Fenix’s hedging strategy set to pay off as iron ore drops to US$120/tonne
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Iron ore prices have slumped in recent weeks, currently sitting at US$120/tonne, or around AU$164/tonne.
It’s sweet spot to be in for players like Fenix Resources (ASX:FEX) who hedged ~45% of their planned production from October 2021 to September 2022 at A$230/dry metric tonne.
The company had entered iron ore swap arrangements for 50,000 tonnes per month of the Monthly Average Platts TSI 62 Index converted to AUD for the 12-month period as part of its price protection policy.
The idea was to secure the medium-term future of the Iron Ridge project – whilst maintaining exposure to the iron ore price.
Back in July, managing director Rob Brierley said the company was confident it had secured profitability until at least Q4 CY22 by which time “the mine plan predicts the production of even higher specification iron ore that should result in higher market premiums”.
And if the company’s FY21 results of annual net profit after tax of $49 million are anything to go by, Fenix looks set to enjoy a profitable FY22.
The company dispatched the maiden shipment of Iron Ridge product in February 2021, with total iron ore sales for FY21 of 0.501 million wet metric tonnes (wmt) – comprising 0.242 million wmt of lump and 259 million wmt of fines.
The average grade shipped was 61.2% iron for fines and 63.9% iron for lump product.
Interestingly, the average lump to fines ratio of 52.5%:47.5%, is higher than the life-of-mine assumed average of 25%:75%.
And this increased proportion of lump production conveniently coincided with record lump premium prices.
The company finished the period with cash of $69 million.
And Fenix also declared a final fully franked dividend of $0.0525 per share, for to a total dividend payment of around A$24.8 million.
That’s a payout ratio of 51%, a healthy payout for its shareholders.
The company’s dividend policy (to the extent that dividends can be fully franked) will distribute between 50-80% of after-tax earnings to shareholders either annually or semi-annually.