Champion Iron Limited (CIA) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning. My name is Mel, and I will be your moderator for today. At this time, I would like to welcome everyone to the Champion Quarter 1 Results of the Financial Year 2027. [Operator Instructions] And please be advised that this call is being recorded today, Thursday, July 30, 2026. I will now turn the call over to our first speaker today, Michael Marcotte, CFO. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us on this call today. Before I'll turn it over to our CEO, David Cataford, I'd just like to remind people that throughout this call, we'll be making forward-looking statements. If you want to read more about these and our risk and assumptions, you can visit our MD&A at our website on championiron.com. We'll also be using a presentation throughout this webcast, which is also available on our website under the Events and Presentations section. In addition to our CEO, many other executives are attending here for this call, including our COO, Alexandre Belleau. With that, I'll pass it over to David for the presentation.

Thanks, Michael. Thanks, everyone, for being on the call. So if we run through the results for the first quarter fiscal year 2027, we produced roughly about 4 million tonnes during the quarter, combining Bloom Lake and Rana Gruber and sold roughly about 3.3 million tonnes. Revenues of about $356 million during the quarter and an EBITDA of about $32 million during the quarter. If you remove a little bit of noise and single time elements on the EBITDA, we would have been closer to $60 million. If we remove also the volume effect, and we'll be able to run through this in terms of the sales, we would have been closer to about $70 million, which would have been in line with the expectation. If we look in terms of the industry and more specifically the iron ore industry, P65 index averaged about USD 122 per tonne, so pretty much flat quarter-on-quarter. Same with the premium of the P65 or the P61, close to USD 17 per tonne, where there was a pretty significant increase was on the C3 freight index. This rose by about 37% quarter-over-quarter and reached about USD 34 per tonne. So obviously, this has had some impacts for us, and this is mainly due to the shipping disruptions that we've seen in the Middle East and also higher fuel costs, again, resulting from the conflict in the Middle East. If we look at operational and sales highlights, so as we mentioned, produced about 3.9 million tonnes of high-grade iron ore during the quarter. Sales of about 3.3 million, of which 3.1 million tonnes of Bloom Lake and 200,000 tonnes at Rana Gruber. And one of the -- I think the most positive highlights during the quarter is working in the ramp-up of the DRPF project. So we finalized the flotation plant, and we're now working to be able to produce 69% material to get a significant premium for our material. If we turn to community governance and sustainability, a few highlights during the quarter. So one, this is the quarter that we closed the transaction with Rana Gruber. So we went down, met with all the employees to be able to start the integration process and also met with quite a lot of politicians in Norway and also in the town of Moana to be able to start explaining our vision and the next steps of the combination of this company. We also had quite a lot of traction here in Quebec where we had Federal Minister Joly and also Deputy Coty that were at our offices alongside the Minister of Economy and Minister of Natural Resources of Quebec to be able to announce the flotation plant finalization and the first contracts of our new product. So very happy of the support that we've been getting from the federal and provincial government and the partnership that we've developed with these various groups. In terms of results, so if we dive into each operation, if I look at Bloom Lake, as we mentioned, produced about 3.5 million tonnes at Bloom Lake, but only sold about 3.1 million tonnes. This is mainly due to the fact that, one, there was some maintenance on the rail and port operations. And also, we produced roughly about 600,000 tonnes out of our flotation plant very positive results. And when we look at the impact of this in terms of sales, so obviously, we've been stockpiling some material of the higher grade, blending some other, but stockpiling material of 69% to be able to sell our first cargo that will start loading in the next few weeks. So sales were a little bit under the -- what you've seen in the past, but we do see that reversing quite quickly to be able to start selling our 2 products, the 69% material and also our typical concentrate. One of the highlights when you look at the commissioning of the plant is if you look at our iron recovery, we averaged about 79% during the quarter. So a very small impact with the commissioning of the flotation plant. So I think it's very positive news and telling of the type of circuit that we've implemented. and very reassuring for the future as well. I mean we're in ramp-up period, and we're still at 79% iron recovery. In terms of our financial results, so if you look at the actual mining and processing costs at site, pretty much flat year-over-year. So I think what we control, we've done a fantastic job in being able to navigate through the current situation where we were impacted, well, obviously, when you look at the sales that were 3.1 million tonnes, most of our port costs are fixed. So that has had an impact during the quarter, but that should reverse as we're able to sell more tonnes through the next quarters. In terms of the sustaining CapEx also seems a little bit high, but this is also due to the fact that we only divided that by 3.1 million tonnes during the quarter and also due to the fact that we've got seasonal tailings work that is being completed at Bloom Lake. So, when you combine both, obviously, our all-in sustaining looks a little bit higher, but that should reverse in the coming quarters. In terms of Rana Gruber, they got a little bit of a similar impact, but for different reasons, produced about 400,000 tonnes during the quarter, only sold about 200,000 tonnes. It's mainly due to the fact that they had vessels that were supposed to go to the Middle East. And due to the conflict, we're not able to ship them out. So we reallocated those tonnes, but timing, we were not able to sell them in this quarter. It will be sold in the next quarter. So that's why you've seen such a small sales portion at the Rana Gruber site. It's also -- if you look at Rana Gruber, it's a site that has 1 major shutdown per year instead of 2 major shutdowns like we have at Bloom Lake. So they got 1 major and 1 minor shutdown and the shutdown was also during this quarter. So when you combine all of those elements and also due to the fact that we only closed the transaction on the 10th of April, so we lost 10 days of essential production and sales at the asset. So, when you combine all those different elements, that's why we've seen such small sales. That also has a big impact in terms of the all-in sustaining costs because you're dividing all these costs on only 200,000 tonnes. But again, that should be able to reverse in the coming quarter and quarters. In terms of consolidated results, if we look at the average realized selling price, we realized around USD 115 per tonne, below the USD 121 average for the quarter. That's mainly due to the fact that we had about 2 million tonnes that were on the water and that had an expected price of about USD 110 per tonne. So that lowered our gross realized price for the quarter. We'll see what the price is when the material reaches the clients during this quarter. We also had a pretty big impact in terms of freight where the cost increased to about USD 36 per tonne in this quarter. In terms of the consolidated financial highlights, as we mentioned, quarterly revenues of about $360 million and EBITDA just over $30 million, which was under the expectation, but mainly due to the one-time elements during the quarter and also the volume impact of selling only 3.1 million tonnes of Bloom Lake material and 200,000 tonnes at Rana Gruber. What -- the impact on our cash. So that has reduced our cash during the quarter from $300 million to $200 million, but we did finalize the DRPF CapEx and also closed the transaction for Rana Gruber. So when you look at those 2 elements, they explain the most of the cash position during the quarter. In terms of the financial health of the company and our balance sheet, we still have close to $1 billion of available liquidity. So the company is still in very good shape to be able to go through this current conflict and as we talk about our growth initiatives, see how we're able to get back into cash positive territory. If we look at our DRPF project, I think this is the main highlight during the quarter. So we managed to finalize the project on time and on budget, so within the $500 million envelope. Very happy with the way that things are progressing. All major equipment has delivered as per plan. So we don't see any major hiccups on the commissioning part. We still have some ramp-up elements, so some small minor elements to fix, one of which being our screens. The screens work well, but it's the screen panels that were installed, that we're currently in the process of changing. We had that same issue when we started Bloom Phase 1 and Bloom Phase 2. So that's one element that until we dial in the right type of material that we need for the screens, we do have some bypass material in terms of the flotation plant. That being said, we still managed to hit a 69% material. So, we know that the plant is able to deliver in terms of the specs. We also have been able to push the plant to its full capacity. So, we know that the plant can deliver on the volume side. Now it's just to remove all those small start-up and ramp-up elements to make sure that we can do that consistently. In terms of sales, so we're happy to say that we've signed our first contracts and the first one or the first vessel is going to be loaded in the next few weeks. So, a vessel of about 160,000 tonnes of DR quality material that will leave our port in the next few weeks. So very happy with the way that this is progressing. We still feel that we'll be able to materialize significant premiums for this material. The first contracts that we've signed do have premiums over and above the P65 index. But as we had mentioned in the past, these are test cargoes. So we're not getting the full benefit of our material. But still, I think that's going to reposition our costs in the future as we ramp this up and we're able to deliver to markets that are closer to home. If we look at our potential clients, we're still in the same territory, as we mentioned before, with North Africa, Europe and Middle East as potential first targets. We've included also the Americas. So we are in discussion with some clients also in the Americas. So that's another positive. If you look at the Middle East situation, so obviously, there's a conflict that restricts a portion of our clients, but not all of our clients. We can still deliver to a portion to the Middle East. So that market has not been closed. It's still open in various areas. So we'll still be able to sell some tons into that region even with the current conflict. So I think a very positive transition for us. I mean, obviously, a lot of noise during the quarter, not fantastic when you're closing a transaction, starting to integrate a project, delivering a major flotation project like we're doing at the same time as the conflict started in the Middle East, impacting our freight costs, impacting fuel. But all that being said, I think we've positioned the company very well to be able to benefit from better premiums in the future and be able to generate significant returns for our shareholders. I'd like to thank all of our employees that have made this possible. I mean, obviously, in this challenging time to be able to keep the focus, to continue working on our costs, to continue working on our projects and making sure that we can deliver that safely and with no environmental issues, I think it's something that we could be very proud of our teams, and we'll continue to work very -- in the right direction to be able to make sure that we deliver on what we've mentioned in the past in terms of our growth initiatives, including the flotation plant. So with that being said, I'll turn it over to the Q&A portion of the call.

[Operator Instructions] We have the first question comes from the line of Alexander Price from BMO Capital Markets.

So David, you flagged there was a big step-up in CapEx or sustaining CapEx this quarter. I think you said that you'd expect this to trend lower going forward. Does that mean that we should assume a normalization of sustaining CapEx in Q2? Or do you think it's likely to stay elevated over the next quarter or so going forward?

Well, in terms of dollar amounts, I'd expect it to stay similar in the next quarter, maybe slightly lower, but in the same territory, where I think it's going to have an impact on our actual all-in sustaining cost because we only -- we had to divide that by only 3.1 million tonnes during the quarter. If we look at next quarter, we should be back to a normal sales territory. So that should allow us to have an all-in sustaining cost that's lower. And then when we go to Q3, Q4, well, in the past, we've always seen sustaining CapEx be significantly lower in those 2 quarters.

Great. And then maybe I can ask a question on the DRPF project. So just to confirm, you spent essentially all of the CapEx now, correct?

Correct.

Okay. Great. And then you mentioned the first vessel will be leaving the port in a few weeks. Are you able to share which direction that is heading?

It's going to go east.

Your next question comes from the line of Orest Wowkodaw of Scotiabank.

I wanted to congratulate Michael actually on his promotion to CFO. But in terms of my question, your inventory levels this quarter were very elevated. There was a significant jump at both assets. Do you think this is peak inventory levels? And can we anticipate now that with vessels scheduled to go this quarter that we should see that inventory start to destock? And if you could give us any kind of idea by how much because I'm not clear whether there's more inventory impacts expected here with the DPRF ramping.

Yes. When we look at a lot of the inventory, I mean, we now report the combined inventory at the port and at the mine, and we've got quite a lot of material that's actually at the Bloom Lake port. But we had to stockpile some material mainly due to the flotation plant. So, the first sales is going to start loading -- the first vessel of this material is going to start loading in the next few weeks. So that's why we've had to stockpile that portion. But when I look at Bloom Lake going forward, I wouldn't expect the stockpiles to increase. We're really in the territory of being able to bring down the stockpiles.

Okay. And then from a balance sheet perspective, your net debt obviously significantly increased this quarter, largely due to the acquisition, but also because of just the inventory. Is -- do you see this as peak net debt? Or -- because I'm getting a little bit concerned just in terms of the one direction, your debt has been rising here.

Yes. When we look at the next steps within our company, so obviously, most of the CapEx is behind us. I mean all the CapEx of the DRPF is behind us. There's very small sustaining CapEx at the Rana Gruber site. And we're in a territory now. And when you look at this quarter, there's probably 600,000 to 700,000 tons less sales that should have happened mainly due to the ramp-up of the flotation plant and this new product. So, when I look at the next steps, obviously, for us, it's going to be to work on deleveraging the company. So we just finished quite a big CapEx run, but I don't see areas where we want to increase the debt in the future.

Okay. And one more, if I could just squeeze it in. In terms of the premium on the DPRF, you mentioned that you've now priced some of the test cargoes. When do you think -- as you look ahead in the next couple of quarters, when do you think we could actually see that premium start to make an impact on your average realized price?

I think we're going to start to see it next quarter, but really Q3, Q4 is when we're going to see a bigger boost as we get more and more tons out of this flotation plant.

Next question comes from the line of Craig Hutchison from TD Cowen.

Just maybe a follow-up on Orest's question on the DR premiums. The fact that you're selling test material now, is there a mechanism if it meets spec where you get a higher price? And I guess my kind of follow-up question to that is how long -- how many like cargoes would it take for them to establish a comfort level that you could realize a much higher price over and above the P65?

Yes. We're going to get a premium even in the test cargoes. So just the fact even of the iron units and the fact that we're going to sell closer to home. So, I mean, even in the test cargoes, we are going to see a premium, not to the level as what we had in our feasibility study, and that's where the negotiations come for the next cargoes. Depending on the clients, most clients, once they've used up material from one cargo, it's enough to have a view on how well this functions in their plants. So I don't expect it to be multi-cargoes to be able to get that comfort. And then it's more a question of making sure that we're able to sign the right contracts at the right level for this material. But I wouldn't expect the test cargoes to be more than about 1 per client.

Okay. And then just on Rana Gruber, I know you guys don't provide guidance, but can you give us any comfort in terms of where you kind of see the steady-state C1 cash costs going and all-in sustaining costs? Obviously, all-in sustaining costs are very high this quarter. But just trying to get a sense of where you see this asset sort of settling out at once you guys kind of get back to full throughput.

Yes. So when we look at the Rana Gruber sites, the fact that they only sold 200,000 tonnes was really the biggest impact during this quarter. So, this should normalize even this current quarter. So, I don't think that there's going to be significant impact like what you've seen now. In terms of their costs, I mean, they've been hit a little bit in terms of the fuel price like a lot of people have. But realistically, I do feel that we'll be able to get in a more normal all-in sustaining cost similar to what you've seen in the past with the Rana Gruber site.

So, the assets should be -- would you say will be free cash flow generative in sort of second half of this year?

Well, I don't have a crystal ball, but realistically, when I look at them...

At spot prices, I guess.

Yes, at spot prices, yes.

Okay. And then just maybe one last question for me. Just an accounting question. Just when you guys report your adjusted EBITDA, I was curious why you kind of include some of these derivative adjustments or why you don't back them out in terms of what you report?

We've never done it in the past. So that's why just to do it now would have been a little bit odd.