Champion Iron is the largest publicly traded pure-play producer of high-grade iron ore in the world. The company neighbors global operators of scale such as Rio Tinto and ArcelorMittal in the Labrador Trough in Quebec, Canada. Champion’s flagship asset, the Bloom Lake Iron Mine, is producing at a nameplate capacity of 7.5 million tonnes per annum (Mtpa) of high-grade 66.2% Fe concentrate. The company recently completed a feasibility study which envisions doubling the overall capacity of the complex to 15M Mtpa with an after-tax Internal Rate of Return of 33.4% and an after-tax Net Present Value of $956M. In addition to its profitable Bloom Lake operations, Champion controls more than 5B tonnes of iron ore resources ranging from 6 to 80 km to the south of current operations, providing attractive long-term organic growth opportunities.
Pioneer Behind Champion Iron
Michael O’Keeffe, the Executive Chairman of Champion Iron, is well known globally in the mining industry for his excellent track record of successful turnarounds, out-of-consensus calls and delivering enormous returns for shareholders. Following his tenure as an executive at Mont-Isa mines, Michael was a partner at Glencore responsible for Australian and South Asian operations, growing group sales from $100M to $2.4B. Following his career at Glencore, Michael founded Riversdale Mining in 2004, which was bought by Rio Tinto in 2011 for $3.9B. Earlier this year, he also sold Riversdale Resources for over $700M to privately-owned Hancock Mining. Along with Champion’s recently appointed CEO, David Cataford, Michael orchestrated the successful purchase of the Bloom Lake assets and additional properties from Bankruptcy protection for $10.5M and the assumption of certain liabilities. Despite receiving investments totaling nearly $4B, the Bloom Lake mine faced operational challenges under its predecessor and was shut down and reduced to care and maintenance mode in December 2014, at a time when the iron ore market was experiencing one of its largest corrections in decades. Following its acquisition by Champion and significant improvements at the site, Bloom Lake achieved commercial production on June 30, 2018 and now competes aggressively in the global seaborn market with a free on board (FOB) cash cost of approximately US$35/t while Champion’s product sells for over US$120/t in current markets. In its first year of operations, the company has generated a net profit of $147.6M.
Business Model behind Champion Iron’s Success
“We are owner-operators where management owns more than 10% of the company. We are aligned with investors and look to build a long-term sustainable mining company. Our company acquired Bloom Lake when all analysts expected iron ore prices to remain depressed. Given our long history of value creation, we believe we have an ability to act counter-cyclically, fund capital while others have difficulty to do so and excel at fixing and improving operations.” – Champion Iron team.
Benefits for Customers of Champion Iron
Bloom Lake produces a premium in-demand product with its 66.2% Fe high-grade concentrate, one that benefits Champion’s customers with lower emissions in the steelmaking process. Given the introduction of more stringent emission standards in the industry, especially in China, Champion’s product not only allows for better economics in the steelmaking process but improves its customers’ ability to comply with increasingly stringent governmental emission standards. In addition to its high-grade nature, the company’s product contains below benchmark contaminants, which is also a growing issue in the industry, in particular with alumina and phosphorus. Such contaminants are increasing in other major producing hubs globally and negatively impact steelmakers’ ability to produce complex steels.
The Success Story
Champion Iron acquired the Bloom Lake project when iron ore marked its lowest level in over a decade. Given prior operational challenges by its predecessors and difficult market conditions, funding the acquisition and the necessary capital to recommission the project proved to be very challenging. However, benefiting from Michael O’Keeffe’s global relationships, Champion successfully funded the project via non-traditional capital and partnering with the Quebec government.
Advancements in Iron Ore Mining
Open pit truck and shovel mining at Bloom Lake is a very simple process, with a concentrator that utilizes single-stage crushing, an autogenous mill and gravity separation to produce iron concentrate. Given its efficient flow sheet, some of the advantages lie with energy cost and automation. Champion has already reduced annual fuel consumption by over 12M liters with new electric boilers, conveyor systems and tailings pumps.
The iron ore industry has recently been challenged by tailings management following tragic events in Brazil related to tailings dam failures at one of VALE’s operations. This is the second dam failure of its kind in the country in recent years and has increased the attention of market participants towards tailings management. While Champion’s mine is located on the Canadian shield, being one of the oldest and most seismically stable regions in the world, the site is designed to resist all extreme scenarios, from earthquakes to exceptional rain events. The company’s safe tailings management will continue to adopt world-class standards where fine material is separated from coarse material, considered a proven, safe and stable method for this type of product. To further improve on safety, the dams are raised to levels that cannot exceed 40 meters, while coarse material stored in upstream construction utilizes a slope of 10:1 compared to the industry standard of 6:1. Finally, the company has a robust monitoring program, including real-time surveillance consoles.
Future Roadmap of Champion Iron
Champion recently published a feasibility study to double the capacity of Bloom Lake from 7.5 Mtpa to 15 Mtpa. This expansion is already approximately 75% complete since the project received over US$1.2B in capital from its previous owner which was interrupted in 2014 due to operational issues and a market downturn. The feasibility study contemplates Champion delivering this expansion in early 2021, and the company has already approved and funded a $68 million budget to begin a work program that will secure this timeline. Beyond this expansion, Champion looks to further exploit its immense iron resources south of Bloom Lake.