Champion Iron Ltd Q1 2020 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Orest Wowkodaw - Scotiabank - Analyst : Two questions. The first one on your price realization. Can you maybe give us some color on how you were able to get such a premium over the 65% benchmark in the quarter? I think we calculated around CAD14 a tonne above the 65. And I am just wondering if that is a timing issue of maybe where your sales were in the quarter. And then secondly, just on the recoveries, the uptick there and the very strong recoveries in June, is that -- was there something specific in June that pushed them that high? And do you think something close to that is sustainable as we move forward here? Thank you. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 31, 2019 / 11:30AM, CIA.AX - Q1 2020 Champion Iron Ltd Earnings Call

Question: Orest Wowkodaw - Scotiabank - Analyst : Okay.

Question: Orest Wowkodaw - Scotiabank - Analyst : Okay, great. Thanks for the color.

Question: Craig Hutchison - TD Securities - Analyst : I just had a question on the CapEx. Obviously you had a bit of an acceleration of CapEx in the quarter. What can we expect for the back half of this year in terms of just the Phase 1 at Bloom Lake?

Question: Craig Hutchison - TD Securities - Analyst : And maybe in terms of the production, you mentioned -- obviously you're very close to 2 million tonnes a quarter here. Do you think you can kind of carry that into the second quarter -- fiscal quarter, those type of production rates?

Question: Craig Hutchison - TD Securities - Analyst : But there will be no shutdowns -- scheduled shutdowns in the next quarter? Is that correct?

Question: Craig Hutchison - TD Securities - Analyst : Great. Thanks, guys.

Question: Hayden Bairstow - Macquarie - Analyst : Just a couple from me. Just back on that provisional pricing question. Just on the 2 million tonnes that you are shipping every quarter, how much should we think about that gets post-quarter adjustments on provisional pricing? Is it around 20% of the quarter volumes or is there a different number to that?

Question: Hayden Bairstow - Macquarie - Analyst : Okay. And just on the mining duties, you're paying installments now. If the (inaudible) price stays where it is I guess profitability keeps going up. What quarter or [bump] do you have to top that up, or is there a reset of the duties you have to pay every month? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 31, 2019 / 11:30AM, CIA.AX - Q1 2020 Champion Iron Ltd Earnings Call

Question: Hayden Bairstow - Macquarie - Analyst : Okay, great. And just one last one on the Phase 2. I mean, sitting in Perth as we do, there's plenty of iron ore projects being kicked off at the moment. Is there any fixed gear that you have to buy for Phase 2 that might come under some cost pressures just given that every major mining company, particularly in Australia, seems to be building something at the moment?

Question: Hayden Bairstow - Macquarie - Analyst : Okay, terrific. And just one final one, I guess. As you said, the cost pressures aren't really there. Is there much going on given the iron ore price where it is? Are you seeing interest in additional development through the Labrador Trough and some of these old mothballed projects or is it nothing really happening?

Question: Hayden Bairstow - Macquarie - Analyst : Okay, terrific. Thanks, David. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 31, 2019 / 11:30AM, CIA.AX - Q1 2020 Champion Iron Ltd Earnings Call

Question: Stefan Ioannou - Cormark Securities - Analyst : Obviously appreciate that you're 100% unhedged and everything. But just with iron ore pricing where it is today, and obviously there's a little bit of concern out there in the media just that iron ore pricing may start to come down at least a little bit, and your Phase 2 CapEx requirements going forward. Is there any thoughts at all to even just hedging a small portion of the production profile?

Question: Stefan Ioannou - Cormark Securities - Analyst : Okay, okay, that makes perfect sense. And then just maybe a housekeeping item, just on the formal closure of acquiring 100% of the project. You mentioned sometime this quarter. Are you thinking maybe late this quarter? I guess it's somewhat of a moot point just given, like you said, that everything is being accrued within QIO up until -- from March 31 onwards, but just wondering on the timing of that.

Question: Michael Emery - Euroz Securities - Analyst : Terrific results as usual. Just quickly, a couple of things. So, you sort of touched on the recoveries. Just wanted to know, are you guys still mining through the limonite patches that you encountered early on? And if so, when do you expect to get through that -- those patches?

Question: Michael Emery - Euroz Securities - Analyst : Okay, perfect, thank you. And on your -- just really on your Phase 2, your (inaudible) coming in mid-2020. Is that -- that's calendar year I assume, or you're talking fiscal year?

Question: Michael Emery - Euroz Securities - Analyst : Calendar 2020, okay, cool. And then one last one from me, just on the shipping rates. Obviously it hasn't gone up in tandem with the iron ore price because of the Vale shut down. But now with Brucutu turning back on, do you expect or are you seeing that shipping rates are likely to creep back up back into the long-term historical average correlation?

Question: Michael Emery - Euroz Securities - Analyst : Excellent. Great, thanks a lot for that, guys. Much appreciated.

Question: Gordon Lawson - Paradigm Capital - Analyst : I just have two quick questions for you here. How much of the cash cost bump would you attribute to the shut down and production push versus any residual issues? And can you talk about the volume of your sales into Japan and any premium or discount expectations with respect to realized pricing?

Question: Gordon Lawson - Paradigm Capital - Analyst : Yes, that's excellent. Thank you very much.

Question: Lucas Pipes - B. Riley - Analyst : Most of them have been asked. I wanted to ask a quick one on the iron ore market obviously. There's a lot of concern in the market that current prices are not sustainable with weaker steel margins in China and elsewhere. I wondered if you can share your perspective as you look out onto the global supply/demand picture and your outlook for the next six months or so. I would appreciate your thoughts. Thank you.

Question: Lucas Pipes - B. Riley - Analyst : Very helpful, thank you. Then maybe a quick follow-up. Just broadly speaking, what's your sense in terms of the supply response globally to these higher iron ore prices? Are we seeing smaller scale projects come online or being in the works? Is there talk of maybe some larger additions? What are you seeing out there in terms of supply coming to the market? Thank you.

Question: Lucas Pipes - B. Riley - Analyst : Always great to hear that. I appreciate your perspective very much.

Question: Scott Schier - Clarksons Platou - Analyst : Good morning, everyone. Just one question left for me this morning. I was hoping you'd talk a little bit about your capital allocation priorities. We estimate that Champion will be generating a pretty substantial amount of cash at today's iron ore prices. Do you expect most of it will just go towards funding the Bloom Lake expansion or are there any thoughts about starting a shareholder return program?

Question: Scott Schier - Clarksons Platou - Analyst : Great, thank you very much. I'm looking forward to more color on that. Thanks for taking my question. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 31, 2019 / 11:30AM, CIA.AX - Q1 2020 Champion Iron Ltd Earnings Call

Question: Jacques Wortman - Laurentian Bank - Analyst : Excellent quarter. Just a couple questions from me. First of all, how sustainable -- you talked about the recovery rate. How sustainable is the higher iron ore head grade that you've been getting? Secondly, can you just give us a bit more color on that CAD11.90 per tonne price adjustment in slide 13? I just want to make sure that I understand what the nature of that is and how to use it going forward. Third, apologies if you've addressed this already. What's roughly the current premium Bloom Lake [con] is getting to P62? And I guess the last thing is do you expect the Phase 2 feasibility study to hit SEDAR this week or next week? Can you just be a bit more granular on when you think that might be fully completed? Thanks.

Question: Jacques Wortman - Laurentian Bank - Analyst : Yes, regarding the sustainability of the higher iron head grade that you (multiple speakers).

Question: Jacques Wortman - Laurentian Bank - Analyst : Yes, that's perfect. Thank you very much. Okay, I understand now. And then with respect to the premium I guess to P62 currently for your Bloom Lake con. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 31, 2019 / 11:30AM, CIA.AX - Q1 2020 Champion Iron Ltd Earnings Call

Question: Jacques Wortman - Laurentian Bank - Analyst : Okay. And then the last question -- sorry, I had a wash list I guess. Last question was about when you expect the feasibility study to hit SEDAR.

Question: Jacques Wortman - Laurentian Bank - Analyst : Perfect. Okay, thanks very much. I appreciate your time.

Question: Brian MacArthur - Raymond James - Analyst : Just following up on that provisional pricing question so I understand it. And I get it, like there's a delay when you first price it and then there's a realize price. Is that based on the P62 price that changes in those -- in that 30-day period, or is it based on the change in the P65? So, if we get a spread change there, we're going to have even -- like which one is causing the volatility? The 62 reference price as you do it or the 65?

Question: Brian MacArthur - Raymond James - Analyst : Right, so theoretically going forward the volatility shouldn't be necessarily as high, assuming we believe premium stuff is going to trade at a higher price. Is that a fair statement?

Question: Brian MacArthur - Raymond James - Analyst : Perfect, thank you. And just one other question, most of my others were answered. But just so I'm clear on the CAD34 million cash payment. This is more just a cash question. You also say it is offset by current payables. So, actually your payables have gone up this quarter. Is there then like just the way the timing lag worked out a fairly big tax payment over the next two quarters or something? Because it looks like it's gone up CAD19 million and buried in that was CAD34 million you said you paid out. Or am I reading that wrong?

Question: Brian MacArthur - Raymond James - Analyst : Okay, great. Thank you very much.

Question: Orest Wowkodaw - Scotiabank - Analyst : Thanks for taking the follow-up. I'm just curious if you could give us an update on your plans for financing with respect to Phase 2. And does the current iron ore market in terms of high pricing change any of that? Thank you.

Question: Orest Wowkodaw - Scotiabank - Analyst : Okay, interesting. Okay, so you might actually then wait as much -- would you wait as long as a year then to actually secure third-party financing whether that's additional debt or whatever? Or would you like to secure that ahead of time?

Question: Orest Wowkodaw - Scotiabank - Analyst : Okay. Is the most likely financing solutions debt?

Question: Orest Wowkodaw - Scotiabank - Analyst : Okay, thanks so much.

Question: Brock Salier - Sprott Asset Management - Analyst : I was just wondering if you could talk a bit about the underlying unit cost. It looks like you had on a tonne of rock your mining costs and processing costs have crept up over the quarter. Is that a seasonal thing? Is there any transition that you expect or should we expect the dollar per tonne of rock cost to flatten from here?

Question: Brock Salier - Sprott Asset Management - Analyst : So, should we expect going forward that 10% or 15% drop back to the March quarter unit cost rates going in the second half of the year? Or should we expect these costs to stay where they are as long as your iron ore price does?

Question: Brock Salier - Sprott Asset Management - Analyst : Understood. And just following up on that shipping cost question. We've seen the Brazil rate spike up in July. Obviously you have various backhaul synergies and you drop off very specifically. Are you seeing your July shipping prices hit mid-20s or low 20s or still down in the teens?

Question: Brock Salier - Sprott Asset Management - Analyst : So, we should expect low 20s rather than high 20s would you expect in the second -- or in this current quarter? Or are you still seeing teens in July?

Question: Brock Salier - Sprott Asset Management - Analyst : Understood. That's all from me. Thank you.

Question: John Schultz - Macquarie - Analyst : Just a few ones. Just getting around to that planned shutdown, is this a normal thing on the schedule? Are we going to see something about every 12 months on that? And the next one, just looking at the Phase 2 and the rail port infrastructure. What's the [vessel you guys] are currently running on at the moment and what do you need to do to be able to get infrastructure up to handle the 15 million tonnes?

Question: John Schultz - Macquarie - Analyst : Okay, and approvals for the use of rail in port as well -- I mean, you can scale that up to 15 with no issues?

Question: John Schultz - Macquarie - Analyst : Okay, perfect. And then one more. So, on your 43-101, that work being done, would the update just be based on production trends or would there be any new drilling data to incorporate in that one?