Champion Iron Limited (CIA) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. My name is Michael O'Keeffe, and I'm the Executive Chairman of Champion Iron, and I'll be serving as the Chair of today's meeting. It's now 7 a.m. in Sydney and 5 p.m. in Montreal. I welcome you all to the 2024 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 other Directors, including 5 Directors attending in person: Mr. David Cataford on my left, our Chief Executive Officer; Michelle Cormier; Ms. Louise -- sorry, Ms. Louise Grondin; Jessica McDonald; Mr. Ronnie Beevor, all the way from Australia; and Mr. Gary Lawler via webcast. Other members of management also joining us today are Steve Boucratie on my right, Senior Vice President, General Counsel and Company Secretary; Mr. Michael Marcotte, who you heard at the opening, Senior Vice President, Corporate Development and Capital Markets; Mr. Alexandre Belleau, Chief Operating Officer; Mr. Donald Tremblay, Chief Financial Officer; Ms. Angela Kourouklis, Senior Vice President, Human Resources; Mr. Francois Lavoie [indiscernible], Senior Vice President, Sales Technical Marketing, Product Development; and Mr. Jorge Estepa, Assistant Corporate Secretary, quite a list. Also joining us, Mr. Patrick Bernard Daru, a partner in Ernst Young, the company's auditors. He is also present at the meeting to take questions you may have in relation to the conduct of the audit, the preparation of the content of the audit report, the accounting policies adopted by the company for the preparation of the financial statements and the audit independence in relation to the conduct of the audit. It's my pleasure to welcome everyone to the Annual General Meeting. I will now let Mr. Steve Boucratie, our Senior Vice President, General Counsel and Corporate Secretary, briefly explain the formalities regarding the conduct of this meeting. Mr. Boucratie will then deal with the formal business of the meeting as outlined in the meeting materials that you all received, including voting on resolutions on my behalf. Steve?

Thank you, Mr. Chair. Hello, ladies and gentlemen. My name is Steve Boucratie, and I am the Senior Vice President and General Counsel and Corporate Secretary of Champion Iron Limited. The Chair has exercised its right under Rule 17.2 of the company's constitution to call a voting by ballot on all resolutions. As a result, all voting will be conducted by ballot, so that all proxy votes can be recorded. Any shareholder who has not received voting papers, please raise your hand so that the scrutineers can provide you with one. Mr. Steve Gilbert and Ms. Claire Girard of Computershare Investor Services, Inc., the company's Canadian transfer agent, will organize the distribution of voting papers and may provide guidance on the completion of those voting papers if required. We will move through the agenda items of the meeting which we are considering today, while the voting by ballot is being conducted. Meaning that shareholders with voting papers may vote at any time during the meeting. And when voting closes, we will ask shareholders to raise their hands to return the ballot to the scrutineers, which will then be counted by Computershare. As a reminder, as with any in-person meeting, only registered shareholders and duly appointed and registered proxy holders are permitted to vote or ask questions at this meeting. I would now 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, 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 2024 financial year and financial Q1 2025. Upon the request of the Chair, I will also act as Secretary of the meeting, and Steve Gilbert and Ms. Claire Girard of Computershare will act as scrutineers. The notice of meeting and the management information circular were dispatched to shareholders filed electronically with the ASX and on SEDAR+ and filed on our website. The financial statements for the year ended March 31, 2024, and the annual report for the year ended March 31, 2024, which includes the remuneration report at Pages 73 through 116, have also been filed with the ASX and on SEDAR+ and placed on our website. These materials are taken as read. The formal business of this 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, 2024; adopting the remuneration report as set out in the annual report of the company for the financial year ended March 31, 2024. In the event that the remuneration report is adopted by shareholders, but has more than 25% of the votes cast again at this meeting, under the Australian Corporations Act, the company is required to put before the meeting the conditional spill resolution; electing 8 directors under 8 separate resolution; reapproving the company's Omnibus Incentive Plan; and appointment of an additional auditor to the company. To expedite the formal part of the meeting, I will briefly describe or discuss each agenda item in the sequential order in which they appear in the notice of meeting. I do not propose to read aloud each proposed resolution. These are contained in the notice of meeting, which has been taken as read. While this procedure will facilitate the handling of the formal resolutions, registered shareholders are duly appointed and registered proxy holders may raise comments or questions on any resolution before the meeting. Under the Australian Corporations Act, the company is obligated to lay before this meeting the last audited financial statements and reports for the financial year ended March 31, 2024. The tabled copy of the audited financial statements and reports, including the director's report and the auditor's reports, are available for review by registered shareholders or duly appointed and registered proxy holders at this meeting. The reports are tabled but are not subject to a resolution. However, we will be pleased to receive any comments or questions concerning the financial statements or the reports, 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, 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. The second item of business is a Corporations 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, 2024. The Chair has authorized me to open 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 review by registered shareholders or duly appointed and registered proxy holders at this meeting. The remuneration report can be found at Pages 73 through 116 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. However, if more than 25% of the votes cast on this resolution are against the adoption of the remuneration report, the conditional spill resolution will be put to the meeting. The conditional spill resolution is a resolution which is passed by more than 50% of vote cast on the resolution would require that the company hold an extraordinary meeting of shareholders within 90 days of this meeting to consider the composition of its Board of Directors. Acknowledging that the directors have an interest in the outcome of this item of business, the directors recommend voting in favor of the adoption of the remuneration report. Based on the proxies received prior to the meeting, more than 25% of the votes validly cast on the resolution to adopt the remuneration report have been cast against the adoption of the remuneration report. According to the Australian Corporations Act, the company has received a second strike on its remuneration report. The Australian Corporations Act now requires the meeting to proceed to the third item of business and to put the spill resolution to the meeting. The conditional spill resolution requires an ordinary majority of more than 50% of votes valid cast to be passed. If this conditional spill resolution is passed, the company will be required to hold an extraordinary meeting of shareholders within 90 days of this meeting to consider the composition of its Board of Directors. Acknowledging that all directors have an interest in the outcome of this item of business, the directors recommend voting against the spill resolution. The Chair has authorized me to open the voting on the spill resolution, and I now do so. We ask you to please cast your vote on your ballots. The next item of business as contained in the Resolution 3 through 10 in the notice of meeting is the election of directors for the current year. The Chair has authorized me to open the voting on these resolutions, and I now 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 or trading on the Toronto Stock Exchange, all directors must retire annually and may offer themselves for reelection at the Annual General Meeting. Each of the directors, except Mr. Ronnie Beevor, was appointed at the last Annual General Meeting. The notice of meeting and related materials contain the names and details of the proposed nominees to the Board of Directors who are: Mr. Michael O'Keeffe; Mr. David Cataford; Mr. Gary Lawler; Ms. Michelle Cormier; Ms. Louise Grondin; Ms. Jessica McDonald; Mr. Jyothish George; Mr. Ronnie Beevor. The directors recommend that shareholders vote in favor of Resolution 3 through 10 to appoint the respective nominees as directors of the company, except that each director does not make any recommendation as to how shareholders would vote on the respective resolutions relating to his or her appointment. The next item of business is the reapproval of the company's Omnibus Incentive Plan. The Chair has authorized need to open the voting on the reapproval of the Omnibus Incentive Plan, and I now do so. We ask you to please vote on your ballot. Explanatory materials in relation to this resolution, including a summary of the terms of the company's Omnibus Incentive Plan is set out in the explanatory statement, which forms part of the notice of meeting, which can be found on Pages 27 to 28 in Schedule B. In brief, the company adopted the 2018 Omnibus Incentive Plan following shareholder approval at the Annual General Meeting held on August 17, 2018, and again on August 26, 2021. Thus, this is the third shareholder approval sought under the ASX Listing Rule 7.2, Exception 13(b) with respect to the issue of securities under the Omnibus Incentive Plan. Additionally, in accordance with the requirements of the Toronto Stock Exchange, every 3 years after institution, all unallocated stock option rights and other entitlements under a security-based compensation arrangement, which does not have a fixed maximum number of securities issuable, must be approved by a majority of the issuer directors and issuer security holders. As the company's Omnibus Incentive Plan does not have a fixed maximum number of securities issuable thereunder, the shareholders are required to approve all unallocated options and other entitlements issuable pursuant to the Omnibus Incentive Plan. Acknowledging that all directors have an interest in the outcome of this item of business, the directors recommend voting in favor of the reapproval of the company's Omnibus Incentive Plan. The next item of business is the appointment of an additional auditor of the company. The Chair has authorized me to open the voting appointment of an additional auditor, and I now do so. We ask you to please vote on your ballot. As set out in the explanatory notes of the notice of meeting on Pages 28 and 29, as a dual-listed company, Champion is required to comply with the requirements of each region in which it is listed. As such, Ernst & Young Australia has been the company's appointed auditors since 2013, and that appointment continues to ensure that the company complies with Australian Financial Reporting requirements. Effective from May 15, 2024, Ernst & Young LLP being EY Canada was appointed as an additional auditor of Champion to audit and report in accordance with Canadian generally accepted auditing standards on whether the company's consolidated financial statements are prepared in accordance with IFRS. The Board appointed EY Canada in May 2024. Shareholders are required to approve the appointment of EY Canada as an auditor of the company at this meeting. EY Canada provided consent to be appointed as auditor and a shareholder nomination to appoint EY Canada has been received and provided in the notice of meeting. 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 the ballot to finish voting. We ask that all shareholders raise their hands to return the ballot to the scrutineers. I now declare the ballot closed. We will proceed to the Q&A session while the scrutineer tallies the result of the ballot on each resolution. There's any questions? 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 put forward to this meeting.

Thank you, Mr. Secretary. Hello, ladies and gentlemen. My name is Jorge Estepa. I'm the Assistant Corporate Secretary of Champion Iron Limited. The scrutineer, Computershare Investor Services, Inc., have provided me with the preliminary results of their tabulation of the vote with respect to each of the resolutions considered at today's meeting. The scrutineer, Computershare Investor Services, Inc., confirmed the following preliminary voting results. The remuneration report for the financial year ended March 31, 2024, has been adopted by 68% votes cast. But as more than 25% of the votes were against the resolution, this means that the company has received its second strike. The number of votes cast against the remuneration report constitutes a second strike under Australian law, and Resolution 2, the spill resolution was not carried. Additionally, each of the 8 director nominees received the required percentage of votes for, as well the reapproval of the Omnibus Incentive Plan received the required percentage of votes for. And lastly, the appointment of an additional auditor of the company received the required percentages of votes for.

Thank you. I declare each of the resolutions considered at today's meeting in respect of those matters as carry other than the conditional spill resolution. However, the remuneration report has received more than 25% of votes again. Under the Australian Corporations Act, this constitute a second strike, which resulted in conditional spill resolution being put to the meeting. The conditional spill resolution required an ordinary majority of more than 50% of votes to be cast in favor of it and was therefore not passed by the shareholders. Although the conditional spill resolution was not carried, Champion's Board and management take the views of its shareholders very seriously, and we will work towards understanding the nature of any concerns through direct engagement and are committed to addressing any areas of improvement identified by shareholders. 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 this meeting. As there is no further business, that ends the Annual General Meeting of the company for 2024, which I now declare closed. I would like to take this opportunity to thank our shareholders for their continued support over the past years as well as our employees for their commitment and their diligence, and we look forward to reporting our ongoing progress during the current financial year. Also, I would like to remind everyone that we have provided -- we had planned to provide a corporate overview of activities in our recently completed 2024 financial year and financial Q1 2025, following the formal part of the meeting, and our Chief Executive Officer, David Cataford, will now begin the presentation.

Hi, everyone. Thank you for your presence today. Very happy to be able to give a summary of the fiscal year 2024 results. Firstly, I think we can all be proud of the way that we've managed to produce not only records in terms of sales but records in terms of production this year, benefiting from our Phase 2 project ramp-up. We produced around 14.1 million tonnes during the year and managed to sell 11.6 million tonnes of high-grade iron ore. Another important fact is that every tonne that was produced within the Phase 2 has been produced at around 66%. So every single tonne that was produced during the ramp-up phase has been of sellable quality and of high-grade iron ore. Also very important to say that we didn't only produce tonnes, but we produce clean tonnes. So there was no significant workplace incidents during the period and no major environmental issues, not only this year but since the recommissioning in 2018. What's also interesting is the fact that we've managed to be 100% compliant with our tailings management again this year. So since the recommissioning, we've been 100% compliant with our tailings. This is due to the investment that we've done year on -- year-after-year in our tailings facilities. We can also be very proud as a company to be able to be one of the top mining companies in terms of wastewater we used and recycled. Over 99% of the water -- mining wastewater at site is either reused or recycled. And also very proud in the fact that we're continuously rehabilitating the site, and we have over 76 cumulative hectares that have been revegetated since the restart in 2018. In terms of our ESG report, very proud of the report that we were able to produce this year. And one of the main highlights this year is that we've mapped down our value chain emissions and also established a Scope 3 assessment methodology. We can be very proud that we have an operation that produces one of the lowest CO2 intensity, high-grade iron ores in the world, but the largest impact that we have is with our customers. And by increasing the grade of our material, we can therefore, in the future, reduce our Scope 3 emissions and help our various customers reduce their CO2 emissions during steelmaking. It's always interesting to be able to take a look at all of the accomplishments that we've made through the year. If we go back just before the last AGM, we had worked through forest fires in the region near Sept-Iles, that impacted our logistics, but we managed to keep all of our employees safe, worked with the various communities to get them through this situation and continued the production throughout the whole forest fire events. One other important element during the year, if we go back to last fall or -- last Canadian fall, sorry, last September, we managed to increase significantly the resources at Bloom Lake, allowing us to imagine a potential operations beyond our current mine life of 2041. We also appointed Jessica McDonald on the Board of Directors and also recently appointed Ronnie Beevor on the Board of Directors. We managed to complete a $230 million term loan during the year, allowing us to take the decision to be able to go forward with our Direct Reduction Pellet Feed project. This is a project that will allow us to improve the grade of half of our tonnes, so of around 7.5 million tonnes to 69%, further helping our clients decarbonize and potentially allowing us to touch a significant premium in the future. We also announced the results of the Kami Project. So a significant potential growth initiative that we have within our portfolio and delivered a pre-feasibility study on this project. One other element we can be very proud during this year is that we've managed to sign a new 5-year collective agreement with our unionized employees, allowing us to continue the good relationship we have with our employees, but at the same time, stable operations for the next 5 years and very happy that we managed to do this in a positive way without any workplace stoppage or any issues and further improving our relationship with the unionized workers. There are the main -- one of the main reasons that we're able to produce all the results that we'll see in the next slides. Another very big impact during the year is the fact that we were able to work with the various governments and be able to make the case that high-grade iron ore is critical mineral. This was not initially intuitive because, typically, people think of decarbonization, they think of lithium, nickel, cobalt. They don't necessarily think of high-grade iron ore. But when you look at the fact that over 10% or close to 10% of the CO2 emissions in the world is due to steel manufacturing or to be able to produce high-grade iron ore and to have that resource here in Canada really is a differentiator and to be able to be on the list of Quebec, of Newfoundland and of Canada is a very big testament of the support to be able to develop future resources in the region in the future. And finally, not in the fiscal year 2024, but in the first quarter 2025, we managed to, one, implement our emergency response plan in terms of forest fire that was near Bloom Lake. We managed to efficiently evacuate close to 700 employees in a timely manner, worked with the local communities to be able to mitigate the impact of the forest fires and protect our assets against these forest fires. So very happy that the plans that we put in place were able to allow us to do this safely and also allowed us to protect our operations. If we look in terms of our actual operations, as we mentioned, record years in terms of sales and production. And I think one of the major highlights from the year is the fact that we managed to surpass our nameplate capacity in our second year of operation with Phase 2 over the nameplate capacity. Obviously, there's work to be able to be done in the future to be able to maintain that. But during 1 quarter, we produced a run rate close to 16 million tonnes per year, showing that what we've invested as a company will be able to not only deliver in the future its namely capacity but potentially go beyond that number. What's interesting as well is that we've increased our presence into Europe. If you remember, if we go back to 2018, 2019, most of our tonnes or almost all of our tonnes were going to Asia. Now we've increased the amount of tonnes going to Europe and also working on new potentials in the Middle East with other European clients to be able to improve the amount of tonnes that we sell to markets closer to home. So this strategy has paid off because we're able to lower our shipping costs to be able to sell to these customers and be able to increase the revenues for the company. As you've seen also in this past year, even if we were able to ramp up our operations very efficiently, we have had some issues with third rail -- third-party rail suppliers. We're currently working with them so that this can be solved in fiscal year 2025. But that has been a challenge that has obligated us to stockpile close to 3 million tonnes of high-grade iron ore at site. It is not one of our strategies to stockpile material and sell it into the future. This is only due to the fact that the logistics have not followed. But with the investments that we've made to be able to buy new railcars with the new locomotives coming in place and also with the rail operators that are being trained and also started operations recently and we'll continue to do so in the coming months, we're confident we'll be able to match the amount of tonnes that are being railed compared to what is actually produced and eventually also bring down the stockpile tonnes from Bloom Lake. If we can look at the industry, so the P65 index averaged around USD 131 per tonne comparable to the previous year. One of the elements is the fact that the premium for the P65 has reduced a little bit during the year, a decrease of about 3.4%. We do not believe this is a long-term trend. This we believe is a short-term element and we still believe that our strategy to produce high-grade iron ore to service the electric arc furnaces and to service the steel manufacturers that want to lower CO2 emissions is the right strategy. In terms of the actual price that we received, we've done a great job in being able to realize the full P65 index as we've had in the previous years. And if we look at our net realized price, for the year, roughly about CAD 131 per tonne. In terms of our cost per tonne increased slightly compared to fiscal year 2023. Our target is to be able to reduce this below the CAD 70 per tonne. We have seen that by increasing the volume, we're able to reduce our cost. One of the downside this year has been the logistics issue. So we had to move around quite a lot of tonnes. And as you can imagine, we do not have a stockpile of 3 million tonnes readily available next to our plans. We have had to haul this material load on load at various areas around the site, and that has caused increased costs during the year. There has been also an impact due to the labor cost following the collective bargaining agreement. When you look at the way that our workforce works at site, I'm very proud of this agreement that we've signed and of the returns to our actual employees. And we will continue in fiscal year 2025 to be able to work to reduce our operating costs. In terms of the EBITDA for the year, just over $550 million. This translates into an adjusted EPS of $0.46 per share. If we look at [indiscernible] cash position, so a very good year. We've managed to increase our cash by about $75 million. At the same time, as we've paid over $100 million in dividends, we've invested close to $100 million on our flotation plant to produce high-grade iron ore. We've also built our new garage to be able to maintain the equipment required in our Phase 2 project and continue to keep the site in good order, investing in the sustaining CapEx throughout the year. When we look at what we've been able to achieve in the amounts that have been invested, our balance sheet is still very robust. Cash and cash equivalents at March 31, 2024, of just over $400 million, with working capital of $200 million and available and undrawn loans of $542 million. So we have cash, cash equivalents, working capital and undrawn credit facilities exceeding $1.1 billion with a balance sheet allowing us to not only work on our current flotation plant but also other opportunities. Again, I think it's very important to highlight the fact that we were able to position high-grade iron ore on the list of critical minerals in Quebec, Newfoundland and Canada. The last one being Canada. And we're still working with the various teams to be able to evaluate the positives from this on our growth initiatives like a project called Kami. So there are some significant potential improvements to the project now that we are on the list of critical minerals, and we will work with the various government bodies and with our teams to be able to see what that can potentially be and come back to the market to be able to present these opportunities in the near future. Why is it important? And why did governments recognize that this material is critical? One, it's not readily available. There's very little jurisdictions around the world that actually produce it. And also, there's significant announcements to be able to produce lower CO2 intensity steel. We see there's over 160 million tonnes of direct reduction, our DR quality iron that will be required just to service the newly announced direct reduction iron capacity to service the electric arc furnaces. So just what's being announced and what's been built, there's over 160 million tonnes of DR-grade material that will be required with very little visibility on new projects coming online. So we really want to make sure that we can service that market to benefit from the premium that will be associated to this new capacity. In terms of our actual growth initiatives, well, the main focus for this year is to work on the DRPF or the flotation plant to be able to deliver that in the second half of calendar 2025. We also are continuing the permitting work for the Kami Project now that we've finalized the pre-feasibility study and working to be able to onboard a potential partner to be able to develop this asset in the future should the market require it. We also have a good opportunity to go beyond the 15 million tonnes. So we're continuing to work on our debottlenecking projects and very proud that the team was able to work and find new resources to be able to have a new resource plan and eventually potentially increase our reserves to be able to service those increased tonnes in the near future. And if we just look in a little bit more in detail on our flotation plant, what's been done, what's left to be done. So we've invested just shy of $100 million in the project since the announcement. This is roughly just a little bit more than 20% of the actual capital investment in the project. We're continuing to be on time and on budget on this project with an expected commissioning in the second half of 2025. The project is going well. Our safety record on the project is also pretty good and continuing to work to improve on that portion. But again, we feel comfortable and confident we'll be able to deliver this project within the budget that was announced last year. And if we look at the other focus for 2025, one, is to continue to produce clean tonnes. So we want to continue to have a positive impact in terms of the environment, whilst mitigating all the impacts potentially of our mine and also having one of our main priorities on the health and safety of our employees. We also want to optimize the logistics portion this year to make sure that we can actually send down all of our tonnes and start sending down the stockpiled material as well. We're going to work very closely with the rail operator to be able to debottleneck that portion and make sure we can get the contracted tonnes that are readily or supposed to be available to us. As we mentioned, continue working on the flotation plant to make sure that this project is on track and continue our diligent capital management and shareholder returns. On that, I'd like to thank all of our employees that made this possible and all of the support of our shareholders throughout the year and very happy to be able to tackle this fiscal year 2025 with all the challenges in front of us and looking forward to be able to discussing with you at the next meeting. Thank you very much.

Thank you, David. A very thorough update, as always. And there's not a lot for me to add. But from behalf of the directors and shareholders, thank you and your team for their excellent work. I think that the teamwork was really exposed and how well you guys got on together and tackled not only the projects that are coming but also the issues of social bushfires and dealing with First Nations and how supportive you are of them. Each year, I look around try and look for comparisons, and I don't see any such. And that's a real reflection on you and the team. So on behalf of shareholders and directors, we'd really like to thank you and the team and wish everyone a good evening here in Montreal and a great day in Australia. Thank you, everyone.