Mount Gibson Iron Ltd (ASX:MGX) Q4 2024 Earnings Call Transcript Highlights: Strong Cash Flow and Strategic Buyback Amidst Market Challenges

Release Date: August 21, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Mount Gibson Iron Ltd (ASX:MGX, Financial) delivered a solid operating and financial performance in FY24, particularly in the first half.
• Sales were near the upper end of guidance at 4.1 million wet metric tons, generating full-year sales revenue of just under $668 million.
• Unit cash operating costs declined, and the Koolan Island operation generated a solid cash flow of $284 million, three times more than in FY23.
• The company's cash and liquid investment reserves increased by $280 million to $442 million at period end.
• The Board decided to implement an on-market buyback of up to 5% of the company's issued shares, reflecting confidence in the company's outlook.

Negative Points

• The second half of FY24 was more challenging due to weaker iron ore prices and the transition to the eastern half of the pit.
• Unit cash operating costs were 5% above the targeted range at $74 per ton shipped FOB before royalties and capital projects.
• Noncash accounting impairments totaling $159.1 million eroded the profit before tax and impairments.
• Net profit after tax for FY24 was a modest $6.4 million due to weaker iron ore prices and impairments.
• The outlook for FY25 includes lower targeted sales of 2.7 million to 3 million tons and higher unit cash operating costs of AUD95 to AUD100 per ton FOB.

Q & A Highlights

Mount Gibson Iron Ltd (ASX:MGX) FY 2024 Earnings Call Highlights

Q: Just on the capital management strategy. The size of the buyback is a little more, I guess, the question, and obviously, you talked about doing M&A deals, but it appeared that some of the dividends we've had in the past in sort of dollar million basis, why that wasn't a bit bigger?
A: This is the Board-approved percentage. Potentially, it could be bigger in the future. We're looking at a range of options, and this was just the start for trying to build some fair value recognition back into the share price. The other aspect is to try and preserve the cash flow opportunities.

Q: And just on the Fenix stake, we obviously exercised those options. Was that all just as planned? Or were you sort of sitting with that equity stake?
A: The equity stake is from the divestment of the Mid-West assets. We were looking to do that $0.25 tranche, and so it was part of our plan. The objective is that if Fenix pays dividends, we'll pick up some of the dividends on the shares.

Q: Do you think that strategy will be reviewed if you do go by base metals or something as you mentioned before, but in terms of holding on equities as well?
A: It's a possibility, but this one interests us. So that's why we separately disclose it now.

Q: Just on the buyback a little bit more to Hayden's question. If you are looking to do M&A, I mean you're buying back stock, does that -- and then you may be issuing it again to do M&A? Or do you think whatever you're looking at, do you do all the cash, not with stock?
A: The view is that the share price doesn't fairly reflect the value we have left in Koolan and what we've got in the business. So buying it back hopefully sends the message and recognizes that. In terms of M&A, we'd be focusing on cash transactions.

Q: Do you have any indication from your major shareholder, whether they'll participate in the buyback?
A: No formal indication but I don't expect them to participate.

Q: What sort of feedback are you getting from your major shareholder on the state of the China market?
A: Feedback has been cautious but with an expectation that the steel demand is still there. The pricing around $100 to $110 million has always been viewed as equilibrium and a fair price.

Q: Where does that then leave you, Peter? You talked about a cost you got last year at the mine gate or guess at your port of, I think you said $109. What are you actually receiving today versus that $109 a ton 65 Index at the port?
A: The price we receive for 65% material is the 65 Index, which sits at $109. Penalties are around $5 to $6 per ton, and shipping freight rate is currently around USD14 a ton. So we do see reasonable Aussie dollar prices at Koolan Island.

Q: How would that translate then through if prices do continue to weaken, where does that lead your thoughts on the buyback?
A: That's a consideration for the Board. What we have left at Koolan Island over the next two to three years leaves us with higher costs in the first year due to the setup of the east end of the pit. The Board is keen to pursue the buyback at this point.

Q: At today's price, is the buyback fine?
A: Yes.

Operator: Thank you, Peter. We have no further questions.
Peter Kerr: Okay. Thanks for the questions, and thank you to everyone for listening. If you have any further queries, please reach out to us. Contact details are on the releases. Have a good day. Thank you.

Call Participants:

For the complete transcript of the earnings call, please refer to the full earnings call transcript.