Champion Iron Limited (CIA) Earnings Call Transcript & Summary

Ladies and gentlemen, my name is Andrew Love, and I'm the Lead Director of Champion Iron Limited, and I'll be serving as Chair of today's meeting. Now 8 a.m. in Sydney and 6:00 p.m. in Montreal, and I welcome you to the 2022 Annual General Meeting of the company. I'm advised that we have a quorum being 2 registered shareholders. And as such, I now declare the Annual General Meeting open. Joining me today are the other directors, including 2 directors attending in person, Mr. Michael O'Keeffe, our Executive Chairman; and Mr. David Cataford, our Chief Executive Officer. We have 4 directors attending via webcast: Mr. Gary Lawler; Mr. Wayne Wouters; Ms. Michelle Cormier; and Ms. Louise Grondin. Other members of management also joining us today, Mr. Steve Boucratie, Senior Vice President, General Counsel and Corporate Secretary; Michael Marcotte, Senior Vice President, Corporate Development and Capital Markets; Alexander Belleau, Chief Operating Officer; Ms. Angela Kourouklis, Senior Vice President, Human Capital; and Mr. Jorge Estepa, our Assistant Corporate Secretary. Mr. Michel Bergeron, a partner of Ernst & Young, the company's auditors, is also present at the meeting to take questions you may have in relation to the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted by the company for the preparation of the financial statements and the auditor's independence in relation to the conduct of the audit. I'll now ask Steve Boucratie, our General Counsel and Corporate Secretary, to briefly explain certain formalities regarding the conduct of this meeting. Mr. Boucratie will also deal with the formal business of the meeting as outlined in the notice of meeting and the meeting materials that have all being received by you, including voting on resolutions on my behalf. I pass Chair to Steve.

Thank you, Mr. Chair. Hello, ladies and gentlemen, My name is Steve Boucratie, and I'm the Senior Vice President, General Counsel and Corporate Secretary of Champion Iron Limited. Voting will be conducted by ballot so that all proxy votes can be recorded. Any shareholder who has not received a ballot, please raise your hand so that the TSX Trust Company can provide you with a ballot. The Chairman has exercised his right under Rule 17.2 of the company's constitution to call a voting by ballot on all resolutions. He will continue to deal with the other business of the company which we are considering today, while the voting by ballot is being conducted, meaning that shareholders with the ballot may vote at any time during the meeting and when voting closes, we will ask shareholders who voted by ballot to raise their hand to return the ballot to the scrutineers. Rebecca Prentice and Julien Lavalliere of the TSX Trust Company, the company's Canadian transfer agent will organize the distribution of ballots and will provide guidance on the completion of those ballots if required. Once the ballots have been completed and returned to the transfer agent, the poll will be counted. This meeting has also been made accessible to you, and we also wish to welcome all guests who are not registered shareholders or proxyholders or registered shareholders. As a reminder, as with any in-person meeting, only registered shareholders and duly appointed registered proxyholders are committed to vote or ask questions at the meeting. I now would like to outline the format of today's meeting. First, I will deal with the formal business of the meeting as outlined in the meeting materials that all of you received, including voting on resolutions. After we conclude the formal portion of the meeting, we will be pleased to answer questions you may have or respond to your comments regarding the matters addressed during the formal part of the meeting. Second, after the Q&A period is concluded, Mr. David Cataford, our CEO, will provide a brief corporate overview of activities in our recently completed fiscal year 2022 and fiscal Q1 2023. At the request of the Chair, I will also act as Secretary of the meeting and Rebecca Prentice and Julien Lavalliere of TSX Trust Company will act as scrutineers. The notice of meeting and the management information circular were dispatched to shareholders, filed electronic with the ASX and on SEDAR and placed on our website. The financial statements for the year ended March 31, 2022, and the annual report for the year ended March 31, 2022, which includes the remuneration report at Pages 65 through 102 have also been filed with the ASX and on SEDAR and placed on our website. These materials are taken as [ rest ]. The formal business of the meeting consists of receiving and considering the company's financial report, together with the directors' report and auditor's report for the financial year ended March 31, 2022, adopting the remuneration report as set out in the annual report of the company for the financial year ended March 31, 2022, electing 8 directors under 8 separate resolutions and approving the amendment to the company's constitution. To expedite the formal part of the meeting, I will briefly describe or discuss each resolution in the sequential order in which they appear in the notice of meeting. I do not propose to read aloud the text of each resolution. These are contained in the notice of meeting which have been taken as read. While this procedure will facilitate the handling of the formal resolution, registered shareholders or duly appointed and registered proxyholders may raise comments or questions on any resolutions before this meeting. Before we proceed with the formal resolutions of the meeting, it is appropriate for me to advise that under Australian Corporations Act, the company is obliged to lay before this meeting the last audited financial statements and reports for the financial year ended March 31, 2022. The tabled copy of the audited financial statements and report, including directors' report and auditor's report, are available for inspection by registered shareholders or duly appointed and registered proxyholders at this meeting. The reports are tabled but are not the subject of a resolution. However, we will be pleased to receive any comments or questions concerning the financial statements or the report, which we will address at a general Q&A session at the end of the formal part of the meeting. Questions may also be asked of the auditors in relation to the conduct of the audit, the preparation and content of the auditor's report and the accounting policies adopted by the company for the preparation of the financial statements and the auditor's independence in relation to the conduct of the office. The second item of business is the Corporation's Act requirement to consider a nonbinding or advisory vote on Champion's remuneration report as set out in the annual report for the financial year ended March 31, 2022. The Chairman has authorized me to open the voting on this resolution, and I now do so. We ask you to please vote on your ballot. The tabled copy of the annual report is available for inspection by registered shareholders or duly appointed and registered proxyholders at this meeting. Remuneration report can be found at Pages 65 through 102 of the annual report. The reading of such report will be dispensed with. I would like to remind shareholders that the vote on this resolution is advisory only and does not bind the company or its directors. Acknowledging that each director has a personal interest in his or her own remuneration for the company, as described in the remuneration report, the directors unanimously recommend the adoption of the remuneration report. The third item of business as contained in resolutions 2 through 9 in the notice of meeting is the election of directors for the current year. The Chairman has authorized me to open the voting on this resolution and then I'll do so. We ask you to please vote on your ballot for each resolution. Under the company's constitution, for such time as the company's shares are listed for trading on the TSX, all directors must retire annually and may offer themselves for reelection at an annual general meeting. Each of the directors was appointed at the last annual general meeting. The notice of meeting and related materials contained the names and details of the proposed nominees to the Board of Directors who are: Mr. Michael O'Keeffe; Mr. David Cataford; Mr. Andrew Love; Mr. Gary Lawler; Ms. Michelle Cormier; Mr. Wayne Wouters; Mr. Jyothish George; and Ms. Louise Grondin. The directors recommend that shareholders vote in favor of resolutions 2 through 9 to appoint the respective nominees as directors of the company, except that each director does not make any recommendation as to how shareholders should vote on the resolution relating to his or her own appointment. The fourth item of business as contained in resolution 10 of the notice of meeting is the approval of amendments to the company's constitution. As part of the company's regular review of its operations to streamline administration provides flexibility and incorporate recent regulatory updates, the company proposes to amend the company's constitution as set out below. We would ask you to please vote on your ballot. The amendments are proposed in order to bring the provisions of the company's constitution in line with the recent changes to the law and will allow the company to utilize various electronic platforms and tools to hold and conduct shareholder meetings. It is the company's present intention to continue with hybrid meetings as conducted in recent years. However, there will be exceptional circumstances such as the recent pandemic, where virtual-type meetings could be more appropriate to conduct the company's business. This resolution is a special resolution. For a special resolution to be passed, at least 75% of the votes validly cast on the resolution by shareholders must be in favor of this resolution. The company seeks shareholder approval for the purpose of Section 1362 of the Corporations Act and for all other purposes to amend the company's constitution as set out in the meeting materials. As previously mentioned, voting today is conducted by ballot. The ballot will be closing shortly. We would ask for everyone who has not voted on ballot to finish voting. All shareholders who voted by ballot should raise their hand to return their ballots to the scrutineers. I now declare the ballots closed. We will proceed to the Q&A session while the scrutineers tally the results of the ballots on each resolution. We will now open the floor to shareholders to ask questions in relation to the matters related to this meeting. As there are no questions, I will now hand over to Mr. Jorge Estepa, our Assistant Corporate Secretary, to provide the voting results on each resolution that was before this meeting.

Thank you, Mr. Secretary. Hello, ladies and gentlemen. My name is Jorge Estepa, and I am the Assistant Corporate Secretary of Champion Iron Limited. The scrutineers, TSX Trust Company, have provided me with the preliminary results of their tabulation of the votes with respect to each of the resolutions considered at today's meeting. The scrutineers, TSX Trust Company, confirmed the following preliminary voting results. The percentage of required votes is favorable to the adoption of the remuneration report for the financial year ended March 31, 2022, and less than 25% of the votes cast and have casted against this resolution. As well, each of the 8 director nominees received the required percentage of votes for, and lastly, the percentage of required votes is favorable to the amendment of the company's constitution.

Thank you. I declare each of the resolutions considered at today's meeting in respect of those matters as carried. The exact number of votes cast in respect of each matter will be publicly disseminated and announced, including on the ASX, filed on SEDAR and made available on our website as soon as possible after the conclusion of the meeting. As there are no further business, that ends our meeting which I now declare closed. As we wrap up this formal portion of the meeting, I wish to thank everyone for their attendance today. I would like to remind everyone that we had planned to provide a corporate overview of activities in our recently completed 2022 fiscal year and fiscal Q1 2023 following the formal part of the meeting and our Chief Executive Officer, Mr. David Cataford, will now begin the presentation.

Thank you very much, Steve. Thanks, everyone, for being here today. We'll now proceed with the corporate update for the past year that we've just had together and also Q1. I think it's been another fantastic year, and we'll be able to go through all of the highlights that we have this year and also the perspectives for the next years. If we look at the high-level highlights, I think another year close to 8 million tonnes has been a fantastic result as we're now in our third year where we've surpassed our nameplate capacity by over 500,000 tonnes. We've also managed our costs through the whole year, having a total cash cost just shy of $60 per tonne delivered in the vessel and [indiscernible] and had an EBITDA over $900 million this year, which have allowed us to do most of our growth projects that we've delivered this year; we'll be able to run through that in the coming slides. First, on health and safety, a good year that we had at site, keeping everybody safe. There were some small events that happened at site, but nothing significant. So we managed to keep all of our workforce, all of our contractors safe and especially a big highlight on our Phase II construction team because we managed to have one of the best results in terms of construction, health and safety for a major project like our phase II project. In terms of sustainability, it's been a big year for your company. One, I think we can all be proud that we're the first mining company in Canada to officially declare the National Day of Truth and Reconciliation with our partner, the First Nations. So we're one of the first companies in Canada, but the first mining company that has done so. And this strengthens our partnership with the First Nations, especially the members of Uashat Mak Mani-Utenam and Matimekush-Lac John. We've also completed our 2021 Sustainability Report and including this year, the task force on climate-related financial disclosure, which we'll be able to go through in the coming slide. In terms of greenhouse gas emissions, I think we can be very proud of our company first because we've already reduced by 40% of the CO2 emissions produced at site. But now we've also set a new target to reduce a further 40% CO2 emissions by 2030 when we base our 2014 emissions in terms of the intensity per tonne of iron ore produced. And very proud to be one of the lowest CO2 intensity producers of high-grade iron ore in the world. We've also committed to be carbon neutral by 2050. In terms of positive impact in the community, well, we've had significant contracts with local -- from local suppliers. Close to $400 million has been deployed in the communities to make sure that we can, one, operate our site, but two, work closely with the local communities to create wealth within the region. Second, as you know, your company has one of the safest tailings infrastructure in the world. And again, this year, we managed to be 100% compliant, another milestone that we're extremely proud this year again. In terms of milestones, it's been a pretty exciting year. We've had a few major projects that we've managed to achieve. One, while we've navigated through the COVID situation throughout the whole year. And two, we managed to do an acquisition, the Kami project, which has increased by 1.7 billion tonnes our resources, positioning us to be able to continue supplying high-grade iron ore into the future. So we secured that at the beginning of the year, and we finished the year by actually delivering our expansion, the Phase II project. That's -- if you remember the Phase II project, we're talking about a USD 1.6 billion project that we finalized and we've started in April of this year, and we're now in our ramp-up phase. It's a project that we've managed to deliver 3 months ahead of schedule, even at the times have been extremely challenging and different from other projects that we've seen around the world. So very proud of our team that have been able to work together with our partners to deliver this project 3 months ahead of schedule. We've also acquired the Pointe-Noire pelletizing facility So as we know, the world is shifting and steel manufacturers are going to reduce their CO2 emissions. And to do so, they need high-grade iron ore. And to produce that, not only do they need high-grade iron ore, but they need DR grade material. And the pellet plant that we've acquired will allow us to produce DR pellets in the future should we recommission this plant. In terms of the industry, well, it's been a very favorable year in terms of iron ore price. The average for the P65 index has been just shy of USD 180 per tonne. And as you'll see in the coming slides, we fully benefited from this price. In the Q1, you've seen the price correct slightly. But as we deliver our Phase II project, we'll be able to continue delivering high margins and significant revenues for the company even at a lower iron ore price environment. In terms of production, as we mentioned on the first slide, a third year where we're just shy of 8 million tonnes per year, producing close to 500,000 tonnes over a nameplate capacity for the third year. So a significant achievement by the teams that have worked at the Bloom Lake site. In terms of costs, you've seen our costs increase by roughly about 9% over the year. This is mainly due to fuel prices, but also part is associated to the commissioning of the Phase II. So we'll be able to see in the coming quarters once we get Phase II to nameplate capacity where we'll be able to reduce our costs. But if you look -- take a step back and you look at the actual market and you account for the premiums that we received versus the penalties for lower grade type material, and you put everybody on a 62% level, you can see on this chart right here, that we're one of the lowest cost producers in the world. So even with this increase during the year, we're still very well positioned to continue delivering high-grade iron ore to the market at one of the lowest costs in the world. In terms of premium for our product, one important thing. As we see from quarter-to-quarter, there is some volatility. We see provisional price adjustments. But if you take the whole year and you look at the P65 index, it was at $179 per tonne, and we realized $181 per tonne. So we fully realized the premium and even a little bit over because of a high-grade material and will continue to do so in the future. In terms of financial results, as we mentioned on the first slide, over $900 million of EBITDA for the year. So a very good year for us, which allowed us to finish delivering our Phase II project and do this without drawing down on our various facilities. During the year, while we deployed over $450 million on the Phase II, paid our first dividend, also acquired the Kami project as we mentioned, and we managed to do all this while keeping the company in a very healthy cash position of close to $400 million without drawing on our debt facility. In terms of our debt facilities, one important highlight as well is that we've refinanced our credit facility. And we now have a USD 400 million revolving facility. We've also added some larger players in the -- in our syndicate, which is a good testament of the credibility we have in the market, being able to attract large institutions to support our growth initiatives. We've also continued our capital return strategy by paying our inaugural dividend of $0.10 per share on March 1, 2022, and also paid a subsequent dividend of $0.10 on June 28, 2022, again, continuing our capital return strategy. In terms of the cash position, we're in a very -- we have a very robust balance sheet. When we look at your company right now, very well positioned for growth with over $570 million available to us to be able to continue our growth initiatives. And when we talk about growth initiatives, which projects are we looking at? Well, first, it's important to look at our clients who actually requires this material. We see that Japan has increased the -- their share of the tonnes for this year. But as we deliver Phase II, we'll see Europe requiring more and more tonnes and markets like Korea as well, increasing their share of the market. So we're one of the least exposed to China in terms of iron ore producers, and we're also working with clients closer to home to be able to deliver the high-grade iron ore. In terms of significant milestones, while the Phase II as we mentioned, one of the highlights of the company. So remember in 2018, when we started Phase I, a big highlight, but 2022, starting Phase II, another big highlight with the teams. We even had the chance to have 2 ministers come to site for the inauguration and also did a celebration with all of our employees to thank them for delivering a project 3 months ahead of schedule in a very challenging time. In terms of the ramp up, how is it going? It's going better than planned. So we feel very comfortable we'll be able to deliver a nameplate capacity and commercial production before the end of this calendar year. In terms of pelletizing opportunity, well, we acquired the pelletizing facility in Pointe-Noire. This is prime location, just beside our stockpile, access to water, access to hydroelectric power. So a very good site to be able to potentially build or recommission this pelletizing facility. We've also entered into an MOU with one of the largest steel makers in the world to evaluate and to do the feasibility study to produce direct reduction grade pellets. So also allowing us to help our steel -- the steel manufacturers to reduce their CO2 emissions in the future while producing steel. In terms of green solutions, we're also finalizing a feasibility study to be able to produce DR grade material. So we're looking at a flotation plant at site to be able to produce 69% FE material, which has a premium in the order of magnitude of about USD 25 per tonne in the current market. We're also advancing the feasibility study for Kami to be able to deliver this in the coming year to be able to evaluate our growth initiatives, to be able to produce direct reduction grade pellet feed directly at Kami. And as we mentioned, also finalizing and -- starting and we'll finalize the feasibility study for a new pelletizing facility in Pointe-Noire. In terms of greenfield transition, why are we looking at these initiatives and these growth projects is because we see the world changing. The world is going to require more high-grade material. And we see with only what's been announced today, there's over 45 million tonnes per year of additional DR quality feed iron ore that is going to be required to serve the new electric arc furnaces that have been announced and are being built right now. That's more than doubling the current merchant market size. And we have not seen any projects of scale being announced apart from what we're doing right now to be able to supply into this new market. So we feel there's a significant premium that can be achieved for this material, and we believe that is the right future for your company to produce into the DR-grade-type material. What are our focus this year? Well, one, always focusing on the health and safety of our employees, partners and communities. We're also focusing on the ramp-up of Phase II to be able to bring Phase II to nameplate capacity. We also want to manage our cost in this inflationary times, so to make sure that we're able to deliver the tonnes and reduce the cost with the added volume coming from the Phase II project and also finalize these 3 feasibility studies, as we mentioned, on the DR pellet feed, the Kami project and also the pelletizing facility in Pointe-Noire and always continue managing our capital in a very diligent way to be able to consider shareholder returns through the year. So I'd like to thank all of our staff, local communities, all of our partners, shareholders, everyone here at the AGM. And I would like to turn it over to Michael O’Keeffe, our Chairman, for closing remarks.

Thank you, David. And well, you said a lot there in a short period of time, but it's worth reflecting where we were in April of 2015 when we were starting to look at the evaluation of Bloom Lake. We just completed a rail study with the government, and they are very supportive of us into looking at Bloom Lake. And in December of 2015, we were the successful bidders. And it's worthwhile looking at this because at the time we presented to the government and convinced them that we were the right people to be partnering up with. And we've had a great relationship with the government, and we've been able to deliver everything that we said in 2015, and that allowed us to acquire the asset. I must admit we had some rocky roads trying to raise the money because on the day that we were told we were successful, David and I were walking down for Christmas lunch, and the iron ore price that day hit $38 a tonne. I mean there are moments that make you -- you don't forget. But we stuck to our guns, and we successfully raised the money with a fair bit of difficulty. We've never been able to do that without the government. But also we never have the government on our side if it wasn't for the advisers that we had with Nashville, led by Marc Dorion, who's here with us today. And he gave us the road map to the government that allowed us to have that dialogue and to support us. And it's great to be here today, Marc to thank you personally for that. But we also then -- we focused on Phase I. And in -- we did a feasibility study in 2017 and 2018, we delivered the project on time and on budget. And that's a great reflection on the team that David put together with himself and Alex and the rest of the group. They were able to bring that project on. But they lived it. They were up there all the time doing this. So it was a hands on for the team. And as we got going, we're now as soon as got going, and we started looking at Phase II, and you'd have to because there's so much capital that we spent on that already. David's told you how much we spent extra on that. But again, we brought Phase II on time, on budget. In this day and age to bring on $1.5 billion, $2 billion project in mining that's unheard of. We did get a flying start, thanks to [ Chris ] but it wasn't a walk in the park. And you might remember through the period of COVID, the boys are trying to isolate different camps of people. At one stage, we had 2,000 people coming in and going from the site. So it was a huge logistic challenge for the team, and they've been able to do it. But it's not been lost on the directors and because we've watched this and lives with the management as they've delivered the project for us. As David said, there's a great pipeline of projects coming for us, and he's talking about the green future, which we're very focused on. We're blessed in Canada of having power that's generated as very green with our hydro system, and we have plenty of water. And if you look at what's happening in Europe today, you see that they're struggling with gas and they're struggling with water and they're struggling with all of those natural things that we're blessed with here. So it allows us the opportunity to be able to be greener and people to focus more on Canada, and we really want to take advantage of that, as David has explained to you. But I also look at it very carefully because as I said to Dave and the team, one of the most important things for us to manage going forward is we don't want to be complacent with our cost structure because it's very easy to take your eye off the ball with costs. And before you know it, you'll see costs move up now. Everyone was concerned in our last quarter because the costs were high or as they should be because we're commissioning Phase II, double the cost, but only we're not getting double the tonnage. So as we go forward, you'll see that our cost structure come back to more normality. But also very, very important for us to focus on and highlighting what David said is that everything that we're doing with the pellet plant and looking at the DRI plant, a power plant requires flotation ahead of that and then the pellet plant and then potentially DRI. And if we have a product that's -- of that quality, you're looking at a massive premium over that. And that could be anywhere $50, $60, $70 above the $62 now. What that means is if we look at our cost structure in an example, if we have USD 45 a tonne delivered to vessel, all of a sudden, there's another USD 20 a tonne comes off that. So we put us very, very low on the cost curve in the USD 20 mark, which is very competitive with the best in the world. And Michael can run the numbers when we get going a bit further down, but towards completion. But I see that is very, very important for us, maintaining the company being green, but also being able to make sure that we manage our cost structure. So we do have a future and we can look at other opportunities, which we will continue to do. So on that note, I'd really like to thank the team, you and the team, David, for everything that you've achieved and where we are today, and thank you for shareholders for supporting us and supporting us through the votes. We're very aware of the police that watch over what we do with various lobby groups. You can never keep everyone happy. However, I think we go a long way to our corporate compliance. So thank you again to shareholders, and I wish you all a good morning in Australia, wherever you are in the world and good evening here in Montreal. Thank you.