Quebec Miner Targets Green Steel Market with High-Purity Iron Ore Push

• Champion Iron operates a high-grade iron ore mine in Quebec, currently producing 15 million tons per year with plans to expand
• The company is investing to upgrade half its production to 69% purity, the highest grade, to sell into the growing direct reduction (DR) steel market
• Shipping and rail transportation challenges in 2022-2024 are being resolved, allowing increased sales volumes in 2025
• The company has invested heavily in growth projects since 2018 but will have minimal growth capex in 2026, demonstrating full earnings power
• Champion Iron maintains a conservative balance sheet with limited debt and is poised to generate significant cash flow as production ramps up

Champion Iron (TSX:CIA) is a growing producer of premium high-grade iron ore. The company is completing major investments to expand production and upgrade its product to capture rising demand from steel producers transitioning to lower-emission technologies. With rail shipping challenges being resolved and growth spending winding down, Champion is positioned to deliver robust free cash flow starting in 2026.

High-Grade Iron Ore Pure Play

Champion Iron's flagship asset is the Bloom Lake Mine located in Quebec, Canada. The company is investing C$470 million to build a flotation plant that will upgrade half its output to an even higher 69% purity starting in late 2025. As CEO David Cataford explains,

"We're investing roughly about C$470M to be able to make this new product. This will make half of our tons at 69% FE, which is pretty much the highest grade you can go."

The 69% product, known as DR-grade, is ideal for supplying the growing number of direct reduction (DR) steel plants being built worldwide. DR plants paired with electric arc furnaces (EAFs) emit significantly less carbon than traditional blast furnace steel production. With the steel industry facing increasing pressure to decarbonize, demand and premiums for DR-grade iron ore are expected to rise substantially.

Growth Funding Complete

To fund this growth, Champion has invested heavily in Bloom Lake, spending over C$1.7 billion since 2018 to expand mining, upgrade the product, and improve transportation. The major spending is now complete. Cataford notes,

"2026 is the first year that we've got basically no growth capex being invested, so we're really going to see the earning power and the right mix of redistribution of capital to our shareholders."

Interview with CEO David Cataford

Near-Term Catalysts

Before the 69% product comes online, Champion is already growing. The Phase II expansion doubled Bloom Lake capacity from 7.5 to 15 million tons per year. However, rail transportation shortages left up to 2.7 million tons stockpiled at the mine in late 2024 instead of being sold. Those logistical problems are now improving. Cataford is optimistic these inventories will sell down and further production growth is possible in 2025:

"On the logistics side, we've made quite a lot of improvements. The rail supplier has gotten new locomotives in, quite a lot of new people in that they trained to be able to operate the locos so the whole circuit has been running much more smoothly. When you look at 2025, starting bringing down the stockpile to benefit from that cash and also improve production to start debottle-necking our assets."

Clearing the inventory buildup will increase sales volumes above nameplate capacity in 2025, without raising costs, driving margin expansion. 

Market Diversification 

Currently, just over 50% of Champion Iron's production is sold to the Chinese market. While the company has not experienced issues selling to China, heavy reliance on a single country does present concentration risk. Champion Iron is proactively diversifying its customer base, targeting increased sales to Europe, the Middle East, and North Africa.

The shift to higher purity 69% iron ore will be a key enabler of this diversification strategy.

"Once we deliver this project, half of our tons are going to be sold in Northern Europe, in Europe, in Northern Africa and the Middle East. You're looking at less lower levels in terms of shipping price and you're also looking at better margins because we've got this high purity material."

Advancing the Kami Project 

Beyond its flagship Bloom Lake mine, Champion Iron is progressing the earlier-stage Kami project in partnership with Nippon Steel and Sojitz. Nippon Steel, the world's fourth largest steelmaker, invested at a valuation matching Kami's net present value based on a pre-feasibility study. The partners will fund the first $500 million of investment, limiting Champion Iron's capital commitment in the near-term.

Cataford highlighted Kami's potential:

"The interesting thing is great potential for our shareholders, limited exposure in terms of what we need to invest over the next years, and great option for the future in terms of high-grade iron ore."

Over the next two years, Champion Iron will advance a feasibility study and permitting activities to further derisk and optimize this growth project.

The Investment Thesis for Champion Iron:

• Emerging producer of the industry's highest-grade 69% DR-grade iron ore concentrate
• Ideally positioned to supply rapidly growing demand from "green steel" producers
• Generates robust margins from high-quality, low-cost operations in the Labrador Trough
• Significant near-term earnings growth as logistics normalize and product mix upgrades
• Major growth capex complete, inflation resistant, balance sheet is a "fortress"
• Additional expansion options at Bloom Lake and Kami provide multi-decade growth pipeline
• Provides exposure to long-term decarbonization of steel, without Scope 3 risk of steelmakers

The global steel industry's decarbonization megatrend is a key macro driver for Champion Iron. As steel producers seek to reduce their carbon intensity, demand is growing for high-purity iron ore products that enable cleaner production processes like DRI. With its soon-to-be 69% iron ore products, Champion Iron is ideally positioned to benefit from this shift.

Governments worldwide are increasingly focused on the carbon footprint of domestic steel industries, with many considering carbon border adjustment taxes on carbon-intensive imports. This regulatory pressure, along with growing consumer awareness, is accelerating steel producers' decarbonization efforts. Direct reduced iron production using high-purity iron ore and natural gas offers an economically viable, lower-emissions pathway. As DRI production expands globally, it will drive strong demand for premium iron ore products like those Champion Iron produces.

While near-term economic uncertainty and recession fears may temporarily dampen steel demand, the decarbonization imperative creates a compelling longer-term demand outlook for Champion Iron's products. As Cataford noted,

"Realistically what we're seeing in terms of decarbonizing the steel industry, it's still moving forward. We're seeing quite a lot of development into the Middle East, all looking to go towards green steel or greener steel, benefit from their use of natural gas to be able to produce one of the lowest CO2 intensity steels in the world."

With its strategic initiatives to expand high-purity iron ore production and diversify its customer base, Champion Iron is well-positioned to be a key enabler and beneficiary of the steel industry's decarbonization.