Champion Iron Ltd

ASX:CIA

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, ladies and gentlemen. And welcome to Champion Iron 1Q 2024 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]

Now I would like to turn the conference over to Michael Marcotte. Michael, please go ahead.

[Michael Marcotte, SVP of Corporate Development and Capital Markets]

Thank you, operator, and thank you, everybody, for joining our call to discuss our Q1 results of the fiscal 2024 year. We apologize to starting a little bit late. We had a little bit of a technical issue.

Before we get going, I'd just like to turn everybody to our website, where you can find the presentation, which we will be discussing today at championiron.com. We'll also be making forward-looking statements throughout this call. You can go through your MD&A, with regard to these forward-looking statements and risks and assessments, also available on our website. Now all figures on this call are in Canadian dollars unless otherwise stated.

Joining me on the call today is our CEO, David Cataford, who will be doing the formal presentation of the webcast. And then we'll turn it over to people for Q&A at the end. Also joining me or us, is Alexandre Belleau, COO, and Donald Tremblay, our CFO.

And I'll now turn it over to David for the formal portion. Thank you, David.

[David Cataford, CEO]

Hi, everyone. Thanks a lot for waiting, these long five minutes before the call started. Very happy to be able to announce the results for the past quarter. As you probably noticed, it's a bit of a mixed quarter, but I think we did a good job and very proud of the teams to have navigated through these forest fires. I mean this was one of the most significant forest fires in the past 100 years here in Quebec and in Canada. And I think the results are still fairly positive despite what we saw. We'll go a little bit more into detail with the elements of these forest fires.

But I think, when we look at the quarter, the main highlight is obviously the 3.4 million tons that we produced, reaching over 90% of our nameplate capacity here at Bloom Lake. So the ramp-up is going according to plan. We will have a discussion on costs, but costs were coming down if we remove the volatility of these logistics issues during the quarter. And I'm very happy with the way that the teams have managed to navigate through this.

When we look at the financial results, these were obviously impacted by the fact that we were not able to send down all of the tons that were produced, but these tons of stockpiled at the site and will be able to go through the plan to be able to get them to the market.

If we look at the environment, very proud to say that again another quarter without any major environmental issues. So since the re-commissioning of Bloom Lake in 2018, we've done an excellent job in keeping the environment safe and have invested significant CapEx over the past years to make sure that we can continue to operate in such a safe way for decades to come.

In terms of the community, also very happy as you've probably seen in the past quarters, we've announced that we're working very closely with our local communities with First Nations, but it's always good to be recognized by our peers.

And we have the Mining Association of Quebec and also the Federation of Quebec Chambers of Commerce that recognize us as the best company working with local communities this year So very proud to have that. And this will not only help us to continue to operate but also help us significantly when we look at the potential growth initiatives. Because as you know these days, it's very important for companies, especially mining companies to work with their local communities.

In terms of the industry. Well, in the past quarter, you probably saw the iron ore price dip a little bit around 11% decrease for the P-62 and the P-65. We also saw the sea freight increase by about 16% during the quarter, as we saw volumes from Brazil increase following seasonal impacting --seasonal factors impacting the production, but we still see the freight rates significantly lower than where we saw the high last year.

So still in an area that allows us to have significant margins for our material and as we ramp up to nameplate capacity and also bring down the tons from Bloom Lake, we do expect to fully benefit from the high-grade premium for our material

In terms of forest fires. So, as we mentioned on the highlights page, significant forest fires here in Quebec that impacted production - impacted production a little bit less. The fire was pretty far away from the mine. where it impacted production that for some time, we were not able to haul up explosives, our fuel.

As you can imagine these are the first things that are cut from roads when there's potential forest fires near the roads. So this made us take some decisions on how we manage the mine to be able to save some fuel to make sure that we don't stop production but that caused some little hiccups at site, which impacted a little bit our production. Still happy with the 3.4 million tons that we produced, but we could have done a little better if we had not been impacted by the forest fires.

When we look at the real impact, it was really associated with the logistics. So the QNS&L the rail line operated by IOC was shut down for some time and running at a slower pace, following that as they ramp back up and rebuild the infrastructure that was destroyed by the forest fires. The actual track was not impacted, but all of the communication systems around were impacted in certain areas around the rail.

But very happy to be able to say though, one, that the fires did not come close to our actual operations so there is no impact on our equipment. And also when we look at local communities everybody managed to stay safe. There were some evacuations in areas near the city and near the port, but since then people have returned home and there was no impact to their actual home except for the moving out and moving back in.

When we look at the impact associated with the rail stoppage and the rail decreased capacity for a short period of time, that caused us to stockpile roughly about 1.3 million tons of our high-grade material at Bloom Lake.

This is all material that is at the same spec as what we produced, so roughly about 66.2% fully sellable material, but as currently stockpiled here at Bloom Lake, as our third-party carriers receive their rolling stock and bring this into production, we do feel that we'll be able to gradually bring down this material in the quarters to come.

When we look at the operations, as we mentioned very proud that we managed to reach a record production of 3.4 million tons on track to be able to deliver our full nameplate capacity run-rate in the near future. And very happy with the way that the mine is progressing. Now that we've received most of the mining equipment to be able to deliver, all of our tons.

One drill that's still missing, will allow us to remove certain contractors at our site that are costing us a little bit more. But when we look at the trucks and at the loading equipment, we do have sufficient equipment to be able to deliver on our mine plan, which is the ore and the waste MBR required to be able to achieve full nameplate capacity.

You probably see the iron recovery being slightly lower than our target. This is something that we'll be able to optimize once we've reached full nameplate capacity very difficult to be able to optimize that while we're in ramp-up mode. Because the equipment needs to be tweaked once we have our full run rate.

And there are some modifications that will need to be done. This is on an operations level not on a CapEx level, but operations-wise there are things to tweak to be able to maximize the iron recovery, but we don't see any reason why we would not be able to achieve that, once we've had a full nameplate capacity. We do believe the equipment and the design will be able to allow us to reach full recovery.

In terms of revenues, well that was impacted mainly by the fact that we have about 1 million tons less sales than we should have in the quarter, mainly associated to the forest fires, but we'll be able to fully benefit from that in the coming quarters as we bring this material to our clients.

If we look at costs, this is where I think the teams did a great job. Even though we were navigating through these forest fires. The higher production impacted positively our costs, reducing the cost significantly, bringing us closer to our sub-$70 target here short term. And when we look at the diesel and explosive prices, they've also dropped in the quarter. Explosives by about 10%, diesel a little bit more.

So that's also helped soften the price. Where we were impacted during this quarter, is the volume effect at the port. So at the port, we have fixed costs every quarter and this was spread over 2.5 million tons instead of being spread over roughly 3.4-3.5. So that was one of the impacts that negatively impacted our costs.

And secondly, the inventory build is the other element. So we had to move inventory at the site and that causes some extra cost during the quarter, but we do feel that we'll be able to bring our cost down in the coming quarters once we solve those logistics issues associated in this quarter.

Another area where we were impacted during the quarter. You probably saw that at the end of March, we had booked a price of $140 per ton that price softened very quickly once the last quarter ended. And the final price that we've achieved for this material, was roughly about $123.

So that had a negative impact of about $35 million because it was - we had roughly about 2 million tons on the water and because this was spread on only 2.6 million tons during the quarter, that had a negative impact of about $13.5 million per ton.

When we look at this quarter, the price that we booked was about 121 and we've seen prices a little bit higher in the past weeks. So if things stay the way they are at, we should be able to see a positive provisional price adjustment at the end of this quarter. But again, if we take a little step back and we look at what we achieved? Again this quarter, we achieved roughly, about the P-65 index. So if you look at a larger time period, we always pretty much get the P-65 benchmark and that's our target. There is some noise in the short term, but we do get the full P-65 index when you look at the yearly results.

In terms of cash, the cash reduced a little bit during the quarter, mainly due to the fact that our sales were much lower than expected. We did pay the dividend this quarter, so about $52 million, and there were some sustaining expenditures associated with the work at Bloom Lake for Phase 1 but also at two and also the work that we've started now on the DR pellet feed project

If we look at our balance sheet, still very well positioned to allow us to continue our growth initiatives. And as will go through these various growth initiatives in the next slides, you'll be able to see that we do have some significant value creation for our shareholders in the coming years.

We just talked about operations. If we take a little step back and look at the market and more specifically on the DR-grade material. What we're seeing right now is more and more subsidies from governments around the world to be able to convert blast furnaces into electric arc furnaces. We have now seen Germany, be able to join that journey to be able to convert from blast furnaces to electric arc furnaces, but that still poses the question, where is the feed going to come from? And when we look at different assumptions on where the market will be, most assumptions even in a conservative way see DRI material grow from 5% to roughly about 25% in the market by 2050. That's a significant increase of DRI required to be able to supply these electric arc furnaces.

And when we look at where else the material can come from? Well, realistically, there won't be enough scrap to be able to supply all of these and especially not enough scrap of high enough quality. And this model also assumes that there's quite a significant amount of blast furnaces that used carbon capture, and we'll see where that lands. But regardless, of where that lands, we do see a significant increase for DRI in the coming years.

If we look at quantifying that what is going to be required by 2050 is roughly about an additional 350 million tons per year of high-purity iron ore required to make DRI. Just to put that in perspective, that's roughly about 40 new average-scale mines of high-grade material or about 20 mines equivalent to Bloom Lake. And if you take into perspective, the fact that bringing on a new line of high-grade takes between 12 to 15 years in today's day and age. I mean 2050 is pretty much tomorrow and we have seen no projects of scale being announced to be able to produce this type of material.

So there's going to be a demand of roughly about 20 Bloom Lakes in the future without any other projects. apart from the one that we're working on a scale that we've seen being announced in the market. So we see that as a very positive potential for Champion shareholders to benefit from higher premiums for this high-grade-type material.

This is pretty much the path that we're on to be able to create more value for our shareholders. And if you look at our growth initiatives. They're aimed at either increasing the quality of what we have at Bloom Lake or maximizing value for the material that we make or potentially adding new tons of DR-grade into the market. How to do this?

While we have two significant feasibility studies that we're working on right now. We're still on target to deliver those by the end of this calendar year, so by the end of December 2023. And this is the pellet plant in Pointe-Noire, the feasibility study to be able to build an 8 million ton per year pellet plant in Pointe-Noire. And the second one being the Kami project, to be able to have roughly about 8 million tons per year of DR-grade material from the Kami asset.

So these are the two projects that we are working on feasibility studies that we should be able to deliver by the end of this year.

If we look at our growth initiative, this is the DR pellet feed project to bring our material to 69%, essentially the highest grade material in the world, and allowing our clients to decarbonize their operations and also benefit from increased productivity at the same time. When we look at this project, we're still on target to be able to deliver it by August of 2025.

So we started ordering long lead items, we worked on detailed engineering during the quarter. And we're still very confident we'll be able to reach this timeline. The only element that's missing for us to be able to officially announce that we'll deliver this project in August 2025, is to have full investment decision. And to have that, we need to have the power allocation from the Quebec government for our project.

When we look at the criteria required to be able to get power here in Quebec, basically high-level what the government has mentioned is we need to have a good relationship with our local communities and it needs to benefit local communities. And as we mentioned early on the call, while we've just been recognized as the best company in Quebec in terms of community relations. It needs to decarbonize and as we've disclosed previously, this project will help our clients decarbonize by roughly about 5 million tons of CO2 emissions per year. So we largely ticked that box. It needs to create value for Quebec which this also does. So we took pretty much all the boxes.

When we look at timeline to be able to get power allocation here in Quebec, the government had announced that this would have been in June, then postponed to July. But realistically, the new CEO for Hydro-Quebec comes in on August 1, so we do expect that probably in August or September. We should have some official news on this and then we should be in a position to have full investment decision from our Board to be able to go forward to deliver this project by August of 2025.

That being said, I'd like to thank all of our staff done an incredible job in being able to navigate through these challenging times. And even if we were impacted to be able to have positive results in this challenging quarter I think is quite a testimony of the skills that we have within our Company to be able to not only deliver projects, but also deliver on our operations.

So that being said, I'd like to turn it over to the Q&A portion of the call.

[Operator]

[Operator Instructions] Our first question comes from Orest Wowkodaw Scotiabank. Please go ahead.

[Orest Wowkodaw, Scotiabank]

Hi, good morning. Obviously a tough operating quarter given the situation around the wildfires. Can you give us a bit more clarity though on what the operational outlook looks like for the current quarter? And by that I mean, what's the rail and the logistics all back to full capacity at the beginning of July or are some of these impacts - potentially impacted the current month?

[David Cataford, CEO]

Yes. Thanks, Orest for the question. So there has been some slight impacts still, so the rail is not fully - to its full capacity yet. I mean the rails are operational, I don't see any reason why we would not be able to deliver all the tons that are being produced in the quarter. It's more a question of bringing down the inventory and the backlog that is something that we definitely are looking for.

One of the impacts also is, as you can imagine, the summer-time is when the rail typically has its shutdowns to be able to do maintenance, they did not do that during the fires. So this still has to be done. So there will be some potential small impacts on delivery of material. But on a normal run-rate, I feel that it's back up to where we were able to bring down all the tons that are being produced and working closely with IOC to make sure that in the coming quarters, we're able to bring down that backlog so we can sell this material to our clients.

[Orest Wowkodaw, Scotiabank]

Thank you. Just to clarify, does that suggest that you don't expect to destock the inventory in this current quarter, that probably takes - that's probably pushed out one quarter, did I understand that right?

[David Cataford, CEO]

Yes, that's correct. I wouldn't see many tons from the inventory being brought down in this quarter. I think it will be over the next several quarters, where we'll be able to destock the Bloom Lake inventory.

[Orest Wowkodaw, Scotiabank]

Okay, well thank you very much.

[David Cataford, CEO]

Thanks, Orest.

[Operator]

Thank you. The next question we have Lucas Pipes with B. Riley Securities. Please go ahead.

[Lucas Pipes, B. Riley Securities]

Thank you very much, operator. Good morning, everyone. Also, I want to add my congratulations on managing very well through the challenges during the quarter. David, I wanted to ask kind of longer term. You have an attractive growth profile, with a number of projects and how do you think about de-risking those from a commercial standpoint? Do you need offtake, do you need a fixed price? Would appreciate your thoughts on that. And if you kind of walk us through a project-by-project, how you think about locking in economics, or if that's necessary or not, I would appreciate it. Thank you very much.

[David Cataford, CEO]

Thanks for the question, Lucas. So, as you probably see, our balance sheet is in pretty good shape and all shareholders have the advantage that Management Directors own over 11% of the business. So when we take decisions were fully aligned with all of our shareholders, because we are major shareholders. And the reason why I'm saying this is that locking in fixed prices in an environment where we see a huge gap between supply and demand and a gap in the right favor for us.

I don't think it would make a lot of sense to lock into prices long-term now, because we have some potential prepayments for future premiums. It's things that we'll definitely look at, but I think the first step for us is really to have all of these feasibility studies, so we can evaluate the cost and the value accretion for our shareholders from all of these projects. And we'll be able to weigh them one against the other and see which one makes the most sense.

But if we look at projects like the DR pellet feed that's costing us roughly $350 million that in a normal environment, we should be able to fully finance out of cash flows. We don't see a lot of advantages for us to be able to lock in to fixed prices.

When we look at potential offtake we like the current deal that we have with our partners, where we make most of the money and we work with partners to be able to help us to bring down - or to find the right clients. But when we look at the potential demand in today's market, if we were the type of Company that signs a whole lot of MOUs, we'd be able to sell many times the amounts of tons that we're currently going to produce with the DR-pellet feed. But what we're doing is we're advancing projects and potential partnerships.

We've just come back from Germany, because as you probably heard the German government has also subsidizing the change for electric arc furnaces, so converting blast furnaces to electric arc furnaces. We're pretty close to our Japanese customers, doing a lot of work in the Middle East. And when we add up all the potential clients we have much more demand than what we're actually going to produce.

[Lucas Pipes, B. Riley Securities]

That's very helpful. So David, just to maybe put a bow on it, you shouldn't necessarily think of offtake being a requirement for a project decisions?

[David Cataford, CEO]

Correct.

[Lucas Pipes, B. Riley Securities]

Okay, that's very helpful. Thank you. And in terms of kind of the near-term market outlook. There's a lot of speculation about steel production in China in the second half. And whether stimulus is necessary to maintain current levels of steel production in China, in the event that stimulus - forceful stimulus doesn't come forth. How do you think your business would be impacted? How would you think the iron ore market overall, would be impacted? Thank you for your perspective on that.

[David Cataford, CEO]

Yes, thanks for the question. So when we look at the current situation in China, they're chasing much more economic growth than climate-related elements in the steelmaking business, we do feel that that's going to come back.

So right now we see the premium for the high grade being pretty low, but if there is some potential pressure you probably also seen that in China, they're building more and more of these large blast furnaces and less and less of these small ones. So when you look at productivity in these last furnaces, even if there is some production that would potentially be a shutdown, we do think that that could bring some positive news for the premium for high-grade.

We're monitoring it very closely. We've seen some - I mean, when you look at China over the past few years, every day, it seems that there is a different headline. But realistically, when you look at the amount of tons of steel is being produced, there is a significant amount of tons being produced. And they are even exporting tons right now. So we're seeing the market in China being pretty healthy.

Is stimulus required to be able to increase the price short term potentially? But we do feel that with the type of material that we make and the demand for our type of material, we're somewhat protected in a scenario where they would reduce the tons out of China.

[Lucas Pipes, B. Riley Securities]

Very helpful. A quick technical follow-up question on that. The larger blast furnaces, how does that from a technical perspective benefit higher grade ore?

[David Cataford, CEO]

When you have a larger blast furnace is a little bit more difficult to be able to put a whole lot of low-grade material, you can, but you're going to have much less productivity in your cost per ton of steel. It's always the balance between how much you're willing to pay for the high-grade type material to be more productive with your blast furnace versus buying lower-grade type material to reduce your cost. But when you see the current environment, we do see that typically we've seen this in Japan, we have seen this also in other areas in China. When you build larger types of blast furnaces, they do favor a significant portion of high-grade material to be able to reach their productivity.

[Lucas Pipes, B. Riley Securities]

Very helpful. David Keep up the good work. And I'll turn it over. Thank you very much and best of luck.

[David Cataford, CEO]

Thanks, Lucas. And maybe just to add on that, when you have a large blast furnace versus a few others you don't want to realign that too often. So you want to maximize also, the amount of tons that you're producing out of that blast furnace reline. So that's typically another reason why these large blast furnaces will favor high-grade material.

[Lucas Pipes, B. Riley Securities]

Makes a lot of sense. Thank you for that.

[Operator]

Thank you. Your next question comes from Alexander Pearce with BMO.

[Alexander Pearce, BMO]

Thank you, all. So just building on the first question, actually. Just would you guys go into any more detail on the rehandling costs that you flagged for when we do start drawing their stockpile? It sounds like it's later in the year, but maybe you can give us some kind of order of magnitude there.

[David Cataford, CEO]

Yes, thanks for the question. When we're looking at rehandling costs, we can give us sort of blended rate because there is roughly about half of the tons that we have at site, that is stockpiled right next to the - right next to the load out facility. So that is very low cost to be able to handle, it's just a loader to put this in a new system that we built in the past years, that allowed us to re-handle this very efficiently.

When you look at the material, that's a little further away from the site. We're looking at a few dollars per ton to be able to move that material back to the site. But it's a bit difficult to say, which tons are we going to move first.

Obviously, the ones near the plant are the first one we're going to move, because if ever we have another event while we want to be able to restock there. So those are the first ones that will go and then gradually, we will start moving also material that's a little bit further away from the plant.

[Alexander Pearce, BMO]

Okay, that's very helpful. Thank you. Just the second question is just obviously given the potential for near-term restrictions on that line. How does the arrangement with IOC work in terms of, did they get priority or would you get priority in terms of tons, if we just saw we saw another issue such as this?

[David Cataford, CEO]

Yes, the way we see it and the way that we're in discussions with IOC, I mean, it's been a pretty good partnership since the beginning. They've always been very accommodating for both their site and ours as well. They do have some backlog as well, but there is no situation where they would only move their material. They also have some return restrictions at the port anyways, so it doesn't make that much sense to be able to only move their tons.

And you have to remember as well that it does cross two provinces. So it is a common carrier that is subject to the Canadian Transport Act. And there are some obligations when you're a common carrier to be able to not only supply yourself and some pretty strict mechanisms associated with that. So I don't think it needs to go to that level because it's always been a very good partnership and we feel that we'll be able to work with IOC to bring down our tons in there at a decent rate over the next quarters.

[Alexander Pearce, BMO]

Great. Thanks, David.

[David Cataford, CEO]

Thank you, sir.

[Operator]

Your next question comes from Gordon Lawson with Paradigm.

[Gordon Lawson, Paradigm]

Hi, good morning, and congratulations on a great quarter here. I just want to make sure I heard you right with respect to the decision from the government for the direct feed plant. Did you say August 2025?

[David Cataford, CEO]

The delivery of the plant, that's correct. Yes.

[Gordon Lawson, Paradigm]

Yes. Okay, and just wondering how comfortable are you with continuing to approve CapEx in ordering long lead items before this decision was made?

[David Cataford, CEO]

Right now, we expect that the CapEx that we have approved will be able to allow us to go to the timeframe. where the government would announce. So, this brings us well into the end of September. So we feel pretty confident we'll get an official answer by that time. And as you know, we're pretty creative Company. We also have some plans, even if that wouldn't happen now.

[Gordon Lawson, Paradigm]

Okay, great, thank you very much.

[David Cataford, CEO]

Thank you Gordon.

[Operator]

And next question, we have Craig Hutchison with TD Securities.

[Craig Hutchison, TD Securities]

Hi guys, good morning. With respect to the ability to deliver the 50 million tons. I think last quarter you mentioned, your plant was to kind of have it up and running in August. It sounds like you have all the upstream equipment minus be one drill, is that still the case? Do you guys think you can get up to full capacity here in August at this site?

[David Cataford, CEO]

Yes, thanks for the question, Craig. So we had hinted that in the past quarters. We still feel confident that we'll be able to reach the full nameplate capacity near-term. Now with little hiccups associated to the forest fires, will that be August or September? I mean, we feel that we're pretty much there. We're over 90% now. Things have been trending positively since the end of the quarter. So I do feel that we're almost there to be able to reach that full nameplate capacity run-rate.

[Craig Hutchison, TD Securities]

When you say over 90%, you mean in the Phase 2, right, just not the overall 15 million tons?

[David Cataford, CEO]

90% for overall. When you look at 3.4 million tons versus that, call it 3.75 that we need to do per quarter, we're over at 90%, yes.

[Craig Hutchison, TD Securities]

Okay. Maybe just with respect to the DR project. You guys have done some traveling here since January for the study. Any kind of sense in terms of more clarity on the pricing mechanism? I think previously you said it would be something like you take the DR pellet. Maybe you would then subtract the cost to prepare pellet and then some - kind of some traction from there. But just given the dynamics of the market, and how has changed beneath this material? Kind of any clear clarity in terms of how that pricing mechanism might play out in the future will be helpful. Thanks.

[David Cataford, CEO]

Yes, thanks for the question, Craig. So that's up in the air, with a lot of the clients right now. So we're looking at creative ways to be able to price that. And the last thing that we want is to hurt ourselves in the future. So we still have quite a bit of time to be able to settle those over the next two years. But the way that we're still seeing it as a portion of that DR pellet feed material, plus an increase for the ethane units for our material.

When we look at that feasibility study and the number that we have, we still feel that a conservative number when we look at the potential that we're seeing. And what's interesting as well, as you probably have EV announcements from Cliffs wanting to get paid for their ADPi-type material and green steel. So when we look at other potentials out of Germany, we're seeing also some premiums being announced.

So something that was not there last year, we're starting to see now and this is just the beginning. So we do feel that a lot of these higher-grade material producers will want to make sure that they get the full benefit for this material over the next year. So that will potentially evolve, but we do see the results in our feasibility study as something that's fairly conservative.

[Craig Hutchison, TD Securities]

Great, thanks, guys.

[David Cataford, CEO]

Thank you, Craig.

[Operator]

Thank you. [Operator Instructions] Next question, we have Dalton Baretto with Canaccord.

[Dalton Baretto, Canaccord]

Thanks. Hi, good morning guys. David, a bit of a higher level question from me, just given your high-grade strategy, the quality of your broader portfolio and where your valuation sits today. Are you seeing any interest from larger miners, steelmakers in terms of a strategic investment? And then Part B, I guess of that is, would you entertain such an investment if it came at a premium to market. Thank you.

[David Cataford, CEO]

Yes, thanks for the question. I think where we're seeing the most interest is when we look at, let's say, or Kami project. So, quite a lot of groups want to try to secure this higher grade type material and where we've gotten a significant interest in projects like Kami. So we do feel that scenario where we could develop a partnership. We've always said that this is a project that we would not necessarily do on our own, that we wanted to attract a partner to be able to do. So, that's definitely something that we are entertaining for the growth into our project.

Now when you look at the sort of DR pellet feed. And I compare little bit to lithium. So you look lithium a few years ago everybody knew that it was going to be required. Everybody knew, that it was something that was going to have a significant premium, but nobody was really investing or paying significant premiums for it.

Now we're seeing more and more sort of panic mode elements. We have companies that have three holes in the ground and are valued at, I mean, pretty high amounts. So that's definitely something that - that's definitely something that we're seeing in the DR market. So when you look at the DR market, we're just at the beginning of when we're seeing that growth for the near term in terms of demand. And there is no new supply that's coming on.

And the only difference, I'd say between lithium and DR material is that lithium you can pretty much find anywhere. DR-grade material is very limited to where you can actually produce it at decent costs around the world.

And maybe on a final note, when you look at a project like Bloom Lake. I mean the replacement value of the Bloom Lake asset today is probably north of about $6 billion-$6.5 billion U.S. And you look at our market cap today, we do feel that there is still significant room for this to grow. So would we entertain a partnership at these sorts of levels, when you look at the Company, I do think that it would not be accretive for our shareholders at this time. It depends what you mean by significant premium. So something we can definitely evaluate, but I wouldn't see something at that level being done any time in the short term.

[Dalton Baretto, Canaccord]

Great, thank you.

[David Cataford, CEO]

Thank you, Dalton.

[Operator]

Next question comes from Lucas Pipes with B. Riley Securities.

[Lucas Pipes, B. Riley Securities]

Thank you very much, operator. Thank you for taking my follow-up question. The prior question was actually pretty much exactly what I was about to ask. So I'll try to put a little bit of a different spin on it. David, when you look to the majors, is there a sense of urgency to move into higher-grade material? And if so, what are the key regions around the world, where they are focusing is Eastern Canada, on top of the list or maybe further down? I would appreciate how you think the industry is ranking Eastern Canada today. Thank you.

[David Cataford, CEO]

Yes, thanks for the question, Lucas I think DR grade material is such an interesting thing. Because I mean, we're a subset of iron ore. And iron ore unfortunately has been pretty much the most useful metal in the past call it few thousand years. So it doesn't necessarily have that sexiness that you'll see in lithium or cobalt are different of these elements.

So when you're looking at this definition for critical minerals all around the world, you see governments local and federal having their list of critical minerals and what we're seeing from the majors, is that they're typically trying to get into this market. You look at some of the larger iron ore producers, they're heavily skewed towards iron ore. And what we're seeing is that they seem to want to go into more diversified way.

So we're not seeing a lot of investment in the actual iron ore space. One area that had some potential and was looking to do it was Russia and Ukraine. But you've seen for the past year now that being significantly impacted and it's going to take probably quite some time before they can imagine ramping that portion up.

So we're not seeing a lot of focus on this apart from, let's say a Vale that is definitely working towards that as well. But apart from that, we're not seeing that much interest. So is Eastern Canada, a great place to produce grade material? I'd say yes. The unfortunate thing for others is that in the past five years, we've bought pretty much the equivalent of 10 Bloom Lakes in terms of resources in the area and getting all the - what we feel, the best areas to be able to develop new mines.

So we've pretty much taken a big chunk of what is possible in this region. So when you do the combination of what IOC has Arcelor and what we have, there's not a lot left for other projects to be able to see potential in the area.

So we do feel that we've positioned Champion very well to benefit from this key area which is Eastern Canada. But maybe to answer your question, we haven't seen that much interest in terms of the other miners, where I can say that we've had a lot of interest when I look at the steelmaking companies. More and more coming to visit Bloom Lake are coming to visit the area. There's more and more interest to see how can they benefit from this high-grade type material within their operations. So that's the area where I'd say we're seeing majors start coming into the area.

[Lucas Pipes, B. Riley Securities]

Very helpful. Really appreciate the additional color again. Best of luck.

[David Cataford, CEO]

Thanks again, Lucas

[Operator]

Thank you. There are no further questions at this time, I will now pass the call over to Michael.

[David Cataford, CEO]

Yes, so, sorry it will be David just for now, but Michael is not in my spot yet. But realistically, I want to thank everyone for being on the call today. I also want to thank everyone that's helped Bloom Lake, be able to deliver the results that you saw in this quarter, especially our staff in the local communities. I do feel that we've got the right team to be able to navigate through various challenges that can come at us in the next years and also have the team in place to be able to deliver on our growth initiatives to create significant value for our shareholders.

It's always a pleasure to report our results. And looking forward to talking to you all in the - at the end of the next quarter. Have a great end of summer everyone.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating. And ask that you please disconnect your lines.