, 2021, the global economic recovery, rising fuel prices and decreased vessel availability contributed to the rising sea freight index, when compared to the previous quarter. As a result, the Company paid higher freight costs in the three-month period ended June 30, 2021, compared to the same period in 2020. The freight costs variation relative to the Baltic Exchange C3 index during the period is mainly due to the timing of the vessels' booking.

During the three-month period ended June 30, 2021, the final price was established for the 1,007,000 tonnes of iron ore that were in transit as at March 31, 2021 . Accordingly, during the three-month period ended June 30, 2021, provisional pricing adjustments of $60,895,000 were recorded as additional revenues for the 1,007,000 tonnes, representing a positive impact of US$25.3 /dmt for the period.

After taking into account sea freight costs of US$28.1 /dmt and the provisional sales adjustment of US$25.3 /dmt, the Company obtained a net average realized selling price 1 of US$225.5 /dmt (CA$276.2/dmt) for its high-grade iron ore delivered to the end customer. Revenues totalled $545,408,000 for the three-month period ended June 30, 2021 compared to $244,574,000 for the same period in 2020. The increase is attributable to a higher net average realized selling price 1 and higher tonnages of iron ore concentrate being sold.

For the three-month period ended June 30, 2021, the Company sold 1,974,700 tonnes of iron ore concentrate shipped to 6 customers located in China , Japan and South Korea .

B. Cost of Sales

Cost of sales represents mining, processing, and mine site-related general and administrative ("G&A") expenses. For the three-month period ended June 30, 2021, the cost of sales totalled $120,846,000 , compared to $107,338,000 for the same period in 2020.

During the three-month period ended June 30, 2021, the total cash cost 1 or C1 cash cost 1 per tonne, excluding specific and incremental costs related to COVID-19, totalled $60.1 /dmt, compared to $58.4 /dmt for the same period in 2020. The total cash cost 1 for the period was higher mainly due to increased costs of the scheduled and completed maintenance program.

C. Net Income & EBITDA 1

For the three-month period ended June 30, 2021, the Company generated a record net income of $224,339,000 (EPS of $0.44 ), compared to $75,556,000 (EPS of $0.16 ) for the same period in 2020. The increase in net income is mainly due to higher gross profit and improved production resulting in more iron ore concentrate sold, partially offset by higher income and mining taxes from increased taxable income.

For the three-month period ended June 30, 2021, the Company generated record EBITDA 1 of $405,739,000 , including non-cash share-based payments, representing an EBITDA margin 1 of 74%, compared to $130,162,000 , representing an EBITDA margin 1 of 53% for the same period in 2020. The variation in EBITDA 1 period over period is primarily due to the greater revenue from higher net average realized selling price 1 .