www.ferrexpo.com
Ferrexpo plc is a Swiss headquartered resource company with assets in Ukraine. We are principally involved in the production and export of iron ore pellets, which are used in the manufacture of steel. Our asset base comprises one of the largest iron ore resources in the world.
We produce around ten million tonnes of iron ore pellets per year and with several growth projects in place are aiming to double future production. We are committed to becoming a leading global supplier of iron ore pellets, providing outstanding service to our customers and strong returns to our shareholders.
We became the first Ukrainian company to be listed on the main market of the London Stock Exchange (ticker: FXPO) following a successful Initial Public Offering on 15 June 2007. We are a member of the FTSE 250 UK Index.
Ferrexpo plc is the only pure-play iron ore company currently listed on the London Stock Exchange.
Ferrexpo has strong cash generating potential despite current volatility, say analysts
FTSE 250 firm Ferrexpo (LON:FXPO), the producer of iron ore pellets for the steel industry, has strong cash generating potential despite the current volatile trading conditions.
That's the view of Asa Bridle, analyst at City firm Seymour Pierce, following a site visit to the firm's Ukrainian operations.
Bridle recommends investors buy Ferrexpo shares and targets a price of 503 pence (current price: 302.4 pence).
The broker's stance on the stock was reinforced by some in-depth analysis of prospects for the firm's main growth project - Yeristovo - along with an assessment of future iron ore demand.
Bridle noted that the Ferrexpo share price has fallen by more than 20 percent over the last two days at the time of writing, adding that he believes the share is oversold.
"During volatile periods we expect high beta stocks such as Ferrexpo to be particularly susceptible to the vagaries of the market. Indeed, negative news surrounding Chinese manufacturing PMI data along with the presently illiquid spot iron ore market have combined with general negative economic news to push the stock down to 296p as at the close of business (September 23, 2011)," he said.
The firm currently produces around 10 million tonnes of pellets a year and has begun a growth programme, which has the potential to raise annual production to approximately 35 million tonnes of pellets by 2018.
Short term negativity in the iron ore market has been exacerbated by the Chinese data and an "illiquid iron ore spot market" causing Ferrexpo's shares to drop, said Bridle.
But despite these "short term reservations" and an iron ore market moving into surplus by 2014 (estimated), he said that he believed the long term view for demand growth in the world’s developing economies remained intact.
"(The) long term themes of urbanisation, industrialisation and rural area development are expected to see China account for the largest share of the trade in the global iron ore market for the foreseeable future," he pointed out.
Having visited the site, Bridle said Ferrexpo was in a position to protect itself from adverse near term demand downturns and was encouraged that the Yeristovo asset was progressing well.
"Not only is the company in a strong position to protect itself from adverse near term demand downturns, but the company remains on target to deliver on our estimates," said the broker, which leaves its estimates unchanged with EBITDA for 2011 at US$833 million and EBITDA in 2012 at US$819 million.
He said the Yeristovo ore along with extra tonnage from the Gorishne-Plavninskoye Lavrikovskoye (GPL) mine was expected to lift Ferrexpo's pellet production from 10 Mtpa to 12 Mtpa.
"Though the initial processing of the ore will be carried out using spare capacity at Ferrexpo’s existing facilities at Poltava Mining, Yeristovo is already being set up as a separate operation and stage 2 of the mine’s expansion is expected to see the addition of a dedicated 10Mtpa concentrator in 2016 and a pelletiser by 2018.
"By the time it is fully operational Yeristovo is expected to have an iron ore production rate of approximately 27Mtpa," said Bridle.
The analyst added that they were shown the firm's TIS-Ruda terminal where it transports around four million tonnes of its product to Asia and Turkey and where, currently, options to expand the throughput to 10 Mtpa are being discussed.
