Champion Iron Limited
FQ3 financial results inline with consensus and pellet plant study results released
TSX: CIA | CAD 7.51 | Outperform | Price Target CAD 7.00
Sentiment: Neutral
Our view: We expect a neutral to slight positive reaction from Champion shares to FQ3 financial results that were inline with consensus and above our estimates and results from the direct reduced pellet feed ("DRPF") study which had an after tax NPV of $738M, above our estimate of $438M. Financial results were ahead of our estimates on higher realized pricing, partially offset by lower sales volumes and higher opex. Champion also noted that Phase 2 reached commercial production in December as guided and the mine is expected to reach nameplate capacity in calendar H1/23, inline with our model (calendar Q2/23). Management noted that third-party infrastructure related to Phase 2 continues to advance but with slight delays.
Financial results inline with consensus and above our estimates: The company reported adj. EPS of $0.10, above our estimate of $0.07 and inline with consensus of $0.10. EBITDA for the quarter was $118M above our estimate of $88M and inline with consensus of $118M. Production was impacted by third-party delays in mining equipment deliveries, electrical failures and operational interruptions from adverse weather conditions. Management also noted longer than planned shutdowns and unplanned outages also negatively impacted production in the period. Sales were negatively impacted by power outages at the port of Sept-Iles. Opex came in above our estimate with higher fixed costs from Phase 2 spread over lower than expected sales. Realized iron ore pricing was $130.4/dmt, well above our forecast of $106.6/dmt as pricing was impacted by timing of sales.
DRPF study: Champion released results from the DRPF study, highlighted by after tax NPV of $738M, above our model of $483M on slightly lower operating costs, a longer project life and higher expected premiums on the feed (based on our calculation). Champion noted that the board has approved $10M in capital spending to advance the project with a final investment decision pending securing additional power capacity and non-dilutive funding. See below for a comparison of the study results vs. our model.
Other projects: The Kami Project feasibility study is expected to be completed in H2 calendar 2023 and the feasibility study evaluating the re-commissioning of the Pointe Noire Pelletizing Facility to produce DR grade pellets is advancing, with an anticipated completion date also in calendar H2/23.
Liquidity update: CIA ended the quarter with $166M in cash and equivalents, down from $277M at the end of last quarter and total liquidity of $476M. Long-term debt was $449M at the end of the quarter, down slightly from $463M. Champion generated $113M in OCF in the quarter before working capital changes, vs. our estimate of $68M and $13M after WC changes. Capex was above our estimate due to higher project related spend, slightly offset by lower sustaining capex.