Champion Iron Mines terminates port contract
MONTREAL - Champion Iron Mines shares plummeted Tuesday after the junior iron ore developer said it was terminating a 2012 agreement to support new multi-user port facilities being built in Sept-Iles, Que., saving the company a $20 million payment.
Shares in the company hit a 52-week low and were down more than 11 per cent to 20 cents in midday trading on the Toronto Stock Exchange.
The stock fell after Champion announced that it had served notice of termination on June 28, a few days before its remaining payment was due. The company had already contributed about $6 million towards a $25.6-million commitment to the Pointe Noire facility that had been due by July 1.
The move follows Canadian National Railway's (TSX:CNR) decision to suspend a feasibility study on a new rail line in the Labrador Trough because of difficult market conditions.
Champion (TSX:CHM) said it was in the company's best interest to terminate the contract because the railway project "had not reached a critical point in terms of both public and private support."
Its initial participation would have reserved 10 million tonnes of annual loading capacity at the port for an initial term of 20 years.
Chief executive Tom Larsen said the past year has been very challenging for iron ore developers, culminating in CN's decision to suspend its study of a new rail line.
"We remain committed to developing Champion's flagship Consolidated Fire Lake North project and securing transportation and port handling services that will permit the company to place among the lowest cost iron producers in the Labrador Trough," he said.
The company said it was taking a step back to reassess "strategic options and protect the company's financial position."
Champion's cash position was only $7 million as of Dec. 31.
Jackie Przybylowski of Desjardins Capital Markets said Champion's decision to terminate the port agreement was due to a lack of funds.
"This announcement provides further evidence that junior miners are facing financing shortfalls," she wrote in a research note.
The port facility is expected to be completed by the first quarter of 2014, a few years ahead of the expected production start of Champion's Fire Lake North project.
Champion's share of the first phase of the port construction project represented a significant percentage of the $220 million budgeted cost.
Przybylowski said she expects the shortfall will be made up by the federal government, additional financing by the port authority and/or cost savings from construction.
Users won't be able to use the facilities for several years because dock construction does not include materials handling facilities or a tie-in from the rail to the dock.
She said Alderon Iron Ore Corp. (TSX:ADV) is the only company known to be developing a terminal at Pointe Noire by the end of 2015, corresponding to the startup of its Kami project in late 2016.
The analyst downgraded her rating of Champion to hold from buy and reduced the target price by 18 per cent to 45 cents per share due to increased uncertainty about the company's ability to finance the development of the Fire Lake North project.
Champion holds a 100 per cent interest in the Fermont Iron Holdings and a 44 per cent interest in the Attikamagen Iron Project located in both Quebec and Labrador. Fermont includes the Fire Lake North project, north of Arcelor Mittal's Fire Lake Mine.