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Champion Iron Ltd

Team Veye | 18 Feb 2021 ASX - CIA
Champion Iron Ltd
Call Buy
Asx CIA

Champion Iron Limited (ASX: CIA), formerly Mamba Minerals Limited, is engaged in the exploration and development of iron ore properties in Quebec, Canada. The Company's projects include Consolidated Fire Lake North Project, Snelgrove Lake Project, Powderhorn Lake Project and Gullbridge Property. The Company owns an interest in over 12 properties covering approximately 847.5 square kilometers located in the Fermont Iron Ore District of northeastern Quebec. The Snelgrove Lake Project is located in western Labrador and is approximately 55 kilometers southeast of the community of Schefferville, Quebec and approximately 200 kilometers north of Labrador City, Labrador. Powderhorn Lake Project consists of approximately 148 claims covering an area of over 37 square kilometers situated in the Buchans-Robert's Arm Belt in Central Newfoundland. Gullbridge Property consists of approximately 179 claims covering over 45 square kilometers situated in the Buchans Robert's Arm Belt in Central Newfoundland (Source: Reuters)

From the Company Reports

Third Quarter Report For period ending 31 December 2020

Champion Iron Limited (ASX: CIA) On 27 January 2021 announced strong operational and financial results for the third quarter ended December 31, 2020 of the fiscal year ending March 31, 2021.

(Chart source: Barchart)

Operations Overview:

  • Production continues to track positively with nameplate capacity
  • Successfully Completed the scheduled semi-annual maintenance
  • Production of 1,922,100 wmt of high-grade 66.4% Iron ore (“Fe”) concentrate for the three-month period ended December 31, 2020, compared to 1,832,800 wmt for the same period in 2019. Production of 5,989,700 wmt of high-grade 66.3% Fe concentrate for the nine-month period ended December 31, 2020, compared to 6,011,900 wmt for the same period in 2019;
  • Recovery rate of 83.6% and 83.8% for the three and nine-month periods ended December 31, 2020,in line with the initial target recovery of 83%
  • Continuously working on recovery circuit improvements to optimize recovery
  • Free on Board (“FOB”) total cash cost of $56.2/dmt (US$43.1/dmt) and $54.1/dmt (US$40.4/dmt) for the three and nine-month periods ended December 31, 2020, respectively, compared to $54.2/dmt (US$41.1/dmt) and $52.3/dmt (US$39.4/dmt), respectively, for the same periods in 2019.

(Graphic Source – Yahoo finance)

Key Business Developments

  • On November 12, 2020, received final Board approval to complete the Phase II expansion project (“Phase II”) and advanced work programs required to maintain the project completion timeline, scheduled for mid-2022
  • Increased the senior secured Credit Facility from US$200.0M to US$400.0M, providing an additional US$200.0M to finance the Phase II expansion
  • Received approval from the Supreme Court of Newfoundland and Labrador for the acquisition of the mining properties of the Kamistiatusset iron ore project .The acquisition is expected to secure an additional 8 Mtpa of port capacity at the multi-user berth of the port of Sept-Îles and is expected to position the Company for growth opportunities
  • Entered into a freight contract for one vessel per month, from January 2021 to March 2021, at an agreed upon price of US$17.50 per tonne plus freight commissions.

Financial Highlights:

Recorded quarterly revenue, EBITDA, net cash flow from operations and net income.

(Chart source: Reuters)

  • Reported Increased cash operating margin for the fifth consecutive quarter
  • Record cash  operating margin of 62.7% and EBITDA margin of 64.3% in Q3FY21
  • Cash flow from operations reported 12.3% rise to $141.5M from previous quarter
  • Revenues of $329.5M and $885.1M for the three and nine-month periods ended December 31, 2020 respectively, compared to $171.1M and $609.4M, respectively, for the same periods in 2019
  • Record EBITDA of $211.9M for the three-month period ended December 31, 2020, compared to an EBITDA1 of $57.9M for the same period in 2019.
  • EBITDA of $537.4M for the nine-month period ended December 31, 2020, compared to $287.4M for the same period in 2019
  • Net income of $120.8M for the three-month period ended December 31, 2020 (EPS of $0.25), compared to a net income of $30.2M for the same period in 2019 (EPS of $0.07
  • Net cash flow from operations of $185.3M for the three-month period ended December 31, 2020, representing operating cash flow per share of $0.39, compared to $28.1M or $0.06 per share for the same period in 2019.
  • As of 31 December 2020, net cash flow from operations was $388.9M for the nine-month period representing operating cash flow per share of $0.82, compared to $225.0M or $0.52 per share for the same period in 2019
  • As of 31 December 2020, Cash on hand reported at $507.2M (excluding restricted cash of $44.6M) compared to cash on hand of $298.7M as on March 31, 2020.

Value proposition:

  • Growing Profit Margin: CIA's current net profit margins of 30.8% are higher than last year net profit margins of 10.1%.
  • Earnings Trend: CIA has become profitable over the past 5 years, growing earnings by 69.3% per year.
  • Accelerating Growth: CIA's earnings growth over the past year at 308.6% exceeds its 5-year average of 69.3% per year.
  • Earnings vs Industry: CIA earnings growth over the past year at 308.6% exceeded the Metals and Mining industry 22.2%.
  • High ROE: Outstanding  Return on Equity of 47.8%
  • CIA's Return on Equity is forecast to be high in 3 years’ time (23.4%)

Financials

Champion Iron Limited  (ASX: CIA)
Stock Overview
Sector Basic Materials
Risk Low to Medium
Market Cap $2.57B
Shares Outstanding 498.44M
EPS (TTM) $0.67
PE RATIO 7.9
Yearly Dividend Yield  0.0%.
Target Price (s) T1 $6.395    T2 $6.7355
Stop Loss $4.44
Recommendation BUY
52 weeks High $5.84
52 weeks Low $1.36
Managing Director Ms. LOUISE GRONDIN
Non-Exec. Director Mrs Michelle Cormier


Peer Analysis 

 

Market Cap

Net income (TTM)

P/E (TTM)

Interest Coverage(TTM)

Total debt to capital (MRQ)

 

Company

 
 

Hainan Mining Co Ltd

1.92bn

15.90m

120.49

2.31

0.2544

 

Nickel Asia Corp

2.08bn

82.27m

25.36

7.9

0.0859

 

Henan Mingtai Al.Industrial Co Ltd

2.10bn

186.70m

11.11

16.76

0.2914

 

Rising Nonferrous Metals Share Co Ltd

2.25bn

777.64k

2,886.91

2.36

0.503

 

Champion Iron Ltd

2.57bn

332.5m

7.9

49.06

0.2627

 

Mitsui Mining and Smelting Co Ltd

2.67bn

115.13m

23.13

--

0.57

 

Guangdong Hec Technology Holding Co Ltd

2.77bn

97.62m

26.17

4.17

0.5983

 

Pilbara Minerals Ltd

2.80bn

-99.26m

--

-1.84

0.3132

 

Iluka Resources Limited

2.97bn

-303.90m

--

57.65

0.129

 

Nickel Mines Ltd

3.01bn

-100.00bn

--

--

0.0688

 

DOWA HOLDINGS CO. LTD.

3.03bn

152.11m

19.05

7.46

0.3815

 

 

Financial Key Metrics:

  • Short Term Liabilities: CIA's short term assets at CA$651.7M exceed its short term liabilities of CA$205.4M.
  • Long Term Liabilities: CIA's short term assets at CA$651.7M exceeds its long term liabilities of CA$375.4M
  • Debt Level: CIA's debt to equity ratio of 35.4% is considered satisfactory.
  • Debt and Interest Coverage: CIA's debt is well covered by an operating cash flow of 195.4%.Interest payments on its debt are well covered by EBIT of 53.5x coverage
  • PE vs Industry: CIA is good value based on its PE Ratio at 7.9x compared to the AU Metals and Mining industry average at 13.3x.
  • PE vs Market: CIA is good value based on its PE Ratio at 7.9x compared to the Australian market at 22.9x.

 

Market Risk Analysis:

  • The materials sector is especially vulnerable to the global economy, international politics and fluctuating demand. For example, materials stocks can get caught in the crosshairs of geopolitical tensions and trade wars.
  • Tariffs can lead to higher prices, which can delay or deter sales. Materials stocks can also plunge when there is low demand, especially during economic recessions.

 

Technical Analysis:

On a monthly chart, the formation of the “Three Black soldiers” pattern (indicated on charts) is immediately followed by the formation of the “Bullish engulfing” pattern (indicated on charts). The same on the weekly chart is indicated by the formation of “Pin bar” indicating trend reversal followed by “Seven black candles” (indicated on charts).RSI and MACD is a positive crossover (indicated on charts) that supported the overall bullish trend. The price pattern with wicks rejecting the downside move along with momentum indicators together (pointed by Arrows indicated on charts) supports the upside momentum

(Chart source: TradingView)

 

 (Chart source: TradingView)

 

Veye Take

Despite the economic impact of the COVID-19 pandemic, iron ore prices remained robust throughout the three quarters and nine-month periods ended December 31, 2020. With the Bloom Lake Phase II expansion project well in progress, the nameplate capacity of Bloom Lake is expected to double to 15 Mtpa of high-grade iron ore concentrate by mid-2022. CIA growth is underpinned by record financial performance, Bloom Lake operating at full capacity and delivering strong net cash flow from operations. The company is strategically positioned to progress on its growth trajectory. Veye recommends a “Buy” on Champion Iron Limited at the current price of $5.33


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