Champion Iron Q1 Earnings Call Highlights

Key Points

• Production exceeded sales in fiscal Q1 2027, with 3.9 million tonnes produced versus 3.3 million tonnes sold. Lower shipments, elevated freight costs and DRPF startup activity reduced reported EBITDA to C$32 million, although management estimated adjusted EBITDA could have been approximately C$60–70 million.
• Champion completed its approximately C$500 million direct-reduction pellet feed project at Bloom Lake on time and on budget. The plant produced about 600,000 tonnes during ramp-up, with initial 69%-iron product shipments expected to earn premiums over the 65% iron ore index.
• The company expects inventories and costs to improve as shipping resumes and sales volumes normalize. With major project spending complete, management is prioritizing a return to positive cash generation and debt reduction while retaining nearly C$1 billion in available liquidity.

Champion Iron TSE: CIA reported first-quarter fiscal 2027 production of about 3.9 million tonnes of high-grade iron ore across its Bloom Lake and Rana Gruber operations, while sales totaled about 3.3 million tonnes. The company said lower sales volumes, elevated freight costs and startup activity at its new direct-reduction pellet feed plant affected quarterly profitability.

Chief Executive Officer David Cataford said the company generated approximately C$356 million in revenue and C$32 million in EBITDA during the quarter. He said EBITDA would have been closer to C$60 million after excluding certain one-time items, and about C$70 million after accounting for the effect of lower sales volumes.

Champion produced approximately 3.5 million tonnes at Bloom Lake but sold 3.1 million tonnes, while Rana Gruber produced about 400,000 tonnes and sold approximately 200,000 tonnes. The company attributed the gap between output and sales to logistics maintenance, stockpiling of new high-grade material, shipping disruptions affecting Middle East-bound vessels, and the timing of its Rana Gruber acquisition.

Freight costs and deferred sales weigh on results

Cataford said the 65% iron ore index averaged about US$122 per tonne during the quarter, broadly flat from the preceding quarter, while the premium between the 65% and 61% indexes was near US$17 per tonne. However, the C3 freight index rose 37% quarter over quarter to approximately US$34 per tonne.

“This is mainly due to the shipping disruptions that we've seen in the Middle East and also higher fuel costs,” Cataford said, referring to the regional conflict.

Champion’s realized selling price was approximately US$115 per tonne, below the quarterly average of roughly US$121 per tonne. Cataford said about 2 million tonnes of material was on the water at an expected price of around US$110 per tonne, lowering the company’s gross realized price for the period. Freight costs reached about US$36 per tonne.

The company ended the quarter with cash declining from about C$300 million to C$200 million. Cataford said the completion of capital spending on the direct-reduction pellet feed project and the Rana Gruber transaction accounted for most of that change. He said Champion retained close to C$1 billion in available liquidity.

DRPF project completed on time and budget

A central development during the quarter was the completion of Champion’s direct-reduction pellet feed, or DRPF, project at Bloom Lake. Cataford said the approximately C$500 million project was finalized on time and on budget, with all major equipment delivered as planned.

The flotation plant produced roughly 600,000 tonnes during the quarter as it entered its ramp-up phase. Champion is working to consistently produce 69% iron-content direct-reduction-quality material, which management expects will command a premium over the 65% iron ore index.

The first vessel carrying about 160,000 tonnes of DR-quality material is expected to load in the coming weeks and head east, Cataford said. The company has signed two contracts for the product and said the initial shipments are test cargoes. While those cargoes are not expected to capture the full premium contemplated in the project’s feasibility study, Cataford said they will still earn premiums over the P65 index.

He said the plant has demonstrated its ability to meet both quality and volume requirements, though work remains to address smaller startup issues, including screen panels. The issues are expected to create minor disruptions during ramp-up rather than major equipment-related downtime, according to Cataford.

Champion is targeting customers in North Africa, Europe, the Middle East and the Americas. While conflict has restricted access to part of the Middle East market, Cataford said some customers in the region remain accessible.

• Bloom Lake’s flotation plant is expected to begin contributing to realized pricing in the second quarter, with a larger effect anticipated in the third and fourth quarters, according to management.
• Champion said about half of Bloom Lake’s conventional concentrate tonnes are committed under agreements.
• Cataford said the company expects that, in about a year, roughly 75% of flotation-plant tonnes could be allocated under contracts.

Inventory expected to decline as shipments resume

Champion built inventories during the quarter, including high-grade DRPF material at the Bloom Lake port. Cataford said material meeting the required specification is being kept separate for sale as a distinct product, while material that falls below specification during testing is blended with the company’s conventional concentrate.

“I wouldn't expect the stockpiles to increase,” Cataford said of Bloom Lake. “We're really in the territory of being able to bring down the stockpiles.”

He said much of the inventory is already at port and that available rail capacity should support a relatively quick reduction in stockpiles. The company does not intend to maintain significant inventory at Rana Gruber, where the buildup was tied to redirected vessels and shipment timing.

Costs and balance-sheet focus

At Bloom Lake, site mining and processing costs were broadly flat year over year, Cataford said. All-in sustaining costs were elevated because fixed port costs were spread over lower sales volumes and because seasonal tailings work increased sustaining capital expenditures.

Management expects sustaining capital expenditures in Canadian-dollar terms to remain in a similar range, or slightly lower, in the second quarter. However, Cataford said all-in sustaining costs should improve as sales volumes return toward more normal levels. He added that sustaining capital spending has historically been lower in the third and fourth quarters.

Rana Gruber’s quarterly costs were also affected by its lower sales volume, an annual major shutdown, higher fuel prices and the fact that Champion completed its acquisition of the operation on April 10, losing 10 days of production and sales during the quarter. Cataford said costs should normalize in the current quarter and that the asset should be free-cash-flow generative at spot prices in the second half of the fiscal year.

With the DRPF project’s capital spending complete and limited sustaining capital needs at Rana Gruber, Cataford said Champion’s next priority is to return to positive cash generation and reduce leverage.

About Champion Iron (TSE:CIA)

Champion Iron Ltd is engaged in the exploration and development of iron ore properties in Quebec, Canada. The company's operating segment include Mine Site, Exploration and Evaluation, and Corporate. It generates maximum revenue from Mine Site segment. The company projects include Fire Lake North, Powderhorn/Gullbridge, Moire, Quinto Claims, Harvey Tuttle, O'keefe-Purdy, and others.

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