Fortress Minerals Ltd. (FMIL SP/ OAJ.SI)
Company Update: 30 May 2023
Fortress Minerals Limited
Mines, processes, and distributes iron ore. The Company focuses on the exploration, mining, production, and distribution of iron ore concentrates. Fortress Minerals’ key markets lie mainly in Malaysia, alongside China, and Vietnam. The company plans to diversify into other minerals that are used largely for clean energy. This diversification strategy adds a layer of protection to the volatility of commodity prices.
Potential to upscale
The company also announced 2 new projects in the state of Sabah, East Malaysia. This adds an additional exploration land of 44,000ha for the company, as well as 4 new key minerals to drive revenue in the future.
Abundant Iron Ore Resources and Reserves
Fortress Mineral has crafted a solid foundation within the industry within the Southeast Asia region, with 2 current big projects at hand to drive revenue. Their mines at Bukit Besi and Mengapur make up a total of 1477.88ha of available mining and exploration land, an indicated and inferred iron resource of 8.83 MT, as well as an indicated and inferred copper resource of 35.89 MT.
A steady source of supply
With secured assets in Bukit Besi and Mengapur, Fortress Mineral can expect a steady flow of iron ore to drive revenue growth. This growth is exponential as the mine has yet to reach its full potential and lifespan, with only 15% of Bukit Besi mine being explored, and only the top layer of soil in Mengapur has been explored. This presents Fortress Mineral with a strong supply of iron ore, as well as copper ore in the long term.
Valuation & Action
We initiate with an Outperform recommendation and a TP of S$0.46, 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 arrive at a TP at $0.46 with a 34.9% upside as we highlight the company’s short-term growth strategies and emphasize the long-term potential growth upside that the company would be able to benefit from.
Risks
The direction of iron ore is the biggest driving factor of profits. Local Demand for Iron ore in Malaysia remains the largest variable. With Malaysia slowly emerging from the COVID-19 pandemic, demand for iron ore is likely to increase as construction activity resumes.
