Iron ore concentrate producer Fortress Minerals has reported a weaker set of results for FY2022 ended Feburary, with a 9.1% y-o-y drop in its revenue to $43.4 million ($59.6 million) and 21.2% y-o-y drop in its net profit after tax (NPAT) to US$14.3 million.
In its results release, the company explained that the lower sales were due to it being focused on overburden stripping and heavy maintenance work during its machinery downtime at its Bukit Besi mine.
This was also coupled with establishing operations at the Cermat Aman (CASB) mine, as it prepares for the commencement of operations in the 1QFY2023.
In FY2022, Fortress Minerals saw a record average realised selling price of iron ore in FY2022 of US$121.27, compared to $105.43 in FY2021
However, the volume sold for FY2022 dropped to 357,446 dry metric tons (DMT), partly due to the approximate five-week lockdown restrictions in 2Q FY2022. In comparison, sales volume in FY2021 stood at 452,756 DMT.
Fortress explains that sales volume continues to be “well supported” by the 15-month offtake agreement announced on Oct 12 2021 of approximately 375,000 wet metric tons (WMT) and by its strong business relationships in the regional iron ore ecosystem.
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Average unit cost increased 12.6% y-o-y to US$25.46 per WMT for FY2022, which was attributable to the greater reduction in production volume.
Selling & distribution expenses decreased slightly in line with the decrease in sales volume, whilst other operating expenses increased to support business expansion activities.
In light of the results, the company declared a proposed final dividend of 0.8 cent per share for FY2022, representing a dividend payout ratio of 20.5%
In its outlook commentary, Fortress noted that global crude steel production declined 5.5% year-on-year for January to February 2022, as the latest lockdowns in China continue to add to China's supply chain challenges, disrupting construction activities and steel transactions in the near-term.
However, they note that China’s renewed focus on propping up the economy continues to buoy iron ore prices, as expectations rise for more infrastructure activity to soften China’s economic slowdown.
Despite the slowdown in steel production, iron ore prices have continued to rise on the back of these expectations, increasing 29.5% from December 2021 to February 2022.
In Malaysia, they highlight that the country has transitioned to the “endemic phase”, with the economy on the path of recovery and Malaysia’s finance ministry expecting 5.5% to 6.5% GDP growth for 2022.
For Fortress itself, it highlights the demand for its iron ore concentrate from regional steel mills remains strong, and is well supported by the offtake agreement announced on Oct 12, 2021.
In addition, the key underlying theme of decarbonisation in the steel industry also continues to support demand for higher-grade iron ore in the long term.
This is as lower impurities fulfil the needs of regional steelmakers seeking to reduce greenhouse gas emissions and raise blast furnace productivity, and Fortress’s high-grade iron ore continues to be a favourable determining factor in pricing and appetite for iron ore, the company says.
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Separately, Fortress also told shareholders that it “continues to seek opportunities to grow its commodities portfolio responsibly.”
This will be done via acquisitions, joint ventures and/or providing mining contracting services both in Malaysia and in the region, “where its strong capabilities provide it a competitive edge to tap on the demand.”
Fortress also revealed that it currently exploring various fund-raising opportunities to enhance its cash balances for operational needs, and will also be seeking shareholders’ approval for the adoption of a share buy-back mandate at an extraordinary general meeting, which will be convened in due course.
Shares of Fortress Minerals closed at 45.5 cents on April 27, 0.5 cent higher or 1.11% than its previous close.
