Fenix Resources returns to profitability thanks to higher iron ore prices

Fenix Resources (ASX: FEX) returned to profitability in the March quarter thanks to a recovery in iron ore prices.

Fenix delivered five shipments totalling approximately 295,000 wet metric tonnes (wmt) of iron ore at an average price of US$132.83 per dry metric tonne (dmt) - generating positive operating cashflows of $31m.

Note: iron ore production is typically quoted in terms of wet metric tonnes and prices are based on dry metric tonnes. To adjust from wet to dry tonnes, an 8% reduction is applied to wet tonnes, according to Fortescue.

Earnings for Fenix nosedived in the December quarter, with average iron ore prices coming in at just US$55.96 dmt, adversely impacted by quotation price adjustments. Net operating cashflow was -$11.1m for the quarter.

“A strong recovery in the iron ore price and a decrease in shipping costs has seen us generate some $31m of cash for the quarter underpinned by a solid production performance,” commented Managing Director Rob Brierley. 

What’s interesting about Fenix Resources

Fenix Resources has a market cap of just $150m. Its quite rare to see small caps hit producer status.

For the past 12-months, cash costs for iron ore production has been around US$80-90 wmt. The high cost of production leaves the company vulnereable to any adverse commodity price movements.

When things are going good for iron ore, Fenix can be a money-making machine (relative to its market cap). This was shown in FY21 when the company achieved a net profit after tax of $49m and paid out a maiden dividend of 5.25c.

On the flip side, iron ore prices briefly hit US$80 last November, putting the company at risk of being loss-making.

Fenix has managed to hedge 50,000t a month of iron ore at a fixed price of A$230.3 dmt for the next 12-months (from October 2021). Its hedge book can, to some extent, alleviate weakness in iron ore prices.

Finally, Fenix has a massive cash position of $85.6m. Meaning its enterprise value (EV) is realistically $150m minus $85m, or $65m.

Fenix Resources 12-month price chart