Champion Iron Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2024

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Second Quarter Results of the Financial Year 2025 Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, October 31, 2024. I would now like to turn the conference over to Michael Marcotte, Senior Vice President, Corporate Development.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and thank you everyone for joining our call today to discuss our Q2 results of the 2025 financial year. Before I'll turn it over to our CEO for the formal presentation, I'd just like to remind people that the presentation being used for this webcast is available on our website at championiron.com under the Events and Presentation tab. I'd also like to remind people that throughout this call, we'll be making forward looking statements. And for forward looking statements, risks and assumptions, you can visit our MD and A, which is also available on our website. Joining me today here is several of our executives, including David Catterford, our CEO, who is going to be doing the formal presentation today and the Q and A, but also our COO, Alexandre Bellot our CFO, Donald Tremblay.

Speaker 1

That, I'll turn it over to David for the formal presentation.

Speaker 2

Hi, everyone. Thanks for being here to be able to discuss the 2nd quarter highlights of fiscal year 2025. So if we turn to the actual highlights, so as you know, it's a bit of a challenging quarter that started with forest fires in the region that came very close to Bloom Lake and very close to Labrador City. I'm very happy with the way that we managed to deal with this situation, but it did impact production quite significantly during the quarter. Also the Q1 that we do our 2 major shutdowns for plant number 1 and plant number 2 back to back, which also came with certain challenges that affected our production.

Speaker 2

But all in all, produced about 3,170,000 tons during the quarter and sold just over 3,250,000 tonnes during the quarter as well. Also happy to report that we had no significant workplace incidents during the period and again another quarter with no major environmental issues and this means that we've had no major environmental issues since the recommissioning of Bloom Lake in 2018. In terms of local communities, we've done quite a lot of work in the past quarter. As you know, it's one of our priorities to make sure that not only do we operate well, but that we make sure that we maintain our license to operate and continue to work with local communities. One of the big highlights during the quarter is we started a new program where our staff is spending 2 days in the First Nations community.

Speaker 2

It's the first here in Canada and it allows us to be able to understand a bit more all the challenges and all the realities in the local communities and also allows us to strengthen our partnership with the First Nations of Wachat Manitinam. In terms of operations, if we look at what happened during the quarter in terms of our stockpile, as you know, we had roughly about 3,000,000 tons of material stockpile at site. We managed to bring down 200,000 tons from that stockpile, mainly due to the fact that we had lower production during the quarter. But again, not only did the production get impacted, but also the logistics. So if it wasn't of the forest fires, we would have brought down significant amount of extra tons.

Speaker 2

Happy to report as well, this did not happen in the past quarter, but that has happened since. We have started to receive our rolling stocks with the railcars to be able to allow a larger flexibility for us to bring down tons all the way to the port. And the rail operator should receive its locals before the end of this calendar year and commission them soon after. If we look in more detail into our operations, I think one of the main highlights during the quarter is the fact that we managed to move just over 9,000,000 tons of waste, allowing us to have a strip ratio of about 1:one. So the new equipment that is starting to come online and also the efficiencies that we've developed at the mine allow us to our 1:one strip ratio or our life of mine strip ratio.

Speaker 2

In terms of the market, you probably saw the P65 index decrease by about just over 9% during the quarter, impacted mainly by a weakened steel demand globally, issues on the construction side in China and also elevated production that came out of Brazil and Australia. We also saw the C3 index increase slightly by about 3%, but we've since seen that come back down. So, freight position has lowered since the end of the last quarter. In terms of the provisional price adjustment, so as you remember, we had 1,800,000 tons on the water at the end of last quarter, where we had forecasted a sales price of about US120 dollars per ton. We managed to realize about US110 dollars due to softening in the iron ore price during the quarter, which means we were affected by a negative provisional price adjustment by about 17,000,000 tons.

Speaker 2

That negatively impacted our realized selling price by about US5 dollars per ton. For the next quarter, we have about 2,300,000 tons on the water with an expected settling price of about $120 per tonne. If you look at the actual realized selling price in Canadian dollars, so we managed to do a little bit better than the P65 average during the quarter, mainly due to the fact that we had some sales that were backward looking mainly to the Japanese market. And if you add that up with the negative provisional price adjustment in the FX, we realized a price of about CAD107 per tonne delivered in the vessel. In terms of our operating costs, so slightly higher than last quarter, mainly impacted by 2 elements.

Speaker 2

1 being the fact that we produced much less tons compared to our nameplate capacity, which negatively impacts our operating costs. Also, it's the first time that we had 2 major shutdowns back to back at site. In the future, we do believe this is going to create some synergies and allow us to reduce downtime and also improve on our operating costs. But during this quarter, this was the first time that we had done this. Were some scheduling issues and some issues when we restarted the plant due to the complexity of having those shutdowns back to back.

Speaker 2

So that was a bit of a negative impact during the quarter. But again, we do we have seen all the elements that we need to improve. And as everything else that we've done in the past, definitely going to work on improving that so that we can increase our uptime and increase the production, allowing us to reduce our costs in the future. In terms of financial highlights, quarterly revenues of about $350,000,000 EBITDA to shy of $75,000,000 and an EPS of $0.04

Speaker 3

per share, sorry.

Speaker 2

Probably seen the cash balance reduce slightly during the quarter, mainly due to the fact that we paid our semi annual dividend. We also invested about $65,000,000 into the flotation plant that we're currently building. We'll be able to give you a quick update on this in the next slides and also continued our sustaining CapEx program, mainly investments on the Dice and also creating the new waste dump as we had planned in our feasibility study. That brings us to our balance sheet. So when you look at our balance sheet, we still have available liquidities allowing us to finalize the flotation plant without any issues.

Speaker 2

And also happy to declare our 7th consecutive semiannual dividend of $0.10 per share. So we still have a very robust balance sheet continuing to invest in our operations to be able to increase the grade of our material to benefit from higher premiums in the future while maintaining a very robust balance sheet.

Operator

If we look at our growth projects, as

Speaker 2

you know, the 2 main projects that we're currently working on right now, the flotation plant that will update you on the next slide and also the Kami project that we're currently investing to be able to permit. So the main projects that we definitely want to get on is 1, the permitting of Kami, which is minimal investments, but allowing us to be closer to a delivery date, should the market require those tonnes. We do feel that eventually the market is going to need more Doctor grade type material and Kami is going to be one of the assets that is able to deliver on those tonnes. And once we get it permitted, well, it will be easier in the future if we want to make an FID to have that project permanent, so we're closer to a delivery time. In terms of our flotation project, happy to announce that we're still on track to deliver the project on time, on budget.

Speaker 2

So we spent now about half of the CapEx to be able to deliver the project. Most of the high risk items are behind us. So all the structural construction, geotechnical work and ordering of the major equipment. So still confident that we'll be able to deliver that project on time, on budget in the second half of calendar twenty twenty five. We're spending quite a lot of time overseas as well to make sure that we can secure the right clients for this type of material and continuing to work with potential future clients.

Speaker 2

We should be in a position at the end of next summer to have most of our tons committed to make sure that we're ready to be able to deliver those tons once the flotation project is finalized. If you look at the reason why we're doing this project, as you know, we do feel that we'll be able to benefit from higher premiums. This is mainly due to the fact that even if steel production has been fairly flat in the past few years, there's been a significant increase in DRI production. And when we look at the map of the world, well, there's a lot of projects that are either being built or have been sanctioned, so further supporting that growth in the coming years. And we want to make sure that we're ready to supply that market.

Speaker 2

In terms of our commitment to be able to supply in the Doctor grade market, it's also a reason to be able to supply into the greener steel transition. And for us, it's important to not only have a high grade product, but also have very high standards at Bloom Lake. We're fully committed to be able to reach 40% reduction in CO2 emissions for our Scope 1 and Scope 2. And we've now mapped out, sorry, most of the projects to be able to get to that level and also did quite a big mapping of our Scope 3 initiatives during the quarter. If we look at the projects for the Scope 1 and Scope 2 reductions, so even if today we're already one of the lowest CO2 intensity high grade iron ore in the world, we do have projects to be able to reduce our CO2 emissions come to 2,030.

Speaker 2

The good news for all of our shareholders is that most of the projects that we've seen and that we're working on are projects that will allow us to reduce our fuel. So by reducing fuel consumption, not only do we reduce CO2 emissions, but we also reduce our operating costs. In terms of our Scope 3, we did quite a big mapping during the quarter and a few of our employees worked very hard to be able to finalize that. And no big news on our side in the sense that we've always known that most of our Scope 3 CO2 emissions are associated to the steel making portion. So the customers that use our iron ore, about 95% of our Scope 3 emissions are associated to the processing of our material.

Speaker 2

So this continues to highlight the importance for us to make sure that we can increase the grade of our material, allowing the Scope 3 to reduce, also allowing our customers to reduce their potential carbon taxes and also fully benefit from potential future green steel premiums that they can get for their product. That being said, very proud of what the team has been able to achieve in a challenging quarter. And thank you everyone for joining in on the call today. I'll turn it over to the Q and A portion of the call.

Operator

Your first question comes from the line of Orest Wachodaw with Scotiabank. Please go ahead.

Speaker 3

Hi, good morning and thanks for

Speaker 4

the

Speaker 3

color. Just can you please give us a bit more visibility on the capabilities of the railroad right now in terms of logistics? You mentioned that the rail line is not going to get more locos until end of year commissioning in Q1. Railcars are being added, I guess, over the coming weeks. What does that actually mean for current capacity?

Speaker 3

I mean, if you think about your annual production volume, we're talking about 3,700,000 to 3,800,000 tonnes a year a quarter to be shipped. Can the rail line currently move that kind of volume? Or is that going to still take a couple of quarters to get to your full production run rate from a volume shipping perspective?

Speaker 2

Yes. Thanks for the question, Orest. So when we look at the rail line now, there has been some improvements since the past quarter. So what's happening is we're seeing some record weeks in terms of the amount that's being shipped. The issue is that it's not robust enough and there's not enough sort of spare capacity to be able to account for various elements that happen during the operations.

Speaker 2

So we'll have one amazing week and then we'll have a challenging week after that for some reasons on the rail line. So those other locals are going to allow us to keep that higher run rate to allow us not only to get the tonnes down, but also be able to weather those issues when they happen. Current capacity, if you listen to IOC's analyst visit not too long ago, says about 43,000,000 tonnes. If that were to be true, definitely we'd be able to not only bring down our tonnes and be able to bring down our stockpile, but what we're seeing is once those locals come in, I do think we're going to have enough robustness to be able to bring down the tonnes and whether those sort of operational issues. But I think the main highlight is the fact that we have seen weeks where we're able to go over our current contract.

Speaker 5

Okay. Maybe I could ask

Speaker 3

it a different way. Assuming Bloom Lake recovers from an operational perspective here in the calendar Q4, do you think you can actually destock any incremental tons beyond production levels?

Speaker 2

Well, if we had a record quarter close to about 4,000,000 tonnes, I think it'd still be a bit difficult to bring down tonnes from the stockpile. But I do feel that even on our side, rolling stock has started to come in. Most of the railcars will be in before the end of this year. So that's going to give us an added flexibility that we typically didn't have during the winter months. We don't 100% require those for our current production, but as you know, wanted to have them for our future debottlenecking projects, so purchase them ahead of time to allow for that flexibility.

Speaker 2

So that's definitely going to help potentially over the coming months as well.

Speaker 3

Okay. So if you're producing at full capacity, don't expect much destocking, call it, near term. It might take a bit longer? Correct. Okay.

Speaker 3

Thank you.

Operator

Your next question comes from the line of Craig Hutchinson with TD Cowen. Please go ahead. Hi.

Speaker 6

Good morning, guys. I just wanted to ask on the DRPF project, you guys noticed mentioned you're having active discussions with prospective customers in Europe. But when can we get a sense in terms of what that pricing mechanism is? And is your anticipation to have the material largely locked up before commissioning starts?

Speaker 3

Yes. Thanks

Speaker 2

for the question, Greg. So I'd say at the end of next summer, we should have

Speaker 3

a good view on where the tonnes are

Speaker 2

going to be committed and also have a good idea on the formulas associated to the selling price. So as you know, our target is to be able to decouple from the P65 and make sure that we benefit from the Doctor grade premiums. We have seen that Doctor grade premium a little bit lower in the past few quarters, but we do feel with all the DRI capacity coming online, there is a possibility where this could be able to recover next year.

Speaker 6

Okay.

Operator

And how long do

Speaker 6

you think that commissioning process will take in terms of getting up to full capacity?

Speaker 2

Yes. So it's the 1st flotation plant that we built. The technology is fairly simple, but still it's a new plant that we'll bring in. Right now, we're currently forecasting a few months to be able to ramp up the flotation plant. Obviously, we'll do the best as we've always done in the past, but realistically, I think it's going to take a few months to be able to make the production.

Speaker 2

Again, what's important to note is that that should not affect our production because if ever there is some slight issues during the commissioning, well, we can always go back to producing the 66.2% material. But for a full ramp up, when we look at the hitting quality consistently, what is forecasted, let's say, in the study that we did was a full 12 months. But we will be able to produce material before that.

Speaker 6

Okay, great. And maybe one last question for me. Just there's obviously a lot of money spent on other capital items at Bloom Lake this quarter. Some of that I think is related to your desire to kind of push capacity beyond the sort of 15,000,000 tons. When in your opinion should we start factoring in higher production from Bloom Lake based on the investments you guys have made today and kind of going forward?

Speaker 2

Right now, a lot of the investments that were made were really on the tailings and the new waste dumps. So as per feasibility study, starting last year, we were investing to be able to build the new tailings facility or the upgraded tailings facility and also the new waste dump. So most of the CapEx was put into this. When we look at our potential debottlenecking projects, we really need to fix the rail before we start turning on those potential projects or investing a little bit more on those. So we've identified pretty much all the different things that need to be done able to reach higher production.

Speaker 2

But right now, the main focus is really to get the rail to the level that we want so that we can increase the tonnage.

Speaker 6

Okay, great. Thanks guys.

Speaker 3

Thanks, Rafe.

Operator

Your next question comes from the line of Alexander Pierce with BMO. Please go ahead.

Speaker 4

Good morning, David. You flagged that it's come down a little bit recently on and it looks like it's on ore hardness. So I was just wondering whether you can provide a bit more of an update on how you expect that to continue over the next couple of quarters? Should we expect that is around stay for the next couple of periods? Or could it be a little bit longer before we see recoveries back up into the kind of 80% range?

Speaker 2

Thanks for the question, Alexander. So when we look at recovery and when we look at the impact of the harder material that we've had, it was a small pocket that we had in the cheese peak sort of section. When you look at recovery during the quarter, it was sort of impacted by 3 different things. 1, we had the forest fires, which had a stop production. And as you know, once we stop and go, there's typically a little bit of issues on the recovery.

Speaker 2

It's also the quarter that we had 2 major shutdowns. So shutdown plant number 1 and plant number 2, typically when we restart the plants after major shutdowns, there's a small ramp up in terms of recovery. And we also had that harder area mostly impacting our Phase 1 recovery. The Phase 2 has got a more robust circuit. But the Phase 1, when we have harder zones, typically over grinds a little bit the material, which means that we lose a little bit of iron ore into the fines portion.

Speaker 2

If it would have only been the hardness, we would have been less impacted. But it is an element that we're working on to make sure that we can recover those fines.

Speaker 4

Great. Thank you. And then the second question, just in terms of the realized pricing, it looks like the premium, so they may concentrate there a little bit during the quarter. I just wonder maybe you can just talk about what you're seeing in the market for that premium that you're getting above the benchmark. And given iron ore prices came back up again right at the end of the quarter, have you seen the premium expand back again?

Speaker 4

Thanks.

Speaker 2

Yes, the premium hasn't been as high as we've seen it in the past. The main area where we benefited during this quarter was more for the sales that we typically have to Japan that are more backwards looking. So that's pretty much what explains the higher realized price in terms of what we got instead of the P65. The high grade, as you know, in China right now, there's not too many environmental restrictions. So and the steel profitability is fairly low.

Speaker 2

So there's not many incentives right now to be able to buy more high grade type material. That's why we really want to make sure to get into the Doctor market, so we don't have that sort of volatility on the P65 versus P62, but we haven't seen that premium increase significantly in the past few quarters.

Speaker 4

Thank you.

Operator

Your next question comes from the line of Lucas Pipes with B. Riley. Please go ahead.

Speaker 7

Thank you very much, operator. Good day, everyone. My first question is on the cost side. Could you provide a little bit of an outlook? You just touched on recoveries, but also from a stripping ratio and over the next couple of quarters, where would you anticipate costs to come in on a cash cost basis?

Speaker 7

Thank you very much.

Speaker 2

Yes. Thanks, Lucas. So as you saw in this quarter, we're about 500,000 tons or a little bit more than 500,000 tons lower than our nameplate capacity. So mainly due to the fires and the major shutdowns that we had. So those really negatively impacted our cost.

Speaker 2

The stripping ratio is more in line with what we will expect in the future. So one to 1 is our life of mine strip ratio. So as you can imagine, we had to move those waste tons to be able to access our ore. But realistically, that's pretty much the sort of strip ratio that we should be able to see in the future. The main area where we're going to be able to reduce our costs is really on the volume.

Speaker 2

And while I don't expect forest fires during the winter, obviously, and I think we've added protection around our site as well to try to minimize the potential impacts in the future. But realistically, the main fact or the main element was associated to the volume. 2nd portion is we did draw down about 200,000 tons from the stockpile and those stockpiles are associated to higher costs as well because we see the cost to move the material back and forth from our production to the stockpile and then from the stockpile to the loadout. So that's an element that also impacts our costs when we reclaim material from the stockpiles.

Speaker 7

And could you remind us what is the cost associated with that stockpile movement roughly?

Speaker 2

It's a little bit tough to give sort of an exact number. When we look at the blended rate, we're looking at roughly about just over CAD8 per ton to put it on the stockpile and bring it back.

Speaker 7

So some of that you would incur no matter what, but there is a portion of that aid that might be unique to this environment of higher stockpiles. Is that reasonable intuition?

Speaker 2

This is 100% due to the stockpiling. Typically, we would not see those costs associated to our tons.

Speaker 7

Got it. So that 8 box is entirely kind of unique to this moment. That's helpful. Thank you. Correct.

Operator

Because when you look at

Speaker 2

our stockpiles, typically we have, call it, 4 small stockpiles just beside the plant. So if ever we need, because it does happen that we in the past, we've used those stockpiles, if there was issues with the train or so what. But that's a very small cost because we typically dump right beside the plants with the conveyor. And we have a small loader that puts it back into a chute to be able to get back into the silos. Now what we have to do is take a small loader, take a small truck and then move those trucks a few kilometers away from the plant to put that on the temporary stockpiles due to the issue on the rail.

Speaker 2

So that's been the reason why we've got that call it a dollars per ton costs.

Speaker 7

Very helpful. Thank you. And I hope that the rail situation improves as you outlined earlier. David, higher level question on the investment climate and appetite in iron ore. Simun Du coming online late 2025, lots of headlines around China's transition.

Speaker 7

Rio Tinto is investing in lithium. Do we need more iron ore in your opinion or how would you frame that? Thank you.

Speaker 2

Yes, thanks for the question. So we have seen softer sort of steel production. When you look at year on year, we do see very little growth in terms of steel consumption. Will it continue to be flat or decline? We'll be able to see that over the next few years, but it doesn't seem that the world needs a whole lot more iron ore if you look at all tons considered.

Speaker 2

I do think there's going to be more requirements for Doctor grade type material. There's very little of those tons around the world. And I do feel that's going to be a segment that is one that has grown in the past 4, 5 years, but that will continue to grow as more DRI facilities get commissioned. So that's why we want to be exclusively in that market and make sure that we can service that market. Now if the question is, does the world need a project like Kami?

Speaker 2

Well, this is definitely something that we'll monitor over the next few years. The great thing, well, I don't know if it's a good thing, but the good thing is that we have 2 years of permitting right now. So we're not going to be taking any potential decisions on a project like Kami before call it end of 2026 calendar year. So by that time, we'll be able to see how many of those DRI plants have been commissioned, what's the sort of demand environment And does the world need a project like Kami? But definitely in today's environment, we wouldn't pull the trigger on the Kami project.

Speaker 2

But I still think it's a great potential in the future. And if the world continues its transition into lowering CO2 emissions, but I do think a project like Chem is going to be necessary in the future.

Speaker 7

David, I very much appreciate your perspective. And to you and the team, all the best of luck. Thanks, Lucas.

Operator

Your next question comes from the line of Stefan Ioannou with Cormark Securities.

Speaker 5

Yes. Thanks, guys. Just maybe just wanted to delve a bit more into the minutiae of Craig's question about the CapEx. You mentioned the waste dumps and the tailings. Just thinking about sustaining versus growth CapEx, would in the growth number both went up sort of notably quarter over quarter.

Speaker 5

In the growth number, would some of the railcar purchases be embedded in that number too?

Speaker 2

Yes. In the growth, it's mainly due to the flotation plant. So that's what we started to ramp up. There's still about 2 $50,000,000 just a little bit more than $250,000,000 that's going to be required to finalize the project. So that's why you're going to see the growth portion increase in the next few quarters as we finalize the Doctor grade.

Speaker 5

Okay. But I guess I'm focusing on the growth CapEx outside of the DRPF project.

Speaker 2

Yes. Right now, we don't have too much growth CapEx associated to other projects. Again, the main focus for us is to work on the rail, make sure that's back in line before we would potentially invest in fixing up portions of the operations to increase the CapEx over the nameplate.

Speaker 5

Maybe just put it another way, I'm thinking about the quarter past though, like it went up notably from calendar Q2 to calendar Q3. So I'm just wondering what's in that growth number versus what's in the sustaining number from the quarter you just reported?

Speaker 2

Okay. If we look at the presentation, so we have about $65,000,000 that was invested in the flotation plant. So that growth portion is 100% in the flotation plant. When we look at the other sustaining portion, mainly all projects in the dykes and at the new waste dump. So if you go back to the feasibility study, there was a few $100,000,000 that was associated to building out the new stockpile for the tailings and also the new waste dump.

Speaker 5

Okay. Maybe I'll circle around you guys after the call because I'm still confused here. There's you have another growth item beyond the DRPF in the statements. I'm just trying to reconcile that, that's all.

Speaker 2

Okay. Yes, maybe we can go through the numbers. There's a little bit associated to mining equipment and a few different elements. There was also some investment that was done on the garage. The garage is now completed.

Speaker 2

But yes, we can circle back after and go through the numbers in detail.

Speaker 5

Okay. Thanks very much.

Operator

I'll now turn the call over to David Caniford for closing remarks. Please go

Speaker 2

ahead. Yes. Thanks, everyone, for joining the call. Again, I think it was a challenging quarter and very happy and proud of the way that the teams managed to navigate through the complexities of the forest fires at the beginning. I think we did a great job in being able to minimize the impact for us on that.

Speaker 2

Also a bit of pain associated to the 2 shutdowns that are back to back, but I do think that's going to create some significant improvements in the future. And again, continuing to work on the rail, I think that's the most important element for our business and make sure that we can eventually bring down all the tons from that stockpile and materialize the sales for this material. But again, I do think that the positives for us is the outlook for the DRI and for the greener steel sort of portion. We still see that advancing fairly rapidly. And I do think that's the market that we want to be in and that will create the most value for our shareholders.

Speaker 2

So again, thanks everyone for joining the call today and looking forward to speak to you at the next call.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you all for joining and you may now disconnect.

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Champion Iron Q2 2025
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