This just posted by 'retiredcf' on Stockhouse forum:
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Champion Iron Ltd.
(CIA-T) C$5.50
Raising Our Target Price on Higher Iron Ore Price Forecasts Event
We have updated our estimates for Champion to reflect changes in our Q3/F21 (December quarter-end) assumptions, along with our higher iron ore price estimates for calendar 2021 and 2022. Champion will report its Q3/F21 results this Thursday morning before market open.
Impact: POTENTIALLY POSITIVE
We expect iron-ore prices to remain at or close to current record levels through the first half of 2021, before moderating in the second half of this year. Prices remain well-supported by strong steel production out of China, along with a recovery in demand from other major economies as the global recovery begins to unfold. We are forecasting that global steel production will rebound 4% in 2021 and a further 3% in 2022, led by growth in construction and automobiles.
On the supply side, we expect production growth from the 'big-four' (Rio Tinto, BHP, Fortescue, and Vale) to be relatively modest this year. We are calling for seaborne exports to grow 3% y/y in 2021, resulting in a deficit of 131Mt this year, shrinking to a deficit of 92Mt in 2022. We are increasing our 2021 and 2022 iron ore (65%-Fe) price forecasts to US$165/t and US$115/t, respectively, from US$130/t and US$105/t previously.
Setting up for a record second half of F2021 — We expect Champion to report Q3/F21 EBITDA of $194mm and FCF of ~$103mm, excluding Phase 2 development costs of $33mm. With iron-ore prices averaging ~US$190/t through the first three weeks of the year, Q4/F21 is setting up well for the company's best quarter to-date. At current spot prices of ~US$190/t, Champion should generate ~$170mm of FCF per quarter, excluding any Phase 2 expenditures.
Very strong balance sheet — We expect Champion to end calendar 2020 with net cash of over $220mm. Based on our forecasts, we believe that the company can fund the remaining Phase 2 capital requirements without requiring the additional US$200mm of funding secured in late-2020. As a reminder, the Phase 2 expansion is expected to be completed by mid-2022, which will double nameplate capacity to 15Mtpa.
TD Investment Conclusion
We are increasing our target price to $7.00 from $6.50 and maintaining our BUY rating.
(20min delay)