Champion Iron Ltd
ASX:CIA
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Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Champion Iron Limited Fiscal 2021 Q1 Results Conference Call. [Operator Instructions]Thank you. Mr. Marcotte, you may begin your conference.
Thank you, operator, and good day, everyone. I'd like to thank everybody joining us for Q1 fiscal 2021 results call. Before we get started, I'd like to direct people on the call to a presentation which we'll be referencing to, which is available on our website at championiron.com under the Events & Presentations section.I'd also like to remind listeners that some of the matter to be discussed during the call may contain forward-looking statements. And I'd refer you to the disclaimer at the beginning of the presentation, which we'll be referencing to. For additional information with respect to the forward-looking statements, risks and assumptions, please consult our most recent MD&A which is also available on our website. Just a reminder to everybody, all dollar amounts stated are in Canadian dollars, unless otherwise stated.Joining me today from the Champion management team is our CEO, David Cataford; our Executive Chairman, Michael O’Keeffe; our Chief Financial Officer, Natacha Garoute; and our Chief Operating Officer, Alexandre Belleau. With that said, I'll turn the call over to our Executive Chairman, Michael O’Keeffe, who will then be followed by our CEO, David Cataford, for the formal portion of the presentation, and we'll open it up for Q&A thereafter.Michael, I'll turn it over to you.
Thank you, Michael. I must admit it. Over the last couple of years, it's been fascinating, but also a pleasure to be able to be host these calls. And I remember when we first commissioned the plant, we did it on time and on budget, which is quite rare for mining opportunities and/or mining projects. And I thank David for that. David stepped up a year ago or just over a year ago in March or April of 2019. And he's been in the role as CEO for a little over a year. And he keeps delivering for me. So it makes me look very good, and I thank him and his team for that.But most of The Street and the analysts thought that given all these issues with COVID, that we'd be coming into a position today that was a lot less than what we've been able to achieve. So again, David and his team have been able to deliver way beyond expectations in a time that's been horrendous for people personally and for the market. It also -- there's a lot for what we inherited, the amount of money that was spent on these assets and the quality of the resource were world-class. And unfortunately, the previous owner just didn't get the chance or the shareholders didn't get a chance of being able to take advantage of that.So we sit here today, outperforming one of our best ever quarters that we've had in a very strong market. And obviously, the China -- Chinese market has developed and grown and strengthened through this period of time, which has helped our quality product. And if you look at us today, we're sitting here sold out and a very bright future going forward. What David's also and his team has been able to achieve through this period is to be able to produce a product that's of higher grade, 68% Fe and 2.5% silica. That material for what we see is a very strong future in the DRI plant, which is -- has a low environmental input -- footprint, is going to be a world beater for us.We're sold out today. People talk about the market being strong. I see it going on for a long time because if we get through this second wave of COVID, which a lot of the rest of the world hasn't experienced yet, I see government spending huge on infrastructure, and that's going to do well for iron ore. And everyone is chasing gold and gold opportunities today, but look at the performance of iron ore. And not only that, what we've been able to deliver. So for David and his team to achieve this through a period working with the government of huge uncertainty and problems health wise, I take my hat off to him and it's -- again, I'd say it's a great position for me to be sitting in as Chairman to be able to announce these results that we've had, best, best quarter financially in the history of the play.So David, I'll pass to you, and then we're happy to get into the Q&A at the end of it, but it's important that you deliver the message on what you've been able to achieve.
Thank you for the introduction, Michael. We're very proud to deliver, yet again, solid results despite the challenges posed by the COVID-19. I think the first element to highlight is really the agility of our team, not only last year in higher iron ore prices. We managed to surpass nameplate capacity by just over 7%. Again, we see in a moment where a little bit more uncertainty in the world, the pandemic hitting Québec or wanting to hit Québec, our team managed to very quickly adapt to the situation and delivered the results that you're seeing today. We're back now towards normal capacity -- just above nameplate capacity and still focusing on health and safety and cost management.COVID-19 continues to impact several companies and industries, including our own. We're very happy to announce that we have no known cases of COVID at Bloom Lake or in the surrounding community. Again, very proud also of the alignment of our people. As we mentioned very quickly, everybody rolled their sleeves and started working together to be able to adapt to the current situation. And we managed to get our workers on board. But not just the workers, we managed to get the local communities, the First Nations. We've strengthened our relationship with the Québec government, the Labrador and Newfoundland government in these uncertain times by delivering and implementing significant measures very quickly and now being able to show that these measures have paid off with us having no known cases.We even had a visit from the public health authority and the health and safety authority of Québec at Bloom Lake, and we were one of the last sites that they visited. And they mentioned that through all the companies that they visited in Québec, we were one of the most robust and had the best measures that they had seen. So very telling of what our team has been able to achieve. While the pandemic has gathered much importance by our team, our overall focus on health and safety remains the priority. Happy to announce also that there was no serious injuries reported in the period. And we continue to implement training to adapt work environment for the COVID-19 situation, not only with our employees, but now that we're allowed to bring contractors to site with all of our contractors as well.With decades of resources available for our operations, we make sure to respect the land that we exploit. During the thawing season, we had no environmental issues reported. And also, we're very proud to announce our first Sustainability Report. We just posted it on our website yesterday evening. This is a significant achievement from our company. We're only in our second year of production. And during the -- one of the most uncertain times that we've lived through and delivering the results that we did, we also, at the same time, delivered close to 250 page Sustainability Report that puts us right up there with all of the companies that are working world-class on sustainability.We not only aligned ourselves on all the sustainability -- our typical sustainability goals, but we also aligned ourselves with the UN Global Goal and demonstrated concrete actions that we take on every one of the sub points of the Global Goals. Our industry continues to offer resilient iron ore prices despite the global economic impact of COVID-19. As discussed by Michael, these prices offer a robust operating environment for our company. We see that China's economy has rebounded fairly quickly. And the -- they are now producing record steel production, which creates a lot of demand for iron ore, even if other markets have slowed down.If we look at ex-China steel production, this has decreased slightly or even close to about 20% now in other markets. But China has picked up the production and also focused on the higher grade type material, which has been very good for our company. We're also very happy to be in a stable, safe jurisdiction that creates a lot of credibility for our material and for our company as we sell iron ore. And we're able to continue production through this whole quarter and deliver into each one of our contracts.We benefited from lower freight rates during the quarter but did not secure too many vessels because there was still uncertainty at the time on production and on potential provincial containment measures. So we did not book forward too many vessels, but we locked in one vessel per month until December at $15.46, which is very accretive for the company and the shareholders as the C3 index and the freight prices have shot up significantly since we've secured this freight.While our high-grade iron ore concentrate remains in strong demand globally, our product competes on price with iron ore pellet premiums heavily depressed in the quarter. So if you look at the European market, it's -- they decreased the steel production, which has allowed for a little more pellets to come into the Asian market. These pellet premiums were now significantly depressed, which the prices were actually competing with the P65 index. We had to give some small discounts on certain vessels to be able to work through this time, but we do not see this as a structural shift for our type of material.As the market recovers, we see the decoupling for the high-grade material and the shift towards higher grade type material be more and more in the future. And we don't see ourselves competing with the pellets for a significant amount of time. But in the current situation, we had to give a slight discount. But if you look at the actual price that we've achieved for our material in the quarter, we achieved around $107.8 per tonne for our material when the average for the quarter was $108.3. So we essentially got the P65 index, even with these slight discounts.Turning to operations. We're proud of our team and their agility in adapting to the COVID-19 pandemic. In April or late March, we announced a ramp down of our operations. What does that mean? We had to reduce significantly the amount of workers that would fly in to Bloom Lake, which meant that we had to shut down one of our production lines so -- one of our two production lines and also had a lot less workers in the mine. This is why when you look at our results, you could see that we moved a little bit less waste in this previous quarter and we drilled a little less tonnes, but we managed to get the plant in the quarter close to nameplate capacity, especially by the recovery that we got in May and also in June.So late April, we announced that we were ramping back up. In June, we were back up to over nameplate capacity. June was actually a fantastic month, where we produced just over 700,000 tonnes. So this is why we managed to get a quarter that was close to our nameplate capacity. The results of our plan to rapidly adapt operations in response to COVID yielded very strong results for the period. So as we just mentioned, our production was only down about 5% quarter-on-quarter. And this is a quarter that we had a semiannual shutdown. So we're essentially in line with the production that we had last quarter. Our sales were down about 7% quarter-on-quarter.One thing to highlight that is fantastic is really the iron recovery and the quality that we achieved in the quarter. Typically, quality and recovery are a little bit more difficult to achieve when the plant is unstable. And if we look at unstable in the past quarter, well, in April, we had to ramp down the operations. We did a small shutdown ourselves because we could not bring any contractors at site of that period. Then in May, we did a full shutdown with over 200 contractors at site. And even through those elements, we managed to achieve an 82.3% recovery, which is essentially flat from the previous quarter. So we really understand the recovery circuit and are able to adapt very quickly now with the team that we have in place.On top of these instabilities, during the quarter, we also produced over 200,000 tonnes of the higher grade type material, our new product that qualifies as a DR-quality concentrate. So this typically reduces also our iron recovery, but we produced over 200,000 tonnes in the quarter of this material with all that instability and still kept our recovery at 82.3%. We had mentioned last quarter that we had produced one vessel in March, the higher grade new material. The phone started ringing pretty quickly for more material in the following weeks. And because we were able to produce more in this quarter, even if the -- if we're sold out for the year, we managed to service another client with a cargo of this DR-grade type material.So we now know that we can offer this -- one of the highest purity material globally and we can do it very quickly and adapt to our clients' requirement. And again, we can do this in a very safe jurisdiction, one of the best mining jurisdictions in the world. Despite challenges resulting from the pandemic, the business plan implemented by our team and resilient iron ore markets resulted in strong financial results. During this pandemic, we achieved a new record, a record net income of over $75 million. And we did this not only by keeping all of our -- upholding all of our values, but even during the ramp down period we continued to pay each one of our employees and did not lay off a single employee due to COVID-19.So the -- if you look at Bloom Lake, as Michael mentioned, we benefit from over $4 billion of investments at site. So we have a fantastic infrastructure. But what really sets us apart is the team that we have and how we're able to adapt quickly to different situations and be able to maximize the value at Bloom Lake. And we wanted to make sure to keep all of our workers safe and mentally safe by not laying anybody off in these uncertain times. But despite that, we still achieved a net record -- a record net income of over $75 million. Now that we're back to nameplate capacity, our focus remains on health and safety and also on managing our costs.Our strong results could not have been delivered without the commitment of our staff, as we just mentioned. In the period, we also benefited from a rising iron ore price, which will reflect the demand for a high-quality product. Again, as mentioned, during the quarter, even if we had some slight discounts, we managed to achieve $107.8 per tonne for our material when the average for the quarter for the P65 was USD 108.3. With this healthy iron ore pricing environment and our proven business plan to mitigate the impacts of the pandemic to operations, our business is driving strong margins. We had record -- near record operating margins of 53.4% and EBITDA margins of 52.2%. This is proof that we can adapt to different market dynamics very quickly.With these robust results, our balance sheet is rapidly improving. After only about 2 years or just over 2 years of operation, we're now in a net cash positive situation. So we managed to generate a significant amount of cash in the past 2 years and also in the past quarter. And as iron ore prices hold where they're at, we're continuing to generate significant margins right now. Looking into details, our strong cash from operations explains the rapid improvement of our cash on hand. This was slightly offset by the receivables that increased by close to $57 million and also close to $6 million that we've invested on our Phase 2 project. Our balance sheet is positioned for growth and also to navigate through economic uncertainties.With our product and high demand and our company's financial position improving, we diligently continue to assess opportunities for organic growth, including our Phase 2 project, which aims to double production at Bloom Lake. In the press release in March, we announced that we were pausing the discretionary CapEx at Bloom Lake for our growth Phase 2 project. But we've since now resumed spending of about -- or increased the budget of about $30 million. To-date, we've authorized just close to $100 million to advance Phase 2. This is to advance the detailed engineering, to continue purchasing the recovery circuit and having it delivered at Bloom Lake for the expansion and also ordering other long lead items, which will secure the 18-month period to finalize the project. And just to be clear, the 18-month period is from a Board decision to go ahead to Phase 2 to the first tonnes that would be delivered in the market.In the quarter, we also purchased 100 used railcars to be able to lower the amount of railcars we need to be built in the Phase 2 project. And we still believe that Phase 2 is the best return for cash for our shareholders and the most accretive project in our company. We're continuing to work on nondilutive financial plan for the expansion. But again, when you look at the cash that we're generating now, the amount required to deliver Phase 2 is shrinking every day. While Phase 2 is the most obvious growth prospect for our company, we continue to think long-term to create opportunities and value for our company. In the previous quarter, we acquired and staked some new land just north of our property, and we now control just close to 180 square kilometers of prospective exploration land.We do hold over 5 billion tonnes of resources just south of Bloom Lake, but these resources are around 67 kilometers away from Bloom Lake. What we stake now is just north of our property so essentially 66 kilometers closer than the other resources that we have. And we see this as an opportunity to expand our current life of mine or also to potentially work on growth for the future. While we're excited about the future prospects of our company, it's important to highlight the dedication of our most important asset.Our people responded to the challenge created by unprecedented events and once again proved their agility to adapt operations. We're proud of the alignment of our workforce for the well-being of our company. This alignment is also mutual where we enforce our company's value for respect as we maintained all staff despite challenges created by COVID-19. And we know we can count on our people as our company looks to grow and benefit from decades of available resources.At this point, operator, I'd like to open the lines for the Q&A session.
[Operator Instructions] Your first question comes from Scott Schier from Clarksons.
I was hoping you could talk a little bit more about the DR-grade concentrate that you're producing. And specifically, what kind of impacts you're seeing this have both on realized pricing and costs or maybe even just margins?
Yes. Thanks for the question, Scott. So if we look at our DR production, we -- well, one, we've proven that we can do it now. It's fairly new in our company. But already, we've had quite a lot of demand from prospective clients in Europe, Middle East and even now out of Japan and China for this type of material. There's also opportunities in the U.S. to be able to sell this type of material in the future. The big advantage is, one, we're able to produce it very quickly, so we can adapt to the plant to produce blast furnace type material and then electric arc type material. And the cost was roughly associated to iron recovery loss in the plant, which we're working to mitigate with our Phase 2 project to be able to lower that gap for us to be able to produce this type of material.When we look at the premiums, it's not as transparent as the 65 index. So it's more a case-by-case basis that we negotiate with the different companies or different steel producers. And today, in the market high level. It gives a premium of roughly about USD 4 to USD 9 per tonne, depending of the clients, but we see this as increasing in the future, because there's very little ore bodies in the world that can actually produce this type of material, especially not on a consistent basis like we can do because of our concentration plant and because there's not that much potential supply. And we see this market as increasing in the future. We see a transition that's going to happen to be able to lower CO2 emissions in some transferring of capacity from blast furnaces towards electric arc furnaces. And as the scrap potentially becomes more available in Asia, but you'll always need to supplement the ultra-pure iron ore feed to be able to bring down the contaminants in scrap to be able to produce the steel with this method. So we see this as a very good business going forward and a very good niche that we've developed in these uncertain times.
That's great color. Switching gears a little bit. I was hoping that you could elaborate a little bit more on the strong production you had over the quarter because it was extremely impressive. Obviously, you had the semiannual maintenance shutdown and then the ramp down for about 3 weeks or so, but you still produced about 1.8 million tonnes or down just about 5% quarter-on-quarter. Could you talk a little bit about the production run rate that you must have seen in June to be able to kind of hit this high level of production over the quarter? And is that sustainable going forward?
Yes. I think you hit the most important part. June was a fantastic month for us. We produced just shy of 710,000 tonnes in that month. And one element as well, where we -- when we announced that we were ramping down, we had to shut down one of our production lines. And if you look at the -- at our results, where we were impacted the most was on the waste movement and on the tonnes that were drilled in the mine. So we -- our strip ratio was a little bit lower than what was forecasted because we didn't have as much staff at Bloom Lake. So these are costs that we'll have to incur in the coming months to be able to recover those. I mean, when you look at iron ore prices of over $120, they're not significant COGS, but they still were a little bit lower in the quarter.But what you have to imagine as well is when we're shutting down one production line, we still only have one mill. And because, if you remember, when we installed the recovery circuit at Bloom Lake, we installed a recovery circuit that was able to treat 20% higher throughput than what we had originally forecast as our nameplate capacity. So by shutting down one production line, we still have our mill that's able to produce a little bit more and to be able to service that production line. So that saved us a little bit as well in April and May, where if we would have typically been at 50% shutdown and also do our semiannual shutdown, while our production would have been slightly lower. So if you combine the fantastic results that we got in June and the increased throughput that we could get in April and May, that explains the fantastic quarter that we got.
The next question comes from Hayden Bairstow from Macquarie.
Just a couple for me. Just firstly, just on the quarter. I mean, you had great production results. I just want to talk about the cash flow though. I mean, it was -- when I look back to the Q1 of last year, I mean, the realized pricing was a little bit lower this quarter, but working capital we didn't see that much different. Just trying to understand while the cash flow is a bit softer than that Q1 of last year, is that just because everything was in June? So we're sort of waiting for a tool to be received in July. That's sort of the reason behind that? And just secondly, on the expansion. I mean, as you sort of touched earlier, David, I mean, sort of struggle is sitting far away. But what's stopping going ahead with it? I mean, you can basically fund this thing out of cash flow while it looks at it. So I mean, is it just a COVID-19 restrictions, the issues with getting certain bits of gear or certain people in-country to do some of the work? Or is it just taking a more conservative approach at the Board level? That's probably a question for Michael, I guess.
Yes. That is a question for me. And just -- I'll let you go on with, David, but realistically, the Board wants to see -- everyone talked about a V type recovery. And I'm sure the Board was seeing there. We were seeing saying in August, we're probably in a position to be able to make a decision to press the button on this. But it looks more of a W type with the second wave of COVID. And we just need that -- we just need a bit more certainty in the market. But we know the team can deliver. I mean, how often you get a CEO of a company that can sit there and talk to you about the work index of the mill and also know every operator by name at the site. It's quite rare. So look, where -- we've got the team. We've got the people. We've got the leader there. We've got the cash. We think it's going to be very accretive for us going forward.The fact is our product is in such strong demand. And like I was saying to on a previous call, you look at the market today, and everyone is fascinated with gold. Well, that's great because cash is not worth anything today. But iron ores has -- if you look at Fortescue or anyone else, including ourselves, it's been great results for the investor that wants to be involved in iron ore market. So just -- we just need a bit more certainty in the market. I'd like to say tomorrow, we're going to press the button. But as David highlighted, we're spending -- we've just approved today to budget another $30 million of spend. We've got the railcars coming along. We're shortening the time to be able to -- when we press the button to be in production. But we're also in such a position today where we've got so much more cash. And the market is changing. If you want debt, people don't -- will give you 24 months of covenants. So it's -- if we see more certainty in the market, a bit more stability, there's no doubt we're going to press the button. And the Board will -- I'm in touch with them all the time as we are with David. And when it's tough -- when the time is right, we'll go, yes.
Thanks, Michael. So Hayden, just to respond to the first question you had as well on our quarter versus last year's quarter. Last year's quarter, we really benefited from a strong provisional price adjustment. So if you look at the result that we had in our quarter last year, iron ore prices were slightly higher. Our costs were a little bit lower as well. And the provisional price is really the main differentiator in -- if you compare to last year. But when you look at the margins we're generating right now and the stability that we have in the plan, we still see this as a fantastic quarter, especially that we've achieved a record net income in this past quarter.And just to touch base on maybe completing the -- Michael's answer, there's essentially two elements, one being the recovery post-COVID, as Michael mentioned. And the second is, if you go back to April, we were not allowed to bring a single contractor to site. So we had to really demonstrate to the local communities, to our workers, to the First Nation the government that we could operate at Bloom Lake with contractors. In just a few weeks, they authorized us to do our semiannual shutdown, which had to bring over 200 contractors to site. And we're now working on a plan to be able to have close to 500 contractors at site for a period of 18 months while keeping everybody safe. So this is one part of the equation. And the second part being the stability of the market. But you can see that now we're advancing the funds to be able to continue derisking the project and be able to secure the time line for Phase 2.
Right. And just, finally, that purchase of the ore cars, is that like a meaningful reduction in parts of the CapEx and the expansion? Or is it just sort of just small incremental additions?
It's a small incremental addition, but it's still -- we got them half price. So for us, we still saved $5 million on those. So it's -- every dollar accounts, but these were essentially close to brand-new and exactly the same specs as ours. So it made a lot of sense to bring them on at this time.
And it's important to be in a position because -- to have those cars, Hayden. And given everything, you saw before we announced that the government is spending X amount of money on the port, so -- and we're working closely with the government on all of the design for that. So those things are still happening behind the scenes. And we just want to make sure that when we press the button, we can go pretty quickly.
Your next question comes from Stefan Ioannou from Cormark Securities.
Great to see the high production number for the quarter. Just maybe just on Michael's last comment there. And I think David mentioned it during the call. I mean, I know you're spending an additional $30 million on Phase 2, but you did also mention that it's still an 18-month time line after Board decision formally comes. So just -- can you just remind me, is there -- are there any sort of critical path items that actually span 18 months in the overall CapEx build? Or is it just a whole bunch of things that will add up to 18 months?
It's a whole bunch of things that add up to this 18 month, one being the mining equipment. So we're working on the time line right now. And the second aspect is all of the investment at the port as well. So right now, it makes sense to continue derisking the project by spending that $30 million, continuing the detailed engineering, getting that recovery circuit over because that's equipment that's being built in Australia and delivered in Canada. So there's a little bit more distance and risk in getting this delivered at the right time. So it makes sense to bring it on right now. But the 18 months is, as you mentioned, many different projects sort of coordinated together, smaller scale projects and the port.
Okay. I guess there's some sequencing there that has to be taken into consideration, for sure.
Correct.
Okay. Great. Great. And just curious on the recent -- you added a fair bit of land to the overall package this past quarter and some of it was acquired. Can you comment on the cost on how much you spent to acquire that? Or is that sort of something you can't talk about?
It's something that we can't talk about, but it's a very small amount.
Small number though. Okay. And maybe just one last question for me. Just, obviously, great to see the high margins. But at the port itself, it sounds like the costs are still trending higher than you'd like. Is there any more progress or updates there with regards to sort of getting a better handle on controlling costs at the port?
Yes. The port is doing fantastic right now. So we see that -- they did their maintenance in May, at the same time of our shutdown. They had a very successful shutdown in doing the maintenance on the stacker/reclaimer. If you look at a lot of the cost at that port, it's really when that stacker/reclaimer had a faulty portion or a faulty part on it, and we had to reduce by about 50% its capacity. So we were paying quite a lot of demurrage and being less efficient at the port. That's now been solved, and we're now back in an area where we're either not paying demurrage and even getting dispatch for our vessels or paying very, very little incremental demurrage for vessels. So we see that as being much more controlled than it was.
Okay. Good. So I think sort of a calendar Q3 forward basis, we'll probably start to see the cost. That sort of show up in the actual cost then?
Correct.
Our next question comes from Lucas Pipes from B. Riley.
I wanted to ask a little bit about the capital structure and capital return policy here during this time of very strong earnings and cash flow. And would it make sense maybe to pay a special dividend or do something along those lines and help the market understand the value of this asset?
I won't let Michael answer. But high level, and maybe, Michael, you can complete. But when you look at what's most accretive for our shareholders, it makes a lot more sense to deliver the Phase 2 project. We're now strengthening our balance sheet, positioning ourselves to do this with very little incremental debt. So we see that as the most accretive project for our shareholders. After the Phase 2 is delivered, well, this is when we want to revisit and to start looking at more seriously on a dividend payment. But right now, the most accretive project is really the Phase 2. I don't know, Michael, if you have any other comments on this or.
I'd be -- I'd like a dividend, but so -- no. But honestly, we've had a lot of debate about that. And so look, yes, I would love a dividend. But also, I think that we spend this money on the capital that required less debt and we're all in taking from a bigger pot. And what that tells you also is that our view on the iron ore market going forward. China has kept everything going at the moment. And hence, you're seeing iron ore prices that are way up there. But with the rest of the world coming on and if Europe and the U.S. get going, the whole design for the future is on infrastructure. And that's -- what you're talking about is iron ore. So iron ore is going to deliver some very, very good returns for the future. And there's -- with what's happening in Brazil, for us with the high grade, I see it as a very strong position. We're sold out. We continue to get inquiries all the time. The more and more people get used to our material, the better it is for us into the future. So I have no doubt we'll be able to sell this product going forward. And I have no doubt there's going to be very strong demand for iron ore in the future. So all of that said, the best bang for our buck is to put that money towards the expansion and benefit from that. And when you consider someone has already spent $1.2 billion, not someone, but Québec spent $1.2 billion. It's a lot of money for an expansion that when we're talking $400 million now to finish it, it's a great return for shareholders.
The next question comes from Craig Hutchison from TD Bank.
Just in terms of going ahead with Phase 2, how critical is an off-take agreement to go ahead and pull the trigger on the expansion?
Thanks for the question, Craig. When we look at the demand that we're getting for our type of material right now, I wouldn't see that as the bottleneck for Phase 2. There's -- we're getting calls every day for more material, and we're sold out for the year. We have a new product as well that's getting significant demand and steel mills are starting to test it right now by buying not even half cargoes but by buying full cargoes. So we see this as very positive for Phase 2 as well. So in the current market, we want to continue getting the same blend as we have in Phase 1, which is essentially 50% of our sales on longer-term contracts, 25% of our sales on shorter-term contracts and the last 25% on either spot or 1 year contracts. And it's the same ratio that we want to achieve with Phase 2, but we see the market in a very good position for our type of material.
All right. And just one last question for me. In terms of the taxes, the cash taxes, I think you guys were able to defer most of it from the last quarter. What should we sort of be modeling for sort of the current calendar quarter in terms of cash taxes? Should it be somewhere closer to sort of the effective rate around 40%?
Craig, it's Natacha. In order to model your cash tax, the best thing is take a look at the current tax income as of March, which was $90 million, and then you basically divide that by 12 months. That gives you the idea of the monthly installment that is separately due. And now since yesterday, we can -- since Monday, actually, we can defer to September 30 every monthly installment, right? So the monthly installment from March -- April to September will all be paid in September, in addition to the current income and mining tax that was due in March, which was about $57 million. But after that, like in October, November, the monthly installment will be $90 million by 12, so roughly $8.5 million. So that's the cash tax that should be modeled.
There are no further questions. You may now proceed with closing comments.
Thank you. So thanks, everyone, for being on the call. Thanks for the support as well. It's always appreciated. And looking forward to discussing with you in the next 3 months.
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