Fenix Resources Limited (FEX) Earnings Call Transcript

Hello, and welcome to today's Fenix investor webinar. My name is Mick Colliss, and it is my pleasure to be your host for this morning. Now yesterday, Thursday, the 22nd of October, Fenix published the company's quarterly activities report for the period ending 30 September 2026. Now shortly, I'll introduce Fenix' Executive Chairman, Mr. John Welborn, who will join us today to discuss the announcement and to answer our questions. But before we do, just some quick housekeeping. So this Fenix live webinar is being held via Automic's online meeting platform, which lets shareholders and investors participate and ask questions in real time. [Operator Instructions] Now as usual, if we get multiple questions on the one topic, I won't ask them all. That way, we can cover as many topics as possible. And if we run out of time to answer all the questions submitted, John has indicated he will respond to those via e-mail. And as always, you can submit your questions at any time, and we'll get to as many of those as we can. But for now, it's my pleasure to pass over to Fenix' Executive Chairman, John Welborn, for a summary of the highlights of the September quarter.

Thanks, Mick, and good morning to everyone, and thank you very much for joining us on the Fenix webinar. Actually, before I run through the highlights of the quarter, I would like to provide some introductory comments, which might be more useful for many of you tuned in. If you've joined the webinar, there's a good chance like me that you're a Fenix shareholder. Therefore, you're disappointed, frustrated and confused by the current share price. We're trading at $0.20 or even just below this morning, which is a 5-year low, represents a market capitalization for our entire company of only around $160 million. And so before I run through the highlights of all the good work we're doing, how can this be the case in terms of the share price when we're continuing to deliver on our strategic plan? And how does the highlights of the quarter and the very strong financial year we delivered in FY '26 correlate to the current market reaction? The first thing to point out is that at Fenix, we remain committed to building a robust iron ore business of scale. We want a business that generates strong cash flow on promise -- profits at any iron ore price. This is the challenge we set out to achieve 3, 4, 5 years ago. Over that period of time, people have been forecasting lower iron ore prices. It's not a surprise to us. It's why we've had a hedging book in place, and it's why we run this company as if we're on a burning platform to bring down our costs. So we've always realized we need an ongoing transformation of our business to achieve the ambition we've set out to do. What makes Fenix unusual is our strategy of incremental strategic transformation. That's our business plan. We're increasing our production volumes and significantly decreasing our production costs. And we're doing that without raising equity, without diluting our shareholders. We're using cash flow of our existing business. Normally, an ambition like ours would be raising equity, debt and capital with no cash flow and investing it to build a business of scale. We continue to be guided by the scoping study that I would direct anyone interested in Fenix to look at. We published it in December last year. It identified an extremely exciting value opportunity, an iron ore business of scale, 10 million tonnes a year until 2042, a C1 cash cost of AUD 55 a tonne, high-quality products, an average EBITDA of $235 million every year, which generated NPV at the prevailing stock prices of $3 billion. And that's within a company, with a management team that have proven we can deliver on our plans. Today, we have a market cap of $160 million. Our future is an NPV of multibillions of dollars. All we have to do with Fenix is continue to deliver on our strategic plan and continue to achieve what we set out to do. That's the context of the September quarter. A couple of bits of information in the quarterly report that you might have missed. One of them is that we identify that the assumptions that underlie that scoping study remain accurate. They continue to apply. The numbers in that scoping study under our continuous disclosure obligations remain accurate. And while we work on the DFS, what that means is that there's nothing that we're working on that would indicate that, that scoping study is anything other than what we're working on and the numbers within it are accurate. So let's turn to the September quarter and how that relates to that strategic objective of what we're working on. We invested $24 million in capital during the quarter into infrastructure that supports both our 3-year production plan and that longer-term vision for the Weld Range project. We paid $20 million to Sinosteel, which is the second installment of the $60 million in upfront payments, which is part of, I believe, the only example of an Australian company that's acquired a globally significant resource project in Australia back off a Chinese state-owned enterprise. It provides us a generational opportunity to build an iron ore project at scale. So in that context, why is our share price where it is? Iron ore prices are down. They're the lowest they've been in years. We've taken advantage of that by crystallizing the value in our share -- hedge book this morning. Fuel prices are up. Freight rates are up. Bunker fuel's up. Labor costs are rising. It's tough times at the moment. FMG are down 30% year-on-year. Fenix, FEX, is down more than 50% year-on-year. Clearly, our share price is impacted by those headwinds. The September quarter demonstrates though that we're continuing to perform. The share price does reflect the headwinds that we're facing in a macro environment. The share price does not reflect the value of that future project that we are going to deliver. So what can we do about it? At Fenix, all we can do is continue to be clear, disclose what we're doing and achieve our objectives. The only thing that shareholders can do is evaluate their investment. And my encouragement would be we can buy more Fenix shares at these prices. They've never been better value. So turning to the quarterly. The information is disclosed very clearly. I probably don't need to regurgitate it for anyone, Mick, but I would like to highlight a few things that I think are important. We profiled an excellent safety record. That's not just there because it's what mining companies do. If you look at the scale of activity we're currently undertaking, the rate of transformation, the change, the construction across our business, we're opening up new orebodies. We're adding fleet to our logistics. We've got a major construction project going at Geraldton Port behind me, which will increase efficiency, bring down cost, improve dust performance. And in that context, with so much change and investment going on, to reduce our total recordable injury frequency rate by 20% in the quarter and record no lost time injuries is really pleasing. It's a commitment that we make, safety and then production and then cost. Mining is going well in the context of opening up the Beebyn Hub. We've moved more material than we've ever moved in the quarter, 5.6 million tonnes. Now a lot of that was waste because we're opening up new orebodies, and we're looking forward to the first calendar half of '27 when really those W11 and W10 mines will really hit their straps. We shipped 1.1 million tonnes across 18 vessels. That was heavily impacted by seasonal winter surge events at Geraldton. And so we matched our haulage volumes to that shipping volumes. We remain confident in guidance, and we're going to catch up the tonnes that we missed during that winter period. Group cash costs, given the headwinds we're facing, rose to $81.80 per tonne. We've been really clear to guide that we expect to remain within our guided range of $70 to $80, and that's around increasing efficiency, managing our fuel cost. We've entered into new arrangements with BP. We're seeing about a $20 saving across our entire use of diesel, and that's a combination of new supply arrangements as well as taking more control as we do at Fenix. We've acquired our own fuel tankers, and we're starting to deliver our own fuel. And again, a great example of One Fenix, our ability to control an integrated supply chain, which gives us greater flexibility and ultimately, cost. One of those other examples that was in the quarterly report was we're starting to see the benefit of our shipping joint venture, Fenix-Mira Bulk . That allowed us, among other things, as well as securing better rates on shipping and as well as getting return on the profitability of our shipping business, it allowed us to ship an extra 45,000 tonnes. What do we mean by that? It means that we're managing the available draft on the boats that leave Geraldton to maximize every hold, maximize the weight that each boat can hold. And just like in our haulage fleet, running trucks that aren't absolutely full is inefficient and ends up costing more per tonne. Boats are even more important, particularly in a high freight rate environment. So working across our business to make sure that we have the material available and working with our partners to make sure we maximize the available draft at Geraldton and put as much tonnes in every boat as we can is a massive value driver. It's a huge benefit of One Fenix, and we're seeing millions of dollars of extra revenue coming to our company as a result. The September quarter represented our peak capital investment period for FY '27. I mentioned that if you include the payments to Sinosteel and the capital, we spent $45 million in growth capital. These are investments that we continue to make that will generate huge returns to shareholders as we bring down our costs and increase our volumes in the future. So it's been a tough start to the year in weather conditions and macroeconomic conditions. However, we remain committed. The team are doing a great job. We're on our pathway to achieving our 5 million tonne per annum ambition this year, and we're investing in the ability to produce 10 million tonnes a year for a long time to come at a radically different cost base. Happy to take any questions, Mick.

Look, we usually start with broker questions, but there's lots of questions coming through about this morning's announcement. Can you just fill us in on that a little bit before we do get started?

Thanks, Mick. Yes, we provided a hedging update this morning, and that was that we closed out our iron ore swaps. And that's allowed us to bank $10 million cash. That's exactly why we established these swaps. They allow -- they're a financial instrument. They sit alongside a very detailed trading strategy in our physical sales program where we look to maximize price. We look at the iron ore curve very closely. There's never been a better time to crystallize the value we've created by putting in place those swaps. The iron ore curve is almost always in backwardation. I mentioned in my summary of today's webinar that we've been building an iron ore business in an environment where everyone has been negative on the outlook of iron ore prices. If you look at the forward curve today, with spot prices around USD 90, it's the first time in a very long time where you could go out 12 and 18 months and the curve is actually upticking, as in the price curve is not showing that we're going to see lower iron ore prices. UBS' long-term iron ore price forecast is USD 93 or USD 94, higher than the spot price. And so showing the discipline of why we put in place a price management program and why we established those swaps, without guessing at the iron ore price and looking at the market, it makes absolute sense to bring forward the value in that hedge book. It's why we've got it, close it out and bank that $10 million cash. We continue to have the ability to lock in place further swaps if we're looking for greater protection on any further falls in the iron ore price, and we remain incredibly leveraged to our ability to control our costs and ultimately, the potential for future stronger iron ore prices. There's a lot of uncertainty in the market at the moment with the negotiations the majors are going with the centralized buying network. We continue to look for new customers. But the hedge book should be seen in the context of when we put those prices, those forward swaps in place, we look for periods of time where the forward curve is flat so that we can lock in higher prices along as far as we can out in the future. And then when the market falls and when the price flattens out as it has now, the appropriate discipline logic is to crystallize the value we've created by putting those swaps in place in the first place. So that's allowed us to bank $10 million cash, and that's the action we took this morning.

Nice. So getting back to the topic. James Williamson at Bell Potter says, can you tell us a bit more about the partnership with Mira Bulk.

Yes, sure, James. This is -- Mira Bulk are a global shipowner and ship charterer. They have a large fleet of Capesize and Panamax size vessels, and they're very connected with the freight market. They -- an owner of the Mira Bulk business is ResInvest, who are also a shareholder of Fenix and we also use to assist us in marketing. That business gives us the ability to have greater visibility on what's happening in shipping rates but also to identify the best possible vessels for Geraldton Port. And I mentioned that we've been able to maximize available draft rates and freight rates. That's linked to the type of boats that we're bringing in and one of the advantages of the Mira Bulk partnership. We've gone into this joint venture with open eyes. We're working on identifying the advantages. One of them, we've identified in the quarterly, which is being able to maximize freight rates. And the other advantage is being able to manage the timing of our booking and fleets. Ultimately, we'll see in performance as to what returns we get from that joint venture. So explaining the partnership, what we're doing is allocating our vessel chartering business to a joint venture, which Fenix is a 50% partner along with Mira Bulk, who has expertise and ownership of the boats that we are now predominantly using to take our product to market. It's not dissimilar to the similar joint venture we started right at the formation of Fenix that allowed us to take control over a key part of our business, which was road haulage. We now own and operate the most efficient method of tolling our iron ore from our mines to the port, and we're taking a similar step in moving our iron ore from the Port of Geraldton you see behind me all the way to our customers, wherever they are.

Nice. He also continues, how is the Weld Range DFS progressing? Any more details on the delay to completion? And how are funding discussions progressing?

So the DFS is going really well. I mentioned that we continue to be confident in the assumptions that underlie the scoping study. There's a -- Goran Seat and his team are doing an enormous amount of work, environmental work. We've got heritage people on the ground, people familiar with the work that was done and the huge investment made on the Oakajee Port and rail network, would be aware of just the amount of work, the amount of data that's available for us. A key part of the definitive feasibility study is the construction project that we will complete, which is a 244-kilometer private haul road connecting the Weld Range to our rail siding at Ruvidini. We're talking a lot to potential below rail and above rail providers on the opportunity to improve our logistics chain by using rail -- the available rail over the last 100 kilometers of what is currently a 500-kilometer journey. The DFS magically will bring that 500 kilometers down to 400 kilometers due to private haul road. That's a key part of the cost saving. There's an enormous number of work streams ongoing. And one of them now that James refers to is the contemporaneous work we're doing on funding the capital requirements of the definitive feasibility study. Given what I said earlier about the market's current view on Fenix value, we see no real advantage in publishing a DFS where the funding of that development project and the -- how we're actually going to deliver 10 million tonnes a year is not crystal clear. And part of our decision to complete the DFS in the first half of calendar year 2027 is to enable and our confidence that we can publish a fully funded definitive feasibility study and effectively, then work on making it very clear when and how we are going to make a final investment decision on the 10 million tonne a year project and the time line on delivery. And James would be aware that the other key driver of what Fenix are doing is the 3-year plan we also published in December last year. So we're currently in the second year of 3-year plan. That plan remains accurate. There's no time pressure on us finalizing the definitive feasibility study. The scoping study effectively had a start date at the end of the 3-year plan, so 1st of July 2028, so FY '29. The -- we're not expecting to deliver 10 million tonnes a year until into the 2030s. So we have an existing business. It's -- obviously, the September quarter shows that we're doing well. That plan remains in place. We've got lots of time to get the elements of the feasibility study together. And we're very confident that we'll be finalizing that and the funding solution in the first half of calendar year 2027.

A couple of people asking this question. Can you explain the Geraldton Port surge issue and how this will be mitigated in the future? Is this the same issue every winter?

Currently, it's the same issue. So you can see a picture of the Geraldton Port behind me and Berth 5 and some of our shared infrastructure owned by Fenix. Geraldton is a windy place. I often refer to the fact that the trees in Northampton when you're driving into Geraldton grow sideways. It's one of the only places in the world where trees don't go up towards the sky. They grow towards the horizon because of the prevailing winds. It's also an area that's great for surfing because there's a lot of swell. Geraldton Port, therefore, is subject to the vagaries of winter swells and winter winds. And for safety reasons, the port often closes. It's unscheduled. It relates to weather patterns. And that can be very disruptive. And we've seen that particularly during August of this year, where we've had to move our scheduled ships around, and the port is just closed for 3 to 5 days at a time often. And that is obviously very disruptive. The good news is that the state government have allocated $350 million to the port maximization project in Geraldton. A key element of that is the building and construction of the breakwater that is designed to reduce the impact of those swell surge events on Geraldton Port and enable it to remain open in greater weather systems. That will be a huge benefit for Fenix going forward. So when we refer to seasonal surge events, that's when -- as was the case during the September quarter, we shipped 18 boats. We had available product to Geraldton to ship more, but we weren't able to because of surge events. We're not expecting that to be as much of an issue when -- by the time winter rolls around next year.

Okay. Now some questions from Michael Bentley from MST. He says, looks like your debt facility is fully drawn. So how does the financial flexibility look going forward with cash down to $43 million?

So look, we've got a lot of levers to pull in this business. We remain very disciplined on capital management. I mentioned that we've reached our peak capital investment in September quarter. The working capital that we put in place with ResInvest was designed to support the investments that we've made. So our capital expenditure is on track in terms of how we've guided that, and we're expecting that both the capital expenditure and the debt balance will reduce in the second half of the current financial year.

So it says what will capital expenditure look like next quarter.

Okay. Well, for Michael's benefit and anyone else coming back to our guidance that we provided for FY '27 and FY '28, which over the remaining period of that 3-year production plan for FY '26, '27 and '28, sustaining capital is expected to be around AUD 20 million. Outside of sustaining capital, mobile fleet capital is between $40 million and $50 million. That includes the additional trucks and trailers that we've almost have completely delivered. And then we've got a discretionary growth capital guidance, which includes the mining capital of about $30 million, which is all the 5 million tonne per annum Beebyn crusher that we've just commissioned and the work on our logistics and port growth capital of around $20 million. So having reached capital investment, we've commissioned the 5 million tonne per annum Beebyn Hub. As we move forward, capital investment profile will moderate, as those major infrastructure projects are transitioning into operations. And then obviously, we'll have a time line and a guide of a whole other capital expenditure program, for example, the private haul road and other aspects of that 10 million tonne a year project, which we'll announce with the DFS.

Then, he says, what could operating cash flow look like with higher shipments and current pricing?

Well, as we've said, based on current pricing, we expect cash flow to improve significantly in the second half of 2027. I mentioned that we moved a lot of waste in the September quarter. You can see that in our numbers. I've mentioned that we're opening up new orebodies, and we're expecting to have greater production tonnages in the second half of FY '27, greater shipping volumes as we saw during similar periods in FY '26. So that will result in increased cash generation. Obviously, we manage the prevailing iron ore price. The other thing I'd point to is the timing of receipts is important. One of the other things about the September quarter, which I suppose underlies Michael's question, just remembering that we had $17 million of receipts that relate to the September shipment deliveries that were received in early October. Now there's always a lag, but that's actually probably about twice as much as it usually is, and that relates to the delays in shipping due to surge and other things. We'll have more shipping in the second half of the year and cash flow will improve accordingly. Most importantly, remember, coming back to our production and cost guidance, it remains in place for FY '27. And so that means that it underlines what I've just said, is that we're going to see greater production and better cost performance in the second half of the year.