Fenix Resources makes strong start as iron ore producer with shipments totalling 220,000 tonnes

Fenix Resources Ltd (ASX:FEX) shipped a total of 220,000 tonnes of iron ore from the Iron Ridge Project at an average price of US$156/tonne during the March quarter with the ramp-up now complete. C1 costs averaged A$93/tonne and are expected to progressively decline to approximately AS$85/tonne now that the ramp-up is complete. Steady-state production of 1.25 million tonnes per annum has been achieved after four shipments were loaded in February and March 2021 from the Port of Geraldton. With steady-state production achieved, the company expects that shipping and other costs will decline in coming quarters. Cash flows are also expected to improve in the coming quarter with a reduction in capital expenditure together with a full period of shipping and sales. "Strong start" Fenix Resources managing director Rob Brierley said: “Fenix has made a strong start to life as an iron ore producer, with four shipments in the March quarter and ore grades in line with our forecasts. “With steady-state production achieved, we look forward to a solid production performance and a reduction in costs in the June quarter.” Iron Ridge Project operation During the quarter, the company sent four shipments of iron ore resulting in 112,716 wmt of lump and 107,183 wmt of fines being exported from the Iron Ridge Project. On February 19, 2021, the company made its first iron ore shipment from the project through Geraldton Port.  This maiden shipment was delayed by several days owing to mechanical issues with the bulk carrier vessel Ya Tai 2. Once resolved, the issue resulted in a reduced cargo quantity allowance limiting the first shipment to 37,157 wmt of product, consisting of 11,001 tonnes of lump and 26,156 tonnes of fines. Subsequent to the maiden shipment, three additional ships were loaded during the quarter ended March 31, 2021, with departure dates of March 2, March 22 and March 31. Correlating with ore reserve Average grade shipped was 61% iron for fines and 63.2% iron for lump product, correlating closely with the ore reserve model. The current lump to fines ratio of 49:51 is much higher than the life-of-mine assumed average of 25%:75%. Whilst Fenix expected a higher ratio when mining the near-surface zone of the orebody, the company is encouraged by results thus far, particularly in view of the recent trend of strong demand for lump product among Chinese steel mills with a supporting pricing premium. Production during the quarter During the quarter, the company achieved a steady-state production of 1.25 million tonnes per annum with 102,277 wmt of fines and 112,658 wmt of lump hauled from Iron Ridge to the Port of Geraldton. Finex also executed a farm-in and joint venture agreement with Scorpion Metals Ltd to earn a majority interest in 33,954 hectares of tenements adjoining the flagship Iron Ridge operation. These tenements lie contiguous and adjacent to the tenements comprising Fenix’s project and contain numerous known iron ore targets. The terms of the farm-in and joint venture agreement include: Scorpion grants to Fenix the right to earn a 70% interest in the Iron Ore Rights in the tenements during the farm-in period of four years (Farm-In Period); and For the remainder of the Farm-in Period, Scorpion grants to Fenix the sole and exclusive right to carry out exploration for iron ore on the tenements for the purpose of exercising the iron ore rights as required to satisfy the farm-in Requirements. During the March quarter, Warwick Davies was appointed interim non-executive chairman on February 19, 2021 following the resignation of Garret Dixon. Financial operations During the March quarter, the company received $1.7 million and issued a total of 23.05 million fully paid ordinary shares in the capital of the company upon the exercise of unlisted options. C1 cash cost for the project to date is A$93.20 per wmt shipped, which is equivalent to US$72/wmt. According to the company, these costs include those incurred in the ramp-up in late 2020 and the early months of 2021, as well as marketing fees that were deducted from the revenue line in the feasibility study. Now that steady-state production has been achieved, Fenix expects that C1 costs will progressively decline to the A$82-88/wmt range. Operating cash flow for the March quarter was $21.8 million. A portion of the initial capital expenditure, amounting to approximately $7.2 million, was deferred to the March quarter. Cash at the end of the quarter was $26.7 million and the company has no bank debt. Free cash flows are anticipated to improve in the coming quarter with a reduction in capital expenditure together with a full period of shipping and sales.