Fe’s the new iron producer on the block with first hedged shipment

Fe Limited is demonstrating its credentials as one of the ASX’s newest iron ore producers with the first cargo shipping just 12 months after it acquired an interest in the JWD project.

Not only was the high-grade project brought to market quickly, it was also achieved at a very low capital cost of less than $4m.

Fe Limited’s (ASX:FEL) move to hedge some of its iron production also proved to be prescient.

While iron prices have plummeted from US$218 ($300) per dry metric tonne on 12 July when the company started hauling ore, to a low of US$94/dmt before rebounding slightly to US$117/dmt on 1 October, the first 50,000dmt shipment was hedged at a price equivalent to US$160/dmt.

The company recently sold half of this hedge, realising a gain of US$45.1/dmt and has also entered into a swap for 50,000dmt of its lump iron ore project for a fixed price of US$0.16 per dmt unit, which equates to a lump premium of about US$10/dmt.

To address the ongoing iron ore price volatility, it is working with contractors across the value chain to reduce costs and will ensure that the JWD product remains cost competitive.

Stock levels have been reduced at the mine to assist in cashflow management and further efficiencies are being sought in conjunction with its key contractors.

Fe Limited — From nothing to ore in the loading shed at Geraldton Port and shipped in 12 months. Pic: Supplied

“It’s a great milestone for our team, contracting partners and shareholders to have the first shipment of JWD high grade lump completed,” executive chairman Tony Sage noted.

“Iron ore pricing has been extremely volatile in recent weeks, which makes things challenging for a new project like JWD.

“We are pushing on with our next shipment, which also has the headline price hedged at USD160/dmt.

“We will continue to work hard with our contractors to take cost out and maximise the sale value of the product to try ensure the project remains viable in the longer term.”

The company further highlighted its ability to move quickly by taking up a 60% interest in the exploration assets of the Gecko Mining Company (GMC), which includes a mature copper-gold project in the Northern Territory.

JWD iron ore project

The first shipment of iron ore comes just a little more than a year from the company acquiring an interest in the project in September 2020.

First stage development consists of a test pit from which Fe has the right to extract up to 300,000t of ore.

From here, the company has the option to pay $4.25m to move to the second stage, which allows a further 2.7Mt of ore to be extracted.

It can also opt to mine any remaining economically recoverable ore from the project under the third stage by paying the vendor GWR Group (ASX:GWR) a $3.50/t fee.

JWD has a resource of 10.7 million tonnes grading 63.7% iron.

This article was developed in collaboration with Fe Limited, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.