Good morning, ladies and gentlemen, and welcome to Champion 's Q1 Results of the Financial Year 2026 Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, July 30th, 2025. I would now like to turn the conference over to Michael Marcotte. Please go ahead.
Thank you, operator, and thank you everyone for joining us to discuss our results today. Before I turn it over to David, our CEO, for the presentation, I'd like to remind you that throughout this presentation, we'll be making forward-looking statements. If you'd like to read more about our forward-looking statements, risks, and assumptions, you can visit our MD&A, which is available on our website at championiron.com. I'd also like to remind people that our presentation to be used on the webcast is also available on our website under the investor tab. Joining me here today is David Cataford, our CEO, who's going to do the formal presentation, our COO, Alexandre Belleau, and our CFO, Donald Tremblay. With that, I'll turn it over to David.
Thanks, Michael. Thanks, everyone, for being here today. Very happy to be able to present the fiscal year 2026 first quarter results. If we look in terms of the quarter, I think two of the main highlights were definitely the fact that we've managed to rail and haul about 3.8 million tons dry, so close to 4 million tons wet of material on our rail. A very big positive for us during the quarter. Also, managed with a more challenging quarter to be able to realize an EPS of $0.05 per share. If we look at community governance and sustainability, again, continuing to work with our First Nations partners and local communities, mainly in Québec.
Very happy also to have received a prize from the Québec Mining Association for one of the projects that we've been doing with the First Nations community, which is an immersion project that we've done with some of our employees to be able to go visit First Nations community and be fully immersed in the actual community. In terms of our operational financial results, one of the elements that was a bit underwhelming during the quarter is definitely our production. Around 3.5 million tons that were produced during the quarter. Main elements that impacted us have been the ore hardness. We've seen that last quarter and we're seeing it again. The good news is that we seem to have identified the element that is causing it. If you combine the ore hardness and the lower head grade during the quarter, that definitely reduced our throughput of concentrate.
Also, when we have ore that's hard, it typically creates more fines within the mill, and that material, the fines, are more difficult to recover. We see a double impact: throughput and iron ore recovery. Those are the main elements that have impacted us. On top of that, we did have a Hydro-Québec shutdown of about two days. That impacted our production as well. If you combine the ore hardness with the Hydro-Québec shutdown, we're talking roughly about 300,000 tons during the quarter. That would have brought our production closer to 3.8 million tons. If we look at one of the highlights during the quarter, it's the fact that we did move about 440,000 tons from the stockpile, bringing our stockpile down to about 2.1 million tons during the quarter.
If we look at the rail operation, as we mentioned, had a run rate of roughly about 4 million tons during the quarter, so n et positive. Obviously, this will have a small impact in the next quarter. As you might remember, every September, there's a significant shutdown on the rail from the rail operator, roughly usually between 10 to 12 days where they shut down the rail to do summer maintenance on the rail facilities. In terms of the ore hardness, if we look at our mining sequence and what impacted us, if you look on the map here, you can see the south of what we call Pignac, our center pit. We have an extension, a small zone that we added in our reserves a few years ago when we updated our mine plan.
We thought this material would be actually positive for us and would allow us to lower our operating costs because, as you can see on the map, it's much closer to our waste dumps. We did feel that there was a potential advantage because the hauling was so short for the strip material from that zone. Unfortunately, what we saw is that the material from the zone is much harder. If you look at the last quarter, we were mining roughly about 12% of our blend into that area. If you account for the fact that this material has reacted in a more difficult way, what typically happens at our site is that the mill gets choked up and gets stuck with this type of material, and we don't have any grinding media that's hard enough to be able to remove it.
What we're looking to do in the second half of this year, financial year, is to be able to reduce the amount of tons that come from the zone and get closer eventually, gradually down to about 4% of ore blend, which is the average of this material over the life of mine. We were mining a little bit more aggressively in that zone because we did think this would be positive, but because we've seen that this material is more difficult, we'll definitely cut it back down in the second half of this year. In terms of our mining operations, I do think that there's quite a lot of positives. If you look at how the mine has performed, record combined ore and waste mined and hauled in the period.
All the new mining equipment and the work that we're doing at the mine to be able to optimize our operations has been paying off. Unfortunately, we haven't seen it in the results because of the ore hardness and the difficulty to be able to process the material. Realistically, I think the mine is very healthy, and we've proven this in the last quarter. If we look at the industry, for the iron ore, or the P65 material, declined in the past quarter. We since have seen that recover. We do see some positive signs in terms of iron ore pricing. We have seen the spread for the high grade versus low grade change as well. We have seen the spread go from around $9- $14 per ton, showing signs that the high grade is coming back as a desired material.
Hopefully, with steel mills that are steel margins that are improving in China, we should be able to see that continuing to improve in the near future. When you look at the freight, freight was also positive for us as the C3 Index decreased slightly and our shipping costs reduced during the quarter. If we look at the iron ore price, that's what impacted us in terms of provisional price adjustment. We had a negative of about $20 million per ton, or roughly about $5 per ton. That's mainly due to the fact that at the end of last quarter, on the 31st of March, we expected a settlement price of about $111 per ton, but managed to realize about $103. That impacted us negatively.
This might turn the other side in the next quarter because at the end of June, we expected to have our 2.5 million tons on the water to settle at around $100 per ton. Since then, we have seen the iron ore price increase. There is a potential for us to have a positive provisional price adjustment. In terms of realized price, when we look at freight, provisional price adjustments, and the FX conversion, we realized a net price of around CAD 102 per ton. If we look at our cash costs, one element that's a bit underwhelming during the quarter. Realistically, if we look at our CAD 82 per ton delivered in the vessel, the two main elements that impacted us were the use of stockpiled material and the ore hardness.
If we look at the ore hardness reducing our throughput and reducing our iron ore recovery, the total volume effect during the quarter has been roughly about $4 per ton. If we would have managed to hit a more stable production target, we would have been able to reduce those costs by reducing the fixed cost by about $4 per ton. The other impact has been from using stockpiled material. As you know, when we use stockpiled material, we have to account for the fact that it was hauled to the stockpiles and the fact that we're also hauling material from the stockpiles to the loadout area. That is reflected on the cost of those tons.
If you look at the advantage of us bringing so many tons from the stockpile, 440,000 tons, definite positive in terms of our cash, but a negative in terms of our operating cost for the quarter. If you account for the volume effect and for the inventory effect, combining those is roughly about $8 per ton. That would have reduced our operating cost to mid-70s. In terms of financial highlights, as we've mentioned on the first slide, around $390 million of revenues, a bit just shy of $60 million, and an EPS of about $0.05 per share. In terms of cash change during the quarter, we had a few positives, one being the fact that the case exercised their warrants, bringing in roughly around $37 million. They did that ahead of the expiration date, showing their positive view on the company today.
If we look at our cash variation during the quarter, it went from around $117 million to just over $176 million during the quarter. In terms of our balance sheet, a very healthy position to allow us to finalize the flotation plant and still benefiting from roughly around 2.1 million tons of stockpiled material that we should be able to continue to haul down in the coming quarters. One element that we delivered post-quarter was the high-yield bond that we've put in place. We had a successful first-time issue and are very happy with the result. The thought process, as you know, next year we had to start to repay the capital on our existing term loans. We definitely wanted to have a more permanent structure in place. We had also drawn down from the revolving facility mainly to build our flotation plant.
We wanted to be able to reimburse the revolving facility. All in all, we had about $335 million U.S. to reimburse, and we secured a note of about $500 million U.S. to be able to increase our liquidity, but at the same time repay all of our other debts. Turning to the flotation plant, as you probably know, here in Québec now we're on construction vacation. The teams are coming back next week to be able to do the finalizing steps to be able to deliver our plant before the end of this calendar year. What's the main targets now is doing all the piping at site, finalizing the connection of the various equipments, doing the electrical work.
Quite a lot of work to be able to finalize the plant, but we're still comfortable in saying that we'll be able to deliver the project by the end of this year and be able to deliver the project within the $470 million budget. If you remember when we did the phase II construction, piping was one of the elements that was a bit more complex in the region. There's quite a lot of projects here in Québec that are currently working on piping, mainly in the battery factories that they're building in south of Québec. We still feel confident we'll be able to reach our target of December of this year to be able to finalize the various remaining parts of the project.
In terms of negotiating with our various clients, continuing to advance those negotiations, we still feel comfortable in saying that our first sales are going to be in North Africa and Middle East. We do believe that's the first market that we'll be able to materialize the best gains for our material. Eventually, we want to be able to sell tons into Europe as well. We have seen various companies in Europe continue their transition towards lower CO2 intensity steel. Even if we see quite a lot of negative output in terms of steel news out of Europe, we still see various companies, mainly out of Germany, that are continuing their transition to electric arc furnaces and DRI facilities.
Even if we do expect to start selling tons into the Middle East and North Africa, I do think that in the near future we'll be able to also sell tons into Europe. We expect to sign our first contracts by the end of this calendar year or beginning of next calendar year to be able to be ready for, call it, April or May of next year. We're going to be in a position to start selling full cargoes of this DRPF material. One other big highlight that we've just announced is us entering into a definitive framework agreement with Nippon Steel and Sojitz. A very positive signing ceremony that we did last week. We had executives from Nippon Steel and Sojitz visit our site, but also fly to Kami.
Very, very positive to have two strong partners to be able to help us to advance the next steps of Kami. Just to remind the next steps, what we're on right now is to finalize the feasibility study to confirm the numbers from our pre-feasibility study and potentially improve certain areas and also do the permits for the modified project of Kami. As you remember, when you look at the Kami project, we've increased the volume compared to the previous feasibility studies and also significantly improved the grade of our material to be able to counter what we're pretty much seeing in other jurisdictions where the quality is going down. We actually see our material and our niche to be able to produce the highest grade type material in the world.
Turning to our quality, one of the main elements that we've been flagged by a lot of our clients is the fact that the Australian major's quality has declined over the past decade. Contaminants have increased by about 12%. We do see our type of material as being something that will be able to counter those reductions in grades and be able to benefit us or help us benefit from higher premiums in the near future. With that being said, I'd like to turn it over to the Q&A portion of the call to be able to respond to any questions you might have.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star key followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Alexander Pearce from BMO. Please go ahead.
Great morning, David and team. Great to see the shipment volumes pick up meaningfully this quarter. As you mentioned, costs were higher sequentially, though. You flagged in your comments that you expect to get through the harder ore by the second half of this year, which presumably should help with costs. Does this also mean that the strip ratio should come down too in the second half of the year, or do you need to continue higher strip as you look to get access to that softer ore? What is the impact to cash costs associated with that strip? The second question, just can you remind us what level of stockpile you're looking to get to at site eventually? Thanks.
Yeah, thanks for the question. If we look at the second part, when we look at the way that we've always operated Bloom Lake, the target is to have zero inventory at site. We've never been able to get to that sort of zero level because we always keep some stockpiled material if there's issues with the train because we don't want to stop producing. We've seen levels hover between, call it 75,000 tons to about 250,000 tons. That's a level where we feel comfortable. We typically like to destock or to do as big of a push right before winter to make sure that our stockpiling facilities right beside the site or right beside the loadout are free for that period.
I wouldn't expect in the future, once we've cleared the stockpiled material that we've had to haul away from the loadout area, I don't expect us to go back there in the future. When we look in terms of stripping in the future, the strip ratio is in a territory that we should be at for the life of mine. The main reduction in cost is really going to be due to the higher throughput because it dilutes down our fixed cost. It's not necessarily a stripping portion that is going to help us. It's really the fact that the ore is much harder right now and has reduced our throughput and reduced our recovery.
In the future, what's going to help us to reduce our costs is going to be to have, I'd say, more typical ore or what we've seen in the past compared to what we're seeing in the small zone in the south of the center pit.
Just to confirm then, you don't really need to see any particular change in strip to get access to the softer ore or to get through this harder ore portion.
Yeah, correct. I see it more as typical ore, which we've had for the past seven years, and then this more hard ore that is in this specific location, which is the south of the center pit. We don't need to strip more to access other ore. We honestly thought it was an opportunity for us to lower costs because, again, when you look at the map, it's so close to the waste dumps. We thought it would reduce our costs, but it really countered because of the hardness of this material.
Thanks, David.
Our next question comes from Orest Wowkodaw of Scotiabank. Please go ahead.
Hi, good morning. Just as a follow-up, sorry, I'm not quite clear. The plan to reduce the contribution from the harder ore area, is that already happening or is that more likely, are you basically still planning to mine through that the rest of this year so we don't really expect the improvement next year? I'm just, I'm not clear on when that switch is supposed to happen.
Yeah, what we've mentioned in the, if you go to slide eight, is really the fact that the second half of this financial year is when we're going to start to decline the percentage from that zone. We do expect next quarter to be similar to where we're at now. We are working on ways to potentially try to improve the production even with this type of ore, but the gradual reduction of this type of material is going to be more in the second half of this year. We do benefit from the stockpiled material to be able to counter on the sales side, but I expect middle of this year to be able to start reducing the percentage from that zone.
Okay, still a couple of quarters. On the cost front, you talked about the cash cost being impacted by, I believe, the stockpiles in terms of a higher pecentage of the contribution. Can you quantify that for us? Like of the $81.90 a ton cost, how much of that is attributed to, I guess, rehandling costs and I believe it's disclosed higher inventory costs for that material?
Yeah, so the way that we view it, there's roughly, if you look at the quarter, about $4 per ton that is associated to higher inventory costs. That's mainly due to the fact of the material that was hauled to those stockpiles, accounted for at a higher price, and then when we bring down the material, it's sort of a double increased cost. That's where you see roughly about $4 per ton associated to inventory cost. When you look at the ore hardness, the total volume effect has been roughly about $4 per ton as well. If we account only for, let's say, the harder ore, what has been the impact from that and the lower recovery? That is mainly due to or associated to about $3 per ton. Ore hardness zone or the about $3 per ton, $4 for the total volume portion. That includes that $3.
When you look at inventory effect, about $4.
Okay, is it fair to assume then costs are likely going to remain elevated for the next couple of quarters from a combination of these two factors?
Well, we're definitely, as long as we bring material down from the stockpile, that's definitely going to impact us in terms of cash cost. There is a net positive in terms of cash because we've already paid for most of the operating costs associated to that. In terms of the actual cash cost, we'll see that a little bit more elevated as we bring down tons from that stockpile. For the volume effect, we would expect come second half of this year to start seeing that portion decline in terms of cost impact. We do see volume effect improving in the near future.
Okay, thanks so much.
Our next question comes from Fedor Shabalin from B. Riley. Please go ahead.
Good morning. Thank you, Theresa. Good morning, everyone. David, you reduced the volumes of iron ore concentrate sold under long-term sales contracts to retain a greater proportion of your iron ore concentrate for the short-term and spot markets. Is it fair to assume this trend will continue in the future if iron ore pricing remains where it is now?
Right now, when we look at our strategy for our sales, we have most of the phase I tons that are allocated on long-term contracts, and pretty much everything from phase II is more spot-based because in just a few months, we're going to deliver our flotation plant and produce 69% material. Our intent in the near future is to be able to allocate most of those tons from the flotation plant on longer-term contracts. That's going to leave very limited tons associated to the spot market.
Thank you. My second one is on DRPF. Can you talk about where you are in negotiations regarding your future product from the project and who are the parties involved in these talks to the extent you can share, of course, and any changes to the expected premium of a P65 index estimate? If I remember correctly, it was roughly $20 per ton.
Yeah, what's important for us is really to continue our negotiation with the North Africans and with the Middle East steel producers. That hasn't changed in terms of our strategy. We're advancing that portion, spending quite a lot of time in that region to make sure that we understand which facilities are being delivered, which are the best ones where we can sell our material and benefit from Capesize vessels entering those ports. When we look at potential premiums, our real intent is to be able to link our contract to the DR pellet. That's been our main focus for the past years because we want to reduce our exposure to the P65 index as we potentially see more volume coming in the high-grade market with the delivery of the Simandou Project.
When we look at the way that we're structuring our contracts, it's really to link our product to the DR pellet. That's advancing well. We should be in a position either at the end of this calendar year or beginning of next calendar year to be able to sign our first contracts.
Thank you very much, David and team t o cover and continue, best of luck.
Thank you.
As a reminder, if you wish to ask a question, please press star one. Your next question comes from Stefan Ioannou of Cormark Securities. Please go ahead.
Yeah, thanks guys. I know in previous calls we sort of talked about just the, you know, the capacity of the rail. I was another quarter behind you and I know it varies quarter to quarter given weather and scheduled maintenance. That 3,800 tons that you got down the rail this past quarter, is that a reasonable proxy you think going forward for what you're comfortable with getting down that rail or do you think it could get higher than that?
Yeah, it can definitely get higher than that. When we look at last quarter though, I mean, yes, we had 3.8 million tons, but that's dry tons. When we haul tons, we have to measure it on the wet portion because we're also moving the water. If you look at the run rate during the quarter, we were closer to 4 million tons, which gives about a run rate of 16 million tons. We do still think there's room to improve. I mean, again, the actual infrastructure is not the issue. It's really the operations. We definitely have potentials to be able to continue to increase that. Just as an example, what we're doing now is we're sharing the rail cars with the rail operator, allowing us to have better flexibility.
A lot of these small elements that we're adding are to be able to improve the throughput because we want to be able to go beyond that 16 million ton run rate in the future.
Okay, if we, I mean, I don't want to put numbers in your mouth, but if we were to say like maybe 16 million dry tons on an annual basis, is that something that's kind of in the reasonable ballpark or?
Well, I mean, we're looking to develop the Kami project in the future. That rail is going to have to be able to process another 9 million tons. I don't think the 16 million tons dry or wet is the limit. We need to work together to be able to improve the throughput on that rail. If you go back 30 years, that rail was delivering almost twice the amount of tons that we're seeing now. It's not an infrastructure issue. We just need to get back to the level that it was operating in the past.
Got it, got it. Okay, great. Thanks very much, guys.
Thank you, Stefan.
There are no further questions at this time. I will now turn the call over to David Cataford. Please continue.
Yeah, thanks everyone for being on the call. When you look at the last few quarters, we did have some challenges on the production side, on the cost side. Definitely something that we're focusing on the whole team to be able to get back to the levels of production that we've always delivered in the past. I mean, we've had a great seven years behind us. The phase II has been a bit more challenging when you combine the logistics and a few outside events, a few inside events as well. We still have a great team that's going to be able to mitigate through those elements in the coming quarters. I think we'll be able to get back to the operational excellence that we had in the past.
In terms of the future, I still think your company's in a great spot because, I mean, we're transitioning our product to one of the only areas that there's increasing demand and that we do see increased premiums in the future, which is the DR grade. I know there's a lot of noise associated to that and sometimes some skepticism on what kind of premiums we'll be able to get. We're doing the right work to be able to align ourselves with the right partners to benefit from lower freight costs and also benefit from the significant premiums that this type of material and the scarceness of this material will bring. Again, very proud of us delivering a project with two of the great companies of this world, Sojitz and Nippon Steel.
You can imagine that to be able to get such good partners to come into our company on a greenfield project like the Kami project really shows the strength of our team and the trust that these various partners have. Very happy to be able to progress the next steps, the permitting and the feasibility study, to be in a position in a few years to fully benefit from the DR premiums that we're going to see once this market starts getting more mature. Again, thanks a lot for your support and looking forward to be able to update you at the next quarter.
Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.