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Mount Gibson share price lifts on strong sales growth

The Mount Gibson Iron Limited (ASX: MGX) share price lifted today following the release of the miner’s half-year report. Currently trading at 82 cents apiece, shares are up 3.8% from yesterday’s close. 

Mount Gibson Iron results

The miner reported total iron ore sales of 2.8 million wet metric tonnes for the December half-year, up from 2.2 million wet metric tonnes in 1H19. An average realised price after shipping and freight of $83 was attained, up significantly from $64 in the December 2018 half year. 

Prices across all iron ore product types remain healthy but have moderated since peaking in mid-2019 following supply disruptions in Brazil. Current sentiment and pricing are being impacted by coronavirus concerns, however, President Xi’s undertaking to increase infrastructure spending may increase demand in the medium to long term. 

Total iron ore sales revenue increased to $230.1 million including net gains from foreign exchange and commodity hedging contracts. This represented a 66% uptick from revenue of $138.6 million in the prior corresponding period (pcp).

Cash flow from operations was $66.5 million, up from $54.8 million, before interest receipts of $4.6 million and capitalised mine development and equipment purchases of $23.8 million. 

Profit before tax from continuing operations increased to $64.2 million from $45.2 million, however, net profit after tax declined marginally by 1.1% to $44.6 million.

The miner held cash, term deposits, and liquid investments of $397.9 million at 31 December, with no borrowings. This provides operational flexibility and the ability to pursue internal and external growth opportunities.  

Koolan Island operation

Production is ramping up at the high-grade Koolan Island mine, with sales volumes having increased progressively over the half-year and initiatives underway to improve mining productivity and unit operating costs. 

Nine shipments were completed in November and December, in line with the four shipments per quarter target rate. This comes after only one shipment was completed in October due to a tear in the conveyer belt which required replacement.

Outlook

Koolan Island operations were interrupted in the first half of January due to extreme weather but ore production and shipping resumed in mid-January. March quarter shipments are expected to be similar to the December quarter. 

Further extension of the Mid-West business has been flagged with additional opportunistic sales of low-grade material from Extension Hill. Sales have been extended to April with the opportunity for further extensions should favourable prices continue. Thereafter, the site will be transitioned to final closure. 

Mount Gibson increased its full-year sales guidance to 4.8 million – 5.3 million wet metric tonnes at an all-in group cash cost of $70 – $75 per wet metric tonne, free on board.

The miner is seeking growth opportunities in bulk materials and base metals with a preference for Australia and other lower risk jurisdictions. 

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Motley Fool contributor Kate O'Brien owns shares of Mount Gibson Iron Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Kate O'Brien