Fenix Resources Limited (FEX) Earnings Call Transcript & Summary

I'm joined today by Executive Chairman, John Welborn, who will be providing a summary of the December '24 quarter results. So John, I will hand over to you to provide your summary, and then we'll answer some investor questions.

Thanks, Dannika. And I know we've got a lot of registered participants in the webinar and some -- already received some really good questions from the broker analysts who are covering Fenix now. So I'll be pretty brief in the summary of the quarter. We're on track for our target of 4 million tonnes a year of production. That's tripling our run rate. Over the last couple of years, Fenix has proven that we can make really good money and good profitability out of our Iron Ridge operation, which is on the screen behind me. And the really pleasing part of the quarter was the successful commissioning of our second iron ore mine at Shine. That allowed us to continue to set new records of Fenix production. We're currently at a run rate of around 2.5 million tonnes per annum on track for 4 million tonnes per annum during 2025. So we shipped just under 600,000 tonnes of ore during the December quarter. Very pleasingly, we're able to restrain C1 cash costs at Iron Ridge just below AUD 80 FOB Geraldton. And the initial numbers for Shine were really spectacular. C1 cash cost there of AUD 87 FOB, which was significantly below the budgeted start-up given the significant pre-strip that we were intending to do there, and that's been completed. And we've accelerated shipments from Shine, and we've got real confidence that, that's going to be a winner for Fenix going forward. And so that was a great result for Reece Olney and his team. We added to the Iron Ridge mineral resource estimate, almost doubling that. And also during the quarter, we recorded a 6 million tonne milestone of what was originally a 10 million tonne resource. And we're now back to having more than that in resources. And obviously, we're now going to take the steps of seeing how much of that we can add to our future mine plan and continue that very profitable operation. Iron Ridge returned a cash flow margin of just under $50 a tonne. And including the small positive margin that we were able to generate at Shine, that meant our consolidated numbers across that 600,000 tonnes generated just below -- just around AUD 30 a tonne. So a really good result, very pleasing numbers. Hedge book is looking good out to December. Iron ore prices bouncing around above USD 100 a tonne. That's a great price for us. And Beebyn-W11, we're ready to go and looking forward to commissioning that during this half year. So look forward to some questions now.

Perfect. Thank you, John. We will now invite shareholders and investors to ask a question via the Q&A feature down the bottom of the screen. The first question we have received is from analyst [ Mathew Frieberg ] from [ MST Access ], who asked, Fenix aims to triple annual production to 4 million tonnes per annum in 2025. What are the critical steps needed to achieve this, particularly in regards to Beebyn-W11?

So obviously, the 4 million tonne per annum run rate is made up of a very consistent production from Iron Ridge of 1.3 million tonnes per annum. We've successfully commissioned Shine as a 100,000 tonne per annum -- month operation or 1.2 million tonnes per annum, which is our current 2.5 million tonnes per annum. We have the potential to actually accelerate production at Shine, which is something we're looking at. And then our plans for Beebyn-W11 as -- and that is the focus to get to 4 million tonnes, obviously, to commission that at the initial rate of 1.5 million tonnes per annum. So 1.3 million plus 1.2 million plus 1.5 million is 4 million tonnes per annum, and that's tripling our production rate. The key step is obviously the commissioning of Beebyn-W11 from here. We announced in the quarterly that we received some important approvals during the December quarter, including the works approval. But we're really working on achieving the mining proposal approval. And the key step there is final heritage clearance. And obviously, we need heritage clearance at the mine, but also for the proposed haul road. And so then that throws through on to timing. We have chosen MACA as our preferred mining contractor for Beebyn-W11 and there is a lot of logic there. They are obviously our mining contractor at Iron Ridge which is within 20 kilometers of that mine. So the key steps from here are to secure that final mining approval process. And then from that point we will immediately and we are preparing for the mobilization of the mining fleet and most importantly, the construction of the haul road. And that will drive the production timing which at this stage, we intend to commence mining in the second quarter. So in the June quarter of this year and haulage and therefore production and sales will happen very shortly after that. So around the middle the year. That's the time line from here. Goran Seat and the team across our business including obviously Scott Pileggi, our general manager at Iron Ridge are working with huge enthusiasm on that time line. So we will be looking forward to delivering that. That's the key focus for this half year.

Okay. And moving to Shine. The second question is from analyst, James Williamson from Bell Potter, who has asked, how much residual low-grade stockpiles remain at Shine? And when do you expect mining to progress to high-grade areas closer to the reserve grade of 58.5% iron?

Yes, it's a really good answer -- sorry, good question, and it's been a key success for us at Shine is the ability to market and produce the low grade. We -- the mine plan, as we indicated across Stage 1, we focused on producing a 60% lump and fines product average. It actually will start a little bit below 60% and towards the end, it gets up above 60%, but those products will average around 60%. When Mount Gibson put the project on care and maintenance, they were facing a significant low-grade strip requirement. And so in our mine plan, we didn't initially include any of that low grade in the production sales. And so this early stage of Shine, it's been really pleasing that our marketing team led by Adrian Third has been able to find good pricing for that low-grade material. The specific answer to the question is there was around 60,000 tonnes of crushed, very low-grade fines material on the product stockpile at Shine when we took over the mine. And there was a couple of hundred thousand tonnes of low-grade material on the ROM pad, which was uncrushed. We have sold the 60,000 tonnes of low-grade fines. And during the December quarter, 2 of the shipments from Shine were crushed low-grade material. So there's a bit more than 100,000 tonnes of that initial material left. So during the current quarter, we would expect to move 2 shipments of low-grade material. Interestingly, if you look at that Stage 1 mine plan, there's more than 1 million tonnes of that low-grade material that is part of our cost structure and was intended in the mine plan to go to waste. And in a similar way, we could now -- and we are now looking at actually crushing that material and turning into profit. That will be significant extra upside for Shine. So that's really exciting. If you -- people who are looking at the $87 C1 cash costs are saying, you said that it was going to be $67. We would just remind or explain that the $67 a tonne C1 cash cost for Shine is an average over Stage 1. We always knew that costs were going to be much higher at the start. And in fact, in our budget, they were $20 or $30 at various stages higher than that initial stage, and we expected it to be cash consumptive perhaps over the first 6 months of its operation. It is -- we've got used to, obviously, Iron Ridge, very consistent production, and we're able to get Iron Ridge into a very profitable position very early. Shine is a little bit more of a traditional mine where you have to invest upfront and then you make a lot of money at the back end of the operation. So the actual results from Shine this quarter for us are incredibly pleasing. The ability to market the low-grade material, what that means to the mine plan going forward at Shine and the fact that we will now look to market our high-grade products. So those fines at or around 60% iron ore, but also low-grade products from Shine is really going to boost the overall profitability of that. And it means that, yes, as we've indicated in the quarterly, we have really strong confidence that we will achieve the average $67 a tonne. And in fact, because we're so far ahead of our budget to date, technically, obviously, if we hit budget from here on in, we should get lower than that. And with those additional low-grade sales, we're confident that Shine will be a great project for Fenix and will also obviously bring down our overall consolidated C1 cash costs across the company.

Okay. And well, a question -- another question from Bell Potter, when we're thinking about the longer-term consolidated C1 cash costs, how should investors think about it as you ramp up to 4 million tonnes of annual production?

Yes. Look, I'll share, we obviously are really focused to try and keep our consolidated cash cost below AUD 80. I think we've done -- I've mentioned before, the remarkable job our teams are doing to maintain that. We, I think, are down more than 20% over the last 2.5 years on a C1 cash cost, which was at that stage above $90 FOB Geraldton. We know that there's cost inflation across the industry. And so we're implementing efficiencies in the 3 key pillars of our business: mining, road haulage and at the port, to be able to achieve that. The successful implementation of Shine will assist with bringing down that consolidated number, when and if we get the Shine cost down, which we expect. And also, as you would expect, increasing our denominator up to 4 million tonnes will allow us to spread the fixed cost over those tonnes more effectively. So we think it's reasonable to target and to think that Fenix can maintain our C1 cash cost at or below AUD 80 FOB Geraldton.

Okay, and a question, you mentioned inflationary pressures and Sam has asked a question on if you're still seeing inflationary pressures, where are they most significant?

Look, we're not immune to the inflationary pressures across the mining industry in labor and consumables. But I would encourage people to understand that the biggest drivers in our cost is really things like strip ratio rather than the incremental inflationary impacts. And in our haulage business, it's diesel cost and labor cost in our, drivers and then consumables tires and also the efficiency and asset utilization numbers. So our best hedge is to control our costs. There are lots of things we can't control or at least we could manage perhaps with hedging and other things. But the real control of our business is not managing the diesel price or managing the iron ore price. It's managing the efficiency of our equipment across our fleets, managing the labor force and how we use it and looking for efficiencies in our business. So we know that we've seen 20% or 30% cost inflation over the 4 years that we've been operating in Iron Ridge, and we've been able to bring our costs down by looking really hard at those drivers and capturing efficiencies. Some of which we've identified in this quarterly, the -- and some of which obviously are part of our growth investment in capital. The improvements we've made at the port and cutting our unloading time from, in some cases, more than 11 minutes to now 6 minutes or less. When you look at how many truck movements we have through Geraldton Port and the flow-through impact, that's going to save us millions of dollars over the forward outlook. And so that's how -- it's things like that, that allow us to save money. $0.50 a tonne here, $1 a tonne there. Yes, we're seeing escalation of $1, $2, $3 a tonne every quarter. So we've got to continue to capture those efficiencies.

Okay. And a question from David Brennan from Petra Capital. He's asked, with bringing Beebyn-W11 online, will that signal the end of the sort of the CapEx cycle for Fenix?

It's a good point. I mean, obviously, we still have a very strong cash balance as at 31 December, more than $50 million. I'm surprised we haven't got to questions about the dividend yet, Dannika. Obviously, talking about the work we need to do to commission Beebyn-W11 from here, a lot of that capital expenditure that we identified of around $25 million is in front of us, the construction of the haul road, the mobilization of the mining fleet, the expansion of our camp in the Weld Range. Obviously, we were preparing to accelerate that expenditure if we could get those approvals earlier. And so again, we kept our powder dry in terms of being able to invest in growth. Once we've invested -- so that question is, if we're sitting here in June and we've invested all of that capital, and we're running at 4 million tonnes per annum, there will continue to be OpEx to CapEx trade-offs. We are obviously looking at the exploration potential of our portfolio. We've had a very successful start in our exploration program, most obviously at Iron Ridge, looking at our cash-generating flagship asset. The acquisitions of Beebynganna Hills and Beebyn North are really exciting. The most obvious areas to mine, though are the existing resources. So I've often described the right to mine agreement for 10 million tonnes we have at Beebyn-W11. We see and we hope that Sinosteel and Baosteel sees that as a keyhole to unlocking the roughly 300 million tonnes of known resources that are in the Weld Range. But we also have the opportunity to explore and discover our own 100% tonnes, both at Iron Ridge, the ground that we own the iron ore rights on at Scorpion and now at Beebynganna and Beebyn North. So in terms of capital spend, we are looking at an exploration budget. And then obviously, we will look at what's beyond 4. To add to the discussion around maintaining our current cash flow margins and maintaining our profitability as an iron ore company with an $80 or less FOB Geraldton, we have ambitions to be a much lower cost operator. We think that our port assets can do 10 million tonnes a year or more. If we work back from that, the great thing about our Newhaul road transport business as well as the rail sidings we have at Ruvidini and Perenjori is that, that also gives us the opportunity to do beyond 10 million tonnes a year, both on the road and potentially transferring to rail. And there's been some recent news here in Western Australia about the state government investigating steps from our perspective to effectively lower the cost of that rail. Our road transport and Newhaul currently move tonnes cheaper than the Midwest rail network. If that changed, then we could augment and increase tonnes. So I'm working backwards from the port to haulage business. And then looking at our mining business, if you're thinking about the forward capital, one of the reasons, again, about our conservative balance sheet is that, yes, there are other investments we could make in growth beyond 4 million tonnes per annum. If we've got a port that can do 10 or more and we've got an incredible transport logistics business that can do 10 or more. And in doing so, we will significantly reduce our per tonne costs. Then it shouldn't be a surprise that we are looking for opportunities as to where those tonnes are coming from. That's why we've invested capital in Beebynganna Hills, in Beebyn North. That's why we may invest in exploration. And it's also obviously a key part of our foundation relationship with Sinosteel. And all of that, if we look at the return on invested capital we have made from Iron Ridge that I think investors should now see we will make and are making at Shine, then that's exactly why we have prioritized the ability to invest in growth. It's a very exciting outlook for Fenix in the Midwest.

Okay. And moving forward, I guess, let's address the question. We've had multiple investors ask us about the dividends. So as you mentioned, with $56.9 million in cash and strong cash flow, how is Fenix going to balance expenditure for growth projects with returns to shareholders such as dividends in...

I think it's really clear. We are, as a Board, 100% committed to our dividend policy. It says that we will seek to pay an annual dividend based on the full year profitability of the company, subject to the availability of franking credits and subject to the capital requirements of the business looking forward. So I'm very happy to explain this again. That means that where we have available excess cash, we will look to maximize the ability to pay that back to shareholders with fully franked dividends. And we have a positive franking balance. We're adding to it all the time because we are a profitable company. And so that's really a strong outlook for future dividends, and we'd like to pay dividends where we can. Having just described our ambitions, I hope that shareholders can understand why we are investing in growth. Iron Ridge, we want -- we need to extend that operation to continue the cash flows and profitability. And there is a huge opportunity to build a much, much bigger cash flow business that can pay larger dividends, but there's not a magic act there. We need to have the capital available to invest. When we made the decision on the dividend for the FY '24 year, we were in a very volatile iron ore position. And we're also looking at a forward budget, as I've explained, where we might be able to accelerate the $25 million investment in Beebyn. And we knew that there were going to be opportunities available, some of which we've taken advantage of in a small way like Beebynganna Hills, like the investment in the port sheds. We're also expanding our Newhaul fleet from roughly 30 prime movers and [indiscernible] to ultimately more than 70. And when you think about the fact that those [indiscernible], each prime mover and [indiscernible] is a capital cost of about $1.7 million. You can see that at the end of that, we'll have around $150 million invested in rolling stock fleet. That will require a significant investment in upgrading the workshop. Anyone in Geraldton can see that we are expanding those facilities. So we're making capital investments in that business. I think that's a really sensible move because it's going to generate huge future revenues and profitability for us. That will flow through into the dividend policy and the decision to pay dividends. And obviously, what we want to get to is a position where we have a sustainable forward outlook. There's no point paying big dividends if your mine life ends in 2 years. If we've got sustainable 4 million, 5 million, 6 million, 7 million, 8 million, 10 million tonnes a year of production with a 10-year mine life. As you've seen with FMG, we'll be in a position to pay huge dividends to shareholders. The Board -- all -- ourselves are all shareholders. That would be the most appropriate way we see in delivering value to shareholders.

And if you could get out your crystal ball just for a second and give us your expectations for the iron ore market in 2025 in terms of demand, supply, price forecast, those sort of things.