CHAMPION IRON REPORTS SOLID FY2020 SECOND QUARTER RESULTS Record quarterly production of 2,189,700 wmt and recovery rate of 83.9% Record quarterly operating cash flow of $104.9 million
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PRESS RELEASE
CHAMPION IRON REPORTS SOLID FY2020 SECOND QUARTER RESULTS
Record quarterly production of 2,189,700 wmt and recovery rate of 83.9%
Record quarterly operating cash flow of $104.9 million
Montreal, October 29, 2019 - 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, 2019 of the fiscal year ending March 31, 2020.
For complete details of the unaudited Condensed Consolidated Financial Statements and associated Management's Discussion and Analysis, please
refer to the Company's filings on SEDAR (www.sedar .com) or the Company's website (www.championiron.com). All amounts are in Canadian dollars
unless otherwise indicated.
Conference Call Details
Champion will host a conference call and webcast at 8:30 AM EDT (Montreal Time), on Wednesday October 30, 2019 to discuss the second quarter
results of the fiscal year ending March 31, 2020. Call details are outlined at the end of this news release.
1. HIGHLIGHTS
Operations
• Record quarterly production of 2,189,700 wet metric tonnes (“wmt”) of high-grade 66.3% Fe iron ore concentrate or 10.1% higher
than previous quarterly record;
• Record quarterly recovery rate of 83.9%; and
• Total cash cost1 of $48.3/dry metric tonne (“dmt”) (US$36.6/dmt), 11% lower than previous quarter results.
Financial
• Revenues of $160.4M for the second quarter, net of a provisional sales adjustment of $34.7M;
• Record quarterly cash flow from operations of $104.9M, representing cash flow per share of $0.24;
• EBITDA1 totalling $62.6M or 39% EBITDA1 margin;
• Net loss of $1.7M for the second quarter and $0.00 of earnings per share;
• Adjusted net income1 of $50M for the second quarter and $0.11 of adjusted earning per share 1; and
• Generated $75M in cash during the quarter, resulting in cash on hand2 of $211.0M as at September 30, 2019.
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Growth
• Successfully completed the previously announced transaction with CDP Investissements Inc., a subsidiary of Caisse de dépôt et
placement du Québec for a preferred share offering of $185M in addition to a US$200M credit facility with The Bank of Nova Scotia
and Société Générale as lead arrangers;
• Now the 100% owner of the Bloom Lake mine further to the completion of the previously announced transaction with the
government of Québec, through its agent Ressources Québec Inc. ("RQ"), to acquire RQ's 36.8% equity interest in Québec Iron Ore
(“QIO”) for a total cash consideration of $211M;
• Previously approved work program of $68M on Phase II to secure the timetable detailed by the feasibility study filed on SEDAR on
August 2, 2019, progressing on schedule and on budget; and
• The Company conducted a drilling campaign at its Bloom Lake property to improve ore characterization and a geophysical survey on
the Roach Hill property.
“This quarter represents an important milestone for our Company. We now have 100% ownership of our flagship asset and have repositioned
our capital structure, which significantly reduces our debt carrying costs”, commented David Cataford, Champion’s CEO. “While our team
continues to demonstrate their operational excellence, our high-quality product remains in strong demand globally. With access to decades
of resources, we are well positioned to leverage the support of our financial and regional partners as our Company implements its growth
initiatives.”
2. BLOOM LAKE MINE OPERATING ACTIVITIES 3
Three Months Ended Six Months Ended
September 30, September 30,
2019 2018 2019 2018
Operating Data
Waste mined (wmt) 3,572,200 2,978,400 7,153,100 6,351,300
Ore mined (wmt) 5,393,900 5,204,900 10,499,000 9,852,800
Strip ratio 0.7 0.6 0.7 0.6
Ore milled (wmt) 5,450,800 4,964,200 10,230,800 9,208,200
Head grade Fe (%) 32.3 32.0 32.4 31.6
Recovery (%) 83.9 79.5 83.1 78.4
Product Fe (%) 66.3 66.6 66.3 66.5
Iron ore concentrate produced (wmt) 2,189,700 1,858,300 4,179,100 3,401,200
Iron ore concentrate sold (dmt) 1,860,400 1,931,700 3,767,100 3,672,100
Financial Data (in thousands of dollars)
Revenues 160,370 174,678 438,284 325,419
Cost of sales 89,921 87,265 193,528 183,033
Other expenses 7,874 6,092 15,245 16,123
Net finance cost 46,433 7,106 75,485 21,345
Net income (loss) (1,726) 67,497 72,515 88,245
Adjusted net income1 49,915 67,497 124,156 88,245
Basic earnings per share attributable to shareholders 0.00 0.10 0.09 0.13
Adjusted earnings per share attributable to shareholders1 0.11 0.10 0.20 0.13
EBITDA1 62,575 81,321 229,511 126,263
Statistics (in dollars per dmt sold)
Average realized selling price1 86.2 90.4 116.3 88.6
Total cash cost1 48.3 45.2 51.4 49.8
All-in sustaining cost1 66.2 52.9 64.5 56.1
Cash operating margin1 20.0 37.5 51.8 32.5
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Statistics (in U.S. dollars per dmt sold)
Average realized selling price1 65.1 68.4 87.6 69.2
Total cash cost (C1 cash cost)1 36.6 34.6 38.7 38.3
All-in sustaining cost1 50.1 40.5 48.5 43.2
Cash operating margin1 15.0 27.9 39.1 26.0
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Operational Performance
During the three-month period ended September 30, 2019, 9.0 million tonnes of material was mined, representing an increase of 10%
compared to the same quarter of the prior year. This increase was enabled by higher mining equipment availability and a higher utilization
rate, attributable to the Company's progress with its mining equipment rebuilding program. The mining operations continuous improvement
plan reduced the trucking cycle time which contributed positively to volume mined.
The plant processed 5,450,800 tonnes of ore during the second quarter compared to 4,964,200 tonnes in the comparable prior year period.
The 10% increase relates to the higher average hourly mill throughput and the higher iron recovery, further to the implementation of
operational innovations in the previous quarter, designed to increase plant capacity, reliability and performance.
The Company achieved an average recovery rate of 83.9% during the second quarter, compared to 79.5% in the same period of the prior year.
The improvement relates to the continuous optimization of the recovery circuit, in addition to preventive works completed earlier this year,
which produced a more stable recovery rate, fluctuating from 83.5% to 84.4% during the quarter. The quarterly recovery rate achieved during
the period set a new historical record for Bloom Lake which was first commissioned in 2010.
Based on the foregoing, Bloom Lake produced 2,189,700 wmt of 66.3% Fe high-grade iron ore concentrate during the three-month period
ended September 30, 2019, compared to 1,858,300 wmt in the same period of the prior year, representing an 18% increase.
In addition to the new hourly mill throughput and recovery rate records achieved during the quarter, the Bloom Lake product quality
specifications continue to meet or exceed benchmarks and significantly, to date, the Company has not been assessed any penalties in
connection with product quality.
The Company mined 17,652,100 tonnes of material during the six months ended September 30, 2019, compared to 16,204,100 tonnes in the
same period in the prior year. The increase is attributable to the improvement in mining equipment reliability and increased productivity
resulting from the rebuilding program.
The plant processed 10,230,800 tonnes of ore during the six months ended September 30, 2019. During the first half of the current fiscal year,
the recovery circuit continues to be optimized, whereby the Company achieved a 79.4% recovery rate at the beginning of the year compared
to a recovery rate of 83.9% for the quarter ended September 30, 2019. Overall, year to date, the Company has achieved an average recovery
rate of 83.1%. The Bloom Lake plant has demonstrated that the current recovery rate is a sustainable rate that can be maintained or possibly
increased over the long-term.
Based on the foregoing, Bloom Lake produced a total of 4,179,100 wmt of Fe 66.3% as at September 30, 2019. These results established a
new bi-annual production record for the Bloom Lake Mine.
3. FINANCIAL PERFORMANCE
The Company entered pre-commercial production in February 2018, shipped its first vessel of concentrate to China on April 1, 2018 and
declared commercial production on June 30, 2018.
A. Revenues
During the three-month period ended September 30, 2019, a total of 1,860,400 tonnes of high-grade iron ore concentrate were sold at a CFR
China gross realized price of US$106.2/dmt before provisional sales adjustments and shipping costs. The gross sales price of US$106.2/dmt
represents a premium of 4% over the benchmark P62 price compared to a premium of 17% in the previous quarter, primarily attributable to
pressures on the global steel market. During the quarter, a final price was established for 1.0 million tonnes which were in transit at the end
of FY2020 Q1 and subject to provisional price adjustments. As the iron ore price was under pressure during this quarter and as the premium
between the P62 and the P65 decreased by 50%, a price adjustment of US$14.3/dmt was recorded for these shipments. Sales on the spot
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market were also initiated. Deducting sea freight costs of US$26.8/dmt together with the provisional sales adjustment of US$14.3, the
Company obtained an average net realized price of US$65.1 per tonne (CA$86.2 per tonne) for its high-grade iron ore delivered to the end
customer, benefiting from an average foreign exchange rate of CA$1.33 / US$. As a result, revenues totalled $160,370,000 for the period
compared to $174,678,000 in the same prior year period. The provisional sales adjustments included in sales were recorded at $(34,700,000),
compared to $5,500,000 in the same prior year period.
For the six-month period ended September 30, 2019, the Company sold over 3,767,100 tonnes of iron ore concentrate shipped to end-user
customers located in China, Europe, Japan and the Middle East, which was shipped in 22 Capesize vessels. While the P65 indicative price of
high-grade iron ore fluctuated between US$89.0/dmt and US$135.9/dmt during the quarter ended September 30, 2019, the Company sold
its product at an average gross realized price of US$112.8/dmt, before shipping and adjustments related to provisional sales. The gross sales
price of US$112.8/dmt represents a premium of 10% over the benchmark P62 price. Deducting sea freight costs of US$23.1/dmt and the
negative provisional sales adjustment of US$2.1, the Company obtained an average realized price of US$87.6 per tonne (CA$116.3 per tonne)
for its high-grade iron ore delivered to the end-user customer. As a result, revenues totalled $438,284,000 year-to-date, compared to
$325,419,000 for the same period of the prior year. The sales increase is mainly attributable to the volume and selling price. The provisional
sales adjustments included in sales were recorded at $(10,300,000) compared to $5,500,000 in the same prior year period.
B. Cost of Sales
Cost of sales represent mining, processing, and mine site-related general and administrative expenses.
During the three-month period ended September 30, 2019, the total cash cost 1 or C1 cash cost 1 per tonne totalled $48.3/dmt, compared to
$45.2/dmt in the same period of the previous year. The C1 cash-cost 1 of the period reflects the impact of higher costs from port operations,
the indexation of the railway transportation contracts and the costs attributable to additional manpower as the Company supplemented its
workforce during the year.
For the six-month period ended September 30, 2019, the Company produced high-grade iron ore at a total cash cost1 of $51.4/dmt compared
to $49.8/dmt in the previous year. The C1 cash cost 1 reflects, in addition to the factors identified for the quarter, the impacts of the major
shutdown performed earlier this year during which additional works were completed in order to increase the plant reliability and recovery
rate.
C. Gross Profit
The gross profit for the three-month period ended September 30, 2019 totalled $65,756,000 compared to $83,329,000 for the same period
of the prior year. A higher gross realized price during the period of US$12.4/dmt was offset by an adjustment on provisional sales of
US$14.3/dmt, impacting the gross sales by approximately US$ 4,000,000. Higher freight costs and lower volumes contributed to the remaining
variation.
The gross profit for the six-month period ended September 30, 2019 totalled $236,449,000, compared to $133,877,000 for the same prior
year period. The increase is largely driven by the 31% increase in the realized price together with higher plant reliability and the effectiveness
of preventive works completed during the scheduled major shutdowns. Year-to-date, the Company is benefiting from a 45% cash profit margin
per tonne.
D. Other Expenses
Other expenses comprise share-based payments, corporate expenses ("G&A expenses"), as well as sustainability and other community
expenses (“CSR expenses”). CSR expenses are composed mainly of community taxes such as property and school taxes and expenditures
related to the Impact and Benefits Agreement with the First Nations.
The variation of the other expenses and income for the three-month period ended September 30, 2019, compared to the same period the
previous year, is essentially due to the completion of the transition from a development cost structure to an operating organization.
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The variation of the other expenses and income for the six-month period ended September 30, 2019, compared to the same period the
previous year, is essentially due to restart costs incurred in the first quarter of the prior year, as well as Champion's transition from a
development stage company to an iron ore producer. The increase in share-based payments reflects the higher stock price period over period,
combined with the issuance of annual equity awards in relation to the performance achieved during the last fiscal year ended March 31, 2019.
E. Net Finance Costs
Net finance costs totalled $46,433,000 for the three-month period ended September 30, 2019 compared to $7,106,000 for the same period
in the prior year. The increase is mainly attributable to the impact of the refinancing closed on August 16, 2019, representing $57.3 million
offset by the revaluation of warrants related to the $19.5 million Glencore debenture. Of the $57.3 million, $53.5 million is related to non-
cash items including the write-off of capitalized past transactions fees, the write-off of derivative financial instruments and the write-off of
the unamortized book value of the previous financing facilities. The unamortized book value of the previous debt reflected the deduction of
derivative financial instruments that were reclassified in either derivative liability or equity. Therefore, the debt book value was lower than
the face value.
The change in the fair value of the derivative liability is associated with the variation of the Company’s ordinary share price, which decreased
by 26.6% during the period, and is a non-cash item. This derivative liability is now recorded as an equity item following the refinancing.
The Company reports in Canadian dollars and benefits from a natural hedge between its revenues generated in U.S. dollars and its U.S.
denominated term facilities. Consequently, the unrealized foreign exchange loss included in net finance costs represents a non-cash
expenditure associated with the conversion of the term facilities in Canadian dollars. The Company maintains sufficient U.S. dollars on hand
to prevent foreign exchange loss upon interest or capital payments. Unrealized loss on investments and accretion costs are non-cash items.
The increase in net finance costs for the six-month period ended September 30, 2019, when compared to the same period the year prior, is
mainly due to the same factors identified in the previous section.
F. Income Taxes
The Company’s subsidiaries are subject to tax in Australia and Canada. As a result of accumulated losses before tax, there are no current or
deferred income taxes related to the Australian activities. QIO, Champion’s operating subsidiary, is subject to a Quebec mining tax at a
progressive rate ranging from 16% to 28% depending on the mining profit margin as defined by tax regulations. The mining profit margin
represents the mining profit divided by revenues and is taxable based on three segments as follow:
Mining profit margin range Tax rate
Mining profit between 0% to 35% 16%
Incremental mining profit over 35%, up to 50% 22%
Incremental mining profit over 50% 28%
In addition, QIO is subject to an income tax in Canada where the statutory rate is 26.68%.
During the three and six-month periods ended September 30, 2019, current income and mining taxes amounted to $14,624,000 and
$67,986,000 respectively compared to $11,974,000 and $17,504,000 respectively for the same periods of the prior year. The higher mining
and income taxes, period over period, are due to higher taxable profit as the Company has no more tax losses available.
During the three and six-month periods ended September 30, 2019, deferred income and mining taxes amounted to a recovery of $1,449,000
and an expense of $5,218,000 respectively, compared to expenses of $9,340,000 and $9,340,000 respectively, for the same periods of the
prior year. The recovery during the quarter is associated with the early debt repayment. The deferred expenses for the six-month period is
related to the accelerated depreciation permitted under tax rules.
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G. Net Income (Loss) & EBITDA 1
For the three-month period ended September 30, 2019, the Company generated net loss of $1,726,000, with the net income attributable to
Champion shareholders for the period totalling $2,139,661, representing earnings per share of $0.00. The non-controlling interest (“NCI”) has
been calculated until acquisition closing date of August 16, 2019. The variation period over period is mainly due to the non-cash financing
costs resulting from the early payments of Sprott Private Resource Lending (Collector) LP (“Sprott”) and CDP Investissements Inc. (“CDPI”)
credit facilities. In the comparative period of last year, a net income of $67,497,000, representing earnings per share of $0.10 per share was
realized.
As previously mentioned, the refinancing of the Sprott and CDPI credit facilities resulted in non-cash financing costs associated with derivative
instruments that were embedded in the original facilities. Excluding the non-recurring non-cash transactions, the Company would have
generated an adjusted net income 1 of $49,915,000 and an adjusted earnings per share 1 of $0.11 for the second quarter. Similarly, the net
income for the six-month period that ended September 30, 2019 that is at $72,515,000 would have been at $124,156,000. Accordingly, the
earnings per share would have been adjusted to $0.20.
During the second quarter ended September 30, 2019, the Company generated an EBITDA 1 of $62,575,000 or an EBITDA 1 margin of 39%
compared to an EBITDA1 of $81,321,000 or an EBITDA1 margin of 47% in the same period of the prior year.
For the six-month period ended September 30, 2019, the Company generated a net income of $72,515,000 translating to earnings per share
of $0.09. A net income of $88,245,000 or $0.13 per share was realized in the six-month period ended September 30, 2018. By excluding the
non-cash impact of the refinancing, the net income for the first six months of the year would have been at $122,255,000 or $0.19 per share.
For the six-month period ended September 30, 2019, the Company generated an EBITDA 1 of $229,511,000 or an EBITDA 1 margin of 52%
compared
to an EBITDA 1 of $126,263,000 or an EBITDA 1 margin of 39% in the same period of the prior year. This increase is mainly attributable to the
increase
in realized price.
H. All-In Sustaining Cost 1 and Cash Operating Margin1
The Company believes that the all-in sustaining cost (“AISC”) 1 and cash operating margin 1 are measures reflecting the costs associated with
producing iron ore and assessing the Company’s ability to operate without reliance on additional borrowing or usage of existing cash. The
Company defines AISC1 as the total costs associated with producing iron ore concentrate. The Company’s AISC1 represents the sum of cost of
sales, corporate expenditures and sustaining capital expenditures, including stripping activities, all divided by the iron ore concentrate per
dmt sold to arrive at a per dmt figure.
During the three-month period ended September 30, 2019, the Company realized an AISC1 of $66.2/dmt compared to $52.9/dmt in the same
period last year. The variation period over period is due to three main factors. The Company made the prudent decision to accelerate tailings
containment dam rising construction work in order to ensure safe tailings deposition. It should be noted that since the works related to the
dikes project are mainly of a civil nature, a large part of the program was completed during the summer months resulting in a higher sustaining
capital expense during the current quarter. Additionally, the Company made additional investments in the mining equipment rebuilding
program, required to increase mining equipment fleet availability. As well, the Company finalized its conversion from a development stage
company to an iron ore producer. The conservative decision made by the Company to bring forward the tailings investment does not modify
the total amount that would have been invested on the tailings facility over the next few years, only the timing of the expenditures.
Deducting the AISC1 of $66.2/dmt from the realized average selling price1 of $86.2/dmt, the Company generated a cash operating margin1 of
$20.0 for each tonne of high-grade iron ore concentrates sold during the second quarter ended September 30, 2019 compared to $37.5/dmt
in the same period of the last year. In addition to investments being made earlier than planned, the realized selling price decrease of 5% has
also contributed to the decrease.
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For the six-month period ended September 30, 2019, the Company realized an AISC1 of $64.5/dmt compared to $56.1/dmt in the same period
of last year. Despite a higher AISC1, the cash operating margin1 was at $51.8/dmt compared to $32.5/dmt in the same period of the previous
year, reflecting the ability to adjust necessary investments to take advantage of the market fluctuations.
I. Non-Controlling Interest
Following the close of the acquisition of RQ's 36.8% interest in QIO, Champion's NCI does not exist anymore. The net income attributable to
the NCI was based on the financial results of QIO. The NCI attributed to the minority interest during the period was calculated up to the closing
date of the acquisition on August 16, 2019.
4. CONFERENCE CALL AND WEBCAST INFORMATION
A webcast and conference call to discuss these results will be held on Wednesday, October 30, 2019, at 8:30 AM EDT (Montreal Time). Listeners
may access a live webcast of the conference call from the Investors section of the Company's website at www.championiron.com or by dialing
toll free 1-888-390-0546 within North America or +1-888-076-068 from Australia.
An online archive of the webcast will be available by accessing the Company's website at www.championiron.com. A telephone replay will be
available for one week after the call by dialing +1-888-390-0541 within North America or +1-416-764-8677 overseas, and entering passcode
657982#.