Champion Iron (CIA) - 'Green' Iron Ore Credentials Setting Them Apart

Champion Iron is an iron ore exploration and development company with major projects in the southern Labrador Trough, Canada’s largest iron ore producing region.

Champion Iron, through its wholly-owned subsidiary Champion Iron Mines Limited, is developing 8 iron-rich projects in a 707 km2 area. Each project is strategically located close to the electrical grid, all-season roads and railway lines. This infrastructure connects the projects to a terminal located in water that does not freeze, on the north shore of the Gulf of St. Lawrence.

We catch up with David Cataford, CEO of Champion Iron who gives us a good overview of the company and their plans going forward.

Company Overview

Champion Iron has the view that the high-grade Iron Ore is going to be one of the most sought out commodities in the world.  As people start to reduce CO2 emissions per output of Steel, and gain productivity in their Steel mills, they will need to buy higher-grade material.  Champion Iron is based in Canada and produce this high-grade type material. They produce about 8Mt of high-grade Iron Ore per year and are setting out to double that to 16Mt as there's so much demand. 

Champion Iron is the only listed Iron Ore company on the exchange.  Over the past 10-years they have seen 2 or 3 cycles and with increased demand and no new supplier coming onto the market, Champion is in a good position.  

China requires a lot of Iron Ore and they're at an all-time high now in Steel output, and the 2 other big markets, Europe and Japan are now recovering which is why the demand continues to grow in this COVID year. Champion sees the demand for Steel increasing in the coming years as many countries are putting new infrastructure in place and so require quite a lot of Steel. 

Time to Change & Adapt: Business Plan & Product

COVID has been a catalyst for Iron Ore, but for different reasons than precious metals. Iron Ore will do well with these large infrastructure projects that are happening around the world. It's not just China, it's Europe, it's the US, it's everywhere. The future of Iron Ore looks good and Champion has had a good year, looking at their share pricing, and the shareholders are happy. But they are having to change and adapt slightly because people are looking for greener solutions too, so mining is having to become accountable.  

Champion is one of the greenest Iron Ore producers in the world. They produce a high grade Iron Ore and the higher the grade, the lower CO2 emissions produced during the Steel making process. CO2 emissions can be reduced further by using electric arc furnaces instead of a blast furnace in steel production. Electric arc furnaces need to use the highest purity material in the world and Champion receives a premium to produce Iron Ore of that quality.

Partnership Terms with Glencore & Sojitz Corp.

Champion has marketing arrangements with Glencore and Sojitz but meets directly with all the different Steel mills and signs their contracts directly with the Steel mills which allows them to gain the full benefit of the premium for their type of material. 

Achievements of 2020 & Growth Potential Going Forward

CAD$4Bn has been invested at Bloom Lake asset and the infrastructure works well. They also have a fantastic workforce at Bloom Lake that have pulled together in this difficult year. They had record production during the COVID situation which demonstrated the combination of the team and the CAD$4Bn invested at the site.

They have recently announced that they are doubling their output at Bloom Lake and are working to finish a CAD$1.6Bn project that was started a few years ago by the previous owner. The first tonnes will come before mid-2022, so in 2022 they will be a 15Mtpa producer of the highest grade type material in the world. 

Secondly, they have announced that they acquired a project a few kilometres away from the Bloom Lake mine called the Kami Project. It used to be a company called Alderon which invested at the site to define the resource, the reserves, to permit the asset, to secure logistics contracts and Champion acquired it for about CAD$35M a few weeks ago. This allows them to secure the port access for their current expansion and they will also gain 1.7Bn tonnes of resources just a few kilometres away from their main asset Bloom Lake. 

They have agreed an extension to an existing credit facility for another CAD$400M to enable them to be fully financed for Phase 2, regardless of the cash generation over the next year and a half. But with the current Iron Ore prices staying where they are, they won't need to draw any of that facility to be able to finish the project. 

Phase 2 & Bloom Lake: Logistics & Delivering in 2021

Phase 2, Bloom Lake is a huge operation. Champion currently runs the whole operation. They have their own hotels in town and about 40 houses where they lodge their employees. They're building a new facility for the contractors during the construction, but already have sufficient lodgings for the current operation and the expansion to 15Mtpa.  At the site, the second concentrator is already built.  They are ordering mining equipment to be able to double the production and need to order rail cars too.  

The ramp up period is 3 months for phase 2. They are hiring all of the workforce for Phase 2, a few months ahead of time and plan to train them inside of the current operation because the expansion is a mirror plant of the Phase 1.  

Plans for the Kami Iron Ore Project & Access to Port 

The port was built by the Federal Government a few years ago with a capacity of 15Mtpa and even with the planned expansion, there's still more than half the capacity available. The advantage of the Alderon deal is the capacity at the port is prepaid.   

The Kami project is already a defined reserve so no actual exploration is required. Champion is planning a new Feasibility Study however to ensure they can properly plan the next steps of the Kami project.  

Value & Upside: Payback & Facilitating Growth

Champion is focused in Canada right now and their main potential growth is through Canadian assets as they feel this is what they know well, the land, the different communities, the different governments. Their clients want a more stable production and Canada has been producing Iron Ore successfully. Canada is the second-largest hub globally to export high-grade Iron Ore, so the market knows Canadian Ore and knows how to use it in the Steel making process. Champion feels that there's more demand to produce more of the same. When Champion was started, they acquired 5Bn tonnes of resources and now with the Kami acquisition, they're at 6.7Bn tonnes of resources. 

Management Shareholding & Target Investment Audience

The management is sitting on nearly 11.5% which is substantial. The Quebec Government being close to 10% is also a very good shareholder in the portfolio. Wynnchurch Capital out of Chicago is a major shareholder. They own about 14%. There are about 5 larger families or family offices that have been following Michael O'Keefe and like the way that he manages the business. They would like to increase the number of institutional investors in the company in the future. 

What's to Come: NYSE Listing & Dividends in 2021? 

Champion is already listed on the TSX and on the ASX and has no future plans to list on the NYSE as they feel that the Australian market understands the bulks very well.  They're starting to grow the story on the TSX as well but there's not too many comparable companies in Canada.   

Due to the Phase 2 build, there are unlikely to be dividends in 2021 as they want to finish the Phase 2 project before starting on the next capital allocation.  The main focus and what's the most critical for their shareholders, is getting that to 15Mt and then depending on the market, there are a few ways to continue growing the business. Champion Iron is living up to its name. 

To find out more, go to the Champion Iron website