Champion Iron Ord Shs T.CIA

TD Report

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Champion Iron Ltd.

(CIA-T) C$7.07

Bloom Lake Focus Shifts to Full Ramp-up and DR Production Event

We have updated our estimates to reflect Champion's FQ3/23 results and the release of the company's DR pellet feed project feasibility study.

Impact: SLIGHTLY POSITIVE

• Management commented on its conference call that the company intends to move forward with the DR plant upgrade upon arranging project financing and power access rather than delay until the Kami and Pointe Noire pellet plant (which would require DR pellet feed itself) feasibility studies are released in calendar H2/23. In the interim the Board has approved an initial budget of $10mm for the balance of 2023 to advance the project and in order to maintain a 30-month construction period from this point forward.

• Management also highlighted the potential for longer term freight costs to benefit from a shift in customer mix following the completion of the DR project, adding that selling to customers closer to home is a top priority. Also noted was the company's view that the project ranks highly with respect to the provincial government's priorities as they relate to power allocation given its green energy transition attributes.

• We now value the project at $684mm ($1.27/sh.), up from $360mm previously, with key assumptions similar to the company's estimates presented in Exhibit 2. Although not explicitly included in yesterday's press release management added on its conference call that assumptions include a US$25- $30/t pellet premium. We back-calculate US$28.50/t. The company believes it will be able to fund the capex required internally, although plan to arrange supporting financing to protect against a shorter-term downturn in the iron ore market.

  TD Investment Conclusion

  We are maintaining our BUY recommendation and increasing our target price to $8.50. Shares, in our view, are likely weak today on the slight miss on production and higher costs. We expect costs to begin to trend lower as the optimization and production improves. We also believe management has demonstrated once again its ability to deliver projects on time and near budget in what is a very challenging market environment, and we are confident in their ability to execute on the DR plant at a time when the demand is growing for this niche segment of the market.