Iron Ore

From cash cow to cash drought, Fenix Resources sees better days ahead

Fri 21 Jan 22, 5:30pm (AEST)
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Key Points

  • Fenix Resources operated at a loss in the December quarter
  • No interim dividend declared. Final dividend decision will be made in September
  • The company expects to return to cashflow positive as iron ore prices stabilise

Free falling iron ore prices from last year has taken its toll on Fenix Resources (ASX: FEX), reporting -$11m in operating cashflows in the December quarter. 

Just three months prior, in the September quarter, Fenix reeled in $25m.

Fenix shares are down -25% at noon.

It doesn't help that the broader market is selling off heavily, with the ASX 200 down -2.4% and the S&P/ASX Materials Sector down -3.5%.

The iron ore junior said that the average price received was $77 per dry metric tonne (dmt) free-on-board (FOB). Prices were adversely impacted by quotation period price adjustments from the September quarter, which dragged prices by $19/dmt.

Fenix was operating at a loss as FOB cash costs were $94.09 per wet metric tonne (wmt) for the quarter. 

Note: to adjust from wet to dry tonnes, an -8% reduction is applied to the wet tonnes to adjust for moisture content. 

At its peaks, Fenix was receiving US$185.2/dmt for its iron ore.

Is today's announcement deserving of a pullback for Fenix?

Probably.

But of a -25% magnitude appears to be a sheer overreaction, spurred on by the broader market panic.

Iron ore prices have bounced off strongly from November lows of US$85/t, now trading at 4-month highs of US$133. A clear divergence is now taking place between Fenix shares and iron ore prices.

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Fenix share price vs. Iron ore futures (% change), TradingView

 

Better days ahead 

Pricing aside, Fenix shipped a record 357,000/t of high-quality iron ore for the quarter. 

“We generated an outstanding production performance which unfortunately was accompanied by lower iron ore prices and higher ocean freight costs. Pricing adjustments from the September 2021 quarter also impacted cashflows,” said Managing Director Rob Brierley. 

 “The current quarter has started positively with higher iron ore prices and lower freight rates, and the high likelihood that pricing adjustments will result in cash inflows.” 

Goodbye dividends 

In September 2021 , Fenix declared a fully franked dividend of 5.25 cents per share after achieving $49m in profits for FY21.

The company’s stock was trading at 29.5 cents before the ex-dividend date, meaning an outsized 17.8% dividend yield was up for grabs. 

Today's quarterly raises questions as to whether Fenix will return to profitability, or carry on as a shell of its former self. 

Fenix said it is not considering declaring an interim dividend and a decision for a full year dividend will be made in September. 

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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