Champion Iron Ltd

ASX:CIA

Earnings Call Transcript 2020-Q3

[Operator]

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 Third Quarter Results Conference Call. [Operator Instructions] Thank you.Mr. Marcotte, you may begin your conference.

[Michael Marcotte, Vice President of Investor Relations]

Thank you, operator, and good morning, everyone, or good evening for those dialing in from Australia. I would like to thank everyone for joining us today to discuss the results of our third quarter for the fiscal year ending March 31, 2020.I would like to direct people on the call to a presentation that management will be referring to, which is posted on our website at www.championiron.com under the Events and Presentation section.I'd also like to remind listeners that some of the matters to be discussed today during this call may contain forward-looking statements. Forward-looking statements include, but are not limited to, items such as expectation regarding the market price of iron ore, timetables, mining operating expenses, capital expenditures, guidance and reserve estimates.Such statements discussed today may involve risks and uncertainties. A number of factors and assumptions were made in preparing such statements. Therefore, actual results could differ materially. Accordingly, you should not place undue reliance on forward-looking statements. For additional information with respect to forward-looking statements, risks and assumptions, please consult our most recent MD&A and other filings made with Canadian securities regulatory authorities. These documents are also available on our website.Champion disclaims any obligation to update or revise any forward-looking statements, except as required by law. I made this cautionary statement on behalf of all Champion spokesperson who may address you during this call today.Please note that all dollar amounts refer to Canadian dollars, unless otherwise stated. Joining me today from Champion Iron management team include David Cataford, our Chief Executive Officer; Michael O'Keeffe, our Executive Chairman; and Natacha Garoute, our Chief Financial Officer.With that said, I'll now turn the call over to our Executive Chairman, Michael O'Keeffe, followed by our CEO, David Cataford. We'll also hold the call for a Q&A session at the end. Michael?

[William Michael O’Keeffe, Executive Chairman]

Well, thank you, Michael. Happy new year, everyone.I think 2020 is going to be a very exciting year for Champion. I also think the next 5 years is going to be a very exciting year for Champion. The reason I say that is, I'm really buoyed by the fact that when we've been around the market just recently and also I woke up this morning and looked at Mysteel iron ore prices, the world is talking about the collapse in iron ore prices because of China.We've seen the spread from the 62% Fe widen to $16 this morning. For example, the 62% Fe is around about $84 a tonne, where we're still in our 65% material is around $100 a tonne. Now there's a few factors around that. And we've always said that the high-grade material would be in high demand and that's really coming to the fore. And China is obviously driving that market and the unfortunate situation there at the moment. But I see the good old Australians have discovered the virus. And I'm hoping it's not too long before there's a vaccine.But let's put that to one side and talk about why I'm so bullish on the next 5 years. And if you just simply look at what's happening in the world with Vale, BHP and Rio, which are the real drivers when we talk about this. When we initially went in to acquire the assets, they were the people we measured at the start of this. And you might remember, everyone was talking doomsday in iron ore price at $38 and less a tonne. For us, we just focused on what the big guys are doing, and it's no different to that today.And if you look at Vale, the problems they're having are insurmountable. And I can't begin to discuss the trouble that they're in, but it's affecting the market and it's affecting the high-grade market. So today, we're seeing that $16 premium, which is something we always forecast.So let's look at what BHP and Rio are doing. Well, we saw recently Rio talking about how they're placing their tonnes in China. And they've been able to distribute to the small mills and it's fantastic. You can get into that market. We've been already doing that for a year, and we're growing that position. But the difference between us and the other guys is that we can't provide enough high-grade material to blend with their low-grade material.If you look at BHP and Rio going forward and also Fortescue, you have to think, well, there's no CapEx being spent apart from Fortescue on any more growth in the iron ore business, but more importantly, in the high grade. So if you start spending dollars in the ground today just looking for the stuff or trying to acquire it, it's going to take you a couple of years to find it and then another 3 years to develop it.So that's why I'm so bullish. The demand is not going to go away, but the supply is under a lot of pressure. And I see that very good for shareholders. It's something we're going to go into over the next couple of days in conversation in Vancouver with our Board because they want to see whether we're confident enough and that we understand the market, which David can talk about a recent trip that they've been on.And today, I'd have to say to you when I arrive back from Australia after the bushfires, it was pleasing to see that there are tonnes effectively sold for this year. Now normally, we start the year off with a lot of options. And if everyone pulled their options, I think we're going to be buying tonnes from somewhere. So very positive with our material, very positive on my belief and the management's belief on where the high-grade material is going. And that sets us up very well for the next few years.So as I said to David all the time, he has to manage his costs. He's very well aware of that. We've let the cost slip a little bit in this previous quarter. We've missed a couple of shipments. Some of those are due directly to us pushing harder for tonnes. Some are out of our control, for example, at the port, where we had to deal with other issues from customers that are not properly set up and caused us delays and missed some of our shipments.But I'll let David go through all of that with you, and then we can sit down and have a chat at the end of it. David?

[David Cataford, CEO & Director]

Thanks, Michael, for the introduction. Welcome, everyone, to our scheduled call to discuss the third quarter results of the 2020 fiscal year.Today, we report our sixth quarter of commercial production. We continue to be proud of our accomplishments and the meaningful impact we're fostering in the region following the successful recommissioning of Bloom Lake. While our product remains in high demand, our flagship asset continues to deliver in line with its nameplate capacity. We are now well positioned to consider our short-term growth initiatives which we announced last June with our Phase 2 feasibility study.We continuously focus on health and safety, not only because it protects the well-being of everyone at site, but also it makes good business sense to protect our most valuable asset, being our employees. Overall, our company's health and safety statistics continue to track industry standards. In line with our company's growth initiatives, we have implemented new training programs and optimized emergency response protocols in our third quarter.Recently, our team completed emergency training programs and on-site simulations for confined space rescue along with first aid brigade response. We believe such continuous training improves our response time and efficiencies in case of future emergencies.Turning to the environment. No major environmental issues occurred in the period. As previously disclosed, we completed our $30 million accelerated dam raising program on time and on budget. This program improves our already safe tailings management infrastructure and provides flexibility for our operations ahead of Bloom Lake's proposed expansion. As a reminder, this program did not affect the overall dam-related work budget but rather only its timing.On another front, during the quarter, we initiated detailed analysis of energy consumption at site. This thorough analysis should be completed by summer and will provide us with visibility on potential work programs designed to further reduce our carbon footprint. We are also encouraged by recent trials conducted with a new blasting compound which continues to demonstrate promising results with respect to the reduction of nitrogen oxide gas emissions.As discussed by Michael, current commodity prices continue to offer a strong setting for our business. In the reported period, iron ore prices remain volatile, where the P62 and P65 iron ore prices dipped below USD 80 and USD 90, respectively, in October. We understand this short-lived correction occurred in tandem with the intense U.S.-China trade war negotiation and China's 70th anniversary celebration, which triggered several steelmakers to reduce capacity. Subsequently, iron ore prices have recovered with the key benchmark for our product, the Platts P65 index, now at near USD 100 per tonne.Looking at our product premium in the quarter, the premium for the high-grade P65 index versus the P62 index saw a short-lived compression early in the period. We believe this was caused by 3 key events impacting the usual trade flow with customers: first, the resumption of production from iron ore operations in Brazil; second, a deteriorating steel industry in Europe which caused some inventory to find its way into the Chinese market; third, curtailed production from steel mills in China during the 70th anniversary celebration in October.Following these events, we have now seen a series of steel price increases globally, causing steelmaker profitability to recover. Higher profitability, along with a greater environmental focus globally, creates greater demand for a high-grade iron ore. In fact, the premium for the P65 index versus the P62 index has rebounded rapidly in recent weeks and it now stands at 17%.Prior to the holidays, our senior management completed a trip to the Middle East, India and Japan to visit existing and prospective customers. This trip confirmed our views of the global structural shift occurring in the steel industry, which is adopting higher emission standards and further focusing on more complex steel manufacturing. We also continue to believe that the 2019 tailings dam rupture in Brazil will have a structural impact, limiting new supply of high-grade material for years to come.As many of you know, we price most of our freight from the C3 index. Despite much noise, the adoption of IMO 2020, which targets a reduction in emissions from bulk carrier vessels, has yet to abnormally impact freight rates. We continue to track the low-sulfur fuel market, which could impact freight rates. We are also evaluating new shipping strategies which could help reduce our overall freight costs.As discussed on our last call, we recently recommissioned berth 30 in Pointe-Noire, which provides access for baby capes and Panamax vessels and could allow us to engage with customers with shorter travel routes.Turning to operations. Bloom Lake produced 1.83 million tonnes of high-grade iron ore concentrate in the quarter. This current period included a planned semiannual maintenance shutdown, which was completed as planned in 5 days. In addition to this planned shutdown, our operations were affected by 2 minor events. These events muted the positive impacts of the blitz work program implemented earlier this year, which was designed to improve equipment availability.We experienced 3 days of additional downtime following a conveyor belt failure located next to the AG mill. Such an issue would normally have limited associated downtime. However, we incurred additional delays due to the unavailability of the required spare part. We also incurred 2 days of unscheduled downtime from premature wear of the discharge grates. This premature wear occurred due to the higher throughput achieved in the first 6 months of the fiscal year. We are currently improving the design of the discharge grates as we look to prevent the situation from reoccurring. Combined, these events impacted production by approximately 100,000 tonnes in the quarter.Looking at our mining rate, 8.3 million tonnes of material was mined during the quarter, which was a small decline from the previous period due to a temporary reduction of the in-pit crusher availability. This was partially offset thanks to the availability of our standby crusher, which maintained a stable plant feed.Despite these events, our operations delivered a production rate that continues to compare favorably to Bloom Lake's expected nameplate capacity. Also, our product was unaffected by these factors, and we continue to meet required specifications and have yet to be assessed with any penalties regarding contaminants.As discussed, a shaft next to the SAG mill, which recirculates gross material, experienced issues in the month of November. Although we look to carry spare inventory for all our critical equipment, the specific required part was poorly identified in our backlog. This critical equipment unavailability affected our plant for 3 days in the period. To prevent additional delays, we leaned on local relationships to have a piece of equipment engineered rather than wait for an original part delivery. This is another example of our staff dedication to optimize operations and a real demonstration of ingenuity, which is anchored in our corporate culture.To prevent a reoccurrence, we began a detailed review of the backlog of all of the plant's critical spare equipment, which is expected to be completed in February. When we look at the successful action plans we implemented last year following issues with the chute blockage, we are confident that this ongoing critical spare part analysis will further improve the stability of our operations.Looking at our ore recovery rate, we reported a quarterly rate of 81.7%. Our recovery rate is typically impacted by shutdowns as we usually require some time to get back to target levels. Given the replacement of the grates and liners as discussed, we experienced a longer period of time exposed to lower recovery rates before rebounding to typical target levels.Following these shutdowns in November, our recovery rate averaged 84.2% in December, nearly matching our historical record monthly rate of 84.6%. We remain confident in our ability to meet the 83% recovery rate target initially set by our feasibility study when we recommissioned Bloom Lake. We continue to evaluate our processes to further improve our recovery circuit without impacting the quality of our product.Despite small setbacks that we categorize as nonrecurring, our operations continue to track Bloom Lake's nameplate capacity. These results translate into strong profitability for our company. In the quarter, we realized sales of $171 million, EBITDA of nearly $58 million and net profit exceeding $30 million. This translates into earnings per share of $0.07 for the quarter. Even more impressive are fiscal year-to-date results, where we reported over $609 million in sales and $154 million in adjusted net profits.In the period, our total cash cost stood at $54.2 per tonne. This figure was impacted by the downtime previously discussed where the unplanned events, which we believe to be nonrecurring, incurred approximately $2 per tonne of additional costs. In addition, our operating costs have also been negatively impacted by the rising costs at our port facilities.Our all-in sustaining costs were also affected by nonrecurring expenditures, including our previously disclosed accelerated tailings work program. As mentioned, this additional program positions our company for proposed expansion projects and does not change the overall tailings expenditure for the Bloom Lake but rather only its timing. This program is now complete for the fiscal year, and its completion is expected to reduce the sustaining capital dedicated to tailings management over the next few years.Also worth mentioning is the fact that additional stripping activities completed in the period also increased our reported costs. Our Phase 1 plan estimated a strip ratio of 0.48 for the life of mine. Our current strip ratio of 0.7 reflects our preparations for Bloom Lake's proposed expansion.Although we benefit from state-of-the-art port facilities with the SFPPN, our port-related costs have increased beyond the indexation rate in the last year. Despite improvements to the operating time cycle at the port, we faced an incremental cost of approximately $2 per tonne when compared to last year.The Board of SFPPN, on which our company has a representative, elected to strengthen the leadership, aiming to revamp operational processes. We have identified a new CEO with many years of experience managing railroad and port facilities. We are confident this change will help revamp the operational processes and believe that this can lead to cost reductions going forward.More specific to this period, our sea freight rate was affected by elevated demurrage costs due to downtimes affecting SFPPN's loading facilities. As a result of these inefficient operations, a vessel scheduled to leave before the end of the quarter left on January 2, 2020, contributing to lower revenues in the quarter. Such lower revenues also directly impact our cost metrics, which are measured from our volumes sold each quarter. This being said, we look forward to working with SFPPN's new management to improve operations and in so doing, reduce our associated costs in the near future.In the period, our gross realized price was USD 106.2 per tonne. While the average premium of the P65 index over the P62 index for the quarter was 11%, our realized premium over the P62 index was nearly 20% in the period. This elevated premium compared to the indices reflect strong sales in December as prices for the P65 index had recovered.Looking at our freight costs, we typically pay a 20% to 25% premium to the C3 index, which averaged USD 20.5 per tonne in the quarter. Our average freight costs of USD 30.7 per tonne is somewhat elevated in the period for 2 reasons: one, additional port-related fees as discussed earlier; second, 2 low-tonnage vessels were sent to India to prospective customers.We aim at optimizing our sales channels and engage with the best long-term customers as we are considering the proposed Phase 2 expansion project at Bloom Lake. We do not expect to ship low-tonnage vessels on a recurring basis to secure additional customers.Entering the period, iron ore prices saw a correction followed by a rapid recovery. As we began the quarter with 1 million tonnes of material subject to provisional prices, this early correction in the period created a negative adjustment, with some material being priced at the lower levels. Net of the provisional price adjustments of USD 8.1 per tonne freight and currency conversion, our net realized price was $89 per tonne.Our business continues to deliver strong operating margins. In the quarter, our cash operating margin was 30.1%, and our EBITDA margin was 34%. It is important to note that provisional pricing directly affects this reported operating margin. Excluding the impact of provisional pricing, our cash operating margin would have been 36%, which is similar to prior periods. Despite additional nonrecurring spending in the period as discussed earlier and volatile iron ore prices, our operations continue to demonstrate their ability to deliver strong operating margins.As demonstrated by the Q3 results, our balance sheet remains robust. At the end of the period, our cash and long-term debt stood at $187.6 million and $237.7 million, respectively. When compared to the previous period, our cash declined by $23.5 million. However, our working capital increased by $24.9 million and a total of $50.9 million were invested in Bloom Lake in connection with our Phase 2 expansion project.In addition, given our strong financial position, we opted to prepay $14.3 million in city tax to the City of Fermont. This prepayment reduces our debt burden as it carried a 12% interest rate. The face value of our long-term debt also declined by $1.4 million in the period.Despite our growth expenditures and prepayment of city taxes, our balance sheet strengthened by $2.9 million when accounting for the increase in working capital. Overall, we believe our balance sheet is well positioned to face variable market conditions, providing Champion with the flexibility it needs while it considers additional investments on its proposed growth initiatives.Earlier this month, we announced plans to re-domicile our company from Australia to Canada. Many of you are aware of our history where our founder, Australian-based company Mamba Minerals Limited, acquired Champion Iron Mines Limited in 2014, and the combined entity was renamed Champion Iron Limited. Subsequent to this, through its subsidiary, Québec Iron Ore, Champion Iron Limited acquired the Bloom Lake assets in April 2016. Along with your support, we have created a growing international company.This re-domiciliation will result in 3 primary outcomes: first, it will align our company's domicile with our flagship asset's location where we have received unparalleled government support; second, it will result in potential cost savings through the simplification of our corporate structure; third, it will open access to our company's stock to a broader universe of equity indices and potentially access more investors globally.Important to note that the re-domiciliation will not impact our active listings on the ASX and the TSX. We welcome you to read the press release issued on January 6, available on our website, where we provided further details about this plan. We aim at completing this scheme of arrangement by the commencement of our new fiscal year, which begins April 1, 2020.Looking at our Phase 2 expansion project and the $68 million budget, which was approved last June. We spent $28.6 million in the past quarter and $47.2 million in total as of December 31, 2019. Thus far, construction work is progressing on budget and several key milestones have already been completed.In the quarter, we advanced several work programs, including the civil work related to the silo near the train loading area; new reclaimer, which is set to improve logistics for the train loading area; commissioned the heating system inside the plant; spirals were manufactured and are ready for shipping; and detailed engineering continues to progress on schedule.We continue to monitor the market conditions as we are actively evaluating funding alternatives to complete the project. We intend to update the market on our non-dilutive financing plan by the middle of this current calendar year. The progress of our current work program and potential financing solution would aim to maintain the previously disclosed time line with the start of operations in the second half of calendar 2021.The work completed to date significantly derisked the timing of delivering the project, as most of it included civil and concrete work, which can present construction challenges and delays with the Fermont area weather condition. To date, we have already accumulated over 158,000 hours on Phase 2. Our current work program maintains the timetable to deliver the project within 21 months as identified by the feasibility study. In addition, many items of this work program improve our current operations. For example, we completed the installation of a new reclaimer, which is set to improve the logistics of our train loading facility. With the remaining funds from the initial, previously budgeted and approved $68 million program, we look to advance detailed engineering, continue electrical work in the plant, order long lead items and work on critical path items.In closing, on behalf of our management team, I would like to echo Michael's earlier comment. I'm proud to be able to report yet again strong quarterly results from our young company. The ability of our staff to adapt and respond to operational challenges and conditions continues to demonstrate that our strong corporate culture proliferates across our entire organization. We have created strong and sustainable relationships with partners, both locally and internationally. I'm thankful to all our partners who have shared our vision since we acquired Bloom Lake, and I'm also excited about building mutually beneficial relationships with new partners who look to participate in our growth initiatives. With this foundation, we are in a strong position to continue to deliver value to our shareholders as we focus on building our company and capitalizing on our growth opportunities.At this point, operator, I'd like to open the lines for the Q&A session.

[Operator]

[Operator Instructions] The first question is from Scott Schier from Clarksons.

[Scott Schier, Analyst]

Congratulations on a solid quarter. If I could start on Phase 2. Now that you're about 2/3 of the way through the initial approved budget, can you provide any additional clarity on your priorities for funding the remainder of the expansion and any time line that we're looking at for an announcement on that?

[David Cataford, CEO & Director]

Yes. As we announced, we're continuing to work on all the funding strategy and continuing to work with all the different partners for the different parts that have to be delivered. Since we've ordered all the long lead items and that we've done most of the construction work that was required during the summer period, we're going to continue to spend on the detailed engineering. We're happy to report also that all the detailed engineering work that we've done up to now has not raised any surprises or any new elements. So we're right on track with the initial budget and continuing to track well on that. So we're going to come back to the market in the first quarter -- in the first half, sorry, of this year on the next steps for the Phase 2. And we're still in line with the initial timetable to deliver that project in 2021.

[Scott Schier, Analyst]

Okay. That's very helpful. And then moving on to a market comment. We've been seeing that China has been building a lot of new pelletizing plants on their coast. Can you give us a little more market color on the demand that you're seeing out of China for your high-grade concentrates versus pellets and your expectations for that going forward?

[David Cataford, CEO & Director]

There's 2 different elements. And one thing that we are working on because one of the advantages of Bloom Lake is not only we can produce high-grade blast furnace material, but we can also produce high-grade DR-type material. So we're looking at different strategies to be able to feed both potential markets and that way, being able to feed any pellet plant in the world. As you correctly mentioned, there's quite a lot of pellet plants being built in China. So it's very key for us to be able to produce a high-grade pellet feed that we can tap into this newer market for China but a well-established market elsewhere in India or Europe or the Middle East.

[Operator]

The next question is from Gordon Lawson from Paradigm.

[Gordon Lawson, Senior Research Associate]

I just have an easy question for you here. Can you talk about Vale's weak shipping volumes to date in 2020 and how that's affected shipping rates and price expectations in the current quarter? And if you expect shipping rates to remain in the $25 to $30 range over the next few quarters?

[David Cataford, CEO & Director]

Our shipping was abnormally affected by a few elements, one being sending those smaller Panamax vessels to India and also on the interactions that happen at the port, which have since been solved. So that negatively impacted our shipping cost in the quarter. Typically, we achieve about 20% to 25% over the C3 index. And as you mentioned correctly, the C3 index has lowered significantly. And now that we're back on track to that 20%, 25%, well, our shipping cost, if the C3 index stays where it is, will be lower in the coming months, yes.

[William Michael O’Keeffe, Executive Chairman]

Vale shipping less, that should be...

[David Cataford, CEO & Director]

Correct.

[William Michael O’Keeffe, Executive Chairman]

Just addressing the question on Vale. Vale is struggling with their tonnages at the moment, and we can see that continuing. So that's obviously going to put pressure on shippers and reduce the rates as well. And I think the important thing that we outlined is that we have to make sure our own house is in order at the port and we're taking more and more control over that with the government to ensure that we can reduce that demurrage.

[Operator]

The next question is from Craig Hutchison from TD.

[Craig Hutchison, Research Analyst]

Just a question on sustaining costs for Phase 1. Now that you have reduced costs associated with the tailings dam, what can we kind of model for the next few quarters for sustaining costs just associated with Phase 1?

[David Cataford, CEO & Director]

Yes. We don't necessarily give official guidance, but if you look at the cost that we had in the past 2 years for the dikes, as we had mentioned, the first 2 years, there was a bit more sustaining required. And we also accelerated the dam raise project. So that's going to significantly reduce our sustaining CapEx at the tailings area. We continue to invest in our mining fleet. So there is some sustaining capital required to be able to maintain all of the mining equipment and also to be able to supply the higher throughput at the plant. But apart from those 2 elements, there's very little sustaining capital required since all the rest of the plant and the equipment is pretty much new.

[William Michael O’Keeffe, Executive Chairman]

And I think the other thing, Craig, is that if you look at where we've come from, we're still less than 2 years of operating. So issues like the shaft just on our direct costs is a learning curve, but we're coming to grips with all that with the recoveries. We're getting more consistent, and we can continue to be more consistent. But when you're stopping and starting plants like we did, obviously that affects recoveries. So you have to factor that in as well.So look, under 2 years of operating, I think we're in a great position, but it sets us up very well for Phase 2 because we've had really -- you can say Phase 1 has been a pilot plant for the last 18 months to 2 years. And that allows us to understand completely what we need to do with the construction and the implementation of Phase 2 and also gives us a great diversification on our product, what we're able to do. And David was talking about DR-grade pellet material. All of those things we've been able to work on in the last couple of years while operating a plant and coming up that learning curve.So that's why I said at the start of this thing. I see 2020 as an exciting year and the next 5 years an exciting year for us because the people have gained the experience. We've set ourselves up pretty well to be able to capture the market. And I think the market is going to be there for the high-grade as long as we can maintain these operating costs. And I'm confident the guys can get better.

[Operator]

The next question is from Brock Salier from Sprott.

[Brock Salier, Analyst]

Just a general question on your risk appetite with regards to Phase 2. I think you outlined you'll be talking to the Board about your knowledge of the costs and the market supplies. Are you willing to take on more than CAD 150 million additional debt just as a reflection on sort of risk appetite to black swan events, I guess realistically, given that we've got, well, hopefully not too bad of a black swan event that's going on in China now?

[William Michael O’Keeffe, Executive Chairman]

Personally, myself and management are. We'll test the Board over the next couple of days to see if they are. But we'll be trying to convince them that it's the right thing to do.

[David Cataford, CEO & Director]

And when we do our stress test, Brock, we put the iron ore price really low to make sure that we can go through any kind of cycle. We saw the worst sort of correction have a yearly price of about USD 56 per tonne. You could have a view on that. Could it go that low? I mean most of the players have had increased costs since. So as long as price stays over the $60 mark, we can see that we have a healthy position even if we take on a little bit more debt for the Phase 2 project.

[Brock Salier, Analyst]

Understood. And with respect to funding options, excluding equity, are you just looking at debt or are you looking at other things? I think there's some mention before of JVs or asset sell-down. I imagine so soon after consolidation, you probably wouldn't want to repeat that.

[William Michael O’Keeffe, Executive Chairman]

No. And the other thing is the value that people would look at us today. So they'd have to give us -- our market cap today is $1 billion-ish. We believe it's -- and therefore, the analysts believe it's $2 billion. So if someone is prepared to say, there's a value of $2 billion, well, we would consider selling down a portion of Bloom Lake, but that will only be known if people are prepared to step up. So debt seems to be our way to go at the moment.

[Operator]

Your next question is from Stefan Ioannou from Cormark.

[Stefan Ioannou, Analyst]

Most of my questions have been answered already on the Phase 2. But maybe just on a different note, just looking, obviously, there wasn't too much spent on exploration this past quarter. I mean is sort of the strategy here to obviously focus on Phase 2, get that up and running and then sort of start to sort of look out and attack some of the regional potential around Bloom Lake?

[David Cataford, CEO & Director]

Yes. Thanks for the question. We already sit on over 5 billion tonnes of high-grade resources so -- that are all in the vicinity of the Bloom Lake. We're obviously looking at other potentials, but the main focus for us now is really to deliver the Phase 2. And we do have quite a lot of growth opportunities in our company right now without investing significant cost in exploration. And there's been so much sunk cost in those resources to develop, to define and to do the different mine plans, that's why you see a little bit less investing right now.

[Stefan Ioannou, Analyst]

Got it. Got it.

[William Michael O’Keeffe, Executive Chairman]

Yes. If I can, Stefan, just to go on with that a little bit. It's interesting, as I sit here and that question's asked. I'm listening to David talk about it. The fact is, we had all the Champion assets at Fire Lake, which were already in part of the portfolio. We now have a feasibility study for Phase 2, which includes from the existing resources another 20 years of operations producing 15 million to 16 million tonnes of product. And then on top of that, we acquired the Quinto assets out of -- which were a portfolio of Cliffs and prior to that, Consolidated Thompson, which is on the books for $400 million on Cliffs' books. Now there's a reason for that because they paid that much for it. And there've been so much work sunk into this thing to define the resources.So what we'll do, we have the luxury for the next 20 years to decide which is the next deposit we're going to go from. And in that period, we'll probably look at, is there a Phase 3 to be able to go on with. But we have the luxury of having those massive resources which a huge amount of work has been completed on. And I think when you think about it, Stefan, where else in the world do you go to get those sorts of defined resources of high-grade material. So good thing we've locked it up when we did.

[Operator]

The next question is from Jacques Wortman from Laurentian Bank.

[Jacques P. Wortman, Director of Research & Mining Analyst]

Just 2 quick things. Could you just help me with my math just to understand the deltas in the C1 cash costs? Am I hearing correctly that it was roughly $2 to $3 for each of the unscheduled downtime and the port issues on a per tonne basis? And then secondly, when in the quarter was the unscheduled downtime taken? Earlier or I'm assuming it's earlier. I thought I heard September, but that would have been, of course, fiscal Q2. And secondly, has management considered providing production and operational updates prior to the financial results? That's it for me.

[David Cataford, CEO & Director]

Thanks for the question, Jacques. So the -- in response to the first question, your assumption is correct on the cost sort of differentials. The unplanned schedules happened in October and early November, so they're all part of this quarter. That's why December was a very good month for us. We managed to solve everything to be able to have a very high recovery, very high production rate, and we're tracking well. We report our numbers fairly quickly, under sort of 30 days. So we don't see the need right now to report our sort of production numbers ahead of time. We're going to continue, at least for the year, going to report the same way that you've seen up to now.

[Operator]

Your next question is from Lucas Pipes from B. Riley FBR.

[Lucas Nathaniel Pipes, Senior VP & Equity Analyst]

So a lot of my questions on Phase 2 have been asked and answered. But despite the very strong iron ore price, notwithstanding the last couple of weeks, the market tends to be pretty concerned about new supply coming online and I wanted to hear how you're thinking about the supply response in the current environment, of course, in the context of you bringing on Phase 2 as well.

[William Michael O’Keeffe, Executive Chairman]

At the start, I kicked off by saying that if you look at BHP and Rio and Vale, there's no big spending on new capacity coming. So I don't see where the new supply is coming from. Growth will stay the same as it is. So the big concern, I think, for steel mills is where do they source high-grade iron ore. Now the only people that are talking about it that I've seen recently was Fortescue, which are talking about a high-grade hematite, which is that's probably 3 years away. And then we saw that there was a Chinese consortium that were looking in India -- Guinea, sorry. They just spent $15 billion on acquiring the assets, but they're probably 10 years away from anything. So I can't see any new supply coming, and I see the supply struggling going forward. So it puts us in a pretty strong position given the expanded tonnage that we'll be putting out.And by the way, if it's double what we are today, 7.5 million tonnes, it's really a flea on a dog. It's such a small amount given the world supply/demand situation, but it's significant for us. I don't know if I've answered your question, but I don't see where that new supply is coming from.

[David Cataford, CEO & Director]

In the coming years, we see a little disruption. As we mentioned, India, they're reauctioning all of their mining leases. You saw in the previous quarter that we shipped 2 vessels to prospective customers there. We toured significantly all the Indian market and every single steel producer or pellet producer to whom we spoke to was confirming that they were concerned about disruptions on the mining side in the coming years. And the big advantage for a project like Bloom Lake is that India consumes mainly high-grade iron ore. So we're a very good fit to be able to respond to those disruptions in the coming years.

[Operator]

Thank you. There are no further questions at this time. You may proceed.

[David Cataford, CEO & Director]

Thank you, everyone, for joining us on the call today and for participating in this exciting time for us to deliver the info on the third quarter highlights and looking forward to speak to you in the next 3 months.

[Operator]

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