Champion Iron Ltd.
(CIA-T) C$5.14
Ramp-Up to Phase II Capacity Expected by August
Event
We have updated our estimates to reflect Champion's FQ4/23 results.
Impact: NEUTRAL
In line quarterly results — From our perspective, there were few surprises in the Q4/23 financial results with most key metrics pre-released in late-April. The company is in a very strong financial position to execute on its next stage of growth with cash of $327mm and liquidity totaling $674mm after generating $155mm in FCF in the fourth quarter.
Phase II expected to reach nameplate capacity (15Mtpa) in August — Management expressed optimism on the ramp-up of the Phase II expansion. The mining equipment that was delayed earlier this year has now been assembled and in operation and the downstream logistics (port and rail) are now coming together. The stacker reclaimer at the port is coming online and three locomotives have now arrived and will be integrated into the site before the end of June. While the company anticipates a short term disconnect between production and sales, this should be fully addressed by August.
Direct-reduction (DR) project advances with a decision on power and financing expected shortly — Management is now in the process of finalizing a finance package for the DR expansion similar to the Phase II expansion. Given the company's balance sheet strength, a financing package may not even be needed and may just serve as a backup facility with the project funded through cash flows. With respect to power, the province of Quebec expects to make its allocation decisions in late June or early July. Given that the DR-plant meets a list of criteria set forth by the province (decarbonization, productive capacity, ROI for the province, and community/First Nation support), management is confident in receiving its allocation requirements.
TD Investment Conclusion
We are maintaining our BUY rating and $8.50 target price. Champion is in a strong position to execute on its DR project, which represents a niche product essential for the decarbonization of the steel industry as the sector builds-out more electric-arc furnaces. The company sees looming deficits with respect to DR feed beginning in 2024 and growing through the back-half of the decade providing the opportunity to convert all of Bloom Lake to DR material.