Champion Iron Ltd
ASX:CIA
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Good morning. My name is Joanna and I will be your conference operator today. At this time, I would like to welcome everyone to the Phase 2 feasibility study fourth quarter and annual results conference call. [Operator Instructions] Thank you. Mr. Michael Marcotte, you may begin your conference.
Thank you, operator, and good afternoon, 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 fourth quarter and 2019 annual results. In addition, our team will address the feasibility study on Phase 2 released earlier this morning, which considers doubling capacity of operations at Bloom Lake. I would like to direct you during the call to our presentation that management will be referring to, which is posted on our website at www.championiron.com under the Investors section. I would also like to remind listeners that some of the matters to be discussed during this call may contain forward-looking statements. Forward-looking statements include but are not limited to: Items such as our expectation regarding the market price of iron ore, timetables, mining operation expenses, capital expenditure, 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 herewith made with Canadian securities regulatory authorities. These documents are also available on our website. Champion disclaims any obligations to update or revise any forward-looking statements, except as required by law. I made these cautionary statements on behalf of all Champion spokesperson, who may address you during this conference call today. Please note that all dollar amounts refer to Canadian dollars, unless otherwise stated. Joining me today from the Champion management team include David Cataford, Chief Executive Officer; Natacha Garoute, Chief Financial Officer and Michael O'Keeffe, Executive Chairman. With that said, I will turn the call over to our CEO, David Cataford, for the presentation portion of the call followed by Q&A. David?
Thank you, Michael, and good day, everyone. Thank you for joining our scheduled quarterly investor call. I'm also excited to share the results of our feasibility study, which we will be addressed at the later portion of this call. We're pleased to discuss Champion's operating and financial results for the fiscal fourth quarter and full year 2019. Once again, today's results confirm our operational strength of our main asset Bloom Lake. As you may already know, Bloom Lake recommissioned in February 2018 and declared commercial production in June 2018, making this quarter our third full commercial period of operation. Slide 5. Today's review of our first year of operation demonstrate the strength of our operating teams. Despite a commissioning quarter impacting our first full year of operation, our company is tracking well to the initial feasibility study to recommission Bloom, which was published in March 2017. Despite such an achievement, our team continues to implement measures to improve operations. Just like every workday at our mine site, I would like to begin with a focus on our work safety. We want to make sure our workers feel as safe at work as they do at home. We never give safety a day off. Our safety statistics have improved in the quarter while our full year results trend below the Canadian benchmark for open pit mine regarding lost time industry frequency rate. This on its own is an accomplishment given that we only recommissioned operations last year. That said, safety is a key priority for us, and we continue to improve procedures to increase safety reflexes. Our young operation is already adopting world-class standards as we are implementing robust environmental management programs. Several initiatives implemented at Bloom Lake helped reduce fuel consumption by more than 8 million liters, representing 33,000 tonnes per year of greenhouse gas emission or the equivalent approximately 7,000 cars on the road annually. In the most recent quarter, no harmful event impacting the environment nor occurrences of major regulatory issues were reported. In the coming months, our team will begin a revegetation plan that will cover 10 hectares, which will not only help to further control dust from tailings storage area but revitalize some areas impacted by our operation. Lastly, I welcome you to visit our website to view a video addressing our safe tailings management, as Champion demonstrates world-class standards where fine material is separated from coarse material, which improves the storage process given their distinct properties and behaviors. Our site is designed to resist all extreme scenarios from earthquakes to exceptional rain events. Recent market events continue to push iron ore prices higher now surpassing a 5-year high in recent weeks. Champion remains well positioned to capture such price momentum as our company remains fully unhedged. Despite some historical correlation between iron ore prices and freight rates, recent events in Brazil have decoupled this relationship where freight continues to be suppressed. We welcome you to read more about our market views in our recurring newsletter posted on our website. Turning to the operations. Operations delivered on expectation during the period with over 1.8 million tonnes of high-grade iron ore concentrate produced. This is another important milestone for us as this quarter marks our third full reporting period since we declared commercial production but also our first full winter of operation. Not only did we deliver on tonnes produced, our product quality continues to beat most standards regarding contaminants, which is of increasing importance in the iron ore industry. During the quarter, we mined nearly 8.5 million tonnes of material representing a decrease of approximately 3% over the previous quarter. This decrease in material mine reflects the focus on waste removal during the previous quarter. Although the fourth quarter did not include a major scheduled shutdown, the production was affected by various plant shutdowns totaling 10 days. Lastly, our team recently completed a 90-day blitz aiming to improve plant reliability, which has proved successful. Our recovery circuit continues to be optimized and showcases further improvement. That said, our recovery is effectively flat compared to last quarter due to the impact of lower head grade by 1.5%. Despite this setback, realized head grade in the quarter of 30.6% continues to reconcile positively compared to the reserve estimates of 30% [ density ].Previous periods experienced higher than life of mine grades due to the presence of limonites in producing zones, which was unexpected in the block model. Our team remains confident that Bloom Lake will achieve a target recovery rate of 83% as per initial expectations while the entire circuit is adjusted. Looking at our financial results. Bloom Lake recognized revenues of $182.2 million, EBITDA of $86.5 million and net income of $28.2 million, which translates into $0.02 of net earnings per share for Champion shareholders. In addition to the production run rate mentioned, our operating costs remain in check with our total cash cost amounting to $48.4 per dry metric tonne and an all-in sustaining cost of $55.4 per dry metric tonne sold. Due to the high-quality nature of its iron ore concentrate, our product attracts a premium over the P62% index. The company's realized price for the period was USD 98.7 per dry metric tonne before shipping, which is nearly 20% premium over the P62% reference price often quoted in the market. During the quarter, we faced an average sea freight cost of USD 21.6 per dry metric tonne, which translates into an average realized price of USD 77.1 per tonne or CAD 104.4.Comparing to the previous quarter, the average realized price increased by 21%. As many of you know, the premium captured by our product is mainly attributable to a desire from our customers to increase productivity. Steel mills now recognize that higher iron ore grades benefits them by optimizing their output while significantly decreasing CO2 emissions in the steelmaking process. Although we benefit from rising prices, the premium for our product has diminished somewhat in the period as the steelmakers experience lower margins due to rapidly rising raw material prices impacting their ability to consume higher quality material. We remain confident in the structural trend and believe our product will continue to capture a substantial premium to the base P62 iron ore benchmark in the future. When comparing this realized prize with our all-in sustaining costs of $55.4 per dry metric tonne, the company generated a cash operating margin of $49 per dry metric tonne or 46.9%. This represents an increase in cash operating margins of nearly 59.6% quarter-on-quarter. These results confirm to us that Bloom Lake is a world-class asset with the ability to deliver industry-leading margins. Given such outstanding results, our company's balance sheet continues to show strength. Our cash on hand concluded the period at $153.3 million, which compares to the prior quarter ended December 31 of $185.4 million. Looking at our debt level, our company's long-term debt stands at $281.3 million compared to $316.8 million in the previous period. Our company's cash balance in the period was negatively impacted following full repayment of a $37 million note payables related to the railcars financing and an $8 million repayment linked to the debt facility with Sprott. As a result, Champion now owns 735 specialized iron ore railcars utilized for the Bloom Lake operation. In addition, our trade receivables have also increased by $46 million in the quarter, which were all received in April. On May 29, we announced 3 transactions that materially improved our corporate structure and balance sheet. In fact, we announced the USD 200 million fully underwritten credit facility with Scotiabank and Societe Generale as well as the new long-term partnership with Caisse de dépôt et placement du Québec for $185 million preferred equity investment. Proceeds from these new financings are to be used to repay all existing debt facilities of USD 203 million and fund our short-term strategic initiatives. As discussed in our recent public update, our newly announced debt facilities are expected to significantly reduce the cost of carry of our debt. In addition, we have announced the transaction where Champion will acquire 36.8% of QIO from Ressources Québec for the amount of $211 million resulting in 100% ownership in QIO. We are proud to deliver such a strong rate of return to the government of Québec who helped us with our vision to recommission Bloom Lake when capital was scarce. We are very fortunate to operate in a jurisdiction that provides so much support to mining companies. Today, we are thrilled to update you on a news release published this morning where our company announced the highlights of our feasibility study on Phase 2 at Bloom Lake, which proposes to double the capacity from 7.4 million to 15 million tonnes per year. This expansion was interrupted by the previous owner of Bloom Lake in 2012 because of operational challenges and market conditions. Champion stands to benefit from approximately USD 1.2 billion invested by our predecessors and other existing infrastructure already in place. We are very excited about this expansion regarding the economic impact on the region as it would create over 500 jobs during construction and 375 permanent operational jobs. The results of the study validates strong economics using conservative assumptions. Our team opted to take some of the most conservative pricing assumptions set by the Canadian Institute of Mining. In fact, our economic assumptions are based on a P65 life of mine iron ore price of USD 83.9 per tonne, approximately 30% below current market prices and nearly 10% below the 2018 average, which was completely unaffected by the VALE Events. The study delivers a 20-year life of mine project with rapid payback of 2.4 years and after-tax net present value of $956 million, an internal rate of return of 33.4% and a combined net present value of Phase 1 and 2 of nearly $3.8 billion before tax or $2.4 billion after tax. All of our numbers were discounted at 8%. In addition to strong economics, the project would remain well positioned on the global cost curve with total cash cost of $46.6 per tonne FOB Sept-Îles or $35.4 per tonne in U.S. As the Phase 2 feasibility demonstrates, the company is at an exciting stage as it prepares to benefit from and utilize a substantial capital invested by Bloom Lake's former owner. Not only does this expansion provide potential increase in value to shareholders, it would further position Champion as one of the largest high-grade iron ore producers in the world. Delivering Bloom Lake 15 million tonnes per year would position the mining complex as one of the 35 largest iron ore operations in the world but also within the top 10 largest per high grade, of which most are controlled by the global majors. Despite this scale, Bloom Lake would only represent approximately 1% of the global seaborne market or approximately 3% of the high-grade market. Given the already advanced stage of this expansion, the study estimates a rapid delivery of the project within 21 months. Our company benefits from readily available infrastructure to deliver additional tonnage to the seaborne market and does not perceive operational bottlenecks to deliver the project. The study demonstrates that this expansion would grant synergies with our existing operation and provide certain economies of scale. Last night, our Board released a budget of $68 million to secure the schedule set by the feasibility study. Given the bulk of the capital spending is expected to occur in 2020, our company will need to determine within the next year further capital sources that will optimize the value to shareholders. The recent strength of our underlying commodity should result in strong cash flow generation within the next year and reduce the external capital requirements to complete the project. In the quarters ahead, our team will evaluate all different options available to improve value creation of this expansion to shareholders. Champion continues to adhere to its strategy of building a long-term sustainable mining company and believe that this expansion, together with strong capital management, will demonstrate our commitment to accretive growth for our shareholders. In closing, on behalf of our senior management team, I would like to thank the hard work of our entire staff who made such an outstanding result possible. Putting a large scale asset back in production is truly an accomplishment we all can be proud of, and today's results clearly demonstrate the earning power of this world-class asset. We would also like to highlight the work of our consultants, lawyers and financing partners who have worked extremely hard to deliver recent results and transactions. At this point, operator, I would like to open the lines for the Q&A session.
[Operator Instructions] And your first question is from Brock Salier from Sprott Capital.
A quick question on the reserves for the expansion study. It looks like you shifted from 400 million to 800 million tonnes. Silly question, but does this include Fire Lake North? I noticed you've got $70 odd million CapEx of rail in there? And if not, what -- can you talk us through where these reserves are based?
Thanks for the questions. When we did the first feasibility study in 2017, we had done our reserves at USD 50 per tonne and our resources at USD 60 per tonne. And our resources gave around 911 million tonnes in 2017. So basically for this feasibility, because of the higher iron ore prices, we used the higher price for the reserves and converted most of those resources into reserves. So this does not include any Fire Lake North or any other Quinto assets or even the Moiré Lake tonnes that we have. It's purely Bloom Lake tonnes.
Understood. And could you give us a bit of an indication ahead of the 43-101 coming out what this stripping ratio is going to look like on the new one as compared to what it is now?
Yes. The new strip ratio with the new mining plant is going to be 0.88. That's [ 0.48 ].
Comparing [indiscernible]
Pardon me?
Not too much of a lift then.
Correct.
And could you just tell me that the budget that you've done allocated this year, is that against the future CapEx? Or is that still working up on pre-builds start, if you like?
That's on the CapEx numbers. So the new CapEx numbers, once this has been spent, will deduct the $68 million.
Perfect and do you have a date in mind for switching the expanded mill on?
Well, we're targeting now Q1 of 2021.
Perfect. And a final question on the existing operations. You mentioned earlier that your ore mining was being impacted by the increased stripping. I noticed your stripping is a little above your life of mine estimates. Can you give us sort of some guidance on how much waste movement that you're looking at going forward? Should we expect that sort of 3.5 million odd tonnes to drop back down into the 2s again every quarter?
We're already mining with a sort of adapted mine plan to transition ourselves into Phase 2. So you could see that it's slightly higher than the initial targets, but it's to better prepare and to have less of a high strip ratio on the first year that we start Phase 2. And this has all been factored in the feasibility study that we'll deliver in the next weeks.
Got you. So we should look at mining rates on those, don't waste movement rates staying where they are in the current quarter onwards from the prior quarter?
Correct.
Your next question is from Craig Hutchison from TD Securities.
Great to see the feasibility study results today. I did have a few questions point of clarification. The IRR is quoted the [ call it ] CapEx, [ cap ] cash costs [ exceeding ] capital. Are those on a blended basis for the Phase 1 and Phase 2? Or are those specifically for Phase 2?
No. We specifically determined those numbers for the Phase 2 sort of on its own.
Okay. And what is the life of mine shipping costs that you're assuming Sept-Îles to China?
We're assuming like 20% of like a P65 plus a $4 premium for Sept-Îles. So about like USD 21 for the life of mine.
[ For sure ], the shipping costs?
Yes. You mean the freight.
Freight, yes.
Yes. USD 21.
USD 21, okay. Perfect. And just what are shipping costs looking at right now in your current operations?
Currently, like given that there's been like a decoupling with the iron ore, we're having like around like USD 17.
USD 17. Okay. And maybe can you just talk briefly about the iron ore market, steel prices have seemed to be falling in China. Yet prices remain very robust for iron ore. Could you talk about the segment that you're selling into, what you're hearing from customers for the premiums or 66% iron ore products?
The demand for our product remains very high, and most of the clients of whom we speak to, again, there's the Fe, but they always bring back the [ phosphorus ] and the alumina content, which they're strongly trying to blend down, and there seems to be from all of the steel mills that we speak to now a view that there's decoupling of the higher grade and the lower grade material. Yes, there's a little bit of a spike now on low grade because high grade has gone so high, but in the medium to long term, everybody seems to give us the same information that they believe this decoupling is going to stay.
Maybe just one last question for me. In the capital cost, there was a $44 million line item for deposits. What does that refer to specifically?
On mainly our logistics contracts, we have some prepayments to do which are repaid in the first year, the first 2 years, depending on the contracts. So it's mainly associated to these.
Your next question is from Lucas Pipes from B. Riley.
Congrats on of the progress that's been made over the last couple of months. It's very impressive. My first question is on the target recovery rate. You're guiding that to increase to 82.9%, and I wondered if you could comment on the impact to costs from that increase.
Yes. That remains pretty much on the same levels. If you mean the sort of $1 per tonne equivalent to 1% recovery, that sort of number stays the same with Phase 2. I don't know if that responds to the question.
No. It's -- I'm referring specifically to Page 11 where it appears that you're guiding to a higher recovery rate, and I wondered if you could just share with us some details about the cost impact of that. And then also...
Okay. Sorry. Sorry, about that, Lucas. So the cost impact for us on the recovery for Phase 1 is pretty much 0 to get to that 82.9%. It's basically adjustments of the circuit, which were trending very well in this quarter right now. So there was some sort of challenges to make sure that we always hit the quality and never have an off spec cargo, which we have managed to do in all of the [ causes ] of operation but then now we're in the 90 blitz -- 90-day blitz that we did on the -- at the site, it was mainly the change or the cleaning procedures of the spirals and to be able to change the way that we operate them to be able to optimize that. So by stabilizing the feed from the mine and adjusting the spirals, we're confident we'll be able to reach that 82.9%.
Perfect. So no CapEx associated with that higher recovery rate but then on the OpEx side, should we see lower operating costs when you hit that target number?
Correct.
Any way to quantify it?
Again, it's roughly about $1 per tonne per percent recovery. So if we jump it up from the 80.4%, 80.7% to 82.9%, it'll reflect in the roughly about a $2 per tonne.
Perfect. Perfect. That's very helpful. And then switching over to Phase 2, a couple of good questions already. I wanted to hone in a little bit on the funding side, and I think you mentioned in the prepared remarks, you're looking at a few options, and obviously, prices are very strong right now. But can you share with us kind of what you might have in mind and what sort of funding options you're looking at, at this time?
We're looking at most of the funding options right now, obviously, we're not going to go towards the royalty option and those kind of solutions. But when you look at the cash that we're generating right now, if the iron ore prices stay where they're at, and as we mentioned the bulk of the spending is mid-2020, there's not that much financing that will be required if the prices stay where they're at. So we're evaluating all options right now but we'll have a better clarity at the end of this year. That's why we're authorizing right now a $68 million envelope to make sure this brings us well into 2020 to be able to take the best option for shareholders at that time.
Perfect. Well, this is a great update, and keep up the good work.
Your next question is from Stefan Ioannou from Cormark.
Great-looking study. Just trying to reconcile, you mentioned earlier in the Q&A that you're looking to start up the mill in Q1 of '21. Just wondering how that corresponds with the 21-month build-out for Phase 2. And once we get through this year with this CAD 68 million spend, how do you sort of see the spending schedule progress through 2020 and beyond in terms of actually money in, money out to get it done?
Yes. Thanks for the question. So when we talk about the 21 months and reconciling it, when we say Q1, it's really at the end of Q1. So that brings us roughly about 21 months into the -- for the startup of the mill. And for the rest of the spending, most of the big ticket items are going to come mid-summer to end of summer 2020 but also with payment terms of between 30 to 45 days. So we look at the bulk of the spending being spread between that second half of 2020 and into 2021 with final sort of payments mid-2021.
Your next question is from Gordon Lawson from Paradigm.
Most of my questions have been answered already but I got a softball one for you here. With respect to the 21 months of construction, how much crossover do you anticipate with respect to ramping up the production of the Phase 2 operation?
Yes. Thanks for the question, Gordon. So when we look at the actual startup, when you take a view on Phase 2, it's basically the same mill as Phase I, the same ag mill, the same spirals, the same recovery circuit with operators that have been trained already in the Phase 1. We expect a pretty quick ramp-up for the -- for that Phase 2 between 3 to 6 months.
Well, just to clarify, I mean for that 3 to 6 months ramp-up, is there -- does any of that occur during the 21 months? Or can we just safely assume that one ends and then the other begins?
Correct.
Your next question is from Michael Emery from Euroz.
Excellent results. Yes. I mean as always, just keep [ that leering ] as you guide. So that's good to see. Just a quick one. I mean most of the questions have been answered, so some good questions before. But for the Phase 2 reserves, you sort of talked to the obviously, reserves increasing. It's -- I vaguely recall that the ore body goes deeper from your Phase 1 sort of plans. But is there going to be a need for a sizable cutback to achieve some -- that 20-year life of mine? And if so, when is that likely to occur?
No. There's no major pushback's required to do that. If we wanted to go beyond the 20 years, even just go to 21, that requires quite a big pushback. That's why we kept it at 20-year mine life.
Okay. Yes, no worries. And just one other one as well on the shipping. So obviously, from next year, the low sulfur fuels is sort of coming into play a bit, and that's going to have an impact on shipping costs. We sort of spoke about it earlier with bulk commodities moving in sync with shipping traditionally. Do you think that's going to be the case and the commodity prices will sort of absorb a good chunk of those shipping rate increases? Or do you think there might be a negative impact to your price reserves?
We do have a portion of our tonnes that we sell that is -- that already has a pricing formula for the shipping. So that is a little bit protected from any increase in shipping that you might see. But secondly, we do believe that there is a balance between the shipping price and the commodity price, and we don't see a major spike in shipping in the coming years. There may be a few dollars. We've seen reports, $1, $2 impact potentially with the low sulfur fuel required for the new regulations but apart from that, we don't see any big spikes.
Okay. Cool. So that $21, it's sort of your long-term expectation?
Correct.
Your next question is from Jacques Wortman from Laurentian Bank.
Great results, guys. Just wanted 3 small housekeeping items. Where is the strip ratio currently, say, in Q1 of fiscal '20? Recently it was disclosed on a trip that it is probably tracking more closely to 0.5. Second thing was should we assume that the current recovery rate stays where it is until Phase 2 begins? Or should we expect any kind of a ramp-up over the 21-month period? And lastly, could you provide an estimate for CSR-related expenses on an annual run rate? So on a go-forward basis, what should we expect that number to look like?
Thanks for your questions. So firstly, the question on the strip ratio, the 0.5 that was probably communicated is more associated to the feasibility study of Phase 1 and was with our initial mine plan. But as soon as we started working on the Phase 2 project, we transitioned into more sort of transitionary mine plan to make sure we can accommodate Phase 2, and you can expect the strip ratio to stay between 0.7 and 0.8 for the next 21 months and after that transitioning to the Phase 2 mine plant. As per the iron ore recovery, we do expect to ramp up in the -- before Phase 2 comes in. So Phase 2 is not a requirement to get the recovery up to 82.9%. So we expect this in the coming months to be able to achieve the 82.9%, and I'll just pass over to Natacha for the CSR expected numbers.
The CSR is going to be like pretty stable with our current one. The CSR includes like our IBA expenses as well as all of our -- like other community expenses, environmental and the property taxes. So it's going to be around like -- the [indiscernible] is going to be like $3, as like we're kind of expecting like a slight increase in the property sites given that now we're going to have like 2 plants.
So sorry, in terms of end number, how many million should we expect the CSR to be on an annual basis?
It's going to be around like $3 per tonne.
CAD 3 per tonne?
Yes.
So roughly 20 now and when we transition into Phase 2, the relative numbers go slightly down because the IBA that we have and the municipal taxes, they don't double. So there are smaller numbers for the increased tonnage.
Your next question is from Hayden Bairstow from Macquarie.
Just a couple for me, just on sort of more medium term, I guess, just on the rail agreements, there's obviously various stages in the [ realm ] at work. I mean is there any things that potentially changes in terms of excess charges as you move to the 15 million tonnes? And just also, [indiscernible] I guess on the capacity of that 15 million, I mean where do you see the bottlenecks actually being at the process plant, the bottleneck and actually the [ 20 years grade ] capacity through the infrastructure? Or how should we think about that given the variability of seasonality in the shipping rates?
Yes. Thanks for your question. If we look at the logistic circuit, we own the first 32 kilometers of rail. On this rail, we are doing some modifications. We're adding some sitings for the Phase 2 project, and there's no bottlenecks on this segment. On the QNS&L, which is the IOC line, there's about 80 million tonne per year capacity, of which we're around 30 million tonnes right now on this rail. So we don't see any bottlenecks there, and at the port, they built a 50 million tonne per annum berth, of which we're the only users right now so we don't see any bottlenecks. So the real bottlenecks are going to be the actual mills at the Phase 1 and Phase 2. On the rates, sorry, the rates are going to be pretty much in line with the Phase 1 rates there. We don't see any escalations with the rates compared to the Phase 1 tonnes.
Your next question is from Brian MacArthur from Raymond James.
Just to go back to the recovery. You made a comment that the cash costs going forward of $46.6 for Phase 2. What's for Phase 2? Does that assume the 82.9% recovery? Or is there another function in there as well if you get better recoveries going forward?
That assumes the 82.9% recovery, and if we do get a higher recovery, well, that will impact our price, which will bring the price down then.
Great. And the second thing just back to the transportation cost as you get larger in your more diversified base and the customers and everything, does it envision sending more products, to say, Europe, which you're going to get a better freight rate or anything? Or do you still have upside from that if you can do that going forward?
We're going to obviously, look at the European market for the Phase 1 and the Phase 2 tonnes. We have sold to Europe already, and we're working with different customers in Europe to be able to increase those tonnages. And yes, correct, the pricing right now in Europe does not necessarily -- because of the netback on shipping does not necessarily pay us more than the shipments in Asia. So we're evaluating this but we'll continue to work with the customers there and make sure that we maximize our revenues.
And your next question is from Scott Schier from Clarksons.
Congratulations on the solid quarter in Phase 2. So we're sitting here today with iron ore prices near a 5-year high, or at a 5-year high, as you noted. Obviously, iron ore is really kind of a spot market and I know you guys are completely unhedged. But have there been any discussions on trying to lock in some of today's pricing going forward? Or what are your thoughts around that?
It's Michael here. There was a lot of push for us to hedge when the iron ore price was at $85, and thank God, we're good. The big issue is you can't go that far forward either. So in the mining companies, what you always want is that -- you guys are pretty sophisticated, and you sit there asking the questions that you're asking today because you know pretty well where we are. You know what the shipping rates are because it's easy to follow. You know what the price of this spot iron ore, and you know where our costs are even though our recovery. So any minor deviation from that, you can calculate pretty easily. The worst thing that happens with investors in the mining companies is that they believe these are going to be the numbers that don't come out accordingly, and the reason is the management decided to hedge. So look, we take a view in the company that if the price are running, we want to be able to take advantage of them because in mining, we spend a lot of time in the doldrum. So our policy and from the Board is that we keep everything as it is. One of the issues we may look at going forward is currency. But given interest rates, given oil price at the moment, there's not a big push for us to do that. But also what we have now is with potential restructuring all of debt. There's a lot less covenants on that and it allows a bit more flexibility on that, on our currency. But we're not -- we're minors. We don't want to go to the casino and try and bet on the future. So who knows what's around the corner. But the main focus for us is to keep maintaining our cost structure, which is always, as you become more mature you have to manage that pretty carefully, and where our balance sheet is in a good position, the partners we have in that debt situation are good, and obviously, we structured that to look at how we go into Phase 2. We couldn't go into Phase 2, as we said, and that was with the way our debt was structured, et cetera, et cetera. So look, it's a long answer to your question. But what we're going to do is make sure we maximize the gains, and also, we can't go that far forward in hedging if people are not prepared to give us the prices going forward -- it's usually a discount. And what we found and especially in the iron ore industry, you'll find that 4 of the analysts and bankers are pessimistic on the future of iron ore. So if the forward curve goes down in the shipping, everyone is optimistic. So you can hedge yourself into a good ratio if you start following those initiatives. But we will take advantage of opportunities where we see them. But for us, it's making sure that we have our targets sold and our cost structure is where we want it to be.
That's very helpful color. Having said that, have any buyers approached you trying to lock in some of your supply more long term?
Yes. We're having that regular, and there's people that want to be part of our Phase 2 that want to lock in those tonnages, and that includes [indiscernible] includes a lot of people because of the high grade, which is very limited around the world to get your hands on. And if you look at people like Fortescue are chasing that, Roy Hill, Hancock Mine and Hancock Prospecting, everyone wants the higher grade. So a lot of interest in our Phase 2 and offtakes of that, which is to our advantage at the moment. So yes, we'll look at that pretty carefully.
There are no further questions. You may proceed.
Thank you, operator. Have a good day, everyone. Thanks.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.