ASX shares in the iron ore sector have sold off sharply in recent months following steel production constraints in China.
Iron ore prices have rapidly deteriorated from May record highs of US$230/t to just US$129/t.
This has, in turn, rattled iron ore majors. BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) share prices plunged 20.9%, 10.5% and 16.3% respectively in the past month.
Lower iron ore prices could impact the profitability of iron ore shares in FY22. But one ASX share has managed to lock in a portion of its production at an impressive A$230/dry metric tonne.
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Which ASX share is it?
Fenix Resources Ltd (ASX: FEX) is a small cap iron ore producer with a market capitalisation of approximately $130 million.
The company began producing iron ore in December last year. It announced its maiden shipment of 37,157 wet metric tonne (wmt) in February.
On 22 July Fenix revealed it has entered into iron ore swap arrangements for 50,000 tonne per month for the next 12-month period. From October 2021 to September 2022 the company has secured a fixed price equivalent to $230.30/dmt. That's US$169.3/dmt at today's exchange rates.
In the announcement, the company said:
The swap arrangements were executed after the implementation of a Price Protection Policy designed to secure the medium-term future of the Iron Ridge project, whilst maintaining Fenix's exposure to the iron ore price.
Commenting on the hedge, Fenix managing director Rob Brierley said:
The iron ore swap arrangements were foreshadowed in our … 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.
