2 Catalist-Listed Companies that are Riding on the Commodity Supercycle

Since the start of the year, we are witnessing a broad-base surge in commodity prices. Many commodities such as Iron Ore, Aluminum, Rubber, Oil, Copper and food products such as Corn and Soybean, has experienced a sharp hike in prices for the 1st half of 2021.

The broad-base prices’ increase was mainly due to pent-up demand from the re-opening of various economy across the globe, as well as government spending on post-pandemic recovery programmes.

With that, commodity prices have remained elevated since the start of the pandemic. In particular, the price of Iron Ore has already gained by more than 140% since the start of 2020 till now.

Source: Market Insider

On the other hand, if we look at year 2021 alone, the Year-to-Date price gain for Iron Ore would be around 40.18%.

Source: Market Insider

The primary use of iron ore is in the production of iron. Most of the iron produced is then used to make steel. Steel is used to make automobiles, locomotives, ships, beams used in buildings, furniture, paper clips, tools, reinforcing rods for concrete, bicycles, and thousands of other items.

With the surge in the price of Iron Ore, 2 Catalist-listed companies stand to benefit strongly from this commodity supercycle trend, mainly:

• Southern Alliance Mining Limited (“Southern Alliance”) (SGX: QNS)

• Fortress Minerals Limited (“Fortress Minerals”) (SGX: OAJ)

Both of them are primarily involved in the exploration and production of Iron Ore in Malaysia and we will talk about them in more details below.

Respective Year-to-Date Share Price Performance

Since the start of 2021, both companies’ share price has enjoyed a strong run up. At one point of time, Southern Alliance’s share price (Black Line) and Fortress Minerals’ share price (Green Line) achieved a return of nearly 300% and 200% respectively.

Despite the correction in May and June, their share price still registered a strong Year-to-Date gain of 175% and 128% respectively.

Source: ShareInvestor C2 Chart

Southern Alliance Mining Limited (SGX: QNS)

Southern Alliance is an established producer of high-grade iron ore products in Malaysia. Headquartered in Pahang, Malaysia, the Group is principally involved in the exploration, mining and processing of iron ore for subsequent sale.

The Group sells:

• Iron ore concentrate of low level of impurities with total Fe grade of between 62% to 65% to steel mills and trading companies mainly located in Malaysia and China; and

• Pipe coating materials that are crushed iron ore with a natural characteristic of a higher density for subsea pipes.

Source: Southern Alliance Presentation Slides

Latest Financial Result

Source: Southern Alliance 1H FY2021 Result Press Release

For 1H FY2021, Southern Alliance’s revenue improved by 8% year-on-year to RM152.1 million. The higher revenue was attributed to a higher Average Realised Selling Price ("ARSP") achieved by the Group, despite being partially offset by the lower sales volume.

With the improvement in gross profit margin and a lower General and administrative expenses, Southern Alliance's net profit grew by 47% year-on-year to RM51.4 million.

Management Outlook

In terms of outlook, Southern Alliance highlighted that iron ore demand will further increase due to China's stance to replenish steel inventories in early 2021 to support robust demand of fiscal infrastructure projects.

Furthermore, widespread stimulus packages are expected to boost investment and spending in 2021 which will buoy commodity prices. Additionally, investments in infrastructure projects in Southeast Asia countries are expected to remain high, backed by government stimulus, hence, increasing iron ore demand.

Lastly, the Group will continue with its planned drilling programs, focusing on exploration activities at Chaah and Ma'okil mines for the rest of FY2021.

Fortress Minerals Limited (SGX: OAJ)

Fortress Minerals is a high-grade iron ore concentrate producer based in Malaysia. The Group is principally in the business of exploration, mining, production and sale of iron ore concentrates.

The Group presently produces magnetite iron ore concentrates with TFe grade of 65.0% and above, mined from the East, Valley and West Deposits in its Bukit Besi Mine, which is in Terengganu, Malaysia.

Fortress Minerals sells its iron ore concentrates primarily to steel mills and trading companies in the People’s Republic of China (“PRC”) and Malaysia.

Source: Fortress Minerals 1Q FY2022 Result Presentation

Latest Financial Result

Source: Fortress Minerals 1Q FY2022 Result Announcement

For 1Q FY2022, Fortress Minerals’ revenue surged by 143.8% year-on-year to US$17.28 million. The significant higher revenue was contributed by a sharp rise in volume sold and a higher Average Realised Selling Price ("ARSP") of iron ore concentrate.

Meanwhile, Fortress Minerals’ profit for the financial year sky-rocketed 233.6% year-on-year to US$7.19 million. The surge in profit was mainly due to the higher topline in the same period.

Management Outlook

In terms of outlook, the Group remains positive on the demand for iron ore as global economic recovery continues, supported by the scale of stimulus that has been deployed by policy makers, in addition to governments focusing on infrastructure spending to stimulate the economy.

The demand from regional steel mill customers remains robust and there has been a noticeable pick up in sales of iron ore. The Group will continue to capitalise on the current robust iron ore price performance and focus on boosting iron ore deliveries.

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