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 who have tuned in. If you have joined the webinar, there is a good chance, like me, that you're a Fenix shareholder. Therefore, you are disappointed, frustrated, and confused by the current share price. We are trading at AUD 0.20 or even just below this morning, which is a five-year low. It represents a market capitalization for our entire company of only around AUD 160 million. 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?
How do the highlights of the quarter, and the very strong financial year we delivered in FY 2026 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 and profits at any iron ore price. This is the challenge we set out to achieve three, four, five 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 have had a hedging book in place, and it's why we run this company as if we are on a burning platform to bring down our costs. 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. 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 December last year. It identified an extremely exciting value opportunity, an iron ore business of scale, 10 million tons a year until 2042. A C1 cash cost of AUD 55 a ton. High-quality products.
An average EBITDA of AUD 235 million every year, which generated an NPV at the prevailing spot prices of AUD 3 billion. 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 AUD 160 million. Our future is an NPV of multi-billions of dollars. All we have to do at 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.
While we work on the DFS, what that means is that there is nothing that we are working on that would indicate that that scoping study is anything other than what we are working on, and the numbers within it are accurate. Let's turn to the September quarter and how that relates to that strategic objective of what we are working on. We invested AUD 24 million in capital during the quarter, into infrastructure that supports both our three-year production plan and that longer-term vision for the Weld Range Project.
We paid AUD 20 million to Sinosteel, which is the second installment of the AUD 60 million in upfront payments, which is part of, I believe, the only example of an Australian company that has 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 of scale.
In that context, why is our share price where it is? Iron ore prices are down. They are the lowest they have been in years. We've taken advantage of that by crystallizing the value in our share, our hedge book this morning. Fuel prices are up. Freight rates are up. Bunker fuel is 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. 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. My encouragement would be, we can buy more Fenix shares at these prices. They've never been better value. Turning to the quarterly, the information is disclosed very clearly. I probably don't need to regurgitate it for everyone, 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 ore bodies. 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. 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 to record no lost time injuries, is really pleasing. It's a commitment that we make. Safety, 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 have ever moved in the quarter, 5.6 million tons. A lot of that was waste, because we're opening up new ore bodies and w e' re looking forward to the first calendar half of 2027 when really those W11 and W10 mines will really hit their straps. We shipped 1.1 million tons across 18 vessels.
That was heavily impacted by seasonal winter surge events at Geraldton. We matched our haulage volumes to that shipping volumes. We remain confident in guidance, and we're going to catch up the tons that we missed during that winter period. Group cash costs, given the headwinds we're facing, rose to AUD 81.80 per ton. We've been really clear to guide that we expect to remain within our guided rates of AUD 70- AUD 80. That's around increasing efficiency, managing our fuel cost. We've entered into new arrangements with BP. We're seeing about a AUD 20 saving across our entire use of diesel. 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.
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 tons. 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 and maximize the weight that each boat can hold. Just like in our haulage fleet, running trucks that aren't absolutely full is inefficient and ends up costing more per ton.
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 tons 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 come into our company as a result. The September quarter represented our peak capital investment period for FY 2027. I mentioned that if you include the payments to Sinosteel and the capital, we spent AUD 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 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-ton-per-annum ambition this year. We're investing in the ability to produce 10 million tons a year for a long time to come at a radically different cost base. Happy to take any questions, Mick.
Thanks, John. 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. That's allowed us to bank AUD 10 million cash. That's exactly why we established these swaps. 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 $90 , it's the first time in a very long time where you can 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's long-term iron ore price forecast is $93 or $94 , higher than the spot price. 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 AUD 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. 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. 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.
When the market falls, 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. That's allowed us to bank AUD 10 million cash. That's the action we took this morning.
Nice. Getting back to the topic, James Williamson at Bell Potter says, "Can you tell us a bit more about the partnership with Mira Bulk?"
Yeah, sure, James. Mira Bulk are a global ship owner and ship charterer. They have a large fleet of Capesize and Panamax size vessels. They're very connected with the freight market. 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. 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 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.
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. 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 hauling our iron ore from our mines to the port.
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?"
The DFS is going really well. I mentioned that we continue to be confident in the assumptions that underlie the scoping study. Goran Seat and his team are doing an enormous amount of work, environmental work. We have 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 is available for us. A key part of the definitive feasibility study is the construction project that we will complete, which is a 244-km 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 km of what is currently a 500-km journey. The DFS, magically will bring that 500 km down to 400 km due to the private haul road. That is a key part of the cost saving. There is an enormous number of work streams ongoing, and one of them now, that James refers to, is the contemporaneous work we are 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 funding—the how we're actually going to deliver 10 million tons a year is not crystal clear.
Part of our decision to complete the DFS in the first half of calendar year 2027 is to enable 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 ton a year project and the timeline on delivery. James would be aware that the other key driver of what Fenix are doing is the three-year plan we also published in December last year. We' re currently in the second year of three-year plan. That plan remains accurate. There is no time pressure on us finalizing the definitive feasibility study. The scoping study effectively had a start date at the end of the three-year plan, so 1st of July, 2028, so FY 2029.
We're not expecting to deliver 10 million tons a year until into the 2030s. So we have an existing business. Obviously, the September quarter shows that we are doing well. That plan remains in place. We' ve got lots of time to get the elements of the feasibility study together. We' re very confident that we'll be finalizing that, and a 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 future? Is this the same issue every winter?
Currently, it's the same issue. 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 are driving into Geraldton, grow sideways. It's one of the only places in the world where trees do not go up towards the sky. They grow towards the horizon because of the prevailing winds. It's also an area that is great for surfing because there is a lot of swell. Geraldton Port, therefore, is subject to the vagaries of winter swells and winter winds. For safety reasons, the port often closes. It's unscheduled. It relates to weather patterns.
That can be very disruptive. We' ve seen that particularly during August of this year, where we have had to move our scheduled ships around. The port is just closed for three to five days at a time, often. That is obviously very disruptive. The good news is that the state government have allocated AUD 350 million to the Port Maximisation Project in Geraldton. A key element of that is the building and construction of a 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. 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 were not able to because of surge events. We are not expecting that to be as much of an issue 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. How does the financial flexibility look going forward with cash down to AUD 43 million?"
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. We' re expecting that both the capital expenditure and our debt balance will reduce in the second half of the current financial year.
He 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 2027 and FY 2028, which over the remaining period of that three-year production plan for FY 2026, 2027, and 2028, sustaining capital is expected to be around AUD 20 million. Outside of sustaining capital, mobile fleet capital is between AUD 40 million and AUD 50 million. That includes the additional trucks and trailers that we almost have completely delivered. Then we' ve a discretionary growth capital guidance, which includes the mining capital of about AUD 30 million, which is all the 5 million ton per annum Beebyn crusher that we just commissioned, and the work on our logistics and port growth capital of around AUD 20 million.
Thank you.
Having reached capital investment, we've commissioned the 5 million ton per annum Beebyn Hub. As we move forward, capital investment profile will moderate, as those major infrastructure projects are transitioning into operations. Then obviously, we'll have a timeline and a guide of a whole other capital expenditure program, for example, the private haul road and other aspects of that 10 million ton a year project, which we will 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 have moved a lot of waste in the September quarter. You can see that in our numbers. I've mentioned that we are opening up new ore bodies. We are expecting to have greater production tonnages in the second half of FY 2027 , greater shipping volumes as we saw during similar periods in FY 2026. So that will result in increased cash generation. Obviously, we manage the prevailing iron ore price. The other thing I would 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 AUD 17 million of receipts that relate to the September shipment deliveries that were received in early October.
Now, there is 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.
That is lovely.
Most importantly, remember, coming back to our production and cost guidance, it remains in place for FY 2027. That means that it underlies what I've just said, is that we are going to see greater production and better cost performance in the second half of the year.
A couple more from Michael. What is the debt repayment profile for the haulage fleet?
Generally, we amortize the haulage fleet pretty quickly over four years. That' s quite aggressive when you can see the trailer sets, which are actually more than the cost of the prime mover, should last for decades. We' ve only got a couple more trucks and trailer sets to be received into our fleet. We'll finish with more than 90 trucks and trailers. The installed capacity as we identified is now in place. We identified in the quarterly report that we have repaid AUD 10 million. All of that debt repayment was against that logistics fleet debt. We haven't slowed down the aggressive amortization and pay down of that fleet. That will continue at the same rate that it has been at.
Are there any other factors that could affect cash flow?
Well, I think we've identified them. The iron ore price, the negotiations with CMRG, fuel prices. If you look at the forward curve, if we're not going to be crystal ball gazers, I've already mentioned that iron ore prices, the forward curve saying that they had bottomed out at $90 . We look at that very closely. That's how we make our hedging decisions. Obviously, the only thing we control is our costs, and we continue to do that. We've got Australian dollar protection in place. We've got fuel protection in place. If you look at the fuel forward curve, it still shows, particularly if you go out more than 12 or 18 months, the market is expecting fuel prices to come down. The sooner the better. That will obviously have a positive impact on Fenix.
Our reforecast is based, as Michael implies, on current iron ore prices on the forward curve of iron ore. We don't try and guess. There's a very, very big market. When you look at diesel price markets and iron ore price markets, it's a very, very large global industry. So we look at those curves. That's what we base our forecasts on. Michael's question, what could impact it? Well, if fuel prices go higher, if iron ore prices go lower, there'll be an impact on Fenix. Equally, if fuel prices recover as the market's expecting them to do, then we'll be a big beneficiary.
Just on fuel, he says, "Can you give us a bit more detail on the diesel supply agreement and how it secures supply?"
Yeah. We've done a lot of work. I indicated that earlier in the year, in relation to the destabilization in the Middle East. We fundamentally redesigned our entire fuel process. We've identified, we've got a very competitive commercial arrangement with BP that's also supported by a local supplier. BP are the logical choice for us. They're the only Australian refiner that has significant storage in Geraldton. Diesel cost is about 20% of our operating cost. So you can see what the market's telling you when you look at our share price about the impact of diesel. We're already seeing about a AUD 0.20 reduction in relation to the new commercial arrangement we've put in place and also, again, the benefits of One Fenix. We've acquired our own fuel tankers. We're delivering our own fuel to our business.
That allows us to bring down our costs and to manage our costs. The bigger impact on the current fuel situation is actually in our shipping, in freight rates, and the rise in bunker fuels. Again, we're managing that really effectively with our partnership with Mira Bulk, and in making sure that our shipping is as efficient as we possibly can do. But obviously, we have no other control over prevailing diesel prices.
Then his final question, what are customers saying about the iron ore market?
Well, I mentioned the forward curve. That is the best indicator of what the entire market is saying. Pleasingly, customer demand for Fenix products is really positive. We've established some great relationships with direct customers. Despite softer pricing during the September quarter, our acceptance remains really strong. We can move the products that we need to move any time we like. Pleasingly, we're establishing new markets. We have four shipments going to Vietnam on very strong pricing, and obviously, there's a big benefit on shorter shipping routes, especially where freight rates are so high. As we move to the Beebyn Hub being our primary production center, our focus is on maintaining that consistent product quality that our customers have become accustomed to.
But we're really encouraged by the strong support we get from our customers, and we remain focused on delivering reliable, competitive iron ore products to them. The answer to that question is the feedback we get from the market is somewhat different from the confusion that the majors are creating with the very intense negotiations with CMRG. That hasn't really influenced us in relation to our direct marketing campaign. We put our products in the hands of our customers directly. They really enjoy our product, and we see very strong demand for our products.
Okay. Just a couple of questions, just conscious of time. This one from Dennett Holding, one of the shareholders. With the major Beebyn infrastructure now commissioned, when does management expect the business to generate sustained positive free cash flow after sustaining capital expenditure and debt servicing, assuming iron ore prices remain around current levels?
It's obviously a really important question. I think I answered a similar question earlier on the webinar. Operating cash flow is expected to improve significantly in the second half of FY 2027. Just in terms of how Dennett has qualified her question, that is based on current iron ore prices, current fuel prices. That' s because the transition to the Beebyn Hub is completed. We're just commissioning the new crusher there. It allows us to bring down our cost of processing. We're just ramping up our fleet around a Beebyn Hub only transport solution. We are aiming to increase our shipments to at least seven or eight ships every month. That will allow cash flow to improve at current iron ore prices in the second half of the year.
This one from Zack O'Hare. He says, "If current iron ore prices and elevated costs persist, what contingency plans does Fenix have to maintain cash flow and avoid a dilutive capital raising?"
We have war-gamed out lots of scenarios. If the question is what would we do in a significantly depressed iron ore pricing market, we can move to higher grade products, we can move to lump only. We're getting really strong lump premiums. Obviously, a lot of our costs are variable. If you're not making money on the tons that you are moving, then you do not move them. So you reduce production, you would look at higher grade costs. We' ve got a lot of levers to pull in the business. At this stage, we are not worried, we are not surprised by the current iron ore prices. We're expecting to generate strong positive cash flow in the second half of the year at current iron ore prices.
If we see things change, if that's the Australian dollar strengthening, we' ve got protection. If we see fuel rates go higher, which they may, we' ve got plans. If we see iron ore prices go lower, which they may, we've got plans in place. We continue to be confident that we're in control of our operation. When we talk about One Fenix, it means that we can manage under a range of different operating environments. We're very leveraged for the upside, we're prepared for the downside.
Great. Now, there are a few other questions that have come through, but because of time, thank you to everyone that has asked questions. John will try and respond to those. John, any closing remarks before we do finish off?
Thanks, Mick. This quarter in September's been about laying the foundations for our future. We're doing that in a difficult macro environment, which I've discussed. So we've achieved some important milestones. We continue to focus on safety. We're very confident in our ability to achieve our guidance. You can see that at guidance, at the current iron ore price and the current drivers of our profitability, we'll have another year where we can generate positive cash flow and profits, continue to pay a dividend, while we're continuing to invest and build a longer term sustainable business of scale and of huge value. We're confident in our direction. I look forward to continuing to be transparent with the market about what we're doing. There's a lot of information in the quarterly.
As you said, Mick, always happy to hear from shareholders, market participants, and we will answer any questions that have been posed today. Thanks very much for joining us.
Good one. Thank you, John. That does conclude the webinar. Again, thank you to those people that did ask questions. Sorry we did not get to them. Thanks for being part of the webinar, and enjoy the rest of your day.