Here’s why the Fenix Resources (ASX:FEX) share price is surging 5%

The company has locked in a strong price for its iron ore product.

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miner giving 'ok' sign in front of mine

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The Fenix Resources Ltd (ASX: FEX) share price is rebounding today after a disappointing run of the week. This comes after the resource exploration company announced a positive update to the ASX this morning.

At the time of writing, Fenix shares are up 5.37% to 43.2 cents. In comparison, the All Ordinaries Index (ASX: XAO) is also travelling 0.9% higher to 7,652 points.

Let’s take a closer look at what the company updated the market on today.

What did Fenix announce?

Investors are buying Fenix shares following a statement from the company that it has secured a fixed price for its iron ore.

According to the release, Fenix entered into iron ore swap arrangements for its flagship, Iron Ridge Project. The contracts are for a 12-month period commencing from October to September 2022.

Under the deal, 50,000 tonnes of iron ore will be locked at a monthly average price based on the 62% iron ore fines benchmark index (Platts IODEX). Converted to Australian dollars over the agreed term, the fixed price is equivalent to $230.30 per dry metric tonne (dmt).

The swap arrangements follow the company’s implementation of a price protection policy designed to secure the medium-term future of the Iron Ridge project.

The unsecured contracts will be settled in cash at the end of each month. This means that there are no margin calls or requirements to lodge cash at call, or on deposit.

Fenix managing director, Rob Brierley commented on the company’s decision, saying:

The iron ore swap arrangements were foreshadowed in our recently released quarterly activities report for the June 2021 period. We are effectively locking in ~45% of our planned production during a 12-month period commencing October 2021, at a fixed price that is sufficient to cover the majority, if not the entirety, of our budgeted cost base.

Furthermore, Mr Brierley touched on Fenix’s plans, adding:

We look forward to finalising our Capital Allocation Policy leading up to the release of our FY21 financial results, confident that we have secured profitability until at least Q4CY22, by which time the mine plan predicts the production of even higher specification iron ore that should result in higher market premiums.

About the Fenix share price

It’s been a positive 12 months for Fenix shares, accelerating by more than 500%, and up almost 90% year-to-date. The company’s share price reached an all-time high of 45.5 cents last week and could break that feat again.

Fenix presides a market capitalisation of roughly $204.2 million, with approximately 472 million shares on issue.

Should you invest $1,000 in Fenix right now?

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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