I violated my promise not to add any new positions by purchasing some Champion Iron (CIA.TO) shares today. I became familiar with the company through James Kwantes, a mining sector writer who focuses on following successful figures in the space. The successful figure in this case is Michael O’Keefe (read Kwantes’s 2022 post here).
Champion’s a single-asset producer operating the Bloom Lake iron ore mine in Quebec. It is considered a high-quality producer, focusing on P65 (65% iron) concentrate. High-grade iron ore concentrate is in demand because it keeps steel production costs down and creates less pollution in the metal’s production.
The main reasons I bought Champion are as follows:
- Q1 earnings were released yesterday and they kicked ass. Headline: “Quarterly production of 3.9M wmt, record sales of 3.4M dmt, revenue of $467M, EBITDA of $181M1 and EPS of $0.16″
- Looking at the chart, the company is trading at roughly a six-month low where support seems to have formed at around 5.50 (admittedly I’m no TA analyst). The five-year chart shows a pattern of higher highs and overall growth.
Other factors:
- High-purity iron ore has recently been added to Canada’s critical minerals list. This may benefit Champion’s development asset, Kami, in Newfoundland. Kami is in the environmental assessment stage (until 2026). It will need funding and now some of that may come from the federal government.
- CIA.TO pays a 3.57% dividend. I’ve been looking for a Canadian dividend-paying stock to add to my RRSP (Canadian investing account). This stock fits the bill nicely.
- The company is making good money despite relatively low iron ore prices, which seem to be at a bottom. The C1 cash costs for Q1 were US$56.2/dmt (DMT = dry metric tonne), which decreased by 5% from the previous year. Champion’s gross sales price was US$125.3/dmt, leaving room for a significant cash operating margin, highlighting its ability to maintain profitability even during low price periods.
- The final benefit is that a hydro-powered mine in Quebec is much less carbon-intensive.
Risks
- Forest fires (this caused a week of downtime in July, but the company returned to business promptly)
- Exposure to iron ore pricing and industrial demand, especially China. The company has a plan to mitigate this risk. It is in the process of upgrading half of Bloom Lake’s capacity from P65 (65% iron) to an even higher grade DR pellet comprising (up to) 69% Fe. This is scheduled for commissioning in Q2-2025. Producing a uniquely high-grade pellet will insulate the company the risk that China will flood the market with a comparable product.
Selling plans: I hope this will be a long-term hold that I can continue to add to if the company continues to execute and as I become more familiar with the market.
Ultimately, CIA.TO is a “green steel” play like FPX Nickel will be a “green nickel” play. When a product’s ‘greenness’ is not merely a marketable ESG quality but actually makes it easier for downstream entities to process the metal, then it’s a real advantage in practical terms and the type of play I want to invest in.
MB
Disclaimer: This content is for informational purposes only and should not be construed as financial advice. The views expressed are those of the author, who is not liable for any losses or damages arising from any actions taken based on the information provided in this blog. Investing and trading involve risk; you are solely responsible for your decisions.