Champion Iron Ltd.

(CIA-T) C$6.96

Evaluating Multiple Avenues for Growth

Event

We have updated our estimates following Champion's F2022 year end results.

Impact: NEUTRAL

With the Bloom Lake Phase II expansion largely complete and production beginning to ramp-up towards the 15-16Mtpa target by year end, Champion has begun to shift focus towards a number of growth options that could differentiate the company as a premier producer of high-grade products.

  • Direct-reduction (DR) pellet feed - The company plans to release a feasibility study (FS) by mid-year that will evaluate the potential to produce 69%-Fe DR- grade pellet feed at Bloom Lake for half of the plant's production (~8Mtpa). The regrind and flotation plant would take approximately 24-months to build and cost ~US$300mm, capturing a premium over-and-above the 65%-Fe index. We currently value the optionality on the DR-plant at $359mm and provide a range of sensitivities in Exhibit 3.

  • Phase III expansion - A FS on the potential construction of a Phase III expansion targeting an additional ~7-8Mtpa of DR-feed material at Kami is expected to be released in H2/2022. This is expected to be a capital intensive project and management noted on its conference call that it would likely bring in a partner to develop Kami if it were to move forward. Alternatively, the company is evaluating a Phase III expansion at Bloom Lake that could increase production beyond 24Mtpa and extend the mine life through the conversion of resources to reserves. The company noted it would consider going alone on a Phase III expansion at Bloom Lake with a FS likely in 2023/2024. We current ascribe a nominal value of $300mm for Kami along with the company's extensive resource base and see upside to this estimate as further details evolve.

    Pointe-Noire pelletizer - Lastly, the company plans to release a FS on the recommissioning of the recently announced acquisition of the 6Mtpa pelletizer at Pointe-Noire. The company's initial plan would be to produce DR pellets, which currently trade at US$67/t (above 65%-Fe) through the use of LNG or natural gas. We presently do not model a pelletizer in our estimates and plan to review upside scenarios as information unfolds.

    TD Investment Conclusion

    We are maintaining our BUY recommendation and $8.50 target
    (Canadian Dollars)