Champion Iron Ltd. (CIA-T) C$6.14 Moving Up the Value Chain; CIA Acquires Pointe Noire Pelletizer Craig Hutchison, P. Eng Nicholas Clarke, CFA (Associate
Event This morning, Champion announced that it has entered into a definitive purchase agreement for the acquisition of the Pointe Noire Iron Ore Pelletizing Facility in Sept-Iles, Quebec. The company has also entered into an MOU with an unnamed international steelmaker to complete a feasibility study to evaluate the recommissioning of the pellet plant to produce DR-grade pellets. Impact: POTENTIALLY POSITIVE ■ Pellet plant transaction background - The Pointe Noire facility is strategically located adjacent to Pointe Noire's deep-water berth and train unloading infrastructure, the site is also directly adjacent to the Sept-Iles port facilities currently used by Champion for product shipment (Exhibit 1). Commissioned in 1965 with an original pelletizing nameplate capacity of 6Mtpa, the plant was placed on care and maintenance in 2013. ■ Strengthens partnership with Quebec Government - The plant is being acquired from the Quebec Government for cash consideration of $2.5mm. We believe the infrastructure and strategic location of the plant is worth far more than $2.5mm and therefore we view the sale as a strong endorsement of Champion by the Quebec Government (~8.4% owner of CIA) to add value and get the plant back in production. ■ MOU with international steelmaker - The MOU outlines a framework for a JV to produce DR-grade iron ore pellets for sale to third parties, including the steelmaker. The two parties plan to complete a feasibility study in 2023. The plant is expected to require significant investments, including structural work, rehabilitation, and equipment enhancement prior to re-commissioning, to maximize productivity and energy efficiencies. ■ Provides synergies with the potential DR-concentrate plant being reviewed at Bloom Lake - As a reminder, Champion is currently undertaking a study to upgrade approximately half (~7-8Mtpa) of Bloom Lake’s post-Phase II capacity to DR-grade concentrate (>69%-Fe). We already include a value for the DR concentrate plant of $359mm, or $0.67/share (see note for details). ■ The refurbishment of the DR pellet plant could add further value. For reference, DR pellets current trade at US$67/t over-and-above the spot price for 65%-Fe, which are trading at US$153/t.