Iron ore pellet producer Ferrexpo (LON:FXPO) kept sales steady at 2.2 million tonnes in the first three months of 2012, though prices and costs came under pressure.

The Ukraine-focused group said prices dipped by seven per cent over the three months to March reflecting the more difficult iron ore market and changes in customer mix. 

Higher oil prices and local inflation also meant production cash costs rising by 17 per cent to $59.4 per tonne, though Ferrexpo used more of its own ore and cut costs to mitigate this.

Production rose by 6.3 per cent over the same quarter in 2011 and Ferrexpo expects output to increase further as upgrades to its plant and operations kick in.

New site Ferrexpo Yeristovo Mining comes on stream in 2013 with the company removing 32 million cubic metres of overburden from the site so far.

The aim is to increase production by 20 per cent to 12 million pellets annually by 2014.

Ferrexpo is also spending over US$210 million to improve the quality of all of its pellets to a premium standard 65 per cent iron content.

Net debt at end March was US$180.7 million, which the firm said predominately relates to recoverable VAT, of which approximately half is overdue. Repayments were received in February, March and April, the company said.

Michael Abrahams, Ferrexpo chairman, said: "Production is up for the first quarter of this year as compared to 1Q 2011, a trend which is expected to continue as first ore from Ferrexpo Yeristovo Mining comes on stream in 2013.

While costs remain under pressure, we continue to seek ways of mitigating these market driven price increases. The marketing team continues to make good progress expanding our global customer base.”

“All of the projects underway are on schedule and it remains the group's intention to produce one million tonnes of pellets per month from 2014," he added.

Separately, Ferrexpo added it has taken out an option to purchase up to 500 newly built closed rail car wagons from Stahanov Rail Cars Plant. 

The supplier is an associate of Ferrexpo's chief executive Kostyantin Zhevago and the proposed acquisation is classified as a "related party transaction".

The closed wagons are to be used for the transportation of iron ore pellets from the Poltava mine to the Ukrainian border for delivery.

The miner added it needs its own logistic operations to support the expansion of its production to 12 million tonnes of pellets per annum.

Total pellet production in the first quarter of 2012 was 0.5 per cent higher than in the first quarter of 2011.

However, JPM noted the 2012 first quarter production dipped 9.4 per cent from the final quarter of 2011. This was partly caused by adverse weather, which JPM said was to be expected in the first quarter.

The Ukrainian-focused miner also narrowly missed the run rate required to hit JPM’s 2012 forecasts of 10 million tonnes.

It said the decline is also due to limited availability of third party concentrate in the Ukraine.

JPM, which remains neutral on the miner, added: “We expect production to ramp up during the rest of the year.”

Production from own raw materials in the first quarter was 2,258kt, 6.3 per cent higher than in the same quarter last year, which should benefit Ferrexpo profits.

“We believe this is a better driver of company profitability given FXPO's margins on production from own raw materials are substantially higher than on production from purchased raw materials,” said JPM.

Production of its premium 65% Fe pellets from own raw materials was 2.5 per cent lower.

Ferrexpo’s target is to double 2010’s output to 20 million tonnes by 2016. And it believes it can deliver increased output by a third to 12 million tonnes by 2013.

The share price rose 4 per cent to 284 pence this morning.

Ukrainian iron producer Ferrexpo (LON:FXPO) today revealed a slight increase in production during the first quarter of 2012.

The company makes metal pellets, containing either 62 or 65 per cent iron, which are used primarily in the production of steel, along with coking coal and smaller amounts of manganese or ferrochrome.

Total pellet production was up half a per cent compared with the same period last year, at 2.25 million tonnes. Within that, Ferrexpo produced 6.3 per cent more iron using its own ore than in the first quarter of last year. 

Ferrexpo also said that production of the higher grade 65 per cent iron pellets increased 1.7 per cent.

A new mining operation is expected to boost production in the future with first ore expected to hit the processing facilities by the end of this year.

New equipment and transport infrastructure is also expected to enhance the operation.

Ferrexpo’s target is to double 2010’s output to 20 million tonnes by 2016. And it believes it can deliver increased output by a third to 12 million tonnes by 2013.

Ferrexpo posted record 2011 underlying earnings of US$801 million, up 37 per cent from US$585 million and ahead of broker forecasts.

Broker Citi said Ferrexpo had done well to carry the level of first half earnings through to the end of the year despite a tougher second half environment.

Underlying earnings came in 5 per cent ahead of Citi’s projections as higher iron ore prices outstripped a 28 per cent increase in cash costs which the company attributed to commodity-related price inflation.

Iron ore pellets are used primarily in the production of steel. China is the world’s largest steel consumer and producer and Ferrexpo is increasingly targeting its output towards Chinese steel mills.

Citi says Ferrexpo benefitted from its long-term relationships with customers and also this push towards Asian markets. 

Ferrexpo sales to Asia in 2011 rose to 40 per cent of its total compared to 27 per cent in 2010.

The company said it was on track with its investment programme, having more than doubled its capital expenditure last year in an attempt to boost output and quality.

Ferrexpo is targeting a premium pellet grade of 65% Fe for all output in 2012.

Citi believes Ferrexpo will struggle to match last year’s production, and because of that has trimmed its 2012, and 2013 earnings per share estimates but still keeps a 'buy' rating on the shares. 

Cailey Barker an analyst at Numis also rates Ferrexpo as a low risk iron ore play and also maintained a 'buy’ stance.

The shares today are 337.8 pence.

Iron ore pellet producer Ferrexpo (LON:FXPO) comfortably beat forecasts last year as record sales volumes and prices more than offset higher costs.

Underlying earnings rose by 37 per cent to US$801 million, compared to broker Deutsche Bank’s forecast of US$789 million. 

Revenues increased to US$1.8 billion from US$1.3 billion as the Swiss headquartered company with Ukrainian assets said its Poltava iron ore mine again ran at full capacity.

 “It’s been an excellent year,” said chairman Michael Abrahams. 

“Although there is likely to be increased volatility in the world economy in the short term, the group is well placed to continue to deliver sustainable value creation.”

The dividend was held at 6.6 cents per share and Ferrexpo said it intends to restrict dividend rises and use its cash flow to fund a heavy investment programme.

Ferrexpo more than doubled its capital expenditure to US$378 million in 2011 from US$167 million as part of the plans to increase output by a third by the end of 2013.

The investment is intended to increase its output by 60 per cent to 20 million tonnes by 2016, double the 2010 level of 9.7 million tonnes.

Ferrexpo is working to extend the mine life at Poltava to 2038 and expects improvements in the iron ore quality upgrading to result in 65% Fe pellets by the end of 2014.

New operation Ferrexpo Yeristovo Mining is set to deliver its first ore in 2012 after concentrator development was approved in 2011 and 60 per cent of stripping to first ore was completed.

Cash costs increased by 28 per cent to US$50.7 per tonne compared to $ 39.7 per tonne in 2010 and attributed to commodity related price inflation and increases in gas, electricity and diesel prices.

Chief financial officer Chris Mawe said Ferrexpo was able to control the cost increases, which were felt by everyone across the market.

The company supplies steel mills in Europe, China, India and Japan and is the largest exporter of pellets in the CIS. 

When asked about growth potential to the Chinese markets, chief exeutive Kostyantin Zhevago said he ‘remains cautious’ but added the Middle East remains attractive due to Ferrexpo’s competitive advantage over more distant producers.

Asa Bridle, an analyst at broker Seymour Pierce, said 2011’s results came in slightly ahead of its expectations.

 “The company has one of the largest iron ore resource bases in the world a considerable proportion of which is yet to be developed. The additional, unexploited resources add a further 69p/share to give our overall target price of 516p/share.”

Shares rose 4p to 337.2p.

Iron ore pellet producer Ferrexpo (LON:FXPO) comfortably beat forecasts last year as record sales volumes and prices more than offset higher costs.

Underlying earnings rose by 37 per cent to US$801 million, compared to broker Deutsche Bank’s forecast of US$789 million.

Revenues increased to US$1.8 billion from US$1.3 billion as the Swiss headquartered company with Ukrainian assets said production hit full capacity.

The dividend was held at 6.6 cents per share and Ferrexpo said it intends to use its cash flow to fund a heavy investment programme.

Ferrexpo more than doubled its capital expenditure to US$378 million from US$167 million as part of its plan to increase output by a third by the end of 2013. 

The investment is intended to increase its output by 60 per cent to 20 million tonnes by 2016, double the 2010 level.

Cash costs increased by 28 percent to US$50.7 per tonne compared to $39.7 per tonne in 2010 attributed to commodity related price inflation and increases in gas, electricity and diesel prices.

The company supplies steel mills in Europe, China, India and Japan and is the largest exporter of pellets in the CIS.

Earnings per share increased 34.4 per cent to 97 cents from 72.2 cents.

The Swiss headquartered company, with Ukrainian assets, is expected to announce annual underlying earnings of US$789 million and up from US$585 million in 2010 when it publishes its 2011 results. 

It expects Ferrexpo, which produces 10 million tonnes of iron ore pellets per year, will end 2011 in a slight net cash position despite average costs increasing to US$51/t up from US$40/t.

“The strong balance sheet and cash flow generating capacity could drive a small surprise in this area on the day,” said the broker.

Total pellet production in the last three months of  2011 was 3.3 per cent higher than the third quarter.

Deutsche Bank said a key component of earnings will be the price it has achieved for iron ore products as these have been weakening in Eastern Europe.

Ferrexpo needs to be able to generate low cost export capacity in order to match prices elsewhere, the broker says

"It has been doing this by transhipping to cape-size vessels in the Black Sea and we may get an update on the progress of this with the full year results,” said the broker.

On the back of the expected record earnings, its stance on Ferrexpo is buy with a price target of 537 pence. 

Deutsche Bank expects a dividend of 6.6 cents per share.

US broker Jeffries says that recent worries over Chinese demand for iron ore have been overdone and now is a good time to pick up shares in the sector.

The broker acknowledges that China is high risk, but says the market is overly pessimistic about the iron ore price outlook and this presents an opportunity to buy shares of Rio Tinto (LON:RIO), BHP Billiton (LON:BLT), African Minerals (LON:AMI) and Ferrexpo (LON:FXPO) at attractive valuations.

Chinese steel production has recovered over the past two months, but is down 5 per cent from the peak of last summer.

While Jeffries does not expect a strong recovery in Chinese steel production this year, it says that the risks to prices of iron are on the upside.

Chinese iron ore cost inflation has previously led to substitution from domestically produced ore to imported ore during periods of weak demand and low prices. 

Jefffries says this could explain why Chinese iron ore imports have increased by more than 10% since last July despite the fact that Chinese steel production has fallen by 5%.

The broker estimates, the marginal cost of iron ore production on a CFR China basis is about $140/dmt (62% Fe).

There is anecdotal evidence of this cost curve support as well. 

The broker said there have been  at least two instances in the last two years where prices have fallen to well below $140/dmt and Chinese and Indian producers quickly responded by shutting capacity.

This led to a balanced market with prices bouncing back to greater than $140/dmt.

The Ukraine-based group produced 2.6Mtpa or 3.3% more iron pellets in the three months to December. The broker had expected lower output due to the tough winter conditions.

The rate of production was the highest of any quarter over the year, which meant annual pellet production from its own raw materials rose by 0.3% to 9.06 million tonnes.

Ferrexpo makes the pellets used by steel mills. Its resource base is one of the largest iron ore deposits in the world at Poltava in the Ukraine producing approximately 10 million tonnes of iron ore pellets in 2010.

Mine output rose by 5.9% qoq and run–of-mine iron ore in the latest quarter was a record at 7.942Mt indicating improving mining capacity in the operations, the broker said.

The mix between higher and lower grade pellets improved marginally to 47% of 65% grade and 53% of 62% grade and all signs indicate a stable process with steadily optimising capacity. 

“This bodes well in our view for the ramp-up of mine production from next year and the upgrading to the process plant,” said DB.

The higher than expected production has prompted Deutsche to raise its earnings forecast by 1% to US$578m for 2011, with underlying operating profits or EBITDA forecast at US$789m.

Its target price for Ferrexpo shares is 537p, though it added the risks remain the company’s sensitivity to iron ore prices, local currency and inflation.

Cost performance is also a key variable that could impact the earnings performance of the company and specifically for Ferrexpo, the iron ore pricing outcome could lead to significant earnings and valuation changes.

At 298p,the shares trade well below its target price and Deutsche Bank’s investment stance remains “buy”.

Ukraine-focused iron ore group Ferrexpo (LON:FXPO) has started legal action in London to settle a long –running dispute over the Poltava mining project.

Ferrexpo said it has the launched legal proceedings against Gilson in the UK High Court in order to take an active step outside the Ukraine to resolve a dispute that has been running in the Ukrainian courts since 2005.

The iron ore group added that it had received legal advice that the Ukrainian proceedings are without merit.

The dispute centres on the sale of a 40% stake in Poltava in 2002 by Gilson, though the initial hearing, which is due to take place in early February 2012, will be on jurisdictional issues.

Ferrexpo, which is Swiss headquartered iron ore company, supplies pellets used in the manufacture of steel. Its resource base is one of the largest iron ore deposits in the world with Poltava producing approximately 10 million tonnes of iron ore pellets in 2010.

Shares in the group rose slightly to 256.9p today, valuing it at £1.5 billion.

Ferrexpo said that production of higher-grade 65-per cent iron pellets increased by 12.3 per cent compared to Q3 2010. Meanwhile, overall pellet production (including third-party concentrate) was in line with the previous quarter at 2.5 million tonnes.

In terms of recent monthly production, 774,000 tonnes of pellets were produced during October compared with 781,000 tonnes in September, which was described as “in line” by Ferrexpo.

Ferrexpo said that the cost environment between July 1 and October 31 reflected local inflation of 15.6 per cent during the year to date, which was principally driven by higher electricity and gas prices.

The increase in cash costs for the period was partially offset by higher production and efficiency improvements, said the firm, with cost per tonne increasing 8.9 per cent to US$52.5 per tonne.

Ferrexpo added that the group is expected to sell approximately 25 per cent of its output on spot for the full year with new long-term contracts beginning in 2012.

“These new long term contracts are expected to be on an index linked price mechanism which will complement existing contracts on an index linked and quarterly negotiated basis,” said the firm.

Ferrexpo’s investment programme is progressing as planned, said the firm, with the Yeristovo deposit on schedule and budget to achieve first ore in 2013 and the Ferrexpo Poltava Mining project proceeding on schedule.

"Ferrexpo continues to benefit from its established reputation as a quality long term pellet supplier,” said Michael Abrahams, Ferrexpo’s chairman. “Should there be further deterioration in market conditions, the Group remains well positioned in the global market to maintain full production due to its low cost position on the supply curve and established infrastructure to seaborne markets, supporting the local economy and its reputation as reliable supplier to the global steel industry."

Ukrainian iron ore producer Ferrexpo (LON:FXPO) reported this morning that its third quarter saw an increase in both total pellet production as well as production of higher-grade pellets.

Meanwhile, the firm said that August saw the second-highest month of pellet production (900,000 tonnes) in the company’s history. 

Total pellets produced during Q3 2011 amounted to 2,333,600 tonnes, which was a 2.8 per cent increase on Q2’s total of 2,270,500 tonnes and 1.5 per cent greater than Q3 2010.

At 1,075,300 tonnes, production of the higher-grade 65-per cent iron pellets was greater by 2.1 per cent over Q3 2010 and 12.3 per cent greater than during the previous quarter.

According to the company, Ferrexpo’s resource base is one of the largest iron ore deposits in the world. Its current producing asset, the Ferrexpo Poltava Mine, produced approximately 10 million tonnes of iron ore pellets in 2010, which made it the largest exporter of pellets in the Commonwealth of Independent States region.

The firm has a diversified list of customers. It supplies steel mills in Austria, Serbia, Slovakia, Czech Republic, Germany and other European states, as well as China, India, Japan among other Asian countries.