Mr. David Cataford reports

CHAMPION IRON REPORTS ROBUST FOURTH QUARTER AND FY2023 ANNUAL RESULTS AND DECLARES DIVIDEND

Champion Iron Ltd. has released its operational and financial results for the fourth quarter and financial year ended March 31, 2023.

Conference call details

Champion will host a conference call and webcast on May 31, 2023, at 8:30 a.m. (Montreal time)/10:30 p.m. (Sydney time) to discuss the fourth quarter and annual results for the financial year ended March 31, 2023. Call details are outlined at the end of this press release.

Champion's chief executive officer, David Cataford, said: "Thanks to our team's perseverance and efforts, we delivered another robust financial year as we complete the ramp-up of our phase II project, enabling us to continue to actively pursue our organic growth projects. The positive impacts that can be measured locally, including through our partnerships with first nations and our 1,000 quality jobs, are extending globally through our products that serve as a leading solution to decarbonize the steelmaking process. Our dedicated team, who successfully recommissioned Bloom Lake and completed the phase II expansion project, are actively participating in a rare global opportunity to produce direct reduction quality iron ore, enabling steelmaking without the use of coal. In tandem with the benefits from our local investments, including a recent increase to the initial budget to advance our DRPF project, we are proud to declare another dividend for our shareholders."

1. Highlights

Sustainability and health and safety

• No serious injuries during the quarter and no major environmental issues reported in the period, or since the recommissioning of Bloom Lake in 2018;
• Fully compliant result following a site inspection by the Quebec Ministry of Environment, Fight Against Climate Change, Wildlife and Parks;
• Employee recordable injury frequency rate of 1.53 for the year, down significantly from 2.98 last year and better than Quebec's open pit industry performance;
• Optimized the company's 2022 sustainability report, incorporating industry best practice disclosure frameworks, specifically, the Global Reporting Initiative (GRI), Sustainability Accounting Standard Board (SASB) and Task Force on Climate-Related Financial Disclosure (TCFD). The sustainability report is available on the company's website.

Operations and finance

• Record quarterly production of 3.1 million wmt (wet metric tonnes) of high-grade 66.1 per cent Fe concentrate for the three-month period ended March 31, 2023, an increase of 4 per cent and 65 per cent compared with the previous quarter and the same period of the previous financial year, respectively. Annual production of 11.2 million wmt of high-grade 66.1 per cent Fe concentrate, up 41 per cent from the previous financial year. This was attributable to the strong performance following phase II achieving commercial production in December, 2022;
• Quarterly record iron ore concentrate sales of 3.1 million dmt (dry metric tonnes) for the three-month period ended March 31, 2023, up 15 per cent and 64 per cent from the previous quarter and the same period of the previous financial year, respectively. For the year, a record 10.6 million dmt were sold by the company, up from 7.7 million dmt in the previous financial year;
• While the company's facilities reached their designed nameplate capacity on several operating days during the quarter, results were impacted by previously disclosed delays in the delivery and commissioning of mining equipment and locomotives required to service third party rail capacity in Sept-Iles, limiting mining and haulage capacity. Quarterly production results were also impacted by a longer-than-expected planned maintenance shutdown of one of Bloom Lake's two crushers. A four-day power outage which impacted third party infrastructure at the port facility in Sept-Iles impacted the company's shipments. With the recent delivery and assembly of mining equipment, the progress on third party infrastructure work programs and near-term anticipated locomotives delivery, the path toward reaching Bloom Lake's expanded nameplate capacity of 15 Mtpa (million tonnes per annum) in the near term has significantly improved;
• Revenues of $463.9-million for the three-month period ended March 31, 2023 ($331.4-million for the same period in 2022), net cash flow from operating activities of $167.7-million ($4.3-million for the same period in 2022), EBITDA (earnings before interest, taxes, depreciation and amortization) of $195.7-million ($197.9-million for the same period in 2022) and net income of $88.2-million with EPS of 17 cents ($115.7-million with EPS of 23 cents for the same period in 2022);
• For the year ended March 31, 2023, revenues totalled $1,395.1-million ($1,460.8-million for the same period in 2022), with net cash flow from operating activities of $236.0-million ($470.4-million for the same period in 2022), EBITDA of $493.2-million ($925.8-million for the same period in 2022) and net income of $200.7-million ($522.6-million for the same period in 2022). Revenues, EBITDA, net cash flow from operating activities and net income were all impacted by lower cash operating margins, driven by lower realized selling prices compared with the previous year, as well as higher operating costs attributable to start-up costs and cost inflation;
• For the three-month period ended March 31, 2023, C1 cash cost was $79.0/dmt ($58.4 (U.S.)/dmt), compared with $60.0/dmt ($47.4 (U.S.)/dmt) for the same period in 2022, due to higher fixed costs required to support nameplate capacity. Cash cost for the fourth quarter was slightly higher than cash cost for the previous quarter of $76.0/dmt ($56.0 (U.S.)/dmt), mainly due to the impact of the change in concentrate inventory valuation;
• C1 cash cost of $73.9/dmt ($55.9 (U.S.)/dmt) for the year ended March 31, 2023, compared with $58.9/dmt ($47.0 (U.S.)/dmt) for the same period in 2022, was negatively impacted by fixed costs incurred to support the infrastructure required to achieve the higher anticipated production prior to achieving nameplate capacity. The company expects those costs to decrease and to normalize as production gradually ramps up toward Bloom Lake's expanded production nameplate capacity of 15 Mtpa. Cash cost during the year was also impacted by inflationary pressures on fuel, explosives and site-related G&A expenses, additional maintenance costs, and a higher reliance on contractors at the mine due to delays in mining equipment deliveries;
• $327.1-million of cash and cash equivalents and short-term investments as at March 31, 2023, compared with $352.7-million at the same time last year. Available liquidity, including amounts available on the company's credit facilities, totalled $673.7-million at year-end, compared with $476.0-million at the end of the previous quarter, an increase of $197.7-million, mostly driven by the level of net free cash flow; and
• Dividend of 10 cents per ordinary share declared on May 30, 2023 (Montreal time)/May 31, 2023 (Sydney time), in connection with the semi-annual results for the period ended March 31, 2023.

Direct reduction pellet feed project (DRPF project) update

• In connection with the recently announced positive findings of the DRPF project feasibility study, the board of directors approved an increase of $52-million to the initial budget of $10-million announced on Jan. 26, 2023, in order to maintain the DRPF project's estimated 30-month construction period and a potential commissioning of the project in the second half of the calendar year 2025;
• The DRPF project remains on schedule with detailed engineering work advancing as planned.

Other growth and development

• The company continues to evaluate organic growth opportunities, including the Kamistiatusset iron ore project's feasibility study which is evaluating the project's capability to produce a direct reduction (DR) grade pellet feed product, and a feasibility study evaluating the recommissioning of the Pointe-Noire iron ore pelletizing facility and its ability to produce DR grade pellets, in collaboration with a major international steelmaking partner. Both feasibility studies are expected to be completed in the second half of calendar year 2023.

Phase II commercial production

During the first quarter of the 2023 financial year, the company successfully commissioned its second ore processing plant with its first shipment of concentrate railed in May, 2022. In the second quarter of the 2023 financial year, the last major on-site phase II infrastructure work programs were completed, enabling the company's two crushers to feed both processing facilities and reducing bottlenecks during maintenance periods. With major on-site work programs completed ahead of schedule, phase II reached commercial production in December, 2022, and the company continued to make improvements to stabilize and optimize operations.

While phase II demonstrated its ability to reach the designed nameplate capacity on several operating days since reaching commercial production, production during the fourth quarter of the 2023 financial year was negatively impacted by the longer-than-expected maintenance shutdown of the company's newly commissioned crusher due to winter challenges, as well as previously disclosed mining equipment delivery and commissioning delays, which limited mining capacity. This short-term limitation in mining and crushing capacity created some inefficiencies across the site, restricting the continuing ramp-up during the quarter. With the recent delivery and assembly of mining equipment and current work to increase throughput and the recovery ratio, the path toward Bloom Lake reaching its expanded nameplate capacity of 15 Mtpa in the near term has significantly improved.

Off-site work programs, including third party infrastructure, continued to advance during the quarter, further positioning the company to benefit from additional flexibility and capacity in Sept-Iles to handle the company's full nameplate capacity. During the three-month period ended March 31, 2023, downstream limitations, including locomotive delivery delays and a four-day power outage at the port, negatively impacted the company's shipments.

While the company is experiencing a short-term disconnect in upstream and downstream capacity, compared with the completed infrastructure at Bloom Lake, management is confident that a stable and operational balance state will be reached in the near term. Teams at Bloom Lake are currently working at optimizing and synchronizing the operations and adapting the maintenance practices to achieve the expected reliability, an important step toward achieving nameplate capacity on a consistent basis. Due to third party delays to increase infrastructure capacity, including locomotive deliveries, the company anticipates potential sales limitations, compared with its production capacity in the near term.

Operational performance

Fourth quarter of the 2023 financial year versus fourth quarter of the 2022 financial year

In the three-month period ended March 31, 2023, 14.2 million tonnes of material were mined and hauled, compared with 10.5 million tonnes during the same period in 2022, an increase of 36 per cent. The increase in material movement was enabled through the utilization of additional equipment. Tonnage mined and hauled for the fourth quarter of the 2023 financial year was lower than anticipated, compared with the initial phase II ramp-up schedule, due to previously disclosed delivery delays of required mining equipment. With the recent delivery and assembly of equipment required to increase mining capacity toward phase II's expected nameplate capacity, management is confident its operations can deliver a stronger performance in the upcoming months.

The stripping ratio for the three-month period ended March 31, 2023, was affected by delivery delays that impacted the number of drills and haul trucks available during the quarter. In order to optimize plant operations in connection with transitional incremental feed requirements during the phase II ramp-up period, the company chose to reduce mined waste. The company intends to gradually recover accumulated waste backlog in future periods as additional mining equipment becomes available.

The plants processed 9.1 million tonnes of ore during the three-month period ended March 31, 2023, compared with 4.9 million tonnes for the same prior-year period. The mining capacity limitations resulting from previously disclosed equipment delivery delays negatively impacted the tonnage processed during the quarter. The plants' performance during the three-month period ended March 31, 2023, was also impacted by a longer than expected maintenance shutdown of one of the company's two crushers.

The iron ore head grade for the three-month period ended March 31, 2023, was 28.4 per cent, compared with 30.3 per cent for the same period in 2022. The variation in head grade is attributable to the presence of some lower-grade ore being sourced and blended from different pits, which was anticipated and is in line with the mine plan and the LoM head grade average.

The company's average Fe recovery rate of 78.6 per cent for the three-month period ended March 31, 2023, was negatively impacted by the unstable recoveries of the phase II concentrator, which were to be expected at this stage of the phase II commissioning, the limited mining capacity reflecting the unavailability of mining equipment as well as the short-term instability of the crushing systems. The company remains confident in its ability to reach the average LoM expected Fe recovery rate target of 82.4 per cent in the near term at Bloom Lake, as detailed in the phase II feasibility study.

Bloom Lake achieved record production of 3.1 million wmt of high-grade iron ore concentrate during the three-month period ended March 31, 2023, an increase of 65 per cent, compared with 1.9 million wmt during the same period in 2022, positively impacted by the ongoing commissioning of the phase II plant. Management expects to benefit from optimization work programs and recent equipment deliveries, which should result in improved combined production of Bloom Lake's plants in the near term.

2023 financial year versus 2022 financial year

The company mined and hauled 52.0 million tonnes of material during the year ended March 31, 2023, compared with 42.8 million tonnes for the same period in 2022. The increase in volume of material moved at the mine was driven by additional mining equipment in operation. However, total volume moved during the year was negatively impacted by mining equipment delivery delays.

The stripping ratio was 0.60 for the year ended March 31, 2023, compared with 0.92 for the same period in 2022, and was lower than the LoM stripping plan as the company strategically focused on mining ore due to the restricted availability of mining equipment caused by equipment delivery delays, as previously detailed. The iron ore head grade of 29.2 per cent for the year ended March 31, 2023, was comparable with last year, and is consistent with the LoM head grade average. The lower average Fe recovery rate for the year ended March 31, 2023, was attributable to the commissioning of the phase II concentrator during the year. The company is confident to reach LoM recovery rate in the near term.

The two plants processed 31.7 million tonnes of ore during the year ended March 31, 2023, an increase of 51 per cent over the same period in 2022, and produced a record of 11.2 million wmt of high-grade iron ore concentrate, compared with 7.9 million wmt for the same period in 2022, benefiting from the commissioning of the phase II project during the first quarter of the 2023 financial year.

A. Revenues

Fourth quarter of the 2023 financial year versus fourth quarter of the 2022 financial year

Revenues totalled $463.9-million for the three-month period ended March 31, 2023, compared with $331.4-million for the same period in 2022, as significantly higher sales volume over the same prior-year period was offset by the lower IODEX 65 per cent Fe CFR China Index (P65). Lower index price was mitigated by lower freight and other costs and a weaker Canadian dollar compared with the same period last year.

During the three-month period ended March 31, 2023, the P65 index for high-grade iron ore fluctuated from a low of $130.0 (U.S.)/dmt to a high of $148.6 (U.S.)/dmt. The P65 index average price for the period was $140.1 (U.S.)/dmt, a decrease of 17 per cent from the same quarter last year, and a premium of 11.6 per cent over the IODEX 62 per cent Fe CFR China Index average price of $125.5 (U.S.)/dmt. The gross average realized selling price of $135.5 (U.S.)/dmt was lower than the P65 index average price of $140.1 (U.S.)/dmt for the period due to certain sales contracts using backward-looking iron ore index prices, when prices were significantly lower than the P65 index average for the three-month period ended March 31, 2023. This was partially offset by the 2.0 million tonnes in transit as at March 31, 2023, which were provisionally priced using an average forward price of $141.1 (U.S.)/dmt, which was slightly higher than the P65 index average price for the period.

During the three-month period ended March 31, 2023, 3.1 million tonnes of high-grade iron ore concentrate were sold at a gross average realized price of $135.5 (U.S.)/dmt, before freight and other costs and provisional pricing adjustments, compared with 1.9 million tonnes sold at a gross average realized price of $164.1 (U.S.)/dmt for the same period in 2022. Volume of sales was up 64 per cent over the prior-year period due to incremental production driven by phase II achieving commercial production in December, 2022. Lower gross average realized selling price reflects the lower index prices during the three-month period ended March 31, 2023, compared with the same prior-year period.

The average C3 Baltic Capesize Index (C3) for the three-month period ended March 31, 2023, was $18.1 (U.S.)/t compared with $22.9 (U.S.)/t for the same period in 2022, representing a decrease of 21 per cent, which contributed to lower freight costs in the three-month period ended March 31, 2023. When contracting vessels on the spot market, Champion typically books vessels three to five weeks prior to the desired laycan period due to its distance from main shipping hubs. Although this creates a delay between the freight paid and the C3 index, the effect of this delay is eventually reconciled since Champion ships its high-grade iron ore concentrate uniformly throughout the year.

Provisional pricing adjustments on previous quarterly sales, which were impacted by the increase in the P65 index in the quarter, positively impacted the net average realized selling price. During the three-month period ended March 31, 2023, a final price of $135.6 (U.S.)/dmt was established for the 1.7 million tonnes of iron ore that were in transit as at Dec. 31, 2022, and which were previously evaluated using an average expected price of $129.5 (U.S.)/dmt. Accordingly, during the three-month period ended March 31, 2023, net positive provisional pricing adjustments of $14.3-million ($10.5-million (U.S.)) were recorded, representing a positive impact of $3.4 (U.S.)/dmt over the total volume of 3.1 million dmt sold during the period.

After taking into account sea freight and other costs of $28.0 (U.S.)/dmt and the positive provisional pricing adjustment of $3.4 (U.S.)/dmt, the company obtained a net average realized selling price of $110.9 (U.S.)/dmt ($150.0/dmt) for its high-grade iron ore delivered or in transit at the end of the period.

2023 financial year versus 2022 financial year

For the year ended March 31, 2023, the company sold 10.6 million tonnes of iron ore concentrate, mainly to customers in China, Japan, South Korea and Europe, compared with 7.7 million tonnes for the same prior-year period. This represents an increase of 38 per cent year over year attributable to phase II achieving commercial production in December, 2022. Revenues totalled $1,395.1-million for the year ended March 31, 2023, compared with $1,460.8-million for the same period in 2022, as higher sales volumes were offset by lower net average realized selling price.

While the high-grade iron ore P65 index price fluctuated between a low of $91 (U.S.)/dmt and a high of $185 (U.S.)/dmt during the year ended March 31, 2023, it averaged $131.4 (U.S.)/dmt, representing a decrease of 27 per cent from last year. The company sold its product at a gross average realized selling price of $132.0 (U.S.)/dmt. Benefiting from a premium product at 66.2 per cent Fe, the company expects its iron ore concentrate pricing to continue tracking the P65 index in the long term. Deducting sea freight and other costs of $30.6 (U.S.)/dmt and the negative provisional pricing adjustments of $2.0 (U.S.)/dmt, the company obtained a net average realized selling price of $99.4 (U.S.)/dmt ($131.7/dmt) for its high-grade iron ore concentrate.

B. Cost of sales and C1 cash cost

Fourth quarter of the 2023 financial year versus fourth quarter of the 2022 financial year

For the three-month period ended March 31, 2023, the cost of sales totalled $244.4-million, compared with $116.7-million for the same period in 2022 for a C1 cash cost per tonne of $79.0/dmt during the period, compared with $60.0/dmt for the same period in 2022.

The C1 cash cost per dmt sold for the three-month period ended March 31, 2023, was negatively impacted by the fixed costs incurred to support the infrastructure required to achieve the higher anticipated production prior to achieving nameplate capacity. The company expects those costs to decrease and to normalize as production gradually ramps up toward Bloom Lake's expanded nameplate capacity of 15 Mtpa. Cash cost during the quarter was also affected by higher-than-expected utilization of contractors at the mine due to the previously disclosed delivery delays in required mining equipment. The C1 cash cost in the three-month period ended March 31, 2023, compared with the same period last year, was also impacted by the higher cost of fuel and explosives used in the company's mining activities, higher work force transportation costs and global inflationary pressures that also affected contractors, rail and port operations, and food services. In addition, the-longer-than-expected planned maintenance shutdown of one crusher and longer haul cycle times associated with the current mine plan also contributed to a higher cash cost for the three-month period ended March 31, 2023. Despite factors contributing to higher cash cost per dmt sold in the period, the economic benefits of the phase II expansion project will continue to accrue as throughput gradually increases and reaches the expected expanded nameplate capacity of 15 Mtpa.

The life of mine stripping ratio used for cost capitalization was revised upward in December, 2021, from 0.5 to 0.99, concurrently with the commencement of phase II operations. During the three-month period ended March 31, 2023, the actual stripping ratio of 0.55 was lower than the life of mine stripping ratio used for cost capitalization; therefore, no mining costs were capitalized during the period. During the prior-year period, the company capitalized mining costs, contributing to lower cash cost for the three-month period ended March 31, 2022.

2023 financial year versus 2022 financial year

For the year ended March 31, 2023, the company produced high-grade iron ore at a C1 cash cost of $73.9/dmt, compared with $58.9/dmt for the year ended March 31, 2022. The increase in annual C1 cash cost is due to additional fixed costs incurred to support infrastructure required to achieve the higher anticipated production prior to reaching nameplate capacity with the phase II project, increased contractors' costs attributable to mining equipment delivery delays, inflationary pressure on the cost of fuel, explosive, and work force transportation costs. Cost of sales was also impacted by longer than expected and unplanned maintenance activities.

C. Net income and EBITDA

For the three-month period ended March 31, 2023, the company generated an EBITDA of $195.7-million, representing an EBITDA margin of 42 per cent, compared with $197.9-million, representing an EBITDA margin of 60 per cent, for the same period in 2022. comparable EBITDA is mainly due to higher sales volume driven by the commissioning of phase II during the year, offset by a higher cost of sales and lower net average realized selling prices.

For the three-month period ended March 31, 2023, the company generated net income of $88.2-million (EPS of 17 cents), compared with $115.7-million (EPS of 23 cents) for the same period last year. The year-over-year decrease in net income was mainly affected by lower gross profit as described herein.

For the year ended March 31, 2023, the company generated an EBITDA of $493.2-million, representing an EBITDA margin of 35 per cent, compared with $925.8-million, representing an EBITDA margin of 63 per cent, for the same prior-year period. This year-over-year decrease in EBITDA is mainly attributable to the decrease in the net average realized selling price and higher production costs, partially offset by a higher sales volume following the commissioning of phase II.

For the year ended March 31, 2023, the company generated net income of $200.7-million (EPS of 39 cents), compared with $522.6-million (EPS of $1.03) for the same prior-year period. The year-over-year decrease in net income is mainly due to lower EBITDA and higher depreciation, partially offset by lower income and mining taxes.

D. All-in sustaining cost (AISC) and cash operating margin

During the three-month period ended March 31, 2023, the company realized an AISC of $85.7/dmt, compared with $70.5/dmt for the same period in 2022. The increase relates to higher C1 cash costs, partially offset by lower sustaining capital expenditures and lower G&A expenses per dmt.

The company generated a cash operating margin of $64.3/dmt for each tonne of high-grade iron ore concentrate sold during the three-month period ended March 31, 2023, compared with $104.8/dmt for the same prior-year period. The variation is mainly due to a combination of higher AISC and a lower net average realized selling price for the period.

During the year ended March 31, 2023, the company recorded an AISC of $86.5/dmt, compared with $73.1/dmt for the same period in 2022. The variation is mainly due to higher C1 cash costs, partially offset by lower sustaining capital expenditures per dmt as well as lower G&A expenses per dmt.

The cash operating margin totalled $45.2/dmt for the year ended March 31, 2023, compared with $117.8/dmt for the same prior-year period. The variation is mainly due to a lower net average realized selling price and higher AISC.

4. Conference call and webcast information

A webcast and conference call to discuss the foregoing results will be held on May 31, 2023, at 8:30 a.m. (Montreal time)/10:30 p.m. (Sydney time). Listeners may access a live webcast of the conference call from the investors section of the company's website or by dialling toll-free 1-888-390-0546 within North America or 1-800-076-068 from Australia.

An on-line archive of the webcast will be available by accessing the company's website. A telephone replay will be available for one week after the call by dialling 1-888-390-0541 within North America or 1-416-764-8677 overseas, and entering passcode 882582 followed by the pound key.

About Champion Iron Ltd.

Champion Iron, through its subsidiary Quebec Iron Ore Inc., owns and operates the Bloom Lake mining complex, located on the south end of the Labrador Trough, approximately 13 kilometres north of Fermont, Que. Bloom Lake is an open-pit operation with two concentrators that primarily source energy from renewable hydroelectric power. The Bloom Lake phase I and phase II plants have a combined nameplate capacity of 15 million tonnes per annum (Mtpa) and produce a low-contaminant high-grade 66.2 per cent-iron iron ore concentrate with a proven ability to produce a 67.5-per-cent-iron direct reduction quality concentrate. Bloom Lake's high-grade and low-contaminant iron ore products have attracted a premium to the Platts Iodex 62-per-cent-iron iron ore benchmark. The company ships iron ore concentrate from Bloom Lake by rail, to a ship loading port in Sept-Iles, Que., and has sold its iron ore concentrate to customers globally, including in China, Japan, the Middle East, Europe, South Korea, India and Canada. In addition to the Bloom Lake mining complex, Champion owns a portfolio of exploration and development projects in the Labrador Trough, including the Kamistiatusset project located a few km southeast of Bloom Lake, and the Consolidated Fire Lake North iron ore project, located approximately 40 km south of Bloom Lake.

We seek Safe Harbor.