Champion Iron Ord Shs T.CIA

TD 2

[retiredcf]

Put a bit more of a positive spin on this one. GLTA

Champion Iron Ltd.

(CIA-T) C$5.88

Cash Costs Should Ease as Bloom Lake Nears Design Event

We have updated our estimates to reflect Champion's FQ4/23 March quarterly activities report.

Impact: SLIGHTLY NEGATIVE

• Production for the March quarter totaled a record 3.08Mt at Bloom Lake slightly ahead of our estimate (+2%) but broadly in line with consensus. The ramp-up of the Phase II expansion continued through the quarter, but was impacted by the previously disclosed delayed delivery of some mining equipment. As a result, waste stripping fell behind the company's original targets, resulting in no capitalized mining costs in the quarter.

• Progress towards achieving the steady-state target of 15Mtpa continues with management confident in its ability to achieve design over the near term. The company highlighted it continues to experience a short term 'disconnect' between upstream (mine site) and downstream (rail & port) capacity, which it is working to address citing locomotive delivery delays in March.

• We have revised our estimates to reflect higher costs in FQ4/23 along with a slightly reduced production estimate for the June quarter to account for some remaining bottlenecks. Overall, however, we continue to view the Phase II expansion as a success, given the backdrop of COVID and its downstream impacts to supply-chain and inflation. We expect the operation to achieve design capacity in calendar H2/23.

   Budget increased to maintain timeline for direct-reduction project. The Board has approved an increase to the initial budget to advance the direct reduction pellet feed (DRPF) project, which will upgrade half of Bloom Lake to DR-grade material. The initial budget was increased to $52mm from $10mm to maintain the 30-month construction and H2/2025 calendar start-up.

  TD Investment Conclusion

  We are maintaining our $8.50 target and BUY rating. Despite higher than expected cash costs and a slightly slower than anticipated ramp-up, Champion added an impressive $161mm in cash q/q and total liquidity now stands at $674mm. This puts the company in a very strong position to execute on its next stage of growth, the DRPF project, which represents a niche product essential for the decarbonization of the steel industry as the sector builds-out more electric-arc furnaces.