Champion Iron plans Bloom Lake mine restart program

2016-06-02 11:24 ET - News Release

Mr. Michael O'Keeffe reports

CHAMPION IRON EMERGES AS A SIGNIFICANT IRON ORE GROUP IN THE LABRADOR TROUGH, QUEBEC

Champion Iron Ltd. is positioning to be one of the lowest-capital-cost iron ore mines in the world. With planning under way at the recently acquired Bloom Lake mine in Quebec, Champion is optimistic that the mine's new owner, Quebec Iron Ore, a subsidiary entity of Champion, can identify and implement potentially significant cost reductions.

The key focus in all planning is to bring operational costs per ton down substantially, which would enable Champion to capitalize on its strategic goal to bring the mine back into production.

A new mine plan and improved recoveries

Since the successful acquisition of the Bloom Lake mine and associated assets with its joint venture partner, the Quebec government, Champion has been preparing a program to introduce potential improvements to mine and processing capacity at Bloom Lake.

The first stage in this preparation was to integrate approximately 40 employees at the Bloom Lake mine into the new company, QIO, and to commence discussions with engineering and technical contractors.

Central to the success of Bloom Lake will be the implementation of a new mine plan, as well as improved recoveries at the mine's expansive processing plant and infrastructure. Where previous operations historically produced a yearly maximum of six million tons of iron fines at 66 per cent iron, QIO will target material increases to take this to over seven million tons per year at a similar grade.

Champion chairman and chief executive officer Michael O'Keeffe said the Bloom Lake mine and associated assets were acquired on very favourable terms.

While the company intends to leverage the significant level of investment in Bloom Lake made by previous owners, the future potential of the Tier 1 project is dependent upon the current owner's strategic development plan of the overall project, including upgrades at the processing plant.

The asset has the potential to be a world-class project and could position Champion, with its other iron ore assets, including the Fire Lake North project, as an iron ore miner of regional, if not, global significance. With the appropriate upgrades, and with a continued improvement in the longer-term outlook for iron ore, Bloom Lake represents strong upside potential for shareholders.

In support of this strategy, and in addition to the acquisition of Bloom Lake and work at the mine, Champion is also advancing projects related to improving rail and port access. Discussions with government and industry are continuing and progressing well.

Corporate development lays the foundation for future growth

It has been an intense period for Champion Iron, with key corporate developments during the past six months including the following.

Dec. 11, 2015: The company announced that it had entered, through its subsidiary entity, QIO, into an asset purchase agreement in respect of the acquisition of the Bloom Lake mine in Quebec. Pursuant to the asset purchase agreement, the Bloom Lake assets and the Quinto claims were acquired for a cash consideration of $10.5-million and the assumption of certain liabilities. These involved responsibility for environmental obligations, which included environmental reclamation liabilities presently assessed at approximately $41.7-million by the government of Quebec, as well as the replacement of certain bonds securing certain obligations of Bloom Lake totalling approximately $1.1-million.

On Jan. 27, 2016, Champion reported that the transaction was approved by the Quebec Superior Court under the Companies' Creditors Arrangement Act (Canada).

On Feb. 19, 2016, Champion announced that Ressources Quebec, acting as a mandatary of the government of Quebec, intended to invest $14-million into the new entity, QIO, owning the mine and, in addition, would also participate in the financing by subscribing for $6-million in the share capital of Champion.

On April 11, 2016, the company announced that, including the investment of Ressources Quebec, it had closed a private placement financing for proceeds of $30-million, which was utilized to finance the acquisition purchase price, provide the company with working capital, and to assist in meeting care and upgrade costs in respect of the Bloom Lake mine. Subscribers to the offering included:

• Wynnchurch Strategic Opportunity LP invested $10-million. Wynnchurch Capital Ltd. is a leading middle-market private equity investment firm headquartered in the Chicago suburb of Rosemont, Ill., with offices in Toronto and Michigan, and affiliates in Montreal, New York and Los Angeles.
• Resource Capital Funds, a mining-focused private equity firm headquartered in Denver, Colo., invested $6-million.
• A company controlled by a non-arm's length party, namely Champion's chairman and CEO, Mr. O'Keeffe, invested $3.5-million.

Significantly, at a time when most investors were shying away from the market, Champion was successful in securing the support of these leading and specialist resources investor groups.

At 5 p.m. on the April 11, 2016, QIO took possession of the Bloom Lake mine on completion of the acquisition. Looking forward, the emphasis shifts from corporate to operational as the Champion board and management look to deliver operational improvements and efficiencies at the Bloom Lake mine.

An important part of Plan Nord

There is a high level of interest in the future of Bloom Lake, given the mine's important potential to add to economic growth for the Cote-Nord region of Quebec.

Mr. O'Keeffe said that Champion Iron is looking forward to being a key stakeholder and participating significantly to the implementation of the Quebec government's Plan Nord, including generating employment and positive economic impact across communities in the region.

"We have already initiated a dialogue with the local authorities and partners to share the company's vision and work plan for Bloom Lake, and we have explained that when QIO starts hiring, we will involve the local and first nations community, as well as the mine's former employees," Mr. O'Keeffe said.

The current operations at site rely on services and supplies from local entrepreneurs and businesses. As the company increases its activities at and around the mine, Champion is committed to maximize the economic flow-on for the local business communities in the regions in which the company operates.

Through the acquisition, QIO already has a strong link with nearby Fermont. This includes 30 homes and two 100-room motels that were purchased in Fermont to secure housing and accommodation for employees and contractors. This means that QIO has access to housing required for a restart of Bloom Lake.

We seek Safe Harbor.