The Fenix Resources Ltd [ASX:FEX] share price rose 8% after the iron ore stock declared a full-year profit and a maiden dividend.
FEX shares were up 8.6% at time of writing.
2021’s iron ore boom has seen FEX shares gain 90% over the last 12 months.
But with the iron ore price wobbling lately, Brazil’s Vale is set to ramp up production, and worrying developments from China’s giant property developer Evergrande, can the positive run for Fenix continue?
Fenix posts profit and declares maiden dividend
FEX — the Western Australia high-grade iron ore producer — has posted an annual net profit after tax of $49 million for the year ended 30 June 2021.
Following a maiden shipment of its IronRidge product in February 2021, Fenix achieved total iron ore sales of 0.501 Mwmt.
The productive year saw Fenix’s cash flow from operations reach $65.3 million before mine development expenditure, which came to $14.7 million.
FEX managed to end the fiscal year with $69.0 million in cash.
This made it possible to declare the company’s maiden dividend.
The dividend will be fully franked at 5.25 cents per share.
This equates to a total dividend payment of about $24.8 million, reflecting an NPAT payout ratio of 51%.
Fenix began producing iron ore in December 2020, followed by a successful final investment decision in September 2020.
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FEX share price outlook
Fenix recently entered iron ore swap arrangements for 50,000 tonnes per month of the Monthly Average Platts TSI 62 Index converted to AUD for the 12-month period from October 2021 to September 2022.
The price is fixed to $230.30 per dry metric tonne flat.
The fixed price could be a sound hedge against the anticipated volatility in the iron ore spot price.
As Fenix’s Managing Director Rob Brierley explained:
‘We are effectively locking in approximately 45 per cent of our planned production during a 12-month period, commencing October 2021, at a fixed price that is sufficient to cover the majority, if not the entirety, of our budgeted cost base.’
Now that Fenix is a producer, it has also adopted a dividend policy aiming to distribute between 50% and 80% of after-tax earnings to shareholders as dividends, either annually or semi-annually.
Like iron ore, another resource sector is enjoying rising prices in 2021.
Unlike iron ore, this trend is unlikely to plateau or reverse in the near term as supply remains tight and isn’t dependent of softening steel demand from China.
I am talking about the hot lithium sector.
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For Money Morning
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