Fenix Resources Ltd (ASX:FEX) produced a strong September quarter result despite turbulence in iron ore pricing, generating A$25 million in net operating cashflow or 19.7 cents a share net cash backing and paying a maiden fully-franked dividend.
Given the company’s healthy balance sheet, the Board of Directors announced a dividend policy of distributing between 50% and 80% of after-tax profits as fully franked dividends, subject to the availability of franking credits.
Accordingly, Fenix declared a fully franked 5.25 cents per share after announcing a A$49 million after-tax profit for FY21 and paid the dividends out on October 5.
Read: Fenix Resources makes strong progress on Iron Ridge Project with maiden dividend for FY21
Investors appear to have recognised Fenix’s performance under market pressure, with shares up as much as 12.8% to A$0.265 per share intraday.
Six iron ore shipments
Six shipments of iron ore from the Iron Ridge Project in WA sold during the September quarter, consisting of 197,848 wet metric tonnes (wmt) of lump and 143,422 wmt of fines.
The average price received was US$129.23 (A$176) per dry metric tonne (dmt) FOB, which is equivalent to US$163.61 per dmt CFR (cost and freight).
Read: Fenix Resources locks in pricing for 45% of planned iron ore production in swap arrangements
Fenix will now deliver into hedge contracts at a rate of 50,000 tonnes a month for 12 months at a fixed price of A$230.30 per dmt from October 2021.
"A strong result"
“Given the current circumstances in the iron ore industry, this is a strong result which saw Fenix generate substantial free cashflow as increased production and a lower Australian dollar helped offset reduced iron ore prices,” Fenix managing director Rob Brierley said.
“The execution of our hedging policy has also been particularly timely and will help underpin our margins and cashflow generation over the next 12 months.
“We finished the quarter in a very strong position with net cash of A$93 million, equal to 19.7 cents a share, highlighting the enviable cash-generating capacity of the Iron Ridge Project.
“Subsequent to the end of the quarter, we were delighted to pay our maiden fully-franked dividend for FY21 of 5.25 cents a share, representing a total payout of A$24.8 million.”
Average iron ore grades for the shipments from Iron Ridge were solid, with 62.2% iron content for fines product and 64.8% for lump product, an improvement from last quarter across the board.
Financial performance
Fenix’s total capital expenditure for the September quarter was A$1.5 million, bringing the total project capital expenditure to date to A$16.7 million.
Net operating cash flow for the quarter was $25.4 million, with unaudited operating margins averaging A$73/wmt FOB for the period, a marked improvement on the June quarter's $127/wmt FOB.
The Iron Ridge Project’s life-of-mine lump to fines ratio of 53%:47% has consistently been higher than the assumed life-of-mine average of 25%:75%. Fenix expects the ratio to revert to previously assumed levels as the pit deepens but has undertaken optimisation initiatives to mitigate reversion as much as possible.
Most of the company’s capital expenditure has been focused on road upgrade works and Fenix expects another A$2 million in capital expenditure in the fourth quarter as the final site infrastructure is completed.
Despite recent increases in sea freight costs, marketing fees and royalties remained higher than feasibility study assumptions, due to the achievement of much higher realised FOB prices.
Fenix held A$93 million in cash at the end of the period with no bank debt.
Statutory approvals have been received for the planned Iron Ridge Stage 2 pit and waste dump extension.