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Champion Iron's subsidiary closes $185M offering

2019-08-16 09:29 ET - News Release

Mr. David Cataford reports


Champion Iron Ltd.'s subsidiary, Quebec Iron Ore Inc., operator of the Bloom Lake mining complex, has successfully completed the previously announced agreement with Caisse de depot et placement du Quebec (CDPQ) for a preferred share offering of $185-million in addition to a fully underwritten $200-million (U.S.) credit facility with The Bank of Nova Scotia and Societe Generale. Concurrently, Quebec Iron has completed the previously announced transaction with the government of Quebec, through its agent Ressources Quebec Inc. (RQ), to acquire RQ's 36.8-per-cent equity interest in Quebec Iron for a total cash consideration of $211-million. Further to the closing of the transaction, there no longer exists a non-controlling interest in Quebec Iron.

"This is an important milestone for our company as we take full control of our flagship iron ore producing asset. Reducing our financing costs as part of today's refinancing arrangement allows us to maximize Bloom Lake's cash flow generation. Today's announcement strategically positions Champion's future, following the recent filing of a feasibility study on Aug. 2, 2019, that proposes an expansion at Bloom Lake that would double its capacity to 15 million tonnes per year," said David Cataford, chief executive officer of Champion, commenting on the transaction and capital restructuring. "With the repayment of the previous long-term debt instruments held by our company, we would like to take this opportunity to thank the Sprott Private Resource Lending group, the Glencore International AG, CDPQ and the Ressources Quebec teams for being early supporters of Champion. In a difficult financing environment, these partners shared our vision and were instrumental in providing the capital required to restart Bloom Lake and help get us to where we are today."

Transaction highlights

The transaction is expected to be immediately accretive on key operating and financial metrics, including earnings, earnings before interest, taxes, depreciation and amortization, and operating cash flow per share. The transaction utilizes Champion's balance sheet strength while maintaining low financial leverage. The transaction is expected to increase Champion's share of the Bloom Lake allocated production by approximately 2.75 million tonnes per annum of high-grade iron ore. The transaction was financed from proceeds of the new credit facilities in addition to cash on hand.

Capital restructuring highlights:

  • Significantly reduces cost of debt -- At current effective rates, the new facility weighted-average cost of debt ranges between 6.88 per cent and 7.67 per cent depending on the company's net leverage, compared with a weighted-average cost of debt between 12.37 per cent and 14.75 per cent for the prior credit facilities which were put in place to finance the Bloom Lake restart in October, 2017.
  • Fully underwritten by sophisticated global financiers -- Scotiabank and Societe Generale are joint lead arrangers, joint bookrunners and co-underwriters.
  • Maintains CDPQ as strategic partner -- CDPQ's total commitment to Champion increases by approximately $57-million, from $100-million (U.S.) of long-term debt to $185-million in preferred shares of Quebec Iron.
  • Improves balance sheet flexibility -- Compared with Quebec Iron's current long-term debt facilities, this loan facility bears less covenants, further enabling the company to contemplate organic growth opportunities and greater flexibility.

Quebec Iron concluded the previously announced issuance of perpetual preferred shares to CDPQ for total proceeds to Quebec Iron of $185-million. Proceeds from the investment will be used to finance current and future strategic initiatives, and repay CDPQ's previously issued subordinated credit facility held by Quebec Iron of $128-million ($100-million (U.S.)). The dividend rate associated with the preferred shares will be based on the gross realized iron price and will fluctuate from 9.25 per cent when the gross realized iron price for Bloom Lake 66.2 per cent iron ore is greater than $85 (U.S.) per tonne to 13.25 per cent should the gross realized iron ore price decrease below $65 (U.S.) per tonne. The investment and accrued interest can be repaid at parity after its second anniversary with no penalty.

In addition, Quebec Iron has concluded the previously announced loan facility with Scotiabank and Societe Generale as joint lead arrangers, and the following lenders: Bank of China, The Toronto-Dominion Bank, Ressources Quebec Inc., Royal Bank of Canada and Federation des caisses Desjardins du Quebec. The loan facility is available by way of a $180-million (U.S.) senior secured fully amortizing non-revolving credit facility in addition to a $20-million (U.S.) senior secured revolving credit facility. The loan facility will bear interest between Libor plus 2.85 per cent to Libor plus 3.75 per cent based on net leverage. The term facility will mature five years from the closing date while the revolving facility will mature three years from the closing date. The loan facility finances are used to repay outstanding long-term debt instruments in the aggregate amount of $103-million (U.S.) previously made available by Glencore and Sprott, and to finance current and future strategic initiatives. The term facility shall be repaid in equal quarterly instalments of principal and accrued interest starting on the second full year following the closing date, and is not subject to prepayment penalties.

About Champion Iron Ltd.

Champion is a producing iron development and exploration company, focused on developing its significant iron resources in the south end of the Labrador Trough in Quebec. Following the acquisition of its flagship asset, the Bloom Lake iron ore property, the company implemented upgrades to the mine and processing infrastructure, and has partnered in projects associated with improving access to global iron markets, including rail and port infrastructure initiatives with government, and other key industry and community stakeholders. Champion's management team includes professionals with mine development and operations expertise, who also have vast experience from geotechnical work to greenfield development, brownfield management including logistics development and financing of all stages in the mining industry.

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