Champion Iron Limited (CIAFF) Q2 2023 Earnings Call Transcript
Champion Iron Limited (OTCQX:CIAFF) Q2 2023 Earnings Conference Call October 27, 2022 8:30 AM ET
Company Participants
Michael Marcotte – Senior Vice President, Corporate Development and Capital Markets
David Cataford – Chief Executive Officer
Michael O’Keeffe – Executive Chairman
Alexandre Belleau – COO
Donald Tremblay – CFO
Conference Call Participants
Alexander Jackson – RBC Capital Markets
Gordon Lawson – Paradigm Capital
Craig Hutchison – TD Securities
Dalton Baretto – Canaccord Genuity
Stefan Ioannou – Cormark Securities
Lucas Pipes – B. Riley Securities
Jacques Wortman – Laurentian Bank
Operator
Good day, ladies and gentlemen, and welcome to the Champion Iron Limited Second Quarter Results of the Fiscal Year 2023 Conference Call. [Operator Instructions] This call is being recorded on Thursday, October 27, 2022.
I would now like to turn the conference over to Michael Marcotte, Senior Vice President, Corporate Development and Capital Markets. Please go ahead.
Michael Marcotte
Thank you, operator, and thank you, everybody, for joining us for the call today. I’d like to first turn you over to our website where you can find the presentation that we’ll be using today and also point out that we’ll be doing some forward-looking statements throughout the call. And for more information on forward-looking statements and risk and assumptions, you can also look at our MD&A, which is also available on our website.
And joining me today on the call includes David Cataford, our CEO; Michael O’Keeffe, our Executive Chairman; Alexandre Belleau, our COO; and Donald Tremblay, our CFO. I’ll also remind you that every currency that are being stated on the call are Canadian currency, unless otherwise stated. I’ll turn it over shortly to our CEO for the formal portion of the presentation. And at the end, we’ll leave it open to our Executive Chairman for closing remarks.
With that said, I’ll turn it over to David.
David Cataford
Hello, everyone. Thanks for being on the call. Very excited to be able to discuss our second quarter highlights for the fiscal year 2023.
I think the main highlight for the quarter is the concentrate produced. So that demonstrates that our Phase II is tracking as per our initial schedule. So we delivered the plant about 3 months ahead of our original schedule. Now the ramp-up is going according to plan. Also happy to highlight that our logistics systems are also following because we managed to sell about 2.8 million tonnes during the quarter and produced about 2.8 million tonnes during the quarter. So you can see that the whole system is ramping up at the same time.
Iron ore recovery, close to the 79%, we’ll be able to touch base on that. But I think the most important fact in terms of highlights is that every single tonne that was produced out of Phase II is over 66% iron ore. So we managed even with the volatility of a ramp-up and the startup of a plant to make sure that we continue to be a high-grade producer and exclusively a high-grade producer.
Our cash costs also reduced this quarter as our Phase II tonnes are being ramped up, roughly about $66 per tonne, which allowed us to have revenues of about $300 million and an EBITDA just shy of $85 million during the quarter. Also a big highlight, the fact that we’re continuing our capital return strategy and declared a third dividend of $0.10.
In terms of sustainability, again, another quarter without any major environmental issues. And what we’ve also been doing at the site is obviously training all of our employees. We have about 400 new employees at site with the Phase II. So we want to make sure that everybody is trained and ramped up on all of our safety procedures to make sure that we keep everybody safe and everybody operates the Champion way, in a safe way at site.
In terms of our community work, I think we can all be very proud that your company is one of the first to recognize the National Day for Truth and Reconciliation for the First Nations in Canada as a national holiday. So we didn’t do a typical holiday where you just have a day off. What we have done is we’ve done a day of different events at site and at the head office, different consultants from First Nations that come to be able to make sure that we have everybody trained and everybody understand the differences and the implications of working with our First Nations partners. This has made us not only a great partnership with our current First Nations group — but we’ve also been recognized through Canada with government and First Nation communities around Canada as a leader in terms of the relationship we have with First Nations.
If we turn to the market, well, you’ve probably seen that the past quarter has been volatile in terms of iron ore price. The P62 declined over 25% in the previous quarter. We also saw the sea freight reduced by over 20%. So helping — sea freight during the quarter. One interesting thing to note, though, I mean, if you read all the reports, there’s a lot of negative talk in the world.
But realistically when you look at the World Steel Association data, well, it’s the first time in about a year that we’ve seen positive results in steel consumption out of China. So August and September were 2 good months and up year-on-year. So we do see some potential light and some pickup in the industry in terms of steel. But as we’ll discuss in the coming slides, we’re really focusing on our niche market of DR-grade material and the high-grade material market, and we’ll be able to discuss that in our growth initiatives section.
In terms of the operations, well, I think the biggest highlight is the fact that we’re up about 50% in terms of production at site. This is due to the fact that our Phase II is ramping up according to schedule. And we do still feel comfortable to reach our production by the end of the year and early in 2023 calendar year, reach our nameplate capacity. So everything is in line with our Phase II project.
In terms of iron ore recovery, where you see we’re still a little bit lower than our target of 83%. This is to be expected during the ramp-up as we ramp up the tonnes and there’s less instability in the plants, we’ll be able to tweak that to our 83% and potentially higher as we have done with our Phase I. Essentially it’s the same flow sheet as in Phase I, and it’s been responding exactly the same way. We do have one addition in Phase II, where we’ve incorporated an extra equipment called reflux classifiers, which will allow us potentially to increase our recovery in the future.
One important highlight is really the fact that our product quality, a 100%, so really to the benefit of all of our clients. And this is, I think, the most important highlight in this ramp-up of Phase II, making sure that every single tonne that we produce is high grade, continuing to build our credibility in the high-grade market.
You’ve probably seen also that our strip ratio is a little bit lower during the quarter. This was not a hiccup. This is to be expected. It was part of our plan. So what we are doing at site; commissioning new trucks, commissioning new shovels, new drills, training new employees, we had forecasted to have a slightly lower strip ratio during this quarter as we’re ramping up the tonnes of Phase II, but we do expect that to trend back normally to our — strip ratio, the life of mine strip ratio for Bloom Lake Phase I and II.
In terms of financial highlights, well, even if it’s been a volatile quarter in terms of iron ore, we were able to be essentially flat in terms of EBITDA at roughly about $85 million. This is to the benefit of the extra tonnes produced with Phase II and which has allowed us to declare our third dividend of $0.10 per share.
If we look at the cost, as we mentioned in the highlights, even if there’s been a little bit of volatility in diesel, explosive pricing, a little bit of stripping elements, some maintenance and shutdown costs, realistically with the Phase II positive impact, we’ve managed to reduce the cost to about $66 per tonne.
So as we had mentioned in the last quarter, a portion of the increase in cost was associated to the fact that the Phase II was — well, essentially, we’re having the costs associated to the Phase II, the fixed costs associated to Phase II, but not benefiting from the extra tonnes. And as these tonnes come into production, while we could see that this is normalizing our cost and will continue to normalize in the coming quarters.
In terms of provisional price adjustment, so as you might remember, there was about 0.7 million tonnes of our material on the water at the end of last quarter, which we had booked at $138. The realized price once these tonnes got to our clients was $116, so which negatively impacted the quarter by about USD 5.3 per tonne. At the end of this quarter, we had about 1.3 million tonnes on the water, which has been booked at roughly about $112 per tonne.
If we look at the average selling price, again, a little bit of noise associated to the provisional pricing, but I think the most important portion is that we fully benefit from the P65 index and that when you average out these numbers through the year, well, you’ll see the full benefit of the P65 index or the high-grade index.
In terms of cash, well, in the quarter, we’ve increased our cash to about $277 million. There is a portion that we drew down on our revolving credit facility. This is mainly due to the fact that when you look at our current balance sheet, we have about $75 million that’s tied up in prepaid income taxes to the provincial and federal government. This is mainly due to the fact that typically here in Quebec, in Canada, you have to pay according to last year’s results. We’ve changed that now, but we have some money tied up within the government that we’ll recover next year. So just continuing to manage the company in a diligent way, drew a little bit on our revolving facility. But as you know, we can repay that at any time the structure that we have with our creditors.
In terms of our balance sheet, we’re essentially in a net 0 position between cash and net debt. And when you look at the performance in the past 6 months, this has been — or allowed us to declare our third semiannual dividend, which was declared at $0.10 and will be paid by the end of November.
In terms of growth projects, well, the first growth project, the most important at the moment is our Phase II. So I just wanted to present where we’re at in terms of cumulative production versus the schedule that we had. So not only did we deliver the project 3 months ahead of schedule. But on top of that, our current ramp-up is a little bit favorable to our initial plan. So very happy with the way that it’s going and very proud of the team to make sure that even in these challenging times, we’re able to ramp up according to plan.
In terms of production, well, I think in this chart, what we highlight is really the fact that we’ve been extremely stable over the past 4 years with our Phase I. And now as we’re ramping up Phase II, well, we expect to have that same stability in the future once we finish our ramp-up with the Phase II project.
If we look at the next growth initiatives, the most important one in our portfolio right now is really the potential DR pellet feed project. So we’re finalizing the feasibility study on this to allow us to produce a 69% DR grade material. So once this is finalized, we’ll be able to update the market and be able to work on the potential plan to build this new facility.
We’re also advancing the Kami project. Just to remind everyone, Kami is a potential 8 million tonnes per year of DR grade material. This material is in big demand. We’ve been getting quite a lot of discussions from potential clients that want to potentially get involved with this project. So great resources just a few kilometers away from Bloom Lake and the feasibility study is advancing according to plan.
In terms of our third growth initiative, the pellet plant in Pointe-Noire, so continuing our feasibility study with our partner. As you remember, we announced that we partnered up with one of the largest steel manufacturers in the world to be able to advance this project and working to be able to deliver that feasibility study next year.
Why do we want to get into the DR grade material? And how do we see this as beneficial for all of our shareholders? Well, one thing to note is how stable the DR pellet premium has been through these different cycles. Even when iron ore saw at sort of worst pricing since there’s been an index on the P62 and the P65, we saw the pellet premium for DR material being significantly higher than the other volatile elements.
If you look at today, in the current environment, there’s still USD 75 per tonne premium over the P65 for DR pellets in the market. We saw that just a few weeks ago, go to $100. So you could see that there’s significant premium for this type of material. And this is not even factoring the next few years where electric arc furnaces start getting ramped up because they are getting built right now and start getting ramped up and the demand for this type of material increases.
And from quarter-to-quarter, we always follow what’s potentially happening in the market in terms of DR and we haven’t seen any projects of scale being announced. So what we’re seeing right now is the Bloom Lake pellet feed project being one of the only projects to be able to satisfy that demand, but we see that demand increasing in the coming years. So if you factor in the stable and high premiums for this type of material and the fact that no new supply is being built right now, we see that as a very accretive project for all of our shareholders.
And if we turn to, again, why this is important in terms of production of the DR type material? Well, as we start getting more sophisticated in the decarbonization world, I mean, at first, decarbonization seem to mean electric cars, but realistically decarbonization is much more than that. And more and more even car manufacturers are looking at, well, how can they reduce CO2 emissions associated to the build of their cars. And each car roughly requires about a tonne of steel and 1 tonne of steel when you go towards the DR route instead of the typical blast furnace, well, you can reduce 1 tonne of CO2 emissions.
So the other way you look at it, the advantage of producing DR-grade material allows not only to decarbonize the steel industry, but what we’re going to start seeing now is more and more increased focus on the downstream of the steel and the actual manufacturers using the steel and how they can decarbonize their products. So you can see that this is a great impact on all of the various producers to be able to decarbonize their different products.
So we do feel that the big advantage for Champion is to transition towards the DR-type material. We’ve got the ore to be able to do it. We’ve got the plan and the people to be able to get there and continuing our path to become one of the greenest iron ores in the world.
And with that said, I’d like to thank all of the workers at site and turn it over to Michael O’Keeffe for closing remarks before we get to questions.
Michael O’Keeffe
Thank you, David. Well, Michael, you want to leave the questions to last? Or would you like me to close off now?
David Cataford
Maybe, operator, maybe we can turn it on to Q&A first in the queue, and we’ll have Michael do closing remarks after.
Michael Marcotte
Yes. Sorry, Michael.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Alexander Jackson of RBC Capital Markets.
Alexander Jackson
Just curious, with respect to the growth projects, when do we expect to see that tech report for the GRP plant? And once you guys kind of put that out, is the plan to also deliver the other technical reports and then evaluate what the plan going forward is? Or is it just sort of push forward maybe with that fee plan?
David Cataford
So realistically, the DR pellet feed plant is potentially a stand-alone project. So it can be done independently of the pellet project, the pellet plant project or the Kami project. And we see that as potentially very accretive. So as soon as we get the final results, this is something that we’ll be able to evaluate with the board and be able to come back to the market with the next steps on this project. But it does not require the other studies to be able to potentially go forward then.
Alexander Jackson
And then just one more if I could. With respect to those freight contracts, I’m curious just what the thinking was behind that. Is it really to help more with budgeting? Or is there potential to lock in a premium that you guys thought was favorable?
David Cataford
Yes, every time we see an opportunity for us to reduce our cost, so we’ll take it. We’re not in the business of hedging, but at the same time, if there’s areas where we feel we can get the best bang for buck, we’ll take it. And we saw that as a great opportunity to lock in a portion of our vessels at a discount premium. So this made sense for us and all of our shareholders.
Operator
The next question comes from Gordon Lawson of Paradigm Capital.
Gordon Lawson
Just a few soft follow-up questions here. You commented on cash costs, well below expectations. Is that mostly attributable to the lower strip ratio? Or did this quarter get another unexpected boost? And what are your expectations through ramping up the commercial production later this year?
David Cataford
So we don’t necessarily give guidance. But I think one important thing for the quarter is that most of the impact was associated to the increased tonnes of Phase II. So in the following quarters, as the strip ratio gets back to it’s called the 0.9, and we finished the ramp-up of Phase II, we’ll be able to normalize our cost. But we’ve been able now in this quarter to reduce costs, mainly due to the fact that we’ve got more tonnes associated to Phase II.
Gordon Lawson
And another one for you. Can you expand on the buyer interest you’re seeing for the higher-grade products like the DR or the pellets? And if that opens the door to possibly expand 1 or 2 of those facilities up to 100% of your sales?
David Cataford
Yes. Thanks for the question, Gordon. So if we look at the current market, what we’re seeing is that, one, there’s no new projects being sanctioned. 2, there’s sort of more and more discussions about is there going to be some scrap bans for export with different countries. As we see the ramp-up towards electric arc furnaces, well, people are going to need scrap. And now there’s been countries that export most of their scrap that won’t be able to do that in the future. If you take just Japan as an example, Japan exports most of their scrap, but now all 3 of the largest steel mills of Japan are committed to build electric arc furnaces by 2030. They’re going to need scrap.
So the business models of the steel manufacturing countries that imported scrap to be able to produce their steel, well, they’re going to have to change their model. So if at North Africa and the Middle East, you can already see some steel manufacturing capability being idled today because they don’t have access to scrap. So they’re looking at solutions to be able to get metallics and one of the clear solutions is DR grade material. So we’re seeing demand from many different areas in the world. I know it’s a volatile time right now and that there’s a little bit of a short-term blip in terms of the iron ore price. But realistically, when you look medium term and long-term, people need that transition because they’re fully committed already to building these electric arc furnaces. So we’re seeing demand come from many different places from the U.S., Middle East, Europe and Japan.
And to your second portion of the question, is it possible that we could go 100% towards DR grade, it is a possibility. We’ll start by potentially building the first one, but we do have the ore in the ground and the capability to go 100% DR feet in the future.
Operator
The next question comes from Craig Hutchison of TD Securities.
Craig Hutchison
Just a follow-up question on the DR feed. I know the study was pushed back a little bit until later this year. Can we assume you guys are fairly advanced now on the detailed engineering? And if so, when you guys — if you sanction the project, can you just give us a rough estimate in terms of how long it would take to build the project? And are there any sort of long lead items you guys need to order now and just to kind of hit some of those time frames?
David Cataford
So I’d say that our engineering is detailed, but we’re not advanced and detailed engineering in terms of the official sort of terms. So when we look at the way that we’re building this study, it’s important for us to come with the right CapEx number and make sure that when we take our decision, well, our decision is taken with real numbers and not a deflated number that will then have to increase by 50%, 60% when we do the actual construction. So that’s the first point.
When we look at potential detailed engineering, that’s going to follow the engineering study, and we’ll be able to evaluate all the long lead items, and they’re fairly easy to hit. It’s the — some of the electrical work, the mill are pretty much the most are the long lead items. And as soon as we have that feasibility study finalized and we have discussions with the Board, if we do decide to go ahead, those are the first elements that we’ll be able to order, and we’re already in discussion with the different manufacturers to be able to understand the lead times in the current market right now. So I feel very comfortable to be able to hit the time line that we’ll present once we have that — those results in.
Craig Hutchison
And so the rough time line to build it once you get the go ahead?
David Cataford
Ahead, it will be between two years and about 30 months, depending of the — of when we actually take the decision to do it if we’ve already ordered some long lead items in.
Craig Hutchison
Okay. Perfect. And then just in terms of the off-site infrastructure, are there any limiting factors now to kind of get up to nameplate capacity in terms of the pork or rail?
David Cataford
In terms of port or rail, I think the main factor at the port is finishing the build of the stacker reclaimer, all of the parts from the state stacker reclaimer are at site and currently being assembled. So we don’t see any potential hiccups on that. The bill that the port has been extremely well even in these challenging times. So the teams at SFPPN did a fantastic job and very happy with the way that this is advancing. And if you look at today, while we’re able to sell as many tonnes as we produce, and we don’t see any necessary any hiccups in the coming months as we finish our ramp up to be able to get those tonnes to market.
Operator
The next question comes from Dalton Baretto of Canaccord Genuity.
Dalton Baretto
David, my first question is kind of tied in to what Gord was asking you. You make such a compelling argument for the DR product. But what’s stopping you from just doing the entire Bloom Lake Phase I and Phase II production right now?
David Cataford
Well, one, we do have certain contracts for the blast furnace pellets. So as we transition the blast furnace type material. So as we transition towards this DR-grade material and our clients do as well, we need to be able to adapt to that, but we do need to service our various contracts. As we derisk this project, have the results, first step for us is to go to 8 million tonnes and then depending where the market is to be able to go to the full 16. But I think it makes sense to stage that and not necessarily go 100% right now towards this to: One, keep the contracts that we have in place and the good relationship with our clients to make sure that we’re there to help them transition towards that DR-grade-type material.
Dalton Baretto
So then when you were designing the current operator, let’s say, how scalable are you making? I mean, are you over-sizing certain infrastructure on the assumption that you’re going to eventually convert the next 8 million tonnes as well?
David Cataford
Yes. So the way that this project is being built, it’s really a stand-alone 8 million tonne per year sort of box that could be potentially doubled. But there’s not a lot of advantages in being able to over-scale it because if you do that, you’ll be installing a larger mill than what you need, which is typically your bottleneck. And that’s pretty big CapEx numbers and for an inefficient sort of transition because let’s say we would do at 10 million tonnes and then want to upgrade the full 15, well, then you’d have to build a smaller plant beside it with different equipment, and I don’t think that’s the best way to operate. We prefer to have the same equipment to make sure that our maintenance costs are lower, that our inventory is lower, and it sort of makes sense for us to do a one box at 8 and then the next one being a sort of replica that one.
Dalton Baretto
And then in the past, you had alluded to a CapEx number of approximately $300 million. Is that kind of still the ballpark number?
David Cataford
Still the ballpark number. You’ve probably seen in the market, there’s been a bit of inflation. So that’s why we’re taking a little bit more time to finish this feasibility study to make sure that we fully factor the current market in that feasibility study, so that we’re looking at the right number and taking the decision around that right number. So that’s explaining a little bit of a delay what you’ve seen right now, but the teams are almost finalized with that project to be able to come with the final number.
Dalton Baretto
And then just kind of putting aside the DR product upgrade for now. When you think about your base operations and expansion there, how are you thinking about Kami versus kind of a Phase III expansion of Bloom Lake?
David Cataford
Yes. It’s a Phase III. I mean we’ve hinted to it, but we still haven’t discussed it too much. The reason is that the first thing that we need to do with Bloom Lake is to update our resources. So if you remember at the time of Cliff, well, there was roughly about double the resources at Bloom Lake than what we have in our current plan because we designed a very low iron ore price for our resources. We’re updating that right now. Once we’ve updated the resources, we’ll be able to start working on the plan to get a potential Phase III out of Bloom Lake.
So in terms of step, we’ll update the resources. If we’re able to prove that it makes sense to get a Phase III, we’ll start working on it. But if we started working on a Phase III right now with the current mine plan, we’d only have about a 12-year period, life of mine, which doesn’t make a lot of sense. So we need to make sure that we update those resources to have a full plan associated with the potential Phase III.
Dalton Baretto
And then a final question. I mean, what’s the timing of that in terms of the updated resource?
David Cataford
Well, we’re doing the update right now. So we should be able to come to market fairly quickly in terms of the updated resources. Maybe just a little bit of color on that, Dalton. We typically update that at the end of our fiscal year.
Operator
The next question comes from Stefan Ioannou of Cormark Securities.
Stefan Ioannou
Maybe sort of in a way following up on Dalton’s question. Obviously, great to see the Phase II and obviously, a lot on your plate with the various DR initiatives going on. Just like looking even further out, whether it’s the Phase III or you can call it a Phase IV. Is there any work being done right now on the greater regional exploration package? Or is that kind of just sort of on the back burner for now while you deal with all the DR upside?
David Cataford
Yes. Our back burners at Champion are pretty close to us. So we don’t — we’re working on that as well. We see that as potential resources for the future. For us, the work that is being done now is mostly just to consolidate all of the resources that we have in that sector and do some more definition drilling. But realistically, the main focus for us right now is really the DR pellet feed to understand that properly and then to understand properly the Phase III versus the Kami project. So the next portion is for obviously further into the future. But the size of what we have in the ground is comparable to the ore that you have in cement do. So in what we believe to be a much better jurisdiction. So there is some great potential with that, but that’s a few years down the line, Stefan.
Stefan Ioannou
And just — I mean, just I guess on the Phase III, is it sort of a competing thing then between a Bloom Lake Phase III versus bringing Kami over to Bloom Lake? Or is there a potential to do them at the same time? Or how do you sort of view that?
David Cataford
Yes. When we look at CapEx projects, typically everything is competing. So I mean even the pellet plant versus Kami versus a Phase III, I think that the next project that we have in line a whole lot of sense if we get the right numbers and we get board approval as the pellet feed their project. But when we look at the other projects, they’ll all be competing. Our goal is to create more value for our shareholders. And I think we’re 100% aligned because management directors own over 11% of the business. So we want to make sure that every CapEx project is competing with each other.
Operator
Next question comes from Lucas Pipes of B. Riley Securities.
Lucas Pipes
So just a quick one for me also on the growth side and maybe a touch higher level. World seems a bit more uncertain today than a year ago, for example. How does that factor into your appetite for growth? Is it a good time because you maybe expect some of these inflationary pressures to subside and you can gain market share. You mentioned a lot of your peers are not growing on the DR side, for example. How do you balance growth versus a more uncertain macro outlook?
David Cataford
Yes. Thanks for the question. I think the one important thing to note is that we’re still seeing these electric arc furnaces continuing to get built. So the demand side, we feel is going to increase. We see any other projects and these sort of numbers today, when you look at what has to be done with most of the ore in the world to potentially get to DR is extremely expensive. And not a lot of places or jurisdictions around the world benefit from the kind of iron ore that we have at Bloom Lake and then later a trough. So we see that as a clear advantage.
Now when we take our investment decisions, while they need to make sense. So obviously, it’s a volatile market right now. We do see the DR pellet material trading in orders of magnitude of about USD 25 to USD 30 per tonne today, which makes it extremely accretive for us to look at projects in that sort of — in those sorts of numbers. But it’s something that we’re going to monitor over the next months and when we do potentially take our decision while we need to make sure that it’s accretive. So we’ll follow the market where it’s going, but I do think that because there’s no new projects and there’s increasing demand that’s going to come that there’s a great potential for the DR market.
Operator
[Operator Instructions] Next question comes from Jacques Wortman of Laurentian Bank.
Jacques Wortman
Great quarter. Could you just go over again, the new freight agreements that were signed for 2023? I think I may have missed a few details there and what that might mean on the premium you’re going to pay to C3 overall? And secondly, just a quick point of clarification. The DR feed product feasibility study does not contemplate the production of pellets. Those premiums that you’re illustrating on Slide 19, I think, come later with the second feasibility study. Just want to make sure I’m crystal clear on that?
David Cataford
Yes. Thanks for the question. So when you look at the DR pellets, there is an index to be able to follow that number. So we’re able to see that. When we look at the DR pellet feed, that’s more of a case-by-case basis. So we monitor the different sales around the world, have great discussions with traders, and we can follow these kinds of prices because the DR pellet feed gets a portion of the premium of the DR pellet. So this is something that we’re monitoring fairly closely, but there’s no official index for DR pellet feed. So when we allude to that $25 to $30 per tonne premium for the DR pellet feed, well, that’s the intel that we’re getting from the market.
In terms of the freight agreements, now, while we didn’t disclose the actual price. But essentially when you look at what we had historically, we typically have the C3 index plus 25% markup because of the longer distance from Sept-Iles and this is for our worst sort of route being to China. So we do benefit from better pricing arrangements when we sell closer to home. But when we’re able to secure some premiums low 25%, that’s when we potentially secure vessels for the coming quarters or coming years. So we were able now to secure a much better price than that 25% premium. So that’s why we’ve done this for some vessels for next year.
End of Q&A
Operator
There are no further questions at this time. Please continue with closing remarks.
Michael Marcotte
I’ll turn it over to Michael O’Keeffe now at this point for closing remarks, please.
Michael O’Keeffe
Thank you, Michael, and thank you, David, for that thorough update for the quarter. It’s nice to be able to sit back and listen to those presentations and also the questions that come in because it helps meet personally understand where we’ve come from and where we’re going to. And when you reflect and somebody said to me where we’d like to be, I really like to be in 2 years’ time when we’re bringing on a product, we’ll have 8 million tonnes of blast furnace feed and 8 million tonnes of pellet now. We’ve been able to meet all of these goals as we’ve gone along.
And I remember in 2018, we were hoping for an iron ore price around about $80 to $85 a tonne to justify what we’re actually doing, which is starting this whole plant after some expanded use amount of capital. So for us, it was low-hanging fruit to be able to get the things started with the team in 2018. We brought it on time and on budget, and that’s the same thing that we have today and Phase II, you’re seeing what’s happening there.
So we’ve also been very fortunate in timing because the prices have suited us, and it did — we all remember back what happened in Brazil when the dam collapse that set the iron ore price up, but also, I think it demonstrates the fragile supply-demand position of the world. And today, I don’t think that’s changed that much at all. What we’re not seeing, as David said, as the new projects being mandated to come on and that the capital cost today with the iron ore price back to around about the $90 a tonne for the 62 and round about 100 hours. But it really says to you that I think that the world is going to be side base for a little bit of time, but we’ve been able to come through this period over the last 3 or 4 years and take advantage of the high price to develop Phase II and be in the cash position we are today with not huge borrowings and a great net cash position to be able to pay dividends today. And I think a lot of people didn’t expect that.
And for me, that’s total faith in the team that we put together to be able to do that. And it’s amazing. So if we now take that window looking forward, as I said, I’d like to be working 2 years’ time. I do see, as David indicated, some very strong demand for our material, which will be our pellet feed in the Middle East and in America, I think Americas is really going to find some strong growth over the next couple of years and demand for steel. So for us, if we look back at, say, 8 million tonnes, we currently put 50% of our tonnes to China, I’m not going to say China is going to go away, but 50% of our tonnes, 8 million tonnes a year goes in that direction, which is the highest freight for us, obviously.
So if we can redirect that tonnage in a different feed into the Middle East and into other areas that we’re looking at and also North America, it’s a huge saving, obviously, and it comes staff our bottom line. So it’s something that it’s very, very doable, and I see that the strength in that materials in the — our real future.
Why wouldn’t we do 100%, I think it’s the cost of capital and 100% risk in doing something like that is not in our nature. So I think that the step phase is better for us. I heard the stories about Phase III. We’ll go through that process. But remember, at the moment, all of the capital that we spend is on top of the capital that was already there. So the next decision for us has to be very careful if we’re going to spend a huge amount of money on making raw materials. But I don’t think that personally tomorrow, that’s the thing to be doing. Tomorrow is to be meeting this market where I see us going forward.
And we look back and say, where are these tonnes going to come from now or several pen tonnes in Australia, there’s 30 tonnes out of the world, but they’re all tonnes that are going to be directed or currently directed at blast services, which is a material delivers disappearing. So — what we see in the future is, no matter what you do with those tonnes in the Pilbara, you can’t upgrade them to a level that is required for Electric Arc Furnaces. What we put in there is what comes out. So it would be that contained in those ores don’t go away.
So there’s only realistically three places in the world where there’s feeds coming from. That’s Brazil. Then they have limitations on their grinding capacity because of the prime material go into tailings. So they can’t get to a 69% Fe, which we will upgrade to. And we are blessed in the laboratory traffic, having a mineralogy such that we can actually upgrade to that level and remove all the digest rotation plan, the process ahead of head of the pellet plant.
So for us — and then the third one is obviously Ukraine and that’s we can’t be buying tonnes down there today. So it really leaves us as the leading jurisdiction in the world to be able to meet this demand. And the other big question for the world is where is power coming for these electric arc furnaces and electric cars. I think people are going to be paid — how do they pay for the power for their electric cars, is certainly so extreme.
But anyway the world is changing and we want to adapt with it, which we’re — I think in this call, we want to give you the confidence that we’re well on top of where we believe the market is going, and that we’ll be able to meet that demand. And again, thank you, everyone, for your support and I’ll close off on that night. Good evening, good morning.
Operator
Thank you. Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.