Earnings call transcript: Champion Iron Q3 2025 reveals strategic investments

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Overview

The earnings call highlights several operational and financial challenges, including supply chain issues, increased operating costs, and a significant decrease in cash position. Despite a slight increase in the P65 index price, the overall financial performance appears weak, with increased net debt and negative impacts on revenue. The Q&A section reveals uncertainties about future contracts and destocking timelines, further contributing to a negative sentiment. Dividend payments and shareholder return plans provide some positive aspects, but they are insufficient to counterbalance the overall negative outlook.

Key Financial Performance

Production Volume 3,600,000 tonnes produced, year-over-year change not specified.

Sales Volume 3,300,000 tonnes sold, year-over-year change not specified.

Railed Material 1,400,000 tonnes railed in November, year-over-year change not specified.

P65 Index Price Slight increase of about 3.3% during the quarter.

C3 Freight Index Decreased by just short of 20%.

Provisional Price Adjustments Negative impact of around US$4 per tonne on 3,300,000 tonnes sold.

Realized Selling Price Impacted negatively due to lack of long-term contracts, specifics not provided.

Operating Costs CAD 79 per tonne delivered, higher than desired due to extra maintenance and volume effects.

Revenue CAD 363 million, year-over-year change not specified.

EBITDA CAD 88 million, year-over-year change not specified.

Net Debt Increased due to CAD 100 million associated with mobile equipment and railcars.

Cash Position Cash decreased from CAD 180 million to CAD 90 million, impacted by dividend payment of CAD 52 million and investment of CAD 70 million in flotation plant.

CapEx Elevated due to investments in mining equipment and railcars, expected to return to around CAD 60 million per quarter.

DRPF Project Cost Total budget of CAD 471 million, with CAD 180 million left to invest.

Kami Project Valuation Sold down 30% to Nippon Steel and 19% to Sojitz for a valuation of about CAD 500 million.

Doctor Pellet Premium Currently around US$45 per tonne.

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Operating Highlights

Flotation Plant: The flotation plant is expected to be completed by the end of 2025, allowing Champion Iron to produce high-grade materials.

Kami Project Partnership: An agreement was signed with Nippon Steel and Sojitz for a 30% and 19% stake in the Kami project, respectively, valued at CAD 500 million.

Market Positioning: Champion Iron is targeting the DRI market, particularly in the Middle East and Europe, as demand for high-grade materials increases.

Production and Sales: Produced over 3.6 million tonnes and sold nearly 3.3 million tonnes during the quarter.

Operational Efficiency: Improvements in logistics have started to pay off, with a record month in terms of waste and ore mined.

Cost Management: Operating costs were CAD 79 per tonne delivered, impacted by maintenance and logistics challenges.

Debt Management: Net debt increased due to investments in mobile equipment and railcars, but the balance sheet remains healthy.

Future Capital Expenditure: Expected CapEx to normalize around CAD 60 million per quarter, excluding DPRF growth capital.

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Risk or Challenges

Operational Risks: The company experienced an unplanned event at the loadout that halted operations for 14 days, resulting in lost shipping opportunities and impacting sales.

Supply Chain Challenges: Logistics issues due to weather conditions and freezing temperatures may complicate operations in January and February, affecting the ability to destock inventory.

Regulatory Risks: Potential U.S. and Canadian tariffs could impact costs, although the company does not currently sell to the U.S. market.

Market Risks: The company is exposed to spot pricing for its products due to not signing long-term contracts for the current concentrate, leading to potential revenue volatility.

Economic Factors: There is a noted discount for Canadian concentrate sold into the Chinese market, which may affect pricing and demand.

Debt and Financial Risks: The company faced a negative impact on earnings per share due to currency fluctuations affecting its U.S. dollar-denominated debt.

Capital Expenditure Risks: High capital expenditures are expected in the short term for projects like the flotation plant, which may strain cash flow.

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Guidance & Outlook

Flotation Plant Project: The flotation plant is on track to be completed by December 2025, with a remaining investment of approximately $180 million.

Kami Project Partnership: An agreement was signed with Nippon Steel and Sojitz for a 30% and 19% stake respectively, valued at about CAD 500 million, allowing for continued project evaluation without additional cash investment from Champion.

Logistics Improvements: Investments in logistics and railcars are expected to enhance shipping capacity and efficiency, allowing for destocking of stockpiles in 2025.

Debt Management: Increased net debt due to investments in mobile equipment and railcars, but the balance sheet remains healthy to support ongoing projects.

Revenue Expectations: Forecasting improved revenue in 2025 as logistics issues are resolved and production increases.

CapEx Projections: Expected CapEx to normalize around CAD 60 million per quarter, excluding growth capital for the DPRF project.

Earnings Outlook: Anticipated increase in earnings power in 2026 as major CapEx projects conclude and production ramps up.

Market Positioning: Targeting growth in the DRI market, particularly in the Middle East and Europe, as demand for high-grade materials increases.

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Shareholder Return Plan

Dividend Paid: $52,000,000 paid in dividends during the quarter.

Shareholder Return Plan: The company is evaluating the best way to return capital to shareholders, with most major capital expenditures expected to be completed by the end of the calendar year.

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Key Q&A

Q:What should we expect for sustaining capital moving forward?

A:The $60 million per quarter is more in line with the investments that will be made in terms of CapEx and aligns with our feasibility study.

Q:Was any of the DPRF product intended for U.S. customers?

A:Right now, it was not intended to go to U.S. Customers. If it is to go to the U.S., we would need to solve the pelletizing portion.

Q:Can you provide an update on signing contracts for the DPRF product?

A:We forecast probably signing our first contracts in October or November of this year.

Q:How quickly can you destock additional stockpile tonnes?

A:2025 is going to be a good year in terms of destocking the stockpile.

Q:Do you expect a more maintenance light quarter in Q4?

A:Slight improvements, but I don't think it's going to change much the timeline of our shutdowns in Q4.

Q:What is the estimated cost of the feasibility study for Kami?

A:The cost to finalize all that is about $60 million, and this amount is going to be invested more by the partners.

Q:What is the impact of greater fixed cost absorption?

A:The cost impact of rehandling the volumes is a few dollars per tonne.

Q:Can you give us a sense of the commissioning process for DRPF?

A:12 months seems short, but it can be pretty long in terms of what can happen in the world.

Q:What is the current market price for entry-level Doctor grade product?

A:The only one that we can sort of disclose is that US45 dollars per tonne for an entry level Doctor grade pellet.

Q:Is the 65% product taking a discount in China?

A:Yes, there is a current first spot cargoes sold in China with Canadian comp. There is a discount of a few dollars per tonne.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer regarding the specific timeline for destocking additional stockpile tonnes and the exact impact of greater fixed cost absorption.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

CIA Transcript

Earnings call transcript: Champion Iron Q3 2025 reveals strategic investments

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CIA Report

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