Iron Ore

Fenix Resources returns to profitability thanks to higher iron ore prices

Tue 12 Apr 22, 12:36pm (AEST)
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Key Points

  • Fenix generated $33m in net operating cashflow for the March quarter
  • Cashflows turned negative in the December quarter after a crash in iron ore prices
  • The Iron Ridge Project has a steady state production profile of 1.25m tonnes per annum

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 price chart
Fenix Resources 12-month price chart


Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

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