Champion Iron Ltd

ASX:CIA

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Champion Iron Third Quarter Results of the Fiscal Year 2021 Conference Call. [Operator Instructions] This call is being recorded on January 28, 2021. I would now like to turn the conference over to Michael Marcotte. Please go ahead.

[Michael Marcotte, Vice President of Investor Relations]

Thank you, operator, and good morning, everybody, or good night, I guess, for some people dialing in from Australia, knowing its past midnight in Sydney. I'd like to thank everybody for joining us today to discuss our third quarter results of our fiscal year 2021. I'd also like to direct people on the call to a presentation we'll be referring to, which is available at our website at championiron.com, under the Events and Presentations section. I'd also like to remind everyone that some of the matters to be discussed during this call may contain forward-looking statements, and I'd refer you to the disclaimer at the beginning of that presentation. For additional information with respect to forward-looking statements, risks and assumptions, please consult our most recent MD&A, which is also available on our website. Please note that all dollar amounts referred to during this presentation are in Canadian dollars, unless otherwise stated. Joining me today on this call are David Cataford, our Chief Executive Officer; Michael O'Keeffe, our Executive Chairman; Natacha Garoute, our Chief Financial Officer; and Alexandre Belleau, our Chief Operating Officer. With that in mind, I'd like to turn the call over to Michael O'Keeffe, our Executive Chairman, for introductory remarks.

[William Michael O’Keeffe, Executive Chairman]

Thank you, Michael, and good morning, everyone, in North America. And it's also good morning to everyone in Australia at this time. So I'm based in Australia at the moment because of difficulty of traveling back and in and out of the country, but we're very fortunate here in the sense that we have very low case of COVID. And probably seeing what's happening with [ Australians ] is probably 1 or 2 cases, but everything is coming from outside the county. A little different to our operations, where we've been now a year dealing with this COVID issue. And a year ago, we were all very concerned of -- well, first all, we thought it was going to be short term. It's become longer term, and it's just amplified as time has gone on. But to their credit, our team has been able to manage through this process. And look, we've seen fantastic iron ore prices. And there's no way we could have taken advantage of that being in the cash position we're in today if the team hadn't been as good as they were to be able to manage this process. Now what we do have, and David will explain it in more detail, we have our own testing facilities that we've been able to form [ bubbles ]. And we've been able to manage how we handle any of the cases that do occur. And it's been an outstanding performance for the team to be able to do that. And the way we established at the start is now paying off [ in this space ] for us to get through this process. Look, it's been a number of [ labor starts ] since we commissioned the plant in [ 2018 ]. And every time I come on to these calls, it's a better quarter. And if we continue seeing the iron ore prices where we are and the way the production is going, with recoveries and the tonnages, there's every chance we're looking at another record quarter coming up. But that's all down to consistency of operation, and we are dealing with a much newer plant, but -- and Phase 2 will be another step above that. The great thing for us with Phase 2 is that, as you know, it's all been approved. And the team is moving on very quickly with getting on with it. And both Alex and David will run through that. But the other great thing is we've been able to increase our debt facility, which is up to $400 million. And there's still -- the $200 million is still undrawn. And it's highly unlikely that we will be -- highly unlikely that we'll need that facility going forward. So let's hope that works out. We're sitting on a lot of cash at the moment. With that comes big tax bills, but it's good to be in the position to be doing that. Interesting enough, we can answer some questions on iron ore. And we see the prices dropping off a little now, but they're sitting around about $190 a tonne for us. It dropped a little bit, but there's the gap between the low-grade versus P62 and our high-grade is still around about $24 today. So that's -- that gap with such low shipping rates is declining but playing into our hands beautifully. The other issue that I'd just like to quickly touch on is the Kami Project and the fact that we've done so well with Phase 2. There's every chance that we'll be looking at a Phase 2I in the not-too-distant future. And once we've finalized all of the paperwork on Kami, we'll slip straight into a feasibility study on that. So with that comes port capacity, which gets us up to close to 18 million tonnes of capacity, and there is more opportunities to get further capacity. But the great thing for us is the infrastructure on rail and the port is already in place for us to be able to consider a Phase 2I beyond that. But let me let David run you through these excellent results and also what we're doing and highlight -- or elaborate more on what I've spoken about. And then we're open to have some discussion beyond that. But again, thank you all for your support and coming on the call. I'll pass to David now.

[David Cataford, CEO & Non]

Yes. Thanks, Michael, and thanks, everyone, for joining the call today. I think the important highlights of this third quarter is really the fact that, as you know, typically, our Q1s and Q3s are the quarters where we have our major shutdowns. But even in a quarter with a major shutdown, we managed to produce over 1.9 million tonnes of high-grade concentrate. And also, we achieved a record recovery for a quarter with a major shutdown. Even if our target is 83%, typically, quarters where we have a major shutdown, you'll see our recovery dip a little under 83% as we bring the mill back on, and we dial in the recovery circuit. But the team now understands how to be able to dial that in and much quicker, and we managed to achieve a recovery of 83.6%. But to produce that amount of tonnes with this high recovery in a price environment that was very favorable allowed us to generate a record EBITDA of just shy of $212 million and an adjusted EPS of $0.26. So fantastic quarter that the team has been able to achieve. If we look at the COVID situation and the health and safety, well, we mentioned last quarter that we were working on delivering a laboratory at-site to be able to test all of our employees before they come to site. Now we're happy to announce that our lab is now up and running. We're able to test not only all of our employees but also all contractors at site. And even if Québec is currently in a lockdown, well, we've been able to continue the work on our Phase 2 construction project because of this laboratory and because of the credibility that we have with the Québec government in the way that we're managing the COVID situation at Bloom Lake. So great achievement from the team to be able to set that up. There's not many projects in Canada that currently have their own COVID lab, and we're very proud to have ours in place to be able to allow us to keep all of our employees safe and, at the same time, continue working on our growth initiatives. On the environment and sustainability, we had no occurrences of major environmental issues during the quarter. And we complete working -- we continue working on our project to better ourselves on the sustainability front. And we now completed a program to be able to better take care of all of our wood pallets. And about 1,500 to 2,000 used wood pallets per year are being chipped instead of transported to be able to reduce CO2 emissions and to [ reuse ] these pallets. So another initiative that we managed to do in the past quarter on top of all the other work that we do on the environment side. If we look at the industry, well, the -- we all saw the rise in the iron ore price. I think what's great as well is that we saw the European and the Japan market being able to increase their steel output, which means that they've started consuming more pellets. So that stopped us from having to compete against those pellets that we're seeing their way into China. So we were able to remove most of the discounts that we had announced in the past quarters that we had to give for our material, and we're now back trending closer to the P65 index. What we've seen as well as the P65 has increased compared to the P62, hovering between USD 24 and USD 25 per tonne, even at these elevated iron ore prices, which really tells you that the high-grade material is in a very high demand. And especially now that we've seen metallurgical coal prices increase, well, there's an even higher demand for this high-grade-type material. We look at the industry overview. Well, still now, even at these elevated prices, we have not seen any projects of scale being sanctioned. And as we showed this chart in the past, there still has not been significant CapEx that has been spent to be able to develop new projects or new infrastructure in the iron ore space. The average CapEx for the 5 years has decreased by 82%, if you compare the 2010 to 2015 period, where quite a lot of new supply came online to the past 5 years, where practically no projects have been sanctioned and no new supply has been coming on to the market. And the important thing to note as well is when a new project is looking to come online in the iron ore space, because it requires quite a lot of infrastructure and, typically, a lot of development work for these larger scale projects, we're looking at time frames between 5 to 14 years, depending on the project stage. So that allows us to view a very healthy environment for the high-grade-type material over the next few years. If we look at our operations overview, well, even during this COVID situation, we're at a run rate of 6 million tonnes -- of 8 million tonnes per year, achieving just shy of 6 million tonnes for the first 3 quarters. So that's over our nameplate capacity even during this COVID situation. So the team has done a fantastic job to make sure that they continue the output of the high-grade material, while keeping everybody safe at the operations. You might just see that our stripping ratio has increased in Q3. This was to be predicted because, if you look at our Q4 of last year and Q1 of fiscal year 2021, our strip ratio had decreased. This was the early stages of the COVID situation, where we had to reduce the amount of staff at site. So we had to park some trucks and reduce the amount of stripping that was done at the early stages of COVID, and we're now recovering this waste backlog during the current quarter and the Q3. If we look at our recovery, as we mentioned, a great achievement that the team has done. We've now even surpassed our feasibility study at 83% recovery during a quarter where we have a major shutdown. So fantastic achievement from the team, and we're working to be able to increase that target of 83% in the future to a higher number to be able to recover more of our high-grade iron ore. If we look at our financial highlights, well, our net income has been impacted by COVID-19-related costs. And when we say this, this is direct cost associated to COVID. It does not include the inefficiencies that we have at site associated to COVID that you'll see in our slightly higher operating cost. But all in all, these costs represented about $1.20 per tonne. And even with the inefficiencies that we have at site, we still managed to keep our costs in line and to be able to fully generate or fully benefit from these higher iron ore prices and these low shipping prices to maximize our revenues and our cash generation, which allowed us to have an EBITDA of over $210 million in the quarter. When we look at our average realized selling price, so we had a healthy premium over the P62 of $16.6 per tonne. And we also had a positive price adjustment of just over $6 per tonne for the 1.2 million tonnes that were subject to provisional pricing. If we look at the provisional pricing for next quarter, so on December 30, we still had about 600,000 tonnes that were subject to provisional pricing. And we had forecasted a price of about USD 163 per tonne. As you can see, the iron ore price today is just over $180 per tonne for our material. So there's a potential positive adjustment in the next quarter as well for these 600,000 tonnes. Our cash operating margin has been positive over the past few quarters. So we've seen this increase. This is really a benefit of the team in managing the cost in the proper way, while fully benefiting from the higher iron ore price environment. And also, this has been because we've managed to secure some lower shipping costs. If you remember last year and last quarter, we had secured vessels at just over $15 per tonne in an environment where shipping was typically 20% to 22%. And now again, this quarter, we've secured a vessel for each month in the first quarter or fourth quarter of our fiscal year at just over $17 per tonne. If we look at our financial flexibility, I think the company is in a very good position on its finances. We've managed to increase our credit facility from $200 million to $400 million to make sure that we're very well financed for our growth initiative, the Phase 2 project. And what we've also done in the past quarter is secure a project with the Québec government for the port facility. If you remember, our feasibility study had us doubling our stockpile at the Pointe-Noire, where we stockpile our material before it is shipped. We were to double that stockpile, but the Québec government came to see us about 1.5 years ago and asked us if we wanted to participate in a project where we could secure a stockpile area that has about 2 million tonnes of capacity. This was a major improvement for us compared to our feasibility study because there were some infrastructure risks in doubling our stockpile. When you look at the initial plan we had, this allows us to go on to an existing stockpile that has just been completely revamped by the government. And it also allows us to access more area so it will be easier for us to produce our 2 types of products, the 68% or DR-grade type material and our typical 66%. So how is this going to be financed? The project is $135 million, of which the Québec government is paying $50 million, Champion is investing $85 million of that $135 million. And the way this $85 million is being financed, $25 million will be out of our own cash, $60 million has been financed by the Québec government at 3.7% for 11.5 years. So very interesting financing structure for Champion. And they've also included a $10 million cost overrun facility, so that's why you see the $70 million in this slide. Well, this is going to allow us to have a much more robust infrastructure at the port and derisk all of our Phase 2 project stockpiling. If we look at our cash position, well, you notice that we have a restricted cash of $44.6 million. The increase in the credit facility had us put in a separate account, a cost overrun facility for a Phase 2 project of USD 35 million. So this is this restricted cash that you see here on this chart. And even with this restricted cash, we managed to increase our cash position from $425 million on September 30 to $507 million on December 31. But please note there's also some tax provisions that we have in place that we will have to pay in May 2021 at the end of our current fiscal year. When we look at our balance sheet, as we mentioned, very well positioned for growth. Net cash positive of $236 million after just a few years of operations, so we're very proud of this. And again, this is because we've been able to combine fantastic operations with the higher iron ore price environment. Looking at our Phase 2 project. So we've deployed, to date, $115 million. We've finalized about 65% of our detailed engineering as of the 31st of December last year. We're working on installing most of our recovery circuits, finalized some work at the load-out facility. We've also selected our major mine equipment supplier and working to get that equipment delivered this year. So all in all, the Phase 2 project is on track to be delivered by mid-2022. And as we mentioned on the onset of the call, because of the laboratory that we installed at Bloom Lake, well, even in the current COVID situation, we can continue construction and continue the Phase 2 time line in a safe way. What we've announced past quarter as well is the acquisition of the Kami project, so we're just finalizing the final steps with the Newfoundland government to get the transfer of the mining rights for this area. This is a fantastic deal that we've managed to achieve. Not only does it allow us to secure the port access for 8 million tonnes per year at the multi-user berth in Pointe-Noire, it also allows us to access 1.7 billion tonnes of resources just a few kilometers away from our project. So we already have the team hired to be able to work on an updated feasibility study of this project to be able to benefit from the fact that we have bloom Lake just a few kilometers away from the actual resources. So it's a great opportunity for us to secure high-grade resources just a few kilometers away from our current operations. And again, as mentioned, allowing us to secure the infrastructure required for our Phase 2 project. As a final note, well, I'd really like to thank our staff, everyone that has worked with us to achieve these results, all the local communities, First Nations that have allowed us to be able to produce at these levels in the high-risk environment of the COVID situation. So thanks a lot again to everyone, and I'll turn it over to the operator for questions.

[Operator]

[Operator Instructions] And your first question comes from Orest Wowkodaw from Scotiabank.

[Orest Wowkodaw]

Can you give us a bit of color on what you're seeing in the market itself? I mean your commentary, I guess, touched on the fact that you reduced your discounting, given the recovery in the pellet market. But I'm just curious if we should anticipate any discounting moving forward or is that now a history?

[David Cataford, CEO & Non]

Yes. Thanks for the question, Orest. So we don't expect discounts in the future. We see a lot of demand for the high-grade-type material. It was really an abnormal situation, where you had Europe and Japan reduce significantly and very quickly their steel output. So they canceled a lot of the pellet shipments, which saw their way into China. And as you saw, even the pellet premium had depressed in a very significant way if you go back to June, July of this year. But we've seen that pellet environment strengthened significantly now. Those pellets have seen their ways back to the normal market, and we're out of the discount territory that we were in, in the sort of middle month of last year for the COVID.

[Orest Wowkodaw]

Okay. And just as a follow-up, can you talk about what kind of premium we could anticipate with Phase 2 with respect to the further upgrading to DRI?

[David Cataford, CEO & Non]

There's no official index associated to DR-sort-of pellet feed. What we've been seeing in the market, we've seen vessels recently being sold at about $7 premium to the P65. We've always said, right now, the range is between $4 to $9 premium for this type of material, but we see that increasing in the future. There's been more and more talk in being able to reduce CO2 emission in the steelmaking process, and we really feel that the future of the DR-grade-type material is going to be sold at a much higher premium than what we see now in the current market. It's difficult to give an actual number right now as there's no official index and there's no sort of official futures on this. But when we look at the demand that we're getting from the different steel mills and the -- our view of the greener steel that's coming in the next few years, we see that premium increasing.

[Orest Wowkodaw]

And just finally, will the Phase 1 product also be fully converted to DR as well or just Phase 2?

[David Cataford, CEO & Non]

So the way that we're setting up the 2 plants, if you look at our feasibility study, CapEx, we're not only upgrading the flowsheet of Phase 2 to be able to produce this DR-grade-type material, the Phase 1 flowsheet will be upgraded as well. So today, we can already produce this type of material with the Phase 1 flowsheet, but we do have a higher loss in recovery when we produce it. So the upgrade is really to add an equipment, which allows us to reduce that recovery loss while producing this. So once we finish Phase 2, we'll be able to produce up to 15 million tonnes per year of this 68% iron material.

[Operator]

Your next question comes from Hayden Bairstow from Macquarie.

[Hayden Bairstow, Analyst]

Just a couple for me. I mean, operationally, it's sort of hard to top you guys. You did an amazing job, really, given all the issues that we've all faced over the last couple of years. I mean, obviously, the iron ore price is helping a lot. But you see, just so I understand, maybe for Michael, just -- yes, we talked about funding for [ globalized ] expansions, probably from, I guess, 2019, when you sort of got into the position to buy it. And you probably made sort of a $400 million, $500 million in spend. So any funding concerns that go on the balance sheet? Gross debt still pretty much the same as it was when you bought it. So yes, at what point do you think is it -- is there a time for a change in strategy to get more aggressive and get on the front foot, whether it's Kami getting into production fast? Is there anything you can do on that front to advance the business? Or -- you're obviously starting to move on Stage 3 now. Is that something that can be almost done concurrently with Stage 2 and sort of ramping just a bit faster since you joined, just so I can understand your thoughts around that?

[William Michael O’Keeffe, Executive Chairman]

Okay. Just [ Dave ], I can start then you can finish it, if you like. But yes, Michael, it's getting late for you, but I suppose that's what Aussies do. The interesting -- just reflecting on your comments, yes, who would have [ dreamed ] away in this position? And it's nice to structure this and go forward in the way we have. But Dave and I sat back and, yes, we've always thought about how we can make this at the major center because we've -- where else do you go in the world outside of Brazil to get this high-grade material? Well, there's nowhere, really. And so what we've done is we've gathered a lot of land, and we've gathered a lot of infrastructure. And there's been a lot of planning going to where we are now, which is: A, we have to get Bloom Lake up and running; and then get the expansion Phase 2 going because that was all there. And though it meant just jumping into it now, we've been able to accelerate that because of the way we started up and also the way that the market has gone for us. And it's gone right along the way that we're thinking and we continue to think.So this area, when Cliffs took over and consolidated Thompson in 2011, funding enough, the iron ore price then was about $190 a tonne, and they paid $5 billion for these assets. It didn't have Kami. It didn't have Phase 2. They are paying 75% of it because the Japanese and the other 25%, it didn't have all the other Champion assets. And today, our market cap is a only half of what they paid for that. So what we've been able to do is pull all that together in a time of uncertainty when everyone was -- didn't really -- the future in iron ore, where we really saw a future and especially the high grade. So let's take a step back and say the rail capacity from where we are to the port can accommodate us up, getting to our vision of about 28 million to 30 million tonnes. That can easily be on the rail today. The port has the capacity, and we will increase up to 18 million tonnes of capacity with Kami. And we've got options to even go further than that and control probably closer to 25 million to 26 million tonnes out of the port.So there, as you know, and when you're moving bulk commodities, the most important thing is to have that infrastructure in place. So that's what we've already established. We've got the resources in the ground. We'll use Bloom Lake as a central processing facility. And by the way, it was Cliff's vision to go to its 30 million tonnes, get up to where we're thinking about, that and the reason I know that is because David was working on that back in 2012, 2013. So all the things are being put in place to get to this. So we're just taking it, and we're running with it. Now with the support of the Québec government, who is still a shareholder of ours, the things you see that they do with the port, they actually helped us get this Phase 2 up and running, which we bought back from them and at very good terms. So it's a long way of answering your question, but the building blocks are there that we're putting in place.David is now putting a team together, as he said, to work on the -- on Kami. We need to review the work that was done because that, honestly, needs to be upgraded. It wasn't done to the level that we would like to see it, and that's going to take us anywhere between 8 to 12 months to complete. But in the meantime, we'll be gearing everyone up. It will give us a feel for the market. We will see what happens with Phase 2 tonnage. But if we wanted to, today, we could sell every [ stick ] we had, every grain of high grade. So everything is here. The building blocks are in place. I believe we're getting the market confidence. And for us to get 28 million tonnes, we'll be the -- if not the biggest, one of the biggest producers in that area. And that's what we're looking to do. Dave, would you want to add to that?

[Hayden Bairstow, Analyst]

Okay. Great. And...

[David Cataford, CEO & Non]

No. I think you covered it all, Michael.

[Hayden Bairstow, Analyst]

And just a second one, David, just on operations. I mean you've done, as I say, a great job [ as to operate ] that 8 million tonne [ market ]. Have you -- you're now running at sort of flat out for a while. Have you seen opportunities for optimization to push it beyond that and factor that into the expansion so it's not 15 million tonnes? I think the original sort of hope was maybe sort of 17 million and 18 million. Does that look like it's [indiscernible] or no?

[David Cataford, CEO & Non]

Yes. When you look at our view, when we did the acquisition of Kami, it's not for nothing that we've secured 18 million tonnes of capacity at the port. So you probably saw last quarter, we operated at a run rate of close to 9 million tonnes of Phase 1, and Phase 2 is a sort of beefed-up Phase 1. So any improvement that we can do in Phase 1 can be directly linked into the Phase 2 project. So right now, we're still on our feasibility number of going to 15 million tonnes per year, but we view that the steps to be able to increase production would be first to debottleneck those 2 plants and eventually go to 18 million tonnes, and then being able to bring on the tonnes from Kami to be able to get to the numbers that Michael has talked about between 28 million and 30 million tonnes per year.

[Operator]

Your next question comes from Gordon Lawson from Paradigm Capital.

[Gordon Lawson, Senior Research Associate]

Congratulations on another great quarter. Could you elaborate on your ability to ramp up production to boost the near-term sales during this current peak pricing period?

[David Cataford, CEO & Non]

Yes. Thanks for the question, Gordon. So right now, when we look at the situation, I mean, we have to deal with the COVID situation at the same time at this higher iron ore price environment. We've been able to operate at a run rate of about 8 million tonnes for the past 1.5 years now. But realistically, to go over that is going to be pretty difficult during the current environment. So our main target is to maintain those sort of level to be able to benefit from these higher iron ore prices. And our main focus is really to get Phase 2 up and running in a timely manner and to ramp it up very quickly so that way we can get ourselves up to 15 million tonnes while benefiting from this high-price environment. But to go beyond the sort of run rate that we're on now with the current situation would be pretty difficult.

[Gordon Lawson, Senior Research Associate]

Okay. And what are the -- your current strip ratios, you mentioned that it was higher in this quarter. But longer term, are we still looking at below 1:1?

[David Cataford, CEO & Non]

Yes. Longer term, we're below 1:1. I mean there's -- if you look at our feasibility study, there's a few years that it's a little bit higher. We're going to smooth that out with our actual mine plan. And the Phase 2 strip ratio is about 0.9, so it's below 1:1, as you mentioned.

[Operator]

Your next question comes from Lucas Pipes from B. Riley Securities.

[Lucas Nathaniel Pipes, Senior VP & Equity Analyst]

A lot of my questions have been asked, but just to follow-up kind of on the longer-term plans and to integrate the kind of capital allocation framework more broadly and kind of go back to that discussion. Certainly, there's a tension in the investment community between -- throughout the year at this juncture versus capital returns. Are you kind of in the mindset you can do both? Is it either or? And is that maybe you're leaning more towards the growth side? Just if you could kind of help us think about that, and I would really appreciate the comment.

[David Cataford, CEO & Non]

Do you want to go, Michael, or do you want me to take that one?

[William Michael O’Keeffe, Executive Chairman]

You take that one then.

[David Cataford, CEO & Non]

Yes. So when you look at the way that we've operated the company since the beginning, we've always operated in a very conservative way. So for us, the important thing was to properly capitalize the company to be able to deliver our Phase 2 project. Now the iron ore is in a better environment than what we initially believed, so this is going to allow us potentially to finish the Phase 2 project without drawing on any debt. And then, well, we're currently setting up the company to be in a position where we can continue the growth if the market for the high-grade is as healthy as what we've been seeing now. Our view is that the high-grade market is going to increase in the future. We really see demand for the high grade being very important in the coming years as the green steel sort of initiative becomes more and more important. So we want to be ready to be able to deliver that in a time-efficient manner if the market stays where we view it. But at the same time, as you mentioned, we had some shareholders that have been very patient, who saw this growth since the beginning. And we want to evaluate also a potential dividend strategy once Phase 2 is up and running.So it's going to be probably a mix of both, and we're going to evaluate it again in a very conservative way. But we're looking at the -- once the Phase 2 project is up and running, it will be easier to see where the iron ore price fits, what's the sort of future view for the longer-term high-grade market and then allow us to put that capital allocation strategy in place.

[Lucas Nathaniel Pipes, Senior VP & Equity Analyst]

Very, very helpful. I appreciate that. Then kind of a quick follow-up question, it also came up earlier on the flexibility on the transportation logistics side. Now that it's on the Kami deal, can you just kind of walk us through maybe asset by asset what your options are, so we can provide a good overview for investors?

[David Cataford, CEO & Non]

Just to make sure that I've understood the question properly, you want to sort of step-by-step infrastructure portion or the products portion?

[Lucas Nathaniel Pipes, Senior VP & Equity Analyst]

Capacity. Infrastructure capacity.

[David Cataford, CEO & Non]

Yes. Okay. So if you look at our own rail, we own 32 kilometers of rail in the north, where we can accommodate some extra capacity. It would require another siding that we have -- we'd have to build, but we're talking about minimal CapEx to be able to increase the capacity of 30 million tonnes on our own rail. When we look at our load-out facility, to be able to load the trains, right now, to load a train takes us about 6 hours. Once we get Phase 2, we'll have about 12 hours per day that will be utilized at that load out. So with some minor adjustments, we should be able to ramp that up to the 30 million tonne capacity as well. When you look at the QNS&L rail, which is the 400-kilometer mainline that belongs to IOC, well, this mainline has a rate of capacity in the order of magnitude of about 80 million tonnes per year. To be able to increase another 10 million tonnes after our Phase 2 is going to require some investments on the sidings area and also on the locomotive. But this is something that we feel is going to be in the -- well, it's a number that we'll be able to discuss with IOC at the time, but we're not talking about hundreds of millions of dollars of CapEx. It's something that is much lower than that.And that brings us to the port after. If you remember, the berth has a 50 million tonne per year capacity. Current users today are us and Tacora. Tacora is producing -- well, their nameplate capacity is about 6 million tonnes per year. So that leaves 44 million tonnes per year of spare capacity. So even if we go up to 30 million tonnes per year, that port has enough capacity. The 1 missing element when we look at the stockpiling area to go to 30 million tonnes per year would be the addition of a new car dumper. But again, we're not talking about massive CapEx. So it's one of the only areas in the world, really, where the capacity to be able to increase by that amount of tonnes is fairly minimal compared to most of the other infrastructure in the world that's been pretty bottlenecked with the increased capacity over the past few years.

[Operator]

Your next question comes from Alex Jackson from RBC Capital Markets.

[Alexander Jackson, Assistant Vice President]

I'm just curious on the cadence of spending on Phase 2 and how that looks between now and commissioning.

[David Cataford, CEO & Non]

Yes. Thanks for the question, Alex. So when we look at the bulk of the spending, it's pretty flat over the next months, up to mid-2022, but slightly more spend during the summer months. And so there'll be a little bit of a heavier chunk of the spending being done between April and October of this year. And I appreciate if anybody is calling from Fermont, October is obviously not a summer month. But that's the bulk of the spend that is going to happen during this year. And then the rest is going to be spread out pretty evenly all the way to mid-2022 when we deliver the Phase 2 project.

[Operator]

Your next question comes from Stefan Ioannou from Cormark Securities.

[Stefan Ioannou, Analyst of Institutional Equity Research]

Maybe just on the -- sort of adding on to the cadence question, just in terms of the critical path for Phase 2. Is it fair to assume that sort of most of the stuff related to Phase 2 at Bloom Lake proper gets done this year and then it's really more the port end of things that takes to that sort of mid- 2022 start-up time line? Or how should we think about it?

[David Cataford, CEO & Non]

Yes. Even at this site, there's still going to be some work that's going to be done in early 2022. So -- but you're correct, that the bulk of the work to bring us to mid-2022 is really at the port of Sept-Îles.

[Stefan Ioannou, Analyst of Institutional Equity Research]

Okay. Okay. Great. And then just -- there's a question previously just on the strip ratio. I guess, just in terms of the really near term, I guess, like this current quarter, you mentioned that you're still sort of recovering from the COVID hangover, if you will. Should we expect it to sort of be up around 1 this quarter and then sort of revert back to sort of longer term in calendar Q2 of this year? Or is it going to -- just in terms of the very -- strip ratio over the next quarter or so, how should we think about it?

[David Cataford, CEO & Non]

Yes. You always have to factor in that we're going towards Phase 2 that has a strip ratio of 0.9. So you could probably expect the next few quarters where we would be a little bit higher than the 0.7 that you've been used to. And eventually, when Phase 2 starts, we'll be closer to the 0.9.

[Stefan Ioannou, Analyst of Institutional Equity Research]

Okay. Okay. Great. And maybe just one last one for me. Just -- obviously, Kami is very exciting going forward and in terms of the next step forward. Does that sort of -- are you still going to continue to look at the Fire Lake North and stuff in parallel to that? Or does that take a back seat to Kami? What's sort of your thinking there?

[David Cataford, CEO & Non]

Yes, we sit on over 5 billion tonnes of resources in that area, which is very high grade and very interesting as well. The only thing is that Kami is much simpler when you look at the logistics, so we don't have a 60-kilometer rail to build between those resources and the Bloom Lake. So although it's still a very good ore and very important for us in the future, the next step is going to be the Kami project before we start working on the Fire Lake or Quinto Claims.

[Operator]

Your next question comes from Jacques Wortman from Laurentian Bank.

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

Great quarter. Just a quick question regarding Kami, and I don't want to get too far ahead, but I know you're doing the feasibility study work. But can you speak at all to the difference in quality of the concentrate based on the prior feasibility study work, what that concentrate looks like compared to the current Bloom Lake product? Does it have all of the attributes that you've been looking for in terms of ability to upgrade to DRI, the deleterious element? Anything you can speak to with respect to the quality of what Kami concentrate should look like?

[David Cataford, CEO & Non]

Yes. Thanks for the question. This is very preliminary, and we have to do some more work. But when we look at the fundamentals of the ore, we find that they're very similar. When we look at the feasibility study that has been done on Kami, they were only upgrading it to about 65%, which is not our target. We want to bring it up closer to DR-grade-type material. So most of the work is going to be done on how can we benefit from Bloom Lake infrastructure and also on our knowledge of the upgrading of the material to the DR-grade-type material to be able to get the Kami concentrate in that vicinity. And we believe that it's possible. We think the material is just slightly a little bit finer grain liberation than the Bloom Lake material. But apart from that, we feel we'll be able to upgrade it to the same level.

[Operator]

[Operator Instructions] It appears there are no further questions. Please proceed.

[David Cataford, CEO & Non]

I'd like to thank everyone for being on the call today, and thanks for the support over the past quarters and this one as well. And maybe pass it on Michael O'Keeffe for the final word.

[William Michael O’Keeffe, Executive Chairman]

Well, thank you, everyone. Thank you to those who continue supporting us and the work that's done in research. It's -- hopefully, we're a pretty open book, and we're always available to answer questions. We don't give guidance, but I think everyone knows pretty much what their business and what their capacity is. So it's a very bright future. And I think there's been some concerns about iron ore pricing and where it's going. We're seeing some fluctuations at the moment and easing off a bit. But I think it's dropped significantly in the last 24 hours, down about $8 or so. The market totally overreacted on that. If anyone wants to know a bit more about the iron ore market, we have Michael Marcotte is always available to chat, and we do quite a lot of work on that. But we're quite comfortable where we're sitting at the moment and the premium we're seeing for the high grade. But the company is in good hands, I can tell you, with the operating team. And I see a bright future for the commodity that we're selling. Thanks, everyone, and we'll sign off. [Foreign Language]

[Operator]

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