After the share price dropped from a peak of almost 300 pence in February to 170 pence right now, we’re having a closer look at London-listed iron ore producer Ferrexpo (LON:FXPO).
Ferrexpo produced 9.7 million tonnes of pelletized iron ore, which is roughly the same level as 2011. Although the average benchmark price of iron or (62%Fe-content) dropped to $128/t vs. $168/t in 2011 and cash costs increased by 18% to $60/t, Ferrexpo managed to table an EBITDA of $402M by offsetting the lower iron ore prices with lower transportation costs.
The company’s balance sheet looks very strong with current assets in excess of $1.1B (this includes an expected refund of already paid VAT by the Ukrainian government for an amount of $187M). As the current liabilities are only $162M, the company’s current ratio is an extremely healthy 6.75. Even if we apply a very severe acid ratio by deducting the inventory and the expected repayment of the VAT, the current ratio would still be 4.75, so Ferrexpo’s balance sheet looks very robust.
As the company still has ambitious growth plans – Ferrexpo aims to produce 12 million tonnes in 2014- the future is looking good. The long-term plans of the company are underpinned by reserves of 1.5 billion tonnes at an average Fe-grade of 31% and 6.8 billion tonnes in the JORC-compliant resource estimate. This should be enough to produce approximately 3 billion tonnes of pellets and concentrate or in excess of 250 years based on the planned production schedule from 2014 on. On top of that, the company also has in excess of 13 billion tonnes of iron ore in Soviet-categories.
If Ferrexpo is able to control its costs, they could be a very interesting investment for people who continue to believe in the strength of iron ore and the stability of Ukraine.
Disclosure: The author holds no position in Ferrexpo Plc yet, but plans to initiate one. Please see our disclaimer for current positions.
