Champion Iron's (CIAFF) CEO David Cataford on Q1 FY2022 Results - Earnings Call Transcript
Champion Iron Limited (OTCQX:CIAFF) Q1 FY2022 Earnings Conference Call July 29, 2021 8:23 AM ET
Company Participants
Michael Marcotte – Vice President-Investor Relations
Michael O'Keeffe – Executive Chairman
David Cataford – Chief Executive Officer
Alexandre Belleau – Chief Operating Officer
Conference Call Participants
Gordon Lawson – Paradigm Capital
Alex Jackson – RBC Capital Markets
Daniel Sampieri – Scotiabank
Alexander Pearce – BMO
Craig Hutchison – TD Bank
Lucas Pipes – B. Riley Securities
Dalton Baretto – Canaccord
Scott Taylor – Pembroke
Stefan Ioannou – Cormark
Operator
Good morning, ladies and gentlemen, and welcome to the Champion Iron Limited First Quarter Results of the Fiscal Year 2022 Conference Call. [Operator Instructions] This call is being recorded today, Thursday, July 29, 2021. And I would now like to turn the conference over to Mr. Michael Marcotte, Vice President of Investor Relations. Please go ahead.
Michael Marcotte
Thank you, operator. And good morning, everyone or good evening for those dialing in from Australia. I'd like to thank everyone for joining us today to discuss our results for the first quarter of our fiscal year 2022. I would also like to direct people in a call to a presentation that management will be referring to, which is posted on our website, at www.championiron.com under the Events and Presentation section.
I'd also like to remind listeners that some of the matters to be discussed during this call may contain forward-looking statements, and I would like to refer you to the disclaimer at the beginning of that presentation which we will be referring to during this call. 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. Also please note that all amounts being referred to are Canadian dollar unless otherwise stated.
Joining me today on this call is Michael O'Keeffe, our Executive Chairman; David Cataford, our CEO; Natacha Garoute, our CFO; and Alexandre Belleau, our COO.
I’m going to turn the call over to Michael O'Keeffe for a short introduction and then after that pass it on to David Cataford for more formal portion of the presentation. Michael?
Michael O'Keeffe
Thank you, Michael. I'd just like to say, how good it to be back to Montreal with the team. I left for Australia in February 2020 for four weeks for the March spring break. And 18 months later, I found myself back here. The world been really turned upside down and we are dealing with new issues as we go forward. And when you reflect on some of the trauma for people through this process, personally, but also business wise, it's been quite extreme. So, with that as a headwind that we've been running into, it's been amazing to look at the results that we're seeing here today. And what Dave and his team have been able to achieve through this time of COVID.
The first thing we did or I did with David was to go up to site and have a look around. The process of how we screen people at site, the system that's been set up there is amazing. And I went through the same system myself. And now I can appreciate how they have been able to capture and manage the whole COVID process up there, with [indiscernible] laboratories on testing, temperatures taken, et cetera, et cetera. So that's allowed us to be able to operate through this period, but also continue on with Phase 2. As you know there's over thousand people up there at site and we have to house them, and keep them and feed them through this whole pandemic. So fantastic today and you’ve seen for that. And I really got a different appreciation.
But also, for me was to see the changes that have happened over the last 18 months since I haven't been here. The size of the mine, the development in the mine, how efficiently we're running record productions. So, reflects on the Phase 2, Phase 1 and how we've managed those consistent recoveries. The team up there in the operating side have been fantastic.
Phase 2 is being developed at the same time. So, you can see with the shutdowns we've had and bringing on Phase 2 now, see when costs have crept up a little bit, nothing that we're too concerned about that can't be managed. Also, I looked at the work done on the tailings, the infrastructure that's being put in and I can tell you we'll be on time and on budget for this project. So, it's quite rare to be saying that especially in the mining team and especially in iron ore and new developments that happened.
Also, we flew to the port and had a look at what was happening there. And that was always a concern for me in the past on how we would bring that on in time with what we were doing at site.
And last, when we brought Phase 1 David had to send a team of engineers down there to help with that. That won't be happening this time because the Board has put in new management there and they look like they are going to be on time. It's a government project. So, I don't know if it'll be on budget. But we can always be pleasantly surprised. But it looks amazing and we'll be able to handle the additional tonnages through that port.
The other good thing is the land acquisition and the tenements that we've been able to acquire over the last 12 months. And that is the Kami Project coming on into our books, which is nearby fantastic opportunity. The Fancamp tenements, which were right in the heart of our Champion tenements, and that's now stable. And also, David has renegotiated, the royalties, which I'll let him talk about.
Great result, $400 million EBITDA. If you look at that annualized $1.6 billion, we can do the calculation. And when you look at our market cap it’s amazing. There's a lot of headroom for us to be able to go up. And that will only happen if we continue performing, which we've been able to do.
Also hats off to Natacha and her and her team in finance that's been also a great year for us in fact, she was able to restructure the debt and bring our interest rates down and expand that facility, which we haven't had to use. Also, the paying off the $60 million to the press, which you might remember, we use to acquire the government’s 30 odd, 6% of the Bloom Lake Project. And that was the best money, I think, we ever spent. Remember David negotiating over $1 million difference on the – it was something like 210 versus 211, and he was kicking the tires because he left that $1 million on the table. I will say, David, that's worth $1.3 billion today. So, it wasn't a bad million you left on the table.
Hats off to the whole team. But I'll let David go on and fill in the gaps. And also, we'll go into a Q&A Session after that. Yeah.
David Cataford
Yes, thanks, Michael. Thanks everyone for being on the call today. Very excited to be able to present this quarter's results. I think when you just look at the highlights for the quarter, I mean, delivering close to two million tonnes in a shutdown quarter at the same time as we've concluded the union contract negotiation, fantastic results for us. So that allows us to fully benefit from the current iron ore price environment and also allows us to continue growing on our processes to make sure that everything that we're putting in place now with Phase 1 can also be translated into Phase 2 once it gets up and running.
If we look at the sustainability, and health and safety, I think, the important thing to note is that as Michael mentioned, we've been handling COVID extremely well at site. Our laboratory is still in place, even if we have about 60% of our workforce that has been fully vaccinated, or at least with one dose of vaccine. But we're continuing to work with our teams there to continue the vaccination initiatives and also monitoring and continuing our testing facility to keep everybody safe at Bloom Lake.
On the environment side, we've also continued the revegetation program that we started a few years ago. As every summer we start revegetating areas of the mine that we don't intend to use for the future to make sure that the site is in pristine condition.
Turning to the industry overview, when you look at what we saw in the past quarter, I think, the game-changer is really looking at most of the steel mills come out with clear targets of how much CO2 reduction they want to achieve in the coming years. Since 2014, our strategy has always been to consolidate high grade resources in one of the best mining jurisdictions in the world. We've been able to achieve that. And now we're fully benefiting from the transition in the steel industry. Most of the steel companies have clear targets for 2030 on CO2 reductions and are working on different plans, whether it be hydrogen, plasma, different technologies to be able to reduce CO2 emissions in the steel making business.
But one clear solution that is known today and the simplest one is to use higher grade iron ore to be able to produce steel. And we can fully benefit from that transition because we produce exclusively high-grade iron ore at Bloom Lake. We've seen the premiums for the higher-grade type material increase this quarter to record highs, close to U.S. $35, U.S. $36 per tonne going from the P62 to the P65. So, you can appreciate that our material at 66%, 68% and our new potential material at 69% benefit from even higher premiums in the current market and in the future as well.
So very interesting to see what we've been able to develop in terms of resources and production in an environment that's shifting more and more towards this higher-grade type material. On the operations side, very robust quarter. As we mentioned, this was a major shutdown quarter while working on Phase 2, while renegotiating our union contract, and we managed to still achieve close to 2 million tonnes of production in this quarter.
I think one of the highlights is really us being able to achieve very high iron recovery even at the current head grade that is closer to our longer-term average for the mine and having a very stable quarter with all the activity that's going at site. We're very proud of what the team has been able to achieve in this quarter.
If we look at financial results, while producing a lot of tonnes in a high price environment allows us to generate quite a lot of revenue, over $0.5 billion of revenue in the quarter; EBITDA, over $400 million, which translates also into an EPS of about $0.44 per share. So fantastic results, and that's been achieved really with the fact that we've combined the high price environment with the great operational results that we were able to achieve.
If we look at the average realized selling price, I think the one element that is a little bit different this quarter, if you remember, last quarter, there was a bit of congestion in some European ports, which meant that we got some delays on certain vessels that arrived at the port in Sept-Iles, which means that we got about six vessels that left the port in March. Subject to provisional pricing, these vessels arrived in June. And we had initially forecasted about U.S. $180 per tonne, and we sold at about a realized price of about $230. So, in this slide, when you see the provisional price adjustment of about $25 per tonne, that's really translated with the higher iron ore price environment that the tonnes got delivered with the clients.
If we look at the – this quarter, we still have about 1.16 million tonnes of material subject to provisional price. And you can see that we're expecting a price of about U.S. $245 per tonne. That's because a lot of the vessels at the end of this quarter will be delivered into July and August and less in September. So, the forward curve was higher when you look at these months. So that's why you see this price here of the expected settlement price at the end of next quarter. But we'll be able to report that when we discuss together in October.
When you look at the positive cash operation – operating margin, sorry, well, again, record cash operating margin of about 73.7% and EBITDA margins over 74% as well. So very impressive results for the quarter.
One of the elements that's very interesting in this quarter is that we have begun our strategy to return capital to shareholders. So, our strategy has always been in steps. The first step was really to, one, pay all the outstanding dividends for the preferred shares, which we've done since the – since we've put these preferred shares in place. As you remember, we had put these preferred shares in place to buy back the government's 36.8% ownership in Blue Lake.
So, the partnership with the Caisse has been very beneficial for us and for them. We have a fantastic relationship with Caisse de depot, but we have started redeeming these preferred shares to start returning capital to shareholders. We've redeemed the first 60 million of the preferred shares and are now working to be able to redeem the remaining $125 million in preferred shares. Why is this so accretive for our shareholders? Well, the current dividend rate is 9.25%. And again, because this is a dividend, we don't have any fiscal advantages associated to that cost of capital.
So, for us, the clear strategy was to be able to clean up our balance sheet and redeem these preferred shares while we're completing Phase 2. So, if we look at when we initially launched Phase 2, we didn't expect to be able to redeem these so quickly. We thought we would be able to start repaying the preferred shares once Phase 2 is up and running. But now you can see that we've started, and with current iron ore prices, we're in a very good position to be able to redeem these completely in the coming quarter.
If we look at the cash change during the quarter, I think one element to highlight is really a change in working capital. That's not a long-term sort of new strategy. It's really the fact that there's a few vessels at the end of the quarter that we had not received the provisional pricing yet, so – or sorry, the initial payment for the vessels. So, we've since been able to recover most of the cash associated to these vessels. It's more of a timing issue than really a strategy. But you can really see that your company is in a very good position with the cash on hand. Even once we've invested close to $120 million in Phase 2, we've finalized the Kami acquisition and paid the $15 million for the acquisition price and redeemed $60 million of preferred shares.
So, the balance sheet is in a very good position. That's what allows us to be a net cash positive of about $340 million after only about three years of operations. So fantastic results. When you look at the quality of the assets at site, once Phase 2 is up and running, there's going to be over $4.5 billion invested at site to allow us to produce a nameplate capacity of over 15 million tonnes per year of one of the most sought-out materials in the world.
Phase 2, I think another highlight for the quarter. You can see that there's quite a lot of construction work being done around the world. Material and equipment is more expensive than what it was a few years ago. But despite that, we're still on target to be able to deliver our Phase 2 expansion on time and on budget. That's really a testament of what the team is able to do at site, not only work on the construction project, but not affect the current operations.
So the team has done a fantastic job in being able to advance the project. As you know, the summer work is where we're going to spend a bulk of the remaining CapEx. So that brings us till about October. And we're well on track to be able to be on budget on all these different elements. Now as Michael mentioned, we visited the site. It's pretty interesting to see all the conveyors being installed outside. The mill is being finalized as well. We installed the gear just a few years ago, putting the gear guard in as well – a few weeks ago, sorry, installing the gear guard very soon. Most of the recovery circuit has been installed.
We're now working on the separation circuit with all of the screens, but very interesting to see all that work being completed. And we've also started hiring workers for the Phase 2 that we're training inside of our Phase 1 right now. It's not just important for us to deliver the project on time, on budget, but the key for us is really to have a very efficient ramp-up to make sure we can get to that nameplate capacity in a very short period. So, all that work is being done at the same time at site and very exciting to see.
As Michael touched base as well, I think one of the very interesting portion of this quarter was that even in these high price environments, we managed to secure close to 300 million tonnes of resources in the middle of all of our claims around the Quinto area and also to buy back a 1.5% royalty that we had on all of the old Champion tenements. So that really positions us properly for growth in the future. Because when you look at that cluster over there, a few kilometers south of Bloom Lake, it's pretty much the size of what you see in Simandou, but in a much better jurisdiction and also benefiting from potential hydroelectric power, so to be able to produce very clean iron ore in one of the best mining jurisdictions in the world.
So, we really positioned all of that district to be able to supply the high-grade market in the future, should there be a need to be able to develop more tonnes in the region. I think the final highlight is really a big thanks to all of our staff, all of our workers, everybody at site, at head office that have been able to make this possible. Again, just confirming that we've renegotiated the collective agreement with our workers without any work interruption. We were at site last week and two weeks ago as well, met with all the employees.
Everybody is fully motivated to make sure that this is going to work. Any of you that have visited Bloom Lake in the past know that one of our big differences is the quality of our workforce and the motivation of our workforce. And I can guarantee you that everybody is – even through this whole difficult year of COVID, everybody is 100% motivated to make sure that we not only continue to perform, but that we're well into our growth strategy in the future. So, thanks, everyone.
I will now turn it over to the Q&A portion of the call.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from Gordon Lawson of Paradigm Capital. Please go ahead.
Gordon Lawson
Hey, good morning, everyone. And congratulations on the excellent quarter. My first question is for the cold pelletizing research. If that's successful, do you have a percentage of production targeted for this process? And how does Phase 2 and Phase 3 play into that?
David Cataford
Hey, Gordon. Thanks for the question. Co-pelletizing, when you look at the potential that we might have, it's going to be a cheaper way to be able to produce pellets, and roughly about 15% of the CO2 emissions have a fired pellet. So, a reduction of about 85% of the CO2 emissions associated to that technology. So, you can appreciate that once we've finalized the test work, there is a possibility that we could produce up to the whole 16 million tonnes of the Bloom Lake material with this.
But again, what's important for us is to make sure that we diversify also our products. So, would we go up to the full 16 million tonnes? Probably not. We have some very good clients right now that require the material, we have to allow them to increase their productivity and lower their CO2 emissions. So, a portion of the Phase 2 material would be able to be produced in coal pelletizing. So, all in all, we would have the capability to produce 100% of coal pellets. But realistically, we will probably only have a mix of the current tonnes to continue supplying our current clients with the high-grade fines that we do produce.
Gordon Lawson
Okay. Excellent. And my next question, the mining rate for both waste and ore was much higher than expected. Can you elaborate on the current mining fleet and how much of that is related to the Phase 2 ramp up?
David Cataford
Yes. So our current strip ratio for Phase 1 alone is roughly about 0.5. So, when you see results like 0.83, we are moving material to be able to prepare for Phase 2. As Michael mentioned, the pits have been developed quite a lot in the past two years, and we want to make sure to be ready for Phase 2. If we go back to 2018 when we started Phase 1, we did have a few quarters that we had a slightly lower result than we would have liked to have because the mine was constrained. We had a much better ramp up than what had been planned in the feasibility study because the plant was running so well. We don't want that to happen twice. So now we want to make sure that the mine is fully ready to benefit from every single tonne that can go through that Phase 2 plant.
Gordon Lawson
Okay. Excellent. And one more, if I may. With all the disclosed information you've provided in the MD&A, which was greatly appreciated, regarding the realized premium in the quarter, do you expect these values to continue in the current quarter and beyond? So, if you could just elaborate on the market conditions, please.
David Cataford
Yes. Thanks for the question, Gordon. So, if you look at the previous quarter, I think it was a little bit abnormal in the sense that we had provisioned the price of about $182, and we realized the price of $230 roughly. So that's an increase of about $50 per tonne for about 1 million tonnes of the material that landed during the quarter. So that's something that was pretty unique. So, we don't necessarily expect as high provisional price in the future, which – but you never know where the premium for the high- grade material can go. I think the important thing to note for us is that we fully benefit from the whole P65 premium and we also get over and above that P65 premium when you look at our 66 material and also our DR grade type material. So, we're very well positioned to fully benefit from the current high-grade premium in the market there.
Gordon Lawson
Okay, great. Thank you very much.
David Cataford
Thanks, Gordon.
Operator
Your next question comes from Alex Jackson of RBC Capital Markets. Please go ahead.
Alex Jackson
Yes, thanks for taking my question. Good morning guys. So, I'm just curious if you could talk maybe a little bit about how you're thinking of balancing capital returns and your growth initiatives with maybe Phase 3 in Kami and some of the exploration that you guys are doing. Thanks.
Alexandre Belleau
Thanks very much, Alex, for that question. The Board is looking into this, and we're meeting with management end of August to discuss that whole issue. While it's nice to continue looking at growth and expansion, it's also time to reflect on the shareholders who have been there for a long time and also current shareholders because potential to pay dividends is there now and potential to pay dividends is there now and that's what we're considering. I've always said that after the second quarter of this year, we should – and provided we still had the robustness in the market, we should be in a good position to pay dividends. So that's on the cards. But if you think about it, we'll get through with not having to draw down on our debt to complete Phase 2. That's outstanding.
We'll repay the prefs [ph]. We've been doubled to acquire all the ground around us. So that's been an outstanding effort. But we – looking at the forecast that we're putting in, we should have significant cash in our accounts at the end of each quarter going forward. So, I would suggest that – we don't give forward-looking statements, but I would suggest that shareholders could look to a dividend in the second half of this year.
David Cataford
Yes. And Alex, maybe just to complete on that, I think what's important for us has always been to position the company in the right – at the right place. And now we've secured quite a lot of resources and cleaned up some of our tenements as well buying back the royalty to make sure we're well positioned for growth. As Michael mentioned, we need to have that right balance of returning capital to our shareholders and also allowing us to be in a position that if we find right home for these tonnes and the right potential partners, while there's still potential to continue growing on – in terms of the high-grade tonnes into the market. But the first step was to start returning capital to shareholders, which we've done this quarter, buying back a portion of the preferred shares. And we're going to continue down that strategy and then work on the dividend strategy, as Michael mentioned.
Michael O'Keeffe
So, all in all, through that, we'll get to a position where we're comfortable with the cash we're holding and the cash that we're distributing to shareholders. And if we get consistency in the market, we'll be – that will be ongoing. And for the additional phases, there's no shortage of people that want the material. But it will be – what they're prepared to pay for it because, as David mentioned, through this thing, the size of our tenements outside of the Bloom Lake, the size of Simandou that what we've got is all the infrastructure. So, the port is being developed as a government initiative. There's plenty of capacity on the rail for us to go to looking at a Phase 3. The government is looking at additional power into the area. And there's been an agreement inked between Newfoundland and Quebec on how they're working on the power arrangement.
So, the government, as you know, has supported us right from day one. They benefit significantly out of this, not only directly with the money they've made, but also for the third-party and additional areas of employment and manufacturing in the area. So, we're a poster child for the government, and we continue to respect that as they do us. And so, you can see there will be more initiatives coming from them as we go forward.
Alex Jackson
Thanks. That's very helpful. And just one other one from me. Just looking at your cash costs in the quarter, and they were a little higher than I expected, a little higher than maybe some previous quarters. I was curious what was driving that? And maybe was there anything structural or it's just more one-offs? Thank you.
David Cataford
Yes. Thanks for the question, Alex. So, when you look at the price of iron ore, very interesting for us, increases our revenues. But when we do buy replacement equipment for the maintenance and work with the workers, there is a slight increase in cost. This was a big shutdown that we had this quarter, certain elements that we hadn't done in a while that come with operating after a few years. And we also decided to do a full maintenance on our crushing facility as well to make sure that well to make sure that we can fully benefit from the current prices. So, the last thing that we want to do now is to underperform with the margins that we have. I mean 74% EBITDA margin is a market where we're willing to maybe invest a little bit more on our maintenance cost, but make sure that we can deliver every single tonne.
So, I don't think there's a structural shift in our operating costs. But as these prices are higher and higher, we're going to do everything we can to produce every single tonne that Bloom Lake can deliver.
Alex Jackson
Absolute. Makes sense. Thanks a lot guy.
David Cataford
Thanks, Alex.
Operator
Your next question comes from Daniel Sampieri of Scotiabank. Please go ahead.
Daniel Sampieri
Good morning, everyone. Congrats on a great quarter. And thanks for taking my question. Just a follow-up on the last question about costs. As other miners have begun to report their results, many have noted inflationary pressures potentially increasing their costs. I know you just talked about it a little bit, but can you maybe talk specifically about any inflationary pressures you're seeing? And what specifically those inputs may be into your cost structure? Thanks.
David Cataford
Yes. Thanks for the question, Daniel. I think one important thing to note is that we produce one of the best commodities to be able to live in that sort of environment, where there's a bit higher equipment cost and maintenance parts cost. Because we produce the iron ore that typically we buy back into a different equipment that we install at site. So, I don't think there's anything very structural in terms of our cost. And if you remember, the game changer for us is when we get Phase 2 up and running and we're able to lower our overall cost with the economies of scale.
So right now, what's been important for us is to continue that maintenance strategy and make sure that we get the operations up and running as efficiently as possible. The way that we negotiated our union contract as well, we gave a one-off pretty decent bonus to every single worker to be able to recognize the fact that they've done an incredible job over the past years. But we were very diligent in terms of structural increases to make sure that we can keep those costs in line for the future at Bloom Lake. So, we – I think every decision that we're taking is making sure that we can operate efficiently in a high price environment, but we're also protecting the company for the longer-term run.
Daniel Sampieri
Great.
Michael O'Keeffe
And Daniel, at this day and age, I can sympathize with the other mining companies. And that is just to get good people is very difficult, and there's big numbers being offered for executives. So, we're mindful of that. And we want to make sure that we retain our people. And if it costs us a little bit more, so be it. But – because the cost of not having them is – far outweighs that.
Daniel Sampieri
Great. Thanks very much for that color and congrats again on the great quarter.
Michael O'Keeffe
I see.
David Cataford
Thanks, Daniel.
Operator
Your next question comes from Alexander Pearce of BMO. Please go ahead.
Alexander Pearce
Great. Thank you and good morning. So, my question, I guess, builds a little bit more on the cost questions earlier actually. So, you mentioned you're in the process of hiring for Phase 2. I just wondered maybe you can just talk about the labor market. And has COVID impacted the hiring process, too?
David Cataford
Yes. Thanks for the question, Alexander. I think what's important for us is that we really started creating a brand that people trust here in Quebec. When we announced the 400 potential jobs for Phase 2, I think we received 12,000 CVs. So, the challenge for us has been going through all of these and making sure that we select the right individuals. But I have to admit that it's been very good in this current difficult market to have so much interest for people to come work at Bloom Lake. So, it's – I think our main focus is to make sure that we have the proper training personnel and systems to make sure that everybody is ready for that Phase 2 start-up and ramp-up. But we've seen a pretty good demand of – or offer of people that want to come to Bloom Lake and be able to participate to the success of the project.
Alexander Pearce
Okay. Thank you.
David Cataford
Thanks, Alexander.
Operator
Your next question comes from Craig Hutchison of TD Bank. Please go ahead.
Craig Hutchison
Hi, good morning, guys. You mentioned at the outset some initial concerns about the progress of the port. I think you said that you're also quite impressed with the progress that has been made. Can you maybe talk about what the status is in terms of ramping up the production capacity at the port? And in the event that you guys are kind of ahead of the game at the site in terms of production, are there any workarounds at the port to sort of get the 15 million to 16 million tonnes shipped out?
David Cataford
Yes. Thanks for the question, Craig. So, I think you know us pretty well right now. We're doing everything we can to put in place the workaround as you mentioned, with the port and mainly with the set-down area. There is some work that's being done right now to make sure that we can have sort of a transition until that new stacker reclaimer can come in. And there are some potential ways to be able to increase the throughput from the current operations.
Right now, the current car number is dedicated to our operations. And this equipment is able to feed our full Phase 1 and Phase 2 tonnage. So, it's really the workaround on the stacker reclaimers to make sure that we can properly transit those tonnes. It's probably going to come at a slightly higher cost to be able to get those in. But if we're able to deliver the project ahead of time, rest assured that we'll do everything we can to make sure those tonnes can get on a vessel and be delivered to our clients.
Craig Hutchison
And what's the timing for the stacker reclaimer?
David Cataford
Timing for the stacker reclaimer is going to be at the end of 2022 calendar year.
Craig Hutchison
Okay. All right. Great guys. Thank you.
Operator
Your next question comes from Lucas Pipes of B. Riley Securities. Please go ahead.
Lucas Pipes
Hey, good day, everybody. My first question is kind of more going back to capital structure. When I look at the high-yield market, incredibly attractive rates there. Is that something that you'd consider especially as you try to balance growth and capital returns? Thank you very much.
David Cataford
Yes, thanks for the question Lucas. When we look at our current balance sheet, I mean, we're going to finish Phase 2 most likely without drawing a single dollar on the debt facility. We've already repaid the first $20 million. We're repaying most of the preferred shares. So, we'll be left at the end of the project with a maximum of about $180 million of debt facility. That's going to be at a cost of capital around 3%.
So, when you look at what we have now put in place with the great partners that we have, we don't think that at this stage, the high yield market is the right place to be. When we look at our other potential growth, we'll be able to reevaluate. But when we look at our needs now and what we have in place, we're very happy with the partners that we have.
Lucas Pipes
Very helpful. Thank you. So, like, in terms of like taking on a little bit more debt, and then doing dividend on the back of that that wouldn't be something you consider at this stage?
Michael O'Keeffe
No. No, the Board wouldn't be in favor of that. I can assure you that. But it's interesting to see where we've come from when we first started trying to raise money. I mean, we would have done anything to get into converts, or we would have got to the bonds or whatever. But we ended up with debt north of 10%. And to hear David talk about now what we've been able to achieve over the last four years, three to four years since we started production and what was costing us in debt to hear him say that $180 million at 3%, it's the music to my ear. So, I don't want to be going back to the what we had initially.
Lucas Pipes
No, very, very helpful. Good terrific job to you and the entire team. Really, impressive. Kind of turning to the industry for my second question. Outlook for the second half when it comes to demand and also on the ocean freight there has been some movement. Can you touch on how this may impact net backs? I would appreciate your thoughts as to what we should expect. Thank you very much.
David Cataford
Yes, thanks Lucas for the second question. When we look at the market now, the great thing for us is that wherever this goes the demand for the high-grade is only going to increase. So, this positions us very well in terms of premiums. If we look at the potential shipping, prices have increased slightly, still very comfortable when you look at the iron ore prices today. If you look at historical trends, we would have even assumed that shipping would be much higher than what it is today. And we’re able to lock in some pretty good premiums to make sure that the material from [indiscernible] can get to our clients.
And when we look at our longer-term strategy, well we want to be able to position ourselves to sell more into Europe and potentially the U.S. to make sure that we can reduce that shipping variable in the future and deliver tonnes closer to home.
So, all in all, right now we still feel pretty comfortable with current shipping environment. And we’re working on strategies to be able to reduce our exposure in the coming years.
Lucas Pipes
Very helpful. I appreciate that and continue. Best of luck.
David Cataford
Thanks Lucas.
Operator
Your next question comes from Dalton Baretto of Canaccord. Please go ahead.
David Cataford
Hi Dalton.
Michael Marcotte
You’ve got to un-mute.
Dalton Baretto
Hi, sorry. Can you hear me now?
David Cataford
Yes.
Michael Marcotte
Yes. [Indiscernible]
Dalton Baretto
First of all, congrats on a great quarter, and I apologize if I missed this. I joined the call a bit late. But what's the latest thinking on Kami now? What's the timing of the study? Can you give us a sense of what you guys are thinking in terms of integrating it into Bloom Lake? And what's the earliest you can start working on that?
David Cataford
Yes, thanks for the question Dalton. So, we have a team dedicated on being able to finalize the feasibility study that we're working on, on that project. As you can appreciate, we closed that transaction not too long ago. So, we just assembled the team, making sure that we have the right partners to be able to deliver this and make sure we have a Champion ready steady once this comes out. What do I mean by Champion ready? What we say in that study we can actually deliver. I think that's been one of our strengths.
Phase 1, we delivered on time, on budget. Phase 2, even if we delivered that feasibility study in 2019, today we're working on that project and well on track to deliver on time on budget. We want to make sure Kami is the same.
So, we'll be able to come back to the market probably mid next year with the results of that feasibility study, which will be perfect timing because Phase 2 will be I'll be delivered and then we'll be able to reevaluate where the market is, and what's the best timeframe to be able to bring Kami into production.
So probably next year we'll be able to come back to the market on this one.
Dalton Baretto
Okay, great. And then just maybe one bigger picture question from me. When I look at your holdings up in Quebec and Labrador, then I look at the land package outside Bloom Lake and Kami. And then I look at the fact that the Chinese are looking to places like West Africa in order to diversify away from Australia. Is that an opportunity for you guys?
David Cataford
Well, if somebody, people prefer to come invest in the best mining jurisdiction in the world with one of the lowest CO2 emission iron ore tonnes in the world, I think, there is some great opportunities because when you look at the size of our holdings, as you mentioned correctly it competes head-to-head with the whole Simandou story. So, for us, that's why it was so important to be able to secure the buyback of that royalty at this time, and being able to get the Lac Lamelee which was in the middle of that hub. But it's interesting to see that Quebec has been fantastic investing in infrastructure, which will potentially be needed in the project of that size. But we're definitely open to discuss with different groups, should they want to invest in these tenements.
Michael O'Keeffe
Yes, and look, add to that low political risk, which David alluded to and the infrastructure that's in place compared to Simandou, I mean, they are two big issues. I don't think the government in Africa will be providing any financial support to the project. It would be interesting to see where they get their power from. So yes, I can't see them using hydropower in Africa. So, you're just adding to the issues of the emissions that's coming out of that project compared to hydropower sitting here with existing infrastructure. So surely people must look at that and say you're dealing with someone, who has got an operating experience in the area. So, government support, low political risk and lots of infrastructure with plenty of hydro power. I mean, I don't think you can go past that.
Dalton Baretto
Yes, it all makes enormous strategic sense to me. So, does that mean – and I'm not sure if you can answer this, but does that mean you had conversations around this?
Michael O'Keeffe
People are always talking to us about how they can get secure additional capacity their reliance on Australia and also Brazil has been enormous, Brazil, as you know, have had massive problems with their tailings. They are called force majeure on a lot of occasions to various contracts, which people don't see. We see it because they are coming to us as replacement because they want that high-grade material. So that's Brazil. Given they've had a lot of issues with infrastructure and their health issues have been enormous, which everyone has read about.
Interesting thing about Australia is not only the relationship with China is so bad. But they're struggling with grade. And you look at Rio's results all they are talking about is how can we maintain grade? How can we maintain production? So, as we go forward again, the environmental issues coming from Australia with higher alumina, et cetera, et cetera, caused them problems.
So, Canada is not a bad place to be going, Quebec and the Labrador Trough. So, I'd say all roads would lead to there. But it's interesting what makes people tick sometimes while you're going to Africa? Is it a real threat? Is it what we know that they're spending a huge amount of money there because they're spending a couple of billion dollars to build a tunnel for a rail line? That was the total cost of their mine development almost.
So, I can see the logic and why you'd be where we are. That's why we are securing all of these tenements because as a company, we see that this is the future.
Dalton Baretto
That's great. Thanks for that color guys.
Operator
Your next question comes from Scott Taylor of Pembroke. Please go ahead.
Scott Taylor
Good morning. I wonder Michael, as a world traveler, could you talk about the basic outlook and supply demand for the next 12 to 18 months for the basic P62, leaving aside the question of the market desire for the premium product, which has been discussed already. But how do you see subject to all the many variables, the outlook for the basic P62 price looking out 12 to 18 months? Many thanks.
David Cataford
Thanks, Scott. Look, I'm bullish on all commodities and I have been for some time, and even in the days of December, 2015, when David and I received a phone call from the Monitor to say we were successful, bidders for iron ore, for Bloom Lake iron ore project, that day, the iron ore price at $38 a tonne. I mean, they make you stop and think and go, have we made the right decision. But even back then if you look at 2010, 2011, there was a huge consolidation through the mining industry where Rio, BHP and other companies were taking out all those mid-tier companies. They were paying big dollars for them. Even coal assets like Macarthur Coal, where Peabody bought billions of dollars, well, they ended up with their mouth so full, they couldn't digest what they had already bought.
So, by taking out these mid-tier companies, which were developing new opportunities that all stopped. But also, the big guy stopped because their boards were already building up the management and sacking management over these expenditures that they had. So, you had a period over the last decade where you just stymied, there was no development.
So, let's be specific, looking at copper and things now and even rarest every commodity tin, but let's look at iron ore. I was always bullish on iron ore because there was no new development coming on. China was still expanding. If you just had to look at the growth that they were talking about, even 6% or 7% in China, you were finding that was moving along quite significantly.
So, we got to a point where there was always going to be this shortage. Now it started appearing. The things that amplified that in iron ore was the fact that Vale with their dam collapse that really kicked off things. But it was always going to happen because I believed in the demand that was, that was coming now.
On top of that, let's have a look at the COVID. So, every government in the world is trying to find packages. So that all comes. First thing is infrastructure. Infrastructure is roads, bridges and that's steel. So that's again, amplified. We are seeing for the high-grade material, even for P62, let's talk about P62, which you ask up to $200 a tonne, it's dropped a bit below that now. But God, compare that to $38 a tonne when everyone thought it was going south of that.
So, I was in Australia recently on back here, but everywhere I go, it's the same story. I drove a car from North Queensland to Sydney. And what would normally take you a couple of days took a lot longer because everywhere I went there was roadworks, new bridges being built, bypasses, et cetera. So, you take that, you come here to where we are in Montreal. And even in the countryside, you can't get workers because everyone is – there's construction going on. The new towers being built here and it's all being stimulated.
So, once you get this roll on like this it, it lasts. And in the next two years, two to three years, I see very blunt iron ore prices. And I see it across all commodities because there's so much stimulus being put in there.
So, after that, then people start going for luxury goods. So, you go and buy yourself a few, Porche, Bugattis and things like that, because they're going to be worth a lot more as you go forward. And we're seeing that. Just look at diamonds, diamond prices are going up, people, looking at investing in those sorts of things, digital platforms are being established. So, the world is changing.
But simply it's a long way of answering your question about the P62. But when I talk about things, I like to elaborate on the basis of it's well and good saying I see it for two or three years, but you have to understand what's happening and what's making it happen, which we spend a lot of time on.
Scott Taylor
Thank you very much. Very interesting.
David Cataford
Thanks, Scott.
Operator
Your next question comes from Stefan Ioannou of Cormark. Please go ahead.
Stefan Ioannou
Thanks very much, guys. I just called you because I joined the call late. And if you touch on this, please, we can easily just catch up online afterwards. But just wondering during the quarter great to see the performance. Just wondering where things are standing with sort of the DR pellet feed and “super high-grade” production and sales. Is that still ongoing through Q2 and forward, or maybe just a brief update on that?
David Cataford
Yes, so, thanks for the question. So, if we look at the DR material, we've been getting quite a lot of demand, but as you know, we're pretty much sold out for this year. So, it's important for us to deliver to our current clients. We really wanted to position Bloom Lake to be able to transition towards 68%, once Phase 2 gets up and running. So right now, we're not selling any tonnes into the DR market. It's going to be able to be delivered much more in parallel with our Phase 2 project.
If we are able to produce more tonnes than the sort of eight million tonne per year run rate that we're at now, we'll definitely look at being able to supply that market because the premiums are very good at this moment. But right now, we unfortunately, don't have any tonnes left to be able to sell in that market.
Stefan Ioannou
Okay. Okay, got it. Thanks very much, guys.
David Cataford
Thank you,
Operator
[Operator Instructions] At this there are no further questions. I'll turn the call back over to Michael O'Keeffe. Please go ahead.
Michael O'Keeffe
Well, thank you for everyone taking the time to listen to us present these results and update you on where your company is. It's been amazing, we continue to set and beat targets which is fantastic. We're looking at growth. But importantly the team at site is led by Alex; finance, Natasha; and David, the overall team leader. For me is as the Chairman of the company, it's been a wonderful experience in the early days with shareholders that were with us from day one. Now every step that we've been through, so they can appreciate what we've achieved to get to where we are. And we're very conscious of building the company the way we have not forgetting where we came from and understanding that every dollar is important to us as our shareholders.
And we thank you very much for your support. And hopefully you would be rewarded a lot more than just the capital gains that you have. So, thanks to everyone.
David, if you'd like to finish?
David Cataford
No, thanks for the kind words. Thanks for everyone for being on the call. Looking forward to be able to discuss the next results in in October. Thanks everyone. Have a great day. Mercy?
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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