Edison Investment Research today issued a positive note on London's only listed pure iron ore producer and FTSE 250 constituent, Ferrexpo (LSE: FXPO), noting that the company exceeded its production estimates and that the price for its production would likely eclipse the forecasted US$82/t (tonne) and reach as high as US$107/t.
In the 2010 financial year to date, Ferrexpo’s production of iron ore has been 17% higher than in the comparable period in FY09, while concentrate production has been 18% higher and pellet production 24% higher. Edison said that the rate of increase would most likely not be maintained for the full year, though even a fallback to FY09 levels would suggest an overall output rise of at least 5% for pellet production.
The research house stated that the increase in iron ore prices would likely be ahead of the rising costs in the form of Ukrainian inflation and the oil price.
Should the increase in unit costs of production reach 13% on account of estimated double-digit Ukrainian inflation and a 30% hike in the oil price. The production and positive dynamics in iron ore prices will allow the company to generate earnings of more than 38 pence per share for the full year 2010. This could go up to an estimated 50 pence per share if the Yeristovskoye deposit is exploited, said Edison.