The All Ordinaries Index (ASX: XAO) ASX mining stock Champion Iron Ltd (ASX: CIA) is a significantly undervalued opportunity, according to the broker Macquarie.
For readers unfamiliar with this business, Champion Iron is an ASX iron ore share that operates the Bloom Lake mine in the Labrador trough region of Quebec, Canada. It's also advancing the Fire Lake North project in the same area. Bloom Lake produces a high-grade of iron ore concentrate.
After seeing Champion Iron's recent FY25 results, Macquarie is optimistic on the potential returns that it could produce for investors.
Macquarie's thoughts on the ASX All Ords mining stock's results
The broker said Champion Iron's FY25 revenue of C$1.6 billion was in line with what the market was expecting, and slightly beat Macquarie's forecast.
Macquarie noted that operating profit (EBITDA) for FY25 was C$471 million, which was also in line with market expectations. Net profit of C$142 million, down 37% year over year, was in line with Macquarie's estimate – iron ore prices and costs were weaker year over year.
The broker noted the dividend was stronger than expected. The ASX All Ords mining stock declared a final dividend of 10 Canadian cents, which was higher than Macquarie's expectations due to an increased dividend payout ratio and 11% higher than the market's expectations.
However, Macquarie also noted that free cash flow (operating cash flow minus investing cash flow) was negative C$312 million, C$50 million lower than what the market was expecting. Despite that, the business had net debt of C$590 million, which was in line with market expectations.
Buy rating on Champion Iron shares
After seeing Champion Iron's FY25 results, Macquarie decided to increase its earnings per share (EPS) for the ASX All Ords mining stock by 1 Canadian cent in FY26, FY27, and FY28 because of slightly lower costs.
Macquarie currently has an outperform rating on the ASX iron ore share and a price target of A$6.10. At the time of writing, that implies a possible rise of 42%.
The broker noted that movements in iron ore prices may vary with its forecasts. Macquarie is currently forecasting a 62% iron ore price of US$94 per tonne in FY26, US$83.8 per tonne in FY27, and US$78.8 per tonne in FY28.
Explaining why the broker is optimistic on the business, Macquarie explained:
The result was in line on a P&L level and net-debt level, with the flat dividend HoH a surprise for us as the 2H payout ratio was increased. The DRPF project, which is consuming cash during construction, is due to complete at the end of CY25 and will deliver higher premiums, in our view.
