An interesting stock - Fenix Resources

Fenix is a tiny iron ore producer in Australia. Market cap is only $260M or so.

Time stamp this.... Mid May 26... Stock is trading at $0.34...

Here is the backdrop. Iron ore production in the world is about 2bn tons a year. Fenix is producing around 4M tons in 2026. It is an inconsequential iron ore producer in Australia.

The cost structure of Fenix is not the best either. Cash cost is around $70-80/ton (quite a bit higher than BHP and Rio). Key maths to remember... Say every ton of iron ore Fenix pays $10 in royalty to the government (7% or so). And then to ship from Australia to China, freight cost is around $30 (in normal circumstances).... For every ton of iron ore, Fenix makes around $35-40 per ton.

My sense is no cares about Fenix. It is tiny. It had very short resource life. It is a higher cost producer. Iron ore is hardly sexy. In fact, analysts have been expecting iron price to fall for quite some time (but iron ore prices have been surprisingly resilient).

BUT it is a transformation story (from its past)..... In 2025, it announced a deal for Weld Range from Sino Steel (from China) where Fenix secured right to mine in Weld Range for 290M tons. In exchange, Sino Steel gets roughly 20% of the economics of Weld Range.

It is a very big deal (which the market doesn't seem to care) as Fenix now has a long term resource (and cash flow stream) to develop in the coming 25-30 years.

Fenix has a path to grow from around 4M tons a year to 6M tons in CY2027/8... And then 10M tons in another 2-3 years. Its capX needs in the next few years will be around $500M (funded by 200M from internal cash flow and $300M from borrowings).

Fenix disclosed that when Weld Range is ramped up average EBITDA could be around $250M a year (its current MV).  Don't know why its range is lower than if we just run the maths ( $350-400M*0.8)...  Guess one has to know the assumptions in Fenix model to arrive at $250M (maybe it assumes iron ore price to drift lower).

Also it expects its cash cost to decline to say $55 a ton in the coming years after its capX program as it plans to build a new road which will shorten the distance require to truck the iron ore to the port.

Importantly, after the capX binge to get to 10M tons, its FCF will surge. It is not unreasonable for Fenix to pay out chunky dividends every year after it ramps up to 10M tons. Maybe as much as $1-200M a year.

How much is upside ? Say given its long duration cash flow, we put it on 6X EBITDA... In 5 year's time, it could be valued at close to $1.5bn (if not more). Plus a decent dividend stream for some years.

What are the risks ? Fenix (the stock) is in the tank... I would imagine folks are scared about the global economy given high oil prices may lead to global slow down. So folks really don't want to have iron ore/macro exposure. For a small cap, when someone sells out, the stock price will invariably suffer.

Also feels like folks generally expect iron price to trend down. That is the consensus. One reason is Simandou (an iron ore mine in Guinea) will ramp production from 0 to 120M in the next 2-3 years. This incremental supply can put a cap (if not push down) on iron ore prices. BUT apparently, iron ore productions are also under pressure from falling grades (so output would be down 60M tons from existing mines alone). We can see that Simandou will merely cover the short fall from existing mines in say 2028. Maybe S&D won't be as bad as people fear.

See the pics attached. Rio in its analyst day in 2025 expects iron ore supply shortfall to appear at some point in iron ore.

A short term factor is Iran apparently supplies 4% of iron ore/stainless steel. Capacity from Iran will be offline for some time one would imagine.

Base case is iron ore price may hold steady rather than falling (as long as global economies remain reasonable).

Here would be my bet. Management feels solid and I am betting that they can scale production without too much hiccups. Iron prices hold steady rather than falling as consensus expects... If these bets work, suspect upside in Fenix can be substantial.

PS... This is not investment advice. Just sharing an idea.

PS. This is not financial advice. Personal opinion only. Do your own research. I may own the stock.