Earnings Transcript for CIA.AX - Q2 Fiscal Year 2025
Operator:
Good morning, ladies and gentlemen and welcome to the Second Quarter Results of the Financial Year 2025 Conference Call. [Operator Instructions] This call is being recorded on Thursday, October 31, 2024. I would now like to turn the conference over to Michael Marcotte, Senior Vice President, Corporate Development. Please go ahead.
Michael Marcotte:
Thank you, operator and thank you everyone for joining our call today to discuss our Q2 results of the 2025 financial year. Before I’ll turn it over to our CEO for the formal presentation, I’d just like to remind people that the presentation being used for this webcast is available on our website at championiron.com under the Events and Presentation tab. I’d also like to remind people that throughout this call, we’ll be making forward-looking statements. And for forward-looking statements, risks and assumptions, you can visit our MD&A, which is also available on our website. Joining me today here is several of our executives, including David Cataford, our CEO, who’s going to be doing the formal presentation today and the Q&A, but also our COO, Alexandre Belleau; our CFO, Donald Tremblay. With that, I’ll turn it over to David for the formal presentation.
David Cataford:
Hi, everyone. Thanks for being here to be able to discuss the second quarter highlights of fiscal year 2025. So if we turn to the actual highlights. So as you know, it’s a bit of a challenging quarter that started with forest fires in the region that came very close to Bloom Lake and very close to Labrador City. I’m very happy with the way that we managed to deal with this situation, but it did impact production quite significantly during the quarter. Also, the first quarter that we do our two major shutdowns for Plant #1 and Plant #2 back to back, which also came with certain challenges that affected our production. But all in all, produced about 3.17 million tons during the quarter and sold just over 3.25 million tons during the quarter as well. Also, happy to report that we had no significant workplace incidents during the period and, again, another quarter with no major environmental issues and this means that we had no major environmental issues since the re-commissioning of Bloom Lake in 2018. In terms of local communities, we’ve done quite a lot of work in the past quarter. As you know, it’s one of our priorities to make sure that not only do we operate well, but that we make sure that we maintain our license to operate and continue to work with local communities. One of the big highlights during the quarter is we started a new program where our staff is spending 2 days in the First Nations community. It’s the first here in Canada. And it allows us to be able to understand a bit more all the challenges and all the realities in the local communities, and also allows us to strengthen our partnership with the First Nation of Uashat mak Mani-utenam. In terms of operations, if we look at what happened during the quarter in terms of our stockpile, as you know, we had roughly about 3 million tons of material stockpile at site. We managed to bring down 200,000 tons from that stockpile mainly due to the fact that we had lower production during the quarter. But again, not only did the production get impacted, but also the logistics. So if it wasn’t of the forest fires, we would have brought down a significant amount of extra tons. Happy to report as well – this did not happen in the past quarter, but has happened since – we have started to receive our rolling stocks of the railcars to be able to allow a larger flexibility for us to bring down tons all the way to the port. And the rail operator should receive its locos before the end of this calendar year and commission them soon after. If we look in more detail into our operations, I think one of the main highlights during the quarter is the fact that we managed to move just over 9 million tons of waste, allowing us to have a strip ratio of about 1
Operator:
[Operator Instructions] Your first question comes from the line of Orest Wowkodaw with Scotiabank. Please go ahead.
Orest Wowkodaw:
Hi, good morning. Thanks for the color. Just can you please give us a bit more visibility on the capabilities of the railroad right now in terms of logistics? You mentioned that the rail line is not going to get more locos until end of year commissioning in Q1. Railcars are being added, I guess, over the coming weeks. What does that actually mean for current capacity? I mean, if I think about your annual production volume, we’re talking about 3.7 million to 3.8 million tons a quarter to be shipped. Can the rail line currently move that kind of volume? Or is that going to still take a couple of quarters to get to your full production run rate from a volume shipping perspective?
David Cataford:
Yes. Thanks for the question, Orest. So when we look at the rail line now, there has been some improvements since the past quarter. So what’s happening is, we’re seeing some record weeks in terms of the amount that’s being shipped. The issue is that it’s not robust enough and there’s not enough sort of spare capacity to be able to account for various elements that happen during the operations. So we’ll have one amazing week and then we’ll have a challenging week after that for some reasons on the rail line. So those other locos are going to allow us to keep that higher run rate to allow us not only to get the tons down, but also be able to weather those issues when they happen. Current capacity, if you listen to IOC’s kind of analyst visit not too long ago, says about 43 million tons. If that were to be true, definitely, we’d be able to not only bring down our tons and be able to bring down our stockpile, but what we’re seeing is once those locos come in, I do think we’re going to have enough robustness to be able to bring down the tons and weather those sort of operational issues. But I think the main highlight is the fact that we have seen weeks where we’re able to go over our current contract.
Orest Wowkodaw:
Okay. Maybe I could ask in a different way. Assuming Bloom Lake recovers from an operational perspective here in the calendar fourth quarter, do you think you can actually destock any incremental tons beyond production levels?
David Cataford:
Well, if we had a record quarter close to about 4 million tons, I think it’d still be a bit difficult to bring down tons from the stockpile. But I do feel that even on our side, rolling stock has started to come in. Most of the railcars will be in before the end of this year. So that’s going to give us an added flexibility that we typically didn’t have during the winter months. We don’t 100% require those for our current production, but as you know, wanted to have them for our future debottlenecking projects, so purchased them ahead of time to allow for that flexibility. So that’s definitely going to help potentially over the coming months as well.
Orest Wowkodaw:
Okay. So if you’re producing at full capacity, don’t expect much destocking, call it, near term. It might take a bit longer?
David Cataford:
Correct.
Orest Wowkodaw:
Okay. Thank you.
Operator:
Your next question comes from the line of Craig Hutchison with TD Cowen. Please go ahead.
Craig Hutchison:
Hey, good morning, guys. I just wanted to ask on the DRPF project. You guys noticed – you mentioned you’re having active discussions with prospective customers in Europe. But when can we get a sense in terms of what that pricing mechanism is? And is your anticipation to have the material largely locked up before commissioning starts?
David Cataford:
Yes. I’d say thanks for the question, Craig. So I’d say at the end of next summer, we should have a good view on where the tons are going to be committed and also have a good idea on the formulas associated to the selling price. So, as our target is to be able to decouple from the P65 and make sure that we benefit from the DR-grade premiums. We have seen that DR-grade premium a little bit lower in the past few quarters, but we do feel with all the DRI capacity coming online, there is a possibility where this could be able to recover next year.
Craig Hutchison:
Okay. And how long do you think that the commissioning process will take in terms of getting up to full capacity?
David Cataford:
Yes. So it’s the first flotation plant that we built. The technology is fairly simple, but still it’s a new plant that we’ll bring in. Right now, we’re currently forecasting a few months to be able to ramp up the flotation plant. Obviously, we’ll do the best, as we’ve always done in the past. But realistically, I think it’s going to take a few months to be able to make the production again. What’s important to note is that, that should not affect our production because if ever there’s some slight issues during the commissioning, well, we can always go back to producing the 66.2% material. But for a full ramp-up when we look at the hitting quality consistently, what is forecasted, let’s say, in the study that we did was a full 12 months. But we will be able to produce material before that.
Craig Hutchison:
Okay, great. And maybe one last question from me. There’s obviously a lot of money spent on other capital items at Bloom Lake this quarter. Some of that, I think, is related to your desire to kind of push capacity beyond the sort of 15 million tons. When, in your opinion, should we start factoring in higher production from Bloom Lake based on the investments you guys have made to date and kind of going forward?
David Cataford:
Well, right now, a lot of the investments that were made were really on the tailings and the new waste dumps. So as per feasibility study, starting last year, we were investing to be able to build the new tailings facility – or the upgraded tailings facility and also the new waste dump. So, most of the CapEx was put into this. When we look at our potential debottlenecking projects, we really need to fix the rail before we start turning on those potential projects or investing a little bit more on those. So we’ve identified pretty much all the different things that need to be done to be able to reach that – to reach higher production. But right now, the main focus is really to get the rail to the level that we want so that we can increase the tonnage.
Craig Hutchison:
Okay, great. Thanks, guys.
David Cataford:
Okay.
Operator:
Your next question comes from the line of Alexander Pearce with BMO. Please go ahead.
Alexander Pearce:
[Technical Difficulty] you flagged that it has come down a little bit recently on – and it looks like its on ore hardness. So I was just wondering whether you can provide a bit more of an update on how you expect that to continue over the next kind of couple of quarters. Should we expect that to stay for the next couple of periods or could it be a little bit longer before we see recoveries back up into the kind of 80% range?
David Cataford:
Yeah. Thanks for the question. It’s understood. When we look at recovery and when we look at the impact of the harder material that we’ve had, it was a small pocket that we had in the [indiscernible] sort of section. When you look at recovery during the quarter, it was sort of impacted by 3 different things. One, we had the forest fires, which had us stop production. And as you know, once we stop and go, there’s typically a little bit of issues on the recovery. It’s also the quarter that we had two major shutdowns, so shutdown in Plant number1 and Plant number 2. Typically, when we restart the plants after major shutdowns, there’s a small ramp-up in terms of recovery. And we also had that harder area mostly impacting our Phase 1 recovery. The Phase 2 has got a more robust circuit. But the Phase 1 – when we have harder zones, typically over grinds a little bit the material, which means that we lose a little bit of iron ore into the fines portion. If it would have only been the hardness, we would have been less impacted. But it is an element that we’re working on to make sure that we can recover those fines.
Alexander Pearce:
Great. Thank you. And then the second question, just in terms of [Technical Difficulty] a little bit during the quarter. I was just wondering maybe you can just talk about what you’re seeing in the market for that premium that you’re getting above the benchmark. And given iron ore prices came back up again right at the end of the quarter, have you seen the premium expand back again? Thanks.
David Cataford:
Yeah, the premium hasn’t been as high as we’ve seen it in the past. The main area where we benefited during this quarter was more for the sales that we typically have to Japan that are more backwards looking. So that’s pretty much what explains the higher realized price in terms of what we got instead of the P65. The high grade – as, in China right now there’s not too many environmental restrictions, and the steel profitability is fairly low. So there’s not many incentives right now to be able to buy more high-grade type material. That’s why we really want to make sure to get into the DR market so we don’t have that sort of volatility on the P65 versus P62. But we haven’t seen that premium increase significantly in the past few quarters.
Alexander Pearce:
Thank you.
Operator:
Your next question comes from the line of Lucas Pipes with B. Riley. Please go ahead.
Lucas Pipes:
Thank you very much operator. Good day everyone. My first question is on the cost side, could you provide a little bit of an outlook? You just touched on recoveries, but also from a stripping ratio perspective and over the next couple of quarters, where would you anticipate costs to come in on a cash cost basis? Thank you very much.
David Cataford:
Yes. Thanks Lucas. So, as you saw in this quarter, we are about 500,000 tons or a little bit more than 500,000 tons lower than our nameplate capacity, mainly due to the fires and the major shutdowns that we had. So, those really negatively impacted our costs. The stripping ratio is more in line with what we will expect in the future. So, 1
Lucas Pipes:
And could you remind us what is the cost associated with that stockpile movement roughly?
David Cataford:
It’s a little bit tough to give sort of an exact number. When we look at the blended rate, we are looking at roughly about just over CAD8 per ton to put it on the stockpile and bring it back.
Lucas Pipes:
So, some of that you would incur no matter what, but there is a portion of that CAD8 that might be unique to this environment of higher stockpiles. Is that a reasonable intuition?
David Cataford:
This is 100% due to the stockpiling. Typically, we would not see those costs associated to our tons.
Lucas Pipes:
Got it. So, that CAD8 is entirely kind of unique to this moment. That’s helpful. Thank you.
David Cataford:
Because when you look at our stockpiles, typically, we have, call it, four small stockpiles just beside the plant. So, if ever we need – because it does happen that we – in the past, we have used those stockpiles if there was issues with the train or so. But that’s a very small cost because we typically dump right beside the plants with the conveyor, and we have a small loader that puts it back into a chute to be able to get back into the silos. Now what we have to do is take a small loader, take a small truck, and then move those trucks a few kilometers away from the plant to put that on the temporary stockpiles due to the issue on the rail. So, that’s been the reason why we have got that, call it, $8 per ton cost.
Lucas Pipes:
Very helpful. Thank you. And I hope that the rail situation improves, as you outlined earlier. David, higher-level question on the investment climate and appetite in iron ore, Simandou coming online late 2025, lots of headlines around China’s transition. Rio Tinto is investing in lithium. Do we need more iron ore in your opinion, or how would you frame that? Thank you.
David Cataford:
Yes. First one, to the questions, so we have seen softer sort of steel production, when you look at year-on-year, we do see very little growth in terms of steel consumption. Will it continue to be flat or decline, we will be able to see that over the next few years. But it doesn’t seem that the world needs a whole lot more iron ore if you look at all tons considered. I do think there is going to be more requirements for DR-grade type material. There is very little of those tons around the world and I do feel that’s going to be a segment that is – well, one that has grown in the past 4 years, 5 years, but that will continue to grow as more DRI facilities get commissioned. So, that’s why we want to be exclusively in that market and make sure that we can service that market. Now, if the question is, does the world need a project like Kami, well, this is definitely something that we will monitor over the next few years. The great thing – well, I don’t know if it’s a great thing, but the good thing is that we have 2 years of permitting right now. So, we are not going to be taking any potential decisions on a project like Kami before, call it, end of 2026 calendar year. So by that time, we will be able to see how many of those DRI plants have been commissioned, what’s the sort of demand environment, and does the world need a project like Kami. But definitely, in today’s environment, we wouldn’t pull the trigger on the Kami project. But I still think it’s a great potential in the future. And if the world continues its transition into lowering CO2 emissions, then I do think a project like Kami is going to be necessary in the future.
Lucas Pipes:
David, I very much appreciate your perspective and the team, all the best of luck.
David Cataford:
Thanks Lucas.
Operator:
Your next question comes from the line of Stefan Ioannou with Cormark Securities. Please go ahead.
Stefan Ioannou:
Yes. Thank you. Maybe just I wanted to delve a bit more into the minutia of Craig’s question about the CapEx. You mentioned the waste dumps and the tailings. Just thinking about sustaining versus growth CapEx and the growth number, both went up sort of notably quarter-over-quarter. In the growth number, would some of the railcar purchases be embedded in that number, too?
David Cataford:
Yes. In the growth, it’s mainly due to the flotation plant. So, that’s what we started to ramp up. There is still about $250 million, just a little bit more than $250 million that’s going to be required to finalize the project. So, that’s why you are going to see the growth portion increase in the next few quarters as we finalize the DR grade and…
Stefan Ioannou:
Okay. I guess I am focusing on the growth CapEx outside of the DRPF project.
David Cataford:
Yes. Right now, we don’t have too much growth CapEx associated to other projects. Again, the main focus for us is to work on the rail and make sure that’s back in line before we would potentially invest in fixing up portions of the operations to increase the CapEx over the nameplate.
Stefan Ioannou:
Okay. But I guess – sorry. Maybe to just put it another way, I am thinking about the quarter past, though like it went up notably from calendar Q2 to calendar Q3. So, I am just wondering what’s in that growth number versus what’s in the sustaining number from the quarter you just reported?
David Cataford:
Okay. If we look at the presentation, so we have about $55 million that was invested in the flotation plant. So, that growth portion is 100% in the flotation plant. When we look at the other sustaining portion, mainly all projects in the dykes and at the new waste dump. So, if you go back to the feasibility study, there was a few hundred million that was associated to building out the new stockpile for the tailings and also the new waste dump dykes.
Stefan Ioannou:
Okay. Maybe I will circle around you guys after the call, and I am still confused here. There is – you have another growth item beyond the DRPF in the statements. I am just trying to reconcile that, that’s all.
David Cataford:
Okay. Yes, maybe we can go through the numbers. There is a little bit associated to mining equipment and a few different elements. There was also some investment that was done on the garage. The garage is now completed. But yes, we can circle back after and go through the numbers in detail.
Stefan Ioannou:
Okay. Thanks very much.
Operator:
And I will turn the call over to David Cataford for closing remarks. Please go ahead.
David Cataford:
Yes. Thanks everyone for joining the call. Again, I think it was a challenging quarter, and very happy and proud of the way that the team has managed to navigate through the complexities of the forest fires at the beginning. I think we did a great job in being able to minimize the impact for us on that. Also a bit of pain associated to the two shutdowns that are back-to-back, but I do think that’s going to create some significant improvements in the future. And again, continuing to work on the rail. I think that’s the most important element for our business, and make sure that we can eventually bring down all the tons from that stockpile and materialize the sales for this material. But again, I do think that the positives for us is the outlook for the DRI and for the greener steel sort of portion, we still see that advancing fairly rapidly. And I do think that’s the market that we want to be in, and that will create the most value for our shareholders. So, again, thanks everyone for joining the call today and looking forward to speak to you at the next call.
Operator:
Ladies and gentlemen, this concludes today’s conference. Thank you all for joining and you may now disconnect.