Champion Iron Limited (TSX: CIA) (ASX: CIA) (OTCQX: CIAFF) is pleased to announce its operational and financial results for the 2024 financial year first quarter ended June 30, 2023.
Champion’s CEO, Mr. David Cataford, said: “Our people and partners once again demonstrated their agility by mitigating the impact of one of Québec’s largest forest fires in recent history on our operations and sales. Despite such unexpected challenges, with the delivery of the final mining equipment required to complete the Phase II ramp-up, we reported record quarterly production of 3.4M wmt, representing over 90% of Bloom Lake’s expanded nameplate capacity. While quarterly financial results were significantly affected by the severe forest fires, we expect to benefit from the sales of stockpiled iron ore concentrate in the coming quarters as we gradually increase our shipping capacity with the recent delivery of additional rolling stock.”
Sustainability and Health & Safety
Operations and Finance
Direct Reduction Pellet Feed Project Update
Other Growth and Development
|Three Months Ended|
|Waste mined and hauled (wmt)||5,198,500||5,606,000||(7 %)|
|Ore mined and hauled (wmt)||9,593,500||6,193,100||55 %|
|Material mined and hauled (wmt)||14,792,000||11,799,100||25 %|
|Stripping ratio||0.54||0.91||(41 %)|
|Ore milled (wmt)||9,895,600||6,022,200||64 %|
|Head grade Fe (%)||28.8||31.0||(7 %)|
|Fe recovery (%)||78.2||80.2||(2 %)|
|Product Fe (%)||66.1||66.1||— %|
|Iron ore concentrate produced (wmt)||3,397,200||2,282,600||49 %|
|Iron ore concentrate sold (dmt)||2,563,500||2,013,900||27 %|
Impact of Forest Fires
Forest fires emerged on May 28, 2023, north of Sept-Îles, Québec, resulting in railway service interruptions between Bloom Lake and the port of Sept-Îles between May 30 and June 10, 2023. There was no damage to Champion’s facilities and no significant damage was identified to the railway following inspections by its operator. As forest fires subsided in the region, railway services resumed on June 10, 2023, although at partial railway capacity for the remainder of the financial period in the 2023 calendar year. Railway services are expected to return to normal capacity in the near term, after the completion of repairs to the damaged electrical poles and wires over several kilometers.
Despite supply chain challenges caused by multiple highway closures impacting operations, Bloom Lake operated continuously throughout the railway interruptions and stockpiled iron ore concentrate at the mining complex. The Company responded to the situation by triggering its emergency response plan and managing supply chain risks by focusing mine operations on critical activities required to feed the two plants. This impacted the Company’s ability to move waste and generate blasted ore inventory. The Company also used its crusher’s stockpiles to supply the two plants during that period and suffered from a short power outage which impacted operations for a day. As at June 30, 2023, the Company had 1.3 million wmt of iron ore concentrate in inventory at the Bloom Lake site. The Company expects its stockpiled iron ore concentrate at Bloom Lake to be shipped and sold over several upcoming quarters with the railway resuming full capacity and the three additional locomotives received in June 2023 being currently in commissioning. The Company expects to incur additional rehandling costs in future periods to reclaim the iron ore concentrate from the stockpile.
Phase II Update
Phase II reached commercial production in December 2022 and the Company continued to make improvements to stabilize and optimize operations. Phase II produced at nameplate capacity for thirty consecutive days during the three-month period ended June 30, 2023. Short-term challenges, including delivery delays and the commissioning of mining equipment, created inefficiencies across the site, negatively impacting the plant’s ability to reach its full expanded nameplate capacity in the 2023 financial year. Ongoing work programs continue to optimize and synchronize operations, and adapt maintenance practices to obtain the expected reliability required to achieve Bloom Lake’s expanded nameplate capacity on a consistent basis. With the delivery and assembly of the remaining required mining equipment during the three-month period ended June 30, 2023, and current work programs aimed at increasing throughput and ore recoveries, the path towards Bloom Lake reaching its expanded nameplate capacity of 15 Mtpa in the near term has significantly improved.
Work on third-party infrastructure continued to advance in the three-month period ended June 30, 2023, further positioning the Company to benefit from additional flexibility and capacity to handle the Company’s expanded nameplate capacity at the port facilities in Sept-Îles. The construction and commissioning of the new stacker reclaimer and associated conveyors should be completed shortly, which is expected to positively impact the Company’s vessel loading time in the upcoming weeks. Moreover, the three additional locomotives required to support the expanded production capacity were delivered in late June 2023 and their commissioning is currently ongoing. This should enable the Company to increase its shipping capacity in the near term.
In the three-month period ended June 30, 2023, 14.8 million tonnes of material were mined and hauled, compared to 11.8 million tonnes during the same period in 2022, an increase of 25%. This is also a 4% improvement over the volume mined and hauled in the previous quarter. The increase in material movement can be attributed to the contribution of recently commissioned new equipment. The Company intends to see additional benefits from this new mining equipment in the upcoming months. The stripping ratio for the period was impacted by forest fires as fuel inventories were prioritized for critical activities as well as fleet performance, and was slightly lower than the Company’s plan for the 2024 financial year. With reduced mining equipment capacity in the earlier part of the quarter, the Company, as planned, reduced mined waste to optimize plant operations in connection with transitional incremental feed requirements during the Phase II ramp-up period. The Company intends to gradually increase its stripping ratio in future periods to recover the waste backlog accumulated during the 2023 financial year.
The plants processed 9.9 million tonnes of ore during the three-month period ended June 30, 2023, compared to 6.0 million tonnes for the same period in the 2022 calendar year, and 9.1 million tonnes in the previous quarter, representing an increase of 64% and 9%, respectively. The increase in ore milled was driven by the progress of the Phase II ramp-up to reach Bloom Lake’s expanded nameplate capacity of 15 Mtpa.
The iron ore head grade for the three-month period ended June 30, 2023, was 28.8%, compared to 31.0% for the same period in 2022. The variation in head grade was expected and attributable to lower-grade ore being sourced and blended from different pits. This was anticipated and is in line with the mine plan and the LoM head grade average.
The Company’s average Fe recovery rate of 78.2% for the three-month period ended June 30, 2023, compared to 80.2% for the same period in 2022, was negatively impacted by the lower head grade. The Company remains confident in its ability to reach the average LoM expected Fe recovery rate target of 82.4% in the near term at Bloom Lake, as detailed in the Phase II feasibility study.
With higher processed ore partially offsetting lower head grade and lower recovery, Bloom Lake delivered a record production of 3.4 million wmt of high-grade iron ore concentrate during the three-month period ended June 30, 2023, an increase of 49%, compared to 2.3 million wmt during the same period in 2022, and a 10% increase in production compared to the previous quarter. Management expects to benefit from optimization work programs and recent equipment additions, which should result in improved combined production of Bloom Lake’s plants in the near term.
|Three Months Ended|
|Financial Data (in thousands of dollars)|
|Cost of sales||208,485||169,407||23 %|
|Other expenses||19,645||15,605||26 %|
|Net finance costs||6,926||4,190||65 %|
|Net income||16,657||41,554||(60 %)|
|Statistics (in dollars per dmt sold)|
|Gross average realized selling price1||168.8||190.4||(11 %)|
|Net average realized selling price1||115.9||138.7||(16 %)|
|C1 cash cost1||81.3||74.0||10 %|
|Cash operating margin1||21.8||45.2||(52 %)|
Revenues totalled $297.2 million for the three-month period ended June 30, 2023, compared to $279.3 million for the same period in 2022, as higher sales volume over the same prior-year period was more than offset by a lower P65 index price and negative provisional pricing adjustments. Lower freight and other costs as well as a weaker Canadian dollar, compared to the same period last year, and certain sales using backward-looking iron ore index prices partially mitigated the impact of lower prices.
During the three-month period ended June 30, 2023, 2.6 million tonnes of high-grade iron ore concentrate were sold, compared to 2.0 million tonnes for the same period in 2022. Sales volume was up 27% over the prior-year period due to incremental production driven by Phase II achieving commercial production in December 2022, but was negatively impacted by twelve days of railway interruptions from May 30 to June 10, 2023, due to forest fires in Québec and reduced services capacity for the remainder of the first quarter of the 2024 financial period.
The gross average realized price was US$125.7/dmt1 during the first quarter of the 2024 financial year, down from US$149.6/dmt1 for the same period last year due to lower P65 index prices. During the three-month period ended June 30, 2023, the P65 index averaged US$124.0/dmt, a decrease of 23% from the same quarter last year, representing a premium of 11.7% over the IODEX 62% Fe CFR China Index index average price of US$111.0/dmt. Last year, the high-grade premium over the P62 index averaged 16.2%. Weakening steel mills’ profitability in China led to a decline in high-grade iron ore premiums for the quarter, compared to the same period in 2022.
The gross average realized selling price of US$125.7/dmt1 was slightly higher than the P65 index average price of US$124.0/dmt for the period, due to certain sales contracts using backward-looking iron ore index prices, when prices were higher than the P65 index average for the three-month period ended June 30, 2023. This was partially offset by the 1.4 million tonnes in transit as at June 30, 2023, that were provisionally priced using an average forward price of US$121.2/dmt, which was lower than the P65 index average price for the period.
The average C3 Baltic Capesize Index for the three-month period ended June 30, 2023, was US$21.1/t compared to US$30.2/t for the same period in 2022, representing a decrease of 30%, contributing to lower freight costs in the three-month period ended June 30, 2023. When contracting vessels on the spot market, Champion typically books vessels three to five weeks prior to the desired laycan period due to its distance from main shipping hubs. Although this creates a delay between the freight paid and the C3 index, the effect of this delay is eventually reconciled since Champion ships its high-grade iron ore concentrate uniformly throughout the year. Additionally, the Company has multiple freight agreements based on an agreed-upon premium above the loading month average C3 index to further reduce price volatility.
Provisional pricing adjustments on previous quarterly sales, which were impacted by the significant decrease in the P65 index during the quarter, negatively impacted the net average realized selling price. During the three-month period ended June 30, 2023, an average price of US$123.5/dmt was established for the 2.0 million tonnes of iron ore that were in transit as at March 31, 2023, and which were previously evaluated using an average expected price of US$141.1/dmt. Accordingly, during the three-month period ended June 30, 2023, net negative provisional pricing adjustments of $46.8 million (US$34.9 million) were recorded, representing a negative impact of US$13.6/dmt over the total volume of 2.6 million dmt sold during the period.
After taking into account sea freight and other costs of US$25.8/dmt and the negative provisional pricing adjustment of US$13.6/dmt, the Company obtained a net average realized selling price of US$86.3/dmt (C$115.9/dmt)1 for its high-grade iron ore shipped during the period.
For the three-month period ended June 30, 2023, the cost of sales totalled $208.5 million, compared to $169.4 million for the same period in 2022 for a cost of sales per tonne sold of $81.3/dmt1 during the period, compared to $84.1/dmt1 for the same period in 2022.
The cost of sales per dmt sold for the three-month period ended June 30, 2023, was negatively impacted by higher rail and port costs due to semi-annual price indexations driven by fuel costs for rail services, the impact of lower shipments during the quarter to amortize mostly fixed costs at the port facilities in Sept-Îles, higher maintenance costs driven by the utilization of contractors to fill vacant positions and longer than expected shutdowns. The Company also incurred rehandling costs at the mine site during the period. This was partially mitigated by lower fuel costs used in mining activities and higher production levels.
Mining and processing costs over the 3.3 million dmt produced in the three-month period ended June 30, 2023, totalled $50.3/dmt produced, a decrease of 10% compared to $55.8/dmt produced in the fourth quarter of the 2023 financial year, reflecting the positive impact of increased production volume on the Company’s controllable fixed costs.
Due to the high stockpile levels at the site, attributable to railway interruptions, the Company expects to incur additional rehandling costs to reclaim the iron ore concentrate from the stockpile to the shipment process, which should negatively impact the cost of sales in future periods.
For the three-month period ended June 30, 2023, the Company generated an EBITDA of $65.8 million1, representing an EBITDA margin of 22%1, compared to $94.9 million1, representing an EBITDA margin of 34%1, for the same period in 2022. Lower EBITDA was mainly due to lower net average realized selling prices, partially offset by higher sales volume and lower cost of sales per dmt sold.
For the three-month period ended June 30, 2023, the Company generated net income of $16.7 million (EPS of $0.03), compared to $41.6 million (EPS of $0.08) for the same period last year. The year-over-year decrease in net income was mainly affected by lower gross profit, as described above.
During the three-month period ended June 30, 2023, the Company realized an AISC of $94.1/dmt1, compared to $93.5/dmt1 for the same period in 2022. The increase was due to higher C1 cash cost, partially offset by the positive impact of higher sales volume on G&A expenses and sustaining capital expenditures. The AISC in the comparative period was impacted by the capitalization of certain mining costs on the Company’s stripping assets, as well as higher sustaining capital expenditures related to mining equipment. Refer to section 5 — Cash Flows for details on sustaining capital expenditures.
The Company generated a cash operating margin of $21.8/dmt1 for each tonne of high-grade iron ore concentrate sold during the three-month period ended June 30, 2023, compared to $45.2/dmt1 for the same prior-year period. The variation is mainly due to a lower net average realized selling price for the period.
During the three-month period ended June 30, 2023, the Company maintained all of its properties in good standing and did not enter into any farm-in/farm-out arrangements. During the three-month period ended June 30, 2023, $2.7 million in exploration and evaluation expenditures were incurred, compared to $2.1 million for the same prior-year period. During the three-month period ended June 30, 2023, exploration and evaluation expenditures mainly consisted of costs associated with work related to updating the Kami Project feasibility study, claim renewal fees and claim staking around the Kami property.
Details on exploration projects and maps are available on the Company’s website at www.championiron.com under the section Operations & Projects.
|Three Months Ended|
|(in thousands of dollars)|
|Stripping and mining activities||3,263||11,063|
|Mining equipment rebuild and replacement||4,552||6,897|
|Other sustaining capital expenditures||42||—|
|Sustaining capital expenditures||19,803||26,945|
|Other capital development expenditures at Bloom Lake||24,784||95,669|
|Purchase of property, plant and equipment as per cash flows||55,670||122,614|
Sustaining Capital Expenditures
The increases in tailings-related investments for the three-month period ended June 30, 2023, were required to prepare the site for a higher level of operations with Phase II. As part of the Company’s ongoing and thorough tailings infrastructure monitoring and inspections, the Company continues to invest in its safe tailings strategy and is implementing its long-term tailings investment plan.
The decrease in stripping and mining activities during the three-month period ended June 30, 2023, compared to the same period in the previous financial year, is attributable to the low level of waste moved at the mine due to limited mining equipment availability early in the quarter, until all equipment was fully commissioned. The stripping and mining activities were slightly lower than the Company’s plan for the 2024 financial year, due to the prioritization of critical activities to mitigate impacts of the forest fires.
The decrease in the Company’s mining equipment rebuild program, despite an increase in additional equipment for the three-month period ended June 30, 2023, is attributable to Phase II mining equipment delivery delays which forced the Company to postpone rebuild investments in order to maintain full mining activities. During the next quarters, the Company should resume investments in the mining equipment rebuild program, with all mining equipment commissioned, which is in line with the Company’s fleet management program for the 2024 financial year.
During the three-month period ended June 30, 2023, $11.1 million was spent in capital expenditures related to the DRPF Project. Investments mainly consisted of on-site preparation activities, engineering work and equipment purchasing. Cumulative investments of $12.0 million were deployed on the DRPF Project as at June 30, 2023.
Other Capital Development Expenditures at Bloom Lake
During the three-month period ended June 30, 2023, other capital development expenditures at Bloom Lake totalled $24.8 million, compared to $95.7 million in the same period in 2022. During the three-month period ended June 30, 2023, the expenditures mainly consisted of $8.4 million in improvements and conformity of various infrastructure ($2.8 million for the same period last year), including the construction of two pads to expand the Company’s capacity to stockpile concentrate near the loadout, $8.4 million for the expansion of the garage at the mine to support an expanded fleet, and $6.6 million in deposits for mining equipment ($14.8 million for the same period last year). The expenditures for the first quarter of the 2023 financial year also included $67.8 million related to Phase II and $4.4 million in capitalized borrowing costs.
About Champion Iron Limited
Champion, through its wholly-owned subsidiary Quebec Iron Ore Inc., owns and operates the Bloom Lake Mining Complex, located on the south end of the Labrador Trough, approximately 13 km north of Fermont, Québec. Bloom Lake is an open-pit operation with two concentrators that primarily source energy from renewable hydroelectric power. The two concentrators have a combined nameplate capacity of 15 Mtpa and produce a low contaminant high-grade 66.2% Fe iron ore concentrate with a proven ability to produce a 67.5% Fe direct reduction quality concentrate. In January 2023, the Company announced the positive findings of a study evaluating upgrading half of the Bloom Lake mine capacity to a direct reduction quality pellet feed iron ore and approved an initial budget to advance the project. Bloom Lake’s high-grade and low contaminant iron ore products have attracted a premium to the Platts IODEX 62% Fe iron ore benchmark. The Company ships iron ore concentrate from Bloom Lake by rail, to a ship loading port in Sept-Îles, Québec, and has sold its iron ore concentrate to customers globally, including in China, Japan, the Middle East, Europe, South Korea, India and Canada. In addition to Bloom Lake, Champion owns a portfolio of exploration and development projects in the Labrador Trough, including the Kamistiatusset Project, located a few kilometres south-east of Bloom Lake, and the Consolidated Fire Lake North iron ore project, located approximately 40 km south of Bloom Lake.
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