Fenix Resources Limited (FEX) Earnings Call Transcript & Summary

Well, hello, and welcome to today's Fenix investor webinar. My name is Mick Collis, and I will be your host this morning. Now, yesterday, Wednesday, the 26th of August, Fenix published an ASX announcement under the banner FY '26 Results. Now, joining me today to discuss the announcement and to answer your questions will be Fenix Executive Chairman, John Welborn; as well as Chris Hunt, the Chief Financial Officer. Now, just to give you some details before I do pass over to John, this is a live webinar being held by our Automic online meeting platform, which lets shareholders and investors participate in the webinar and ask questions in real time. [Operator Instructions] If we get multiple questions on one topic, obviously, I won't ask them all. That way, we can cover as many topics as possible. And if there are some questions we don't get to because of time constraints, John has indicated that we will answer them in due course via e-mail. And just a reminder, you can submit questions at any time during the webinar. So with that said, it's now my pleasure to pass over to Fenix Executive Chairman, John Welborn, for some introductory comments.

Thanks very much, Mick. Great to have published yesterday our annual report. It obviously includes all of the financial results for the year, the 12 months to 30 June 2026, includes our remuneration report, and also for the first time for Fenix, our sustainability report, which we're really pleased with. It was a record year for Fenix. It demonstrates the continued growth evolution in our business. And I'll pass over to Chris Hunt in a moment to just talk through some of those numbers from a financial perspective. But I wanted to talk more about the relevance of these 12 months in the longer-term potential of Fenix. It was really pleasing in writing my Chairman's Letter in the annual report, which, as you might imagine, you start by looking at the one that I wrote 12 months before in the FY '25 annual report. In the previous period, we were very pleased to have increased production so significantly. We changed from a single-mine 1.5 million tonne per annum producer to a 2.4 million tonne producer in FY '25. We proudly spoke about how we had shipped 41 vessels. And we also spoke about the future, what we are planning to do during the 12 months that we've just reported on. And it's really pleasing to reflect on the fact that we made promises and we've kept them. 4.4 million tonnes, up 74%. The vessel numbers up a similar amount, more than 70 vessels. And significant growth across our business. Really importantly, and let's start with the safety outcome. When -- our business is very complex. It's getting more complex. We have haulage trucks on the road that are driving the equivalent distance every day of 3x around the earth at the circumference. Think about the complexity of the port business that you can see behind me in just increasing those number of those vessels interactions. And our mining business has scaled up significantly. We moved 15 tonnes of material in order to produce haul and ship that 4.4 million tonne record number. So very pleasing that across all of that complexity, we've continued an excellent safety performance and actually brought down the key metrics. And that's a really important part of what we're calling One Fenix, which is a focus on the management of an integrated supply chain across our business. During the 12 months, we announced a game-changing deal, another reflection on the difference in this company over that period. And that was obviously the 30-year exclusive license we have secured over the 290 million tonne high-quality direct shipping ore resource in the Weld Range. And we're now well advanced in this company's future, which is to ramp up the production from the Weld Range to 10 million tonnes per annum. Before I speak about that project, though, the other significant event during the 12 months was to publish, for the first time, a 3-year plan, holding ourselves accountable. And we're effectively now reporting on the first year of that 3-year plan, FY '26, where we've achieved our guidance on production and cost. And we're now into FY '27, guiding effectively the midpoint of 5 million tonnes. And pleasingly, we've managed to maintain our cost profile at between AUD 70 and AUD 80 FOB Geraldton, the same as it was last year, the same as it was the year before. And I'd refer shareholders to my presentation of the Diggers and Dealers Mining Forum, which outlined how across the industry, all of our peers' costs are up more than 20% over that period. And we, in fact, are keeping our costs within that guidance band, which is a great outcome. The comparable growth in the business in production is equaled with the growth in our people across that business. We're employing and attracting high-quality people. And we're doing a lot to motivate those people around the culture, which is around safety, production, cost, focused on shareholder value. Very pleasingly, shareholders, in looking at the annual report and thinking about our ongoing performance, will notice that we've [ sped ] that growth, and improvement in our people goes all the way through the Board, where we've recently welcomed Jenn Morris and Michael Gollschewski to the Board of Directors, and fantastic to have those as part of our One Fenix vision and our integrated model. Pleasingly, we've again declared a final dividend, fully franked $0.01 a share. That represents a payout against our net profit after tax of 64%. And I'm very proud to say that, that brings the total dividends paid since we last raised equity, which was $15 million in 2019 to build the original Iron Ridge mine, now totals $82 million. We have abundant franking credits available. And although we're paying a small dividend at the moment, our main focus is our growth in revenues, our growth in earnings and our potential to use the franking credit balance that we're building up for future shareholder dividends. I'd encourage all shareholders and market participants to look in detail at the annual report. We also published a much shorter FY '26 financial results announcement. We'd love to engage with shareholders, both during questions in this webinar but also outside of the webinar, and we're very proud of our performance. We have a really clear vision at Fenix to design, implement and operate a fully integrated scalable iron ore business, delivering safe, reliable, efficient mining, logistics and port operations, supporting sustainable cost advantages, profitable growth that rewards all of our stakeholders. Very pleased in the FY '26 report. I'll pass across to Chris to go through some of the numbers.

Thanks, John. Appreciate it. Firstly, let me start by saying I'm really proud, and to echo John's comments, of what Fenix achieved in FY '26, and it's really pleasing to present these great set of results today. From a financial perspective, FY '26 was another very strong year for Fenix, with significant increases in production flowing through to our improved financial performance across all our financial metrics. Revenue increased just on 87% to $590 million compared to $316 million in FY '25. EBITDA, which is a measure for the cash, increased nearly 50% to $81 million, and net profit after tax increased by 128% to $12.3 million. The important point with all these metrics is that this growth translated into cash with our operating cash flow increasing 33% to $96 million for the year. The key driver of all these substantial improvements in the financial metrics was volume. Shipments, as John mentioned, were a record 4.4 million tonnes during FY '26, which is an increase of nearly 85% on the 2.4 million shipped in FY '25. What's really pleasing is that this financial growth was achieved while the Australian dollar realized iron ore prices that Fenix received remained relatively stable year-on-year at approximately AUD 147 a tonne compared to AUD 144 a tonne last year. Cost discipline, which we really pride ourselves on, was also maintained through this significant ramp-up period. Group C1 cash costs were just under $74 a tonne, which is in line with the FY '25 group C1 cash costs of around $73 per wet metric tonne. So notwithstanding volumes increased by more than 80%, our unit costs remained broadly consistent year-on-year. So this is the production increasing, which is lowering our unit costs and is offsetting any inflationary pressures that a lot of companies are seeing in Western Australia and certainly across Australia. In terms of the balance sheet, this was really strengthened during the year with $81 million of cash, up around 45% from $57 million at the end of FY '25. And what's impressive about this, this was achieved after we invested approximately $50 million in capital expenditure, which is supporting the development of the Beon Beebyn-Hub, which we've mentioned before and is really about the future of this company for the next 10 or 15 years, as well as investing approximately $25 million to secure the Weld Range right to mine payment to Sinosteel, which was about $20 million. So again, this expenditure that we're impairing is not just for 1 year or 2 years. It's multi-decade expenditure that we're setting this business up for. The investment in the capital expenditure and the first payment to Sino, as I mentioned, is about building an iron ore company for decades to come, which will generate substantial cash flow returns to shareholders. So we've been able to substantially increase production, generate earnings and cash flows, and at the same time, continue to invest significantly in the future of this business. So it's not surprising that funding was also a really important focus during FY '26. And pleasing to say that during FY '26, we secured approximately $44 million from ResInvest, which replaced shorter-term iron ore prepayments that we're doing with -- that we were doing with medium- to longer-term funding. So it's extending our tenure by about 2 years and reduces any near-term refinancing risk, and as important, provides a really strong capital base as we continue to ramp up production through FY '28. At 30 June, we've drawn approximately AUD 35 million under these facilities. In addition, we have always had access to chattel property mortgage finance across our trucks and trailers. And we've got access to about AUD 120 million to finance our growth in terms of truck, trailers and property in Geraldton. At 30 June, we've only drawn $82 million. And these facilities are continuing to support our investment in our haulage fleet, crushing and processing infrastructure, and all the other assets required to deliver our growth plans. John has mentioned this before, and I think it's important to mention again. So for shareholders, we have not raised equity since August 2020 from when we started as a single mine operation, producing around 1.5 million tonnes a year, to the multi-mine business that we are today, which is being funded through cash flows and debt facilities. As the capital program is completed during FY '27, and it's predominantly going to be completed by the end of the first half of FY '27, we'll expect to see our drawn debt beginning to reduce in the second half of next financial year -- or this financial year. And despite this growth, as John mentioned, and this significant investment in growth, the Board has declared a fully franked final dividend of $0.01 per share, representing approximately $7.7 million or 63% of NPAT. And as John mentioned, and I want to mention this again, it's important to note, our total fully franked dividends returned to shareholders since 2021 is $82 million. So overall, it's really pleasing. FY '26 represents a significant year-on-year step change for Fenix. Production up 83%, revenue up 87%, EBITDA up 50%, NPAT up 128% and operating cash flow is up around 35% with our year-end cash balances up around 45%. So looking forward to FY '27, we enter with a really strong platform with appropriate funding in place to deliver our growth program across the 3-year plan that we announced in December last year with a continued focus on capital allocation by balancing our growth investment, balance sheet strength and returns to shareholders. Thank you. Over to you, John.

Great. Over to you, Mick, for Q&A.

Thank you. Thanks, Chris. Thank you, John. So the first one is from Michael Bentley, and he rolls a couple into one here. So he says, can you give us some insight into how costs are traveling this quarter? Can you give us some insight into shipping cost trends as well? How is the Mira Bulk agreement working out? Anything to report there?

So FY '27 is not going to be a linear year for Fenix. Obviously, shareholders are aware, we're in the closing stages of the Iron Ridge mine. Similarly, the Shine mine. We're establishing the Beebyn-Hub. We're still at a very early stage of our new mine there, Beebyn-W11. And we're in the process of starting at the very, very nearby mine at the next deposit in the Weld Range that Fenix will mine, which is the Beebyn-W10 mine. So, a lot going on during this first quarter, including establishing the new crushing and screening plant as part of the Beebyn-Hub. And that's in our mining business. At the other end of our integrated supply chain, at the port, where the sunny days you can see behind me at Geraldton Port are not currently the case in the winter period. The trees go sideways in this part of the world. And the port does suffer from surge events, which during July, August and September, sees the port closure status. And so, we've built that into our planning. We're very confident in our FY '27 guidance, and the market will be aware if that changes. So how are costs traveling? Well, we're confident in our ability, as I referred to earlier, to maintain those between AUD 70 and AUD 80 over the course of the entire year. But we're building, as Chris has just outlined, a 30-year business. So it's not a quarter-on-quarter performance. It's an annual guidance. And we'll -- having established W11 during this quarter, next quarter, we'll ramp up -- start and ramp up W10. And then, that will allow us to achieve our target midpoint of 5 million tonnes per annum. So, so far, this quarter is going to expectation is the reality. Similar to my earlier comments, it's not that long ago that we were all hat and no cattle. Now we've got the cattle, and we're preparing to herd them. So hang on to your hat, Mick.

And Chris, did you have anything?

I don't know. Chris, you might want to add something about Mira Bulk and how that's going. It's early days.

Yes. Certainly, Mira Bulk, which we announced towards the back end of FY '26, which is a partnership built with ResInvest, who is a substantial shareholder in the company and provides us significant funding, that partnership is all about scale. So we add scale to that partnership for them, so they can leverage off that. But then we -- what we get from that is lower costs in shipping. And with an environment where shipping costs are certainly dictated -- well, always have been, but are certainly impacted by the Strait of Hormuz and diesel price, anything we can do to lower our shipping cost is key to this business, and we expect Mira Bulk and that partnership that we have to deliver returns. Like John said, early days, but we certainly -- we're excited about it, and we think it will deliver some benefits. I think the other comment on cost, again, building scale will lower our unit costs, and we expect that to ameliorate inflation impacts across the business.

I mean, I'd also refer again to my Diggers and Dealers Mining Forum presentation. As Michael knows, our ability to maintain costs, in an industry where costs are rising, is because of our ability to be proactive in things like the Mira Bulk partnership in taking over our own crushing and screening plant and capturing benefits. And every day, we're looking for cost synergies and cost advantages in our existing business, which is a 3-year plan, which will see costs in or around that area. At the same time, while we're looking to significantly reduce those costs with our future state business, which is a 10 million tonne a year business at a significantly decreased cost. So that's the journey, and we'll continue to report against it, Michael.

Okay. Michael Bentley from MST continues. He says, how is the diesel supply situation? Any updates on that?

We're very confident in supply. So we continue to do a lot of work. And so, in terms of the question on supply, we're very confident in our future supply. We're also working with fuel refiners, fuel importers. Consistent with the ramp-up in scale of our business of more than 300% over the last 24 months, that equates to a significant increase in our fuel use and particularly our diesel use, and that's allowed us to negotiate more advantageous commercial terms, and we look forward to updating the market on that. So supply is secure. As Chris has just described, the key cost input for us is diesel, and we're managing that through commercial arrangements. And the last thing I'll say on fuel is, we continue to aggressively explore longer-term opportunities to reduce our reliance on fossil fuels and diesel.

Then Michael continues. How is the Weld Range study progressing? Can you give us an update on timing? Any insights on the work done so far?

It's going really well. It's very exciting. The scoping study we published in December remains a very, very valid document for anyone interested to look at as to what the 10 million tonne a year business. Quick summary, recalling that we outlined a pathway to achieve a 10 million tonne a year business by 2032 and outlined that we believe the cost of production in that business across a long-term mine life will reduce down to AUD 55 FOB Geraldton. So we continue to be excited by the opportunities we see. We're looking at further potential across that pit-to-port model, doing a lot of work at the moment on the transition potential to rail in that last 100 kilometers into Geraldton. We're also doing a lot of work on product marketing and particularly in blending and looking at the 200 million or the now -- if you look at our annual report, the 310 million tonnes we have in resources, what is the best way that we can maximize value through blending. And so, that's all going to be updated into the definitive feasibility study. There's no time pressure on the DFS, recalling that they're 1 year into a 3-year production plan. That plan hasn't changed. The DFS really charts the growth in the business beyond that plan. So it really commences in July 2029 -- FY '29 onwards -- sorry, July 2028. And all of that work is ongoing, and we'll make sure that we get it right. The last thing I'll say is that we're also very keen that by the time we publish and release that study, we do so in a way that where we have total confidence in the financing solution for the significant capital we need to achieve that very high-value outcome. So there's a number of different work streams going on both within the DFS and also in Chris' team on the finance side in parallel so that we can ensure that we've got confidence in our finance pathway.

And John, you mentioned the 10 million tonnes. Michael says, in general, how are the approval processes moving along for the path to that 10 million tonnes?

I think we've got an excellent track record in relation to approvals. There's no change to that. It remains a day-to-day issue. It's something that we've done as a company extraordinarily well. In an industry where greenfield projects are taking decades to achieve, we continue to show that we can rapidly take a mine through exploration into development and through approvals. It's going to be a critical area in the private haul road we intend to build. Reminding shareholders, we've fully approved and built 2 private haul roads that we use every day now in our existing operations. The new haul road is just a lot longer, similar approval pathway, similar ownership. W10, we're repeating the process that we successfully tracked with Beebyn-W11 and with Iron Ridge and with the restart of Shine. So in general, approvals remain a very critical area. We work with a number of stakeholders, traditional custodians, the mining department, environmental track record. And at this stage, all is tracking to expectation.

And then, Michael's final question, he says, as always, we would like to hear your view on the iron ore market and how you are seeing the trends.

Well, again, I spoke about this in my last presentation at Diggers. In a mining forum with a broad cross-section of miners, obviously dominated by gold miners who are enjoying a day in the sun, I am interested in how bullish the market is on copper, on nickel, on lithium, on tungsten, on other metals, which I would see as being derivatives of the steel industry. We are incredibly exposed to upside in the iron ore price, while also being -- having demonstrated that we're resilient in the downside. And I might pass over to Chris in a moment to talk about our hedging profile in context of what we see in the iron ore market. Seasonally, unsurprisingly, we're seeing some weakness in the iron ore price. It's stuck below USD 100 a tonne. We've just published an annual report that shows that we can be very profitable at the sort of levels we've experienced over the last 12 months. I remain confident in global growth. And therefore, I'm a big believer in the fact that iron ore is a great place to be and that we can build a huge business. Unusually for a miner, our business does not rely on iron ore strength, although we're very, very leveraged to the upside on iron ore strength. We're building a business that will generate increasing profits even if we see lower iron ore prices.

And then, Chris, did you want to [indiscernible] hedging?

Yes, absolutely. So I think in terms of hedging, at the moment, we are a little bit lower hedged than what we have been before. So John's comment, and it remains true. Typically, in terms of iron ore swaps, we would be around that 30% mark. We're probably about 20% now as our volume scales up. So we do -- we remain incredibly exposed to that positive upside to the iron ore price. But we still balance that with our level of hedging we do to ensure that we can make a margin -- a substantial margin should the iron ore price go the other way. I think the other comment to make is that we certainly saw, over the last couple of years, maybe a little bit of a disjoint between the iron ore price or commodity prices and the Australian dollar. That disjoint has stopped, and we remain a commodity currency. So if the iron ore price goes up, then the Australian dollar will strengthen over a period of time. The iron ore price goes down, then the Australian dollar weakens. So when we -- and that remains true today, and it will remain true for as long as Rio Tinto, BHP, FMG sell in U.S. dollars where they've got to convert a lot of that to Australian dollars. That's what drives primarily the Aussie dollar. So when we think about our hedging program, we think about that relationship, and that's why we've got a modest level of iron ore swaps at the moment. But with the seasonality of iron ore that we're seeing, that we see every year, obviously, seasonality, we will look to increase our exposure to swaps in the next couple of months, and we're already seeing a tick up in the iron ore price. But we will continue to do Australian dollar calls, which gives us all the upside for minimal cost, and we'll continue to do that because we're a commodity currency. The other thing that we did in FY '26 with the Strait of Hormuz and the U.S.-Iran conflict is, we entered into diesel swaps for the first time, where we hedged 30% of our exposure in FY '27. And we hedged at pre-war levels or pre-conflict levels. And they, at this stage, are very much in the money and very profitable for us at the moment, notwithstanding also the best way to reduce our exposure or I guess, improve our margin is to lower our breakeven, which John mentioned earlier, where we're looking to do that with more secure and cheaper priced fuel contracts. So hedging, in summary, remains a strong focus for us. We look at it every day. We look at opportunities about protecting our margin. But our best hedge -- and John said this many a time, our best hedge is to lower our breakeven. And that best hedge that we can do is when we deliver our DFS and we've got C1 cash costs of mid-50s per tonne.