Annual Report
For the Year Ended March 31, 2019
TSX: CIA - ASX: CIA
As at June 20, 2019
Champion Iron Limited
About Champion Iron and its Values
About Champion
Champion Iron Limited is an independent Australia company producing and exporting high-grade iron ore concentrate from its key asset, the
Bloom Lake Mine, a long-life, large-scale open pit operation located in northern Quebec, Canada approximately 300 km north of Sept-Iles and 13
km by road from the town of Fermont. The Company declared commercial production at the Bloom Lake Mine as of June 30, 2018. As at March
31, 2019, Champion owned a 63.2% beneficial interest in its subsidiary, Quebec Iron Ore Inc. (“QIO”) while Ressources Québec (“RQ”), a subsidiary
of governmental agency Investissement Québec, was the owner of the remaining 36.8% share. The Bloom Lake Mine assets are held in QIO. On
May 29, 2019, the Company announced a transaction to acquire RQ’s 36.8% equity interest in QIO. For more information on the proposed
transaction, please refer to the Company’s press release dated May 29, 2019, available on SEDAR at www.sedar.com.
Champion’s values
Pride
Develop a collective sense of belonging in all spheres of iron ore mining.
Ingenuity
Leverage employee creativity and expertise to achieve and maintain efficient practices aimed at operational excellence.
Respect
Respect for people, resources, the environment, safety standards, partnerships and equipment.
Transparency
Promote transparent communications through active listening and open dialogue.
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Champion Iron Limited
Highlights
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
FY2019 HIGHLIGHTS
• Revenue of $655m 1
• EBITDA of $278m (FY 2018: loss of $80m)
• Average realized price of $91.9/dmt after sea freight costs1
• Total cash cost of $49.4/dmt1
• All-in sustaining cost of $55.8/dmt1
• Cash on hand of $153m (FY 2018: $25m)
• Record concentrate sold for the Bloom Lake Mine of 7,127,000 dmt1
1 The Company shipped its first vessel of high-grade iron ore concentrate on April 1, 2018 and as such did not have revenues for the FY 2018 nor did it incurred producing costs.
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Champion Iron Limited
Chairman’s Report
Chairman’s report
June 20, 2019
To the shareholders,
In June 2018, we declared commercial production at our flagship Bloom Lake Mine and, subsequently, our Company has become the largest
publicly listed, pure-play producer of high-grade iron ore globally. Our results have strengthened the vision behind our countercyclical acquisition
of Bloom Lake in 2016, after iron ore prices declined to a decade low, leaving this former-producer dormant near the town of Fermont, in north-
eastern Quebec. As Champion’s long-term vision mobilized a team of talented individuals, we were able to reposition this asset on the global
cost curve. Today, we are proud to report strong earnings from our first year of operations, with Bloom Lake demonstrating that it is a low-cost,
sustainable producer of high-grade iron ore concentrate, located in a superior mining jurisdiction.
Looking ahead, I am encouraged by the opportunities in front of us. The Company has an enviable portfolio of world-class assets with substantial
reserves and a solid pipeline of growth projects, most notably our Phase II expansion at Bloom Lake whereby we recently released the robust
findings of a Feasibility Study which demonstrates the viability to more than double production from 7.4 Mtpa to 15 Mpta of high-grade iron ore
concentrate. This growth opportunity comes at an ideal time as the global dynamics of iron ore are changing rapidly, in particular with the
demand for high-grade material. Recent tragic events in Brazil with Vale have triggered substantial price increases for iron ore and the resulting
production shortfall is expected to impact global supply for the short to medium term. Against the backdrop of shifting market dynamics, our
high-grade iron ore is well aligned to benefit from this shift, especially in Asia where steel makers are focused on more complex steel products,
in addition to China’s increased focus on reducing emissions in the steel-making process. Such dynamics are positively impacting the realized
price of our high-grade material and we expect this environment to continue in the foreseeable future. The upward trend in demand for our
product, following our ramp-up at Bloom Lake, resulted in sales to 12 different global customers as we successfully concluded our first year of
operations.
Since our first quarter of operation, Champion has proven its ability to produce iron ore profitably and now enjoys a healthy operating margin of
$49/dmt as reported in our fourth quarter which ended on March 31, 2019, resulting in net income of $147.6 million from $655.1 million in
revenues. Given this position of strength, our Company strengthened its balance sheet with a major capital restructuring in May of this year when
we announced a new long-term financing agreement with Caisse de dépôt et placement du Québec for proceeds of C$185 million in addition to
a commitment for a fully underwritten US$200 million credit facility with the Bank of Nova Scotia and Societe Generale. The foregoing will
substantially reduce our cost of debt as we retire the financial instruments we undertook in 2017 to fund the recommissioning of Bloom Lake.
Concurrently with the foregoing investment and refinancing, Champion also announced the acquisition of the remaining 36.8% equity minority
interest in the subsidiary that owns Bloom Lake, which is held by Ressources Québec (acting as a mandatary of the Government of Quebec),
following which our Company increases its stake in Bloom Lake to 100%. By agreeing to pay a total cash consideration of $211 million for RQ’s
interest in Bloom Lake, Champion is grateful to be able to deliver RQ an excellent return for their early-stage investment and we thank the
Government of Quebec for believing in the project when capital was scarce, highlighting the fact that we are very fortunate to operate in a
jurisdiction with such support.
As the Phase II Feasibility Study demonstrates, the Company is at an exciting stage as it prepares to benefit from and utilize the substantial
capital invested by Bloom Lake’s former owner to double the capacity of the mine. Champion continues to adhere to its strategy of building a
long-term sustainable mining company and believes that this growth opportunity, together with strong capital management, demonstrate our
commitment to accretive growth for our shareholders. Our Board of Directors has approved a preliminary budget to fund the long lead items
required for Bloom Lake’s Phase II expansion and further communication regarding this growth initiative will be provided in the coming months.
In tandem with our strategy for growth and expansion, we hold fast to our Company’s foundational values of ingenuity, respect, pride and
transparency. Our deep commitment to sustainability has resulted in investments to significantly reduce our greenhouse gas emissions by over
33,000 t/yr, representing a reduction equivalent to the removal of over 12 million liters of diesel. The strength of our Company’s values also
transpires in our work to maintain and build relationships with First Nations, support thriving communities and advocate for important
environmental initiatives.
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Champion Iron Limited
Chairman’s Report
On April 1, 2019, we announced the promotion of David Cataford as our Company’s new Chief Executive Officer. David was most recently
Champion’s COO, having worked with our Company since 2014. He was instrumental in all facets of the acquisition and eventual recommissioning
of Bloom Lake, where he brought intimate knowledge of the asset, as well as the surrounding dynamics of the Labrador Trough. Supporting this
transition, our Company has built a culture that attracts top talent and provides individuals with a platform to succeed. We recently added several
senior management roles to further support our activities and enable our team to effectively address all the inherent risks and incredible
opportunities related to our business.
In closing, I would like to thank our partners and stakeholders who have joined our vision to recommission Bloom Lake and transform Champion
into an emerging leader in the mining industry. I also acknowledge and am grateful for the efforts and contributions of all our employees and
staff and the traditional owners of the land and local inhabitants for their continuing support of Champion’s activities.
Sincerely,
[s] Michael O’Keeffe
Michael O’Keeffe
Executive Chairman
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Champion Iron Limited
Report on Operations
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
Report on Operations
Champion’s report on operations should be read in conjunction with the Directors’ Report and the Financial Statements.
Champion’s strategy
Further to announcement made on May 29, 2019 to acquire the minority interest of 36.8% in its flagship asset, the Bloom Lake Mine, the Company
continues to focus on improving the Bloom Lake mine and pursue organic growth opportunities with the recent completion of positive feasibility
study in connection with the proposed Bloom Lake Phase II expansion project which aims at doubling the mine’s annual production. In addition,
through its wholly-owned subsidiary Champion Iron Mines Limited (CIML), the Company owns interests in 9 properties (each a “Property”),
covering approximately 752 square kilometres (collectively, the “Fermont Holdings”) located in the Fermont Iron Ore District of northeastern
Quebec. The Company also owns 100% of the Gullbridge-Powderhorn property located in Northern Central Newfoundland.
Revenues
The Company entered pre-commercial production on April 1, 2018 with the shipment of its first vessel to China and declared commercial
production on June 30, 2018. As a result, there are no comparative figures for the same periods the year prior. During its first year of operations,
the Company sold 7.1 million tonnes of high-grade iron ore concentrate establishing a production record for the Bloom Lake Mine. The average
gross realized price of the 66.2% iron ore concentrate was US$93.4/dmt for the period. Deducting an average freight cost of US$23.4/dmt to
ship its concentrate from Sept-Iles, Quebec, to its customers located in China, Europe, Japan and the Middle East, the Company net realized FOB
price was US$70/dmt or CA$91.9/dmt. As a result, Champion’s revenue for the fiscal year end 2019 totalled $655 million.
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Champion Iron Limited
Report on Operations
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
Operations
The Company re-commissioned the Bloom Lake Mine in mid-February 2018 and shipped its first vessel on April 1, 2018. On June 30, 2018, the
Company declared Commercial Production and reached nameplate capacity during the second quarter of fiscal year end 2019. During the period,
the average total cash cost totalled $49.4/dmt and the all-in sustaining cost totalled $55.8/dmt, resulting in a cash operating margin of
$36.1/dmt.
Average Net Selling Price (FOB)
As a result of its operational performance, the Company realized an EBITDA for its first year of operations of $278 million. Since the Company
made the final drawdowns on its long-term debt at the end of the second quarter of fiscal year end 2019, the Company strengthen its balance
sheet. Considering the long-term debt face value, the Company reduced its net debt from $213 million at the end of September 2018 to $122
million at the end of March 2019.
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Champion Iron Limited
Report on Operations
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
Exploration Activities
In addition to the 63.2% interest in the Bloom Lake property, Champion has a 100% interest in the 752 km2 Fermont property located in the
Labrador Trough and a 100% interest in the Gullbridge-Powderhorn property (“Powderhorn”) in Northern Central Newfoundland. This 63 km2
property is host to several Copper (Cu) and Zinc (Zn) showings and is at an early exploration stage. The exploration program at Powderhorn
targets the same volcanic units that host the Buchans Mine, located 60 km away, a rich volcanogenic massive sulphide deposit. The Gullbridge
Mine is a past copper producer and is located in the northern part of the property.
During the year ended March 31, 2019, the Company, conducted a magnetic survey on the claims located north and northwest of the Bloom Lake
mine. More than 360 km of line were surveyed using an unmanned aerial vehicle. The total expenses for the survey amount to $111,000$ which
includes the cost of the survey and all related logistics. During the same period, a drill program was completed on the Peppler Lake property
located west of the Fire Lake project. A total of 2,887 meters were drilled. Drilling and logistics expenses totalized $911,000.
The exploration program at the Powderhorn property located in Newfoundland continued with 17,000 meters of drilling during the financial year.
Exploration expenses at Powderhorn were of $1,476,000. During the year, the Company maintained all its properties in good standing. The
Company did not enter into farm-in/farm-out arrangements during the quarter.
Reserves and Resources – Overview as at March 31, 2019
The JORC and Canadian NI 43-101 compliant Measured and Indicated resources adds to a total of 883 Mt while there is an additional 80 Mt of
Inferred resources. The Bloom Lake Mine holds 384 Mt of ore reserves at 30.0% Fe and a dilution factor of 4.3%.
• Total proven and probable mineral reserves at the Bloom Lake Mine stood at 383.5 million tonnes averaging 29.9% Fe.
• Measured and indicated mineral resources totals 883.4 million tonnes averaging 29.7% Fe for estimated iron ore concentrate of 321.2 Mt
averaging 66.2% Fe.
•
Inferred resources amounted to 80.4 million tonnes averaging 25.6% Fe.
All mineral resources reported are inclusive of mineral reserves. Mineral reserves and resources reported at Bloom Lake were estimated using
an iron ore price of US$50/dmt and US$60/dmt, respectively. The slight decrease in reserves is due to depletion as Champion mined 22,445 dmt
of iron ore since the start of its operations in February 2018.
Category
Measured
Indicated
M+I Total
Inferred
Category
Proven
Probable
Total
March 31, 2019 Bloom Lake Mineral Resources Estimate (at 15% Fe Cut-off)
Mt Tonnage (dmt)
401.8
471.6
883.4
80.4
Fe (%)
31.0
28.5
29.7
25.6
CaO (%)
0.6
2.5
1.6
MgO (%)
0.7
2.3
1.5
AI2O3 (%)
0.3
0.4
0.4
1.9
1.7
0.3
March 31, 2019 Bloom Lake Mineral Reserves Estimate (at 15% Fe Cut-off)
Mt Tonnage (dmt)
236.3
47.3
383.5
Fe (%)
30.7
28.7
29.9
CaO (%)
0.5
2.8
1.4
MgO (%)
0.6
2.7
1.4
AI2O3 (%)
0.3
0.4
0.4
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Champion Iron Limited
Report on Operations
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
In addition to the Bloom Lake Mine, the Company owns interest in 13 other iron ore deposits located in the Labrador Trough, some 300 km north
of the City of Sept-Îles and ranging from 6 to 80 kilometers west and southwest of Fermont. All claims and leases are in good standing. No work
was done during the fiscal year ended to update the Resources estimate published during the period 2011 to 2014. Additional information on
each claim can be found in the Reserve & Resource Statement of this annual report.
Bloom Lake Phase II Feasibility Study Highlights
On June 20, 2019, the Company announced a positive feasibility study (the “Feasibility Study”) for the Bloom Lake Mining Complex (“Bloom Lake”),
located near the town of Fermont, in north-eastern Quebec. The Feasibility Study envisions further exploiting the Bloom Lake Mine which would
increase overall capacity from 7.4Mtpa to 15Mtpa of 66.2% Fe iron ore concentrate.
The highlights of the Feasibility Study are:
FEASIBILITY STUDY HIGLIGHTS - PHASE II
Base case assuming long-term price of US$68.2/t P62 and US$83.9/t P65 iron ore price CFR China
CA$
US$
- Pre-tax NPV8% of $1,532 million
- After-tax NPV8% of $956 million
- Pre-tax NPV8% of $3,762 million combining Phase I & II
- After-tax NPV8% of $2,384 million combining Phase I & II
- Pre-tax NPV8% of $1,160 million
- After-tax NPV8% of $724 million
- Pre-tax NPV8% of $2,850 million combining Phase I & II
- After-tax NPV8% of $1,806 million combining Phase I & II
Pre-tax IRR of 42.4% or after-tax IRR of 33.4% with a 2.4 years payback on initial capital
Based on $110.7/t P65 iron ore price CFR China
Based on $83.9/t P65 iron ore price CFR China
NPV
IRR
Iron ore price
Initial CAPEX
Total cash cost1
$589.8 million
$46.6/t FOB Sept-Îles
Sustaining capital
$4.4$/t over the LoM
$446.8 million
$35.4/t FOB Sept-Îles
$3.3$/t over the LoM
$39.7/t FOB Sept-Îles
All-in sustaining cost 1 $52.3/t FOB Sept-Îles
Production
Construction period
Mine life
Mineral reserves
Recovery
Estimated average annual production of 15 million tonnes of 66.2% Fe iron ore
21 months
Current study mine life of 20 years
Bloom Lake reserves estimated at 807 million tonnes at an average grade of 29.0% Fe
Average metallurgical recovery of 82.4% relative to average plant feed grade of 29.0% Fe
1
Cash cost and all-in sustaining costs are non-IFRS financial performance measures with no standard definition under IFRS. The Company provides them as supplementary
information that management believes may be useful to investors to explain the Company’s financial results.
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Champion Iron Limited
Report on Operations
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
The Feasibility Study conducted by BBA Inc. evaluated the life-of-mine ("LoM") option for expanded mining and processing to maximize the value
of the mineral resource at Bloom Lake. The Feasibility Study evaluates the combined Phase I and II mining plan, current concentrator plant at
Phase I and completion of the Phase II concentrator plant. Results of the Study recommend an expansion of Bloom Lake, resulting in a LoM
production averaging 15 Mtpa of 66.2% Fe iron ore concentrate. Based on the new optimized mine plan, the mining rate at Bloom Lake would also
be increased to accelerate the supply of ore to the expanded facilities, while maintaining a LoM of 20 years. Pursuant to the strong economics
outlined in the Feasibility Study, the Company’s board of directors has approved an initial budget of $68 million to advance the project during
the remainder of 2019, which is expected to meet the timetable detailed in the Feasibility Study. The approved budget will be funded from cash
on hand and existing debt facilities. Finalization of additional funding sources for the project is expected to be completed before mid-2020.
The base case economic assumption utilizes a conservative blended average gross realized price at 66.2% Fe CFR China of US$84.1/t for the
LoM. The P65 analyst consensus was utilized for years 1 to 3. For the remaining LoM, the iron price at 66.2% is based on the average of the P65
analyst long-term consensus and the P62 3-year trailing average with a 15% premium. These price assumptions compare with a spot price at
P65 of US$124.7/t as of June 13, 2019, of which Bloom Lake's 66.2% Fe material receives a premium. Other assumptions include total cash cost
of CA$46.6/dmt or US$35.4/dmt and process recovery of 82.4% and an average exchange rate between the US$ and the CA$ of 0.758.
More information on the Feasibility Study can be found in the Company’s June 20, 2019, press release available under the Company’s filings on
SEDAR at www.sedar.com and on the Company’s website at www.championiron.com. The National Instrument 43-101 Standards of Disclosure
for Mineral projects technical report will be filed on SEDAR within the 45 days of the June 20, 2019 news release.
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Champion Iron Limited
Directors’ Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
Directors’ report
The Directors of Champion Iron Limited (“Champion” or the “Company”) present their report with annual audited consolidated financial
statements of the Company comprising of the Company and its subsidiaries for the twelve-month period ended March 31, 2019 and the auditor’s
report thereon.
Management is responsible for the preparation and integrity of its Financial Statements, including the maintenance of appropriate information
systems, procedures and internal controls. Management is also responsible for ensuring that information disclosed externally, including the
Financial Statements and Management’s Discussion and Analysis, is complete and reliable.
All dollar figures stated herein are expressed in Canadian dollars, except for: (i) tabular amounts which are in millions of Canadian dollars; (ii) per
share or per tonne amounts; or (iii) unless otherwise specified. Certain non-IFRS financial performance measures are included in this MD&A. The
following abbreviations are used throughout this document: USD or US$ (United States dollar), CAD or CA$ (Canadian dollar), AISC (All-in
sustaining costs), wmt (wet metric tonnes), dmt (dried metric tonnes), M (Million), km (kilometres) and m (metres).
Champion is of the kind specified in ASIC Corporation (Rouding in Financial/Directors’ report) Instruments 2016/191. In accordance with the
class order, amounts in this report and in the financial report have been rounded to the nearest thousand dollars unless specifically stated to be
otherwise
The Financial Statements and other information pertaining to the Company are available on SEDAR at www.sedar.com and on its website at
www.championiron.com.
This directors’ report contains forward-looking statements. Particular attention should be given to the risk factors described in the “Risk Factors”
section and to the “Cautionary note regarding forward-looking statements” section of this document.
The utilization of the “Company” or “Champion”, refers to Champion Iron Limited and/or one, or more, or all of its subsidiaries, as it may apply.
Non-IFRS financial performance measures
Champion believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved
ability to evaluate the underlying performance of the Company. These measures are intended to provide additional information and should not
be considered in isolation, or as a substitute for, measures of performance prepared in accordance with IFRS. These measures do not have any
standardized meaning prescribed under IFRS, and therefore may not be comparable to other issuers. The non-IFRS financial performance
measures included in this document are: earnings before interest, tax, depreciation and amortization ("EBITDA"), total cash costs, all-in
sustaining costs (“AISC”), average realized selling price and cash operating margin. For a detailed description of each of the non-IFRS measures
used in this Directors’ report and a detailed reconciliation to the most directly comparable measure under International Financial Reporting
Standards (“IFRS”), please refer to the “Non-IFRS financial performance measures” section of this Directors’ report included in note 17.
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Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
1. Financial and Operating Highlights1
Iron ore concentrate produced (wmt)
Iron ore concentrate sold (dmt)
Financial Data (in thousands of dollars, except per share amounts)
Revenue
Gross profit (loss)
EBITDA2
EBITDA margin (%)2
Net income
Net income attributable to shareholders
Basic earnings per share attributable to shareholders
Cash flow from operations
Cash and cash equivalent
Short-term investments
Total assets
Statistics (in dollars per dmt sold)
Average net realized selling price2
Total cash cost2 (C1 cash cost)
All-in sustaining cost2
Cash operating margin2
Three Months Ended
March 31,
2019
1,802,000
1,744,000
182,164
94,284
86,500
47%
28,155
0.02
38,016
135,424
17,907
672,017
104.4
48.4
55.4
49.0
2018
623,300
—
—
(972 )
(20,858 )
—
(29,305 )
(0.05 )
(42,750 )
7,895
17,291
401,716
—
—
—
—
Twelve Months Ended
March 31,
2019
2018
6,994,500
7,127,600
655,129
288,632
278,172
42%
147,599
0.20
176,698
135,424
17,907
672,017
91.9
49.4
55.8
36.1
623,300
—
—
(4,244 )
(80,006 )
—
(107,331 )
(0.19 )
(131,649 )
7,895
17,291
401,716
—
—
—
—
1
2
The Company considers that pre-commercial production operations at the Bloom Lake mine commenced on April 1, 2018 with the first shipment of high-grade iron ore concentrate
and that commercial production began on June 30, 2018. There were no revenue or production costs associated with the same period the prior year.
EBITDA, average realized selling price, total cash cost, AISC cost and cash operating margin are non-IFRS financial performance measures with no standard definition under IFRS.
See the “Non-IFRS financial performance measures” section of this MD&A included in note 17.
12 | Page
Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Year-to-Date Highlights
Financial
• Revenues of $655.1 million since the Company shipped its first vessel of iron ore concentrate on April 1, 2018;
•
EBITDA1 totalling $278.2 million or a margin of 42% for the year ended March 31, 2019, compared to a loss of $80.0 million in the prior
year, as the Company was not in commercial production;
• Net income of $147.6 million (EPS of $0.20) for the year ended March 31, 2019 compared to a net loss of $107.3 million (EPS of ($0.19))
for the year ended March 31, 2018;
• Operating cash flow2 totalling $176.7 million for the year ended March 31, 2019, compared to utilization of funds of $131.6 million for
the year ended March 31, 2018; and
• Cash on hand3 of $153.3 million on March 31, 2019, compared to $25.2 million on March 31, 2018.
Operations
• Declaration of commercial production at Bloom Lake on June 30, 2018;
• Production of 6,994,500 wmt of high-grade 66.4% iron ore concentrate and 7,617,800 wmt since the mine commenced operations;
Total cash cost1 of $49.4/dmt sold (C1) and an AISC1 of $55.8/dmt sold during the first year of operations; and
Strong cash operating margin1 of $49.0/dmt during the quarter and $36.1/dmt year to date.
•
•
Growth
• On May 29, 2019, the Company announced a transaction to acquire RQ’s 36.8% equity interest in QIO, operator of the Bloom Lake Mining
Complex, for a total cash consideration of C$211 million. The acquisition would increase the Company's stake in QIO to 100%; and
• On May 29, 2019, the Company also announced that it has entered into an agreement with Caisse de dépôt et placement du Québec for
a preferred share offering for proceeds of C$185 million plus a commitment for a fully underwritten US$200 million credit facility with
The Bank of Nova Scotia and Societe Generale.
• On June 20, 2019, the Company announced a positive Feasibility Study for a Phase II expansion with an after-tax IRR of 33.4% and 2.4-
year payback on initial capital aiming at doubling the Bloom Lake Mine production.
1
2
3
EBITDA, total cash cost, AISC and cash operating margin are non-IFRS financial performance measures with no standard definition under IFRS. See the “Non-IFRS financial
performance measures” section of this MD&A included in note 17.
Operating cash flow includes change in non-cash operating working capital.
Cash on hand includes cash and cash equivalents and short-term investments.
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Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
3. Key Drivers
A. Iron Ore Concentrate Price
The price of iron ore concentrate is one of the most significant factors determining the Company’s financial results. As such, cash flow from
operations and the Company’s development may, in the future, be significantly adversely affected by a decline in the price of iron ore. The iron
ore concentrate price fluctuates on a daily basis and is affected by a number of industry and macroeconomic factors beyond the control of the
Company.
Due to the high-quality nature of its 66.4% iron ore concentrate, the Company’s iron ore attracts a premium over the IODEX 62% Fe CFR China
Index (“P62”) widely used as the reference price in the industry. The premium captured by the IODEX 65% Fe CFR China Index ("P65" or "Platts
65") is attributable to two main factors; steel mills are recognizing that higher iron ore grades offer a benefit to optimize output while significantly
decreasing CO2 emissions. Additionally, as some major producers continue to experience operational challenges, the shortages in the market
for high-grade sinter feeds also contribute to the upward pressure on high-grade iron ore prices.
During the three-month period ended March 31, 2019, the price of high-grade iron ore based on the Platts 65 index fluctuated from a low of
US$87.2/dmt to a high of US$107.2/dmt. The average P65 iron ore price was US$95.5/dmt for the period, a slight decrease of less than 4% from
the previous quarter resulting in a premium of 15.5% over the P62 reference price. The Company’s gross realized price for the quarter was
US$98.7/dmt before ocean freight. Deducting sea freight cost, the Company's net realized FOB price was $104.4/dmt.
During the year ended March 31, 2019, the price of high-grade iron ore based on the Platts 65 index fluctuated from a low of US$81.4/dmt to a
high of US$107.2/dmt. The average iron ore P65 price was US$91.6/dmt for the period, an important increase of 7% from the previous year
resulting in a premium of 29.0% over the P62 reference price. The Company’s gross realized price for the year was US$93.4/dmt before ocean
freight. Deducting sea freight cost, the Company's net realized FOB price was $91.9/dmt.
Champion is well positioned to benefit from higher iron ore prices as it has no hedging contracts in place and it is not subject to a net smelter
royalty. Assuming a stable foreign exchange rate, a variation of US$1.00 of the P65 will impact Champion gross revenues by approximately 1%.
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Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
3. Key Drivers (continued)
B. Sea Freight
Sea freight is an important component of the Company’s cost structure as Champion ships most of its concentrate to China and Japan. The
common reference route for dry bulk material from the Americas to Asia is the Brazil to China route totalling 11,000 miles. The freight cost per
tonne associated with this route is captured in the C3 Baltic Capesize Index (“C3”) which is considered the reference ocean freight cost for iron
ore shipped from the Americas to Asia. There is no index for the route between the port of Sept-Iles, Canada and China. The route from Sept-Iles
to China totals approximately 14,000 miles and is subject to different weather conditions during the winter season, therefore the freight cost per
tonne associated with this voyage is generally higher than the C3 price.
In the past five years, the industry has identified a relationship between the iron ore price and the cost of freight for the Brazil to China route
captured in the C3 rate. Based on the observed correlation, when the price of iron ore fluctuates, the ocean freight rate fluctuates as well. As the
freight cost for the ocean transport between Sept-Iles and China is largely influenced by the C3 cost, a decrease in iron ore prices should result
in a lower ocean freight costs for Champion Iron.
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Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
3. Key Drivers (continued)
C. Currency
The Canadian dollar is the Company’s reporting and functional currency. Consequently, the Company’s operating results and cash flows are
influenced by changes in the exchange rate for the Canadian dollar against the U.S. dollar. The Company's sales, sea freight and credit facilities’
costs are denominated in U.S. dollars. As such, the Company benefits from a natural hedge between its revenues and its sea freight and credit
facilities’ costs. Still, the Company is exposed to foreign currency fluctuations as its mining operating expenses are mainly incurred in Canadian
dollars. Currently, the Company has no hedging contracts in place and therefore has exposure to the foreign exchange rate fluctuations. The
strengthening of the U.S. dollar would positively impact the Company’s net income and cash flow while the strengthening of the Canadian dollar
would reduce its operating margin and cash flow.
Apart from these key drivers and the risk factors noted in the headings "Risk factors", management is not aware of any other trends,
commitments, events or uncertainties that would have a material effect on the Company’s business, financial condition or results of operations.
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Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
4. Bloom Lake Mine Operating Activities1
Operating Data
Waste mined (wmt)
Ore mined (wmt)
Strip ratio
Ore milled (wmt)
Head grade (%)
Recovery (%)
% Fe
Iron ore concentrate produced (wmt)
Iron ore concentrate sold (dmt)
Financial Data (in thousands of dollars)
Revenues
Cost of sales
Other expenses
Net finance cost
Net income
Earnings per share
EBITDA2
Statistics (in dollars per dmt sold)
Average net realized selling price2
Total cash cost (C1 cash cost)2
All-in sustaining cost2
Cash operating margin2
Three Months Ended
March 31,
2019
2018
Twelve Months Ended
March 31,
2019
2018
3,481,500
4,975,500
0.7
4,754,200
30.6
80.4
66.3
1,802,000
1,744,000
182,164
84,431
11,233
19,386
28,155
0.02
86,500
104.4
48.4
55.4
49.0
2,280,700
2,158,700
1.1
1,754,300
29.0
76.3
66.5
623,300
—
—
—
20,857
7,475
(29,305 )
(0.05 )
(20,858 )
—
—
—
—
13,679,900
19,711,700
0.7
18,493,800
31.5
79.5
66.4
6,994,500
7,127,600
4,254,000
2,733,500
1.6
1,754,300
29.0
76.3
66.5
623,300
—
655,129
351,946
25,011
50,010
147,599
0.20
278,172
91.9
49.4
55.8
36.1
—
—
80,006
23,081
(107,331 )
(0.19 )
(80,006 )
—
—
—
—
Operational Performance
During the quarter ended March 31, 2019, 8.5 million tonnes of material were mined, representing a decrease of 3% over the previous quarter.
The decrease reflects the focus on waste removal during the previous quarter due to a planned major shutdown of the plant. The plant processed
4,754,200 tonnes of ore during the fourth quarter. Although the quarter did not include a major scheduled shutdown, the production was affected
by various planned shutdowns totaling 10 days in order to upgrade pumps and change the inner discharge grates and upgrade the conveyor belt
to accommodate more daily throughput. During the period, the optimization of the recovery circuit continued, resulting in record monthly
recovery of 81.7% in February 2019 from a 31.0% Fe head grade. Based on the foregoing, Champion produced 1,802,000 wmt of 66.3% high-
grade iron ore concentrate during the fourth quarter ended March 31, 2019.
The Company mined 33.4 million tonnes of material during the twelve months ended on March 31, 2019, compare to 7.0 million tonnes in the
prior year. The variation is due to the restart of the Bloom Lake Mine in February 2018 which commenced commercial production on June 30,
2018. The plant processed 18,493,800 tonnes of ore during the twelve months ended March 31, 2019. During the year, the recovery circuit
continues to be optimized where the Company initially achieved 77.0% when it resumed operations in February of 2018 compared to 80.4% during
the last quarter ended March 31, 2019. Overall, the Company achieved an average recovery rate close to 80% for the most recently completed
fiscal year. The Company's recovery rate continues to improve with nearly every quarter achieving higher recovery rates as high as 86%. As such,
the Company is confident that it will achieve the target recovery rate of 83% once the circuit has been optimized.
Based on the foregoing, Champion produced a total of 6,994,500 wmt of Fe 66.4% in its first full year of operations ending March 31, 2019. These
results established a new annual production record for the Bloom Lake Mine as the previous annual record achieved at Bloom Lake by previous
operators totalled 5,885,355 in 2013
1
2
The Company considers that pre-commercial production operations at the Bloom Lake mine commenced on April 1, 2018 with the first shipment of high-grade iron ore concentrate
and that commercial production began on June 30, 2018.
EBITDA, average realized selling price, total cash cost, AISC and cash operating margin are non-IFRS financial performance measures with no standard definition under IFRS. See
the “Non-IFRS financial performance measures” section of this MD&A included in note 17.
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Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
5. Financial Performance
The Company entered pre-commercial production in February 2018, shipped its first vessel to China on April 1, 2018 and declared commercial
production on June 30, 2018. As a result, there are no comparative production and related financial performance figures for the same periods
the year prior.
A. Revenues
During the three-month period ended March 31, 2019, a total of 1,802,000 tonnes of high-grade iron ore concentrate were sold at a CFR China
gross realized price of US$98.7/dmt before shipping. The gross sales price of US$98.7/dmt represents a premium of 19% over the benchmark
P62 compared to 28% in the previous quarter as the P62 price strengthened by 16% during the quarter. Deducting sea freight costs of
US$21.6/dmt, the Company obtained an average net realized price of US$77.1 per tonne (CA$104.4 per tonne) for its high-grade iron ore delivered
to the end customer. As a result, revenues totalled $182,164,000 for the period. The sales increase compared to the prior quarter stems primarily
from higher iron ore prices.
For the year ended March 31, 2019, the Company sold over 7.1 million tonnes of iron ore concentrate shipped to end customers located in China,
Europe, Japan and the Middle East in 41 Capesize vessels. While, the P65 indicative price of high-grade iron ore fluctuated between US$81.4/dmt
to US$107.2/dmt as of March 31, 2019, the Company sold its product at an average gross realized price of US$93.4/dmt before shipping. The
gross sales price of US$93.4/dmt represents a premium of 30.6% over the benchmark P62 price. Deducting sea freight costs of US$23.4/dmt,
the Company obtained an average realized price of US$70.0 per tonne (CA$91.9 per tonne) for its high-grade iron ore delivered to the end
customer. As a result, revenues totalled $655,129,000 for the first year of production. There are no revenues for the comparative periods as the
Company shipped its first vessel of iron ore concentrate on April 1, 2018.
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Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
5. Financial Performance (continued)
A. Revenues (continued)
(in US dollars per dmt sold)
Index P62
Premium over P62
Gross realized price
Freight and other costs
Net realized FOB price
CAD Net Realized FOB Price
Three Months
Twelve Months
Ended March 31, 20191
82.7
16.0
98.7
(21.6)
77.1
104.4
71.5
21.9
93.4
(23.4)
70.0
91.9
B. Cost of sales
Cost of sales represent mining, processing, and mine site-related general and administrative expenses.
During the three-month period ended March 31, 2019, the total cash cost2 or C1 cash cost2 per tonne totalled $48.4/dmt.
For the first twelve months of operations, the Company produced high-grade iron ore at a total cash cost2 of $49.4/dmt. The C1 cash cost2
reflects the impacts of the inefficiencies of the ramp-up period, the delays associated with the completion of the first major planned shutdown
since the Company started its operations, combined with unplanned shutdowns during the first winter season.
As the Company shipped its first vessel on April 1, 2018, there are no comparative cost of sales for the prior fiscal year ended March 31, 2018.
C. Gross profit (loss)
The gross profit for the three and twelve-month periods ended March 31, 2019 totalled $94,284,000 and $288,632,000, respectively, compared
to a gross loss of $972,000 and $4,244,000 for the same periods in the year prior. Each period variation reflects the timing of recommissioning
Bloom Lake in February 2018 with first shipment dating April 1, 2018.
D. Other Expenses
Other expenses comprise share-based payment, corporate expenses as well as sustainability and other community expenses (“CSR expenses”).
CSR expenses are composed mainly of community taxes such as property and school taxes and expenditures related to the Impact and Benefits
Agreement with the First Nations (“IBA”).
The variance in Other expenses and income for the year ended March 31, 2019 compared to the same period last year is essentially due to the
difference in certain costs incurred during the restart phase (2017-2018) compared to costs incurred during the operational phase which began
April 1, 2018.
1
2
The Company considers that pre-commercial production operations at the Bloom Lake mine commenced on April 1, 2018 with the first shipment of high-grade iron ore concentrate
and that commercial production began on June 30, 2018 accordingly there are no comparative figures for the same period the year prior.
EBITDA, average realized selling price, total cash cost or C1 cash cost, AISC and cash operating margin are non-IFRS financial performance measures with no standard definition
under IFRS. See the “Non-IFRS financial performance measures” section of this MD&A included in note 17.
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Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
5. Financial Performance (continued)
E. Net Finance Costs
Net finance costs totalled $19,386,000 (non-cash finance costs of $13,199,000) for the fourth quarter compared to $7,475,000 (non-cash
finance costs of $7,025,000) for the same period in 2018. The increase is attributable mainly to the change in the fair market value of derivative
liabilities period over period offset by an unrealized foreign exchange loss and the recognition of a non-cash derivative assets.
The increase in net finance costs for the year ended March 31, 2019, when compared to the same period the year prior, is due to two main factors:
the interest on the term facilities fully drawn at the beginning of September 2018 and the change in the fair value of derivatives associated with
the financing of the Bloom Lake Mine. The change in the fair value of derivatives liabilities is attributable to the variation of the Company’s
common share price during the period and is a non-cash item. In compliance with IFRS, the Company also recorded non-cash derivatives assets
in relation with the existing debt facility. The Company reports in Canadian dollars and benefits from a natural hedge between its revenues
generated in U.S. dollars and its U.S. denominated term facilities. Consequently, the unrealized foreign exchange loss included in net finance
costs represents a non-cash expenditure associated with the conversion of the term facilities in Canadian dollars. The Company maintains
sufficient U.S. dollars on hand to prevent foreign exchange loss upon interest or capital payments. Unrealized loss on investments and accretion
costs are non-cash items.
F. Income Taxes
The Company’s subsidiaries are subject to tax in Australia and Canada. As a result of accumulated losses before tax, there are no current or
deferred income taxes related to the Australian activities. QIO, Champion’s operating subsidiary, is subject to mining tax of 16% and income tax
in Canada where the statutory rate is 26.68%. During the fiscal year ended March 31, 2019, the Company utilized previously unrecognized tax
benefits including the majority of its loss available for carry forwards to reduce its current income tax to nil. However, current mining taxes for
the period amounted to $34,059,000 and were paid in May 2019. Deferred income tax expenses relate mainly to the accelerated depreciation
available under tax regulations.
G. EBITDA1 & Net Income (Loss)
During the fourth quarter ended March 31, 2019, the Company generated an EBITDA1 of $86,500,000 or a margin of 47% and $278,172,000 or a
margin of 42% for the year ended March 31, 2019.
The Company’s net income for the three-month period ended March 31, 2019 totalled $28,155,000 or earnings per share of $0.02 compared to
a loss of $29,305,000 or $0.05 per share for the same period the year prior. The variation is due to the restart of mining activities at the Bloom
Lake Mine.
For the year ended March 31, 2019, the Company generated a net income of $147,599,000 translating to earnings per share of $0.20. A net loss
of $107,331,000 or $0.19 per share was realized in the year ended March 31, 2018 as the Company completed its Bloom Lake Mine construction
in February 2018 and shipped its first vessel of iron ore on April 1, 2018.
1
EBITDA, average realized selling price, total cash cost or C1 cash cost, AISC and cash operating margin are non-IFRS financial performance measures with no standard
definition under IFRS. See the “Non-IFRS financial performance measures” section of this MD&A included in note 17.
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Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
5. Financial Performance (continued)
H. All-in sustaining cost1 and cash operating margin1
The Company believes that the AISC1 and cash operating margin1 are measures reflecting the costs associated with producing iron ore and
assessing the Company’s ability to operate without reliance on additional borrowing or usage of existing cash. The Company defines AISC1 as
the total costs associated with producing iron ore concentrate. The Company’s AISC1 represents the sum of cost of sales, corporate expenditures
and sustaining capital expenditures, including stripping activities, all divided by the iron ore concentrate per dmt sold to arrive at a per dmt figure.
During the quarter, the Company realized an AISC1 of $55.4/dmt which is comparable to previous quarter. During its start-up year, the Company
produced high-grade iron concentrate at an AISC1 of $55.8/dmt.
Deducting the AISC1 of $55.4/dmt from the realized average selling price1 of $104.4/dmt, the Company generated a cash operating margin1 of
$49.0 for each tonne of high-grade iron ore concentrate sold during the fourth quarter ended March 31, 2019. Since the Company started to ship
iron ore to its end customers it generated a cash operating margin1 of $36.1/dmt.
I. Non-controlling interests
As of March 31, 2019, the Government of the province of Quebec, through RQ held a 36.8% interest in QIO and as such, was considered Champion's
non-controlling interest (“NCI”). The net income attributable to the NCI is based on the statutory financial statements of QIO. The variation period
over period is associated with the start of the commercialization on April 1, 2018 offset by the change in fair value of derivatives liabilities.
On May 29, 2019, the Company announced a transaction to acquire RQ’s 36.8% equity interest in QIO. For more information on the proposed
transaction, please refer to the Company’s press release dated May 29, 2019, available under the Company's filings on SEDAR at www.sedar.com.
When Champion closes the announced acquisition of the minority interest held by RQ, Champion will no longer have to attribute a portion of QIO’s
net income to a NCI.
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Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
6. Events subsequent to March 31, 2019
On May 29, 2019, the Company announced a transaction to acquire RQ’s 36.8% equity interest in QIO, operator of the Bloom Lake Mining Complex,
for a total cash consideration of $211 million (the “Transaction”). The Transaction would increase Champion’s stake in QIO to 100%. Following the
closing of this transaction, the entire net income of QIO will be allocated to Champion and there will no longer be any NCIs.
The Company also announced on May 29, 2019, that it has entered into an agreement with Caisse de dépôt et placement du Québec for a
preferred share offering for proceeds of $185 million (the "Investment") plus a commitment for a fully underwritten US$200 million credit facility
(the "New Credit Facility") with The Bank of Nova Scotia (“Scotiabank”) and Societe Generale (“SocGen”). Proceeds from the Investment and the
New Credit Facility will be used to fund current and future strategic initiatives and repay Champion’s existing debt.
The dividend rate associated with the preferred shares will be based on the gross realized iron price and will fluctuate from 9.25% when the gross
realized iron price for Bloom Lake 66.2% iron ore is greater than US$85/dmt to 13.25% should the gross realized iron ore price decrease below
US$65/dmt. The closing of this facility is expected to occur in the summer of 2019.
The New Credit Facility will be available by way of a US$180 million senior secured fully amortizing non-revolving credit facility (the “Term
Facility”) in addition to a US$20 million senior secured revolving credit facility (the “Revolving Facility”). The New Credit Facility will bear interest
between LIBOR plus 2.85% if the net debt to EBITDA ratio is lower or equal to 1.00x to LIBOR plus 3.75% if the net debt to EBITDA ratio is greater
than 2.50x.
The Term Facility will mature five years from the closing date while the Revolving Facility will mature three years from the closing date. The Term
Facility shall be repaid in equal quarterly installments of principal and accrued interest starting on the second full year following the closing date
and is not subject to prepayment penalties. The closing of this facility is expected to occur in the summer of 2019.
For more information on the capital restructuring and the transaction, please refer to the Company’s press release dated May 29, 2019, available
under the Company’s filings on SEDAR at www.sedar.com.
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Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
7. Cash Flows
The following table summarizes cash flow activities:
Three Months Ended
March 31,
Twelve Months Ended
March 31,
2019
2018
2019
2018
(in thousands of dollars)
Operations
Changes in non-cash working capital
Operating activities
Financing activities
Investing activities
Change in cash and cash equivalents during the period
Effect of foreign exchange rates on cash
Cash and cash equivalents, beginning of period
70,596
(32,580 )
38,016
(45,108 )
(27,927 )
(24,220 )
(18,530 )
(42,750 )
89,610
(87,744 )
231,465
(54,767 )
176,698
20,501
(72,930 )
(35,019 )
(40,884 )
124,269
2,622
18
167,821
48,761
3,260
7,895
Cash and cash equivalents, end of period
135,424
7,895
135,424
Operating
(86,883 )
(44,766 )
(131,649 )
238,801
(101,180 )
5,972
60
1,863
7,895
During the three-month period ended March 31, 2019, the Company generated operating cash flow of $70,596,000 before working capital as a
result of an EBITDA1 margin of 47% for each dry metric tonne of high-grade concentrate sold. Working capital was mainly impacted by the timing
of customer receipts. The variation with the quarter ended March 31, 2018 is essentially due to operating profit as the Company was still in
development in 2017.
During the year ended March 31, 2019, the Company's operating cash flow before working capital items totalled $231,465,000. The Company
was in development for the comparative prior year period. The variation of the working capital items for the year ended March 31, 2019 compared
with the prior year is mainly due to trade receivables and payments of suppliers in relation to the construction project. The decrease is offset by
mining tax payable due in May 2019 associated with the operations for the fiscal year ended March 31, 2019. The Company did not have to remit
mining tax until the end of the first year of operations. Going forward, the Company will have to make monthly installment based on the mining
tax incurred the prior year. As such the Company started paying mining tax installments at the end of May 2019.
Financing
During the three-month period ended March 31, 2019, the Company made its first capital repayment of $7,636,000 towards the US$80,000,000
facility (the "Sprott Facility") and fully repaid the $37,472,000 note payable related to the Bloom Lake railcar fleet. In the comparative prior year
period, the Company's financing activities consisted mainly of proceeds of $92,127,000 derived from the long-term debt.
The financing proceeds for the year ended March 31, 2019 consisted primarily of drawdowns totaling $74,195,000 from the US$180,000,000
credit facilities as well as borrowing repayments. During the period, the Company made the first repayment of $7,636,000 towards the Sprott
Facility and paid $4,564,000 in accordance with the production payment agreement entered into as a condition to closing the credit facility with
Sprott Private Resource Lending (Collector), LP ("Sprott"). In addition, the Company fully repaid the $37.5 million note payable associated with
financing the Bloom Lake railcar fleet. The remaining financing activities for the year include proceeds from the exercise of stock options and
the payment of borrowing costs and capitalized interest.
The financing activities for the corresponding period the prior year related to the financing completed on October 16, 2017, which funded the
Bloom Lake Mine improvements, restart projects and associated costs. The financing structure consisted of a debt facility totaling
US$180,000,000 with Sprott and CDP Investissements Inc., of which $158,287,000 was drawn down as of March 31, 2018, and proceeds of
$31,200,000 and $10,000,000 associated with debentures issued to Glencore International AG and Altius Minerals Corporation respectively.
1
EBITDA, average realized selling price, total cash cost or C1 cash cost, AISC and cash operating margin are non-IFRS financial performance measures with no standard definition
under IFRS. See the “Non-IFRS financial performance measures” section of this MD&A included in note 17.
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Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
7. Cash Flows (continued)
Financing (continued)
In addition, the Company completed a public offering of 21,034,000 subscription receipts ($0.90/unit) for gross proceeds of $18,930,000 on
October 16, 2017. RQ also contributed to a private placement directly into QIO for an amount totalling $31,316,000. Finally, a bridge loan
amounting to $16,000,000 established for the tailings lifts was drawn down and repaid during the period. The remaining financing activities
related to the exercise of stock options and financing transaction costs.
Investing
The Company investments relate to capital expenditures and exploration and evaluations expenses.
Purchase of property, plant and equipment
During the year ended March 31, 2019, the Company invested $62,942,000 in cash for additions to property, plant and equipment. The following
table summarizes our investing activities.
Three Months Ended
Twelve Months Ended
(in thousands of dollars)
Tailings lifts
Stripping activities
Other sustaining capital expenditures
Subtotal sustaining capital expenditures
Capital development expenditures at Bloom Lake
Total
Exploration and evaluation
March 31,
2019
2018
March 31,
2019
3,008
3,388
—
6,396
17,145
23,541
—
—
—
—
74,851
74,851
17,057
12,121
2,657
31,835
31,107
62,942
2018
—
—
—
—
97,569
97,569
For the year ended March 31, 2019, $9,372,000 was invested in exploration and evaluation including $6,451,000 towards the feasibility study of
Phase II.
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Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
8. Financial Position
As at March 31, 2019, the Company held $135,424,000 in cash and cash equivalents along with $17,907,000 in short-term investments. With the
existing cash balance and the forecasted cash flows from operations, the Company is well positioned to fund all of its cash requirements for
FY2020, which relate primarily to the following activities:
– Mine operating costs
– Sustaining capital expenditures
– Reimbursement of long-term debt
– Payment of mining and income taxes
(in thousands of dollars)
Cash and cash equivalents
Short-term investment
Cash on hand
Other current assets
Total Current Assets
Property, plant and equipment
Exploration and evaluation asset
Other non-current assets
Total Assets
Total Current Liabilities
Long-term debt
Derivative financial instruments
Rehabilitation obligation
Other non-current liabilities
Total Liabilities
Equity attributable to equity shareholders
Non-controlling interests
Total Equity
Total Liabilities and Equity
As at March 31,
2019
As at March 31,
2018
135,424
17,907
153,331
161,352
314,683
224,123
81,508
51,703
672,017
114,608
193,038
43,819
36,565
68,265
456,295
150,346
65,376
215,722
672,017
7,895
17,291
25,186
89,907
115,093
172,719
72,137
41,767
401,716
109,710
141,225
24,683
35,893
35,757
347,268
53,625
823
54,448
401,716
The Company’s total current assets as at March 31, 2019 increased by $199,590,000 since March 31, 2018. This increase resulted from
operational cash flow associated with the start of the operations at Bloom Lake together with trade receivables. The completion of the
construction of the Bloom Lake mine, during the period, also contributed to higher property, plant and equipment and total assets.
Total liabilities increased reflecting the debt now fully drawn and income tax payable associated with mining tax related to the mining profit
realized since the start of operations. The variation in equity is mainly the result of the Company’s net income totalling $147,599,000 achieved
since the first shipment of high-grade iron ore concentrate made on April 1, 2018.
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Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
9. Financial Risk Factors
The Company’s risk exposure and impact on the Company’s financial instruments are summarized in note 27 of the consolidated financial
statements for the year ended March 31, 2019.
10. Commitments
The Company has various obligations related to take-or-pay features of its logistics contracts. The Company has also other commitments with
the Innu community related to the Impact and Benefits Agreement. Future minimum payments under these agreements are as follow:
Less than a year
1 to 5 years
More than 5 years
Total
The Company does not have any contingent liabilities.
11. Critical Accounting Estimates and Judgments
As at March 31,
2019
As at March 31,
2018
135,798
62,809
146,351
344,958
70,327
239,102
—
309,429
The Company’s significant accounting judgments, estimates and assumptions are summarized in note 2 of the consolidated financial
statements for the year ended March 31, 2019.
12. New Accounting Standards Issued and Adopted by the Company
The new accounting standards issued but not yet in effect are disclosed in note 2 to the consolidated financial statements for the year ended
March 31, 2019.
13. Non-IFRS Financial Performance Measures
The Company has included certain non-IFRS measures in this document. The Company believes that these measures, in addition to conventional
measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The
non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. These measures do not have any standardized meaning prescribed under IFRS, and therefore
may not be comparable to other issuers.
A. Total Cash Cost
Total cash costs or C1 cost is a common financial performance measure in the iron ore mining industry but with no standard meaning under
IFRS. Champion reports total cash costs on a sales basis. The Company believes that, in addition to conventional measures prepared in
accordance with IFRS, such as sales, certain investors use this information to evaluate the Company’s performance and ability to generate
operating earnings and cash flow from its mining operations. This measure also enables investors to better understand the performance of the
Company's iron ore operations in comparison to other iron ore producers who present results on a similar basis. Management uses this metric
as an important tool to monitor operating cost performance. Total cash costs include production costs such as mining, processing, and site
administration, and exclude depreciation to arrive at total cash costs per dmt sold. Other companies may calculate this measure differently.
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Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
13. Non-IFRS Financial Performance Measures (continued)
A. Total Cash Cost (continued)
Per tonne sold
Iron ore concentrate sold (dmt)
(in thousands of dollars except per tonne)
Cost of sales
Total cash cost (per dmt sold)
B. All-in Sustaining Cost ("AISC")
Three Months
Twelve Months
Ended March 31, 2019
1,744,000
7,127,600
84,431
48.4
351,946
49.4
The Company believes that AISC defines the total costs associated with producing iron ore concentrate more accurately as this measure reflects
all of the sustaining expenditures incurred in order to produce high-grade iron ore concentrate. The Company calculates AISC as the sum of total
cash costs (as described above), general and administrative expense and sustaining capital, including deferred stripping, all divided by the iron
ore concentrate dmt sold to arrive at a per dmt figure. Other companies may calculate this measure differently as a result of differences in
underlying principles and policies applied. Differences may also arise due to a different definition of sustaining versus non-sustaining capital.
The sustaining capital included in the AISC calculation excludes development capital expenditures such as capacity increase projects and
studies for future expansion projects.
As this measure intends to represent the cost of selling Iron ore concentrate from current operations, it does not include capital expenditures
attributable to development projects or mine expansions including economic evaluations for such projects, non-cash share-based payments,
exploration expenses that are not sustainable in nature, income tax expense, working capital defined as current assets less current liabilities
(except for inventory adjustments) or interest costs.
The table below shows a reconciliation of AISC per tonne to costs as extracted from the consolidated financial statements:
Per tonne sold
Iron ore concentrate sold (dmt)
(in thousands of dollars except per tonne)
Cost of sales
Sustaining capital expenditure
General and administrative expenses
AISC (per dmt sold)
Three Months
Twelve Months
Ended March 31, 2019
1,744,000
7,127,600
84,431
6,396
5,728
96,555
55.4
351,946
31,835
14,039
397,820
55.8
27 | P a g e
Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
13. Non-IFRS Financial Performance Measures (continued)
C. Average realized selling price and cash operating margin
Average realized price and cash operating margin per dmt sold are used by management to better understand the iron ore concentrate price and
margin realized throughout a period. Average realized price is calculated as metal sales per the statement of comprehensive earnings. Cash
operating margin represents average realized price per iron ore concentrate dmt sold less AISC per dmt sold.
Per tonne sold
Iron ore concentrate sold (dmt)
(in thousands of dollars except per tonne)
Revenues
Average realized selling price (per dmt sold)
AISC (per dmt sold)
Cash operating margin (per dmt sold)
D. EBITDA
Three Months
Twelve Months
Ended March 31, 2019
1,744,000
7,127,600
182,164
104.4
55.4
49.0
655,129
91.9
55.8
36.1
The following table sets forth the calculation of EBITDA, a non-IFRS measure which the Company believes to be relevant to assess the Company’s
ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligation and fund capital expenditures.
EBITDA is intended to provide additional information to investors and does not have any standardized definition under IFRS. The measure
excludes the impact of cash costs of financing activities, taxes and the change in non-cash working capital and is not necessarily indicative of
operating profit or cash flow from operations as determined under IFRS. Other companies may calculate EBITDA differently.
(in thousands of dollars)
Income (loss) before income tax
Net finance costs
Current income tax expense
Deferred income tax expense
Depreciation
EBITDA
EBITDA margin (%)
14.Share Capital Information
Three Months Ended
March 31,
2019
2018
Twelve Months Ended
March 31,
2019
2018
28,155
19,386
8,286
27,224
3,449
86,500
47 %
(29,305 )
7,475
—
—
972
(20,858 )
—
147,599
50,010
34,017
31,995
14,551
278,172
42%
(107,331 )
23,081
—
—
4,244
(80,006 )
—
The Company’s authorized share capital is unlimited ordinary shares without par value. As of June 20, 2019, there are 432,991,622 ordinary
shares outstanding. In addition, there are 29,850,000 ordinary shares issuable on the exercise of options and 49,733,000 shares issuable from
derivatives instruments with dilutive impact.
28 | P a g e
Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
15. Summary of Quarterly Results
The following information is derived from and should be read in conjunction with the unaudited condensed interim consolidated financial
statements for each of the past eight quarters. The Company’s fiscal year ends on March 31. All amounts are stated in millions of dollars except
for the earnings (loss) per share.
Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018
Financial Results ($ millions)
Revenue
Operating profit (loss)
EBITDA1
Net profit (loss)
Net profit (loss) attributable to
shareholders
Earnings (loss) per share - basic
Earnings (loss) per share - diluted
Cash flow from operations
Operating Data
Waste mined (wmt)
Ore mined (wmt)
Strip ratio
Ore milled (wmt)
Head grade (%)
Recovery (%)
% Fe
Iron ore concentrate produced (wmt)
Iron ore concentrate sold (dmt)
Financial results per unit
Average realized selling price1
Total cash cost1
All-in sustaining cost1
Cash operating margin1
182.2
83.1
86.5
28.2
8.8
0.02
0.02
38.0
147.5
62.8
65.4
31.2
21.7
0.05
0.05
89.1
174.7
77.2
81.3
67.5
41.5
0.10
0.09
2.9
150.7
40.5
45.0
20.7
11.0
0.03
0.02
46.7
—
(21.8 )
(20.9 )
(30.9 )
(21.9 )
(0.05 )
(0.05 )
(42.8 )
0.7
0.8
0.6
3,481,500
3,847,100 2,978,400 3,372,900 2,280,700
4,975,500 4,883,400 5,204,900 4,647,900 2,158,700
1.1
1,754,300
29.0
76.3
66.5
623,300
—
0.7
4,754,200 4,531,400 4,964,200 4,244,000
31.1
77.1
66.5
1,542,900
1,740,400
30.6
80.4
66.3
1,802,000
1,744,000
32.0
79.6
66.6
1,858,300
1,931,700
32.1
80.7
66.4
1,791,300
1,711,500
—
(39.5 )
(38.4 )
(54.1 )
(37.3 )
(0.09 )
(0.09 )
(72.6 )
1,973,300
574,800
3.4
—
—
—
—
—
—
104.4
48.4
55.4
49.0
86.2
49.4
55.5
30.7
90.4
45.2
52.9
37.5
86.6
55.0
59.9
26.7
—
—
—
—
—
—
—
—
—
(14.8 )
(13.7 )
(14.5 )
(9.9 )
(0.03 )
(0.03 )
(15.0 )
—
(8.2 )
(7.0 )
(7.8 )
(5.4 )
(0.01 )
(0.01 )
(1.2 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1 EBITDA, average realized selling price, total cash cost, AISC and cash operating margin are non-IFRS financial performance measures with no standard definition under IFRS. See
the “Non-IFRS financial performance measures” section of this MD&A included in note 17.
29 | P a g e
Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
16.Risk Factors
Champion is subject to several risks and uncertainties which could have a material adverse impact on its operations, its financial condition and
the trading price of its shares. This section presents information about the Company's exposure to each of the described risks, the Company's
objectives, policies and processes for measuring and managing risk, and the Company's management of capital.
The Board of Directors oversees management's establishment and execution of the Company's risk management framework. Management has
implemented and monitors compliance with risk management policies. The Company's risk management policies are established to identify and
analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and
the Company's activities.
The following discussion summarizes the principal risk factors that apply to the Company and that may have a material adverse effect on its
financial condition and results of operations, or the trading price of the Company's Common Shares.
FINANCIAL RISKS
Iron Ore Prices
The Company's principal business is the exploration, development and production of iron ore. The Company’s future profitability is largely
dependent on movements in the price of iron ore. Iron ore prices have historically been volatile and are primarily affected by the demand for and
price of steel in addition to the supply/demand balance. Given the historical volatility of iron ore prices there are no assurances that the iron ore
price will remain at economically attractive levels. An increase in iron ore supply without a corresponding increase in iron ore demand would be
expected to result in a decrease in the price of iron ore. Similarly, a decrease in iron ore demand without a corresponding decrease in the supply
of iron ore would be expected to result in a decrease in the price of iron ore. A continued decline in iron ore prices would adversely impact the
business of the Company and could affect the feasibility of the Company’s projects. As some of the Company’s long-term debt are subject to
rate fluctuation based on the price of iron ore, a decrease in iron ore could have an adverse impact on the cost of the Company’s borrowing. A
continued decline in iron ore prices would also be expected to adversely impact the Company’s ability to attract financing. Iron ore prices are
also affected by numerous other factors beyond the Company’s control, including the exchange rate of the United States dollar with other major
currencies, global and regional demand, political and economic conditions, production levels and costs and transportation costs in major iron
ore producing regions. If as a result of a decline in iron ore prices, revenues from iron ore sales were to fall below cash operating costs, the
feasibility of continuing development and operations would be evaluated and if warranted, could be discontinued.
Fluctuating Minerals Prices
Factors beyond the control of the Company may affect the marketability of any other minerals discovered. Resource prices have fluctuated
widely and are affected by numerous factors beyond the Company's control. These factors include market fluctuations, the proximity and
capacity of natural resource markets and processing equipment, and government regulations, including regulations relating to prices, taxes,
royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be
accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital and
a loss of all or part of an investment in securities of the Company may result.
Liquidity / Financing Risk
The Company may need to raise additional funding in the future through the sale of equity or debt securities or by optioning or selling its properties. No
assurance can be given that additional funding will be available for further exploration and development of the Company’s properties when required,
upon terms acceptable to the Company or at all. Failure to obtain such additional financing could result in the delay or indefinite postponement of further
exploration and development of its properties.
Current Global Financial Condition
Global financial markets experienced extreme and unprecedented volatility and disruption in 2008 and 2009. World economies experienced a
significant slowdown in 2008 and 2009 and only slowly began to recover late in 2009, through 2010 to 2017 and into 2017-2018, although the
strength of recovery has varied by region and by country. In the latter half of 2011 and 2012-2013, debt crises in certain European countries and
other factors adversely affected the recovery.
The majority vote in favour of the United Kingdom leaving the European Union may worsen and/or prolong global financial markets’ challenges
and the demand for commodities. These conditions have resulted and may continue to result in a reduction in demand for various resources and
raw materials. As a result, access to public financing has been negatively impacted.
30 | P a g e
Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
16.Risk Factors (continued)
Current Global Financial Condition (continued)
These factors may impact the ability of the Company to obtain equity or debt financing in the future on favourable terms. Additionally, these
factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in
impairment losses. If such increased levels of volatility and market fluctuations continue, the Company's operations could be adversely impacted
and the trading price of its Ordinary Shares may be adversely affected.
Foreign Exchange
Iron ore is sold in U.S. dollars thus the Company is subject to foreign exchange risks relating to the relative value of the Canadian dollar as
compared to the U.S. dollar. To the extent that the Company generates revenues upon reaching the production stage on its properties, it will be
subject to foreign exchange risks as revenues will be received in U.S. dollars while operating and capital costs will be incurred primarily in
Canadian dollars. A decline in the U.S. dollar would result in a decrease in the real value of the Company’s revenues and adversely impact the
Company’s financial performance.
Reduced Global Demand for Steel or Interruptions in Steel Production
The global steel manufacturing industry has historically been subject to fluctuations based on a variety of factors, including general economic
conditions and interest rates. Fluctuations in the demand for steel can lead to similar fluctuations in iron ore demand. A decrease in economic
growth rates could lead to a reduction in demand for iron ore. Any decrease in economic growth or steel consumption could have an adverse
effect on the demand for iron ore and consequently on the Company’s ability to obtain financing, to achieve production and on its financial
performance. See also “Current Global Financial Conditions” above.
OPERATIONAL RISKS
Mineral Exploration, Development and Operating Risks
Mineral exploration is highly speculative in nature, generally involves a high degree of risk and is frequently non-productive. Resource acquisition,
exploration, development, and operation involve significant financial and other risks over an extended period of time, which even a combination
of careful evaluation, experience, and knowledge may not eliminate. Significant expenses are required to locate and establish economically
viable mineral deposits, to acquire equipment, and to fund construction, exploration and related operations, and few mining properties that are
explored are ultimately developed into producing mines.
Success in establishing an economically viable project is the result of a number of factors, including the quantity and quality of minerals
discovered, proximity to infrastructure, metal and mineral prices which are highly cyclical, costs and efficiencies of the recovery methods that
can be employed, the quality of management, available technical expertise, taxes, royalties, environmental matters, government regulation
(including land tenure, land use and import/export regulations) and other factors. Even in the event that mineralization is discovered on a given
property, it may take several years in the initial phases of drilling until production is possible, during which time the economic feasibility of
production may change as a result of such factors. The effect of these factors cannot be accurately predicted, but the combination of these
factors may result in the Company not receiving an adequate return on its invested capital, and no assurance can be given that any exploration
program of the Company will result in the establishment or expansion of resources or reserves.
The Company’s operations are subject to all the hazards and risks normally encountered in the exploration, development and production of iron
ore and other minerals, including hazards relating to the discharge of pollutants, changes in anticipated grade and tonnage of ore, unusual or
unexpected adverse geological or geotechnical formations, unusual or unexpected adverse operating conditions, slope failures, rock bursts,
cave-ins, seismic activity, the failure of pit walls or dams, fire, explosions and natural phenomena and "acts of God" such as inclement weather
conditions, floods, earthquakes or other conditions, any of which could result in damage to, or destruction of, mineral properties or production
facilities, personal injury or death, damage to property, environmental damage, unexpected delays, monetary payments and possible legal
liability, which could have a material adverse impact upon the Company.
In addition, any future mining operations will be subject to the risks inherent in mining, including adverse fluctuations in commodity prices, fuel
prices, exchange rates and metal prices, increases in the costs of constructing and operating mining and processing facilities, availability of
energy , access and transportation costs, delays and repair costs resulting from equipment failure, changes in the regulatory environment, and
industrial accidents and labour actions or unrest. The occurrence of any of these risks could materially and adversely affect the development of
a project or the operations of a facility, which could have a material adverse impact upon the Company.
31 | P a g e
Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
16.Risk Factors (continued)
Uncertainty of Mineral Resource and Mineral Reserve Estimates
Although the mineral resource estimates included herein have been carefully prepared by independent mining experts, these amounts are
estimates only and no assurance can be given that any particular level of recovery of iron ore or other minerals will in fact be realized or that an
identified mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be economically exploited. Additionally, no
assurance can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized.
Estimates of mineral resources can also be affected by such factors as environmental permitting regulations and requirements, weather,
environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. In addition, the
grade of ore ultimately mined may differ dramatically from that indicated by results of drilling, sampling and other similar examinations. Short-
term factors relating to mineral resources, such as the need for orderly development of ore bodies or the processing of new or different grades,
may also have an adverse effect on mining operations and on the results of operations. Material changes in mineral resources, grades, stripping
ratios or recovery rates may affect the economic viability of projects. Mineral resources are reported as general indicators of mine life. Mineral
resources should not be interpreted as assurances of potential mine life or of the profitability of current or future operations. There is a degree
of uncertainty attributable to the calculation and estimation of mineral resources and corresponding grades. Until ore is actually mined and
processed, mineral resources and grades must be considered as estimates only. In addition, the quantity of mineral resources may vary
depending on mineral prices. Any material change in resources or mineral resources, or grades or stripping ratios will affect the economic viability
of the Company’s projects.
Uncertainties and Risks Relating to Feasibility Studies
Feasibility studies are used to determine the economic viability of a deposit, as are pre-feasibility studies and preliminary assessments.
Feasibility studies are the most detailed and reflect a higher level of confidence in the reported capital and operating costs. Generally accepted
levels of confidence are plus or minus 15% for feasibility studies, plus or minus 25-30% for pre-feasibility studies and plus or minus 35-40% for
preliminary assessments. There is no certainty that the Phase II Feasability Study will be realized. While the Phase II Feasability Study is based
on the best information available to the Corporation, it cannot be certain that actual costs will not significantly exceed the estimated cost. While
the Corporation incorporates what it believes is an appropriate contingency factor in cost estimates to account for this uncertainty, there can
be no assurance that the contingency factor is adequate. Many factors are involved in the determination of the economic viability of a mineral
deposit, including the achievement of satisfactory mineral reserve estimates, the level of estimated metallurgical recoveries, capital and
operating cost estimates and estimates of future metal prices. In addition, ongoing mining operations at the Bloom Lake Mine are dependent on
a number of factors including, but not limited to, the acquisition and/or delineation of economically recoverable mineralization, favourable
geological conditions, seasonal weather patterns, unanticipated technical and operational difficulties encountered in extraction and production
activities, mechanical failure of operating plant and equipment, shortages or increases in the price of consumables, spare parts and plant and
equipment, cost overruns, access to the required level of funding and contracting risk from third parties providing essential services. Actual
operating results may differ from those anticipated in the Phase II Feasability Study. The Corporation’s operations may be disrupted by a variety
of risks and hazards which are beyond its control, including environmental hazards, industrial accidents, technical failures, labour disputes,
unusual or unexpected rock formations, flooding and extended interruptions due to inclement or hazardous weather conditions and fires,
explosions or accidents. There is no certainty that metallurgical recoveries obtained in bench scale or pilot plant scale tests will be achieved in
ongoing commercial operations. Capital and operating cost estimates are based upon many factors, including anticipated tonnage and grades
of ore to be mined and processed, the configuration of the ore body, ground and mining conditions, expected recovery rates of the metals from
the ore and anticipated environmental and regulatory compliance costs. Each of these factors involves uncertainties, and as a result, the
Corporation cannot give any assurance that the Phase II Feasability Study results will not be subject to change and revisions.
Dependence on the Bloom Lake Mine
The Company began generating revenues from the Bloom Lake Mine in April 2018, prior to which its mineral project was at an exploration or pre-
production stage. Therefore, it is subject to many risks common to comparable companies, including under-capitalization, cash shortages and
limitations with respect to personnel, financial and other resources as well as a lack of revenues. The Company has historically incurred
significant losses as it previously had no sources of revenue (other than interest income).
While the Company may invest in additional mining and exploration projects in the future, and is working towards the feasibility of a potential
Phase II expansion, the Bloom Lake Mine is currently the Company’s sole producing asset, providing all of the Company’s operating revenue and
cash flows. Consequently, a delay or any difficulty encountered in the operations at the Bloom Lake Mine would materially and adversely affect
the financial condition and financial sustainability of the Company. In addition, the results of operations of the Company could be materially and
adversely affected by any events which cause the Bloom Lake Mine to operate at less than optimal capacity, including, among other things,
equipment failure, adverse weather, serious environmental and safety issues, any permitting or licensing issues and any failure to produce
expected amounts of iron ore. See also "Liquidity/Financing Risk" above.
32 | P a g e
Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
16.Risk Factors (continued)
Government Regulation
Exploration, development and mining of minerals are subject to extensive federal, provincial and local laws and regulations governing acquisition
of mining interests, prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic
substances, water use, land use, land claims of aboriginal peoples and local people, environmental protection and remediation, endangered and
protected species, mine safety and other matters.
Potential Land Claims - First Nations Groups
The Company conducts its operations in the Province of Québec and in the Province of Newfoundland and Labrador, which areas are subject to
conflicting First Nations land claims. Aboriginal claims to lands, and the conflicting claims to traditional rights between aboriginal groups, may
have an impact on the Company’s ability to develop its properties. The boundaries of the traditional territorial claims by these groups, if
established, may impact the areas which constitute the Company’s properties. Mining licences and their renewals may be affected by land and
resource rights negotiated as part of any settlement agreements entered into by governments with First Nations.
Pursuant to section 35 of The Constitution Act of 1982, the Federal and Provincial Crowns have a duty to consult Aboriginal peoples and, in some
circumstances, a duty to accommodate. When development is proposed in an area to which an Aboriginal group asserts Aboriginal rights and
titles, and a credible claim to such rights and titles has been made, a developer may be required by the Crown to conduct consultations with
Aboriginal groups which may be affected by the project and, in some circumstances, accommodate them. The development and the operation
of the Company’s properties requires the conclusion of IBAs and/or other agreements with the affected First Nations. As a result of the IBAs or
of other agreements, the Company may incur significant financial or other obligations to affected First Nations.
On April 12, 2017, the Company, through QIO, and the band council, Innu of Takuaikan Uashat mak Mani-utenam entered into an IBA with respect
to operations at Bloom Lake. The IBA is a life-of-mine agreement and provides for real participation in Bloom Lake for the Uashaunnuat in the
form of training, jobs and contract opportunities, and ensures that the Innu of Takuaikan Uashat mak Mani-utenam will receive fair and equitable
financial and socio-economic benefits. The IBA also contains provisions which recognize and support the culture, traditions and values of the
Innu of Takuaikan Uashat mak Mani-utenam, including recognition of their bond with the natural environment.
The negotiation of any IBAs required in the future for other projects may also significantly delay the advancement of the properties. There can
be no assurance that the Company will be successful in reaching an IBA or other agreement with the Innu of Takuaikan Uashat mak Mani-utenam
or other First Nations groups who may assert Aboriginal rights or may have a claim which affects the CFLN Project, Quinto Claims or any of the
Company’s other projects.
No Assurance of Titles
The acquisition of title to mineral projects is a very detailed and time-consuming process. Although the Company has taken precautions to
ensure that legal title to its property interests is properly recorded in the name of the Company or, where applicable, in the name of its joint
venture partners, there can be no assurance that such title will ultimately be secured. Furthermore, there is no assurance that the interests of
the Company in any of its properties may not be challenged or impugned.
Permits and Licenses
The operations of the Company require licenses and permits from various governmental authorities. The Company believes that it presently
holds all necessary licenses and permits required to carry on with activities which it is currently conducting under applicable laws and regulations
and the Company believes it is presently complying in all material respects with the terms of such licenses and permits. However, such licenses
and permits are subject to change in regulations and in various operating circumstances. There can be no assurance that the Company will be
able to obtain all necessary licenses and permits required to carry out exploration, development and mining operations at its projects.
Environmental Risks and Hazards
The operations of the Company are subject to environmental regulations promulgated by government agencies from time to time. Environmental
legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain
mining industry operations, such as see page from tailings disposal areas, which would result in environmental pollution. A breach of such
legislation may result in the imposition of fines and penalties. In addition, certain types of operations require the submission and approval of
environmental impact assessments. Environmental legislation is evolving toward stricter standards, and enforcement, fines and penalties for
non-compliance are becoming more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for
companies and their directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to
reduce the profitability of operations.
33 | P a g e
Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
16.Risk Factors (continued)
Environmental Risks and Hazards (continued)
The Company's operation is subject to environmental regulation primarily by the Department of Environment and Conservation (Newfoundland
and Labrador) and Ministère du Développement durable, de l’Environnement et des Parcs (Québec). In addition, the Department of Fisheries &
Oceans (Canada) and the Department of the Environment (Canada) have an enforcement role in the event of environmental incidents.
Infrastructure and Reliance on Third Parties for Rail Transportation of the Company’s Iron Ore Concentrate
Some of the Company’s properties are located in relatively remote areas at some distance from existing infrastructure. Active mineral
exploitation at any such properties would require building, adding or extending infrastructure, which could add to time and cost required for mine
development. Mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. In order
to develop mines on its properties, the Company has entered into various agreements for various infrastructure requirements, including for rail
transportation, power and port access with various industry participants, including external service and utility providers. These are important
determinants affecting capital and operating costs. The Company has concluded agreements with the relevant rail companies necessary for the
transportation and handling of the Company’s production of Bloom Lake iron ore but disruptions in their services could affect the operation and
profitability of the Company. In addition, there is no certainty that the Company will be able to continue to access sources of power on
economically feasible terms for all of its projects and requirements and this could have a material adverse effect on the Company’s results of
operations and financial condition.
Reliance on Small Number of Significant Customers
The Company currently relies on a small number of significant customers in connection with the sale of its iron ore production. As a result of this
reliance on the limited number of customers, the Company could be subject to adverse consequences if any of these customers breaches their
purchase commitments.
Availability of Reasonably Priced Raw Materials and Mining Equipment
The Company will require a variety of raw materials in its business as well as a wide variety of mining equipment. To the extent these materials
or equipment are unavailable or available only at significantly increased prices, the Company’s production and financial performance could be
adversely affected. It is also expected that the required refurbishment at Bloom Lake will require significant financing.
Dependence on Outside Parties
The Company has relied upon consultants, engineers and others and intends to rely on these parties for development, construction and operating
expertise. Substantial expenditures are required to construct mines, to establish mineral reserves through drilling, to carry out environmental
and social impact assessments, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to
develop the exploration and plant infrastructure at any particular site. If such parties’ work is deficient or negligent or is not completed in a timely
manner, it could have a material adverse effect on the Company.
Reliance on Information Technology Systems
The Company’s operations are dependent upon information technology systems. These systems are subject to disruption, damage or failure
from a variety of sources. Failures in our information technology systems could translate into production downtimes, operational delays,
compromising of confidential information or destruction or corruption of data. Accordingly, any failure in our information technology systems
could materially adversely affect our financial condition and results of operation. Information technology systems failures could also materially
adversely affect the effectiveness of our internal controls over financial reporting.
Cybersecurity Threats
The Company’s operations depend, in part, on how well we and our suppliers protect networks, technology systems and software against
damage from a number of threats, including viruses, security breaches and cyber-attacks. Cybersecurity threats include attempts to gain
unauthorized access to data or automated network systems and the manipulation or improper use of information technology systems. The
failure of any part of our information technology systems could, depending on the nature of any such failure, materially adversely impact our
reputation, financial condition and results of operations. Although to date the Company has not experienced any material losses relating to
cyber-attacks or other information security breaches, there can be no assurance that we will not incur such losses in the future. The risk and
exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As cyber threats
continue to evolve, the Company may be required to expend additional resources to continue to modify or enhance protective measures or to
investigate and remediate any system vulnerabilities.
34 | P a g e
Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
16.Risk Factors (continued)
Litigation
All industries, including the mining industry, are subject to legal claims, with and without merit. The Company has in the past been, currently is,
and may in the future be, involved in various legal proceedings. While the Company believes it is unlikely that the final outcome of these legal
proceedings will have an adverse material effect on the Company's financial condition and results of operation, defense costs will be incurred,
even with respect to claims that have no merit. Due to the inherent uncertainty of the litigation process, there can be no assurance that the
resolution of any particular or several combined legal proceedings will not have a material adverse effect on the Company’s financial condition
and results of operation.
OTHER RISKS
Volatility of Stock Price
In recent years, the securities markets in Australia and Canada have experienced a high level of price and volume volatility, and the market
prices of securities of many companies have experienced wide fluctuations in price which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. There can be no assurance that continual fluctuations in price will not
occur. It may be anticipated that any quoted market for the Ordinary Shares will be subject to market trends generally, notwithstanding any
potential success of the Company in creating revenues, cash flows or earnings and that the value of the Ordinary Shares will be affected by
such volatility.
Internal Controls and Procedures
Management of the Corporation has established processes to provide them with sufficient knowledge to support representations that they have
exercised reasonable diligence to ensure that (i) the financial statements of the Corporation do not contain any untrue statement of material
fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances
under which it is made, as of the date of and for the periods presented thereby, and (ii) the financial statements of the Corporation fairly present
in all material respects the financial condition, results of operations and cash flow of the Corporation, as of the date of and for the periods
presented. The Corporation will file certifications, signed by the Corporation's CEO and CFO, upon filing of the Annual Information Form. In those
filings, the Corporation’s CEO and CFO will certify, as required by National Instrument 52-109, the appropriateness of the financial disclosure,
the design and effectiveness of the Corporation’s disclosure controls and procedures and the design and effectiveness of internal controls over
financial reporting. The Corporation’s CEO and CFO also certify the appropriateness of the financial disclosures in the Corporation’s interim
filings with securities regulators. In those interim filings, the Corporation’s CEO and CFO also certify the design of the Corporation’s disclosure
controls and procedures and the design of internal controls over financial reporting. The Corporation’s certifying officers are responsible for
ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in the certificate.
Insurance and Uninsured Risks
The Company currently maintains insurance to protect it against certain risks related to its current operations in amounts that it believes are
reasonable. However, the Company is unable to maintain insurance to cover all risks at economically feasible premiums, and in certain cases,
insurance coverage may not be available or may not be adequate to cover any resulting liability (such as matters relating to environmental
pollution). Accordingly, insurance maintained by the Company does not cover all of the potential risks associated with its operations. In addition,
no assurance can be given that the current insurance maintained by the Company will continue to be available at economically feasible
premiums or that it will provide sufficient coverage for any future losses. Should liabilities arise as a result of insufficient or nonexistent
insurance, any future profitability could be reduced or eliminated, and delays, increases in costs and legal liability could result, each of which
could have a material adverse impact upon the Company.
Potential Conflicts of Interest
The directors and officers of the Company may serve as directors or officers of other public resource companies or have significant
shareholdings in other public resource companies. Situations may arise in connection with potential acquisitions and investments where the
other interests of these directors and officers may conflict with the interests of the Company. In the event that such a conflict of interest arises
at a meeting of the directors of the Company, a director is required to disclose the conflict of interest and to abstain from voting on the matter.
Dependence on Management and Key Personnel
The Company is dependent on the services of key executives, including a small number of highly skilled and experienced executives and
personnel. The Company’s development to date has largely depended, and in the future will continue to depend, on the efforts of key
management and other key personnel to develop its projects. Loss of any of these people, particularly to competitors, could have a material
adverse impact upon the Company.
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Champion Iron Limited
Directors’ Report – Financial Review
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
16.Risk Factors (continued)
Competitive Conditions
There is aggressive competition within the mineral exploration and mining industry for the discovery and acquisition of properties considered to
have commercial potential, and for management and technical personnel. The Company’s ability to acquire projects in the future is highly
dependent on its ability to operate and develop its current assets and its ability to obtain or generate the necessary financial resources. The
Company will compete with other parties in each of these respects, many of which have greater financial resources than the Company.
Accordingly, there can be no assurance that any of the Company’s future acquisition efforts will be successful, or that it will be able to attract
and retain required personnel. There is no assurance that the Company will continue to be able to compete successfully with its competitors in
acquiring such properties or prospects.
Dilution and Future Sales
The Company may from time to time undertake offerings of its Ordinary Shares or of securities convertible into Ordinary Shares, and may also
enter into acquisition agreements under which it may issue Ordinary Shares in satisfaction of certain required payments. The increase in the
number of Ordinary Shares issued and outstanding and the prospect of the issuance of Ordinary Shares upon conversion of convertible
securities may have a depressive effect on the price of Ordinary Shares. In addition, as a result of such additional Ordinary Shares, the voting
power and equity interests of the Company’s existing shareholders will be diluted. In addition, sales of a large number of Ordinary Shares in the
public markets, or the potential for such sales, could decrease the trading price of the Ordinary Shares and could impair the Company’s ability
to raise capital through future sales of Ordinary Shares.
Joint Ventures and Option Agreements
From time to time several companies may participate in the acquisition, exploration and development of natural resource properties through
options, joint ventures or other structures, thereby allowing for their participation in larger programs, permitting involvement in a greater number
of programs and reducing financial exposure in respect of any one program. It may also be the case that a particular company will assign all or
a portion of its interest in a particular program to another of these companies due to the financial position of the company making the
assignment. In determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it, the
directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time. In some of those
arrangements, failure of a participant to fund its proportionate share of the ongoing costs could result in its proportionate share being diluted
and possibly eliminated.
From time to time, the Company may enter into option agreements and joint ventures as a means of gaining property interests and raising
funds. Any failure of any option or joint venture partner to meet its obligations to the Company or other third parties, or any disputes with respect
to third parties’ respective rights and obligations, could have a material adverse effect on such agreements. In addition, the Company may be
unable to exert direct influence over strategic decisions made in respect of properties that are subject to the terms of these agreements.
36 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
REMUNERATION REPORT
Unless otherwise noted, the following information is for the Company’s last completed financial year which ended March 31, 2019 and, since the
Company had one or more subsidiaries during that year, is disclosed on a consolidated basis. The information in the Remuneration Report has
been audited pursuant to section 308 (3C) of the Corporations Act (Cth) of Australia (“Corporations Act”). All monetary amounts are disclosed in
Canadian dollars unless expressly stated otherwise.
In compliance with Section 300A of the Corporation Act and Canadian National Instrument 51-102 – Continuous Disclosure Obligations, this
Remuneration Report covers Key Management Personnel (“KPM”) including Named Executive Officers (“NEO”) who were actively employed by
the Company as at the end of the fiscal year (March 31, 2019).
KPM is defined as “those persons having authority and responsibility for planning directing and controlling the activities of the entity, directly or
indirectly, including any director (whether executive or otherwise)” of Champion. NEO means each of the following individuals:
a) The Chief Executive Officer (“CEO”) of the Company or each individual who acted in a similar capacity for any part of the most recently
completed financial year;
b)
the Chief Financial Officer (“CFO”) of the Company or each individual who acted in similar capacity for any part of the most recently
completed financial year;
c) each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar
capacity, other than the Chief Executive Officer and Chief Financial Officer, at the end of the most recently completed financial year
whose total compensation was, individually, more than $150,000, as determined in accordance with applicable law at the end of that
financial year; and
d) each individual who would be a named executive officer under paragraph (c) but for the fact that the individual was not an executive
officer of the Company, and was not acting in a similar capacity, at the end of that financial year.
The following persons were the KPM of the Company, and the NEOs of the Company where indicated, during the financial year ended March 31,
2019
Name
Michael O’Keeffe (NEO and KPM)
Natacha Garoute (NEO and KPM)
Miles Nagamatsu (NEO and KPM)
David Cataford (NEO and KPM)
Beat Frei (NEO and KPM)
Gary Lawler (KPM)
Michelle Cormier (KPM)
Jyothish George (KPM)
Andrew J. Love (KPM)
Wayne Wouters (KPM)
Position
Appointment Date
Resignation Date
Executive Chairman and CEO(1)
CFO
Former CFO
COO(2)
Former VP Business Development and
Finance
Director
Director
Director
Director
Director
August 13, 2013
August 13, 2018
March 31, 2014
March 20, 2017
-
April 9, 2014
April 11, 2016
October 16, 2017
April 9, 2014
November 1, 2016
-
-
August 13, 2018
-
September 6, 2018
-
-
-
-
-
(1)
(2)
On April 1, 2019, Mr. O’Keeffe stepped down as CEO and remains Executive Chairman of the Board.
On April 1, 2019, Mr. Cataford was appointed CEO, replacing Mr. O’Keeffe.
The term "executives" refers to the Company's NEOs and the other members of the Company's senior management team from time to time.
37 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
A. Role of Remuneration and Nomination Committee
The role of the Remuneration and Nomination Committee is to advise the Board on remuneration for senior executives and directors. As at March
31, 2019, the Remuneration and Nomination Committee was comprised of Gary Lawler (Chairman), Andrew J. Love and Michelle Cormier, each
of whom is an independent director and has direct experience that is relevant to his or her responsibilities in executive compensation as set out
below:
Gary Lawler (Chairman) - Mr. Lawler has over 30 years’ experience as a practicing corporate lawyer and has been a partner in a number of leading
Australian law firms. Mr. Lawler has been a director of, and involved in compensation matters for, numerous companies throughout the years.
Andrew J. Love - Mr. Love is a Chartered Accountant with more than 30 years of experience in corporate recovery and reconstruction in Australia.
Mr. Love has been an independent company director of a number of companies over a 25-year period.
Michelle Cormier - Mrs. Cormier is a senior-level executive with experience in management including financial management, corporate finance,
turnaround and strategic advisory situations and human resources.
The Remuneration and Nomination Committee makes recommendations to the Board on the executive remuneration framework and the
remuneration level of executives including all awards under the long-term incentive (“LTI”) plan, and the short-term incentive (“STI”) award and
remuneration levels for directors. The aim is to ensure that remuneration policies align with the long-term objectives of the Company, are fair
and competitive and reflective of generally accepted market practices of its peers.
B. Remuneration Philosophy & Approach
The objective of Champion’s executive remuneration program and strategy is to attract, retain, and motivate talented executives and provide
incentives for executives to create sustainable shareholder value over the long term. To achieve this objective, executive remuneration is
designed and based on the following principles:
1. To align with Champion’s business - reflect the Company’s performance and transition from a mine exploration and development
company to an iron ore producing company;
2. Pay competitively - reflect each executive’s performance, expertise, responsibilities and length of service to the Company and to set
overall target remuneration to ensure it remains competitive;
3. Pay for performance - align with Champion’s desire to create a performance culture and create direct tangible relationships between
pay and performance;
4. To align with Shareholder interests - align the interests of executives with those of shareholders through the use of awards which
increase in value when the Company’s share price performance exceeds that of its peers and reduces in value when it trails the
performance of its peers; and
5. Corporate governance - continually review and, as appropriate for Champion, adopt executive remuneration practices that align with
current market practices.
38 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
The Remuneration and Nomination Committee has implemented a compensation regime that is designed to reflect the above objectives.
Executive remuneration consists of a combination of salary, annual performance bonus awards or short-term incentives and longer-term equity-
based incentives. A foundation principle of the Company’s remuneration philosophy is the promotion of a strong “performance culture” within
senior management.
In determining the level of annual performance bonus awards, the Remuneration and Nomination Committee takes into account the individual
performance of each executive and overall corporate performance against pre-determined performance objectives and metrics. In setting
equity-based incentive awards, the Remuneration and Nomination Committee establishes time-based and performance-based vesting criterion.
If it is deemed appropriate, the Remuneration and Nomination Committee has the authority to seek advice from outside consultants. For further
discussion, please see “Elements of Executive Remuneration” discussion below. Based on these assessments and within the context of pay for
performance principles, the Remuneration and Nomination Committee makes its recommendation to the Board for approval. These
recommendations may reflect factors and considerations other than those indicated by market data or provided by advisors, including a
consideration of prevailing economic conditions – both on a corporate level and on a national and international level – industry norms for such
awards and other elements of a NEOs compensation.
The Remuneration and Nomination Committee and the Board as a whole has discretion to reward above the noted plan parameters when an
individual or team has made an exceptional contribution to the performance of the Company.
The Remuneration and Nomination Committee has considered the implications of the risks associated with the Company’s remuneration
program by designing an executive remuneration structure in which a significant portion of overall remuneration is subject to the achievement
of certain milestones, including: (i) criteria relating to annual performance, in the case of bonus payments, (ii) vesting periods for restricted share
units (“RSUs”) , which vest over three years and (iii) the achievement of performance criteria for performance share units over a period of three
years (“PSUs”).
C. External Advice
Following the fiscal year 2018 annual and special meeting (the “2018 Meeting”), the Board engaged Mercer Canada Limited (“Mercer”) to provide
an independent, third party analysis of the remuneration levels and practices for the Company’s executive team as well as the remuneration for
the Board of Directors. In order to construct market-competitive remuneration arrangements for Champion’s executive team, as well as the
Company’s independent directors, Mercer benchmarked Champions remuneration against a group of relevant peer companies at similar stages
of development, operating in the same regional geography and of similar size.
Mercer received a compensation of $119,434 before sales taxes for the advisory services (executive compensation-related fees) rendered in
connection with establishing their recommendation on the remuneration program for NEOs and directors for the financial year ended March 31,
2019 and did not receive any compensation for the fiscal year ended March 31, 2018.
D. Elements of Executive Remuneration
As is the prevailing practice in the mineral exploration and mining industry, remuneration of the NEOs is comprised of four components:
a)
b)
c)
d)
base salary (Fixed);
STI in the form of annual bonus awards (At-Risk);
LTI in the form of equity-based compensation (At-Risk); and
personal benefits and perquisites (Fixed).
The Remuneration and Nomination Committee determined the following elements to be key to executive compensation for the fiscal year 2019.
39 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2019 Executive Performance Metrics and Incentives:
Overall Company Objective:
(1) To achieve operational performance and continue its organic growth and
managing dilution to shareholders.
Key Deliverables:
The executive team needed to:
(2) deliver operational performance while being a low-cost producer and ensuring
strict adherence to safety culture; and
(3) pursue the Company’s organic growth, with the increase ownership in the Bloom
Lake Mine, its flagship asset.
(4) The target bonus was set as a percentage of each NEO’s base salary. The actual
bonus was dependent on performance against agreed baseline benchmarking.
Individual benchmarks were agreed upon with each employee to reflect key areas
of their focus / responsibility.
(5) The Company utilized time vesting RSU grants to incentivize and retain the
executive team.
(6) The Company utilized PSU grants, based in part on performance against a set of
peer companies.
Short-term Incentives:
(Annual Bonus)
Long-term Incentives:
(RSUs)
Long-term Incentives:
(PSUs)
i)
Base Salary
The base salary for each NEO is reviewed annually by the Remuneration and Nomination Committee, with recommendations made to the Board
for final approval. The base salary for each NEO is based on relevant marketplace information, experience, past performance and level of
responsibility. For a fully-qualified incumbent in a given position, Champion generally targets salary at around the median of the peer group. The
Company may pay above or below this target to reflect each incumbent’s relative experience or performance versus the market, or to reflect
competitive market pressures for a given skill set.
2019 Base Salary
The NEO’s base salaries are intended to be competitive with those paid in the iron ore mining industry and align with the Company’s performance.
The 2019 base salary reflects the adjustments required to the NEO base salary to reflect Champion transitioning from a development stage
company to an iron ore producer.
The 2019 salary for each NEO is set out in a table under the heading “2019 Remuneration Awards for the Named Executive Officers”.
ii)
Short-term Incentives (Annual Bonus)
Target bonus levels (as a percentage of salary) are established to achieve total cash compensation (salary + bonus) at or below the median of
the market when performance is at target levels. In determining annual bonus awards, Champion aims to achieve certain strategic objectives
and milestones. An annual target performance bonus award is set for each NEO. The actual performance bonus paid in any year will be based
on the performance of the NEO against pre-determined Key Performance Indicators (“KPIs”). KPIs will vary for each NEO and each of the KPI will
reflect key deliverables for a particular year.
40 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2019 Bonus Awards
For 2019, the Board set a target bonus for each NEO as follows, based on Mercer’s recommendation:
NEO
Michael O’Keeffe
David Cataford
Natacha Garoute
Target Bonus (% salary)
100%
100%
60%
For the fiscal year ended March 31, 2019, the following financial and operating KPIs were established and evaluated:
(7) 50% of total bonus - Financial performance objectives (“FPO”) set against the fiscal year ended March 31, 2019 budget:
o EBITDA 2
o
Free cash flow (“FCF”) 3
(8) 25% of total bonus: based on meeting the production volume from restart to end of fiscal year ending March 31, 2019 of 7,357,000 dmt at a
total cash cost per ounce sold of $49.79/dmt;
(9) 25% of total bonus: based of overall performance imperatives which included transitioning successfully from a development stage company
to an iron ore producer while meeting health, safety and community targets including ensuring appropriate systems are in place, no fatalities
and minimal time lost due to injuries (below 2017 APSM) as well as no harmful event to the environment.
The Board also determined that that the Company's FPO needed to be at least equal to 90% of the base amounts for any amount of the 2019
Bonus award to be paid in respect of these KPIs.
The Board also determined that if the Company’s FPOs were to exceed 125% of the base amounts, the target bonus for Ms. Garoute would be
increased from 60% to 75%. The Company’s FPOs exceeded the base amount by more than 125%.
The following table sets out the tabulations for 2019 NEO bonus awards.
NEO
Michael O’Keeffe
David Cataford
Natacha Garoute
Target
Bonus
(% salary)
100%
100%
60%
Weighted
Score
100%
100%
125%
Actual
Bonus
(% salary)
100%
100%
75%
Annual
Bonus
$550,000
$500,000
$281,250
In addition to the bonus awarded for the fiscal year ended March 31, 2019, the Board of Directors approved a one time special cash bonus of
$1,262,500 for Mr. O’Keeffe as a recognition of salary foregone by Mr. O’Keeffe during the formative years of the Company from 2014 to 2018,
as it evolved from an exploration company to an iron ore producer.
iii)
Long-term incentive - Equity-based Incentives
Equity-based incentives are a particularly important component of compensation in the mining industry, and are a critical component of the
Company’s remuneration philosophy. These plans are designed to align the interests of the NEOs and other participating employees with the
interests of shareholders by linking a component of compensation to the long-term performance of the ordinary shares of the Company
(the “Shares”). Awards under these arrangements for the NEOs are structured to create total direct compensation (i.e., the combination of salary
+ bonus + equity-based incentives) with at or above median market positioning, or higher, when performance warrants.
2 EBITDA is intended to provide additional information to investors and does not have any standardized definition under IFRS. The measure is calculated based on the cash generating
subsidiary’s net income to which income tax expenses, net finance costs and depreciation expenses are added. It excludes non-cash working capital and is not necessarily indicative
of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate EBITDA differently.
3 FCF does not have any standardized definition under IFRS. For the fiscal year ended March 31, 2019, the measure was calculated based on the cash generating subsidiary’s operating
cash flow before working capital adjustment. Other companies may calculate FCF differently.
41 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2018 Omnibus Plan
At the Company’s Annual General Meeting held on August 18, 2018, the Company’s Shareholders approved Champion Iron Limited’s 2018
Omnibus Incentive Plan (“the New Plan”). The previous plan had been in place since October 21, 2013 and had been amended and approved by
Shareholders on August 29, 2014 and August 18, 2017 (“The Previous Plan”). According to the New Plan the following awards can be granted:
stock options, restricted share units (“RSUs”), performance share units (“PSUs”), deferred share units (“DSUs”), or other share-based awards
(“Other Awards”) such as Share Rights. A maximum of 10% of the shares issued and outstanding at any time are reserved for issuance under the
New Plan.
Stock Options
At the discretion of the Board, options may be granted under the New Plan to NEOs taking into account a number of factors, including the amount
and term of options previously granted, base salary and bonuses and competitive market factors. The Board has the ability establish the expiry
date for each stock option, provided that in no event will the expiry date be later than the date which is ten years following the grant date.
Typically, stock options granted by the Board vest one third (1/3) on each of the grant date and 12 and 24-month anniversaries of grant and are
issued with a three-year term before expiring.
2019 Option Grants
A breakdown of the 2019 option grant for each NEO is shown in a table under the heading “2019 Remuneration Awards for the Named Executive
Officers”.
The following table provides the annual burn rate associated with the Previous Plan and the New Plan for each of the Company’s three most
recent fiscal years:
Equity Compensation
Plan
Fiscal year
Number of securities granted
under the plan(1)
Weighted average
number of securities
outstanding(2)
Annual burn rate(3)
New and previous
Plans
Ended March 31, 2019
Previous Plan
Ended March 31, 2018
Previous Plan
Ended March 31, 2017
2,051,946
420,677,000
5,000,000
8,000,000
398,125,332
380,212,024
0.49%
1.26%
2.10%
Notes:
(1)
(2)
(3)
(4)
Corresponds to the number of dilutives securities granted under the Previous Plan or the New Plan in the applicable fiscal year.
The weighted average number of securities outstanding during the period corresponds to the number of securities outstanding at the beginning of the period, adjusted by the
number of securities bought back or issued during the period multiplied by a time-weighting factor.
The annual burn rate percent corresponds to the number of dilutives securities granted under the New Plan or the Previous Plan divided by the weighted average number of
securities outstanding.
The New Plan came into effect on August 17, 2018.
Restricted and Performance Share Units
At the August 17, 2018 Annual and Special meeting of Shareholders, the shareholders of Champion approved the proposed 2018 Omnibus
Incentive Plan (“the New Plan” or “New Omnibus Plan”). Under the New Plan, Restricted Share Units (“RSU”) as well as Performance Share Units
(“PSU”) may be granted at the discretion of the Board as a long-term incentive to executives taking into account a number of factors, including
the amount and term of units previously granted, base salary and bonuses and competitive market factors. Granted RSUs and PSUs are notional
shares that have the same value as Shares and earn dividend equivalents as additional units, at the same rate as dividends paid on the Shares.
No dividend equivalents will vest unless the associated RSUs and PSUs also vest.
RSU means an Award Payout that generally becomes vested, if at all, following a period of continuous employment of the Recipient with the
Company and satisfaction of other such conditions to vesting, if any, as may be determined by the Board from time to time. The vesting
conditions for each RSU are established by the Board at the time of grant, but if no specific conditions are set, the vesting and payable date will
be December 31 of the third calendar year following the grant date.
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Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
PSU means a share unit on the terms contained in the New Plan, that generally becomes vested, if at all, subject to the attainment of certain
performance conditions and satisfaction of other such conditions to vesting, if any, as may be determined by the Board from time to time.
The number of RSUs and PSUs granted is based on the volume weighted average price per Common Share traded on the Toronto Stock Exchange
over the 5 trading days immediately preceding the grant date.
Upon vesting each holder of RSUs and PSUs will receive for each vested RSU or PSU one share in the Company which may be issued or acquired
on market or the cash equivalent of one share in the Company based on the market price of the Company's shares at the time. In the case of
holders who are directors of the Company and who wish to receive shares for their RSUs and PSUs, the shares must be acquired on ASX or TSX.
In the event of a Change of Control (as defined in the New Plan) the Board may, in its sole and absolute discretion and without the need for the
consent of any participant, cause any or all outstanding stock options, RSUs and PSUs to become vested or immediately exercisable. The Board
may also take other actions as defined within the New Plan. The New Plan contains detailed provisions which deal with the vesting or forfeiture
of unvested options, RSUs and PSUs upon death, disability, termination or retirement or resignation of the holder. The Board deems equity awards
as a valuable retention and incentive mechanism for senior management at this critical stage of the Company’s development.
2019 RSU and PSU (”2019 LTIP”) Grant
During the fiscal year ended March 31, 2019, the Board did not grant RSUs and PSUs to NEOs for long term incentive as respect to KPI for the
year. The issuance for the fiscal year ended March 31, 2019, was granted on April 30, 2019 once the preliminary internal financial results of the
Company were available. As for the short-term incentive, a target bonus percentage approach for long-term incentive was adopted with the
following percentages based on Mercer’s recommendations:
NEO
Michael O’Keeffe
David Cataford
Natacha Garoute
Target Bonus
(% salary)
125%
100%
100%
Annual
Equity Awards
321,261
233,644
175,233
RSU
128,504
93,457
70,093
PSU
192,757
140,186
105,140
The 2019 LTIP grant consisted of the following components:
•
•
RSU Grant (40% of LTIP): vesting equally over a 3-year period and subject to no performance hurdles; and
PSU Grant (60% of LTIP): measured against certain performance conditions over the 3 years following the date of grant and which vest
at the end of that 3-year period subject to the key performance measures having been met.
The board has established the following Key Performance Measures for the PSUs.
•
•
•
40% of the grant based on the performance of the Company’s share price (or Total Shareholder Return (“TSR”)) relative to a peer group,
between the date of grant and March 31st, 2022. The entire (100%) of the TSR portion of the PSUs granted will vest if the Company's TSR
exceeds the 75% percentile of the peer group and 50% of the TSR portion of the PSUs granted will vest if the Company's TSR is at the
50% percentile of the peer group. Proportional vesting will occur between the 50% and 75% percentiles. No vesting will occur if
Champion's TSR is less than the 50% percentile of the peer group.
40% of the grant based on cash flow return on capital employed compared to internal targets set by the company and measured over
a 3-year period by dividing EBITDA by the Company's equity (including options and warrants) plus long-term debt for the year in
question. If the ratio equals or exceeds the corresponding ratio based on the Company's budget for the year in question, 100% of that
portion of the PSUs grant will vest If the ratio is less than the ratio based on the Company's budget for the year in question a reduced
percentage of this portion of the PSUs grant will vest. No vesting will occur if the ratio is less than 75% of the ratio based on the
Company's budget for the year in question.
20% of the grant based on the implementation of the group's strategic initiatives measured over a 3-year period.
The value of the LTI plan and related grants are reported in a table below under the heading “Summary Remuneration Table”, irrespective of
whether the performance criteria for vesting had been achieved during such period. The portion of any such LTI awards that vests during any
year is shown in a second table below (see “Incentive Plan Awards – Value Vested or Earned During the Year”).
43 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
iv)
Retirement plan contributions and personal benefits
Champion adopted two different pension plans for its employees, including the NEOs effective as of April 1, 2017 as well as a non-registered
savings plan. The employees of Québec Iron Ore Inc. are eligible to participate in a defined contribution pension plan while the employees of
Champion Iron Mines Limited are eligible to participate in a simplified retirement and savings plans. Personal group health and life insurance
benefits provided to the NEOs are available to all permanent full-time employees of the Company. At the discretion of the Board and based on
market-prevalent practices, other perquisites may be provided to NEOs in relation to the specific office held by each NEO.
Eligibility
Participation
Contributions
Maximum Contributions
Vesting
Locking-in
Transfers from other plans
upon start of employment for all employees
Full-time employees: compulsory
Employee 3% of salary
Additional contributions permitted
Employer: 6% of salary and additional employee’s contributions matched from
100% to 200% based on age plus years of service.
18% of salary, up to a maximum of $26,500 in 2018 within the pension fund or
retirement and saving plan, excessed in non-registered savings plan
Immediate
Yes, except for employee voluntary contributions
Permitted
The following table lays out, for each NEO, the accumulated value at start of fiscal year, the compensatory value and the accumulated value at
the end of the fiscal year ended March 31, 2019.
Name
Michael O’Keeffe
David Cataford
Natacha Garoute
Accumulated Value
at Start of Year
45,000
60,000
-
Employer’s
contribution
Employee’s
contribution
Accumulated Value
At Year End
33,000
48,750
22,969
16,500
31,200
13,125
94,500
139,950
36,094
2019 Remuneration Awards received by the Named Executive Officers
Annual base salary, bonus, PSU grants, RSU grants and option granted during the year and for the 2019 KPI were as follows. The PSU and RSU
grants with respect to the fiscal year ended March 31, 2019, were granted on April 30, 2019.
Name
Michael O’Keeffe (1)
CEO
Natacha Garoute (2)
CFO
Miles Nagamatsu (2)
CFO
David Cataford (3)
COO
Annual Base
Salary
($)
Bonus
($)
Total Option Grant
(#)
Total RSU Grant
(#)
Total PSU Grant
(#)
550,000
550,000
751,900
128,504
192,757
375,000
281,250
375,434
232,217
105,140
63,000
-
-
-
-
500,000
500,000
500,000
93,457
140,186
Beat Frei(4)
VP Bus. Dev & Head of Finance
226,042
-
-
-
-
(1)
(2)
(3)
(4)
751,900 share rights were approved by shareholders at the Annual and special meeting in August 2018 for Mr. O’Keeffe.
Mrs. Garoute was appointed CFO of the Company on August 13, 2018 on the date of Mr. Nagamatsu’s resignation. In respect of her appointment, Ms. Garoute was granted
375,434 stock options and 162,124 RSUs. The 162,124 RSUs were granted on April 15, 2019, while 200,932 stock options were granted on September 14, 2018 and 174,502
on April 3, 2019. The remaining RSU’s totaling 70,093 and PSU’s were granted in relation to the fiscal year end KPI.
Mr. Cataford was granted 500,000 options in June 2018 with respect to the fiscal tear end 2018 KPI.
Mr. Frei ceased to be VP Bus. Dev. and & of Finance on September 6, 2018. According to the Previous Plan, the 500,000 options granted during the fiscal year ended March
31, 2019 were cancelled 6 months after his departure. He did not receive any bonus for the fiscal year ended March 31, 2019 nor LTI in the form of equity awards.
44 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
In addition to the bonus awarded for the fiscal year ended March 31, 2019, the Board of Directors approved a one-time special cash bonus of
$1,262,500 for Mr. O’Keeffe as a recognition of salary foregone by Mr. O’Keeffe during the formative years of the Company from 2014 to 2018 as
it evolved from an exploration company to an iron ore producer.
Further information pertaining to the NEOs Remuneration for the past three fiscal years is found in the section, “Tabular Remuneration Disclosure
for the Named Executive Officers - Summary Remuneration Table”, below.
Tabular Remuneration Disclosure for the Named Executive Officers
Summary Remuneration Table
The following table discloses a summary of remuneration earned by each of Champion’s NEOs for each of the three most recently completed
financial years ended March 31, 2017, March 31, 2018 and March 31, 2019. As the long-term incentive equity award related for the fiscal year
ended March 31, 2019 were granted on April 30, 2019, the value of these long-term incentives is not included in the following table.
Further information pertaining to the NEOs LTI Remuneration for the fiscal year 2019 is presented in the section, “2019 Remuneration Awards
for the Named Executive Officers”, above.
Name and
Principal Position
Michael O’Keeffe
CEO
Natacha Garoute
CFO
Miles Nagamatsu
CFO
David Cataford
COO
Beat Frei(7)
VP Business Dev
and Finance
Year
2019
2018
2017
2019
2019
2018
2017
2019
2018
2017
2019
2018
2017
Share-
based
Awards(1)
($)
1,000,027
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Salary
($)
550,000
500,000
252,804
234,275(4)
63,000(5)
126,000
124,500
500,000
400,000
253,333
226,042
350,000
240,000
Option-
based
Awards(2)
($)
Nil
1,123,922
514,584
114,531(4)(i)
Nil
Nil
Nil
350,000(6)
437,500
280,000
Nil
879,722(7)(i)
366,668
Non-Equity
incentive plan
compensation
Long-
term
incentive
plans
($)
Nil
Nil
Nil
Nil
Annual
incentive
plans
($)
550,000
Nil
Nil
281,250
Nil
Nil
Nil
500,000
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Pension
Value
($)
33,000
Nil
Nil
22,969
All
Other
Remuneration
($)
1,288,293(3)(i)
29,125(3)(ii)
69,661(3)(iii)
78,814(4)(ii)
Nil
Nil
Nil
48,750
Nil
Nil
Nil
Nil
7,416(5)(i)
97,410(5)(ii)
12,557
1,671,221(6)(i)
88,033(6)(ii)
598,174(7)(ii)
3,065,998(7)(iii)
165,856(7)(iv)
Total
($)
3,421,320
1,653,047
837,049
731,839
63,000
133,416
221,910
1,411,307
2,508,721
621,366
824,216
4,295,720
772,524
%
At risk
83%
70%
70%
54%
0%
0%
0%
61%
84%
59%
73%
92%
69%
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Share based awards consists of RSUs, PSUs, which are subject to vesting criteria, as well as Share rights. RSUs and PSUs related to the fiscal year ended March 31, 2019
performance were granted on April 30, 2019. The Share-based awards value is based on the fair market value of the stock price at the time of the grant.
Option-based awards represent the fair value of stock options granted or recognized in the year under the Company’s New Plan or Previous Plan. Grant date fair value
calculations for option grants as well as Share Rights issued other the New Plan are based on the Black-Scholes Option Price Model. Option-pricing models require the use of
highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value
estimates and therefore, in management’s opinion, existing models do not necessarily provide a reliable measure of the fair value of the Company’s option-based awards.
(i) Of this amount, $1,262,500 represents a special bonus awarded to Mr. O’Keeffe for recognition of salary foregone during the formative years of the Company as the
Company moved from an exploration company to a company in production. (ii) Includes non-monetary compensation in the amount of $26,388 and $2,797 paid to a
superannuation on behalf of the NEO. (iii) Includes non-monetary compensation in the amount of $52,020 and $17,641 paid to a superannuation on behalf of the NEO.
Mrs. Garoute was appointed CFO of Champion on August 13, 2018 and did not earn any remuneration from Champion prior to such date. (i) Upon joining the Company,
Mrs. Garoute was awarded stock options with a value of $250,000 and 200,932 stock options were granted on September 14, 2018 for a value of $114,531. On April 15, 2019,
Mrs. Garoute was granted 174,502 stock options and 151,863 RSUs. (ii) Includes a signing bonus of $75,000.
Mr. Nagamatsu resigned as the CFO of the Company on August 13, 2018. (i) Includes on-monetary compensation. (ii) Includes $90,000 in termination payments to a company
controlled by the NEO, and $7,410 in non-monetary compensation.
The option-based awards for Mr. Cataford represent the fair value of the 500,000 stock options granted in June 2018 with respect to the fiscal year ended March 31, 2018.
The other remuneration earned by Mr. Cataford included (i) the payment of a $1,660,000 bonus, $11,221 in non-monetary compensation. (ii) Includes the payment of a $75,000
bonus, $13,033 in non-monetary compensation.
Mr. Frei ceased being the VP business development and finance on September 6, 2019. All amounts have been or will be paid to a company controlled by Mr Frei. (i) Option-
based awards represent the fair value of the 500,000 stock options granted in June 2018 with respect to the fiscal year ended March 31, 2018. (ii) Includes termination fees
totaling $570,000 as well as non-monetary compensation totaling $28,174. (iii) Includes the payment of a $3,000,000 bonus and $65,998 in non-monetary compensation.
(iv) Includes the payment of a $100,000 bonus and $65,856 in non-monetary compensation.
45 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
Outstanding Share-Based Awards and Option-Based Awards
The following table sets out the outstanding option-based and share-based awards for NEOs as at March 31, 2019, the end of the Company’s
most recently completed financial year.
Option-based Awards
Number of
securities
underlying
unexercised
options
(#)(1)
3,000,000
Option
exercise
price
($)
0.20
Value of
unexercised
in-the-
money
options
($)(1)
5,280,000
Option
expiration date
(M/D/Y)
April 11, 2020
200,932
1.24
Sept. 14, 2021
144,471
Nil
Nil
Nil
Nil
2,000,000
500,000
500,000
Nil
0.20
1.00
1.33
Nil
Apr. 11, 2020
May 25, 2020
June 24, 2021
Nil
3,520,000
480,000
315,000
Nil
Name
Michael O’Keeffe
CEO
Natacha Garoute(3)
CFO
Miles Nagamatsu(3)
CFO
David Cataford
COO
Beat Frei(4)
VP Business Dev and
Finance
Share-based Awards(2)
Market or
payout value
of share-
based
awards that
have not
vested
($)
Nil
Market or
payout value
of vested
share-based
awards not
paid out or
distributed
($)
Nil
Number of
shares or
units of
shares that
have not
vested
(#)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
(1)
(2)
(3)
(4)
The value of unexercised in-the-money options noted above is based on the difference between the closing market price of the Company’s Ordinary Shares on the TSX of
$1.96 on March 31, 2019, and the exercise price of the option.
Share-based awards consist of RSUs and PSUs and are settled in Shares or cash in accordance with the Company’s New Plan. RSUs vest over a specific period of time while
PSUs vest upon meeting predetermined performance criteria. For more information regarding RSU and PSU vesting please see Incentive Plan Awards. The market or payout
value is based on the TSX market closing price of the Shares on March 31, 2019, being $1.96.
Mrs. Garoute was appointed CFO of the Company on August 13, 2018 on the date of Mr. Nagamatsu’s resignation.
Mr. Frei ceased to be VP Business Development and Finance on September 6, 2019. The 500,000 stock options granted on June 24, 2018 were not vested and were cancelled
on October 6, 2019 in compliance with the New Plan. As the stock options were cancelled, there are no stock options outstanding as of March 31, 2019 for Mr. Frei.
Incentive Plan Awards – Value Vested or Earned During the Year
The following table discloses incentive plan awards, including annual incentive bonuses and contracted milestone bonuses, vested or awarded
during the financial year ended March 31, 2019 (all dollar amounts in Canadian dollars):
Name
Michael O’Keeffe
Natacha Garoute
Miles Nagamatsu
David Cataford
Beat Frei
Value vested during the year ($)
Value earned during the year ($)
Option-based awards
Share-based awards
330,000
48,224
-
-
-
1,000,027
-
-
Non-equity incentive plan
remuneration
550,000
281,250
500,000
Note: Option-based awards value vested during the year is the difference between the market price of the underlying securities at exercise and the exercise price of the options under
the option-based award on the vesting date. Share-based award value vested during the year is calculated using the Company’s share price on the vesting date. Share-based
awards consisted of share rights.
46 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
The following table provides information about the number of options or share rights exercised, underlying shares sold and value realized by
each NEO during the financial year ended March 31, 2019 based on the stock price at the time of exercise:
Name
Michael O’Keeffe
Natacha Garoute
David Cataford
Beat Frei
Option-based awards and
share rights
exercised during the year
(#)
Underlying shares
sold
(#)
Aggregate value
realized
($)
2,751,900
-
-
1,250,000
-
-
-
-
-
-
-
-
Agreements with Named Executive Officers (NEOs)
The Company has written consulting services contracts with its NEOs. Some of the contracts provide for the payment and provision of other
benefits triggered by a termination without cause as described below. None of the contracts provide for the payment and provision of other
benefits triggered as a result of a change of control.
Michael O’Keeffe – Chairman and Chief Executive Officer (as at March 31, 2019)
Mr. O’Keeffe was appointed interim CEO on August 13, 2015. On August 13, 2015, Mr. O’Keefe and Champion entered into an employment
agreement under which Mr. O’Keefe is entitled to participate in all elements in the executive remuneration program as well as any group insurance
or health benefit plans the Company establishes. Mr. O’Keeffe does not receive any additional remuneration for his services as a director. On
April 1, 2019, Mr. O’Keeffe stepped down as CEO and remains Executive Chairman of the Board.
Mr. O’Keeffe’s employment agreement includes termination remuneration and benefit scenarios. Under the terms of Mr. O’Keeffe’s employment
agreement no compensation other than compensation earned prior to the date of termination is payable by the Company in the event the
employment agreement is terminated for just cause, voluntarily terminated or terminated due to death.
The Company may terminate the employment agreement at any time without cause by providing 12 months’ notice, pay in lieu of notice or a
combination of notice or pay in lieu thereof which covers the 12-month notice period. The amount of severance pay payable if the Company
terminates the employment agreement under this scenario would be an amount equal to the total of the then current 12 month base salary. If
Mr. O’Keeffe resigns due to an event that constitutes constructive dismissal under common law and constructive dismissal did, in fact, exist at
the time of Mr. O’Keeffe’s resignation, the Company will be required to pay severance equal to that which would have been payable had Mr.
O’Keeffe been terminated without cause above.
Natacha Garoute - Chief Financial Officer
Mrs. Garoute was appointed Chief Financial Officer of the Company on August 13, 2018. On August 13, 2018, Mrs. Garoute and Champion entered
into an employment agreement under which Mrs. Garoute is entitled to participate in all elements in the executive remuneration program as well
as any group insurance or health benefit plans the Company establishes.
Mrs. Garoute’s employment agreement includes termination remuneration and benefit scenarios. Under the terms of Mrs. Garoute’s employment
agreement, no compensation other than compensation earned prior to the date of termination is payable by the Company in the event the
employment agreement is terminated for just cause, voluntarily terminated or terminated due to death.
The Company may terminate the employment agreement at any time without cause by providing 60 days’ notice, pay in lieu of notice or a
combination of notice or pay in lieu thereof which covers the 60 days’ notice period. The amount of severance pay payable if the Company
terminates the employment agreement under this scenario would be an amount equal to the total of the then current 12-month base salary. If
Mrs. Garoute resigns due to an event that constitutes constructive dismissal under common law and constructive dismissal did in fact exist at
the time of Mrs. Garoute’s resignation, the Company will be required to pay severance equal to that which would have been payable had
Mrs. Garoute been terminated without cause above.
47 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
David Cataford – Chief Operating Officer (as at March 31, 2019)
Mr. Cataford was appointed Chief Operating Officer of the Company on March 20, 2017. On March 20, 2013 Mr. Cataford and Champion entered
into an employment agreement under which Mr. Cataford is entitled to participate in all elements in the executive remuneration program as well
as any group insurance or health benefit plans the Company establishes.
Mr. Cataford’s Employment Agreement includes termination remuneration and benefit scenarios. Under the terms of Mr. Cataford’s employment
agreement no remuneration other than remuneration earned prior to the date of termination is payable by the Company in the event the
employment agreement is terminated for just cause, voluntarily terminated or terminated due to death.
The Company may terminate the employment agreement at any time without cause by providing 60 days’ notice, pay in lieu of notice or a
combination of notice or pay in lieu thereof which covers the 60 days’ notice period. The amount of severance pay payable if the Company
terminates the employment agreement under this scenario would be an amount equal to the total of the then current 12 month base salary. If
Mr. Cataford resigns due to an event that constitutes constructive dismissal under common law and constructive dismissal did, in fact exist at
the time of Mr. Cataford’s resignation the Company will be required to pay severance equal to that which would have been payable had Mr.
Cataford been terminated without cause above.
Former CFO
Mr. Nagamatsu resigned on August 13, 2018. Under the Service Agreement between Marlborough Management Limited, a company controlled
by Mr. Nagamatsu, and the Company, annual consulting fees of $126,000 were payable. The service agreement could be terminated at anytime
and no termination benefit were payable.
Former VP Business Development and Finance
Mr. Frei ceased to be VP Business Development and Finance on September 4, 2019. He received a termination payment totalling $570,000.
The following table sets forth the estimated incremental payments that would have been required to have been made to each NEO, assuming a
triggering event (change of control or termination without cause) took place on March 31, 2019.
Estimated Cash Payout on Termination
Name and principal
position
Without Cause
($)
Change of Control (1)
($)
Estimated Value Vested Option Awards
on Termination without Cause (1)(2)
($)
Michael O’Keeffe,
CEO and Executive
Chairman
Natacha Garoute
CFO
David Cataford
COO
550,000
375,000
500,000
Nil
Nil
Nil
5,280,000
48,224
4,315,000
(1)
(2)
The NEOs contracts do not provide for the payment and provision of other benefits triggered as a result of a change of control.
This amount is based on the difference between the closing market price of the Company’s Ordinary Shares on the TSX of $1.96 per share on March 31, 2019, and the exercise
price of all “in-the-money” options.
48 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
Performance graph
The following graph and table is a reporting requirement under Canadian securities laws, and compares the Company’s five-year cumulative
total shareholder return had $100 been invested in the Company on the first day of the five-year period at the closing price of the Ordinary Shares
on that date being April 1, 2014, with the cumulative total return of the S&P/TSX Composite Index and the S&P/TSX Global Mining Index over the
five most recently completed fiscal years ended on March 31. The Ordinary Shares of the Company have been listed and posted for trading under
the trading symbol “CIA” on the ASX since April 3, 2014 and on the TSX since March 31, 2014.
Champion Common Share
Champion Iron Ltd (ASX)
2014
2015
2016
2017
2018
2019
$
100
$
30
$
41
$
210
$
239
$
400
$
100
$
23
$
36
$
182
$
210
$
386
S&P/TSX Global Base Metal Index (TXBM.TS)
$
100
$
89
$
58
$
90
$
105
$
97
S&P/TSX Composite Index
NEO Compensation
Champion Common Share
Champion Iron Ltd (ASX)
$
100
$
104
$
94
$
108
$
107
$
112
$
100
$
66
$
52
$
100
$
303
$
228
$
0.49
$
0.15
$
0.20
$
1.03
$
1.17
$
1.96
$
0.56
$
0.13
$
0.20
$
1.02
$
1.18
$
2.16
S&P/TSX Global Base Metal Index (TXBM.TS)
$
122.22
$
108.71
$
70.30
$
110.17
$
127.81
$
118.77
S&P/TSX Composite Index
NEO Total Compensation C$
$
14,381
$
14,902
$
13,494
$
15,548
$
15,367
$
16,102
$
2,828,923
$
1,868,940
$
1,467,439
$
2,838,145
$
8,585,370
$
6,451,755
Note: Sourced from Bloomberg. Cumulative Total Shareholder Return assuming dividend reinvestment
Note: assuming an investment of $100 on April 1, 2014 with a Champion share price of $0.49, the TSX S&P Composite index at $14,381 and the S&P/TSX Global Base Metal index at
$122.22 with all dividends reinvested.
From April 1, 2014 to March 31, 2019, the share price of the Company increased by 300% compared to an increase of 12% and a decrease of 3%
in the S&P/TSX Composite and in the S&P/TSX Global base Metal Index, respectively, during the corresponding five-year period. During the same
period, the aggregate remuneration of all individuals acting as NEOs increased by 170%, from a base of $2,828,923 in 2014 to $6,451,755 in 2019.
This increase in aggregate remuneration for all NEOs over the five-year period can be attributed to several factors, including the ongoing growth
in the size and complexity of the business along with the development of the Company as it transitioned from development to production.
49 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
Accordingly, the Company’s share price has significantly outperformed its peers over since April 1, 2014, while also outpacing the growth in NEO
remuneration. The Board is of the view that this has been driven primarily by management’s advancement of the Bloom Lake iron ore mine
through stages of evaluation, financing, and acquisition restart of the operation, and production ramp-up, on an expedited basis and within
budgeted constraints and the operational and financial performance generated by the Bloom Lake iron ore mine since it went into production.
As discussed above, the majority of NEO remuneration is “at risk”, as STI (bonus) and LTI remuneration are tied directly to directly to relative
and/or absolute shareholder returns. As a consequence, actual NEO remuneration will increase with the out-performance of the Company’s
share price, but conversely decrease in the face of an underperforming share price. The Board believes this is the ultimate test of the “pay-for-
performance” principle and true alignment of NEO remuneration with shareholder returns.
DIRECTOR REMUNERATION
Remuneration Philosophy and Approach
The remuneration arrangements for non-executive directors are intended to attract highly qualified individuals with the capability to meet the
challenging oversight responsibilities of a mining company and to closely align non-employee directors’ interests with shareholder interests.
Since the introduction of the New Plan in August 2018 (see “Remuneration Arrangements for Directors”, below for details on the plan), non-
employee directors may receive equity-based remuneration in the form of DSU grants.
The Remuneration and Nomination Committee reviews director compensation at least once a year, and makes remuneration recommendations
to the Board for its review and approval. Recommendations take into consideration the directors’ time commitment, duties and responsibilities,
and director Remuneration practices and levels at comparable companies.
Remuneration Arrangements for Directors
In conjunction with the review of executive compensation for 2019, the Remuneration and Nomination Committee of the Board engaged Mercer
to provide an independent, third party analysis of the company’s director compensation levels and practices. Based on the findings and
recommendations of the 2019 Mercer report, the Board set the following non-executive director remuneration framework starting August 2018:
a) Annual cash retainer of $135,000 for non-executive directors;
b) Cash retainer of $15,000 for Chair of Audit and Remuneration and Nomination Committees;
c) Cash retainer of $5,000 for Committee members;
d) No additional fees are paid for attendance at Board or committee meetings; and
e) Directors have all reasonable expenses covered when travelling on Company business.
In addition, based on the findings and recommendations of Mercer, the Board adopted the New Plan on June 24, 2018 to more closely align non-
employee directors directly with the interests of Shareholders. The New Plan was subsequently ratified by the shareholders of the Company at
the 2018 Meeting. The purpose of the DSU portion of the New Plan is to promote the alignment of interests between directors and Shareholders
and it is an important component of non-employee director Remuneration because it:
f) provides a remuneration system for directors that is reflective of the responsibility, commitment and risk accompanying Board
membership;
g) assists the Company to attract and retain individuals with experience and ability to serve as members of the Board; and
h) allows the directors to participate in the long-term success of the Company.
Directors may elect to receive all or a portion of any of their annual fees in DSUs. The Board's current policy is that until directors obtain a
shareholding which satisfies a share ownership level equivalent to three times their annual cash retainer, Directors must elect to receive a portion
of their annual fees in DSUs. All DSU grants are approved by the Board. DSUs are priced at the greater of the five (5) day volume weighted average
price of the Shares over the last five (5) trading days preceding the grant, and the closing price of the Shares on the last trading day preceding
the grant. DSUs issued under the New Plan may be settled in shares acquired on ASX or TSX at the time of the directors’ retirement from all
positions with the Company.
50 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
Tabular Remuneration Disclosure for the Directors
Director Remuneration Table
The following table discloses all compensation provided to the directors, other than any directors who are NEOs of the Company, for the
Company’s most recently completed financial year ending March 31, 2019. All DSUs, except where noted, were fully vested on March 31, 2019
(all dollar amounts in Canadian dollars).
Name
Gary Lawler
Michelle Cormier
Jyothish George
Andrew J. Love
Wayne Wouters
Fees paid
Fees earned
in cash
($)
137,725
122,665
Nil
137,725
112,665
Fees
earned
in DSU ($)
22,275
22,335
Nil
22,275
22,335
Other Share-
based awards
($)
Nil
Nil
Option-based
awards
($)
Nil
Nil
All other
compensation
($)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Total
($)
160,000
145,000
Nil
160,000
135,000
The following table provides a detailed breakdown of the fees paid to our non-employee directors for the year ended March 31, 2019. Fees are
paid quarterly (all dollar amounts in Canadian dollars).
Name
Gary Lawler
Michelle Cormier
Jyothish George
Andrew Love
Wayne Wouters
Board
Retainer Fee
($)
135,000
135,000
Nil
135,000
135,000
Committee
Retainers
($)
25,000
10,000
Nil
25,000
Nil
Meeting
Fees
($)
Nil
Nil
Nil
Nil
Nil
Fees Paid in
Cash
($)
137,725
122,665
Nil
137,725
112,665
Fees Earned
in DSUs
($)
22,275
22,335
Nil
22,275
22,335
Total
Fees
($)
160,000
145,000
Nil
160,000
135,000
Outstanding Share-Based Awards and Option-Based Awards
Outstanding option and share-based awards for non-executive directors as at March 31, 2019, the end of the Company’s most recently completed
financial year, are set out in the following table (all dollar amounts in Canadian dollars):
Option-based Awards
Share-based Awards
Number of
securities
underlying
unexercised
options
(#)(2)
300,000
500.000
Nil
300,000
500,000
Option
exercis
e price
($)
1.08
1.00
Nil
1.08
0.30 November 4, 2019
Option
expiration date
(M/D/Y)
July 11, 2020
August 21, 2020
Nil
July 11, 2020
Value of
unexercised
in-the-money
options
($)(1)
264,000
480,000
Nil
264,000
830,000
Number of
shares or
units of
shares that
have not
vested
(#)(3)
Nil
Nil
Nil
Nil
Nil
Market or
payout
value of
share-base
d awards
that have
not vested
($)(1)
Nil
Nil
Nil
Nil
Nil
Market or payout
value of vested
share-based
awards not paid
out or distributed
($)(1)
11,052
12,698
Nil
11,052
13,464
Name
Gary Lawler
Michelle Cormier
Jyothish George
Andrew J. Love
Wayne Wouters
Notes:
(1)
The value of unexercised in-the-money options and DSUs noted above is based on the TSX market closing price of the Shares on March 31, 2019, being $1.96 and the exercise
price.
51 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
Incentive Plan Awards – Value Vested or Earned During the Year
The following table discloses incentive plan awards to non-executive directors for the year ended March 31, 2019 (all dollar amounts in
Canadian dollars):
Name
Gary Lawler
Michelle Cormier
Jyothish George
Andrew J. Love
Wayne Wouters
Option-based awards
Value vested during the year
($)
88,000
160,000
Nil
88,000
Nil
Share-based awards
Value vested during the year
($)
22,275
22,335
Nil
22,275
22,335
Non-equity incentive plan
Remuneration
Value earned during the year
($)
Nil
Nil
Nil
Nil
Nil
Note: Option-based awards value vested during the year are calculated using the Company’s share price on March 31, 2019 and the exercise price. The share-based awards value
vested during the year are calculated using the Company’s share price on the vesting date.
DIRECTORS’ ATTENDANCE
Name
BOARD Meeting
AUDIT
COMMITTEE
REMUNERATION COMMITTEE
Michael O’Keeffe
Gary Lawler
Michelle Cormier
Jyothish George
Andrew Love
Wayne Wouters
12 of 12
12 of 12
11 of 12
10 of 12
12 of 12
12 of 12
N/A
6 of 7
7 of 7
N/A
7 of 7
N/A
N/A
3 of 3
3 of 3
N/A
3 of 3
N/A
52 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
DETAILS OF TOTAL REMUNERATION FOR KPM AND NEO AND DIRECTORS
Year ended
March 31, 2019
Short term
($)
Salary
Consulting
fees
Michael O’Keeffe1
550,000
137,725
137,725
122,665
112,802
–
500,000
309,275
Gary Lawler
Andrew J. Love
Michelle Cormier
Wayne Wouters2
Jyothish George
David Cataford
Natacha Garoute3
Miles Nagamatsu4
Beat Frei5
Bonus
1,812,500
Non-
monetary
25,766
–
–
–
‒
–
–
–
–
–
–
500,000
12,557
281,250
3,814
–
–
–
–
–
–
–
–
–
–
63,000
226,042
–
–
–
28,174
570,000
Termination
payments
($)
Pension
($)
Options/
share rights
($)
Total
($)
Performance
related
Consisting
of options/
share rights
–
–
–
–
‒
–
–
–
–
33,000
1,000,027
3,421,320
82.21%
29.23%
–
–
–
‒
–
22,275
160,000
22,275
160,000
22,335
145,000
22,198
135,000
–
–
48,750
350,000
1,411,307
22,969
‒
‒
114,531
731,939
–
‒
63,000
824,216
–
–
–
‒
–
35.43%
38.43%
–
–
13.92%
13.92%
15.40%
16.44%
–
24.80%
15.65%
–
–
TOTAL
1,870,292 289,042
2,593,750
70,312
570,000
104,719
1,553,641
7,051,755
1.
2.
3.
4.
5.
Mr. O’Keeffe bonus includes his annual short-term incentive of $550,000 and a one-time special cash bonus of $1,262,500 for Mr. O’Keeffe as a recognition of salary foregone
by Mr. O’Keeffe during the formative years of the Company from 2014 to 2018, as it evolved from an exploration company to an iron ore producer.
Paid to 2468435 Ontario Inc., a company controlled by Mr. Wouters.
Ms. Garoute’s salary includes a signing bonus of $75,000.
Paid to Marlborough Management Limited, a company controlled by Mr. Nagamatsu.
Paid to Comforta GmbH, a company controlled by Mr. Frei.
53 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
DETAILS OF TOTAL REMUNERATION FOR KPM AND NEO AND DIRECTORS
Year ended
March 31, 2018
Short term
($)
Salary
Consulting
fees
Bonus7
Michael O’Keeffe
500,000
Gary Lawler
Andrew J. Love
Michelle Cormier
Wayne Wouters1
Jyothish George2
88,750
88,750
–
–
–
David Cataford
400,000
Miles Nagamatsu3
Beat Frei4
–
–
–
–
–
75,000
75,000
–
–
–
–
–
–
‒
–
1,660,000
126,000
–
Non-
monetary
26,388
–
–
–
‒
–
8,424
7,416
350,000
3,000,000
65,998
TOTAL
1,077,500 626,000 4,660,000
108,226
–
–
–
–
‒
–
–
–
–
Termination
payments
($)
Pension
($)
Options/
share rights
($)
Total
($)
Performance
related
Consisting
of options/
share rights
2,7975
1,123,922
1,650,310
65.30%
68.00%
8,4316
8,4316
99,750
188,500
99,750
188,500
134,583
209,583
–
–
437,500
75,000
‒
2,505,924
–
‒
–
2,7975
‒
‒
–
–
‒
‒
–
50.70%
50.70%
64.20%
–
–
74.80%
17.40%
–
133,416
–
–
879,722
4,295,720
90.10%
20.50%
1.
2.
3.
4.
5.
6.
7.
Paid to 2468435 Ontario Inc., a company controlled by Mr. Wouters.
Appointed as a director on October 16, 2017.
Paid to Marlborough Management Limited, a company controlled by Mr. Nagamatsu.
Paid to Comforta GmbH, a company controlled by Beat Frei.
Amount relates to employer portion of contributions to the Canada Pension Plan/Quebec Pension Plan.
Amount relates to superannuation.
2,660,000 related to FY17 performance and 2,000,000 related to FY18 performance.
2,775,227
‒
9,246,95
3
54 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
MOVEMENT OF EQUITY HELD BY KEY MANAGEMENT PERSONNEL (NAMED EXECUTIVE OFFICERS AND DIRECTORS)
Stock Options
Name
Michael O’Keeffe
Natacha Garoute
Miles Nagamatsu
David Cataford
Gary Lawler
Michelle Cormier
Jyothish George
Andrew Love
Wayne Wouters
Beat Frei
Balance
April 1, 2018
12,500,000(1)
Nil
Nil
2,500,000
300,000
500,000
Nil
300,000
500,000
1,250,000
Grant
Exercised
Cancelled
Nil
200,932
Nil
500,000
Nil
Nil
Nil
Nil
Nil
500,000
2,000,000
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1,250,000
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
500,000
Held and
Vested
10,500,000
66,977
Nil
3,000,000
200,000
333,333
Nil
200,000
500,000
Nil
Unvested
Nil
133,955
Nil
Nil
100,000
166,667
Nil
100,000
Nil
Nil
(1)
Including 7,500,000 compensation options
Common Shares
Name
Michael O’Keeffe
Natacha Garoute
Miles Nagamatsu(1)
David Cataford
Gary Lawler
Michelle Cormier
Jyothish George
Andrew Love
Wayne Wouters
Beat Frei(2)
Balance
April 1, 2018
Purchased
Acquired upon
vesting of equity
award
Sold
Balance
March 31, 2019
36,676,930
Nil
1,211,916
1,019,698
1,475,000
20,000
Nil
1,379,468
40,000
4,600,354
Nil
Nil
n/a
Nil
25,000
Nil
Nil
102,950
Nil
n/a
2,751,900
Nil
n/a
Nil
Nil
Nil
Nil
Nil
Nil
n/a
Nil
Nil
n/a
Nil
Nil
Nil
Nil
Nil
Nil
n/a
39,428,830
Nil
n/a
1,019,698
1,500,000
20,000
Nil
1,482,418
40,000
n/a
(1) Mr. Nagamatsu ceased to be a NEO on August 13, 2018 and as such is no longer required to disclose the transaction on Champion Iron Ltd common shares.
(2) Mr. Frei ceased to be a NEO on September 6, 2018 and as such is no longer required to disclose the transaction on Champion Iron Ltd common shares.
55 | P a g e
Champion Iron Limited
Directors’ Report – Remuneration Report
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY REMUNERATION PLANS
The following table sets out, as at March 31, 2019, the end of the Company’s last completed financial year, information regarding outstanding
options, RSUs, PSUs and DSUs granted by the Company under the New Plan and the Previous Plan. As at March 31, 2019, the number of issued
and outstanding Shares of the Company was 430,469,747.
Equity Remuneration Plan Information
Number of securities to
be issued upon exercise
of outstanding options,
PSUs, RSUs and DSUs
(a)
8,779,832 (Options)
70,214 (DSUs)
Nil
8,850,046
Weighted-average
exercise price of
outstanding options
(b)
Number of securities remaining
available for future issuance
under equity Remuneration plans
(excluding securities reflected in
column (a))
(c)
$0.60
N/A
$0.60
34,196,929
N/A
34,196,929
Plan Category
Equity Remuneration plans approved by
securityholders
Equity Remuneration plans not approved
by securityholders
Total
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
As at the date of this Remuneration Report or within 30 days of this date, no executive officer, director, employee or former execute officer,
director or employee of the Company or any of its subsidiaries is indebted to the Company, or any of its subsidiaries, nor are any of these
individuals indebted to another entity, which indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar
arrangement or understanding provided by the Company, or its subsidiaries with the exception of Mr. Cataford. On June 24, 2018, the Board of
directors approved the issuance of a 5-year interest free loan of $500,000 to Mr. Cataford. The loan is secured by way of mortgage over a
property.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
None of the directors or executive officers of the Company, persons beneficially owning, directly or indirectly, shares carrying more than 10% of
the voting rights attached to all outstanding shares of the Company nor any associate or affiliate of the foregoing persons has any material
interest, direct or indirect, in any transaction since the commencement of the Company’s last completed financial year or in any proposed
transaction which has or will materially affect the Company except as disclosed elsewhere in this Circular.
Except as set out in the Remuneration Report, there are no management functions of the Company which are to any substantial degree
performed by a person or company other than the directors or executive officers of the Company.
MANAGEMENT CONTRACTS
56 | P a g e
Champion Iron Limited
Directors’ Report
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
There are indemnities in place for directors and officers insurance policies in regard to their positions.
Significant changes in state of affairs
There have been no significant changes in the state of affairs of Champion, other than those disclosed in this report.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company
is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.
The Company was not a party to any such proceedings during the year.
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit
engagement agreement against claims from third parties arising from the audit (for an unspecified amount). No payment has been made to
indemnify Ernst & Young during or since the end of the financial year.
INDEMNITY OF AUDITORS
NON-AUDIT SERVICES
Ernst & Young performed other services in addition to their statutory duties. The details and remuneration for these services is disclosed in Note
32 of the consolidated financial statements. The Directors have considered the non-audit services provided during the year by the auditor, and
are satisfied that the provision of non-audit services by the auditor during the year is compatible, and not compromise, the auditor independence
requirements of the Corporations Act 2001 for the following reasons:
(a)
(b)
All non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the
audit committee to ensure they do not impact the integrity and objectivity of the auditor; and
The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of
Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or
decision-making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards,
The lead auditor’s independence declaration for the year ended 31 March 2019 has been received, as set out on page 61, and forms part of this
report.
AUDITOR’S INDEPENDENCE DECLARATION
Signed in accordance with a resolution of the Directors
/s/ Michael O’Keeffe
/s/ Andrew Love
Michael O’Keeffe, Executive Chairman
Andrew Love, Non-executive Director
57 | P a g e
Champion Iron Limited
Board of Directors in Office at the Date of this Report
Executive Chairman and Former Chief Executive Officer
Michael O’Keeffe B.App.Sc (Metallurgy)
Mr O’Keeffe was appointed executive Chairman of Champion Iron Limited on August 13, 2013. On April 1, 2019, Mr. O’Keeffe stepped down as
CEO and remains Executive Chairman of the Board. Mr. O’Keeffe commenced work with MIM Holdings in 1975. He held a series of senior
operating positions, rising to Executive Management level in commercial activities. In 1995 he became Managing Director of Glencore
Australia (Pty) Limited and held the position until July 2004. Mr. O’Keeffe was the founder and Executive Chairman of Riversdale Mining
Limited. He has previously held directorships in Anaconda Nickel Limited, Mt Lyell Mining Co Limited and BMA Gold Limited. Mr. O’Keeffe was
the chairman of Riversdale Resources Limited.
Non-Executive Director
Gary Lawler BA, LLB, LLM (Hons), ASIA, Master of Laws (Applied Laws) (Wills and Estates)
Mr. Lawler was appointed as a Non-Executive Director on April 9, 2014. He is a leading Australian corporate lawyer who has specialized as a
mergers and acquisitions lawyer for over 35 years. Mr. Lawler has been a partner in a number of leading Australian law firms and is currently
a Senior Advisor at Ashurst Australia. Mr. Lawler is also the Chairman of Mont Royal Resources Limited. Mr. Lawler has previously held board
positions with Dominion Mining Limited, Riversdale Mining Limited, Riversdale Resources Limited and Cartier Iron Corporation and brings a
wealth of experience to the Board.
Non-Executive Director
Andrew J. Love, FCA
Mr. Love was appointed as a Non-Executive Director on April 9, 2014. He is a Chartered Accountant with more than 30 years of experience
in corporate recovery and reconstruction in Australia. He was a senior partner of Australian accounting firm Ferrier Hodgson from 1976 to
2008 and is now a consultant. In that time, he advised major local and overseas companies and financial institutions in a broad variety of
restructuring and formal insolvency assignments. During this time Mr. Love specialized in the Resources Industry. Mr. Love has been an
independent company director of a number of companies over a 25-year period in the Resources, Financial Services and Property Industries.
This has involved corporate experience in Asia, Africa, Canada, United Kingdom and United States. Mr. Love’s previous Board positions have
included Chairman of ROC Oil Ltd., Deputy Chairman of Riversdale Mining Ltd., Director of Charter Hall Office Trust and Chairman of Museum
of Contemporary Art, Chairman of Gateway Lifestyle Operations Ltd. and a Director of Scottish Pacific Group Ltd.
Non-Executive Director
Michelle Cormier, CPA, CA, ASC
Mrs. Cormier is a senior-level executive with experience in management including financial management, corporate finance, turnaround
and strategic advisory situations and human resources. She has strong capital markets background with significant experience in public
companies listed in the United States and Canada. Mrs. Cormier spent 13 years in senior management and as CFO of large North American
forest products company and 8 years in various senior management positions at Alcan Aluminum Limited (RioTinto). Mrs. Cormier articled
with Ernst & Young. She serves on the Board of Directors of Cascades Inc., Dorel Industries Inc. and Uni-Select Inc.
58 | P a g e
Champion Iron Limited
Board of Directors in Office at the Date of this Report
Non-Executive Director
Wayne Wouters
The Honourable Wayne G. Wouters is a Strategic and Policy Advisor with McCarthy Tétrault LLP. Before joining the private sector,
Mr. Wouters had a long and illustrious career in the Public Service of Canada. His last assignment was the Clerk of the Privy Council,
Secretary to the Cabinet, and Head of the Public Service. Appointed by Prime Minister Harper, Mr. Wouters served from July 1, 2009
until October 3, 2014, at which time he retired from the Public Service of Canada. Prior to this, Mr. Wouters was a Deputy Minister in
several departments, including the Deputy Minister of Human Resources and Skills Development Canada and Secretary of the Treasury
Board. In 2014, Mr. Wouters was inducted as a Member of the Privy Council by the Prime Minister.
Non-Executive Director
Jyothish George
Mr. George is currently Head of Glencore’s Iron Ore Division. He serves as Vice Chairman of the Board of Directors of the El Aouj Mining
Company SA in Mauritania and a member of the Board of Directors of Jumelles Limited, the holding company of the Zanaga iron ore mine
in the Republic of Congo. Immediately prior to his current role, Mr. George served as the Chief Risk Officer of Glencore. He earlier held a
number of roles at Glencore’s head office in Baar, Switzerland from 2009 onwards focused on iron ore, nickel and ferroalloys physical and
derivatives trading, and has been involved with iron ore marketing since its inception at Glencore. Mr. George joined Glencore in 2006 in
London. He was previously a Principal at Admiral Capital Management in Greenwich, Connecticut, a Vice President in equity derivatives
trading at Morgan Stanley in New York, and started his career at Wachovia Securities in New York as a Vice President in convertible bonds
trading. Mr. George received a Bachelors in Technology from IIT Madras, India and a PhD in Mechanical Engineering from Cornell University.
Chief Executive Officer
David Cataford
Mr. Cataford was appointed to the position of President and Chief Executive Officer on April 1, 2019. Mr. Cataford had been Chief Operating
Officer of the Company since March 20, 2017. Prior to joining Champion in 2014, Mr. Cataford held several management positions within
Cliffs Natural Resources Inc., including key positions in their main iron ore deposit at Bloom Lake Mine in Fermont, Quebec. At Bloom Lake,
Mr. Cataford played an important role in the management team, which increased drilling capacity by 80%, and he helped in the Phase I
expansion of the plant. His experience in iron ore mining includes mineral characterization projects at Bloom Lake and for ArcelorMittal at
Mont Wright, as well as adapting the recovery circuit to meet new customer demands. Mr. Cataford is currently president and cofounder of
the North Shore and Labrador Mineral Processing Society.
59 | P a g e
Champion Iron Limited
Directors’ Declaration
DIRECTORS' DECLARATION
1)
In the opinion of the Directors:
(a) The accompanying financial statements and notes are in accordance with the Corporations Act 2001, including:
•
•
giving a true and fair view of the Group's financial position as at 31 March 2019 and of its performance for the
year ended on that date; and
complying with Australian Accounting Standards and the Corporations Act 2001.
(b) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due
and payable.
(c) the audited remuneration disclosure set out in the Remuneration Report of the Director's Report for the year ended
31 March 2019 complies with section 300A of the Corporations Act 2001.
2) The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 for the financial
year ended 31 March 2019.
3) The Group has included in the notes to the financial statements a statement of compliance with International
Financial Reporting Standards.
Signed in accordance with a resolution of the Directors
/s/ Michael O’Keeffe
/s/ Andrew Love
Michael O’Keeffe, Executive Chairman
Andrew Love, Non-executive Director
60 | P a g e
Champion Iron Limited
Auditor’s Independent Declaration
Champion Iron Limited
(ACN: 119 770 142)
Consolidated Financial Statements
For the Years Ended March 31, 2019 and 2018
(Expressed in thousands of Canadian dollars - audited)
62 | P a g e
Champion Iron Limited
Management's Responsibility for Financial Reporting
Management is responsible for the preparation and presentation of the accompanying consolidated financial statements, which includes making
significant accounting judgments and estimates in accordance with International Financial Reporting Standards and ensuring that all
information in the annual report is consistent with the consolidated financial statements, selecting appropriate accounting principles and
methods, and making decisions that affect the measurement of transactions.
The Board of Directors and Audit Committee are composed primarily of Directors who are neither management nor employees of the Company.
The Board is responsible for overseeing management in the performance of its financial reporting responsibilities, and for approving the financial
information included in the annual report. The Board fulfills these responsibilities by reviewing the financial information prepared by management
and discussing relevant matters with management and external auditors. The Audit Committee has the responsibility of meeting with
management and external auditors to discuss the internal controls over the financial reporting process, auditing matters and financial reporting
issues. The Committee is also responsible for recommending the appointment of the Company's external auditors.
Ernst & Young, an independent partnership of Chartered Accountants, has been appointed by the shareholders to audit the consolidated financial
statements as at March 31, 2019 and 2018 and for the years then ended and report directly to them; their report follows. The external auditors
have full and free access to, and meet periodically and separately with, both the Audit Committee and management to discuss their audit findings.
/s/ David Cataford
David Cataford Chief Executive Officer
/s/ Natacha Garoute
Natacha Garoute Chief Financial Officer
63 | P a g e
Champion Iron Limited
Independent Auditor’s Report
64 | P a g e
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Independent Auditor’s Report
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Independent Auditor’s Report
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Report on the Audit of the Financial Report
67 | P a g e
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Report on the Audit of the Financial Report
68 | P a g e
Champion Iron Limited
Report on the Audit of the Financial Report
69 | P a g e
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Report on the Audit of the Financial Report
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Report on the Audit of the Financial Report
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Report on the Audit of the Financial Report
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Champion Iron Limited
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars - audited)
Notes
As at March 31,
2019
As at March 31,
2018
Assets
Current
Cash and cash equivalents
Short-term investments
Receivables
Prepaid expenses and advances
Inventories
Non-current
Investments
Advance payments
Property, plant and equipment
Exploration and evaluation assets
Derivative assets
Total assets
Liabilities
Current
Accounts payable and accrued liabilities
Convertible debenture, Altius
Note payable
Income tax payable
Current portion of long-term debt
Non-current
Property taxes payable
Long-term debt
Convertible debenture, Glencore
Derivative liabilities
Rehabilitation obligation
Other long-term liability
Deferred tax liability
Total liabilities
Shareholders’ Equity
Share capital
Contributed surplus
Warrants
Foreign currency translation reserve
Non-controlling interest
Accumulated deficit
Total equity
Total liabilities and equity
Commitments
Subsequent events
Should be read in conjunction with the notes to the consolidated financial statements
Approved on June 20, 2019 on behalf of the directors
135,424
17,907
93,012
24,186
44,154
314,683
2,653
38,250
224,123
81,508
10,800
672,017
44,697
—
—
34,059
35,852
114,608
13,940
193,038
12,067
43,819
36,565
4,798
37,460
456,295
237,969
21,404
17,730
420
65,376
(127,177 )
215,722
672,017
3
4
5
6
7
8
9
10
11
18
12
13
14
25
16
15
16
17
17
19
25
30
36
/s/ Michael O'Keeffe
Director
/s/ Andrew Love
Director
7,895
17,291
25,838
15,898
48,171
115,093
4,250
37,517
172,719
72,137
—
401,716
63,481
9,791
36,438
—
—
109,710
16,276
141,225
14,016
24,683
35,893
—
5,465
347,268
224,336
21,204
17,730
578
823
(210,223 )
54,448
401,716
73 | P a g e
Champion Iron Limited
Consolidated Statements of Income (Loss)
(Expressed in thousands of Canadian dollars, except per share amounts - audited)
Revenues
Cost of sales
Depreciation
Gross profit (loss)
Other Expenses
Share-based payments
General and administrative expenses
Restart costs
Sustainability and other community expenses
Property taxes adjustment
Exploration and evaluation
Operating income (loss)
Net finance costs
Income (loss) before income tax
Current income tax
Deferred income tax
Net income (loss)
Attributable to:
Champion shareholders
Non-controlling interest
Earnings (loss) per share
Basic
Diluted
Notes
21
20
22
23
15
24
25
25
26
Year Ended March 31,
2019
655,129
(351,946 )
(14,551 )
288,632
(1,808 )
(14,039 )
(4,497 )
(12,226 )
7,559
—
263,621
(50,010 )
213,611
(34,017 )
(31,995 )
147,599
83,046
64,553
0.20
0.18
2018
—
—
(4,244 )
(4,244 )
(3,179 )
(10,627 )
(65,999 )
—
—
(201 )
(84,250 )
(23,081 )
(107,331 )
—
—
(107,331 )
(74,475 )
(32,856 )
(0.19 )
(0.19 )
Weighted Average Number of Common Shares Outstanding - Basic
Weighted Average Number of Common Shares Outstanding - Diluted
Should be read in conjunction with the notes to the consolidated financial statements
420,677,000
449,508,000
398,125,000
398,125,000
74 | P a g e
Champion Iron Limited
Consolidated Statements of Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars, except per share amounts - audited)
Net income (loss)
Item that may be reclassified subsequently to the consolidated statement of income
Net movement in foreign currency translation reserve
Comprehensive income (loss)
Attributable to:
Champion shareholders
Non-controlling interest
Should be read in conjunction with the notes to the consolidated financial statements
Year Ended March 31,
2019
147,599
(158 )
147,441
82,888
64,553
2018
(107,331 )
(10 )
(107,341 )
(74,485 )
(32,856 )
75 | P a g e
Champion Iron Limited
Consolidated Statements of Equity
(Expressed in thousands of Canadian dollars, except per share amounts - audited)
Ordinary Shares
Notes
Shares(1)
414,618,000
$
224,336
Contributed
Surplus
21,204
Warrants
17,730
Foreign
Currency
Translation
578
Non-
Controlling
Interest
823
Accumulated
Deficit
(210,223 )
Balance - March 31, 2018
Net income
Other comprehensive loss
Total comprehensive income (loss)
Exercise of stock-options
Exercise of share rights
Exercise of conversion option - Altius
Share-based payments
Balance - March 31, 2019
Balance - March 31, 2017
Net loss
Other comprehensive loss
Total comprehensive loss
Public offering of subscription receipts
Share issue costs
Private placement
Exercise of stock-options
Fair value of share rights exercised
Share-based payments
Fair value of warrants issued
Derecognition of derivative liability
Balance - March 31, 2018
—
—
—
20
20
20
20
5,100,000
752,000
10,000,000
—
430,470,000
—
—
—
2,633
1,000
10,000
—
237,969
—
—
—
(608 )
(1,000 )
—
1,808
21,404
385,934,000
201,990
20,121
—
—
—
20
20
20
21,034,000
—
—
5,400,000
2,250,000
—
—
—
414,618,000
—
—
—
18,930
(1,115 )
—
1,703
2,828
—
—
—
224,336
—
—
—
—
—
—
—
(2,828 )
3,179
—
732
21,204
—
—
—
—
—
—
—
17,730
—
—
—
—
—
—
—
—
—
—
17,730
—
17,730
—
(158 )
(158 )
—
—
—
—
420
588
—
(10 )
(10 )
—
—
—
—
—
—
—
—
578
Should be read in conjunction with the notes to the consolidated financial statements
1
All issued ordinary shares are fully paid and have no par value.
64,553
—
64,553
—
—
—
—
65,376
83,046
—
83,046
—
—
—
—
(127,177 )
TOTAL
54,448
147,599
(158 )
147,441
2,025
—
10,000
1,808
215,722
2,363
(135,748 )
89,314
(32,856 )
—
(32,856 )
—
—
31,316
—
—
—
—
—
823
(74,475 )
—
(74,475 )
—
—
—
—
—
—
—
—
(210,223 )
(107,331 )
(10 )
(107,341 )
18,930
(1,115 )
31,316
1,703
—
3,179
17,730
732
54,448
76 | P a g e
Champion Iron Limited
Consolidated Statements of Cash Flow
(Expressed in thousands of Canadian dollars - audited)
Cash provided by (used in)
Operating Activities
Net income (loss)
Items not affecting cash
Depreciation
Share-based payments
Loss on sale of property, plant and equipment
Change in fair value of derivative asset
Change in fair value of derivative liability
Unrealized foreign exchange loss
Unrealized loss (gain) on investments
Accretion of borrowing costs and debt discount
Accretion of the rehabilitation obligation
Deferred income tax
Interest not paid
Changes in non-cash operating working capital
Net cash flow from operating activities
Financing Activities
Proceeds of long-term debt
Repayment of long-term debt
Termination of production payment agreement ("PPA")
Borrowing costs
Proceeds of convertible debenture, Altius
(Repayment) of capitalized interest, Proceeds Glencore
Public offering of subscription receipts
Share issue cost
Private placement of common shares of Quebec Iron Ore Inc.
Exercise of stock-options
Repayment of note payable
Proceeds of bridge loan
Repayment of bridge loan
Bridge loan transaction costs
Net cash flow from financing activities
Investing Activities
Investment in short-term investments
Due from Cartier Iron Corporation
Proceeds on sale of equipment
Purchase of property, plant and equipment
Exploration and evaluation
Net cash flow from investing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Effects of exchange rate changes on cash
Cash and cash equivalents, end of year
Interest paid
Should be read in conjunction with the notes to the consolidated financial statements
Year Ended March 31,
Notes
2019
2018
10,34
20
18,24
24
24
24
24
25
34
147,599
14,551
1,808
—
(10,800 )
19,136
3,446
1,597
3,811
672
31,995
17,650
231,465
(54,767 )
176,698
74,195
(7,636 )
(4,564 )
(1,618 )
—
(4,429 )
—
—
—
2,025
(37,472 )
—
—
—
20,501
(616 )
—
—
(62,942 )
(9,372 )
(72,930 )
124,269
7,895
3,260
135,424
13,526
(107,331 )
4,244
3,179
(994 )
—
3,590
—
(1,056 )
4,207
695
—
6,583
(86,883 )
(44,766 )
(131,649 )
158,287
—
—
(3,849 )
10,000
31,200
18,930
(1,115 )
31,316
1,703
(7,171 )
16,000
(16,000 )
(500 )
238,801
(5,825 )
348
1,427
(97,569 )
439
(101,180 )
5,972
1,863
60
7,895
1,819
77 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
1. Nature of operations
Champion Iron Limited (“Champion” or the "Company") was incorporated under the laws of Australia in 2006 and is listed on the Toronto Stock
Exchange (TSX: CIA) and Australian Securities Exchange (ASX: CIA). Champion is an iron ore mining company with its key asset, the Bloom Lake
Mine, a long-life, large-scale open pit operation located in northern Quebec, approximately 300 km north of Sept-Iles and 13 km from the town of
Fermont, Quebec, Canada. The Company declared commercial production at the Bloom Lake Mine as of June 30, 2018. Champion owns a 63.2%
interest in its subsidiary, Quebec Iron Ore Inc. (“QIO”). Ressources Québec, a subsidiary of governmental agency Investissement Québec, is the
owner of the remaining 36.8% share. The Bloom Lake Mine assets are held through QIO.
2. Summary of significant accounting policies
A. Basis of preparation
These consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial assets
and financial liabilities to fair value.
The financial report is a general purpose financial report which has been prepared for a for-profit enterprise in accordance with the requirements
of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards
Board. The financial report has also been prepared on a historical cost basis, except for investments and derivative financial instruments which
have been measured at fair value.
The nature of the operations and principal activities of the Company are described in the Directors’ Report.
B. Statement of Compliance
These audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board ("IASB").
The Company has consistently applied the accounting policies used in the preparation of its IFRS consolidated financial statements with the
exception of those arising from new accounting standards issued and adopted by the Company as described in this note. These consolidated
financial statements were approved and authorized for issue by the Board of Directors on June 20, 2019.
C. Significant accounting policies and future accounting changes
The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements.
Basis of consolidation and functional currency
The consolidated financial statements include the accounts of the Company and its significant subsidiaries listed below:
Country of
incorporation
Canada
Canada
Canada
Champion Iron Mines Limited
Québec Iron Ore Inc.
Lac Bloom Railcars Corporation Inc.
There have been no changes in ownership percentages from the comparative period.
Ownership
percentage
100.0%
63.2%
100.0%
Functional
currency
Canadian dollars
Canadian dollars
US dollars
Consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Control is achieved when the
Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through
its power over the investee. Specifically, the Company controls an investee if, and only if, the Company has all of the following:
• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement with the investee;
• the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights results in control. All intra-group assets and liabilities, revenues, expenses and
cash flows relating to intra-group transactions are eliminated.
78 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
C. Significant accounting policies and future accounting changes (continued)
Non-controlling interest
Non-controlling interest represents the minority shareholder’s portion of the profit or loss and net assets of subsidiaries and is presented
separately in the consolidated statements of financial position and consolidated statements of income (loss). Losses within a subsidiary are
attributable to the non-controlling interests even if that results in a deficit balance.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is
responsible for allocating resources and assessing the performance of the operating segments, and which has been identified as the
management team that makes strategic decisions.
Cash and cash equivalents
Cash and cash equivalents consist of cash in bank, cash held in trust and short-term deposits with a maturity of less than three months.
Non-derivatives financial assets
The Company initially recognizes loans and receivables and deposits on the date that they are originated. All other financial assets (including
assets designated at fair value through profit or loss) are recognized initially on the trade date, which is the date that the Company becomes a
party to the contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to
receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the
financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate
asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company
has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The Company classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-
to-maturity financial assets, loans and receivables and available-for-sale financial assets.
Inventories
Inventories of ore and concentrate are measured and valued at the lower of average production cost and net realizable value. Net realizable
value is the estimated selling price of the concentrates in the ordinary course of business based on the prevailing metal prices on the reporting
date, less estimated costs to complete production and to bring concentrates to sale. Production costs that are inventoried include the costs
directly related to bringing the inventory to its current condition and location, such as materials, labour and manufacturing overhead costs,
based on normal capacity of the production facilities.
Supplies and spare parts are valued at the lower of cost or net realizable value. Any provision for obsolescence is determined by reference to
specific items of stock. A regular review is undertaken to determine the extent of any provision for obsolescence.
Property, plant and equipment
Property, plant and equipment are carried at historical cost less any accumulated depreciation and impairment losses.
Depreciation is calculated on the following basis over the estimated useful lives of property, plant and equipment:
Tailings dykes
Mining and processing equipment Straight-line over 2 to 12 years or units-of-production basis over the recoverable reserves
Straight-line over 23 to 24 years or units-of-production basis over the recoverable reserves
Locomotives, railcars and rails
Units-of-production basis over recoverable reserves
Units-of-production basis over recoverable reserves
Straight-line over 3 to 24 years
Stripping activity asset
Others
79 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
C. Significant accounting policies and future accounting changes (continued)
Stripping (waste removal) costs
Where the benefits are realized in the form of improved access to ore to be mined in the future, the costs are recognized as a non-current asset,
referred to as a stripping costs, if the following criteria are met:
a) Future economic benefits (being improved access to the ore body) are probable;
b) The component of the ore body for which access will be improved can be accurately identified;
c) The costs associated with the improved access can be reliably measured.
If any of the criteria are not met, the production stripping costs are charged to profit or loss as operating costs as they are incurred. The stripping
ratio varies depending of the stage of the mine life. In the case of the Bloom Lake mine, the life of mine stripping ratio is estimated at 0.5 based
on the 43-101 Technical report on the Bloom Lake mine re-start feasibility study ("The Feasibility Study"). All costs related to a stripping ratio
over the life of mine ratio are capitalized and all costs related to a stripping ratio lower than the life of mine ratio results in amortization of the
stripping activity asset. The capitalized expenses are revalued on a monthly basis. Stripping costs incurred in the pre-production period have
also been capitalized using the same methodology. The production start date has been determined by the Company using various relevant
criteria as level of capital expenditures incurred compared to original budget, completion of reasonable period of testing, ability to produce
concentrate in saleable form and ability to sustain ongoing production of concentrate.
Exploration and evaluation assets
i) Recognition and measurement
Exploration and evaluation assets, including the costs of acquiring licenses and directly attributable general and administrative costs, initially
are capitalized as exploration and evaluation assets. The costs are accumulated by property pending the determination of technical feasibility
and commercial viability. Pre-license costs are expensed when incurred. Pre-exploration costs are expensed unless it is considered probable
that they will generate future economic benefits.
Mining tax credits earned in respect to costs incurred in Quebec are recorded as a reduction to exploration and evaluation assets when there is
reasonable assurance that the Company has complied with, and will continue to comply with, all conditions needed to obtain the credits. The
recoverability of amounts shown for exploration and evaluation assets is dependent upon the ability of the Company to obtain financing to
complete the exploration and development of its mineral resource properties, the existence of economically recoverable reserves and future
profitable production, or alternatively, upon the Company’s ability to recover its costs through a disposition of its mineral resource properties.
The amounts shown for exploration and evaluation assets do not necessarily represent present or future value. Changes in future conditions
could require a material change in the amount recorded for exploration and evaluation assets.
The technical feasibility and commercial viability of extracting a mineral resource from a property is considered to be determinable when proved
and/or probable reserves are determined to exist and the necessary permits have been received to commence production. A review of each
property is carried out at least annually. Upon determination of technical feasibility and commercial viability, exploration and evaluation assets
are first tested for impairment and then reclassified to property, plant and equipment and/or intangibles or expensed to the consolidate
statements of income (loss) to the extent of any impairment.
ii) Impairment
Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial
viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. An impairment loss is recognized
in the consolidated statements of income (loss) if the carrying amount of a property exceeds its estimated recoverable amount. The recoverable
amount of property used in the assessment of impairment of exploration and evaluation assets is the greater of its value in use (VIU) and its fair
value less costs of disposal (FVLCTS). VIU is determined by estimating the present value of the future net cash flows at a pre-tax discount rate
that reflects current market assessment of the time value of money and the risks specific to the property.
FVLCTS refers to the price that would be received to sell the property in an orderly transaction between market participants. For a property that
does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the property
belongs. Impairment losses previously recognized are assessed at each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount only to the
extent that the property's carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had
been recognized.
80 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
C. Significant accounting policies and future accounting changes (continued)
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably,
and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the
liability. The unwinding of the discount is recognized as finance cost.
Long-term debt
The long-term debts are initially measured at fair value, net of transactions costs, and are subsequently measured at amortized cost using the
effective interest rate method, with interest expense recognized on an effective yield basis.
Convertible debenture, Altius
The convertible debenture, Altius consists of a debt instrument, minimum interest obligation and an equity conversion feature. The Company has
identified the minimum interest obligation and equity conversion features as embedded derivatives. At initial recognition, the Company estimated
the fair value of the equity conversion feature and the present value of the minimum interest obligation. The difference between the gross
proceeds and these amounts was allocated to the debt liability under the residual method. The debt balance will be unwound up to the maturity
date using the effective interest method.
Convertible debenture, Glencore
The convertible debenture, Glencore consists of a debt instrument with a derivative liability conversion option. At initial recognition, the Company
estimated the fair value of the derivative feature. The fair value of the derivative is reassessed at each balance sheet date. The equity conversion
feature is accounted for as a derivative liability on the Company’s consolidated financial statements.
Rehabilitation obligation
The Company records a rehabilitation obligation for legal and constructive asset retirement obligations. Rehabilitation obligation is recorded for
an amount that represent the expenditure required to settle the present obligation at the end of the reporting period. Where the effect of the time
value of money is material, the Company will adjust the amount of the provision which will be the present value of the expenditures expected to
be required to settle the obligation, discounted by the number of years between the reporting date and the rehabilitation date.
Share capital
Share capital is classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from
equity, net of any tax effects.
Foreign currency translation reserve
Exchange differences relating to the translation of the results and net assets of the Company’s operations from their functional currency to the
Company’s presentation currency are recognized directly in other comprehensive income and accumulated in the foreign currency translation
reserve with the exception of those balances that are within the scope of AASB 9 Financial Instruments and IFRS 9 Financial Instruments.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency of the Company’s entities using the exchange rates prevailing at the
dates of the transactions or an appropriate average exchange rate. Generally, foreign exchange gains and losses resulting from the settlement
of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies
other than the Company’s functional currency are recognized in the consolidated statements of income (loss). Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-
monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on
the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in other comprehensive
income or profit or loss are also recognized in other comprehensive income or profit or loss, respectively).
81 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
C. Significant accounting policies and future accounting changes (continued)
Functional and presentation currency
Items included in the financial statements of each consolidated entity of the Company are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The financial statements of entities that have a functional currency different
from the Company are translated into Canadian dollars as follows: assets and liabilities are translated at the closing rate at the date of the
statement of financial position, and income and expenses are translated at the average rate during an appropriate year. Equity transactions are
translated using the exchange rate at the date of the transaction and all resulting changes are recognized in other comprehensive income as
cumulative translation adjustments.
Share-based payments
The Company offers a stock option plan for its officers, directors, employees and consultants. The fair value of stock options for each vesting
period is determined using the Black-Scholes option pricing model and is recorded over the vesting period as an increase to stock-based
compensation and contributed surplus. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of options
that vest. Upon the exercise of stock options, the proceeds received by the Company and the related contributed surplus are recorded as an
increase to share capital. In the event that vested stock options expire, previously recognized share-based compensation is not reversed. In the
event that stock options are forfeited, previously recognized share-based compensation associated with the unvested portion of the stock
options forfeited is reversed.
The fair value of share-based payment transactions to non-employees and other share-based payments including shares issued to acquire
exploration and evaluation assets are based on the fair value of the goods and services received. If the fair value cannot be estimated reliably,
the share-based payment transaction is measured at the fair value of the equity instruments granted at the date the Company receives the
goods or services.
Restart costs
Care and maintenance costs have been incurred during the period of operation idle. Day-to-day servicing expenses as well as regular
maintenance expenses to ensure assets integrity have been expensed. Most of 2018 fiscal year was not in a care and maintenance mode. Non-
capital restart costs, that cover the period from May 1st 2017 to January 31st, 2018, includes all costs related to staff mobilization and training,
expenses incurred to return an asset back to historical level and other expenditures that did not increase capacity or life duration and have
been expensed.
Government grants
The Company receives certain grants from the government. Those grants are recognized only when there is a reasonable assurance that the
Company will comply with any conditions attached to the grants and the grants will be received. Those grants are recorded against the
expenditure that they are intended to compensate.
Income tax
Income tax expense comprises current and deferred taxes. Current tax and deferred tax is recognized in profit or loss except to the extent that
it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted
at the reporting date, and any adjustment to tax payable in respect of previous years.
82 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
C. Significant accounting policies and future accounting changes (continued)
Income tax (continued)
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit or loss;
• temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will
not reverse in the foreseeable future; and
• taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to
income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities
and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that
future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the related tax benefit will be realized.
Initial recognition
Financial Assets
i)
Under IFRS 9 and AASB 139, there is a change in the classification and measurement requirements relating to financial assets. Previously, there
were four categories of financial assets: loans and receivables, fair value through profit or loss, held to maturity and available for sale. Under
IFRS 9, financial assets are either classified as amortized cost, fair value through profit or loss or fair value through other comprehensive income.
For debt instruments, the classification is based on two criteria: the Company’s business model for managing the assets; and whether the
instruments’ contractual cash flows represent ‘solely payments of principal and interest’ (SPPI) on the principal amount outstanding. A financial
asset can only be measured at amortized cost if both of the following are satisfied:
• Business model: the objective of the business model is to hold the financial asset for the collection of the contractual cash flows
• Contractual cash flows: the contractual cash flows under the instrument relate solely to payments of principal and interest
The assessment of the Company business model was made as of the date of initial application, April 1, 2018, and then applied retrospectively to
those financial assets that were not derecognised before April 1, 2018. The assessment of whether contractual cash flows on debt instruments
are SPPI was made based on the facts and circumstances as at the initial recognition of the assets.
The classification and measurement requirements of IFRS 9 did not have a significant impact on the Company.
ii) Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e.,
removed from the Company’s consolidated statements of financial position) when:
•
•
The rights to receive cash flows from the asset have expired, or
The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred
substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the asset
83 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
C. Significant accounting policies and future accounting changes (continued)
Financial Assets (continued)
ii) Derecognition of financial assets (continued)
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates
if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the
risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of
its continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability
are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of
a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of
consideration that the Company could be required to repay.
iii) Financial assets at fair vale through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, e.g., derivative instruments, financial assets
designated upon initial recognition at fair value through profit or loss, e.g., debt or equity instruments, or financial assets mandatorily required
to be measured at fair value, i.e., where they fail the SPPI test. Financial assets are classified as held for trading if they are acquired for the
purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading
unless they are designated as effective hedging instruments. Financial assets with cash flows that do not pass the SPPI test are required to be
classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments
to be classified at amortized cost or at fair value through other comprehensive income, as described above, debt instruments may be designated
at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch. Financial assets
at fair value through profit or loss are carried in the statements of financial position at fair value with net changes in fair value recognized in
profit or loss.
A derivative embedded in a hybrid contract with a financial liability or non-financial host, is separated from the host and accounted for as a
separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as
the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss.
Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is
either a change in the terms A derivative embedded in a hybrid contract with a financial liability or non-financial host, is separated from the host
and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument
with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value
through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment
only occurs if there is either a change in the terms
of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair
value through profit or loss category.
As IFRS 9 now has the SPPI test for financial assets, the requirements relating to the separation of embedded derivatives is no longer needed
for financial assets. An embedded derivative will often make a financial asset fail the SPPI test thereby requiring the instrument to be measured
at fair value through profit or loss in its entirety. This is applicable to the Company’s trade receivables (subject to provisional pricing). These
receivables relate to sales contracts where the selling price is determined after delivery to the customer, based on the market price at the
relevant quotation period stipulated in the contract. This exposure to the commodity price causes such trade receivables to fail the SPPI test. As
a result, these receivables are measured at fair value through profit or loss from the date of recognition of the corresponding sale, with
subsequent movements being recognized in the consolidated statements of income (loss).
iv) Impairment of financial assets
The Company recognizes an allowance for expected credit loss ("ECL") for all debt instruments not held at fair value through profit or loss. ECLs
are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company
expects to receive, discounted at an approximation of the original effective interest rate ("EIR"). The expected cash flows will include cash flows
from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition,
ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit
exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
84 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
C. Significant accounting policies and future accounting changes (continued)
Financial Assets (continued)
iv) Impairment of financial assets (continued)
For trade receivables (not subject to provisional pricing) and other receivables due in less than 12 months, the Company applies the simplified
approach in calculating ECL, as permitted by IFRS 9. Therefore, the Company does not track changes in credit risk, but instead, recognizes a loss
allowance based on the financial asset’s lifetime ECL at each reporting date. The Company has established a provision matrix that is based on
its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. For any other
financial assets carried at amortized cost (which are due in more than 12 months), the ECL is based on the 12-month ECL. The 12-month ECL is
the proportion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting
date. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL. When
determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the
Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both
quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment including
forward-looking information.
The Company considers a financial asset in default when contractual payments are 180 days past due. However, in certain cases, the Company
may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the
outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written
off when there is no reasonable expectation of recovering the contractual cash flows and usually occurs when past due for more than one year
and not subject to enforcement activity. At each reporting date, the Company assesses whether financial assets carried at amortized cost are
credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows
of the financial asset have occurred.
Initial recognition and measurement
Financial liabilities
i)
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings,
payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized
initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
ii) Loans and borrowings and trade and other payables
After initial recognition, interest-bearing loans and borrowings and trade and other payables are subsequently measured at amortized cost using
the EIR method. Gains and losses are recognized in the consolidated statements of income (loss) when the liabilities are derecognized, as well
as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees
or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the consolidated statements of income (loss).
iii) Derecognition
A financial liability is derecognized when the associated obligation is discharged or cancelled or expires. When an existing financial liability is
replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such
an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the
respective carrying amounts is recognized in the consolidated statements of income (loss).
Financial instruments valuation
The Company measures derivatives at fair value at each balance-sheet date. Also, fair values of financial instruments measured at amortized
costs are disclosed in Note 27.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The fair value measurement is based on the presumption that he transaction to sell the asset or transfer the liability
takes place either:
•
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability.
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Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
C. Significant accounting policies and future accounting changes (continued)
Financial instruments valuation (continued)
The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using
the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic
best interest. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to
measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities
for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described,
as follows, based on the lowest-level input that is significant to the fair value measurement as a whole:
•
•
•
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities, or
Level 2 — Valuation techniques for which the lowest-level input that is significant to the fair value measurement is directly or indirectly
observable, or
Level 3 — Valuation techniques for which the lowest-level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Company determines whether
transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period. An analysis of fair values of financial instruments and further details as
to how they are measured are provided in notes 16 and 27.
D. Significant accounting judgments, estimates and assumptions
The preparation of financial statements in conformity with IFRS requires the Company's management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which
the estimates are revised and in any future years affected.
Estimates
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next
financial year are as follow:
Estimates of mineral reserves and resources
The amounts used in impairment indicators analysis are based on estimates of mineral reserves and resources. Reserve and resource estimates
are based on engineering data, estimated future prices, expected future rates of production and the timing of future capital expenditures, all of
which are subject to many uncertainties and interpretations. The Company expects that, over time, its reserve and resource estimates will be
revised upward or downward based on updated information such as the results of future drilling, testing and production levels, and may be
affected by changes in iron ore prices. See note 10, Property, Plant and Equipment.
Units of production depreciation
The units of production used in the depreciation calculation is based on the ore feed of the mill compared to the economically recoverable
reserves.
Stripping costs
Stripping costs are estimated based on additional volume mined due to a higher stripping ratio. A standard unit cost is applied to the volume.
The unit cost is revalued on a quarterly basis.
Impairment of exploration and evaluation assets
Exploration and evaluation assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable through future exploitation or sale. Such circumstances include the period for which the Company has the right to explore
in a specific area, actual and planned expenditures, results of exploration, whether an economically-viable operation can be established and
significant negative industry or economic trends. Management judgment is also applied in determining cash generating units, the lowest levels
of exploration and evaluation assets grouping, for which there are separately identifiable cash flows, generally on the basis of areas of geological
interest. See note 11, Exploration and Evaluation Assets.
86 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
D. Significant accounting judgments, estimates and assumptions (continued)
Estimate of rehabilitation obligation
The rehabilitation obligation is based on the best estimate of the expenditures required to settle the present obligation at the end of the reporting
period. The best estimate of the expenditure required to settle the present obligation is the amount that the company would rationally pay to
settle obligation at the end of the reporting period or to transfer it to a third party. The rehabilitation obligation has been determined based on
the Company’s internal estimates. Assumptions based on the current economic environment have been made, which management believes are
a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to take into account any material changes
to the assumptions. However, actual rehabilitation costs will ultimately depend upon future market prices for the necessary rehabilitation works
required that will reflect market conditions at the time. Furthermore, the timing of rehabilitation is likely to depend on when the Bloom Lake
ceases to produce at economically viable rates. This, in turn, will depend upon future iron ore prices, which are inherently uncertain. See note 19,
Rehabilitation Obligation.
Share-based payments
The Company uses the Black-Scholes option pricing model in determining share-based payments, which requires a number of assumptions to
be made, including the risk-free interest rate, expected life, forfeiture rate and expected share price volatility. Consequently, actual share-based
compensation may vary from the amounts estimated. See note 20, Share Capital and Reserves.
Revenue recognition
The Company recognizes revenue from sales of concentrate when control of the concentrate passes to the customer, which occurs upon
shipment. Revenue is recognized, at fair value of the consideration received or receivable to the extent that it is probable that economic benefits
will flow to the Company and the revenue can be reliably measured, net of sale taxes.
For all the sales contracts, the sales price is determined provisionally at the date of sale, with the final pricing determined at a mutually agreed
date (generally between 2 to 3 months from the date of the sale), at a quoted market price at that time. This provisional pricing arrangement has
the characteristics of an embedded derivative which does not qualify for hedge accounting and is recorded at fair value based on the forward
iron concentrate prices for the relevant contract period. All subsequent mark-to-market adjustments are recorded in sales revenue up to the
date of final settlement.
Price changes for shipments awaiting final pricing at year-end could have a material effect on future revenues. As at March 31, 2019, there was
US$81,472,000 (March 31, 2018: nil) in revenues that were awaiting final pricing.
Valuation of deferred income tax assets
To determine the extent to which deferred income tax assets can be recognized, management estimates the amount of probable future taxable
profits that will be available against which deductible temporary differences and unused tax losses can be utilized. Such estimates are made as
part of the budget on an undiscounted basis and are reviewed on a quarterly basis. Management exercises judgment to determine the extent to
which realization of future taxable benefits is probable, considering factors such as the number of years to include in the forecast period. See
Note 25 - Income taxes for more details.
E. New accounting standards issued and adopted by the Company
A number of new or amended standards became applicable for the current reporting period and the Company had to change its accounting
policies as a result of adopting the following standards:
•
•
IFRS 9 Financial Instruments, and
IFRS 15 Revenue from Contracts with Customers.
The impact of the adoption of these standards and the new accounting policies are disclosed below. The other standards did not have any impact
on the Company’s accounting policies and did not require retrospective adjustments.
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Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
2. Summary of significant accounting policies (continued)
E. New accounting standards issued and adopted by the Company (continued)
IFRS 9, Financial Instruments (“IFRS 9”)
i)
In July 2014, the International Accounting Standards Board (“IASB”) issued IFRS 9, which represents the final version of this standard and
completes the IASB’s project to replace International Accounting Standard (“IAS”) 39, Financial Instruments: Recognition and Measurement. This
standard includes updated guidance on the classification and measurement of financial assets and liabilities.
This standard also introduces a new, expected credit loss impairment model that will require more timely recognition of expected credit losses.
IFRS 9 also introduces a substantially-reformed model for hedge accounting with enhanced disclosures about risk management activity and
aligns hedge accounting. There was no impact to the Company's consolidated financial statements as a result of adopting this standard.
The accounting policies for financial instruments have been updated and disclosed in note 2C above.
ii) IFRS 15, Revenue from contracts with customers (“IFRS 15”)
IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18, Revenue, IAS 11, Construction Contracts, and several
revenue-related interpretations. This standard establishes a control-based revenue recognition model and provides additional guidance in many
areas not covered in detail under existing IFRS, including how to account for arrangements with multiple performance obligations, variable
pricing, customer refund rights, supplier repurchase options, and other common complexities. The Company adopted IFRS 15 on April 1, 2018.
As a result of the IFRS 15 adoption, the accounting policy for iron ore sales has been adopted and disclosed in note 2C above.
F. New significant Standards and Interpretations not yet adopted
Australian Accounting Standards and International Financial Reporting Standards that have been issued but are not yet effective have not been
adopted by the Company for the year ended March 31, 2019.
IFRS 16, Leases (“IFRS 16”)
i)
In January 2016, the IASB released IFRS 16, Leases, to replace the previous leases Standard, IAS 17, Leases, and related Interpretations. IFRS 16
sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, the customer
(lessee) and the supplier (lessor). IFRS 16 eliminates the classification of leases as either operating leases or finance leases and introduces a
single lessee accounting model. IFRS 16 also substantially carries forward the lessor accounting requirements. Accordingly, a lessor continues
to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.
IFRS 16 will be effective for the Company’s fiscal year beginning on April 1, 2019, and the Company elected to use the modified retrospective
approach. The Company will elect to apply the standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4. The
Company will therefore not apply the standard to contracts that were not previously identified as containing a lease applying IAS 17 and IFRIC 4.
In addition, the Company will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms end within
12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value.
The Company evaluated the impact the adoption of this standard will have on its consolidated financial statements. Where the Company is a
lessee, IFRS 16 will result in on-balance sheet recognition of its leases that are considered operating leases under IAS 17. The Company does not
expect a significant impact of the adoption of IFRS 16.
3. Cash and cash equivalents
As at March 31, 2019, cash and cash equivalents totaling $135,424,000 (March 31, 2018: $7,895,000) consisted of cash in bank chequing
accounts. As at March 31, 2019, the Company’s cash balance is comprised of $36,823,000 U.S. dollars ($49,207,000), $265,000 Australian
dollars ($251,000), and $85,966,000 Canadian dollars.
88 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
4. Short-Term Investments
As of March 31, 2019, short-term investments of $17,907,000 (March 31, 2018: $17,291,000) include an amount of $16,941,000 which is pledged
as security for letters of credit to third parties (March 31, 2018: $16,941,000) and an amount of $350,000 pledged as security for credit card
obligations (March 31, 2018: $350,000). These short-term investments need to be pledged as security as long as the agreements are in place
with third parties. Maturity date of those agreements vary from 2019 to 2027. Balance of $616,000 represents unpledged short-term investments
(March 31, 2018: nil).
5. Receivables
Trade receivables
Sales tax
Government grants
Refundable tax credits
Other receivables
As at March 31,
2019
As at March 31,
2018
79,464
12,705
—
—
843
93,012
—
20,060
4,229
1,213
336
25,838
For the year ended March 31, 2019, no specific provision was recorded on any of the Company's receivables (March 31, 2018: nil). They are
generally settled within six months and are therefore, collectable.
6. Prepaid Expenses and Advances
Rail transportation
Port
Operational expenses
Others
7. Inventories
Stockpiles ore
Concentrate inventories
Supplies and spare parts
As at March 31,
2019
As at March 31,
2018
9,245
1,943
10,714
2,284
24,186
7,558
1,983
5,007
1,350
15,898
As at March 31,
2019
As at March 31,
2018
14,572
10,196
19,386
44,154
8,081
36,449
3,641
48,171
The amount of inventories recognized as cost of sales totalled $366,497,000 for the fiscal year 2019 (nil for the fiscal year 2018).
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Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
8. Investments
Investments in Listed Common Shares
Fancamp Exploration Ltd.
Others
As at March 31,
2019
As at March 31,
2018
1,980
673
2,653
1,980
2,270
4,250
Investments in listed common shares are classified as financial assets at fair value through profit or loss. For the year ended March 31, 2019,
the net decrease in the fair value of investments in common shares of $1,597,000 (increase for the year ended March 31, 2018 – $1,056,000)
has been recorded as an unrealized loss (gain) on investments in the net finance costs of the consolidated statements of income (loss).
9. Advance Payments
Port
Railway and port facilities
Rail transportation
Deposit related to rehabilitation obligation
Investment in railway and port facilities partnership
Other long term advance
Port
As at March 31,
2019
As at March 31,
2018
21,842
4,610
—
6,000
1,000
4,798
38,250
23,546
6,050
6,921
—
1,000
—
37,517
On July 13, 2012, the Company signed an agreement with the Sept-Îles Port Authority ("Port") to reserve annual loading capacity of 10 million
metric tons of iron ore for an initial term of 20 years with options to renew for 4 additional 5-year terms. Pursuant to the Agreement, the Company
made an advance payment of $25,581,000 and take-or-pay payments as an advance on its future shipping, wharfage and equipment fees. In
2018, the Company has started to recognize loading costs as per the contract with the Port, the current portion of the advance is presented
under Prepaid Expenses and Advances (note 6) and associated credit is now deducted from the advance on a monthly basis based on the agreed
rate per ton.
Railway and port facilities
On October 12, 2017, the Company entered into a railway and stockyard facilities access agreement with Société Ferroviaire et Portuaire de
Pointe-Noire ("SFPPN") for the transportation, unloading, stockpiling and loading of iron ore concentrate from Sept-Iles to Pointe-Noire, Québec.
In connection with the agreement, the Company make yearly advance payments of $3,750,000 to SFPPN to guarantee access to the yard. In
addition, during the year ended March 31, 2019, the Company made additional advance to SFPPN to support its working capital needs of
approximately $800,000.
Rail transportation
On June 8, 2017, the Company entered into a rail transportation agreement with Quebec North Shore and Labrador Railway Company, Inc.
("QNS&L") for the transportation of iron ore concentrate from Bloom Lake by rail from the Wabush Lake Junction in Labrador City, Newfoundland
& Labrador to the Sept-Îles Junction in Sept-Îles, Quebec. In connection with the agreement, the Company made an advance payment of
$15,000,000 which is recovered as a credit to transportation costs owing under the agreement based on the agreed rate per ton. In 2018, the
Company has started to recognize transportation costs as per the contract with QNS&L. As of March 31, 2019, the advance was all transferred
to Prepaid Expenses and Advances (note 6) as the outstanding balance is expected to be deducted in total within the next year.
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Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
9. Advance Payments (continued)
Deposit related to rehabilitation obligation
In accordance with the Quebec regulations, the Company deposited $6,000,000 to the Ministry of Finance during the year ended March 31, 2019
(March 31, 2018: nil). The deposit is kept by the Ministry of Finance and will be reimbursed to the Company at the end of the mine life once the
Company has completed its obligation with respect to the rehabilitation of the mine site.
Other long-term advance
The other long-term advance relates to amounts paid to SFPPN annually and recoverable from under the guarantee access agreement if certain
conditions are met.
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Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
10. Property, Plant and Equipment
Mining and
Processing
Equipment
Locomotives,
Railcars and
Rails
Tailings
Dykes
Assets under
Construction
COST
March 31, 2018
Additions
Transfers, disposals and others
Foreign exchange
March 31, 2019
ACCUMULATED
March 31, 2018
Depreciation
Disposals and others
Foreign exchange
March 31, 2019
Net book value -
March 31, 2019
COST
March 31, 2017
Additions
Transfers, disposals and others
Foreign exchange
March 31, 2018
ACCUMULATED
March 31, 2017
Depreciation
Disposals and others
Foreign exchange
March 31, 2018
Net book value -
March 31, 2018
Stripping
Activity
Asset
—
11,740
8,124
—
19,864
3,000
14,941
10,107
—
28,048
107,894
21,795
(104,989 )
—
24,700
13
938
—
—
951
—
—
—
—
—
—
447
—
—
447
Others
TOTAL
5,412
1,291
(101 )
(5 )
6,597
478
927
(101 )
(7 )
1,297
179,604
63,142
(604 )
1,406
243,548
6,885
13,343
(602 )
(201 )
19,425
23,766
6,552
86,255
—
116,573
4,576
8,837
(501 )
—
12,912
39,532
6,823
—
1,411
47,766
1,818
2,194
—
(194 )
3,818
103,661
43,948
27,097
24,700
19,417
5,300
224,123
Mining
Equipment
Locomotives,
Railcars and
Rails
Tailings
Dykes
Assets under
Construction
Stripping
Activity
Asset
23,573
600
(407 )
—
23,766
2,259
2,317
—
—
4,576
41,452
—
—
(1,920 )
39,532
104
1,710
—
4
1,818
3,000
—
—
—
3,000
—
107,921
(27 )
—
107,894
—
13
—
—
13
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Others
TOTAL
4,466
946
—
—
5,412
72,491
109,467
(434 )
(1,920 )
179,604
276
204
(2 )
—
478
2,639
4,244
(2 )
4
6,885
19,190
37,714
2,987
107,894
—
4,934
172,719
92 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
11. Exploration and Evaluation Assets
Labrador Trough (Quebec portion)
Newfoundland
Labrador Trough (Quebec portion)
Newfoundland
As at
2018
71,868
269
72,137
As at
2017
69,624
—
69,624
Exploration
Others
7,442
1,946
9,388
(17 )
—
(17 )
Exploration
Others
780
269
1,049
1,464
—
1,464
As at
2019
79,293
2,215
81,508
As at
2018
71,868
269
72,137
Exploration and evaluation assets mainly comprise mining rights and exploration and evaluation expenditures which typically include costs
associated with prospecting, sampling, trenching, drilling and other work involved in searching for ore such as topographical, geological,
geochemical and geophysical studies.
Exploration and evaluation assets are reported net of option payments and mining tax credits received, if any.
12. Accounts Payable and Accrued Liabilities
Trade payable and accrued liabilities
Wages and benefits
Restart costs
13. Convertible Debenture, Altius
Opening balance
Proceeds (conversion)
Fair value of derivatives
Gain on extension of maturity date
Accretion of debt discount
Ending balance
As at March 31,
2019
As at March 31,
2018
37,478
7,219
—
44,697
45,683
5,032
12,766
63,481
As at March 31,
2019
As at March 31,
2018
9,791
(10,000 )
—
(713 )
922
—
—
10,000
(1,191 )
—
982
9,791
In accordance with the agreement, on December 31, 2018, the convertible debenture was converted into 10,000,000 ordinary shares of the
Company at a conversion price of $1.00 per share.
93 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
14. Note payable
Consideration loan (US$28,260,000)
As at March 31,
2019
As at March 31,
2018
—
36,438
On March 10, 2017, the Company entered into a Railcar Installment Sale Agreement to acquire 735 specialized iron ore railcars for consideration
of US$30,078,000. The Company made a down payment of US$1,818,000 with the balance of the consideration being financed by a note owing
to the vendor. The note matured on March 10, 2019 and has been fully repaid by the Company.
15. Property Taxes Payable
The property taxes payable relate to the real estate taxes of the municipality of Fermont, Quebec.
Following the acquisition of the Bloom Lake property, the Company requested a revision of the property assessment. In December 2018, the
authorities have approved a revised assessment confirming a lower taxable value. The decision resulted in a provision decrease amounting to
$7,559,000.
As at March 31, 2019, property taxes payable of $13,940,000 (March 31, 2018: $16,276,000) includes property taxes of $8,956,000 (March 31,
2018: $14,469,000), accrued interest of $1,918,000 (March 31, 2018: $1,807,000) and property transfer duties of $3,066,000 (March 31, 2018:
nil).
The Company and the Town of Fermont have agreed that the Company will make monthly installments payments of $150,000 on the account of
property taxes for Bloom Lake and the arrears of property taxes shall bear interest at the rate of 12%. Upon recommencement of commercial
operations of Bloom Lake and provided that the price of 62% Fe iron ore minus an agreed upon transportation cost is greater than US$75 per
metric tonne for a period of 90 consecutive days, the Company will pay the arrears in 24 monthly installments, subject to the condition that the
arrears shall be paid in full by December 11, 2025.
16. Long-Term Debt
Opening balance
Advances
Transactions costs
Termination fees PPA
Accretion
Fair value of warrants
Interest capitalized
Unrealized foreign exchange
Less current portion
Ending balance
Sprott
67,553
25,340
(588 )
(4,564 )
2,217
—
4,253
3,775
97,986
(32,270 )
65,716
CDPI
73,672
41,220
(1,030 )
0
1,728
—
10,462
4,852
130,904
(3,582 )
127,322
As at March 31,
2019
As at March 31,
2018
141,225
66,560
(1,618 )
(4,564 )
3,945
—
14,715
8,627
228,890
(35,852 )
193,038
—
155,255
(5,642 )
—
1,478
(17,730 )
4,833
3,031
141,225
—
141,225
94 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
16. Long-Term Debt (continued)
On October 10, 2017, QIO entered into definitive agreements for debt financing of US$180,000,000 with the following terms:
Lender:
Amount:
Maturity:
Interest:
Repayment:
Sprott Private Resource Lending (Collector), LP (“Sprott”)
US$80,000,000
June 30, 2022
7.5% per annum plus the greater of US dollar 3-month LIBOR and 1% per annum calculated, compounded and payable
quarterly. QIO had the option to capitalize the interest until September 30, 2018.
Commencing on March 31, 2019, and quarterly thereafter, 1/14th of the principal balance outstanding (inclusive of any
capitalized interest) on September 30, 2018.
Prepayment:
Option to prepay in whole or in part at anytime with a premium of 3%.
Mandatory
prepayment:
Cash proceeds received on the disposal of any assets.
Provided that a default or event of default has occurred, cash proceeds received on the disposal of any assets by a
guarantor.
Proceeds of any equity or debt (including convertible debt) financings, excluding intercompany financings.
In the event of a change of control, QIO will repay the principal and interest. No amount shall be payable if the person
acquiring control has financial strength equal to or superior to the financial strength of the Guarantor, in the discretion of the
Lender.
Security:
(i) a title insured first ranking hypothec over the universality of movable and immovable property, corporeal and incorporeal,
present and future, including all assets, titles and rights, in any nature whatsoever, related to the Project (including for
greater certainty, the Mining Lease and all mining claims), subject only to Permitted Encumbrances;
(ii) a first ranking general security agreement under Newfoundland and Labrador law in respect of the movable assets
located in Newfoundland and Labrador, subject to Permitted Encumbrances;
(iii) a title insured first ranking mortgage under Newfoundland and Labrador law in respect of the immovable assets located
in Newfoundland and Labrador, subject only to Permitted Encumbrances;
(iv) subordination agreements in favour of the Lender with respect to all amounts due from time to time by the Borrower to
any Affiliates, including the Guarantor.
Guarantors:
(i) The Company, supported by a first ranking hypothec on securities pursuant to which the Company pledged and granted a
first-priority encumbrance over all of the issued and outstanding shares of QIO held by the Company;
(ii) Lac Bloom Railcars Corporation Inc., supported by a second ranking hypothec over all of its present and future movable
property and a second ranking general security agreement over movable assets in Newfoundland and Labrador.
Derivative
A prepayment option derivative asset exists in respect with that option. The fair value of the prepayment option derivative asset was calculated
to be $5,879,000 (note 18). The Company does not expect the execution of any of the mandatory conversion events.
95 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
16. Long-Term Debt (continued)
Lender:
Amount:
Maturity:
Interest:
CDP Investissements Inc. (''CDPI")
US$100,000,000
October 23rd, 2024
12% per annum for the first year, calculated and capitalized monthly. Thereafter, the interest rate calculated on a monthly
basis will change if the price of Iron ore per the IODEX 65% Fe CFR North China is:
(i) lower than US$66/t: 14% (capitalized, no option to pay);
(ii) higher than US$66/t but lower than US$76/t: 12% (the Company has the option to capitalized or to pay);
(iii) higher than US$76/t: 10% (payable, no option to capitalized).
From October 22, 2018, the actual interest rate was 10% and interest were paid as per schedule. Schedule payments are the
last day of June and December.
Repayment:
October 23rd, 2023 – 50% of principal and capitalized interest.
October 23rd, 2024 – the balance of the principal and capitalized interest, subject to the option to defer the payment of
capitalized interest for 1 year.
Mandatory
Prepayment:
In the event of a change of control or the closing of a public offering of QIO within 2 years from the date of the initial advance,
QIO will repay the principal and interest calculated at 14% per annum since the date of the initial advance and a performance
maintenance fee equal to the present value of all interest payments from the date of the initial advance to the maturity date.
In the event of a change of control or the closing of a public offering of QIO after 2 years from the date of the initial advance,
QIO will repay the principal and capitalized interest and an early redemption fee of 6%, 5%, 3%, 2% and 1% in years 3, 4, 5, 6,
and 7, respectively.
Prepayment
In the event of a change of control, no amount shall be payable if the person acquiring control has the financial strength equal
to or superior to the financial strength of the Guarantor, in the discretion of CDPI.
After 2 years from October 23rd, 2017, QIO has the option to prepay the principal and capitalized interest subject to the
payment of an early redemption fee of 6%, 5%, 3%, 2% and 1% in years 3, 4, 5, 6, and 7, respectively. An early redemption fee
of 14% over the initial term of the loan is applicable if prepaid before October 23, 2019.
Derivative
A variable interest derivative asset exists and the fair value was calculated to be $3,904,000 (note 18). The Company does not expect to take
advantage of this asset.
Warrants
In connection with the debt financing, the Company issued: (a) 3,000,000 common share purchase warrants to Sprott, entitling the holder to
purchase 3,000,000 ordinary shares of the Company for $1.125 until October 16, 2022 and (b) 21,000,000 common share purchase warrants to
CDPI, entitling the holder to purchase 21,000,000 ordinary shares of the Company for $1.125 after October 16, 2018 until October 16, 2024.
The fair value of the common share purchase warrants was calculated using the Black-Scholes option pricing model. The fair values attributed
to Sprott and CDPI warrants are respectively at $1,980,000 and $15,750,000. The common share warrants were accounted for as warrants in
the consolidated statements of equity.
96 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
17. Convertible Debenture, Glencore
Opening balance
Issue of convertible debenture
Fair value of derivatives
Change in fair value
Accretion of debt discount
Capitalized interest
Payment of capitalized interest
Ending balance
As at March 31,
2019
Conversion
Option
24,683
—
—
19,136
—
—
—
43,819
Convertible
Debenture
14,016
—
—
—
(215 )
2,695
(4,429 )
12,067
As at March 31,
2018
Conversion
Option
—
—
20,634
4,049
—
—
—
24,683
Convertible
Debenture
—
31,200
(20,634 )
—
1,716
1,734
—
14,016
On October 13, 2017, the Company completed a non-brokered private placement of a $31,200,000 unsecured subordinated convertible
debenture (“Debenture”) to Glencore International AG (“Glencore”) with the following terms:
Maturity:
Prepayment:
Interest:
October 13, 2025
The Company has the option to prepay the Debenture in whole, but not in part. In the event the Company
elects to prepay the Debenture and the Debenture is not converted into ordinary shares of the Company
prior to prepayment, the Company will grant 27,733,333 warrants to Glencore entitling the holder to
purchase one ordinary share for $1.125 until October 13, 2025.
12% per annum for the first year, calculated and capitalized quarterly, payable in arrears on December
31, 2018. Thereafter, the interest rate calculated on a quarterly basis will change if the price of Iron ore
per the IODEX 65% Fe CFR North China is:
(i) lower than US$66/t: 14%;
(ii) higher than US$66/t but lower than US$76/t: 12%;
(iii) higher than US$76/t: 10%.
Conversion:
Mandatory Conversion:
Mandatory Conversion events:
Glencore has the option to convert the Debenture into ordinary shares of the Company at a conversion
price of $1.125 per ordinary share.
Mandatory conversion of the Debenture into ordinary shares of the Company at a conversion price of
$0.85 per ordinary share upon (a) the occurrence of a mandatory conversion event or (b) Sprott or CDPI,
lenders for the debt financing of US180,000,000 for QIO, exercises their respective option to require a
mandatory conversion.
(i) quarterly average iron ore prices during a quarter are such that the Bloom Lake financial model fails
to demonstrate that the Bloom Lake has the capacity to meet all future obligations as they become due;
(ii) QIO is merged into, absorbed or acquired by the Company and total net debt (being debt minus freely
available cash and short-term investments) of the merged entity exceeds US$270,000,000; or
(iii) total net debt from the Company, QIO and Lac Bloom Railcars Corporation Inc. exceeds
US$250,000,000.
A conversion or mandatory conversion may not have the effect of causing Glencore to own 20% or more
of the outstanding ordinary shares.
Restriction on conversion:
.
97 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
17. Convertible Debenture, Glencore (continued)
As of March 31, 2019, the Company does not expect the execution of any of the mandatory conversion events.
In connection with the closing of the Debenture, QIO entered into an off-take agreement with Glencore to grant global off-take rights for life-of-
mine of Bloom Lake with fixed commercial terms for a 10-year period for all tones of future iron ore production at Bloom Lake not sold in Japan
under the existing off-take agreement with Sojitz. In the event of a Mandatory Conversion, the off-take terms will apply for the life-of-mine of
Phase I of Bloom Lake and Glencore will have the option to convert the marketing fees under the off-take terms into a FOB-based royalty under
certain circumstances. In addition, Glencore has been granted a right of first refusal in connection with the financing and off-take rights for iron
ore production of Phase II of Bloom Lake not allocated to certain strategic investors.
Derivative
A prepayment option derivative exists in respect of that option. The fair value of the prepayment option derivative asset was calculated to be nil.
A variable interest derivative asset exists and the fair value was calculated to be $1,017,000 (note 18). The Company does not expect to take
advantage of this asset.
A conversion option derivative liability exists in respect to the option of Glencore to convert and the option of Sprott and CDPI to require Glencore
to convert the convertible debenture into ordinary shares of the company.
The fair value of the conversion option derivative liability was calculated using the Black-Sholes option pricing model with the following
assumptions:
Conversion options granted
Exercise price
Share price
Risk-free interest rate
Expected volatility based on historical volatility
Valuation date
Expected life of conversion option
Expected dividend yield
Forfeiture rate
Fair value
As at March 31,
2019
27,733,333
$1.125
$1.96
1.6%
86%
March 31, 2019
6.5 years
0%
0%
$43,819,000
As at March 31,
2018
27,733,333
$1.125
$1.17
2.5%
80%
March 31, 2018
7.5 years
0%
0%
$24,683,000
The equity conversion feature is accounted for as a derivative liability on the consolidated statements of financial position.
18. Derivative Assets
Prepayment option - Sprott
Variable interest - CDPI
Variable interest - Glencore
Notes
As at March 31,
2019
As at March 31,
2018
16
16
17
5,879
3,904
1,017
10,800
—
—
—
—
98 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
19. Rehabilitation Obligation
Opening balance
Increase due to reassessment of the rehabilitation obligation
Accretion of rehabilitation obligation
Ending balance
As at March 31,
2019
As at March 31,
2018
35,893
—
672
36,565
25,155
10,043
695
35,893
The accretion of rehabilitation obligation was evaluated as the amount of the expenditure required to settle the present obligation at the end of
the reporting period, discounted by the number of years between the reporting date and the rehabilitation date using a discount rate of 0.46%
(0.53% for the year ended on March 31, 2018) representing a free-risk rate. The future rehabilitation obligation was reassessed during the year
ended March 31, 2018 based on the reclamation plan submitted to the government in February 2018. Reassessment have been performed as at
March 31, 2019 and no further revision was needed this year. The undiscounted amount related to the rehabilitation obligation is estimated at
$39.9M.
20. Share Capital and Reserves
a)
Share issuances
Shares
Opening balance
Shares issued for public offering
Shares issued for exercise of options - incentive plan
Shares issued for exercise of options - outside incentive plan
Shares issued for exercise of share rights
Shares issued - conversion of Altius debenture
Ending balance
Year ended March 31,
2019
(in thousands)
414,618
—
4,100
1,000
752
10,000
430,470
2018
(in thousands)
385,934
21,034
5,400
—
2,250
—
414,618
During the year ended March 31, 2019, the Company issued 15,852,000 common shares, as follows:
i)
4,100,000 common shares issued for exercise of option - incentive plan
During the year ended March 31, 2019 the Company issued 4,100,000 shares pursuant to the exercise of stock options with a weighted average
exercise price of $0.38 per share, for total net proceeds of $1,575,000. At the time the options were exercised the shares were trading at a weighed
average price of $1.30.
1,000,000 common shares issued for exercise of option - outside incentive plan
ii)
A number of 1,000,000 shares were issued pursuant to the exercise of stock options outside the share incentive plan with a weighted average
exercise price of $0.45 per share, for total net proceeds of $450,000. At the time the options were exercised the shares were trading at a weighed
average price of $1.35.
iii)
752,000 common shares issued for exercise of shares rights
During the year ended March 31, 2019 the Company issued 752,000 common shares following the vesting of shares rights previously granted to
a director.
iv)
10,000,000 common shares issued - conversion of Altius debenture
On December 31, 2018, Altius exercised its option to retire a debt associated with a $10,000,000 convertible debenture outstanding, which
triggered the issuance of 10,000,000 common shares (refer to note 13).
99 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
20. Share Capital and Reserves (continued)
b)
Share-based payments
A summary of the share-based payment expenses is detailed as follows:
Stock-options costs
Share rights costs
Total share-based payments expensed
c)
Stock-options
Three Months
Year ended March 31,
2019
808
1,000
1,808
2018
1,012
2,167
3,179
The Company is authorized to issue 43,047,000 stock options and share rights (March 31, 2018: 82,924,000) equal to 10% (March 31, 2018: 20%)
of the issued and outstanding ordinary shares for issuance under the Omnibus incentive plan.
The following table details the stock options activities of the share incentive plan:
Opening balance
Granted
Exercised
Cancelled
Ending balance
Options exercisable - end of year
Year ended March 31,
2019
Number of
Stock Options
(in thousands)
12,800
1,730
(4,100 )
(1,650 )
8,780
7,410
Weighted-
Average
Exercise Price
0.44
1.33
0.38
0.90
0.56
0.43
Number of
Stock Options
(in thousands)
15,450
2,750
(5,400 )
—
12,800
11,733
Year ended March 31,
2018
Weighted-
Average
Exercise Price
0.30
1.00
0.32
—
0.44
0.41
A total of 1,730,000 new options were issued to independent directors and employees of the Company during the year ended March 31, 2019 out
of which 500,000 were cancelled. The fair market value of the outstanding options granted during the year ended March 31, 2019 totalled
$855,000. The options granted will mainly vest over a three-year period.
A summary of the Company’s outstanding and exercisable stock options as at March 31, 2019 is presented below:
Expiry Date
Exercise Price
November 4, 2019
April 11, 2020
May 25, 2020
July 10, 2020
August 21, 2020
April 26, 2021
June 24, 2021
September 14, 2021
February 15, 2022
0.30
0.20
1.00
1.08
1.00
1.24
1.33
1.24
1.46
Number of Stock Options
Outstanding
(in thousands)
500
5,000
950
600
500
200
500
201
329
8,780
Exercisable
(in thousands)
500
5,000
800
400
333
200
—
67
110
7,410
100 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
20. Share Capital and Reserves (continued)
c)
Stock-options (continued)
The exercise price of outstanding stocks options ranges from $0.20 to $1.46 and the weighted-average remaining contractual life of outstanding
stock options is 1.22 years.
The share-based payment cost was calculated according to the fair value of options issued based on the Black Scholes valuation model using
the following weighted average:
Risk-free interest rate
Expected volatility based on historical volatility
Expected life of stock options
Expected dividend yield
Forfeiture rate
Fair value per stock option - weighted average of options issued
d)
Share rights
The following table details the share rights activities of the share incentive plan:
Opening balance
Granted
Exercised
Ending balance
As at March 31,
2019
As at March 31,
2018
1.8% - 2.5%
68% - 86%
3 years
0%
0%
$0.70
2.5%
80%
3 years
0%
0%
$0.48
Year ended March 31,
2019
Number of Share
rights
(in thousands)
—
752
(752 )
—
2018
Number of Share
rights
(in thousands)
—
2,250
(2,250 )
—
On August 17, 2018, at the annual general meeting, 751,900 share rights were granted to the director and executive chairman. The share rights
vested and were converted into 751,900 ordinary shares at $1.33 per share. A share-based payment expense amounting to $1,000,000 was
recorded.
e)
Compensation Options
Exercise Price
$0.250
Balance - March 31, 2018 and March 31, 2019
f)
Warrants
Exercise Price
$1.125
$1.125
Balance - March 31, 2018 and March 31, 2019
Expiry Date
Outstanding and
exercisable
February 1, 2020
21,000,000
21,000,000
Notes
Expiry Date
16
16
October 16, 2022
October 16, 2024
Outstanding and
exercisable
3,000,000
21,000,000
24,000,000
101 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
21. Cost of Sales
Land transportation
Operating supplies and parts
Salaries, benefits and other employee expenses
Sub-contractors
Other production costs
Change in inventories
Year ended March 31,
2019
131,461
82,524
60,270
62,847
7,756
7,088
351,946
2018
—
—
—
—
—
—
—
The Company considers that the pre-commercial activities at its Bloom Lake mine started April 1, 2018, when the shipment of high-grade iron
ore was first made. Consequently, they are no mining operating expenses for the comparative periods ended March 31, 2018.
22. General and Administrative Expenses
Salaries, benefits and other employee expenses
Professional fees
Office and other expenses
Travel expenses
Other income
23. Sustainability and other community expenses
Property and school taxes
Impact and benefits agreement
Other expenses
Year ended March 31,
2019
6,923
3,302
3,152
860
(198 )
14,039
Year ended March 31,
2019
8,359
3,439
428
12,226
2018
5,046
3,380
2,136
287
(222 )
10,627
2018
—
—
—
—
102 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
24. Net Finance Costs
Interest on long-term debts and convertible debentures
Change in fair value of derivative liabilities
Change in fair value of derivative assets
Realized and unrealized foreign exchange loss
Accretion of borrowing costs and debt discount
Unrealized loss (gain) on investments
Accretion of rehabilitation obligation
Other interest and finance costs (income)
25. Income and Mining Tax
a) Deferred Income Tax
Deferred tax asset
Deferred tax liability
Net deferred tax liabilities
Year ended March 31,
2019
28,943
19,136
(10,800 )
5,077
3,811
1,597
672
1,574
50,010
2018
13,231
3,590
—
2,585
4,207
(1,056 )
695
(171 )
23,081
As at March 31,
2019
15,549
(53,009 )
(37,460 )
As at March 31,
2018
—
(5,465 )
(5,465 )
The movement in deferred income tax asset during the year, without taking into consideration the offsetting of balances within the same tax
jurisdiction, is as follows:
Deferred tax asset
As at April 1, 2017 (restated)
Charged to statement of loss
As at March 31, 2018
Credited to statement of income
As at March 31, 2019
Operating
losses carried
forward
Rehabilitation
obligation
Transaction
costs
Exploration
and evaluation
assets
—
—
—
1,614
1,614
—
—
—
9,690
9,690
—
—
—
128
128
—
—
—
2,309
2,309
Other
Total
—
—
—
1,808
1,808
—
—
—
15,549
15,549
The movement in deferred income tax liability during the year, without taking into consideration the offsetting of balances within the same tax
jurisdiction, is as follows:
Deferred tax liability
As at April 1, 2017 (restated)
Charged to statement of loss
As at March 31, 2018
Charged to statement of income
As at March 31, 2019
Property, plant
and equipment Mining tax
—
—
—
38,418
38,418
5,465
—
5,465
7,320
12,785
Other
Total
—
—
—
1,806
1,806
5,465
—
5,465
47,544
53,009
103 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
25. Income and Mining Tax (continued)
a) Deferred Income Tax (continued)
The Company has $11,532,000 of net deductible temporary differences, other than Canadian exploration expenses, cumulative Canadian
development expenses and tax losses, for which deferred tax assets have not been recognized as at March 31, 2019 (March 31, 2018:
$11,267,000).
As at March 31, 2019, the Company has $63,199,000 (March 31, 2018: $157,201,000) in operating losses carried forward that can be carried
forward against future taxable income ($54,215,000 - expire between 2027 and 2039 and $8,984,000 - indefinitely). Out of those losses,
$57,108,000 (March 31, 2018: $155,694,000) were not recognized.
As at March 31, 2019, the Company has cumulative Canadian exploration expenses of $35,225,000 (March 31, 2018: $36,402,000) and
cumulative Canadian development expenses of $17,668,000 (March 31, 2018: $7,028,000) which may be carried forward indefinitely to reduce
taxable income in future years. The Company did not recognize deferred tax assets in respect of $44,179,043 (March 31, 2018: $43,430,000) of
those expenses.
As at March 31, 2019, the Company has $1,778,000 (March 31, 2018: $1,778,000) of investment tax credit that can be carried forward against
future income tax payable and that will expire between 2033 and 2035.
b) Income and Mining Tax Expense
Current income tax
Current income tax on profits for the year
Current mining tax on profits for the year
Total current income tax
Deferred income tax
Deferred income tax for the year
Deferred mining tax for the year
Total deferred income tax
Income and Mining tax expense
Year ended March 31,
2019
2018
(42 )
34,059
34,017
24,675
7,320
31,995
66,012
—
—
—
—
—
—
The tax on the Company's income before income tax differs from the theoretical amount that would arise using the weighted average tax rate
applicable to profits of the consolidated entities as follows:
Year ended March 31,
Income (loss) before income tax
Canadian combined tax rate
Tax calculated at Canadian combined tax rate
Tax effects of:
Difference in tax rate
Recognition of previously unrecognized tax benefits
Unrecorded tax benefits
Expenses not deductible for tax purposes
Other taxes included in income tax expense
Other
Income and Mining tax expense
2019
213,611
26.68 %
56,991
(655 )
(32,513 )
9,092
1,851
30,452
794
66,012
2018
(107,331 )
26.78 %
(28,743 )
—
—
28,743
—
—
—
—
104 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
26. Earnings (Loss) per Share
Earnings (loss) per share amounts are calculated by dividing the net income (loss) attributable to shareholders for the year ended March 31, 2019
by the weighted average number of shares outstanding during the year.
Net income (loss)
Weighted average number of common shares outstanding
Dilutive share options and convertible financial liabilities
Weighted average number of outstanding shares for diluted earnings (loss) per share
Basic earnings (loss) per share
Diluted earnings (loss) per share
27. Financial Instruments
Measurement Categories
Year ended March 31,
2019
83,046
420,677,000
28,831,000
449,508,000
0.20
0.18
2018
(74,475 )
398,125,000
—
398,125,000
(0.19 )
(0.19 )
Financial assets and financial liabilities have been classified into categories that determine their basis of measurement and, for items measured
at fair value, whether changes in fair value are recognized in the profit or loss or in OCI. These categories are financial assets at amortized cost,
financial assets at FVTPL and financial liabilities at amortized cost. The following table shows the carrying values of assets and liabilities for each
of these categories as at March 31, 2019 and March 31, 2018.
As at March 31, 2019
Assets
Current
Cash and cash equivalents
Short-term investments
Receivables (excluding sales tax)
Non-current
Investments
Derivative assets
Liabilities
Current
Accounts payable and accrued liabilities
Current portion of long-term debt
Non-current
Property taxes payable
Long-term debt
Convertible debenture, Glencore
Derivative liabilities
Fair Value
Through Profit
and Loss
Financial
Assets at
Amortized
Financial
Liabilities at
Amortized
Total Carrying
Amount and
Fair Value
—
—
80,307
2,653
10,800
93,760
—
—
—
—
—
—
43,819
43,819
135,424
17,907
—
—
—
153,331
—
—
—
—
—
—
—
—
—
—
—
—
—
—
44,697
35,852
80,549
13,940
193,038
12,067
—
299,594
135,424
17,907
80,307
2,653
10,800
247,091
44,697
35,852
80,549
13,940
193,038
12,067
43,819
343,413
105 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
27. Financial Instruments (continued)
As at March 31, 2018
Assets
Current
Cash and cash equivalents
Short-term investments
Receivables (excluding sales tax)
Non-current
Investments
Liabilities
Current
Accounts payable and accrued liabilities
Convertible debenture, Altius
Note payable
Non-current
Property taxes payable
Long-term debt
Convertible debenture, Glencore
Derivative liabilities
Financial Risk Factors
a) Market
i. Fair Value
Non current - Investments
Fair Value
Through Profit
and Loss
Loans and
receivables
Financial
Liabilities at
Amortized
Total Carrying
Amount and
Fair value
—
—
—
7,895
17,291
5,777
4,250
4,250
—
30,963
—
—
—
—
—
—
—
24,683
24,683
—
—
—
—
—
—
—
—
—
—
—
—
—
—
63,481
9,791
36,438
109,710
16,276
141,225
14,016
—
281,227
7,895
17,291
5,777
4,250
35,213
63,481
9,791
36,438
109,710
16,276
141,225
14,016
24,683
305,910
The fair values of the investment are measured at the common share market price on the measurement date.
Derivative assets
Prepayment options are measured based on discounted cash flow adjusted to the actual potential refinancing rate at the measurement date.
Variable interest rate feature is measured based on a discounted cash flow using the forward price of iron ore concentrate at the measurement
date.
106 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
27. Financial Instruments (continued)
Financial Risk Factors (continued)
a) Market (continued)
i. Fair Value (continued)
Derivative liabilities - Convertible Debenture
The conversion feature included in the convertible debenture is evaluated by the Company based on parameters such as interest rates and the
risk characteristics of the financial assets using Black-Scholes evaluation model.
There are no transfers between Level 1, Level 2 and Level 3 during the year ended March 31, 2019. The following table shows the carrying values
of assets and liabilities for each of these level as at March 31, 2019 and March 31, 2018.
As at March 31, 2019
Financial Asset at Fair Value Through Profit and Loss
Non-current investments
Derivative assets
Financial Liabilities
Derivative liabilities
As at March 31, 2018
Financial Asset at Fair Value Through Profit and Loss
Non-current investments
Financial Liabilities
Derivatives liabilities
ii. Interest rate risk
Level 1
Level 2
Level 3
Total
2,653
—
Level 1
4,250
—
10,800
43,819
Level 2
—
—
24,683
—
—
—
Level 3
—
—
2,653
10,800
43,819
Total
4,250
24,683
Interest risk is the risk that the value of assets and liabilities will change when the related interest rates change. The Company is exposed to
interest rate risk primarily on its long-term debt and does not take any particular measures to protect itself against fluctuations in interest rates.
The long-term debt with Sprott provides for an interest on the outstanding principal amount from the date of advance to the Company at a rate
equal to 7.5% per annum plus the greater of US dollar 3-month LIBOR and 1% per annum. Related interest rates are based on market interest
rates. A decrease in the LIBOR rate for the long-term debt of 1% would generate an increase of US$785,000 in net income over a 12 months
horizon based on the outstanding balances as at March 31, 2019. An increase in the LIBOR rate for the long-term debt of 1% would generate a
decrease of US$785,000 in net income and equity over a 12 months horizon based on the outstanding balances as at March 31, 2019.
As for the long-term debt with CDPI, the interest rate equals 12% per annum for the first year, and thereafter, at an interest rate linked to the iron
ore price indexes. From October 22, 2018, the actual interest rate was 10%. A decrease in the iron ore price between US$66 and US$76 would
generate a decrease of US$2,210,000 in net income over a 12 months horizon based on the outstanding balances as at March 31, 2019. A
decrease in the iron ore price lower than US$66 would generate a decrease of US$4,420,000 in net income over a 12 months horizon based on
the outstanding balances as at March 31, 2019.
The convertible debenture with Glencore has the same interest rate determination mechanism as CDPI. A decrease in the iron ore price between
US$66 and US$76 would generate a decrease of $624,000 in net income over a 12 months horizon based on the outstanding balances as at
March 31, 2019. A decrease in the iron ore price lower than US$66 would generate a decrease of $1,248,000 in net income over a 12 months
horizon based on the outstanding balances as at March 31, 2019.
With the exception of its long-term debt, the Company’s current financial assets and financial liabilities are not significantly exposed to interest
rate risk because either they are of a short-term nature or because they are non-interest bearing.
107 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
27. Financial Instruments (continued)
a) Market (continued)
iii. Commodity price risk
Commodity price risk arises from fluctuations in market prices of iron ore. The Company is exposed to the commodity price risk, as its iron ore
sales are predominantly subject to prevailing market prices. The Company has limited ability to directly influence market prices of iron ore. The
Company has sought to establish strategies that mitigate its exposure to iron ore price volatility in the short-term. The strategy of utilizing
renowned brokers is aimed at providing some protection against decreases in the iron ore price while maintaining some exposure to pricing
upside.
However, the Company’s iron ore sales contracts are structured using the iron ore price indexes. These are provisionally priced sales volumes for
which price finalization is referenced to the relevant index at a future date or the valuation is prescribed in some of the contracts. The estimated
consideration in relation to the provisionally priced contracts is marked to market using the spot iron ore price at the end of each reporting period
with the impact of the iron ore price movements recorded as an adjustment to operating sales revenue.
The Company’s exposure at balance date to the impact of movements in the iron ore price upon provisionally invoiced sales volumes is set out
below:
(in US dollars)
Sensitivity of Ore Sales Revenue for Provisionally Priced Sales Volumes as at:
Ore sales Revenue over 1,026,000 tonnes (DMT):
10% increase in iron ore prices
10% decrease in iron ore prices
Year ended March 31,
2019
8,147
(8,147 )
2018
—
—
The sensitivities have been determined as the dollar impact on ore sales revenues of a 10% increase and decrease in realized prices at each
reporting date, while holding all other variables, including foreign exchange rates, constant. The relationship between iron ore prices and
exchange rates is complex, and movements in exchange rates can impact commodity prices. The above sensitivities should therefore be used
with caution.
iv. Foreign Exchange Risk
Foreign currency risk is the risk that the Company financial performance could be affected by fluctuations in the exchange rates between
currencies. The Company's sales, sea freight and credit facilities costs are denominated in US dollars. As such, the Company benefits from a
natural hedge between its revenues and its sea freight and credit facilities costs. Still, the Company is exposed to foreign currency fluctuations
as its cost of sales and general and administrative expenses are mainly incurred in Canadian dollars. Currently, the Company has no hedging
contracts in place and therefore has exposure to the foreign exchange rate fluctuations. The strengthening of the US dollar would positively
impact the Company’s net income and cash flow while the strengthening of the Canadian dollar would reduce its operating margin and cash flow.
The following table indicates the foreign currency exchange risk as at March 31, 2019 and March 31, 2018.
(in US dollars)
Current Assets
Cash and cash equivalents
Receivables (excluding sales tax)
Current Liabilities
Accounts payable and accrued liabilities
Current portion of long-term debt
Note payable
Non-current - Long-term debt
Total foreign currency net assets and liabilities in USD
CAD dollar equivalents
As at March 31, 2019
As at March 31, 2018
36,823
59,466
(722)
(26,830)
—
(162,148)
(93,411)
(124,825)
17
—
(10 )
—
28,259
(125,696)
(97,430)
(130,195)
108 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
27. Financial Instruments (continued)
iv. Foreign Exchange Risk (continued)
Assuming that all other variables are constant, a 10% weakening of the US dollar exchange rate would have generated an increase of $12,482,000
in net income for the year ended March 31, 2019 (March 31, 2018: $13,019,000). A 10% strengthening of the US dollar exchange rate would have
generated a decrease of $12,482,000 in net income for the year ended March 31, 2019 (March 31, 2018: $13,019,000).
b)
Credit risk
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. Credit
risk arises principally from the Company’s cash and cash equivalents, short-term investments, and trade receivables. The Company’s major
exposure to credit risk is in respect of trade receivables. Trade receivable credit risk is mitigated through established credit monitoring activities.
These include conducting financial and other assessments to establish and monitor a customer’s credit worthiness, setting customer limits,
monitoring exposure against these limits.
c)
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial liabilities that are settled in cash or other financial
assets. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities
as they come due. The amounts for accounts payable and accrued liabilities are subject to normal trade terms.
109 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
28. Capital Risk Management
Capital of the Company consists the components of shareholders’ equity and debt facilities. The Company’s objective when managing capital is
to safeguard the Company’s ability to continue as a going concern so that it can acquire, explore and develop mineral resource properties for the
benefit of its shareholders. The Company manages its capital structure and makes adjustments based on the funds available to the Company in
light of changes in economic conditions. The Board of Directors has not established quantitative return on capital criteria for management, but
rather relies on the expertise of the Company’s management to sustain the future development of the Company. In order to facilitate the
management of its capital requirements, the Company prepares annual expenditure budgets that consider various factors, including successful
capital deployment and general industry conditions. Management reviews its capital management approach on an ongoing basis and believes
that this approach, given the relative size of the Company, is reasonable.
Historically, borrowings and equity financing were the Company's principal source of capital. As the Company commenced selling iron ore on
April 1, 2018, the Company is now generating cash flows. Accordingly, the Company anticipates that its mine operations will generate sufficient
working capital and cash flow to cover operating requirements for the next twelve months including principal debt and interest repayments. The
following table presents the contractual principal repayments of the long-term debt.
Less than a year
1 to 5 years
More than 5 years
Total
As at March 31,
2019
30,544
202,354
0
232,898
As at March 31,
2018
5,025
109,969
43,969
158,963
29. Key management compensation
The Company considers its directors and officers to be key management personnel. Transactions with key management personnel are set out as
follows:
Salaries
Bonus
Share-based payments, representing share-based compensation
Consulting fees
All other remuneration
30. Commitments and Contingencies
Year ended March 31,
2019
1,870
2,594
1,554
289
745
7,052
2018
1,078
4,660
2,775
626
108
9,247
The Company has various obligations related to take-or-pay features of its logistics contracts. The Company has also other commitments with
the Innu community related to the Impact and Benefits Agreement. Future minimum payments under these agreements are as follow:
Less than a year
1 to 5 years
More than 5 years
Total
The Company does not have any contingent liabilities.
As at March 31,
2019
As at March 31,
2018
135,798
75,894
186,660
398,352
64,927
163,812
91,905
320,644
110 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
31. Parent Entity Information
Information relating to Champion Iron Limited:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Due to QIO
Total liabilities
Net assets
Share capital
Contributed surplus
Accumulated deficit
Total equity
Net loss of the parent entity
Comprehensive loss of the parent entity
As at March 31,
2019
As at March 31,
2018
33,238
77,853
111,091
2,084
55,886
—
57,970
53,121
91,761
8,888
(47,528 )
53,121
18,716
18,716
24,873
89,016
113,889
10,095
38,699
6,000
54,794
59,095
78,590
9,079
(28,574 )
59,095
11,606
11,606
111 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
32. Subsidiary Entity Information
Set out below is the Company’s summarized financial information for its subsidiary, Quebec Iron Ore Inc., which has a material non-controlling
interests. The amounts disclosed for its subsidiary are based on those included in the financial statements before inter-company eliminations.
Quebec Iron Ore Inc.
Summarized statement of financial position for Quebec Iron Ore Inc. before inter-company eliminations
Non-controlling interest percentage - Ressources Quebec
As at March 31,
2019
As at March 31,
2018
36.8 %
36.8 %
Current assets
Other current assets
Current inter-company assets
Total current assets
Current liabilities
Other current liabilities
Current inter-company liabilities
Total current liabilities
Non-current assets
Other non-current assets
Non-current inter-company assets
Non-current assets
Non-current liabilities
Net assets
Summarized statement of income for Quebec Iron Ore Inc. before inter-company eliminations
Revenues
Net income (loss) and comprehensive income (loss)
Net income (loss) attributable to non-controlling interest
302,873
1,748
304,621
110,742
4,685
115,427
189,194
241,022
36,406
277,428
280,240
186,382
106,984
—
106,984
59,890
14,585
74,475
32,509
171,851
6,000
177,851
193,395
16,965
Year ended March 31,
2019
655,129
175,416
64,553
2018
—
(89,282 )
(32,856 )
The accumulated non-controlling interest in Quebec Iron Ore is $65,376,000 as at March 31, 2019 (March 31, 2018: $823,000).
112 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
32. Subsidiary Entity Information (continued)
Summarized cash flows for Quebec Iron Ore Inc. before inter-company eliminations
Cash flows from operating activities
Cash flows from financing activities
Cash flows from investing activities
Net generated cash flow
33. Auditors Remuneration
Total of all remuneration received or due and receivable by the auditors in connection with:
Year ended March 31,
2019
133,506
60,376
(71,160 )
122,722
2018
(126,355 )
238,936
(113,628 )
(1,047 )
Year ended March 31,
2019
2018
E&Y Canada
Audit fees
Audit related fees
Tax fees
All other fees
E&Y Australia
Audit fees
Audit related fees
Remuneration consulting services
Tax fees
All other fees
230
45
33
42
350
171
—
—
—
—
171
521
34. Financial Information Included in the Consolidated Statement of Cash Flows
a)
Changes in non-cash operating working capital
Receivables
Prepaid expenses and advances
Inventories
Advance payments
Accounts payable and accrued liabilities
Current income tax
Property taxes not paid
Other long-term liability
b)
Supplementary Cash Flow Information
Year Ended March 31,
2019
(65,981 )
(8,288 )
2,609
(733 )
(18,784 )
34,059
(2,447 )
4,798
(54,767 )
202
44
25
63
334
149
—
—
—
—
149
483
2018
(19,196 )
(15,619 )
(48,171 )
(30,517 )
61,513
—
7,224
—
(44,766 )
Depreciation of property, plant and equipment allocated to stripping activity asset
Net effect of depreciation of property, plant and equipment allocated to inventory
Year ended March 31,
2019
(200 )
1,408
2018
—
—
113 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
35. Segment Information
The Company is conducting exploration and evaluation and mining operations activities in Canada. The business segments presented reflect the
management structure of the Company and the way in which the Company’s chief operating decision maker reviews business performance. The
Company evaluates the performance of its operating segments primarily based on segment operating income, as defined below. Since the
Company has started production at the mine site which represent all the mining operation, it was identified as a segment. The exploration and
corporate were identified as a separate segment due to their specific nature.
Year Ended March 31, 2019
Revenues
Cost of sales
Depreciation
Gross profit (loss)
Share-based payments
General and administrative expenses
Restart costs
Sustainability and other community expenses
Property taxes adjustment
Exploration and evaluation
Operating income (loss)
Non-operating expenses
Income (loss)
Segmented total assets
Segmented total liabilities
Segmented capital expenditures
Year Ended March 31, 2018
Revenues
Cost of sales
Depreciation
Gross profit (loss)
Share-based payments
General and administrative expenses
Restart costs
Sustainability and other community expenses
Property taxes adjustment
Exploration and evaluation
Operating income (loss)
Non-operating expenses
Income (loss)
Segmented total assets
Segmented total liabilities
Segmented capital expenditures
Mine Site
Exploration
and Evaluation
Corporate
Total
655,129
(351,946 )
(14,511 )
288,672
—
(3,391 )
(4,497 )
(12,210 )
7,559
—
276,133
(91,912 )
184,221
—
—
—
—
—
—
—
—
—
—
—
—
—
573,927
(390,982 )
223,802
81,508
—
—
Mine Site
Exploration
and Evaluation
—
—
(4,206 )
(4,206 )
—
(1,067 )
(65,999 )
—
—
—
(71,272 )
(15,340 )
(86,612 )
—
—
—
—
—
—
—
—
—
(201 )
(201 )
—
(201 )
315,861
(289,735 )
172,360
72,137
—
—
—
—
(40 )
(40 )
(1,808 )
(10,648 )
—
(16 )
—
—
(12,512 )
(24,110 )
(36,622 )
16,582
(65,313 )
321
655,129
(351,946 )
(14,551 )
288,632
(1,808 )
(14,039 )
(4,497 )
(12,226 )
7,559
—
263,621
(116,022 )
147,599
672,017
(456,295 )
224,123
Corporate
Total
—
—
(38 )
(38 )
(3,179 )
(9,560 )
—
—
—
—
(12,777 )
(7,741 )
(20,518 )
13,718
(57,533 )
359
—
—
(4,244 )
(4,244 )
(3,179 )
(10,627 )
(65,999 )
—
—
(201 )
(84,250 )
(23,081 )
(107,331 )
401,716
(347,268 )
172,719
114 | P a g e
Champion Iron Limited
Notes to the Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except where otherwise indicated)
36. Subsequent Events
Capital restructuring
The Company also announced on May 29, 2019, that it has entered into an agreement with Caisse de dépôt et placement du Québec for a
preferred share offering for proceeds of $185 million (the "Investment") plus a commitment for a fully underwritten US$200 million credit facility
(the "New Credit Facility") with The Bank of Nova Scotia (“Scotiabank”) and Societe Generale (“SocGen”). Proceeds from the Investment and the
New Credit Facility will be used to fund current and future strategic initiatives and repay Champion’s existing debt.
The dividend rate associated with the preferred shares will be based on the gross realized iron price and will fluctuate from 9.25% when the gross
realized iron price for Bloom Lake 66.2% iron ore is greater than US$85/dmt to 13.25% should the gross realized iron ore price decrease below
US$65/dmt. The New Credit Facility will be available by way of a US$180 million senior secured fully amortizing non-revolving credit facility (the
“Term Facility”) in addition to a US$20 million senior secured revolving credit facility (the “Revolving Facility”). The New Credit Facility will bear
interest between LIBOR plus 2.85% if the net debt to EBITDA ratio is lower or equal to 1.00x to LIBOR plus 3.75% if the net debt to EBITDA ratio is
greater than 2.50x. The Term Facility will mature five years from the closing date while the Revolving Facility will mature three years from the
closing date. The Term Facility shall be repaid in equal quarterly installments of principal and accrued interest starting on the second full year
following the closing date and is not subject to prepayment penalties.
Acquisition of Ressources Quebec equity interest
On May 29, 2019, the Company announced a transaction o acquire RQ’s 36.8% equity interest in QIO, operator of the Bloom Lake Mining Complex,
for a total cash consideration of C$211 million (the “Transaction”). The Transaction would increase Champion’s stake in QIO to 100%. As a result
of this transaction, the entire net income of QIO will be allocated to Champion shareholders and there will no longer be non-controlling interests.
BLoom Lake Phase II Feasibility Study Highlights
The company announced on June 20, 2019 positive results of the Phase II Feasibility Study (“Feasibility Study” or “Study”) prepared in
accordance with Canadian and Australian regulations for the Bloom Lake Mining Complex (“Bloom Lake”), located near the town of Fermont, in
north-eastern Quebec. The Feasibility Study envisions further exploiting the Bloom Lake Mine which would increase overall capacity from 7.4Mtpa
to 15Mtpa of 66.2% Fe iron ore concentrate.
For more information on the subsequent events, please refer to the Company’s press release available under the Company’s filings on SEDAR at
www.sedar.com.
37. Comparative Figures
Certain of the prior year's comparative figures have been reclassified to conform to the current year's presentation.
Champion Iron Limited
Stock Exchange Information
STOCK EXCHANGE INFORMATION
The additional information set out below relates to shares and options as at 7 June 2019
DISTRIBUTION OF EQUITY SECURITY HOLDERS
Size of Holding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,000 and over
59 shareholders held less than a marketable parcel of ordinary shares at June 7, 2019.
ORDINARY SHARES
SUBSTANTIAL SHAREHOLDERS
Name of shareholder
WC Strategic Opportunity LP
Ressources Quebec Inc.
Michael O'Keeffe (and associates)
VOTING RIGHTS
All ordinary shares issued by the Company carry one vote per share without restriction.
TWENTY LARGEST SHAREHOLDERS
Name of shareholder
WC Strategic Opportunity LP
Ressources Quebec Inc
Prospect AG Trading PL
JP Morgan Nom Aust PL
HSBC Custody Nominee Aust Ltd
Metech Super PL
Zero Nom PL
GAB Super Fund PL (GAB Super Fund A/C)
Citicorp Nom PL
Marc Dorion
Michael O'Keeffe
Eastbourne DP PL
Gavin John Argyle
MD Financial Management Inc (as of May 31, 2019)
GAB Super Fund PL
Vision PL
UBS Nom
Rowe Angela Maree
Fareast Enterprises PL
BNP Paribas Nom PL
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
SCHEDULE OF TENEMENTS
Number of
ordinary shares
111,459
1,090,469
1,150,330
10,467,111
420,172,253
432,991,622
% of issued
capital
15.46%
8.66%
8.64%
% of issued
capital
15.46%
8.66%
6.88%
2.45%
1.83%
1.77%
1.36%
1.18%
1.12%
0.99%
0.87%
0.81%
0.77%
0.63%
0.56%
0.39%
0.31%
0.30%
0.30%
0.25%
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Number of
ordinary shares
66,944,444
37,500,000
37,428,830
Number of
ordinary shares
66,944,444
37,500,000
29,776,930
10,608,319
7,927,153
7,680,000
5,895,337
5,092,696
4,839,684
4,273,286
3,751,900
3,500,000
3,342,364
2,723,900
2,443,334
1,707,165
1,342,203
1,317,000
1,283,668
1,079,464
Champion Iron Limited
Schedule of Tenements
The Company’s wholly owned subsidiary, Champion Iron Mines Limited, owns a 100% interest in the following properties:
Property-Québec
Consolidated Fire Lake North
Harvey-Tuttle
Moire Lake
O'Keefe-Purdy
Jeannine Lake (Note 1)
Round Lake (Notes 1 and 2)
Peppler
Lamelee
Hobdad
Property-Newfoundland
Powderhorn
Gullbridge
SNRC
23B06; 23B11; 23B12
23B12; 23B05
23B14
23B11; 23B12
22N16
23B04; 23C01; 23N16
23B05
23B05; 23B06; 23B11;
23B12
23B05; 23B06
Licences
11346M,
11367M,
15136M,
15137M, 18969M, 19227M
11956M,
11960M,
16260M,
16261M
Claims
569
191
36
203
21
178
118
236
93
185
67
Hectares
28,774.11
10,010.36
1,665.55
10,623.15
1,117.40
9,420.31
6,207.75
12,374.67
4,893.74
4,625.00
1,675.00
Note 1. Currently under option to Cartier Iron Corporation (55%) and CIA (45%).
Note 2. Round Lake includes Aubrey-Ernie, Black Dan, Penguin Lake and Round Lake claims.
The Company’s 63.2% owned subsidiary, Québec Iron Ore Inc., owns a 100% interest in the following properties:
Property-Québec
Bloom Lake Mining Lease
Bloom Lake claims
SNRC
23B14
23B14
Claims
1
69
Hectares
6,857.63
3,224.20
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Champion Iron Limited
Mineral Resource and Ore Reserves Statement
MINERAL RESOURCE AND ORE RESERVES STATEMENT
Fermont Iron Ore District
The Company owns interest in 14 iron ore deposits located in the Fermont Iron Ore District of northeastern Québec, some 300 km north of the
City of Sept-Ȋles and ranging from 6 to 80 kilometers west and southwest of Fermont. Table 1 lists the various projects with their status,
surface area, NSR and other such information. The 14 deposits may be grouped into larger “clusters”. All claims and leases are in good
standing.
Table 1: June 2019 Champion Iron properties in the Fermont Iron Ore District
Cluster / Project
Deposit
Nb
claims
Area
(km sq.)
Champion
interest
Co-owner
NSR
Bloom Lake Mine
70*
100.8*
63.2%
Ressources
Québec
Consolidated Fire
Lake North
Fire Lake North
Don Lake
Bellechasse
Oil Can
569
287.7
100%
Moiré Lake
36
16.7
100%
Peppler Lake
Quinto Claims
Lamêlée Lake
435
228.4
100%
Hobdad Hill
Harvey-Tuttle
191
100.1
100%
O’Keefe-Purdy
203
106.2
100%
Penguin Lake
Cluster 3
Lac Jeannine
158
175.2
45%
Cartier
Iron
Corporation
Black Dan
* Includes a 68.7 sq. km mining lease
1.5%
1.5%
1.5%
1.5%
1.5%
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Champion Iron Limited
Mineral Resource and Ore Reserves Statement
Bloom Lake Mine
The JORC and Canadian NI 43-101 compliant Measured and Indicated resources as of March 31, 2019 adds to a total of 883 Mt while there is an
additional 80 Mt of Inferred resources. The Bloom Lake Mine holds 384 Mt of ore reserves at 30.0% Fe and a dilution factor of 4.3%.
• Total proven and probable mineral reserves at the Bloom Lake Mine stood at 383.5 million tonnes averaging 29.9% Fe.
• Measured and indicated mineral resources totals 883.4 million tonnes averaging 29.7% Fe for estimated iron ore concentrate of 321.2 Mt
averaging 66.2% Fe
•
Inferred resources amounted to 80.4 million tonnes averaging 25.6% Fe
All mineral resources reported are inclusive of mineral reserves. Mineral reserves and resources reported at Bloom Lake were estimated using
an iron ore price of US$50/dmt and US$60/dmt, respectively. The slight decrease in reserves is due to depletion as Champion mined 22,445 dmt
of iron ore since the start of its operations in February 2018.
Category
Measured
Indicated
M+I Total
Inferred
Category
Proven
Probable
Total
March 31, 2019 Bloom Lake Mineral Resources Estimate (at 15% Fe Cut-off)
Tonnage (dmt) Mt
401.8
471.6
883.4
80.4
Fe (%)
31.0
28.5
29.7
25.6
CaO (%)
0.6
2.5
1.6
MgO (%)
0.7
2.3
1.5
AI2O3 (%)
0.3
0.4
0.4
1.9
1.7
0.3
March 31, 2019 Bloom Lake Mineral Reserves Estimate (at 15% Fe Cut-off)
Tonnage (dmt)Mt
236.3
47.3
383.5
Fe (%)
30.7
28.7
29.9
CaO (%)
0.5
2.8
1.4
MgO (%)
0.6
2.7
1.4
AI2O3 (%)
0.3
0.4
0.4
In addition to the Bloom Lake Mine, the Company owns interest in 13 other iron ore deposits located in the Labrador Trough, some 300 km north
of the City of Sept-Îles and ranging from 6 to 80 kilometers west and southwest of Fermont. All claims and leases are in good standing. No work
was done during the fiscal year ended to update the Resources estimate published during the period 2011 to 2014.
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Champion Iron Limited
Mineral Resource and Ore Reserves Statement
Consolidated Fire Lake North
The Consolidated Fire Lake North (CFLN) project includes four deposits, the Fire Lake North, Don Lake, Bellechasse and Oil Can deposits. All
deposits are located north of ArcelorMittal’s Fire Lake mine. No work was done on the CFLN asset following the 2014 drilling and Joint Ore
Reserves Committee (JORC) Resources and Reserves Statement of October 27th 2014 for the Fire Lake North (FLN) deposit. The JORC compliant
resources of over 1.2 Bt have been estimated for FLN (table 4) while the reserves are estimated at 464 Mt (table 5).
Table 4: October 2014 Fire Lake North Mineral Resource Estimate at Cut-off 15% Fe
Category
Measured
Indicated
M+I Total
Inferred
Dry Tonnage
(Mt)
40.3
715.0
755.3
461.0
Fe (%)
SiO2 (%)
Al2O3 (%)
P (%)
34.2
31.4
31.6
31.8
48.3
51.4
51.2
49.6
1.28
1.56
1.55
2.22
0.015
0.020
0.019
0.032
Table 5: 2013 Fire Lake North Ore Reserves Estimate at Cut-off 15% Fe***
Category
Proven
Probable
Total
Dry Tonnage (Mt)
Fe (%)
CaO (%)
Weight Recovery (%)
23.7
440.9
464.6
36.0
32.2
32.4
0.5
2.8
1.3
45.0
39.6
39.9
*** Estimate from the 2013 prefeasibility study. New ore reserves estimation following the new resources calculation was not made.
Resources estimates (NI 43-101 compliant) were done for the Oil Can and Bellechasse deposits, both part of the CFLN property. The estimates
include only inferred resources (table 6). No NI 43-101 resources estimate is available for the Don Lake deposit.
Table 6: Inferred Resources for other CFLN deposits at Cut-off 15% Fe
Deposit
Bellechasse
Oil Can (oxides)
Oil Can (mixed)****
NI 43-101 release
Dry Tonnage (Mt)
Fe (%)
2009
2012
2012
215.1
972
924
28.7
33.2
24.1
**** Mix of iron oxides and iron silicates
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Champion Iron Limited
Mineral Resource and Ore Reserves Statement
Moiré Lake
Moiré Lake is a stand-alone deposit located approximately 6 km west from the city of Fermont. It is the far extension of ArcelorMittal’s Mont-
Wright Mine. While ArcelorMittal’s ore is hematite-rich, the Moiré Lake deposit is a mix of hematite and magnetite. A NI 43-101 resources estimate
published in 2012 has total resources of 581 Mt with a grade of 29.7% Fe (table 7).
Table 7: 2012 Moiré Lake Resources Estimate at Cut-off 15% Fe
Category
Measured
Indicated
M+I total
Inferred
Total M+I+I
Quinto Claims Property
Dry Tonnage (Mt)
Fe (%)
-
163.9
163.9
416.7
580.6
-
30.5
30.5
29.4
29.7
The Quinto Claims were acquired in the Bloom Lake transaction. The holding originally had 447 claims, but 12 claims were let go. Now the
property is composed of 435 claims and holds several iron ore deposits and occurrences. The property is adjacent to the CFLN project. All the
deposits have more magnetite than hematite. They also have small amount of iron silicates.
There are no NI 43-101 compliant resources estimates for the Quinto claims.
The Quinto Claims include Hobdad Hill which was partially drilled in 2012. The deposits hold oxide iron formation, but resources were not
estimated. Other occurrences, Faber and Lac Jean, were drilled in 2007 but results indicate a silicates-dominated iron formation and therefore
no further work was done.
Harvey-Tuttle
The Harvey-Tuttle property is located northwest of the Quinto Claims. It holds several small deposits, although one of them, Turtleback Mountain,
holds significant resources. The project was drilled in 2010 and a NI 43-101 resources estimate was published in 2011. As a whole, the Harvey-
Tuttle property has 947 Mt of inferred resources at 23.2% FeT.
O’Keefe-Purdy
There are no NI 43-101 compliant resources estimates for the O’Keefe-Purdy deposits.
Cluster 3
A series of 158 claims located near the closed Lac Jeannine Mine, identified as Cluster 3 was optioned to Cartier Iron Corporation. With completion
of work and financial requirements, Champion Iron Mines Limited still hold 45% of the property. The main asset in Cluster 3 is the Penguin Lake
deposits. A 2014 NI 43-101 reports 534.8 Mt of inferred resources at 33.1% Fe with a cut-off at 15%Fe. Cluster 3 also holds a series of small
deposits near Round Lake (NW of Penguin). Finally, tailings for the Lac Jeannine have been considered as a source of iron ore as they are fairly
coarse and have an average grade of 13% Fe. However, no tonnage has been evaluated.
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Champion Iron Limited
Mineral Resource and Ore Reserves Statement
Powderhorn / Gullbridge
Besides its iron ore assets in Québec, Champion Iron Mines Limited also owns 100% right to 7 exploration licenses (63 km sq.) in the vicinity of
the closed Gullbridge mine in North central Newfoundland (NTS map sheet 12H01). It is located approximately 25 km south of the town of
Springdale. The licenses are in good standing and exploration drilling was done in 2017 and early 2018.
The Powderhorn/Gullbridge project targets base metal deposits (Cu-Zn) as either extension of the Gullbridge copper mine or other zones related
to the same mineralization system. Several Cu or Zn showings are spread out on the licenses and geophysical survey suggest several targets at
200 metres depth. Although several 2018 drill holes have intersected Zn-Ag-Cu mineralized zones (best assay has 16.4% Zn over 80cm), no
mineral resources or ore reserves estimate are available as the project enters its third phase of exploration. More drilling is expected in the
second half of 2018 and will target the area up-dip of the 2017-2018 discovery.
The Powderhorn/Gullbridge property has a 2.85% NSR to the previous owner (Copper Hill Resources and 3 individuals).
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Champion Iron Limited
Governance Statement
GOVERNANCE STATEMENT
Champion supports the intent of the ASX Corporate Governance Council Principles and Recommendations 3rd Edition (Principles and
Recommendations) and meets the specific requirements of the Principles and Recommendations, unless otherwise disclosed.
A full copy of the Corporate Governance Statement is available on the Company's website at www.championiron.com.
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Champion Iron Limited
Company Directory
DIRECTORS
COMPANY
SECRETARIES
REGISTERED
& PRINCIPAL
OFFICE
AUDITORS
SHARE REGISTRIES
COMPANY DIRECTORY
Michael O’Keeffe (Executive Chairman) – Independent
Gary Lawler (Non-Executive Director) – Independent
Andrew Love (Non-Executive Director) – Independent
Michelle Cormier (Non-Executive Director) – Independent
Wayne Wouters (Non-Executive Director) – Independent
Jyothish George (Non-Executive Director) – Independent
David Cataford (Executive Director and Chief Executive Officer) – Non-independent
Jorge Estepa and Pradip Devalia
Level 1, 91 Evans Street
Rozelle NSW 2039
Telephone:
Facsimile:
Website:
ACN 119 770 142
+61 2 9810 7816
+61 2 8065 5017
http://www.championiron.com
Ernst & Young
200 George Street
Sydney 2000 NSW
Security Transfer Registrars Pty Ltd
Suite 1, Alexandria House
770 Canning Highway
Applecross WA 6153
Telephone:
Facsimile:
+61 8 9315 2333
+61 8 9315 2233
TSX Trust Company
200 University Avenue, Suite 300
Toronto, ON, Canada M5H 4H1
Telephone:
Facsimile:
(416) 361-0930
(416) 361-0470
STOCK EXCHANGES
The Company’s shares are listed on the Australian Stock Exchange (ASX) and Toronto Stock
Exchange (TSX)
ASX CODE AND
TSX SYMBOL
CIA (Fully Paid Ordinary Shares)
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