Champion closes in on iron ore restart

17 July 2017

Champion Iron is well on its way to funding the restart of its Bloom Lake iron ore mine in Quebec, Canada, after securing a cornerstone debt facility. The two funds have agreed to provide the company with US$180 million as part of two separate loan facilities, which covers the majority of the C$326.8 million (US$257 million) Champion needs to bring the mine back online.

Since acquiring the project with help from the Quebec government for a paltry C$30 million in 2016, Champion has focused on carrying out a thorough analysis of what it has at Bloom Lake and the market for premium-grade iron ore concentrate. It wanted to ensure it did not repeat the same mistakes previous owner Cliffs Natural Resources (US:CLF) made, which ultimately led to the mine shutting in late 2014 after only a few years of operation.

This has seen the company publish a definitive feasibility study for a mine able to produce 7.4 million tonnes per annum of 66.2% Fe concentrate at cash costs of C$44.62 per tonne FOB Sept Iles.

Based on a sales price of US$78.40/t CFR China for this high-grade material, Champion expects to generate a net present value (post-tax, 8% discount) of C$984 million from operating Bloom Lake oer a 21-year period.

With the US$180 million debt agreement in place, which comes on top of a C$40 million bridge loan with Japan’s Sojitz, the company is now making plans to carry out a C$72 million equity raising to complete project financing and give the company some financial flexibility while the mine build takes place. The latest debt deal is contingent on this amount of equity being raised.

Resources Quebec, which already owns 36.8% of Bloom Lake operating subsidiary Quebec Iron Ore, has agreed to stump up C$27 million in line with its stake in the project and Champion is looking to make other equity offerings to raise the remaining C$45 million. Should both deals go through, the company would have secured all funding for Bloom Lake on a roughly 80:20 debt-to-equity ratio.

While Sprott’s US$80 million five-year senior secured loan comes with an interest rate of 7.5% plus the greater of US dollar three-month LIBOR and 1% per annum, Caisse’s US$100 million advance factors in the price of iron ore from years two to seven of its seven-year pact.

Shareholders will vote on whether to approve the issuance of share warrants as part of these two debt facilities at the AGM on August 18.

If all goes to plan, the company could restart Bloom Lake as early as the March quarter of 2018, some four years after the operation was shut following cost blowouts and falling iron ore prices.

Source-mining-journal