CHAMPION IRON REPORTS RECORD PRODUCTION, NET INCOME AND NET CASH FLOW FROM OPERATIONS FOR ITS FY2021 SECOND QUARTER RESULTS Net income of $112.2M from production of 2,268,800 wmt; Phase II expansion project cumulative budget
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PRESS RELEASE
CHAMPION IRON REPORTS RECORD PRODUCTION, NET INCOME AND NET CASH
FLOW FROM OPERATIONS FOR ITS FY2021 SECOND QUARTER RESULTS
Net income of $112.2M from production of 2,268,800 wmt; Phase II expansion project cumulative budget
increased to $120.0M
Montreal, October 27, 2020 - Champion Iron Limited (TSX: CIA) (ASX: CIA) (“Champion” or the “Company”) is pleased to announce strong
operational and financial results for the second quarter ended September 30, 2020 of the fiscal year ending March 31, 2021.
Conference Call Details
Champion will host a conference call and webcast on Wednesday October 28, 2020 at 8:30 AM EDT (Montreal Time) / October 28, 2020 at 11:30
PM AEST (Sydney Time) to discuss the FY2021 second quarter results. Call details are outlined at the end of this release.
1. HIGHLIGHTS
Health and Safety
• No known cases of COVID-19 have been confirmed by the Company;
• In close collaboration with its unionized workforce, contractors and local communities, the Company continued to improve oper ations
and implemented measures aligned with the Government of Québec's (the “Government”) directives in response to the COVID -19
pandemic;
• The Company implemented and continuously reviews its measures and protocols in order to minimize the risks related to COVID -19,
which are expected to remain in place in order to safeguard the health and safety of our employees, partners and local communities;
• The Company established new programs, including: a voluntary screening test in cooperation with the National Institute of Public Health
of Québec (“INSPQ”), a monthly health and safety audit to review the effectiveness of adopted COVID -19 measures, and a “COVID -19
focus card”, which enables employees to provide feedback on implemented measures and protocols; and
• The Company received and intends to implement a portable and rapid testing solution, approved by Health Canada, to detect and
mitigate the COVID -19 related risks by screening employees and contractors working at the Bloom Lake Mine (“Bloom Lake”) once
additional equipment is delivered and the required personnel are hired.
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1. HIGHLIGHTS (continued)
Financial
• Revenues of $311.0M and $555.6M for the three and six-month periods ended September 30, 2020, respectively, compared to $160.4M
and $438.3M, respectively, for the same periods in 2019;
• EBITDA1 of $197.8M for the three -month period ended September 30, 2020, representing an EBITDA margin 1 of 64%, compared to an
EBITDA1 of $62.6M (39%) for the same period in 2019 . EBITDA1 of $325.5M (59%) for the six -month period ended September 30, 2020,
compared to $229.5M (52%) for the same period in 2019;
• Net income of $112.2M for the three-month period ended September 30, 2020 (EPS of $0.24), compared to a net loss of $1.7M for the
same period in 2019 (EPS of $0.00) . Net income of $187.7M for the six -month period ended September 30, 2020 (EPS of $0.40),
compared to a net income of $72.5M for the same period in 2019 (EPS of $0.09);
• Net cash flow from operations of $128.3M for the three-month period ended September 30, 2020, representing an operating cash flow
per share1 of $0.27, compared to $104.9M or $0.24 per share 1 for the same period in 2019 . Net cash flow from operations of $203.6M
for the six-month period ended September 30, 2020, representing an operating cash flow per share1 of $0.43, compared to $196.8M or
$0.45 per share1 for the same period in 2019;
• Declaration and payment of $17.0M of accumulated dividends on the Company's operating subsidiary, Quebec Iron Ore Inc.'s (“QIO”)
preferred shares, which are held by CDP Investissements Inc., a wholly -owned subsidiary of the Caisse de dépôt et placement du
Québec; and
• Strong cash on hand 2 balance of $425.8M as at September 30, 2020, despite income and mining taxes payments of $97.0M and
dividend payment of $17.0M made during the three-month period ended September 30, 2020, compared to a cash on hand2 balance of
$347.5M as at June 30, 2020, and $298.7M as at March 31, 2020.
Operations
• Operations at Bloom Lake resumed full operational capacity in the recently completed quarter, following the Government's
announcement to categorize mining activities as a “priority service” and the lifting of specific COVID-19 containment directives issued
in the first quarter of the Company's fiscal year ending March 31, 2021;
• Production of 2,268,800 wet metric tonnes (“wmt”) of high -grade 66.1% Iron ore (“Fe”) concentrate for the three- month period ended
September 30, 2020, compared to 2,189,700 wmt of h igh-grade 66.3% Fe concentrate for the same period in 2019. Production of
4,067,600 wmt of high-grade 66.3% Fe concentrate for the six-month period ended September 30, 2020, compared to 4,179,100 wmt
for the same period in 2019;
• Recovery rate of 85.2% and 83.8% for the three and six-month periods ended September 30, 2020, respectively, compared to a recovery
rate of 83.9% and 83.1%, respectively, for the same periods in 2019; and
• Free On Board (“FOB”) t otal cash cost 1 of $48.5/d ry metric tonne (“d mt”) (US$36.4/dmt) (“Total Cash Cost” or “Cash Cost”) and
$53.1/dmt (US$39.1/dmt) for the three and six -month periods ended September 30, 2020, respectively, compared to $48.3/dmt
(US$36.6/dmt) and $51.4/dmt (US$38.7/dmt), respectively, for the same periods in 2019.
1 This is a non-IFRS financial performance measure with no standard definition under IFRS. See the “Non-IFRS Financial Performance Measures” section included in note 19 of the
Company’s Management Discussion and Analysis for the period ended September 30, 2020 (the “MD&A”) available on SEDAR at www.sedar.com, the ASX at www.asx.com.au and
the Company's website at www.championiron.com.
2 Cash on hand includes cash and cash equivalents and short-term investments.
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1. HIGHLIGHTS (continued)
Other Developments
• In connection with Bloom Lake's Phase II expansion project, which proposes to double Bloom Lake's nameplate capacity to 15 Mt pa,
the Company increased the Phase II cumulative budget by an additional $22M, for a total budget of $120M, in order to prudently advance
the project and preserve key timelines ahead of the deferred final Board of Directors (the “Board”) decision on the Phase II expansion.
The Company will communicate its development plans with regards to the Phase II expansion project by the end of the current calendar
year;
• Appointment of Alexandre Belleau as Chief Operating Officer on July 22, 2020;
• Appointment of Louise Grondin to the Board at the Annual General Meeting of the Company's shareholders on August 27, 2020; and
• Completed a virtual platform presenting a 360 degree v iew of the Company’s mining operations and related infrastructure, currently
available on the Company’s website at www.championiron.com.
“Our team’s agility in adapting operations is unlocking the full potential of our flagship Bloom Lake Mine, resulting in record quarterly production
and financial results for our Company. I am proud to be leading such a highly motivated workforce, dedicated to the success of our Comp any,
despite the challenging environment created by the COVID -19 pandemic. As our focus remains the safety and well -being of our employees,
partners and communities, we continue to enforce strict COVID -19 related measures and look forward to deploying our recently delivered rapid
testing solution in our continuous effort to mitigate the pandemic related risks. With our cash on hand rapidly growing, our Company continues to
diligently advance the Phase II expansion project, increasing the cumulative budget t o $120M, which is expected to further de- risk the project”,
commented David Cataford, Champion's CEO.
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2. RESPONSE TO THE COVID -19 PANDEMIC
The COVID-19 pandemic continues to impact the global economy, creating significant economic uncertainty and disruption to financial markets.
The health and safety of the Company's employees, partners and the local communities continues to be a priority. In response to the COVID-19
pandemic, the Company continuously reviews its measures and protocols, with operat ions adapted in line with Government guidelines and the
recommendations of an executive committee assembled for the purpose of monitoring and adapting to the ongoing COVID -19 pandemic. To
date, no known cases of COVID -19 have been confirmed by the Company. Further to the Government’s announcement that effective April 15,
2020, mining activities were considered a “priority service”, operations at the Bloom Lake Mine have now returned to full operational capacity.
Since the beginning of the pandemic, the Company consistently and proactively deployed several measures in its efforts to mitigate risks related
to COVID-19, all in line with the Government guidelines. Implemented safety precautions included : additional monitoring of employees' health,
temperature control prior to traveling and entering Bloom Lake, isolation measures from the nearby communities, additional transportation
capacity to enable adequate social distancing, amended work schedules to reduce travel volumes, additional medical support, d isinfection and
distancing protocols at the mine site, a mandatory disease management protocol for suspected cases, a traceability employees' register in
response to a possible infection and a mandatory information session for new contractors and employees. Recently, the Company has deployed
additional measures, such as the monitoring of COVID -19 related measures adopted by its contractors, a monthly audit to review the
effectiveness of adopted measures, a “COVID -19 focus card” enabling employees to provide feedback on the implemented measures and
protocols, and a voluntary screening test program in cooperation with the INSPQ.
In addition, several communication channels have been created to ensure adequate supervision and communication of newly imple mented
measures. Subsequently to September 30, 2020, the Company received a portable and rapid testing solution approved by Health Canada, aimed
at detecting individuals infected with COVID-19. Pending the delivery of additional equipment and the hiring of required personnel, the Company
expects to commission the rapid testing solution in the near -term in order to screen employees and contractors working at Bloom Lake. The
Company's COVID-19 plan is currently available on its website at www.championiron.com.
To date, the Company's risk mitigating actions have proven successful at minimizing the pandemic's impact, with Bloom Lake re suming full
operational capacity and delivering strong net cash flow from operations with re cord production and net income for the three -month period
ended September 30, 2020. Investments made in the mining equipment rebuild program since the start of operations in February 2018 and the
implementation of operational improvements designed to incre ase plant capacity and reliability in the first half of the previous fiscal year
enabled the Company to maximize its productivity despite the COVID-19 pandemic.
As the Company implemented best practices while managing its response to the COVID -19 pandemi c, substantial direct and incremental
operating costs were incurred during the three and six -month periods ended September 30, 2020, which totalled $2.7M or $1.3/dmt 1 and $7.2M
or $1.9/dmt1, respectively. COVID-19 specific costs could continue to be incurred in the foreseeable future. The Company's motivated workforce
demonstrated their commitment towards collective success while navigating the pandemic with no significant absenteeism during the period,
which allowed the Company to compensate for certain op erational sector delays experienced in the previous period, namely with waste mining
activities. Due to the ongoing testing and preventive screening for COVID -19, some temporary workers were unavailable when they were
suspected of having symptoms of the vi rus until testing results confirmed otherwise, which required the retention of other temporary workers,
leading to additional operational costs.
The Company benefited from the temporary tax relief programs offered by the Federal and Provincial Governments in Canada in response to the
COVID-19 pandemic, which allowed the deferral of tax payments until September 30, 2020. During the three -month period ended
September 30, 2020, the Company paid $97.0M in income and mining taxes, including the deferred portions, for the fiscal year ended March 31,
2020, as well as monthly installments for the April to September 2020 period, inclusively.
Despite the economic impact of the COVID -19 pandemic, iron ore prices remained robust throughout the three and six -month periods ended
September 30, 2020, providing an attractive operating margin environment. Although the Company is managing its operations and liquidity to
mitigate risks related to COVID-19, the extent to which the pandemic could impact operations and cash flows will depend on future developments
given the significant uncertainty regarding the ultimate impact that the COVID -19 pandemic will have on the overall economy and the demand
for iron ore concentrate.
1 This is a non-IFRS financial performance measure with no standard definition under IFRS. See the “Non-IFRS Financial Performance Measures” section of the MD&A included in
note 19.
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3. BLOOM LAKE MINE OPERATING ACTIVITIES
Three Months Ended Six Months Ended
September 30, September 30,
2020 2019 Variance 2020 2019 Variance
Operating Data
Waste mined (wmt) 4,114,400 3,572,200 15 % 6,727,200 7,153,100 (6 %)
Ore mined (wmt) 6,070,000 5,393,900 13 % 10,752,600 10,499,000 2 %
Material mined (wmt) 10,184,400 8,966,100 14 % 17,479,800 17,652,100 (1 %)
Strip ratio 0.7 0.7 — % 0.6 0.7 (14 %)
Ore milled (wmt) 5,562,600 5,450,800 2 % 10,167,200 10,230,800 (1 %)
Head grade Fe (%) 30.9 32.3 (4 %) 31.1 32.4 (4 %)
Recovery (%) 85.2 83.9 2 % 83.8 83.1 1 %
Product Fe (%) 66.1 66.3 — % 66.3 66.3 — %
Iron ore concentrate produced (wmt) 2,268,800 2,189,700 4 % 4,067,600 4,179,100 (3 %)
Iron ore concentrate sold (dmt) 2,063,400 1,860,400 11 % 3,822,200 3,767,100 1 %
Financial Data (in thousands of dollars)
Revenues 310,994 160,370 94 % 555,568 438,284 27 %
Cost of sales 100,068 89,921 11 % 202,844 193,528 5 %
Cost of sales - incremental costs related to COVID-19 2,671 — — % 7,233 — — %
Other expenses 10,426 7,874 32 % 19,967 15,245 31 %
Net finance costs 3,387 46,433 (93 %) 2,065 75,485 (97 %)
Net income (loss) 112,164 (1,726) (6,598 %) 187,720 72,515 159 %
EBITDA1 197,829 62,575 216 % 325,524 229,511 42 %
Statistics (in dollars per dmt sold)
Gross average realized selling price 162.8 140.3 16 % 156.6 149.7 5 %
Net average realized selling price1 150.7 86.2 75 % 145.4 116.3 25 %
Total cash cost (C1 cash cost)1 48.5 48.3 — % 53.1 51.4 3 %
All-in sustaining cost1 57.4 66.2 (13 %) 60.8 64.5 (6 %)
Cash operating margin1 93.3 20.0 367 % 84.6 51.8 63 %
Operational Performance
On March 24, 2020, the Company announced the ramp down of its operations following directives from the Government in response to the COVID-
19 pandemic, which required mining activities to be reduced to a minimum within the province of Québec. As announced by the Company on
April 23, 2020, operations gradually ramped up, following the Government's announcement that mining activitie s were to be considered a
“priority service” in Québec. Although the Company was operating at a minimal capacity for a period of time and its activitie s at the mine were
disrupted, early actions implemented by Management in response to the COVID -19 pandemi c minimized its impacts on operations. Despite
disruptions to operations, the Company produced nearly 4.1 million wmt of high -grade iron ore concentrate during the six -month period ended
September 30, 2020, which is approximately 8% above Bloom Lake's current nameplate capacity.
i. Second Quarter of Fiscal Year 2021 vs Second Quarter of Fiscal Year 2020
During the three -month period ended September 30, 2020, 10,184,400 tonnes of material were mined, compared to 8,966,100 tonnes for the
same period in 2019, representing an increase of 14%. This increase in material mined is the result of higher equipment availability and utilization
rate, additional equipment and better ore accessibility. The Company benefited from its previous and continuous investments i n the mining
equipment rebuild program, enabling it to maximize productivity when operational flexibility is required due to ongoing pande mic-related
conditions.
1 This is a non-IFRS financial performance measure with no standard definition under IFRS. See the “Non-IFRS Financial Performance Measures” section of the MD&A included in
note 19.
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3. BLOOM LAKE MINE OPERATING ACTIVITIES (continued)
Operational Performance (continued)
i. Second Quarter of Fiscal Year 2021 vs Second Quarter of Fiscal Year 2020 (continued)
The plant processed 5,562,600 tonnes of ore during the three-month period ended September 30, 2020, compared to 5,450,800 tonnes for the
same period in 2019, representing an increase of 2%. The higher throughput resulted from higher mined ore availability and higher mill utilization
rate. During the quarter, the Company fully used its two production lines, compared to only one production line for the previou s quarter, further
to the Government's COVID-19 imposed ramp-down. The improvements and operational innovations implemented during the fiscal year ended
March 31, 2020 allowed the Company to increase throughput stability and reach a higher level of mill pr oductivity, despite the inefficiencies
created by COVID-19, which allowed the Company to take advantage of the elevated iron ore price.
The iron ore head grade in the three -month period ended September 30, 2020 reached 30.9%, compared to 32.3% for the sam e period in 2019.
The decrease in head grade is attributable to the presence of some lower grade ore being sourced and blended from different p its, when
compared to the prior year. This is in line with the mining plan and the life of mine head grade average.
The Company achieved an average recovery rate of 85.2% during the three -month period ended September 30, 2020, compared to a recovery
rate of 83.9% for the same period in 2019, which is attributable to higher recovery circuit stability.
Based on the foregoing, Bloom Lake achieved a new quarterly production record with 2,268,800 wmt of 66.1% Fe high-grade iron ore concentrate
produced during the three -month period ended September 30, 2020, an increase of 4%, compared to the previous quarterly production record
of 2,189,700 wmt for the same period in 2019. The higher production, surpassing nameplate capacity, is mainly a result of higher ore mined and
higher throughput, combined with a higher average recovery rate, despite being partially offset by a lowe r head grade. The variation between
iron ore concentrate produced and sold during the quarter is due to the timing of shipments.
ii. First Six Months of Fiscal Year 2021 vs First Six Months of Fiscal Year 2020
The Company mined 17,479,800 tonnes of material during the six-month period ended September 30, 2020, compared to 17,652,100 tonnes for
the same period in 2019. The plant processed 10,167,200 tonnes of ore during the six -month period ended September 30, 2020, a decrease of
1% over the same period in 2019, while the recovery rate improved from 83.1% to 83.8%, in line with the Company’s target. Based on the foregoing,
Bloom Lake produced a total of 4,067,600 wmt of Fe 66.3% high -grade iron ore concentrate dur ing the six-month period ended September 30,
2020, compared to 4,179,100 wmt for the same period in 2019.
During the first quarter of the 2021 fiscal year, the COVID-19 pandemic had a negative impact on several of the Company's activities, including:
reduced mining activities due to the compliance with the public health directives issued by the Government; red uced equipment maintenance
due to COVID-19-related resource limitations, which had adverse repercussions on equipment availability; the arrival of the seasonal workforce,
which required integration and training; and the operation of only one of the Company's two production lines for a period of time stemming from
the Government's COVID -19-related directives. Once the governmental restrictions were lifted, the Company accelerated its mining activities
and surpassed its plant nameplate capacity for the six -month period ended September 30, 2020. The capital expenditures made in the mining
equipment rebuild program along with the improvements and operational innovations accomplished at the plant in the past have maximized
current productivity.
During the six-month period ended September 30, 2020, the Company received a confirmation that its initial commercial production test last
year qualified as Direct Reduction (“DR”) from DR pellet producers and direct reduced iron (“DRI”) plant operators. With this confirmed product
specification, the Company produced an additional 207,900 wmt of DR quality iron ore concentrate at 67.8% Fe with a combined silica and
alumina content of 2.68%, at the request of a customer in the Middle East. This second shipment confirms the a bility of the Company to sell its
ore to producers of DR pellets, which can be converted by DRI producers and utilized in electric arc furnaces, which represen t a growing subset
of global steelmaking capacity. This positions the Company to potentially increase its customer base and confirms that Bloom Lake is one of the
few producing deposits globally that can transition its product offering in response to potential shifts in steelmaking metho ds in the coming
years.
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4. FINANCIAL PERFORMANCE
A. Revenues
During the three -month period ended September 30, 2020, 2,063,400 tonnes of high -grade iron ore concentrate were sold at the CFR China
gross realized price of US$122.2/dmt, before provisional sales adjustments and shipping costs. The gross average realized s elling price of
US$122.2/dmt represents a premium of 3.4% over the benchmark IODEX 62% Fe CFR China Index (“P62”) price, compared to a premium of 15.5%
for the previous quarter. The gross average realized selling price reflects the sales at a determined pr ice, as well as the forward price at the
expected settlement date for 1,188,000 tonnes which were in transit at the end of the period. The difference between the gross average realized
selling price of US$122.2/dmt for the recently completed quarter and th e average IODEX 65% Fe CFR China Index (“ P65”) for the quarter of
US$128.9/dmt is due to the fact that some sales were made at a discounted price in order to compete with pellet prices which are currently at
multi-year lows, and the fact that some contract ed volumes were sold based on previous months' prices, when P65 prices were significantly
lower.
As pellet prices stabilize, following the effects of the COVID -19 pandemic on the industry, the Company expects its product pricing to continue
tracking the P65 index. In addition, the Company should benefit from the current period prices for its contracted volumes, based on previous
months' P65 prices in the upcoming period ending December 31, 2020. Other factors influencing the Company’s realized price in cluded the
increase in production activity by China’s domestic miners, offering competitive prices due to their proximity to end customers, and rising levels
of iron ore concentrate inventories at certain Chinese ports.
Sea freight costs remained low during the three-month period ended September 30, 2020. During the second quarter of the Company’s 2021
fiscal year, low fuel prices and lower shipments from Brazil contributed to sea freight costs remaining at low levels, while during the same period
last year, the impact of a major producer’s resumption of operations in June 2019 on global freight rates increased the Company’s sea fr eight
costs. The freight costs variation with C3 Baltic Capesize Index costs during the period is mainly due to the timing of the vessels' booking and
the fact that the Company benefited from a freight contract at a fixed price of US$15.46 per tonne plus freight commissions f or one vessel per
month until December 2020.
During the three-month period ended September 30, 2020, the final price was established for most of the 1,310,000 tonnes of iron ore that were
in transit as at June 30, 2020. Accordingly, during the three -month period ended September 30, 2020, provisional pricing adjustments of
$28,980,000 were recorded in additional revenues for the 1,310,000 tonnes, representing a positive impact of US$10.6/dmt.
Deducting sea freight costs of US$19.6/dmt and adding the provisional sales adjustment of US$10.6/dmt, the Company obtained a net average
realized price of US$113.2/dmt (CA$1 50.7/dmt) for its high -grade iron ore delivered to the end customer. Revenues totalled $310,994,000 for
the three-month period ended September 30, 2020 compared to $160,370,000 for the same period in 2019. The increase is attributable to a
higher net average realized selling price1, higher volumes sold and the positive impact of foreign exchange rates.
For the six-month period ended September 30, 2020, the Company sold over 3,822,200 tonnes of iron ore concentrate shipped in 22 vessels to
customers located in China, Japan, South Korea, Europe and the Middle East. While the high -grade iron ore P65 index price fluctuated between
a low of US$96.5/dmt and a high of US$143.1/dmt during the six -month period ended September 30, 2020, the Company sold its product at a
gross average realized selling price of US$115.6/dmt. Combining the gross average realized selli ng price with the provisional sales adjustment
of US$10.0/dmt, the Company sold its high-grade iron ore material at a price of US$125.6/dmt during the six-month period ended September 30,
2020, compared to the P65 index average of US$118.8/dmt, demonstrati ng its ability to benefit from its premium high -grade iron ore material
pricing over the P62 index reference price. Deducting sea freight costs of US$18.3/dmt, the Company obtained a net average re alized selling
price1 of US$107.3/dmt (CA$145.4/dmt) for its high-grade iron ore delivered to the customer. As a result, revenues totalled $555,568,000 for the
six-month period ended September 30, 2020, compared to $438,284,000 for the same period in 2019.
Although the sales increase is mainly attributable to the net average realized selling price1, the positive volume impact illustrates the benefit the
Company yielded by investing in production reliability and having the ability to increase its throughput capacity when the pr ice of high -grade
iron ore is elevated.
1 This is a non-IFRS financial performance measure with no standard definition under IFRS. See the “Non -IFRS Financial Performance Measures” section of the MD&A included in
note 19.
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4. FINANCIAL PERFORMANCE (continued)
B. Cost of Sales
Cost of sales represent mining, processing, and mine site-related general and administrative (“G&A”) expenses.
During the three-month period ended September 30, 2020, the total cash cost 1 or C1 cash cost 1 per tonne, excluding specific incremental and
non-recurring COVID-19 related costs, totalled $48.5/dmt, compared to $48.3/dmt for the same period in 2019. The total cash cost1 for the period
was negatively impacted by the inefficiencies related to the COVID -19 preventive measures, which were offset by operational productivit y
resulting in record volumes of iron ore concentrate sold. The stability of the total cash cost 1 during the COVID-19 pandemic is a direct benefit of
the Company's investments in plant innovation and improvements as well as the mining equipment rebuild program.
For the six-month period ended September 30, 2020, excluding specific incremental and non -recurring COVID-19 related costs, the Company
produced high-grade iron ore at a total cash cost 1 of $53.1/dmt compared to $51.4/dmt for the same period in 2019. The C1 cash cost 1 for the
period includes the negative impact of the inefficiencies related to the COVID -19 preventive measures associated with social distancing
protocols. In the first quarter of the 2021 fiscal year, in line with the Company’s founding values to maintain its beneficia l partnership with its
workforce, the Company opted to maintain the full workforce on its payroll, despite the reduced operating activities imposed in compliance with
the Government’s public health directives. The increase in total cash cost1 was partially offset by operational productivity during the second half
of the period.
In the three and six -month periods ended September 30, 2020, total cash cost 1 was negatively impacted by Société férro viaire et portuaire de
Pointe-Noire's (“SFPPN”) operational costs, which were higher than in the comparative periods in 2019. Despite this, the Company is confident
that corrective actions implemented by SFPPN will result in future cost savings, and this trend was evident in the most recent quarter.
C. Cost of Sales - incremental costs related to COVID-19
In line with the Government’s directives, the Company implemented several measures in its efforts to mitigate the risks related to the COVID-19
pandemic. The Company incurred direct, incremental and non-recurring operating costs of $2,671,000 or $1.3/dmt1 and $7,233,000 or $1.9/dmt1
for the three and six-month periods ended September 30, 2020, respectively. These costs do not include the inefficiency costs associated with
the COVID-19 pandemic across all areas of the Company’s operations. These specific costs are mainly comprised of premiums paid to employees
from adjusted work schedules, incremental transportation costs and incremental costs for cleaning and disinfecting facilities . While the work
schedules were adapted and related premiums to payroll were paid during the first qu arter of the Company’s 2021 fiscal year, the Company
resumed its normal work schedules at the end of June 2020. Despite the fact that the costs associated with the revised schedu les and the
related premiums are not recurring, the Company will continue to d eploy measures to mitigate the risks from COVID -19 on site and at the local
community level. Accordingly, COVID-19 specific costs could continue to be incurred during fiscal year 2021.
D. Gross Profit
The gross profit for the three-month period ended September 30, 2020 totalled $199,909,000, compared to $65,756,000 for the same period in
2019. The increase in gross profit is attributable to higher revenues, as a result of a higher net average realized s elling price1 of $150.7/dmt for
the three -month period ended September 30, 2020, compared to $86.2/dmt for the same period in 2019, and higher volumes of iron ore
concentrate sold. The higher revenues are partially offset by the incremental costs related t o COVID-19, which totalled $2,671,000 or $1.3/dmt1
during the period, higher production costs from higher volume sold and higher depreciation expenses attributable to previous investments which
were made to increase throughput and surpass the mine’s nameplate capacity.
The gross profit for the six-month period ended September 30, 2020 totalled $328,205,000, compared to $236,449,000 for the same period in
2019. The increase is largely driven by the higher net average realized selling price1 of $145.4/dmt for the six-month period ended September 30,
2020, compared to $116.3/dmt for the same period in 2019, and higher volumes of iron ore concentrate sold. The higher revenue s are partially
offset by the incremental costs related to COVID-19, which totalled $7,233,000 or $1.9/dmt1 during the period, combined with higher depreciation
expenses and higher production costs.
1 This is a non-IFRS financial performance measure with no standard definition under IFRS. See the “Non-IFRS Financial Performance Measures” section of the MD&A included in
note 19.