Fenix’s Mount Gibson Mid-West deal adds both iron ore scale and a new revenue stream
When it comes to acquisitions, it is hard to get past deals that are immediately cash flow accretive as Fenix’s purchase of Mount Gibson’s Mid-West iron ore and port assets are.
Specifically, Fenix Resources (ASX:FEX) is acquiring the ‘shovel-ready’ Shine Iron Ore Mine, two storage sheds at Geraldton Port, two Mid-West rail sidings and assets at the Extension Hill Iron Ore Mine from Mount Gibson (ASX:MGX) for $10m in cash and 60 million Fenix shares, or a total value of about $25m.
Mount Gibson, which will hold about 10% of the company’s shares and have the right to nominate a director, has also been granted 12.5 million options exercisable at 30c each that expire in five years.
The Shine project, which Mount Gibson had acquired for $15m in 2014, is undoubtedly central to the agreement.
As a previously operational iron ore mine that is currently on care and maintenance, not very much effort will be needed to bring Shine back into production to adding its existing resource of 15Mt grading 58% iron ore to its mining inventory.
Shine has similar mining scale and operational characteristics to the company’s producing Iron Ridge mine, providing an excellent opportunity to leverage its low-cost haulage and logistics capabilities.
The ore body and expected product grades also provide an ideal blending product, reinforced by the high iron grades available at Iron Ridge and the low alumina content from Shine.
However, the other assets included in the transaction also offer plenty of value to Fenix.
The key takeaways are that the assets will be immediately cash flow accretive by delivering C1 cost savings in the order of $5/t on current production and will enable the company to build a new business as a Mid-West bulk commodity logistics provider.
This will be achieved by leveraging its existing Fenix-Newhaul haulage business and Geraldton Port infrastructure advantage with two newly acquired storage sheds at Geraldton Port with combined storage capacity of 360,000t, the Ruvidini and Perenjori rail sidings which provide access to the main Mid-West rail network connecting to Geraldton Port and assembly locations for product storage and blending activities.
Together, the assets provide the company with the capability to export more than 5Mtpa of bulk products, which is consistent with the Mid-West Port Authority’s objective of growing export volumes through Geraldton Port by more than 10Mtpa over the next few years.
Fenix chairman John Welborn said that acquiring these assets is a game-change for the company given that Mount Gibson had mined and shipped more than 50Mt of iron ore in the Mid-West using robust rail and port infrastructure since 2003.
“The Shine Iron Ore Mine is a shovel-ready mining project. We are excited by the potential to recommence mining and investigate the potential to market high quality blended iron ore products,” he noted.
“The substantial port and rail assets we are acquiring have an assessed replacement cost of more than $80 million.
“The assets provide Fenix with valuable Mid-West rail transportation and Geraldton Port unloading, storage and ship loading facilities which are required by regional bulk commodity producers and exporters, allowing Fenix to diversify our revenue base by becoming a third-party logistics provider.
“These acquisitions are a transformational event for Fenix and will drive material economies of scale, provide flexibility to expand iron ore production and operate new projects concurrently.”