Ferrexpo plc ORD 10p (FXPO)

Company overview

Ferrexpo mines, processes and sells iron ore, mainly in the form of pellets for use in the production of steel.

HL Comment (15 May 2008)

Ferrexpo is a mining company based in Switzerland, but with its main assets located in the Ukraine. The Group's operations are situated on the Kremenchug Magnetic Anomaly, a 50-kilometer long iron ore deposit in the Ukraine's Poltava region. It holds licences to explore or mine the entire deposit, with its operations situated at the southern end of the deposit, adjacent to the Dnieper River. The operations are well placed for both water and rail links to the Black Sea ports for the export. In 2006 they produced 8.6m tonnes of pellets, but management plans for expansion - including the opening of a further three iron ore mines - are projected to increase production to 32m tonnes of pellets and 3m tonnes of lump ore by 2018. Major customers include VoestAlpine AG and the United States Steel Corporation. The company joined the UK’s premier FTSE-100 index in June 2008.

Back in mid April (2008), in a production update, management noted that cost inflation was being felt – rising diesel fuel had been a major factor, although the company was hopeful that further efficiency improvements would help it to mitigate the pressures. Over the first quarter, pellet output increased by 3.4pc pc from the fourth quarter 2007, whilst the average selling price rose 5.7pc. Back in early April (2008), the company announced bumper profits for the 2007 financial year, with the group announcing a 65pc rise in earnings before deductions to $246m, well above consensus analyst estimates of $235m.

Acting for negative investor concerns, the Ukraine is still a developing nation in terms of economic and political terms and the country remains in the shadow of neighbour Russia. Furthermore, given the boom in commodity markets over recent years, the shares have enjoyed a 120pc plus gain over the last 12 months alone (as of 23June08). On the positive, with the rise of developing nations such as China and India, long term demand for commodities such as iron ore appears set to continue. In addition, geographically the company is well positioned to export to many of the emerging economies. On balance, a small market consensus opinion is currently favourable in tone.

All yield figures are variable and not guaranteed.

Fundamental Data