From Scotia this morningBloom Lake Operating Performance Above Expectations
OUR TAKE: Positive.
CIA reported better-than-anticipated Q4/F21 operating results at Bloom Lake. The company exited the quarter with a higher than anticipated cash balance. Overall, we view the update as positive for the shares.
We rate CIA SO based on Bloom Lake's high-grade and premium concentrate, strong margins, capital efficient near-term growth, and attractive valuation.
Our 12-month target of C$7.50 per share is based on a 50/50 weighting of 5.5x our F2022E-F2023E EV/ EBITDA and 1.3x our updated 8% NAVPS estimate. KEY POINTS A solid performance at Bloom Lake. Q4/F21 Fe production of 2,011k wmt was 5% above our 1,916k wmt forecast, driven by higher throughput (5,238k wmt vs. our 4,900k wmt) partially offset by modestly lower recoveries (82.6% vs. our 83.5%) and head grades (30.7% Fe vs. our 31.0%). Fe output increased by 5% QoQ and by 6% YoY. Fe sales of 1,971k dmt (66.5% Fe) were 7% above our forecast of 1,839k dmt. Cash costs of US$43/t were in line with our forecast of US$43/t and were unchanged QoQ.
Phase 2 on track. The Bloom Lake Phase II expansion project designed to double capacity to 15.0 Mtpy remains on schedule for completion in mid-CY2022. Higher cash balance. CIA exited Q4/F21 with a very strong cash position (including ST investments) of $681M, up from $507M at December 31. Although the cash balance was well above our forecast of $569M, we note that the company has a $195M deferred tax payment due in May. Preliminary financial disclosure was limited (CIA is scheduled to release its full financials on May 26).
Our estimates continue to assume that the Phase II expansion will be funded solely from cash and ongoing operating cash flow. Positive estimate revisions. Our revised F2021E EBITDA estimate of $826M increased by 3%; our F2022E-23E estimates of $698M and $629M are unchanged. We now forecast an improved Q4/F21 EPS and EBITDA of $0.31 and $289M (vs. $0.29 and $268M previously).
Our updated 8% NAVPS estimate of C$6.08 increased by 4%. Attractive valuation. CIA shares are trading at a P/NAVPS of 1.10x based on our Fe price deck but at a spot (62%/65% Fe prices of US$190/t/US$224/t) P/NAVPS of only 0.24x and an implied 62% Fe price of only US$60/t given the elevated 65% premium.