Michael Marcotte: Thank you, operator, and thank you everyone for joining this call. Before I turn it over to our speaker, I would like to highlight that throughout this call, we will be making forward-looking statements. If you would like to read about our forward-looking statement risk and assumptions, please visit our website at championiron.com and our MD&A. We will also be using a presentation for this webcast, which is available under the Investor tab at the website. Joining me here for this call includes many of our executives. David Cataford, our CEO, will do the formal presentation. Our Chairman, Michael O'Keeffe, will do closing remarks. I am also joined by Alexandre Belleau, our COO, and other executives. With that, I will turn it over to David.
David Cataford: Hi. Thanks, Michael. Thanks everyone for being on the call. If we dive into the fiscal year 2027 Q2 highlights, we managed to produce roughly about 3.9 million tons during the quarter. Sold just shy of 4.5 million tons during the quarter as well. Cash sat at the end of the quarter at roughly around CAD 267 million. In terms of operational and sales highlights, if we look at the highlights for this quarter, the increase of 35% quarter-over-quarter on the sales were driven not only by Bloom Lake but also by Rana Gruber, so that managed to wind down a portion of the inventory. Also completed the inaugural commercial shipment of our DRPF product during the quarter. So our first vessel that left the port and that is now arrived at our client's facilities for this new very high-grade product. Turning to community governance and sustainability.
David Cataford: We continue to work closely with our local communities and First Nation partners. We did quite a lot of work during the last quarter to continue to support the various organizations near our operations. If we dive into the actual operations of Bloom Lake and Rana Gruber, starting with Bloom Lake, in terms of the results of the mine, we managed to produce roughly about 3.3 million tons in a quarter that had two major shutdowns for plant number 1 and plant number 2, and also a major shutdown in our flotation plant. We also continued commissioning activities at our DRPF project, to make sure that we can get the plant as quickly as possible in commercial production. Slight decrease on a recovery that is explained mostly due to the fact that we are now commissioning the flotation plant.
David Cataford: When you look at the actual operations in terms of the mine, the mine is very healthy with a lot of waste material moved, strip ratio of roughly about 1.2 and the head grade at the mine of roughly about 30%. In terms of financial results, cash cost at the mine about CAD 60 per ton. Land transport lower compared to last quarter. Last quarter was roughly about CAD 30 per ton. This quarter about CAD 24, mostly explained by the fact that we have diluted down the fixed cost at the port by a higher amount of tons sold. In terms of our all-in sustaining cost, also reduced compared to last quarter as we slowly exit seasonal work, and this will continue in the next quarters. Also the higher tons that were sold.
David Cataford: I think the major highlight for us is really the work that is being done on the flotation plant. The project was completed within the CAD 500 million budget, and we are continuing the ramp up. We still expect to be able to complete the ramp up to be in full commercial production at the end of the 2027 fiscal year. The volumes, if you look quarter-over-quarter, were fairly flat, but that is due to the fact that we had a major shutdown within our flotation plant. The positive is really the fact that we are hitting the planned quality, not only on the iron ore units but also on the contaminant side. We secured additional test cargoes during the quarter and also some commercial agreements for this material going into Q3 and going into Q4.
David Cataford: Very happy with the progress that is being done on this flotation plant and especially the segment that we are entering, which is the DR market. Turning to Rana Gruber. If you remember last quarter, there was quite a bit of headwind in terms of production and also sales, but that really turned around with an increase of about 40% quarter-over-quarter in terms of production and about 180% in terms of the actual sales. That helped reduce the all-in sustaining cost at Rana Gruber to around C$97 per ton. In terms of the consolidated results, a little bit of noise in terms of our gross realized price. This is not due to the fact that we are getting hit with much larger discounts. It is really a timing issue during the quarter.
David Cataford: If you look at the last quarter, we had roughly about 3.4 million tons still on the water as at 30 September. That really impacted us because if you look at the forward curve in terms of iron ore price, we had to book those tons at $103 per ton. $103 is significantly lower than the actual average P65 average during the quarter. That is why you see a big discrepancy between the actual quarter average and the gross realized price. Now, obviously, those tons we have not settled on the price yet, so we will settle the price once the material gets to our client's facilities, and we will see how that impacts the provisional pricing for the next quarter. We were also hit by higher freight costs, roughly about $40 per tonne during the quarter.
David Cataford: We have since seen those prices come down, but during the quarter, we did see a larger impact in terms of freight. Again, when you look at those results, I think it really highlights why this flotation plant was important for us, because the last thing we want going forward is to sell all those tonnes into China and be impacted significantly when there are swings on the C3 index. By selling closer to home, to Europe, North Africa, Middle East, we will be able to be less impacted by those freight swings in the future. In terms of consolidated financial highlights, quarterly revenues are about CAD 400 million and adjusted EBITDA of CAD 23 million for the quarter. In terms of cash, when you look at the company quarter-over-quarter, roughly it went from about CAD 200 million to CAD 214 million during the quarter.
David Cataford: Still very well positioned for the next few quarters. In terms of balance sheet and liquidity position, the company is still in very good condition in terms of liquidity. We have access to around CAD 800 million of cash and undrawn loans. We did go see our financial partners. When you look at the financial partners that we have that have supported us for the past 10 years, went to see them to amend the financial covenants under the senior secured credit facility, just to provide additional flexibility during the current market environment and maintain our access to that liquidity. If we turn towards the market, if you look at the last quarter, pretty abnormal when you look at the C3 freight compared to the actual P65 index. Typically, what we see is iron ore and freight being very well correlated.
David Cataford: When iron ore price goes up, so does shipping and vice versa. What we saw in the last quarter is an abnormal disconnect between the C3 index and the P65 index. C3 went up mostly due to elements that are a little unrelated to the actual iron ore markets. We saw a lot of tonnes of bauxite leave Guinea to be able to access the Asian market. There was a lot of weather elements in the Pacific that created congestions at various ports in Asia that also reduced the amount of Capesize vessels that were available. A little more coal as well that was transiting on the seaborne market due to mine closures in China following accidents last year.
David Cataford: But when you look at a lot of those elements, while they seem to be changing in the other direction, the weather has been better now in Asia and more importantly in the Pacific. We have also seen more mines reopen in China on the coal side, which should relieve some pressure on the C3 index. Very easy to see the increase on the C3 and just think that is due to the conflict in the Middle East, but the conflict in the Middle East accounts for a portion of this increase. The other elements account for the rest.
David Cataford: When you look at the market in general, if you look at the forward curves on C3 over the next year and the next two years, the market does expect that will turn, and we have already started to see the C3 index come down from the peaks that we saw in the recent weeks. One interesting element as well, when you look at our strategy to be able to make DR material, I think it was definitely the right strategy because when you look in the last year, the DR pellet premium is pretty much one of the only commodities that has risen close to 50% in just 12 months. When you look at the DR pellet premium rose from around $40 US per tonne to close to $60 US per tonne in the past year, and that is directly the market that we are targeting.
David Cataford: I do think it is the right strategy, a bit of headwind when you look at the pricing environment, the fact that we are finalizing the ramp-up of the flotation plant. But I think we have built the right foundation to be able to be in the right segment of the iron ore space. Just to close on where our company sits today. When you look at our company, we have invested quite significantly in the past years to create the foundation we have today. Over CAD 6.7 billion have been invested at Bloom Lake to be able to create this foundation now that will allow us to enter the DR market and make sure that we benefit from this higher premium segment. But when you look at the multi-year CapEx cycle, this is now behind us. We have delivered on our plans, we have delivered on our flotation plant.
David Cataford: The construction is finalized. We are just finalizing the ramp-up, but all of this investment is behind us, and now we will be able to start benefiting from these extra premiums in the coming quarters. With that being said, I would like to thank all of our staff for all of the work that they have done to allow us to navigate through these more challenging times, and I will turn it over to the Q&A portion of the call.
Operator: Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, you will need to press star then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star then the number 2. Again, that will be star then the number 1 on your telephone keypad to ask questions. First question comes from Alexander Pearce from BMO. Please go ahead.
Alexander Pearce: Great. Hi, David. You mentioned in your remarks that you preemptively obtained some of the waivers on some of the debt facilities. Can you just give us a little bit more detail on some of the key metrics that you have now in place with those?
Michael Marcotte: Yeah, maybe I can take this one, Alex. This is Michael. I just want to make sure to reiterate, we sit on very strong financial partners. I know we've said this many times, but the Government of Canada through EDC has been one of our longest backers, and they were heavily represented in our financial structure.
Michael Marcotte: Investissement Québec government directly, Caisse de dépôt, FTQ. What we did here is we did a preventive amendment to our financial structure just to make sure that if the situation continues, that we have some protection. Let me make this clear, we are in compliance for a senior secured facility currently. What we did is that we secured relief from our financial covenants for a period of time up to mid-2027 calendar, to make sure that if the ratios don't work, that we can go through the cycle and maintain access to liquidity if we need those. Again, we're sitting on strong cash, we're sitting on strong inventories.
Michael Marcotte: Coming out of a potential relief in mid-2027, if we get there, then we would have new financial covenants that are forward-looking and wouldn't look back to the current low cycle, if you want to call it that. Hopefully that provides some color, but we're very happy to lean on our partners to be able to provide these potential relief if we need those.
Alexander Pearce: Okay. Thanks, Michael. It would be good to know what the covenants are. I think there's lots of questions in the market at the minute. Even if you're well within what's required, I think it would be good to get those. Maybe if I can ask a separate question, just around, obviously, cash costs with the DRPF ramp up. I just wondered if you could just comment on how you're seeing costs shaking out with that ramp up, and are there any obvious levers that you're seeing at the minute, opportunities to improve things within that part of the processing plant?
David Cataford: Yeah, thanks for the question. When you look at the cost structure, obviously we've always invested everything that was required to be able to not only keep the pit healthy, but also all of our infrastructure in extremely healthy condition. That allows us to potentially push out certain investments in this current, more challenging time. A lot of these things we started to implement during the summer, but it takes a few months to be able to actually see the results. We should be able to see in the coming future, and in the coming quarters, that impact on the reduction of costs that we've started to work on. That's mainly at the mine side, on our sustaining costs as well, that we've now hit more of the high seasonal portion.
David Cataford: Q3 and Q4 are typically quarters that have lower sustaining costs, just due to the winter element. But also we've done quite a lot of changes to make sure that we can keep that sustaining lower to make sure that we can navigate through these different times. A lot of work that's being done at the mine to be able to reduce cost and also on the sustaining part.
Alexander Pearce: Okay, thanks.
Operator: Next question comes from Craig Hutchison from TD Cowen. Please go ahead.
Craig Hutchison: Hi, guys. Can you just comment on how the DRPF ramp is going? How close are you guys getting to design? I think you guys allowed yourself until early next year, if I recall. How is that going? You talked about the DRI premiums you are seeing in the market. Any commentary in terms of what you are seeing for that product? Thanks.
David Cataford: Yeah. Thanks for the question, Craig. When I look at the actual ramp up, I think it is going very well. Even if you see flat production quarter-over-quarter, it is mainly due to the fact that we had a major shutdown in the flotation plant. It was the first one as well. If you go back to when we started phase 1 and started phase 2, the first shutdown always takes a bit more time just because it is the first time that we are actually maintaining all of the equipment. As you can see in the results now, those shutdowns for plant number 1 and plant number 2 are much, much more efficient. We are going to see the same thing on the flotation plant. When you look at the actual design, we are hitting the quality that was expected.
David Cataford: We are hitting the volume that was expected as well. All of our major equipment, we have demonstrated that it can operate at or over design. All of that is going extremely well, and you are going to start to see more and more sales in the coming months/quarters in terms of our results. Even on the test cargoes, we are getting significant premiums over and above our typical 66% material. When you look at what is happening in the market now, we can see in Germany they are still moving ahead with DRI facilities. Two facilities are being built right now. One will be delivered next year, the other one in 2028. Obviously that is great potential clients for us. North Africa as well. We are continuing the work and being able to send test cargoes. Same in the Middle East.
David Cataford: Even if Bahrain and UAE are currently shut down for us due to the Hormuz Strait, we still have access to Oman in terms of potential. There is quite a lot of demand for our type of material, and I think the biggest surprise for most of the clients is that we are able to sell full cargoes at the announced quality in terms of contaminants in iron ore units. I think there was a bit of skepticism in the past that we would be able to reach such a high grade type material. Now that that is going to be behind us, we are going to start to see the benefits of that increased quality in terms of the pricing.
Craig Hutchison: Okay, thank you for that. Then just on Rana Gruber, what do you guys need to see to make that operation free cash flow positive? I think it has lost money a couple of quarters in a row here, and it is burning cash. What do you need to see from an operational perspective, assuming iron ore prices are flat going forward?
David Cataford: There are three things that impacted Rana Gruber. Obviously, the fuel price, the C3 index. They are the two major elements that we have seen an impact. Iron ore price, it is a little bit lower as well. When you look at the C3 and the fuel, they are the two main elements that have been impacting the Rana Gruber site right now.
Craig Hutchison: Okay, prices sort of stay the same operationally. We can assume a similar quarter-over-quarter performance kind of thing.
David Cataford: Yeah, we still see areas where we can continue reducing costs at Rana Gruber as well. We're doing the same kind of work over there than we're doing at Bloom Lake. If you take Rana Gruber as an example, they were able to go through the 2015/2016 cycle and continue to operate during those times. When you look at profitability today in the market, if you take the C3 index and adjust it for inflation, iron ore price, we're pretty much at levels that are similar to that 2015 and 2016. Rana Gruber, it was not the easiest time, but they managed to go through it. I would expect that we're going to continue to work on reducing costs at the operation there and be able to navigate through these more challenging times.
Craig Hutchison: Great. Thanks, guys.
Operator: Again, if you would like to ask a question, please press star then the number 1 on your telephone keypad. Your next question comes from Stefan Ioannou from ATB Cormark. Please go ahead.
Stefan Ioannou: Yeah, thanks, operator. Thanks, guys. Good to see the inventory come down at Bloom Lake. Just curious, is it safe to assume now that some of the logistical rail and port logistics are behind us now and things are operating well on that front?
David Cataford: Yeah, in terms of logistics, things are going much better. Obviously, we are getting some help with the productivity of other operations in the region. That has relieved pressure also on the rail. Even before that, when the other operations were doing fairly well, we still saw that we were destocking material. I think those hiccups that when we started phase II, they are behind us, and now the logistics side is doing much better. If you look at September was a record month in terms of loading vessels at the port. Everything down at the set down area and at the actual port operations has been working extremely well. When I look at the logistics side, definitely it is something that is in the right trend.
David Cataford: What is interesting as well when you look at the actual logistics is if you look at the sentiment of the federal government and certain provincial governments in terms of the high-grade iron ore sector in Canada, it is extremely positive. You have seen announcements by the federal government that are supporting initiatives at the port to increase the tonnage in the future. That is definitely going to help not only on potential volume, but it is going to help also on pricing in the actual region. There is quite a lot of support in the region to be able to improve the overall logistics chain to make sure that this can not only operate in a good way in the future, but can also accommodate more volume in the future.
Stefan Ioannou: Okay, great. Thanks very much, guys.
Operator: There are no further questions at this time. I will turn the call back over to Michael O'Keeffe.
Michael O'Keeffe: Thank you very much. Thank you, David and team, for all your work in difficult times. It is stressful for everyone, but thankfully, we have got a great team of people to be able to work our way through this process. I think the best thing is to reflect back and people have asked me, would you still make the same decision to go to high grade and spend that capital to get to where we are now? The answer is most definitely yes. Timing is not always the best. However, if all of the issues in Iran at the moment and the issues with fuel costs that have happened, let us say a year ago, I think we would be, I am sure we would be in a much more difficult situation than what we are today.
Michael O'Keeffe: If I prefer this to happen, I would say in a year's time, because by then, all these test cargoes that David is talking about would be with the off-takers. They would have started being tested, the material, and our contracts will be in place. The great litmus test for us is that if we were to sell this product tomorrow, and if we were to fulfill all the obligations that customers have required, we are probably 130% sold. Now we know that when it comes time to sell, a lot of those people will not be there, but it is a very good indication of the demand for our product and also the potential premiums we will get. I think David also mentioned, and we were asked earlier today, how do you see that premium coming to us and how do we measure it?
Michael O'Keeffe: We are not going to go out and discuss what our contracts are with everyone, but I think you will see the price we receive for the product, it will gradually increase, and that is going to be a great benefit for us. We are separating ourselves from the market. We do not want to be producing a material that is 62% Fe going to a sinter plant, going to a blast furnace. We always knew that, and we always believe that we need to be in a different situation. Also with the pricing, you would have seen that there was a lot of spot cargoes that we did, which were into China, which is our worst situation. That was because we did not want to commit to long-term contracts into China, which is our worst destination. Obviously, shipping rates being where they are, it was horrible.
Michael O'Keeffe: It was horrible 2 months ago when our C3 cost was something like USD 40 to 50 a ton. It is now in the 30s, but if we were to sit down tomorrow and start looking at 2027, once we know where our tons are finally going, even to China, we can do contracts for C3 in the 20s. That is a huge difference to what we have been paying, and it is going to be very beneficial for us. The fact that we are looking at site to reduce all the costs that we possibly can, it is a bonus for the group because we have to look at the positive side of this. Obviously, there are also diesel costs, the excise on diesel for rail, all of those things are worse for a situation at the moment.
Michael O'Keeffe: What we do have is we have, as David discussed, good cash available to us at the moment. We do have the support of the federal government, which you might have seen recently, that are announcing in excess of CAD 1 billion to the steel industry in Canada, should we require that support. We do have very good investors with us, including the Caisse de dépôt. Look, we have the right people, we have the right product, and I see a very great future for our material going into the market, gaining a premium, and also a lot of these tons will not be going to China. I do see the freight rates coming off and the demand for our product into the Middle East and to Europe and North Africa will be of a premium.
Michael O'Keeffe: We are seeing some of the big players in the market who actually cannot produce the 69 material wanting to buy our tons. You will see some of these contracts come to light that require this material because they understand the importance of it. Look, tough period at the moment, but we have been through this when we acquired the asset. These issues are not new to us and we have weathered the storm before and we are in a much better position now because of, A, the support we have, the financing we have, and the product that we are going to produce. I hope that the market supports us and I hope that you see that there is a future for the company, a great future, and thank you all very much for your support and thank you very much to David and your team.
Michael O'Keeffe: On that note, I will sign off. Thank you very much.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.
