KGI Research Singapore

Singapore's leading broker offering Futures, FX, Equities and Wealth Management.

Company Update: Fortress Minerals Ltd. (FMIL SP/ OAJ.SI)

Company Update: 20 July 2023

An Iron Mind

  • Fundamentals remains strong. FY24 poised more headwinds for Fortress Minerals. The company’s profitability has been negatively affected by declining iron ore prices since mid-2022 and the presence of high inflationary pressures, while the volume of iron ore sold has remained relatively stable. 1Q24 revenue decreased by 9.2% YoY to US$13.3mn d, while GPM remained stable at 62.5%. NPAT dropped 40.4% YoY to US$2.5mn, while NPM dropped to 18.9% in 1Q24 from 28.7% during the same period last year.
  • Stabilizing iron ore prices. We expect iron ore prices to stabilize around US$110/tonne in 2H23, with more upside as China is expected to release more stimulus to support its economy, which in turn provides a bolster to iron ore prices. The company also expects the volume sold to remain strong at current levels for the rest of 2023.
  • Going forward, we think that the inflation rate has already peaked and is showing signs of slowing down for the rest of 2023. We expect the company business to remain stable in 2H23. We maintain an OUTPERFORM recommendation but lower our target price (TP) to S$0.35 to account for higher-than-expected unit costs due to the high inflation rate.

1Q24 results update.

The company reported a revenue of US$13.3mn, down 9.2% YoY for 1Q24, mainly attributable to the lower average realised selling price The company’s GPM remained stable at 62.5%. Despite the impact of a higher average unit cost of sales in 2023 due to inflationary pressures, 1Q24 GPM remains healthy compared with an average GPM of around 70% for the past few quarters.

Stabilizing Iron Ore Prices.

We expect iron ore prices to stabilize around US$110/tonne in 2H23. Despite a slower-than-expected economic recovery in China, anticipated government stimulus is likely to support achieving the 5% GDP growth rate for 2023. This, in turn, would bolster iron ore prices due to increased demand from China, the largest importer of the commodity.

Growing core business.

At the company’s latest AGM, the company obtained shareholders’ approval to extend its core business to include the trading and mining of new minerals. This goes in line with the company’s longer-term strategic growth plans which are already in progress. The company expects to engage in the sales of other metals, such as copper, which is already an inferred resource at its CASB mine, as well as zinc, cobalt, and nickel, which are probable resources in the company’s 2 new exploration projects in the states of Sabah.

Valuation & Action

We maintain an OUTPERFORM recommendation but lower our TP to S$0.35, based on a blended valuation, using Discounted Cash Flow (DCF), with a terminal growth rate of 2% and a WACC of 10%, as well as a comparable multiples Valuation using an industry EV/Resource multiple of 3.6x. Fortress Minerals’ strong balance sheet, low gearing ratio, and ability to generate cash flow to fund its future expansion plans put it at a competitive advantage against its competitors. We lower our TP to $0.35 to account for higher-than-expected unit costs due to the high inflation rate but would still like to highlight the company’s short-term growth strategies and emphasize the company’s long-term potential growth upside.


The direction of iron ore price is the biggest driving factor of profits. Should China release more stimulus support to boost its recovery, iron ore prices are expected to go higher.

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