Champion Iron Ltd

ASX:CIA

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Champion Iron Limited Fourth Quarter Results of the Fiscal year 2021 Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 27, 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, everyone, for joining our call. I'd like to thank everyone to come and join us to discuss the fourth quarter results for the fiscal year ending March 31, 2021. I'd like to remind people on this call that we'll be using a presentation, which is available on our -- on our website at www.championiron.com, which is under the Events and Presentation section. I'd also like to remind everybody that we will be addressing forward-looking statements, which you can read on our disclaimer page or within our MD&A. And also, just as a reminder, everything that we'll be discussing is in Canadian dollars, unless otherwise specified. Joining me today from Champion is our Executive Chairman, Michael O’Keeffe; our CEO, David Cataford; our CFO, Natasha Garoute; our COO, Alexandre Belleau. With that said, I'll turn over the call to our Executive Chairman, Michael O’Keeffe, for an introduction and then pass it on to our CEO, David Cataford, and end the call with a Q&A session. Over to you, Michael.

[William Michael O’Keeffe, Executive Chairman]

Thanks, Michael. And I won't keep you long because the people you want to hear from is David and his team, who, again, as I repeat each time I hop on these calls, performed outstandingly through the year. And again, through difficult times, but amazing what the market is doing and how well it's going. So you'll hear from David, Alex and Natasha. But before I hand over to David, it's been another record. And I keep saying that. We're now 3 years into commencement of operations or recommitment of operations at Bloom Lake and it's been outstanding. Look, the prices have been amazing. But again, we've been able to keep the operation running and recoveries and tonnages up to record numbers, to be able to take advantage of those prices. And it's reflecting of what was happening in the market. Some time ago when we acquired Bloom Lake, everyone said there's no future for iron ore. Well, not only is a future for iron ore, but there's also a great future for the high-grade iron ore, which is -- which we really target. And -- but we're never going to be able to take on the BHPs and the RIOs and the Vales of the world in volume, but when we talk about high grade, we certainly can be very competitive in that area. And that's where the world is driving. We're now looking at lower emissions. And that's something is going to happen with our commodity. And the team is able to talk to you more about is really focusing on how not only do we get Phase 2 up and running, but how we deliver a premium product to the market. Look, would I have thought the prices would be where they are 2 years ago? No, I didn't -- but we certainly didn't believe they're going to be going down to $38 and look, if you look at 2011, 2012, when there's a massive consolidation through the industry, we saw that all the big companies are buying up the medium-size. Then when they got their mouth full, they found out that the prices they paid weren't at flash. So everyone slowed down. It was like you can't go in the spotlight super car. And there was no new development rule. Now we're seeing the problem for that, and that is that everyone is trying to rush to get back into production or increase their capacities. And and also try and find new projects, which is -- it takes time. And we're seeing that with the Chinese. So all of that -- it was a train smash about to happen. But I think what's amplified the whole thing is what's happened with COVID and now every government is trying to stimulate the economy, and that comes from infrastructure, infrastructure steel, steel is iron ore. So it's no surprise to see the prices where they are. Strange enough I was having a smile the other day. Some analyst rang me, the prices are coming down, the prices are coming down. Well, for us, we're still over $220-odd a tonne for our material, and it's a far cry from where we were when we acquired the asset at $38 a tonne. So very bullish on the prices over the next couple of years because you're just not going to get the supply to be able to fill the gap that's occurring. And -- but very, very important for us is the high grade and how that's being accepted into the market. So I'll let David fill you on the details of the operations, and also he'll elaborate more on what we're doing at the operations with regard to this drive toward high grade and also Phase 2, and we can talk a little bit about Kami, too. But also, what I'd like to leave you on with is that the Board is really looking at how we work our capital during this year. And given the fact that we've been blessed with so much cash, it's a good position to be in. But that could mean dividends. That could mean repayment of certain shares that we have, et cetera, et cetera. So on that note, I'll pass over to David and let him talk to you about the operations and also what's happening with our product and the sales. Over to you, David.

[David Cataford, CEO & Non]

Thanks a lot, Michael. So yes, I'll run you through the numbers for this very exciting quarter, very exciting year-end. I think first note is really to thank everyone at site. They did a fantastic job when you look at the -- what we had to live through in Quebec with the whole pandemic. We'll go a little bit through that. But very proud of what the whole team has been able to achieve, and it's really a group effort from everyone working on the ground to the management decisions to the whole way that we fully benefited from the iron ore prices in this past year. I think the main highlights, if we look at the fourth quarter, is really the fact, if you remember last year, we told the market that we were investing a little bit at the mine to make sure that we can operate very efficiently during the winter. We hit an 8 million tonne per year run rate in the fourth quarter, which is the coldest quarter of the year. So very proud that we were able to fully benefit from those debottlenecking projects. and which allows us not only to be at a run rate of 8 million tonnes for the quarter, but really achieve 8 million tonnes for the whole year. We did not do this by sacrificing quality. We've hit quality on every single 1 of our vessels, and we also did that while maintaining a very high iron ore recovery. So very proud of the way that we finished the year and it also allowed us to finish the year with about $680 million of cash on hand, which positions us very well to be able to finalize our growth project without having to tap into our existing credit facility. If we look at a little bit more in detail at sites, the COVID situation is still running here in Quebec. We're still under a curfew until tomorrow. So we might actually get to get outside tomorrow. But right now, we've been navigating through that for the whole year. We're very fortunate to have taken the decision early on to build our own COVID lab. That has not only allowed us to keep everybody safe, but the whole team has really cooperated with that. Everybody accepted to get tested every time they go to site. I won't lie to you. We catch people that have COVID every single rotation. But this has allowed us to keep the whole site safe because we're able to treat those individuals before they actually come to site. So this has allowed us to operate in an uninterrupted way through this whole pandemic. So great decision in installing that lab. We're also, as a company, contributing in the solution for vaccination here in Quebec. We've associated ourselves with our neighbors, Arcelor, Alouette and Rio Tinto, to build and to operate a vaccination center. Obviously, we're not vaccinating ourselves, but we're supporting with infrastructure, with manpower to make sure that everybody on the north shore can get vaccinated in a timely manner and supporting the government in that initiative, which continues to strengthen our relationship and the credibility that we have with the government here in Quebec. We've kept all measures in place associated to COVID on the operations and on the construction, which allows us to not foresee any potential hiccups due to the COVID while everything is under control. And we also had a pretty good improvement on the health and safety statistics year-over-year, and we have a pretty aggressive target next year to continue improving to keep everybody safe at site. If we look at sustainability, again, no major environmental issues during the quarter. So we managed to maintain one of our highest priority to keep the site in good shape and make sure that we have a positive impact on the environment at site. We've also initiated a recycling program for the protection masks, which is something that came up in the past year but that has been important for us to make sure that we continue improving our recycling program that we've already put in place. And one of the major highlights for the quarter is really that we've started investing in solving some biodiversity issues on the north shore. We aligned ourselves with the First Nations with whom we already have a great relationship, but we're continuing to improve that relationship by working on 2 projects that are true and dear to the First Nations, one being to improve the Atlantic salmon population by finding ways to make it easier for salmon to go up river to make sure that they can reproduce correctly and also to reduce the level of disturbance that there is on the woodland caribous, which is an endangered species here in the north of Quebec and in Labrador. If we look at the industry, as Michael touched on, the iron ore price is doing very well. But the main highlight that I want to bring your attention to is not only the fact that iron ore prices are good, it's really the fact that the premium for the higher grade type material has significantly increased. We've been now saying for the past 7 years that the future is high grade. We can clearly see that path right now, and it's supported also by most of the steel mills. When we speak to a lot of our clients, they used to talk about, yes, high grade is important, not always willing to pay for it. When iron ore prices would soften, then they would have a little bit more ability to be able to buy the high grade. But when you look at steel margins today, most dealmakers absolutely want to maximize their productivity, which goes by using more high grade. And when we talk about CO2 emission reduction, it's not just discussion and it's not just a corridor discussion within the steel industry. It's now become a full-blown target to make sure that the groups can achieve their 2030 targets. And again, whether we go through any type of technology, the solution to reduce cost while lowering the CO2 emissions in the market is to use more high grade. So this really positions the Bloom Lake material as a premium product not only now but also coming into the next years. That's also shifted our position on the cost curve. When you look at the premium that we're getting, if you bring everybody back to the P62 to be able to compare apples to apples with all the different producers, we've really lowered our position on the cost curve, factoring in this high premium. So we now sit as one of the lowest cost producers in the world associated to this high premium in the market. If we go to production, while we touch base on this at the introduction, we hit our first year at 8 million tonnes, surpassing our nameplate capacity by 600,000 tonnes, a fantastic achievement if you take into account that productions were affected in the first quarter due to the COVID situation. We managed to be one of the only mines in Quebec to continue operating throughout the whole lockdown here in Quebec but we did have some restrictions that had us reduce the throughput at site. But regardless of that, we managed to hit 8 million tonnes in the year. And again, I think the other highlights is that we maintained our mine plan. So your mine is in a very healthy state right now, kept a very decent strip ratio through the year to allow us to prepare for our expansion. You could see the head grade lowered a little bit, but this is mainly due to the fact that we're getting closer to our life of mine head grade. But even at these grades, we managed to hit our record production. And we also managed to maintain a very high iron ore recovery through the whole year. Touching base on that recovery. So we see now that we're a third quarter in a row above our target of 83%. And this is even in the -- in producing some of higher grade type material, the DR-grade type material. So I think the recovery circuit at Bloom Lake has not only been proven, but the operations of that recovery circuit have also been proven. The team has done a fantastic job ramping up the knowledge and the operations of the recovery circuit. And we're very happy to have the exact same circuit being installed in the Phase 2 plant. But that will also have an addition at the end of that circuit to fully benefit from this production of higher-grade type material to allow us to reduce the losses associated to this higher-grade type material. We'll touch base on that a little bit later. But we do feel that the future is in higher-grade type materials. So we want to be ready for that transition to fully benefit from the increasing premium in the future. Record production year, as we mentioned, not only record production, but fairly stable. I mean we went from 7.9 million in our first commercial year of operations to now 8 million tonnes even in a year that had a pandemic. So the team has done a great job in making sure that we can operate in a stable way and, again, identifying a lot of bottlenecks to allow us to improve in the future. One of the big highlights of the year is having 1 quarter where we operated close to 9 million tonnes per year. So we now understand the potential bottlenecks to be able to continue improving our production at site and to continue improving the volume that we produce. Fourth quarter financial highlights. I think it was, again, a fantastic year. Not only were prices good for iron ore, but the fact that we've been able to maintain our cash cost that we've operated in a very diligent way, even with COVID extra costs and COVID initiatives, it allowed us to fully benefit from the higher iron ore prices. And this translates into our revenues close to $1.3 billion and our EBITDA just shy of $820 million. So again, a fantastic year on the financials. If we just dig deep -- a little deeper into the actual realized selling price, one very interesting thing to note is that we do see a little bit of noise quarter-to-quarter. We've touched based on that in the past with provisional pricing associated to the fact that we don't sell directly to clients on a day-to-day basis. The material does need to go on a vessel, and it does take up to 55 days to get to our clients. So the way that we get paid typically is when the material lands at our clients either in China, Middle East, Europe, Korea. For the Japanese market, a little bit different. We get paid on the past quarter results. So we have 2 different mechanisms, which allows us also to fully benefit from the prices all year round. And I think the important thing to note when you look at the year is that the average price for the year for the P65 was roughly about $143 per tonne. If you look at what we realized, even if in the first months when COVID hit, we had to give slight discounts to compete with pellets that usually went into the European market but that were finding their way into the Chinese market. Even with those slight discounts that we originally had to give that we no longer have to give, we managed to get about $4 per tonne higher than the P65 for the year, roughly about $147 per tonne. So again, very interesting dynamic in fully realizing the high-grade premium for the Bloom Lake material. If we look at provisional pricing and price adjustments, if you remember last quarter, we had about 600,000 tonnes that were subject to provisional pricing. We realized a price of about $191 , but we had forecasted a price of $163. So that allowed us to get a positive provisional price impact on Q4 of about just shy of $17 million. If we look at the past quarter, if you remember or if you saw in the news, there was a little bit of -- I'm sorry, I'm French, and I'm looking for the word, but there are a little bit of congestion in the European ports. So we did see a little bit of dip in vessels in February but that was overcome by a record production at the port In March. We managed to fully load 6 vessels in March. And that accounts now for about 1 million tonnes at the end of the quarter that is still subject to provisional pricing. We booked the forward curve at the time, which was about $182 per tonne. But as you've seen in the market now, the prices are much higher. So there is a potential if prices stay where they're at, where we will have a positive provisional price in the quarter for the current quarter right now. If we turn to cash operating margins, again, maintaining the costs where they're at, maintaining volume, which allows us to maintain cost, allowed us to fully benefit from the prices, which translates into record cash operating margin just shy of 78% and EBITDA margin just shy of 70%. So fully benefiting again from the premiums in the market. We set the record -- the word record maybe one too many times, but just to use it one final time in this slide deck, record production this year, record financial year, which translates into a very healthy EBITDA and very healthy adjusted EPS. And we're now going to transition from an 8 million tonne per year producer to a 15 million tonne producer coming mid next year, which will allow us to continue benefiting from large EBITDA and EPS as well. If we look at the actual cash in the company, so a very good quarter. We managed to increase cash from $507 million to $640 million in the quarter. Despite investing $55 million on the Phase 2 project, repaying our revolving facility of about $25 million in the quarter as well. So a fantastic quarter that really sets us up properly for our growth initiatives to make sure that we can deliver that project without touching our credit facility. Turning over to our balance sheet, as we just mentioned, very healthy. I mean after only 3 years of production, we're net cash positive of about $331 million. And it's a bit mind-blowing when you look at that number because you have to take a step back and realize that we're going to have over $4.5 billion of infrastructure fully paid for no debt going into a 15 million tonne per year production in one of the most sought of materials in the world. So very healthy position to be in as we continue our growth initiatives. If we look at the Phase 2 project, we've seen quite a lot of news in the international market in various projects in various industries. We're very proud to announce that we're still on our time line to hit mid-2022 for the delivery of our expansion even in the current COVID situation. So very proud of that right now. The bulk of the work will be done over the coming months. So you'll see in the next quarters an increase in spend on Phase 2. We're fully prepared for that portion of the project. And a few exciting highlights in this quarter on Phase 2. We finalized our contract with QNS&L. We always said that there was enough capacity on the rail, and we wanted to make sure to negotiate the best outcome for our company. That's been completed, and we now have an agreement to make sure that we're ready for the Phase 2 expansion on all of the logistics. But that was the last piece of the puzzle on the logistics side, and it's now been solved in the past quarter. Also, the stacker reclaimer has been ordered at the SFPPN to make sure that we can ship all the material that we'll be producing at Bloom Lake and a few other exciting projects at site like the installation of most of the spirals. Most of the recovery circuit is in place right now. So we're advancing the project, as we mentioned, on time and on budget. A little note on Kami. So we finally managed to close that transaction. There was a little bit of delays, especially due to the fact that they had elections in Newfoundland, and we needed the government approval to be able to get the land transfer. That's been fully finalized in the past quarter, which allows us now to have a dedicated team that is working on the feasibility study to make sure that we can deliver that feasibility study in line with delivering the Phase 2 project. So just a reminder on the Kami asset, just a few kilometers away from Bloom Lake, about 1.7 billion tonnes of resources, some material that can be upgraded to one of the highest grade materials in the world that will allow us to continue our growth initiatives in the region. One other portion that is very interesting as well. As you know, we've -- since we acquired Bloom Lake and even before when we started working on the Fire Lake assets, we've always had a vision that high-grade material is the future, not only for productivity reasons but really to make sure that steel production can be done in a more -- in a greener way so while emitting a lot less CO2 emissions than what it's doing today. One of the easiest ways to be able to do that transition is to switch from blast furnaces to electric arc furnaces. But even in the blast furnaces, when you use higher-grade type material while -- your amount of CO2 emissions per tonne of steel reduces significantly as well. So we've always had that vision. That's why we upgraded the quality when we purchased Bloom Lake from the 65.5% that was being produced to our 66.2% when we started the operation. We continued working on that by delivering and proving that we can do 67.5% to 68% material, allowing us to qualify on the DR type material to be able to tap into the electric arc market. But we've also proven in the past year that we can produce 69% Fe material. To us, that's another game changer in our potential to continue improving the quality at Bloom Lake because that not only allows us to qualify for DR, but it allows us to be one of the most high-grade materials in the world. Very little projects in the world can actually produce this. And not only can we produce it at Bloom Lake, but we can actually produce it at a fairly core size, which allows us to have a simple logistics solution to be able to ship that pellet feed to the right customers to fully benefit from a growing premium in the future. So a very good project that we'll keep updating the market as we advance this. We're currently working on a feasibility study to be able to build a very small plant beside our current plant to potentially be able to upgrade a portion or all of our production to this new material. So the key message here is we want to be ready to fully benefit from that premium as the market shifts to produce greener steel. The second interesting project that we've been working on now for close to 2 years is what we call the cold pellets. Typically, when you make pellets, you grind down the material. You add a binder and you have to heat it up over 1,000 degrees to make sure that the pellet can actually be solid enough to be shipped and to be used into the blast furnaces. That is extremely intense on -- in terms of CO2 emissions, and there is solutions in the market that has been used by steel plants for the past 40 years, which is what they called cold agglomeration. So agglomeration where you do not need to heat up the material. You basically just use a binder, different binder than what you would when you heat up the material, and that allows you to use those pellets into the steelmaking process. Initially, that was mostly used by steel companies that want to reuse their dusts and make sure that they minimize waste. So they never had logistics issues and transporting the material. So there's a company that started working on that many years ago to find the right solution to make a cold pellet that can actually be transported. But we're very proud to announce that the results that we're getting, preliminary results is that the pellet that we can make at Bloom Lake through this process is pretty much similar to the indurated pellets. So whether it's tumbling, whether it's durability, whether it's breakability, we're getting very similar results and also similar results in the test work that we're doing on the actual steelmaking process using those pellets. So very good potential for our company in the future. We're continuing to work on this, and also we'll keep the market informed on that. One of the big highlights about cold pelletizing, it reduces CO2 emissions by about 95% compared to the traditional pellet route. So a game changer when we look at CO2 reductions, which is one of the elements that Bloom Lake and Champion is definitely focused on right now and in the coming years. So on a final note, again, I would like to thank everyone at Bloom Lake, all of our partners, stakeholders for their support. It's been a tremendous year. We've achieved fantastic results. Not only good on productions, but also strengthening our relationship with the local communities, with the First Nations, with the government. So all in all, a very good year. And I'd like to turn it over to the floor for questions should the -- should anyone have any.

[Operator]

[Operator Instructions] First question comes from Orest Wowkodaw at Scotiabank.

[Orest Wowkodaw]

Now that we've rolled into your next fiscal year, I'm just curious if there's any implications on the scheduled maintenance for Bloom Lake this year now that the tie-in is going to happen, I guess, mid-20 -- call it, next summer. Does that have any impact on how we should think about sort of maintenance, scheduled maintenance for the current year? Typically, I think it happens in the June quarter and the December quarter. Would there be any impact to that? And is there any tie-in maintenance required with Phase 2?

[David Cataford, CEO & Non]

Yes. Thanks for the question, Orest. So the main tie-in that we have is mainly in October. So the team is fully in line with operations to make sure that we can minimize the production loss associated to that tie-in. So the impact on production right now when we look at the whole year, we're looking at a few days of production. So it's the project that the team is fully dedicated on to make sure that we minimize potential lost time with Phase 1. So the impact should be in combination with our major shutdown in October of this year. So that major shutdown might run a few days more than usual. But in the -- in terms of the yearly production, we don't see it affecting significantly our production now.

[Orest Wowkodaw]

Okay. Great. And then in terms of your balance sheet, I mean you're in this unique position of generating positive free cash flow and adding to your net cash position despite funding Phase 2. With the -- can you remind me sort of what the timetable could look like if you decide to buy back the preferred shares? I mean that seems like it's a pretty putative source of financing right now and when the option opens up to do that?

[David Cataford, CEO & Non]

Yes. Not that we're looking at it, but the 16th of August is the date that we could redeem them. So you can imagine that it's a very big priority for us. I mean, a 9.25% coupon in the current market. with our financials just doesn't make sense. It made a whole lot of sense when we put that in place, but I think we've grown now into another reality. So it's one of the main focuses for us to be able to redeem those preferred shares.

[Orest Wowkodaw]

Okay. And should I assume that that's probably a higher priority than, say, adding a dividend in the near term?

[David Cataford, CEO & Non]

Well, when you look at a 9.25% coupon and the impact on the company, it's a pretty high priority. We're working with our Board right now to come up with the best plan for capital allocation. But I have to agree that the preferred shares is one that's the top priority on our -- to be able to improve our balance sheet right now.

[William Michael O’Keeffe, Executive Chairman]

David, it's not -- I mean the other -- just to add to that, too, I mean, at the time, the preferred shares, I remember when David and I were looking at this and thinking how and how can we find $210 million or $211 million to pay out the government for their 36% share. And we're fortunate that we have the case there to do that. And again, it was done at a time when there wasn't a lot of confidence in the market about iron ore and us being able to deliver on this. So look, it's a priority for us to pay it off now. But look at the value that that's created for us and what that 36% was worth then and what it's worth today. So yes, we will pay it off, but it's also good to reflect back and and think how important it was at the time. Do you agree, David?

[David Cataford, CEO & Non]

Yes, definitely. So a great partner that we had. But as we mentioned, I think we've grown out of that facility.

[Operator]

Next question comes from Craig Hutchison at TD Securities.

[Craig Hutchison, Research Analyst]

You guys produced 8 million tonnes last year. Once you Phase 2 is up and running, is there any reason to believe that you guys wouldn't be able to deliver an annual run rate around 16 million tonnes versus the 15 million tonnes you guys quote right now?

[David Cataford, CEO & Non]

Yes, we're definitely working on that right now within the project. So as you know, our feasibility study brings us to 15 million tonnes. There are some systems that we reviewed when we did the detailed engineering to see what would need to be improved to make sure that we could fully benefit from that potential of the 2 plants, but it's definitely something that the team is working on to be able to hit those sorts of numbers. We're still announcing 15 million tonnes, but I think you could see a potential upside scenario where we could go to 16 million tonnes.

[Craig Hutchison, Research Analyst]

Okay. And then the direct reduction material you guys are producing and selling now, are you starting to see the benefit of higher prices for that material? Or are you guys still in the sort of the trial phase at this point?

[David Cataford, CEO & Non]

Yes, we're sort of at the end of the trial phase. As you know, when you bring on a new product in the market, we need to be able to prove to the customers that we can hit it more than once. We've done that now. The customers are very happy with the quality of the material. So we're now in discussions to be able to fully benefit from that premium associated to this type of material.

[Craig Hutchison, Research Analyst]

Okay. And maybe one last question for me. Just in terms of freight rates, is there any ability for you guys to lock in any kind of hedges on freight rates at this point? Or are you guys going to keep that open for now?

[David Cataford, CEO & Non]

Yes. Right now, the strategy is really when we get potential vessels that we can lock in at very low prices like we did last year, we booked vessels at $15 per tonne. We booked some vessels at $17 per tonne. So when you look at those sorts of prices, there's not a lot of movement potential for the shippers because, at those prices, they're close to losing money. But right now, the market is not in -- doesn't allow us to fully benefit from lower prices to lock them in. And the shipping rates are pretty volatile, as you've seen in the past few weeks. So we prefer to keep it open and to be able to seize an opportunity when it would come up in a sub-$20 prices.

[Operator]

Next question comes from Alex Jackson at RBC.

[Alexander Jackson, Assistant Vice President]

Just a quick one for me. I'm curious if redomiciling to Canada is sort of still on your radar? Or if that's been kind of pushed out at this point?

[David Cataford, CEO & Non]

Thanks, Alex. Yes, it's something that we're definitely continuing to work on. All of the advantages that we had presented to our investors last year, for which we got about a 99.3% positive vote, they're all still there. There were issues at the time that didn't allow us to do it when COVID hit, but it's definitely something that's back on the agenda this year. That we would like to present to our Board before the end of the calendar year. Does that answer your question, Alex?

[Alexander Jackson, Assistant Vice President]

Yes. Sorry. That's all for me.

[Operator]

Next question comes from Gordon Lawson at Paradigm Capital.

[Gordon Lawson, Senior Research Associate]

Can you elaborate on the cold palletizing technology? What sort of cost and volumes are associated with this initiative?

[David Cataford, CEO & Non]

Yes. Thanks for your question, Gordon. So when we look at the cold pelletizing solution, right now, what's important for us is to demonstrate that we can produce it with the Bloom Lake material. We've done that now. We've discussed with many of the clients. There's a whole lot of demand for this type of material. So we're now going to enter the phase of actually looking what would be required, what would be the best area to be able to build it. We obviously have an eye on the port area, where we're partners with the Quebec government for all the land there. Access to power, clean power, access to potential infrastructure and also qualified workforce. So for us, that's a good potential, but we're now getting into the phase of looking at what would be the actual cost. It's obviously a whole lot less than your typical pelletizer but it's something that we're going to start working on now in the coming quarters.

[Gordon Lawson, Senior Research Associate]

So this isn't something that's proprietary to the European company you're working with but you could actually build this near site?

[David Cataford, CEO & Non]

Yes. The proprietary portion, and this is why we invested in the company, to make sure that we have access to the binder. But the real technology is basically more in the binder than in the pellet-making because it's a very simple process. You add the binder, you mix it, and then it's just a press that presses the pellet together, and then you let it cure for about 48 hours. So it's not a complicated technology, but we need to make sure to tweak that binder just correct, which is tailored to the Bloom Lake material. So that's the work that we've been doing with the European group, but we have full access to the binder once we -- or if we chose to go down that route for the Bloom Lake material.

[Gordon Lawson, Senior Research Associate]

All right. And you spoke earlier about pelletizing the material in the more traditional fashion. Would this replace that initiative completely if it's a success?

[David Cataford, CEO & Non]

Yes. If we managed to achieve that, we would be able to make a pellet without going down the traditional route. The traditional route for us doesn't make that much sense. Most of the premium that you get for doing a pellet is actually having the pellet feed. The pelletizing portion, you don't get that much of an upside. You do if you're able to reduce significantly your operating costs by doing cold pelletizing. But the traditional route for us is not a current strategy.

[Operator]

Next question comes from Alexander Pearce at BMO.

[Alexander Robert Peel Pearce, Research Analyst]

So my question is just related to the lower emissions in steelmaking you were talking about earlier. So when you're talking to some of these customers about the initiatives that you're undertaking like the cold agglomeration, do you get a sense that they're ready to pay extra for the lower emission material? Or is it more of a case right now that maybe you'd just be preferred rather than paying an extra premium for that product over and above the grade differential?

[David Cataford, CEO & Non]

Yes. Thanks for the question, Alexander. What we're seeing right now, we're already preferred. So we've got that positioning completed. The discussions that we're having now, and again, these have completely shifted compared to, I'd say, 2 years ago. 2 years ago, I would have agreed with the statement that we would do this to be preferred. In the current market and in the future, when you look at the cost for carbon credits, and the amount of carbon generated in the steelmaking process, we've shifted from preferred to -- we're willing to pay. But not only we're willing to pay, but we want to secure some supply because there's very little supply in the world that will allow the different steelmakers to fully benefit from a product like Bloom Lake. And the second advantage is really the jurisdiction. To get a high-grade material like this coming from a stable jurisdiction like Canada is very interesting for U.S. groups, for European groups and especially with the Japanese market as well.

[Operator]

Next question comes from Stefan Ioannou at Cormark.

[Stefan Ioannou, Analyst of Institutional Equity Research]

I guess just on the cold pellet feed, it sounds like it's a pretty sort of revolutionary sort of piece of technology coming into the industry. I was just curious like how -- I mean, in terms of your customers and your proprietary partners, your potential customers, how long do you think it will take for like a steel user to get comfortable with purchasing, say, cold pellets versus hot pellets? Is that -- is there a long run rate there for them to test it themselves and get comfortable? Or is it something that they'll start buying fairly quickly once they're available?

[David Cataford, CEO & Non]

Well, I think in general, the statement in the steel industry is that they're pretty cautious. I mean, they're not going to rush into a new product without testing it. But that's why we've adopted the strategy that -- I mean it's been already a year that we're working alongside potential customers on this. We're going to supply some test batches so that they can start testing it right away. So we're already along the lines of proving this technology not only for ourselves but for our customers as well because we want to make sure that they're ready for that shift if we're ever ready to be able to transition into that type of material. So your statement is very correct, Stefan. But again, we know that route. So that's why we're making sure to tick all the boxes ahead of time.

[Stefan Ioannou, Analyst of Institutional Equity Research]

Yes. Okay. No, it sounds pretty exciting. Yes. And I guess just sort of on a different note, just with Kami, you mentioned you're starting up some -- you're looking at the feasibility and some technical work there. Do you have any sort of sense of time line in terms of when we might see an updated feasibility study for Kami?

[David Cataford, CEO & Non]

Yes. We're going to target delivering that at the same time as we start up Phase 2. So to allow us to have the right view on the next steps for our growth initiatives. Realistically, I appreciate your comment of saying revisiting certain elements of the feasibility study, but we're pretty much redoing it. We really like the resource. It's a fantastic resource but it's not a feasibility that we would say Champion standard. So we want to make sure that when we come out with the -- our feasibility study, it's something that's conservative, that makes sense and that we're sure that we can actually achieve the results that are included in it. And maybe a final note on that is if you look at the previous feasibility study of Kami, they produced a 65% Fe material. We want to make sure to fully benefit from the higher-grade type products in the transition in the greener steel initiatives. So we want to increase the target Fe content of the concentrate to make it a higher-grade material as well.

[Operator]

And next question comes from Lucas Pipes at B. Riley Securities.

[Matthew Alexander Key, Research Analyst]

This is actually Matt Key here asking the question for Lucas. Just a quick one for me today. Most of my questions have already been asked. But are you experiencing any cost inflation during the construction process at Bloom Lake kind of due to higher steel prices and bottlenecks, Obviously, you guys have kind of maintained guidance there so far. But is there any kind of risk to that kind of as we head through these kind of high capital months for the project over the summer?

[David Cataford, CEO & Non]

Yes. One thing's for sure. We have not seen cost reductions. I mean you can appreciate the market now when we fully benefit from higher iron ore prices that translates into higher steel prices. Parts are more expensive. Labor and COVID is a little bit more expensive as well. We've got it fully under control, and we're very confident with the full envelope that we've disclosed to the market. But there is going to be some extra cost during the summer, as you pointed out, with the higher price for parts and a higher price for labor as well. But we feel very comfortable with the contingency that we had put in place to be able to deliver the project on time and on budget.

[William Michael O’Keeffe, Executive Chairman]

I think another to add -- yes, another thing to add to that, David, is that you might remember there is $1.2 billion spent on this and along with that was a lot of steel that was already on site. So we're very fortunate to have that situation.

[Matthew Alexander Key, Research Analyst]

Got it. That's very helpful color. Appreciate it. And you mentioned that the kind of capital spend is going to kind of peak here during the summer. Would you be able to just Just from -- just so we can get kind of numbers around this, would you be able to kind of like share a percentage of the kind of total remaining on the project that you expect to be spent in 2Q and 3Q relative kind of to the remaining months on the project? Just to get kind of a cadence on capital.

[David Cataford, CEO & Non]

Yes. High level, I'd say about 50% or a little bit more the CapEx will be spent going into the end of September. So that's ballpark about what will be done. This is the most intensive months right now. So that's the -- if you want to factor it in your model, that's about the bulk of the spend will be done this summer.

[Operator]

There are no further questions. You may proceed.

[David Cataford, CEO & Non]

Yes. So thanks a lot, everyone. I'll leave it to Michael for a final word. But again, I think your company is in very good hands from everyone at site to management here to continue fully benefiting from the high iron ore prices and making sure to capture all of the premium for our type of material while also transitioning to be ready for the greener steel initiatives that are coming more quickly than we would have expected but perfectly in line with what we produce at Bloom Lake. Over to you, Michael, for final words.

[William Michael O’Keeffe, Executive Chairman]

Thanks, David. And that's -- look, that's our team that's been able to deliver on this. Well, I'm amazed that how we've been able to get to where we are today. But again, we invest with by guide to have a great resource, but to be able to convert that into the returns that the team has done has been outstanding. Look, we've had the support of the Quebec government, First Nations, the unions and we've looked after our workers through that whole process. So we'll continue to do that. I think it's really worthwhile. When we look back at this, the fact that how green the company is, which is also very important with hydropower, every -- all the other initiatives that we're putting in place, which is supported by the Quebec government but also the amount of infrastructure that we have. We were talking today to some investors. And there -- it became apparent to me they didn't really have their head around the amount of infrastructure that we have in place, a new berth that can take 55 million tonnes. There's really us using it with one of the small user. And we've -- by acquiring Kami alone gave us another 8 million tonnes odd. So we're up to now 18 million tonnes of capacity on that, which is we load vessels very quickly. All the new work that's happening at the sit down there at the port. That's again supported by the government. So the facilities that we'll have there will have more than enough capacity for what we're currently doing. And the rail has all that capacity. So it's just open for opportunities. It's not as if we're going to some and do it and they're 3 years as building funnels there. That doesn't have the support of any government in Africa. It's all funded by the people who want to use it. So we have a great resource. We have great infrastructure. And for you as investors, the team that David has put together along with himself has been outstanding. So there's always road bumps everywhere, but we managed to build the bridges to get across them, and I'm very thankful to the team for that and also for the investors. But you're looking at a very exciting opportunity for this company. And we're going to exploit it fully. So thank you all for your support, and I'll head to bed because it's now past 11:00 p.m. here in Australia.

[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. Enjoy the rest of your day.