Champion Iron Limited announced that Québec Iron Ore Inc., a wholly-owned subsidiary of the Company, has entered into an Asset Purchase Agreement to acquire, subject to Court approval, the Bloom Lake Mine and related rail assets and the Quinto Mining Corporation mineral claims in Québec from affiliates of Cliffs Natural Resources Inc. Champion, through Québec Iron Ore Inc., bid for Bloom Lake under the sale and investor solicitation procedures in June of 2015 as part of the CCAA restructuring proceedings of the Bloom Lake CCAA Parties commenced in January 2015. Champion’s bid was chosen as the preferred bid by the Bloom Lake CCAA Parties, in consultation with Moelis and the Monitor, and was formalized with the signing of the Asset Purchase Agreement.
The Bloom Lake assets and the Quinto Claims are being acquired for a cash consideration of C$10.5 million and the assumption of certain liabilities, and is subject to the granting of an “Approval and Vesting Order” by the Québec Superior Court as part of the CCAA proceedings, providing that the Bloom Lake assets and the Quinto Claims will be acquired free and clear of any security interests and any other encumbrances (subject to certain limited permitted encumbrances). If approved by the Court, the Acquisition is expected to be completed during the first quarter of 2016.
Champion Chairman and CEO Michael O’Keeffe said, “Bloom Lake is considered an exceptional opportunity for Champion, and one that would not have presented itself without the challenges of the current downturn in bulk commodities. The tough market conditions have meant that we have been able to negotiate a competitive and successful bid. This in turn allows us to deliver the prospect of economic growth and employment for the region, and strong upside potential for our shareholders and other stakeholders”. Mr. O’Keeffe said the assets have been well maintained since the project’s cessation of exploitation.
The Company is concurrently announcing a private placement financing of ordinary shares to raise up to C$25 million in order to fund the purchase price and to provide working capital. In connection with the Offering, the Company is also pleased to announce that is has received commitments from two parties to backstop up to C$15 million of the financing.
Champion believes there is capacity to reduce the care and maintenance costs at the Bloom Lake Mine which would reduce the overall required capital. Discussions with leading commodities traders have also confirmed off-take interest with the backing of steel mills, to the extent that Champion has confidence that future Bloom Lake production could be pre-sold. Additionally, discussions with strategic partners, funds, government agencies and private investors are at an advanced stage for the Company to obtain additional financing in order to secure up to 24 months of care and maintenance should low iron ore prices prevail during this period.
Champion has identified potential to improve mine capacity at Bloom Lake. Previous operations historically produced a yearly maximum of 6 million tonnes of iron fines at 66 per cent Fe. Champion will be looking to increase this to over 7 million tonnes per year at a similar grade, chiefly through the implementation of a new mine plan as well as improved recoveries. Champion also considers that significant cost reductions are possible at the Bloom Lake Mine, with the potential to bring operational FOB costs per ton down substantially from previous levels.
Even with an extended care and maintenance and planned upgrade period, Champion believes that Bloom Lake could potentially become one of the lowest capital cost iron ore mines in the world. As a contingency, the plant is considered to be in a perfect situation to hibernate in a possible negative market environment given the amount of work the previous owner has already committed to preparing the site for closure.
The main focus of Champion’s activities, holding over 3 billion tons of high quality iron ore resources, were concentrated on the effort to achieve an economical long term access from mine to ship. The Government of Québec has granted $20 million for the feasibility study of a new rail linking Fire Lake / Bloom Lake area to the port of Sept-Îles. This study is being managed by Champion, and is expected to be finalized in 2016.
The Bloom Lake mine is located north of Sept-Îles, on the border of Quebec and Labrador. In 2011, U.S. miner Cliffs Natural Resources Inc. acquired the mine for a staggering $4.9 billion in cash as part of its acquisition of Consolidated Thompson Iron Mines Ltd., which had started to mine the deposit in 2009.The acquisition took place at the peak of the commodities Supercycle, with high prices fueled by strong demand by steel mills in China. However, Cliffs faced major operating challenges and incurred losses quarter after quarter until it finally halted production at the end of 2014. Cliffs then put the mine into creditor protection to insulate itself from future closure costs. The mine had cash costs of US$91.54 a tonne in 2014, while current iron ore prices are below US$40. The price of iron ore has plunged because of soaring production from Australia and Brazil, which has created oversupplies, coupled with market demand from Chinese mills that has slowed down.