Fenix Resources Limited ($FEX)

Now as you may be aware, yesterday, Thursday, the 23rd of April, Fenix published an ASX announcement under the banner, "Quarterly Activities Report". I'll shortly be joined by Fenix' Executive Chairman, Mr. John Welborn, who will discuss the announcement and answer some of your questions. Just some information before we do get started, this is a live webinar being held via Automic's online meeting platform, which lets shareholders and investors participate and ask questions in real time. [Operator Instructions] Now if we get a number of questions on the same topic, I might leave some of those out, just so we can cover as many topics as possible. And if we do run out of time, and don't get to answer all the questions that have been submitted, John has indicated that he will answer them in due course via e-mail. And you can send your questions at any time, and we'll get to as many of them as we can later in the webinar. But for now, it's my pleasure to pass over to Fenix Executive Chairman, Mr. John Welborn, for some introductory comments on the March quarterly announcement. John, over to you.

Thanks very much, Mick, and thanks very much for everyone interested in Fenix, joining the webinar live or if you're watching this on replay. And the first thing to say is congratulations to the Fenix team across our mining, our logistics, our port, our marketing and our corporate business. We made mention of the challenges we faced in the March quarter, physically by the Tropical Cyclone Narelle that bore down on the Mid-West and Geraldton late in the quarter, as well as the impact of the instability in the Middle East and particularly in relation to both the supply and the price of the diesel. And I think it's a quarter where we demonstrated both our resilience and the control we have in managing an integrated supply chain. And you see that in the numbers. People might be surprised that we actually had our best quarter for C1 cash costs for some period of time, $70 a tonne, the bottom end of our guidance and a drop from previous 2 quarters. That was really achieved by the outperformance of our mining business, which offset the additional costs that we're incurring in relation to the rise in diesel prices. We mined just under 1 million tonnes during the quarter. That was impacted by the cyclone, Shine mine we evacuated and our operations of the Weld Range closed and did require dewatering after that rain event, as well as the impact on the Mid-West Main Roads closing the public roads, which impacted our haulage. And the Port of Geraldton that you can see behind me was also closed, and that impacted our shipping significantly. Having said that, you'll see that we processed more than 1.2 million tonnes. So drew down on our ROM stockpiles at our mines and had a fantastic quarter in terms of producing finished goods. And we ended up shipping just under 1 million tonnes to deliver that cost result, which meant that our cash balance grew during the quarter to now having $86 million in cash, which given our market cap at the moment, it represents a significant percentage of the value that the market is currently seeing in Fenix. Another aspect of the quarter is to look at the realized price. That was just over AUD 145 on a CFR basis. That comes out at just over USD 101 a tonne. So demonstrating, one, the ongoing strength in iron ore prices; and two, our ability to get very strong pricing for our products, particularly in considering some of the lower-grade material that we sell from the Shine mine, USD 101 over the March quarter is very close to the 61% index price. So a very good performance from our marketing team. We have a strong hedge book. Interested parties will notice that we continue to opportunistically extend our Australian dollar iron ore swaps, which protects the strong margin we generate. And we've now added to that in addition to protection, insurance protection in buying calls on the Australian dollar, a position which is significantly in the money given the strength of the Australian dollar. And very early on in the war, in the first week of the Middle East instability, we added a significant position of diesel hedging in FY '27. And interested parties will have noticed that while the spot prices at that point have elevated significantly, the forward curve on the oil price and diesel hasn't moved very much, and we were able to lock in 18 million liters of diesel at just above our budgeted price. And that is providing us significant protection. Very pleased with the team's performance in prioritizing the safety and well-being of our staff in relation to the response to the cyclone, and particularly proud of how we've responded to the challenges in sourcing and managing fuel, which has been a critical impact across the mining industry in Australia and particularly Western Australia. Very pleased also that we communicated very clearly about how we were managing the business. And most importantly, that we have confirmed our commitment to achieve our guidance this year to produce between 4.2 million and 4.8 million tonnes of iron ore over the 12 months at a cash cost of between AUD 70 and AUD 80. And with the iron ore price ticking up towards -- back up towards USD 110 a tonne, today it's USD 107, that's a very good sign for our business, and we're looking forward to having a strong end to the financial year. Very interested in questions from participants. Over to you, Mick.

Fantastic. Thanks, John. A good summary. So as usual, we'll start with some questions from the broker research analysts who do cover Fenix. [Operator Instructions] So we'll start with Michael Bentley from MST. He's got a series of questions. He says, first question is on this quarter's C1 cost. The costs were lower this quarter than the previous 2. Is there any specific reason for that?

Thanks, Michael. Yes, as I mentioned, it was really around an outperformance from our mining business, particularly Shine, where the strip ratio halved during the quarter. So we were able to access ore very efficiently at Shine. We also drew down on ROM stockpiles on all of our mines. And so we're able to very efficiently produce iron ore from the mining site, and that offset some of the rises that we saw late in the quarter in relation to diesel price. So a very good performance. Looking forward, so that was at the bottom end of our guidance. I think at the moment, we're really prioritizing production in the June quarter, making sure that we try and get towards the midpoint of guidance due to the delays we suffered in the March quarter. At the moment, we're tracking towards the lower end of production guidance. This will be a quarter, where in the March quarter, we're at the bottom end of that AUD 70 to AUD 80 C1 cash guidance. I would expect that it will be towards the top of the guidance range during this quarter, but we will still manage given the performance during the year to fit within the cost guidance over the year. So we will see some reversion to normal in our mining business and some of the diesel price impacting both the mining and the haulage business in the current quarter. But generally, we're demonstrating now consistently over the last several years an ability to control and maintain our cost. And as I'll point out, that's in the face of double-digit inflation. We're somewhat unique in the iron ore business of being able to continue to find efficiencies and continue to surprise people at our ability to deliver iron ore at a very reasonable cost given our current scale and our current infrastructure solutions. And I can't talk about our C1 costs without reminding people that we've published the Scoping Study on the 23rd of December last year, that identifies how we can bring those costs in the mid-70s down into the mid-50s, putting us in the lowest half of the global cost curve. And that's an even more exciting target for the Fenix team, who, as I say, are doing a great job to deliver iron ore on the cost we are currently.

Fantastic. Next one's a two-parter. Michael says, how confident do you feel about the continued availability of diesel to your operations? And what sort of processes you may put in place to lower the risks of diesel not being available?

Well, I'm as confident as anyone can be, if you look at the news and read the newspaper in relation to the fuel crisis and the Strait of Hormuz. Clearly, Australia, as we know, is exposed to the requirement for diesel to arrive into the country. And across the country, we have 30 days' supply. And so if that supply stops, then in 30 days, there's no diesel. However, from a Fenix perspective, we've really focused on diesel strategy, particularly our storage strategy and our relationship with both distributors and the importers of fuel, both nationally and internationally, and that's been a major focus since this situation started. And I think we've been very proactive. You can see that in the fact that we got into the market and hedge diesel. So we are confident in the commercial arrangements we have. If Australia has fuel, Fenix will have fuel. And because of that confidence in supply, we're now focusing more on managing our cost. Early in this crisis in order to guarantee supply, we secured deliveries from Darwin. People in Western Australia will have noticed that diesel at the bowser in a petrol station has been above $3 a liter. There have been circumstances where we're paying those sort of prices where -- our budgeted price is $1.50. So that is a big impact. We're now seeing prices back down for us around $2.15 and that's just a headline price. That doesn't include the excise that we receive. So we have seen -- so supply, we're confident with the qualifier that the whole country needs to actually have supply in order for it to be delivered to important industries like mining and like Fenix. But given that constraint and challenge, if there's fuel in Australia, Fenix will have it. And we're now focusing on working as hard as we can to limit the impact of the rising diesel price above our budgeted price.

So just on that, Michael says, on the price of that diesel, can you give any indication of what you might think it will add to C1 cost base on a per tonne basis over the next quarter or 2?

Look, at that elevated price up towards $3, the impact on Fenix was roughly around $5 a tonne on our C1 cash cost. There has been a bigger short-term impact actually on Fenix on shipping and freight rates. But both of those are now coming back. So a headline answer to Michael or anyone's question and is a common question, how should we think about diesel. If we saw prices back up around $3, the impact on our C1 cash cost is around $5 a tonne. And just on those shipping rates, I'd remind people that when you look at our C1 cash cost, let's call it, in the middle of our guidance at $75, and we got very close to achieving a CFR price for our product of AUD 150. The way to think about that in terms of an operating margin is you take our C1 cash cost, which is the operating cost of getting our iron ore out of the ground and all the way to Geraldton Port. On top of that, we have to pay royalties, 7.5%, to the Western Australian government, very minor royalties to the traditional owners. And then we have shipping, which has averaged recently from USD 16 all the way up to USD 28 at the height of the fuel crisis. We're seeing it come back down towards our average budgeted price at the moment. And the result of that shipping is a key component of them calculating our net margin. And we're working on delivering the best outcome we can for the June quarter.

Okay. Just a related question has come in just about the diesel. From Roger Tindall, it says, any consideration of alternative fuels for trucking, electric or gas?

Absolutely. We've been at the forefront of looking at dual fuel technology. In our current business, both in terms of the mining fleet and clearly in the haulage fleet and clearly in shipping, we're currently reliant on effectively diesel fuel and bunker fuel. We're very interested in any opportunity to reduce our reliance, reduce our environmental footprint. And we are doing work in relation to some of our partners in the Mid-West, Warradarge Hydrogen, Athena and others looking at solutions in dual fuel technologies. At this stage, we're not ready to implement any of those technologies, but we continue to search for solutions.

Right. Now Michael had a question about shipping costs, but I think you've covered that. So he says, just on the DFS for Weld Range and the shift of completion into the second half of the year, was there any particular driver of the change in timing? Do you think it will have any effect on timing of the FID?

Good question. The definitive feasibility study on the Weld Range project effectively represents our FID or for those not familiar with that term, Financial Investment Decision. So if you look backwards at Fenix' history, we published a feasibility study for Iron Ridge, and then we delivered it on budget and on time. We published a feasibility study for the initial mine at W11 and then we delivered on that feasibility study and are happy to be tracked against it. We did the same thing for the recommissioning of the Shine mine, published an estimated capital cost and an estimated operating cost and a timeline, and then we deliver those mines. We're very focused on continuing to deliver to expectation. We published a Scoping Study in December of 2025. That followed on the 3-year guidance we published in early December, which was our production outlook for FY '26, FY '27 and FY '28. And the Scoping Study envisaged the Weld Range expansion project from FY '29 onwards. The Definitive Feasibility Study continues to do so. So what is our production from the 1st of July 2028 onwards? Pleasingly, the guidance that we're now expecting that definitive feasibility study and therefore, the financial investment decision for that project to be in the back half of calendar 2026. And to answer Michael's question, it's actually driven by good news. The more we look at the geological database of Sinosteel and the 290 million tonnes that we now have an exclusive 30-year license to mine. The more upside we see in relation to the product quality, the blending opportunities. So we're doing a lot more work, and we're really getting down into the detail of how we can maximize the grades of our products, and reduce the mining cost from the Scoping Study. And so there are a number of opportunities we've identified. Because the definitive feasibility study is actually the project that we will deliver both in terms of capital cost, operating cost and most importantly, time line, Goran Seat and his team, our Chief Development Officer, are taking the time and putting a great deal of effort and energy into making sure that we maximize the value from that project. And so that when it's ready, it will be an exciting moment and that will be in the second half of 2026.

Okay. You might have covered it, but [ Matt Clipstone, ] again a related question. Is there anything you can add around the potential funding structure for the Weld Range?

We continue to talk with our key partners and reminding people that the Weld Range project is effectively a partnership between Fenix and the world's largest steelmaker, Baosteel. And we continue to talk to them about their potential support for the financing of the project, and we continue to add to our cash balance. And at the moment, we've got a very simple balance sheet. We use chattel mortgage debt structures to finance our haulage fleet. We don't have any project financing or senior debt of any material nature at the head company level. And so all of those options, we've got time to develop that funding strategy. This is a very, very compelling project for potential financiers.

Right. Then Michael's final question is on hedging. He says, you have hedges in place on iron ore price, call options on currency and diesel fuel hedges for '27. I was wondering if you might be able to give us a kind of holistic view of your hedging and how much business is protected by the overall hedging?

Well, holistic, I'm not sure what Michael means, but I think I can give a strategic view of our hedging. The first thing that I always mentioned when people ask about hedging, is that we don't believe that hedging removes any responsibility for us to manage our costs. The one part of our business that we don't have control over directly is our revenue line. And so most of our hedging strategies are around managing a volatile iron ore price. Now we've actually seen, I think, stability in that iron ore price, particularly above USD 100. And so hedging strategies protect us if we saw a decline in iron ore prices below that level, which has often been the forecast over the last 5 years of both commodity analysts and in every case has proven not to be actually an accurate forecast and long may that continue. However, if it doesn't, our hedging strategies really give us a time benefit to readjust our business in relation to changes in the iron ore price. More recently, we've protected ourselves actually more like an insurance policy in relation to the strengthening Aussie dollar. And clearly, we've locked in some opportunistic diesel pricing. So holistically, we're opportunistic. I think we're quite conservative. But most importantly, the strength of Fenix is our ability to manage our costs directly. Our mining team and our mine plans and product quality, control, our haulage team in relation to the technology, the efficiency that we can move iron ore 500 kilometers from the Weld Range all the way to Geraldton, and our entire corporate focus is not to see hedging is protecting us from the responsibility of managing the business. And I really hope that quarter-on-quarter, people are starting to see just how good a job those teams are doing in delivering iron ore at the cost that we have told the market we will deliver on that. And that is increasingly putting Fenix in a unique position of reliability and consistency.

All right. Thank you, John, and thank you, Michael. David Brennan from Petra Capital has a couple of questions. He says, the time frame for closure of mining at Iron Ridge and Shine, timing of processing the last ore looks like volumes from Shine were impacted by rescheduled shipments as well as lower mined tonnes.

Yes, that's correct. Unfortunately, we're looking to have another plus million tonne shipping quarter and we had 2 ships that were actually rescheduled into the current quarter due to the closure of Geraldton Port. There has been some movements around Shine shipments and Iron Ridge shipments and W11 shipments because of the weather condition, because of road closures and also just managing the business. And that demonstrates the flexibility we've got, reminding everyone that we're in a transition. We are completing the Shine mine. We've actually looked at the ore availability there and actually, pleasingly, we may see Shine continue to produce in the second half of this year. Iron Ridge, there is some more ore as we know and as we've identified there but it's deeper, and we've got better opportunities in the Weld Range. But really, the timing to answer that question about how much we continue with Shine and Iron Ridge and demonstrating the flexibility is really around when we get approvals to open our next mine, which is W10, which is just along strike from W11. We have the appropriate applications for new mining approvals at W10. We're hoping to get those in the middle of the year and when they arrive is when we'll transition that to maintain that production flow through into the Beebyn hub. And so that's something to look for really and more clarity on that when we publish our June quarter and look forward into the guidance for FY '27.

Could be good time to throw in a question from Adam W. He says, can you talk about the process/team involved into identifying potential deposits?

Look, we've been privileged of the $1.3 billion exploration and investments made by Sinosteel and others in the Weld Range in defining these resources. So at the moment, we haven't deployed any exploration teams. We're reevaluating the significant exploration that's been done across the Weld Range. But as I said earlier, we're seeing an enormous amount of upside. And so Fenix is really driven by the monetization of the opportunities and the investments of previous exploration teams going all the way back to 1870. We've demonstrated that we have a fantastic production operating supply chain, and that's what we focus on. There is no doubt that as we produce and ramp up production towards 10 million tonnes, and potentially beyond 10 million tonnes, we will look at future exploration upside and geological extension of the orebody. There is no way -- we're nowhere near tapping out. And if you look at the map plan of the Weld Range and you look at the number of different deposits and the extension of that geological field, you'll see that there is obvious opportunities to extend, and we look forward to doing so. But at the moment, the focus is on defining a ore reserve. So we have a resource largely indicated in the Weld Range of 290 million tonnes. And what the definitive feasibility study will do is convert that into an ore reserve, and that will be the tonnes that we produce. Now, once we've done that, we'll then look at the exploration potential and future opportunity to both extend that resource base, but also upgrade the quality of our product suite.

Great. Next one from David. Probably just a confirmation from you, John. It's on topic. So excellent C1 cash costs in the quarter, some guidance on impact of higher fuel prices on cost going ahead, and David said, I estimate at least $5 a tonne increase which it did, what you had mentioned earlier.

Well, he's bang on there. That's not -- if you think about our cost, diesel was probably 20% of our costs before the Middle East crisis. And if you then extrapolate the rise in diesel cost on that 20%, you end up calculating, it's going to be give or take around $5 a tonne impact. I do think that, that's coming down. We're seeing shipping rates coming down. But if we saw things stay where they are now, then I think that in the June quarter, you'd see our costs either at or even slightly above the top of our guidance of AUD 80 a tonne. But from a full year guidance perspective, given the strong performance we've had in the September, December and March quarters, we still are aiming to get around the midpoint of our guidance, at AUD 75 a tonne. So that's an overarching view of how that diesel price is impacting us. Going forward, we will be looking to bring those costs down as much as we can. And as every consumer is, looking forward to seeing more stability and more consistency in the price of all of the fuels that we're using.

And again, you may have covered this one. David's last question, the timing of Weld Range DFS likely September quarter or December quarter?

Look, it's when we'll actually complete that work, and it's around the opportunity we have to improve and maximize the outcomes of the project, particularly from a geological base. But it's also making sure that we don't rush that outcome. We want to be very, very clear with the market. And then we want to continue to deliver that project. And reminding people why that's important. The NPV of the Scoping Study at the spot price when we announced it is $3 billion. Now we have a track record of actually outperforming the NPV of the projects that I mentioned earlier, the Iron Ridge mine, the W11 project and the Shine Iron Ore mine. We've delivered more value than you would have expected when we published the feasibility studies for that project. I have every confidence that we will absolutely deliver more value than we demonstrated in the Scoping Study. And so if you're an investor in Fenix or you're interested in Fenix, just think about what that means. That $3 billion NPV does not include the 15 million tonnes of iron ore that we're planning to produce in FY '26, FY '27 and FY '28. That's just the project from FY '29 onwards and the value that, that will generate, net value that will generate for shareholders. It also doesn't include the value of the cash we already have on our balance sheet and the significant value in the hard assets that we own and are investing in. So I'm not giving any guidance on when in the second half of this calendar year. We'll complete that study. It will be when we're ready, and it will be a very exciting outcome for shareholders.

Fantastic. Thanks, David. And then Peter Schwarzbach of Wallabi asks, could you advise the amount of ROM stockpiles across each of the 3 mining hubs?

Well, thanks for that question, Peter. It's a very cheeky one. We don't generally disclose that. I think the guidance I could give, and you can see that in the way our mining numbers are moving quarter-on-quarter and our processing numbers and then our shipping numbers, particularly where we have disruptions and weather events, there's a lot of flexibility in our system. We do that to ensure the consistency of the supply chain. So there's always tonnes available for the haulage team. We've got more -- almost 0.5 million tonnes of storage capacity at the Geraldton Port behind me. And that means we can manage the situations as we've shown in the March quarter. But to answer that question, probably easiest just to say that in terms of ROM stocks across the 3 operations and the 3 crushing and screening plants at any one time, we'd have between 300,000 and 500,000 tonnes of material on the ROM pads. And interestingly, probably a similar amount in finished goods across the product stockpiles in lump and fines we have it all 3 of those crushing plants and then the finished goods that we have at any one time in our port sheds. And so they can usually be between 0.5 million and 1 million tonnes of both ROM that is mined, run-of-mine stocks and finished goods. That's a significant asset base. So it's a good question, Peter, and it comes to the point I made earlier about the flexibility and the control that we have across all elements of our business, and the work we do to make sure that we are robust and resilient as a small producer and manage the business appropriately.

Now we've got a couple from investors, Adam W. on a bit of a roll this morning. He says, there's been nearly 50% dilution in the past 4 years. Do you foresee another 50% dilution in the next 4 years?

Thanks for the question, Adam. I think you're referring to the transactions. If you go back 4 or 5 years, we've issued some shares to Craig Mitchell for the purchase of the 50% of the Newhaul joint venture and the purchase of the entire Newhaul business that now sits as the base of our Fenix logistics function. We also issued some shares to Mount Gibson to acquire the port facilities, the loading facilities that you see behind me as well as the rail siding that is absolutely crucial to our plans to get 10 million tonnes at Ruvidini, the rail siding at Perenjori and very importantly, the Shine Iron Ore mine. So yes, we have issued those shares. I wouldn't say those shares are dilutive. If any economic analysis would show that they were incredibly value-creative equity distributions. So at the moment, though, we're inwardly focused. There was a question earlier about how we're planning to finance the expansion to 10 million tonnes. And the answer to that I didn't, for example, say, well, we'll raise equity at the appropriate time. There's every chance that we don't need to raise equity to fully finance that Scoping Study or the Definitive Feasibility Study when that's ready. When we published the Scoping Study, it has roughly a $500 million capital requirement. We estimated conservatively that before we acquire that quantum of funds that we believe we can generate $200 million through our operations. And so therefore, there's currently a funding requirement of $300 million. And I mentioned earlier that there's strong confidence that we can find debt solutions and partner solutions to fund that amount. And so in defending the equity that we've issued over the 4 years because it's actually been intrinsic, Adam, in building the business that you now look at a business that's producing 4.5 million tonnes a year, will ramp up to 6 million tonnes over the next 2 years and will have an asset base that's capable of producing more than 10 million tonnes. That would not have been possible if we didn't own all of the assets that we had to acquire through those equity issues. But at this stage, there are no plans to issue further equity.

Great. Good point. And the final one, it's a nice one from Adam to finish off. Looking long term, where do you see the business in 10 to 15 years' time?

Well, we've got a dividend policy that commits the Board to look to paying a full year dividend to shareholders based on our net profit after tax and available franking credits. The very exciting thing, and you don't have to wait 10 or 15 years, Adam. Fast forward 4 or 5 years, 10 million tonnes a year, plug in whatever iron ore price you want to and look at the margin we'll be making off of AUD 55 C1 cash cost, and you can see that this business can pay dividends, not in the single cents, but in the $0.10, $0.20 fully franked going forward. That's where I see this business. We have a vision, which is to produce 10 million tonnes a year for the Weld Range very efficiently in the bottom half of the global cost curve. And that's where I see this business in 5 years, and that's going to be very rewarding for Fenix shareholders.

Fantastic. Thank you, John. Look, any closing comments from you?

Thanks very much for everyone's interest. Again, congratulations to all of our team across our mining business, across our haulage business, our port business and anywhere that you're working for Fenix. This was a really challenging quarter and your work and commitment is really inspiring to myself and the Board. Again, I would encourage shareholders if you've got a question, if you'd like to understand more about the business, please reach out. We love talking to shareholders and particularly interested in your feedback and your ideas. And to everyone else, stay tuned for what is going to be a strong end to the 2026 financial year for Fenix and stay tuned for further news from us.

Fantastic. Look, that concludes the seminar. Thank you, John. Thanks for joining us and enjoy your weekend.

Thanks, Mick.