Fenix Resources Limited (FEX) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's webinar with Fenix Resources. I'm Dannika Warburton, the Investor Relations rep for Fenix and delighted to be joined today by your Executive Chairman, John Welborn, who is going to run through an outline of the March '24 quarterly results. And then as usual, we will open it up to Q&A. So without further ado, we'll jump straight into the intro from John.

Thanks very much, Dannika, and hello to all the Fenix shareholders and interested parties who have joined us on this webinar in what is a really pleasing opportunity to talk about what has been another outstanding quarter from Fenix across our business. Headline really with a cash balance that is built to the end of the March quarter to $88.3 million. And given the CapEx spend, the investments we're making and the growth that we're funding to boost our cash balance by more than $25 million during the first quarter of the year was a great result and one that hopefully, the market will take attention of. We -- that was on the back of a record Fenix ore shipment of almost 416,000 wet metric tonnes of iron ore. That included our first shipment of Twin Peaks ore. So 6 shipments from Iron Ridge and 1 from the new Twin Peaks operation. We continued a very impressive cost control with our C1 cash costs reducing to $77.60 per wet metric tonne. And I really congratulate the entire Fenix team across our mining, logistics and our port services and corporate functions for what is a relentless focus on controlling on -- we're costs and also delivering safe and very high-quality outcomes across the business. That port services business continues to expand. We exported 851,000 tonnes of iron ore through our facilities in Geraldton. And that, as we pointed out, is now an annualized run rate of 3.5 million tonnes per annum and one that we're looking to continue as we add more tonnage to that operation. And that's going to increasingly become an important part of our picture. We're miners of Iron Ridge. We're now miners and operators at the Twin Peaks iron ore mine, and we've got Shine and Beebyn-W11 to add to that operational picture and an increasing array of logistics customers that we're very pleased to be providing. And one of the key elements of the quarter was the announcement of a $70 million logistics and port services contract with fellow Midwest iron ore miner, Gold Valley. And an important part of that contract is Fenix's investment in establishing an inland port terminal as part of our Ruvidini Rail Siding inland holding. This is something that is going to reduce cost for Gold Valley. It provides a significant income stream as demonstrated by the contract with Gold Valley. But it's much more important for that in terms of our broader plans in the Midwest. It provides a hub for ourselves and our customers in future. It bridges to potential future rail access and is a key part of our expansion plans in the Midwest. We continue to look at new opportunities. We're discussing potential logistics and port contracts with a range of proponents in the Midwest, and we're very focused on expanding our own operations. During the quarter, we published our half year, which had very strong numbers, and the entire team are focused on building on those in the second half of the year for our full year numbers. Obviously, notable, the decline in iron ore prices we saw towards the end of the March quarter and into April, we've seen a more recent bounce. And that provides some relevance to our hedging activities and also the demonstration that we are building a sustainable and profitable business through the volatile iron ore pricing cycle. I'm happy to talk more detail about that perhaps in some of the questions that shareholders and interested parties may have. So I'll pass back to you, Dan, interested in responding to any questions in what's been a really positive quarter.

Thanks very much, John. And congratulations on another outstanding quarter for Fenix, particularly, as you said, with regard to the strong cost control. and also the solid cash flow generation from Iron Ridge and the third-party operations. We will jump straight into some investor questions. Where we've received quite a few. One from David, first, on Iron Ridge C1 cash costs. So David has said, the figure of $77.6 metric tonnes shows good cost control in an inflationary environment. How much room is there to reduce cost further?

I think it shows exceptional cost control. And look, I think we're doing a really good job in our current operation. The biggest opportunity we have to bring those costs down further is really changing the denominator. And obviously, we're working on that with the expansion plans at Shine and Beebyn-W11 and further opportunities. In terms of just purely looking at our Iron Ridge operations, it's worth having a look at the last several years of operations. In the June quarter of 2022, prior to the consolidation of the Fenix-Newhaul business, we recorded a C1 cash cost of $91.50 in what was still a good outcome. When we announced the consolidation of the Fenix-Newhaul business, we indicated that we anticipated a $10 -- more than a $10 C1 cash cost saving. And I did have a lot of feedback from elements of the market that said that, that was optimistic and/or illusory. It's useful to look at our C1 cash cost since then, $91.50 in June of 2022. They came down to $84 immediately upon that consolidation. And then we've consistently reduced costs almost quarter-on-quarter since then to record $77.60. That is in the face of a very strong inflationary environment. Anyone can look at any of the other iron ore miners or miners in Western Australia, and we'll see that over that period, there has been double-digit cost inflation. We are not immune from what has been a 20% rise in our biggest input, which is fuel. We are not immune to what has been an at least 10% rise in salary costs. We're not immune from the significant rises in all of our input costs. What's enabled that reduction in cost in the face of the fact the reality that our mining costs, although we've controlled them have risen, our fuel costs have risen and a lot of our fixed costs have risen, has been an incredible ability to reduce our haulage and particularly our port costs. That was driven initially by capturing the 50% of that business we didn't own. But since then, it's been driven by the efficiencies that we identified, which was one of the motivators of that transaction. There is no secret about how we're doing other than the fact that it's efficiency. We haven't increased our volumes significantly, particularly from Iron Ridge. It's a very consistent operation. So again, I congratulate our haulage and logistics teams and Jamie South, who runs the Newhaul business; and Jamie Jones, who's running our Newhaul Fenix Ports business, are doing an exceptional job capturing what is a fantastic best of its type business. Now the reality is I think we're doing a really exceptional job. The shorter answer to David's question is there isn't a huge cost reduction that we can see from those existing operations. We're working to maintain our C1 cash costs from Iron Ridge around where they are. And there will be ongoing benefits with volume, with increasing our own volumes. And also, obviously, our third-party volumes also allow us to allocate fixed costs across a larger number. But we're at a point where we're very confident that many long-term bearish iron ore forecasts indicate that they can see prices going below USD 100 a tonne and in some cases, to USD 80 a tonne. Everything we're doing indicates that we've got a business even in those bearish forecast environments. And we've shown that over the last 3 years. And I think we're doing a good job. David, we will be working to keep our C1 cash costs at Iron Ridge around that mid-70s where we are now and doing everything we can to provide ongoing consistent performance, which we're very confident will be profitable.

So the quarterly mentioned that you've done some drilling to inform a decision to, I guess, reopen the mine. Can you give us a little bit more detail around the results that you're seeing? And also, there was a few questions on, do you see Shine as a product that you will blend or a stand-alone product?

Dan, for that question. Just a reminder for people who may not be immediately aware, the Shine iron ore mine was a mine that we picked up as part of the Mount Gibson acquisition, which included their port infrastructure, 2 rail sidings assets at Extension Hill and the Shine ore mine in the Midwest. It has a resource of 15 million tonnes at 58% iron. And Mount Gibson spent more than $40 million exploring, developing and commissioning that mine. They did 3 or 4 shipments before putting it on care and maintenance. It is a shovel-ready operation. We conducted an infill drilling program. We're interested. We see an opportunity to mine that ore body, particularly in the early stage and produce a 60% Fe product. And the drilling program we completed confirmed that opportunity. So that's a very positive part of our ongoing work to make an investment decision on recommissioning the mine, and we're hopeful to provide more information on that to shareholders during the quarter. The question around the product there, we have life-of-mine offtake partners at Iron Ridge. It complicates -- there is an obvious opportunity to blend our products. But increasingly, we see very strong customer recognition of the 64% lump and the 63% fines product we produce from Iron Ridge. We've demonstrated our own internal marketing capability with the first shipment of Fenix TP product from the Twin Peaks mine. And that's provided confidence that we can market a material from Shine independently. And so although we've identified and looked at the opportunities of blending the Shine ore, I think there are 2 aspects to that. One is the work we're doing indicates that we can produce a high-quality product from Shine in and around 60%, certainly through the first stage of mining. And so it's more likely that we will market that as a stand-alone product successfully.

Okay. Brilliant. And on Beebyn-W11, a question came through on -- well, mentioning the feasibility studies commenced and you're targeting to have that completed by the end of this June quarter and other work streams are advancing. Are you still on track to start mining Beebyn-W11 in -- towards the end of 2024?

We've indicated that we want to get all the approvals in place during 2024. And [ Garen Set ] is working very hard on that project, and we're still confident that that's correct, which would see us mining it early in 2025. We're -- there will be some more information during the current quarter. We're completing a feasibility study, which will firm up the capital numbers, the timing that you mentioned and our expected production volumes at Beebyn-W11. I've previously indicated that the most obvious development for us in what is a similar ore body to Iron Ridge and is 20 kilometers away is to replicate exactly what we've done at Iron Ridge at Beebyn-W11. However, there are opportunities we could choose to produce at a higher rate from Beebyn and but so far, everything we're seeing is consistent with what our previous indications have been on capital cost and timing, and that includes achieving all the required approvals during the course of the current year so that we can start them at the end of the year and be operational early in the new year.

Okay. And in terms of the volatile iron ore price, does that impact your thinking with regard to advancing Beebyn-W11 or Shine?

There was a usual level of when the iron ore price dropped from USD 120, USD 130 quite sharply down to briefly dip below USD 100 during the course of this month. Volatility in the iron ore price is nothing new. I've been interested in building and operating iron ore mines for more than 15 years and have seen several cycles during that period of time. So we are not influenced by sort of the recent movements. Fenix has a very strong record of using our hedging arrangements. But most importantly, the best hedge any miner can have is operate at a cost where you can make money at all prevailing commodity prices. And that's certainly what we're demonstrating, particularly with our control of our logistics costs and the levers that we can pull both at the port and across our haulage and obviously, at our mining rates. So look, the current quarter demonstrates that we are very profitable and, obviously, have very strong cash flows in the prevailing iron ore prices we had in the first quarter. In terms of our outlook on iron ore, we put in place hedges at the time we were investing capital in Iron Ridge, which guaranteed or very strongly supported the payback time model. We may look to do similar opportunities with Beebyn-W11 and Shine. However, the volatility in the iron ore price is an ongoing feature. What we're focused on is making sure that the capital investments we make have very clear, very strong payback models. And look, I think our return on invested capital since inception is running close to 50%, and that's something that we want to continue. And I think shareholders should be confident that the capital investment decisions we make are very soundly thought out and have very strong returns.

Yes. And you sort of touched on the hedging there. Is there any more information you want to give on your plans for hedging or how you're thinking about that within this current environment?

We currently have a hedge book that's 50,000 tonnes a month to the end of the financial year, so the end of June at AUD 170. The ability to lock in those swap contracts means that we need to be opportunistic. The forward curve drops off quite steeply, particularly in a depreciating iron ore price environment. We are always looking on a daily basis at the opportunity to extend or add to our hedges. And given the time lines on the addition of Beebyn, certainly, on Iron Ridge, our need to hedge that production is somewhat mitigated by the cost control we've shown, the consistency of our operations and the reality that we're strongly confident that they're cash flow positive in almost any foreseeable iron ore price environment, certainly in the short term. The time lines on Beebyn and Shine indicate we've got some time to put in place some hedging if we want to, to protect those projects. It's something we continue to look at. And the -- our success in that area is something we'll look to continue to have.

Yes. Perfect. Okay. So also in the March quarter, you announced a new $70 million haulage and logistics contract with Gold Valley, which you indicated is going to bear fruit in this current quarter. Martin has asked, what happens if Gold Valley opts not to proceed with mining?

Look, it's obviously always a concern for logistics providers. I mentioned the importance of the Ruvidini inland port terminal and our rail siding there as a key asset that this contract will allow us to develop. We disclosed when we announced that contract that during the quarter that it's for 3 million tonnes over a 3-year period. It includes standard take-or-pay obligations for Gold Valley to the Midwest Ports Authority for the Midwest Port Authority charges. We've built in a number of protections. Gold Valley are required to commit an upfront capital amount of $1.4 million, which obviously we can offset against any future charges. Plus we have a bank guarantee, which effectively secures 3 months of operations at any one time that's rolling. So the most important thing to point out is that we're -- this is a significant logistics advantage for Gold Valley compared to their current operations where they're hauling 800 or 900 kilometers from [ Luna ]. The ability for them to cut that haul road significantly and for us to handle the haulage from Ruvidini into a highly efficient port solutions will be a cost reduction for them as well as provides significant operational advantages, which means that they're less exposed to low iron ore price environments. And the first point I'd make is that they're less likely to stop and be more like Fenix in being a sustainable ongoing operator rather than a start-stop operator, which has always been the challenge of the [ Luna ] iron ore miners. And that's indicated by the fact that it is a 3-year contract and represents effectively 1 million tonnes a year, and that's a baseline amount of their volume that, again, our analysis and are looking at their business would indicate that even in a bearish iron ore price environment, we think our logistics solution allows them to keep operating. But as I've mentioned, there are a number of normal credit protectors in an environment where either in the short term or long term, those operations cease.

And on the Ruvidini inland terminal, Michael has asked a question regarding the CapEx involved in building that and also the timing of it if you could speak to that.

Driving out in that part of the world, you'll see that we're actively commencing -- so construction has commenced on the Ruvidini inland terminal. And it does represent an investment for us that's more than the $1.4 million, which is being provided to us by Gold Valley, but it is a significant asset that we think is going to be incredibly useful both for that contract and others and for ourselves. We're investing in some really groovy assets out there. We've got a radial telestacker, which is going to be incredibly efficient. Traditionally, as a small-scale miner, we're using front-end loaders to move material. The telestacker will be far more efficient and reduce costs. There's other tanks and assets. I think the all-up capital that we'll put into Ruvidini is in the order of $3.5 million or $4 million. There's a separate component of about $4 million of road works there that we're doing in conjunction with the Main Roads Authority, and those works are going to significantly improve the accessibility to the inland port terminal, but also the general road access and traffic for all the regional users. And that capital commitment is offset against voluntary road maintenance obligations that we have historically and in future with Main Roads. So from my perspective, the net capital we're putting into Ruvidini is around $4 million in what are really largely assets that will be used for a long time as part of that facility.

Okay. Brilliant. And I'm going to try and combine 2 questions here, one from Howard in the chat and one from Roger that was e-mailed through. Speaking to the haulage fleet and your decarbonization plans. So Roger asked about whether you could outline the trucking fleet CO2 emissions? Do you see advantages to using alternative power sources rather than diesel as a way to reduce costs of your mining and logistics activities?

So a really good question. And it probably deserves a full 1-hour webinar to talk about the amount of work that Craig Mitchell's Newhaul team are doing on the potential to decarbonize. Several years ago, I got asked this question at an environmentally focused conference, Fenix was attending. And I pointed out the challenge that we burn about 1 million liters of diesel a month across our operations. So like all iron ore miners, we're a carbon emitter. And we're part of an industry that obviously is responsible for a lot of carbon in the production of steel. And it's something that we have been very focused on quietly and in a very meaningful way across our business. I've just participated in a conference here in Perth in the Midwest and Gasco and Major Projects Conference, and it's inspiring us to -- the Midwest is a really fascinating area, not just for miners, but it's a congruence of one of the windiest places in the world, a very sunny place, and it has 2 gas pipelines running through it. So there are a lot of hydrogen components, a lot of green steel components that we're increasingly interested in talking to and working with. On the specific question around what's happened to our recorded carbon emissions, correct that we reported 22,300 tonnes of carbon as part of our 2022 financial year emissions. At that stage, we were a 1.3 million tonne per annum miner, and we were hauling that using diesel-powered haul fleet and running obviously diesel equipment in our mine. I don't have the number for -- or the anticipated number for the current year, but I advise that the number won't be significantly different given that we're still mining 1.3 million tonnes a year from Iron Ridge, and we're still hauling on a diesel-powered haulage fleet. Obviously, we've expanded our operations. There may be some incremental carbon in relation to our Twin Peaks haulage, our port operations have expanded. But they won't have materially or changed by any magnitude of order from the 21,000 tonnes we admitted. We're doing a lot of work in looking at hybrid fuels in talking to our partners, most obviously, we run an exclusively Volvo prime mover fleet. Volvo, one of the world leaders in looking at hydrogen fuels, the potential for hydrogen to be used as an internal combustion fuel for the sort of haulage that we do is something that we're doing a lot of work on and very focused on. And we'll be -- we're very confident we'll be one of the first movers if and when a material reduction in carbon is possible. And I'm convinced it will be. Certainly, the requirements and the obligations and particularly, if you think about our ambitions, we're confident that we will expand to the point that the sort of cost that's going to be levied against major emitters and certainly major miners will be relevant to Fenix. It's not at the moment, the 20,000 tonnes, the threshold is 100,000. But if you think about our ambitions with Iron Ridge, Beebyn, Shine and beyond that, it's certainly something that we're preparing for, one, because of that obvious financial incentive, but also because we're responsible, we want to be part of providing solutions, and we want to be an environmentally conscious and responsible miner. So we haven't spoken about a lot because the reality is, as I say, we burn more than 1 million liters of diesel a month, but we are doing a lot of work to make sure that we're at the cutting edge of how we can reduce that. And it is something that won't -- it's not going to -- I think the advances we need in those...

Almost out of time. I've got a couple of questions left. One on the business development side of things and your expansion into the Midwest WA. You mentioned in the quarterly that you were looking to progress with new haulage logistics contracts in the region. David asked, in light of the volatile iron ore price, are you focusing more on getting the third-party contracts with non-iron ore players in the region?

Look, there's some benefits in diversifying our exposure to commodities. But really, we're about unlocking value in the Midwest. So there's a slide we've used in our presentation for a while, which identifies the more than 100 projects in the Midwest that are currently conducting feasibility studies. So with a very limited amount of research, David will be able to find out what commodities they are and who they are. Many of them are listed companies in silica sands, in potash, in vanadium, in lithium spodumene and in manganese and in iron ore. What we really want is those companies to develop to the point where they need a logistics solution. It's unfortunate that Fenix is part of a very small group of companies that actually have achieved what they set out to do in terms of use a feasibility study, we think we can develop a mine successfully. We're working with and looking for similar companies that have got projects that work. And if they're an iron ore grade, as you can see, we signed contracts with CuFe and Gold Valley and they're successful companies that are operating mines in the region. If other proponents or even ourselves can find opportunities in some of those other commodities, we'd be delighted, and we are working with a number of those. It's not for us to choose which commodity. It's really for the project to work. And what we know is that we can unlock value. We can provide the logistics, haulage and port solutions that any of those projects need, the fundamental requirement to actually get the product into the hands of their customer. It's so fundamental to all of those 110 projects. And I'm very confident that part of the conference actually that I just attended was the CEO of Midwest Ports Authority, Damian Tully, outlining what the Western Australian government of funding with the $350 million port maximization project, which is currently underway. They expect that the bulk commodity exports from Geraldton will go from the current level of around 17 million tonnes to more than 30 million tonnes by 2030. Now from a Fenix's perspective, that's really exciting because we're very confident that we are the majority of that expansion. We control 440,000 tonnes, which is more than 80% of the available storage on wall storage capacity accessing berth 4 and berth 5. The commodities that we can potentially provide our logistics for don't have many limits. It's really about which projects get up. But the government are investing in the reality that there will be a big iron ore business in the Midwest. There always has been. We're going to be part of that. And there are a number of other future-facing commodities, which optimistically will join that increase in production. And certainly, it's a big opportunity for Fenix and one we're going to take advantage of. The obvious catalyst for a re-rate is our profitability. we've been a very successful company. I think though if you are a believer in a rational market, I think we've been -- there are 2 aspects that have, perhaps, influenced our market rating, and that has been the exposure to iron ore. And I find it somewhat in contrast that the largest mining companies in Australia are predominantly iron ore miners and the richest people in this country are iron ore miners, but speculative investors seem to be very bearish on the outlooks of the commodity. But also, we've had a very short mine life at Iron Ridge and the company wasn't focused on the growth opportunities. I think we're starting to see a re-rate around the reality of those. But at the moment, it's a promise. We haven't identified the numbers from Beebyn-W11 that we're expecting. I believe it's going to be as profitable for Fenix and potentially more so than Iron Ridge. We haven't identified the production opportunity at Shine, we certainly haven't made a decision as to when and how that is going to come in. And I think those are huge catalysts. Moving from a 1.5 million tonne a year miner to a 3 million or 4 million tonne a year miner is a big catalyst over the next 6 to 12 months. As is, we've announced third-party logistics deals, but there's a lag on seeing those flow through into revenue and profit. And I think we'll start to see that in the second half of the year. And I would be very surprised if the market isn't forced to take attention of just the sheer weight of numbers. We added $25 million of cash to our bank balance during this quarter. I'm really looking forward to our full year numbers.

Yes. And on the full year numbers, I guess you've got a full quarter to report on prior to the end of financial year. However, Ros has asked if you can provide any guidance on the dividend payment.

Look, I refer shareholders to our dividend policy. It's very clear. We recommitted it when we published our half year during the March quarter, and that is that we will pay a full year dividend based on the audited financial accounts subject to the availability of franking credits and with regard to the future capital requirements of the company. That policy is really clear. If people are looking for more definition on that, I would say that we're a taxpayer. I think it's a pretty easy assumption that we're going to have franking credits available. We're obviously also investing in growth. And so the publication of our plans for Beebyn-W11 and/or Shine and their capital requirements as well as other things we may be doing between now and the declaration of the dividend, we'll provide context to that decision that the Board is yet to make, but I can guarantee that we'll be making that decision subject to the policy that's in place. And it will be consistent with the decisions we've made previously.

Brilliant. And I guess to close off with, looking ahead, what can investors expect operationally from Fenix over the next few quarters?

We've outlined this. If you look at our presentation we put out in March, we provided 4 keys to our future strategy. The number one is to keep our current operations running so smoothly. And again, the team are doing a great job, and we're not going to lose focus on what is a very well-run operation at Iron Ridge at Newhaul and at our ports. We're going to expand that. The second, Lin, is we're going to expand that. We're doing a lot of work on Beebyn-W11 and on Shine. And so that's something to look for. We're going to look for new partners in our third-party logistics, and we're also going to make sure that we complete the and commission successfully the Ruvidini inland port and that we demonstrate the value to ourselves and to our customers in CuFe and Gold Valley of that third-party opportunity. And lastly, we're looking for new investments. There's a slide in that presentation that looks at what that means going from -- I think it's Slide 26, 1.3 million tonnes at Iron Ridge, the 500,000 tonnes we've acquired from Twin Peaks, the potential production from Beebyn, the potential production from Shine and the potential third-party volumes. And it's a really exciting pathway that we see can go all the way to 10 million tonnes a year based on our capability. So that's what to look forward to, more definition, continued progress and continued strong operations.

Very, very exciting and very busy times ahead for you. We'll close it off there. So thank you, John, for a very informative briefing, and thank you to all shareholders who joined the call. We appreciate that you joined. Hopefully, we got to all of your questions. But if there is any follow-up questions you have for John or myself, our contact details are on the bottom of the ASX announcements. Please feel free to always get in contact with us. We love hearing from everybody. And a replay of this webinar will be e-mailed to you or if you wanted to watch back anything it will also be made available on Fenix's website in coming days.