-- adds broker comment--
Higher overheads and currency movements hit iron pellet producer Ferrexpo (LON:FXPO) in the first nine months of last year.
Profits fell to US$228mln, from US$533.6mln, on sales 18% lower at US$1.08bn.
Pellet sales dipped to 7 mln tonnes from 7.2mln in the comparable period the previous, but average prices fell to 26% to US$131 as iron ore prices generally fell as Chinese steelmakers destocked.
Lower prices were partially mitigated through reduced seaborne freight rates, said Ferrexpo.
Own ore production rose to 6.9mln tonnes, though local inflation in Ukraine pushed cash costs up to US$59 per tonne with power and gas prices higher.
Ferrexpo added that first production from the expansion at Yeristovo began in July, with commercial production on course for this year.
Capital investment over the nine months totalled US$324 million, 37% higher than the previous year. Net VAT outstanding at end September was US$269.6 mln.
Shares eased 12p to 259p today.
Seymour Pierce added that average implied realised prices for the period ofUS$156/tonne were roughly in line with expectations, though price probably went lower still in the fourth quarter.
Encouraging signs for the company include cash costs remaining below US$60/tonne despite higher costs for costs for electricity and gas.
Ferrexpo made today's announcement as part of a eurobond issue roadshow, though there was no indication of its size.
The funds raise will pay down secured debt, increase liquidity and to fund growth projects including the ongoing development of Yeristovo.
Although Seymour Pierce said it would be re-examining its estimates after today's update, it remains positive on Ferrexpo.
“Not only do we expect the company’s Yeristovskoye mine to begin first commercial production in 1H2013 and the start of the development of its new 10Mtpa concentrator at that mine, but also that cash costs will benefit from a 10% devaluation in the hryvnia during the year.
“The shares trade at a 27% discount to our target price of 373p/share.” said the broker, which kept its 'buy' stance.