Why is the Fenix Resources (ASX:FEX) share price crashing 27% today?

Fenix Resources has a good reason for its selloff today.

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The Fenix Resources Ltd (ASX: FEX) share price opened to a rude awakening on Monday, down 27% to a 6-month low of 21.5 cents.

What’s driving the Fenix Resources share price?

Fenix Resources shares went ex-dividend this morning for a whopping fully-franked 5.25 cents per share.

Any investors that held Fenix Resources prior to the ex-dividend date will be eligible to receive the dividend payment on Tuesday, 5 October.

Based on last Friday’s prices of 29.5 cents, this represents a dividend yield of 17.8%.

Double-digit dividend yield? How?

Fenix Resources had a breakthrough FY21, dispatching its maiden shipment of iron ore in February 2021.

Before today’s fall, the Fenix Resources share price was up 25% year-to-date and 100% in the past 12-months.

According to its annual report, the company shipped a total of 0.501 million wet metric tonnes of iron ore which helped it generate a net profit after tax of $49.0 million.

Fenix Resources currently has a market capitalisation of just ~$140 million.

This means that based of FY21 net profit, it’s trading at a price-to-earnings of just 2.85.

Perhaps what’s more encouraging for the iron ore junior is the fact that it’s managed to hedge its iron ore sales at A$230.30/dry metric tonne for the next 12-month period.

From October 2021 to September 2022, the company entered into iron ore swap agreements for 50,000 tonnes per month.

Fenix managing director Rob Brierley commented on the hedge, saying:

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.

This might explain why the Fenix Resources share price is down 5.4% year-to-date compared to Fortescue Metals Group Limited (ASX: FMG) which has plunged 42% this year.

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

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Motley Fool contributor Kerry Sun 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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