Building Shareholder Value from Iron Ore

Exploring Base Metal and Iron Properties in Western Labrador, Central Newfoundland and Northeastern Quebec: Featuring over 5.0 Bt of Iron Ore Resources in the Fermont Property Claim Blocks

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Message: Cannacord resuming coverage
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Cannacord resuming coverage

Event
We are resuming equity research coverage of Champion Iron Limited (CIA:TSX and CIA:ASX) with a HOLD rating and a 12-month target price of C$0.50, following the March 2014 acquisition of Champion Iron Mines (previously CHM:TSX) by Mamba Minerals (previously MAB:ASX), and the subsequent renaming of the merged company.

Valuation
Pending better visibility of eventual project development, our C$0.50 target price is based on a tonnes-in-the-ground valuation of the Fire Lake North in-pit optimized M&I resource of 691.3 million tonnes, grading 31.5% Fe, at a nominal US$0.50 per tonne of contained iron. Our risk-adjusted HOLD recommendation reflects our view that eventual development of Fire Lake North remains dependent upon strategic interest from a potential JV partner.

Next potential catalysts / Liquidity
The Quebec government has committed up to C$20 million towards the funding of a Feasibility Study to determine the optimal option for a new multi-user railway, and Champion has announced its intention to participate in the Study. The Port of Sept- les is in the final stages of the construction of a C$220 million multi-user wharf facility. Work has not yet commenced on landside facilities at the port, but given the recent Board changes at Cliffs Natural Resources, we see the potential for that company's current facilities to be integrated with the multi-user wharf.

Given CIA's current cash balance of C$7 million and our assumption of the receipt of C$8 million of exploration tax credits, we believe that there is sufficient liquidity to allow project development until mid-CY2015 without needing access to additional funding.
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