Earnings Report /
Malaysia

Fortress Minerals Ltd: Ore production almost doubled this quarter

  • 3Q21 results were better than expectations. Revenue was up 150.9% YoY, PATMI up 477.9% YoY.

  • 3Q21 sales volume increased a stellar 93.8% YoY on the back of increased domestic demand for steel.

  • Maintain BUY with a higher TP of S$0.47, up from S$0.28. We raise FY21e PATMI by 69.2% to capture its 3Q outperformance

PhillipCapital
21 January 2021
Published byPhillipCapital

The Positives

+ Continued volume growth. Iron ore concentrate volumes sold increased 93.7% YoY in 3Q21. This translated to revenue growth of 150.9% YoY. Volume and revenue were both lower QoQ due to monsoon disruptions to production that typically occur at year-end.

+ Spike in margins. Gross margins increased from 57.7% to 75.1% in 3Q21. Revenue for the quarter more than doubled, driven by higher prices for high-grade iron ore concentrates. Their ASP was a record US$110.06/DMT as iron ore prices reached a 7-year high. Average unit cost was also lower YoY through increased iron ore production.

+ Operating cash flow increased 7x. 3Q21 operating cash flow of US$11.7mn was 7x the US$1.6mn achieved a year ago. Net cash slightly dipped from US$9.9mn to US$9mn while FCF turned around from -US$328k in 3Q20 to US$10.4mn in 3Q21.

The Negative

- Nil.

Proposed acquisition of Malaysian subsidiary of Monument Mining Ltd

Monument Mining Ltd (MMY CN, Not Rated) is an established Canadian gold producer that operates gold mines. It also acquires, explores and develops other base metals. FML has entered into a conditional sale and purchase (SPA) agreement with the company for the acquisition of the entire Monument Mengapur (MMSB). MMSB owns a 100% stake in the Mengapur copper and iron project in Pahang, Malaysia. Cash consideration is US$30mn. FML will pay a royalty fee of 1.25% of gross revenue from all products produced at Mengapur to Monument Mining.

Outlook

Iron ore prices are expected to taper down in 2021 as supply balances out demand. We expect them to drop from the current US$190/DMT (Platts IODEX 65% Fe CFR North China) to the region of US$110/DMT.

Maintain BUY with higher TP of S$0.47 from S$0.28

We maintain BUY with a higher TP of S$0.47, up from S$0.28, after we increase FY21e PATMI by 69.2% to factor in its 3Q21 outperformance.