From TD this morningEvent Champion reported its Q3/F22 (December quarter) results yesterday evening.
Impact: POSITIVE
Champion reported quarterly production of 2.01Mt of 66% iron ore concentrate, above our estimate of 1.85Mt. Production was a record for a quarter with scheduled maintenance (typically FQ1 and FQ3), driven by higher head grades and stable mill performance.
The company reported EBITDA of $122mm versus our estimate of $112mm and consensus of $103mm. The beat relative to our forecast was driven by higher revenues of $253mm (TD: $235mm) on slightly better realized prices. C1 cash costs in the quarter were C$59.5/t (FOB, Sept-Iles), in line with our estimate of $59.27/t.
Phase 2 on budget and on track for commissioning in April 2022 — Capital investment on Phase 2 to-date totals $534mm, with an estimated $105mm still remaining. The company expects to achieve commercial production by the end of calendar 2022, but did not define the level of production required to be deemed commercial. We are forecasting 11.9Mt of saleable production in FY2023 (April 2022-March 2023).
Inaugural dividend announced — The Board has declared an inaugural dividend of $0.10/share payable on March 1 to shareholders of record on February 8. The Board will evaluate any potential future dividends with the release of its semi-annual and annual results. Given the company's off-calendar year-end (i.e. March 31), we now assume that the company will pay three $0.10/share dividends this year, payable in March, May, and November. Next year, we would expect only two dividends, paid semi-annually.
TD Investment Conclusion We are maintaining our BUY rating and $7.00 target price. In our view, the Board's declaration of the company's inaugural dividend several months ahead of the completion of Phase 2 speaks to Champion's confidence in Bloom Lake's timeline, budget, and FCF potential, along with the continued strength and outlook for iron ore.