Fortress Minerals is the only iron ore miner listed on the Singapore Exchange and, because it's recently listed, it's a new story.

 

1H FY 2020

1HFY
2019

Change

Revenue

13,624

6,572

107.3%

Gross profit

9,410

3,916

140.3%

Gross profit margin


69.1%


59.6%

9.5 points

Profit after tax

3,609

2,007

79.8%

Adjusted profit after tax 

4,775*

2,194**

121.8%

Adjusted profit after tax margin

35.0%*

33.4%**

1.6 points

* Excluding forex loss of US$0.2 m and IPO expenses of US$0.9 m for 1H FY2020.

**
Excluding forex gain of US$10,146 and IPO expenses of US$0.2 m for 1H FY2019.

Its results since its March 2019 listing have a positive aura.

Note the unusual financial year of this miner operating in the Malaysian state of Terengganu: Its 1HFY2020 spans the six months from March 2019 to Aug 2019.

In that half-year, its adjusted net profit, which was announced last week, was US$4.78 million (-- adjusted by excluding a small foreign exchange loss of US$0.2 million and IPO expenses of US$0.9 million).


1. Iron ore prices: They have been great so far this year, which boosted Fortress Minerals' fortunes.

The company's realised average selling price in 1H2020 was US$103.10 per dry metric tonne. 


TeoCheeKok1019L-R: Fortress Minerals financial controller Fionne Chua | Teo Chee Kok, IPO project manager for Fortress Minerals. NextInsight photo.That resulted in a handsome gross margin of 69% for its high-grade concentrate ore with high Fe content of at least 65.0% TFe and low levels of impurities. 

Fortress says its margin has been aided also by "continuous efforts to bolster production efficiencies, productivity, quality and overall competency."

Risk: While iron ore prices have bolstered Fortress so far, they are typically volatile creatures. For the historical and current prices, click here

2. Expanding output: With great selling prices for its iron ore, Fortress is naturally seeking to lift its production output at its mine in Bukit Besi, Terengganu.

Additional ball mills and related machinery to increase processing capacity were commissioned in August 2019.

That lifted total quarterly sales volume to 76,334 dry metric tonnes in 2Q FY2020, or
 11.4% higher y-o-y.

As a result, revenue grew 18.4% to US$7.8 million in 2Q FY2020. And net profit jumped 107.8% to US$2.5 million.  

Fortress aims to further lift its quarterly output incrementally. It won't do quantum jumps but gradual ones. 

3. Nice cash flow: Fortress obtains bank letters of credit before it trucks out processed iron ore to its customers.

It supplies to only two large steel mills in Malaysia for whom Fortress' supplies make up only a fraction of their requirements. 

Notably, Fortress is paid in USD (instead of ringgit).

Processed iron ore is delivered by trucks daily to customers, so on Fortress' balance sheet, inventories were low (US$0.6 million as at end-1HFY20, which includes consumables for its processes).

Operating cashflow in 1HFY20 was healthy at US$7.7 million. 

4. Rising cashpile: Highlights:

• Fortress raised S$12.5 million in net proceeds from its IPO, and the entire sum is sitting untouched as interest-bearing deposits in a Singapore bank.

• Its cashpile totalled US$15.4 million (approximately S$21.2 million) as at end-Aug 2019.

• It has near-zero borrowings but has an outstanding US$8.1 million interest-free loan owing to certain shareholders (end-Feb 2019: US$15.7 million). 


As part of its growth strategy, made eminently possible by its cashflow, Fortress is seeking to make an acquisition.

fortress mineralsSubstantial exploration potential: Less than 5% of the mining area has been explored and Fortress’ mining rights are valid till 2033. Photo: Company
5. Dividends: Fortress has paid an interim dividend for FY2020 amounting to 0.16 Singapore cent/share in May 2019.

During its IPO, it guided for a payout of not less than 15% of earnings for FY2020.

How much potential yield is that? Annualising the 1H profit, one gets about S$10 million profit.

At a not-less-than 15% payout, the dividend would be no less than 0.3 cents a share, or a yield of at least 1.4% on a recent share price of 21 cents (IPO price: 20 cents).

For the 1HFY2020 Powerpoint materials, click here.  

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