Ferrexpo PLC (LON:FXPO) has been downgraded to ‘sell’ from ‘neutral’ as analysts at Citi warned that company specific risks will “more than offset” any increase in free cash flow yields caused by a recovery in iron ore prices.
In a note on Friday, in which the bank also raised its target price for the miner to 160p from 135p said the recovery of iron ore equities from lows in March was “mostly complete” and that current valuations were already pricing in iron ore prices of US$70 per tonne long term.
Citi said a “persistent supply deficit and resilient Chinese demand have been driving a case for higher long term incentive prices”, adding that a 10% free cash flow yield for 2020 was “attractive relative to other miners and should support elevated cash returns”.
However, analysts said risks specific to Ferrexpo, including a short mine life for its Kumba project and upfront capital expenditure on pellet expansion, will “more than offset” the free cash flow yields.
Shares in Ferrexpo dipped 1% to 187.5p in mid-morning trading.