Champion Iron Ltd. (CIA.AX): 2Q FY27 result: stress testing the balance sheet for different Fe market & freight scenarios

CIA reported a weak 2Q FY27 with headline EBITDA of just ~C$4mn despite record iron ore sales of 3.9Mt from the Bloom Lake mine in Canada. Financial performance was impacted by the sharp fall in the realised iron ore price, lower than expected premiums for both Bloom Lake and the recently acquired Rana Gruber in Norway, and ongoing elevated freight costs (~US$40/t from Canada, +11% QoQ). At the same time sustaining capex remained elevated, and CIA was slightly negative FCF despite ongoing iron ore inventory drawdown. Net debt increased slightly to ~C$1.1bn (leverage of over 3.5x). The balance sheet and the ramp-up of high grade production at Bloom Lake remains the key focus over the near term. CIA has received short term extensions on key debt covenants. We have stress tested the balance sheet, and have relooked at our value in use (VIU) estimates for CIA's high grade product. We forecast broadly neutral FCF over the next twelve months including working capital unwind, and assuming a p