Champion Iron Ord Shs T.CIA

From Scotia this Morning Upgraded to $7.50

[savyinvestor333]

OUR TAKE: Positive. CIA reported better-than-anticipated Q3/F22 results and announced an earlier expected start-up for the Phase II expansion. To our surprise, the board declared a maiden dividend of $0.10 per share. Overall, we view the update as positive for the shares.

We rate CIA shares SO based on Bloom Lake's high-grade concentrate, strong margins, near-term growth, and attractive valuation. Our revised 12-month target of C$7.50 per share (from C$7.00) is based on a 50/50 weighting of 5.0x our F2023E/24E EV/EBITDA and 1.2x our 8% NAVPS, with higher multiples reflecting the Phase II de-risking and the maiden dividend.

KEY POINTS

Q3/F22 results beat. Adjusted EPS of $0.14 fd vs. our estimate of $0.07 and consensus of $0.13. More important, adjusted EBITDA of $122M was 91% above our forecast of $64M and 18% above consensus of $104M. The beat was primarily driven by markedly higher Fe price realizations (US$110/t vs. our estimate of only US$81/t). See our First Look note for details.

Phase II almost complete. The Bloom Lake Phase II expansion designed to double capacity to 15.0 Mtpy is now anticipated to be commissioned in April 2022 (vs. May 2022, previously). A total of $534M (or 84% of the $634M budget) has been invested to date. Feasibility study work designed to evaluate the reprocessing and infrastructure required to commercially produce a 69% Fe direct reduction pellet feed product scaled for ~50% of capacity is anticipated mid-year. An updated feasibility on the Kami Fe project is due in H2/CY22.

Strong balance sheet; early inaugural dividend. CIA exited Q3/F22 with a net cash position of $163M (vs. net cash of $257M at Q2/F22). To our surprise, CIA announced an inaugural semi-annual dividend of $0.10 per share. Although there was no formal shareholder return framework announced, the board intends to evaluate any future potential dividends (while balancing growth plans) concurrently with the release of the company’s semi-annual and annual results. We had anticipated dividends to begin after the completion of Phase II.

Positive revisions; attractive valuation. Our revised F2022E-2024E EBITDA estimates of $879M, $803M, and $770M increased by an average of 3% pa. However, our revised 8% NAVPS of $6.12 is largely unchanged. CIA shares are trading at a P/NAVPS of 0.84x based on our Fe price deck, a spot (62%/65% Fe prices of US$139/t/US$170/t) P/NAVPS of only 0.28x, and at an implied 62% Fe price of US$68/t given the current 65% premium.