God i hope your right this is so painful to watch it everyday going down.

Wamted to share this, i found on Champions Twitter feed about a week ago. Interesting read.

Champion Iron Mines attractive at 62 cents: Ticker Trax

By Danny Deadlock, TickerTrax, Ticker Trax

CHM is an attractive bottom fish in the iron ore sector

I. Junior Gold Valuation Tables & Virtual Vulture Fund (Cash-rich list)


If you have been having difficulty locating the tables I update each month, you are not alone. I had a communication breakdown with the fellows at Stockhouse as I thought we were still embedding them directly into the email. However last month they went hi-tech on me and decided to archive them in a secure section of the Stockhouse website. Makes perfect sense but I wasn’t aware of the change.

This is a much more efficient format and far easier to read. The link is shown above but going forward I will be sure to include the archive link at the bottom of all email updates. If you are a paid subscriber, it should automatically recognize you - or prompt you to enter your Stockhouse ID.

My apologies if you have been unable to locate these the past month.

II. Champion Iron Mines (TSX: T.CHM, Stock Forum; 62 cents)


CHM coverage initiated: October 29th at 62 cents

Shares outstanding: 119 million/Market cap: $74M

Estimated net cash: $15 million

From a penny stock perspective I really like situations like CHM. These are companies trading rock bottom on a chart that have very strong fundamentals but were financed at much higher prices over the past year or two by institutional investors. It is always nice to pick away at the bones of a company that someone else has already financed and in the process created a large asset base that is now grossly discounted. You do, however, need the patience to ride them out a couple quarters (on the hope the sector turns or they issue very positive news).

Today I am not going to waste your time rehashing what is already very well done on their website. You can find a full corporate presentation here:


Instead I am going to review why stabilization in the iron ore sector during 2013 should make companies like Champion attractive to institutional investors again. And if that occurs, we should see attractive gains from this low level.

Once you review Champion’s .pdf you will see a company sitting on a massive iron ore project in the Labrador Trough (Labrador and Quebec). Sometime in November or December they are expected to release a Feasibility study on their core project (they have a couple of them). If it is positive, I am hoping we see an initial bounce off this bottom. The rest will depend upon a recovery in the sector during 2013, a large financing, or (blue sky potential) a takeover by an international mining company.

The economics on Champion’s Fire Lake project are impressive but the capital costs are high (in excess of $1 billion). That is what hurts these small companies - most believe they will not be financed.

A preliminary economic assessment released in Nov/11 showed a 40-year mine with a $4 billion net present value, an IRR of 41.5% and a payback of 2.3 years. Iron ore prices have dropped considerably since Q4/11 but the project still boasts attractive economics.

One-year iron ore chart ($176/t Sept 11 to $110/t Oct 12)

Also supporting CHM near 60 cents is the fact that Champion has impressive analyst coverage from 14 Canadian brokerage firms. This number is highly abnormal for a penny stock.

Most brokerage targets for the past 18 months have missed their mark dramatically so you have to take them with a grain of salt. That being said, Raymond James in July set their 12-month target on CHM at $3.15. On positive news releases or industry developments, the larger analyst audience definitely helps.

Iron ore outlook

Thanks to China’s massive steel consumption, iron ore prices were enjoying record highs from Q1/10 to Q3/11. A correction from $170 per tonne began in September 2011, levelled off above $140 through winter 2011, and then continued to drop in March 2012.

Last week in London, BHP’s CEO said the following:

"We are now witnessing a rebalancing of demand and low-cost supply, and a progressive recalibration of prices towards more sustainable levels. Prices for commodities such as iron ore and coal are now expected to see "mean reversion" in the period ahead. The higher prices were driven by China's insatiable demand for commodities and, while this had slowed in recent months, it "is directly in line with what was expected and what the Chinese government had indicated would occur."

Industry analysts now believe we will continue to witness volatility but an average of $115 by 2014 and 2015 would seem to be a realistic expectation. The current spot price is near $110 per tonne.

In the November 2011, preliminary economic assessment, Champion (wisely) used the following sale price assumptions and cost estimates based upon project studies to date.

Capital cost: US$1,368 million (includes rail and port infrastructure)

Operating costs: US$44.63 per tonne (average years 1 to 5) / $52.68 avg over 25yrs

Sale price assumptions: US$115 per tonne of concentrate at 65% Fe

At the time, iron ore was trading near $140 per tonne so they did a very good job in their economic forecasting.

This month steel prices have increased 13 per cent, which reflects the increased construction occurring in China as part of their massive infrastructure (economic stimulus) program announced several months ago.

Iron ore was trading at $119 on Friday but analysts believe $120 is the magic number right now as steel mills are buying and stockpiling bases upon that price threshold – this helps them control and budget their margins.

"Iron-ore prices appeared to have troughed," says Leo Larkin, a New York-based equity metals analyst at S&P Capital IQ.

"I think there is a developing theme that we should start to see improvements heading into to 2013," says Brian Hicks, co-manager of the U.S. Global Investors Global Resources Fund (PSPFX). "The expectations are that we will see further [government] initiatives in China to help stimulate growth."