Fenix came out with their quarterly activities report this morning and it was a bit of a mixed bag.

In the good column they made six shipments (in line with forecast), cash on hand is over $100m and they started paying tax, which will allow them to generate franking credits.

In the other column cash costs were up more than 10% on the previous quarter, production was down and the net result of all this is that although margins are still ok, they are coming down.

I don't usually look at the miners but there's a few things about this one that are a bit different and hence it stays on my watchlist. It's a relatively simple operation to get your head around, even for a numpty like me. At this stage they have a single open pit mine (with some other nearby tenements they may develop), which produces high-grade iron ore that they sell at a premium rate to China. Although it's high grade it's also high cost, mainly due to the lack of nearby rail infrastructure requiring them to truck the ore to their port in Geraldton. For that purpose they own a trucking operation (they recently bought the remaining 50% of that business) of around 25 trucks.

The market cap is about $150m but as I mentioned they're sitting on $100m of cash so the EV is only $50m. So how can they justify that remaining $50m when you have a falling iron ore price in a high cost operation? They have contracted half of their production capacity at A$230/tonne until the end of September and a third of production capacity from October to June 2023 at A$180/tonne. On my numbers based on just that and continuing to sell uncontracted product at falling prices for the next few months (and then assuming no uncontracted sales), which is a very pessimistic view, that alone gets them pretty close.

Their dividend policy is to pay 50-80% of profit subject to availability of franking credits. The latter bit is a bit tricky to figure out but it's possible they could pay a 20%+ yield this year, fully franked. I doubt you're going to find anything like that outside of coal.

So based on that it almost seems like a no-brainer. Why wouldn't I invest? There are question marks on the Chairman, John Welborn, who is a former Wallaby, and the recent purchase of the remaining 50% of the trucking business did little to put that to bed. They heralded that this would reduce their C1 cash costs by $10/tonne. On that basis you could justify what appeared to the excessive premium they paid, but that was completely disingenuous and ignored the fact they would be up for the significant costs that are not considered C1 and would no longer get the JV profit they previously had (also not included in C1 costs). The level of equity they gave away in the transaction meant the other owner of the JV becomes Fenix's largest shareholder. At least that owner has proven a savy negotiator and they'll benefit from his trucking expertise as he will take up a seat at the board, but they sure paid for it!

[watching]