Ferrexpo invests USD 53 mln in 1H18

Iron ore miner and pellet producer Ferrexpo (FXPO LN,
FXPOLN) invested USD 52.9 mln in its Ukrainian assets during 1H18, the
Interfax-Ukraine news agency reported on Sept. 13, citing the company’s press
release.

Capital expenditure at Ferrexpo Poltava Mining,
Ferrexpo’s main asset, amounted to USD 35.1 mln, of which USD 12.5 mln was
spent on sustaining projects, USD 11.6 mln went to large strategic projects,
and USD 11.0 mln was expended on purchases of components.

The remaining USD 17.8 mln was spent at Ferrexpo’s two
other assets, Ferrexpo Yeristovo Mining and Ferrexpo Belanovo Mining.

Dmytro Khoroshun: We
calculate that in 2Q18, Ferrexpo boosted its large strategic projects
investment to USD 7.2 mln, up 64% from USD 4.4 mln in 1Q18, which is
positive for the company’s prospects in completing its 1.5 mmt p.a.
concentrator expansion project on time (by 2020). Ferrexpo had USD 65 mln to
invest into its concentrator expansion project as at the end of 2017, and we
calculate that the company has at least USD 53 mln more to invest, or about 7
quarters at the 2Q18 pace.

The 55% qoq drop in purchases of components to USD 3.4
mln in 2Q18 might be due to the absence of major overhauls in the short term
after the completion of the 65-day pellet line refurbishment
in 2Q18.

As we noted before, Ferrexpo’s capital allocation
strategy does not focus on expansion alone, but instead includes investments
with uncertain return characteristics, such as stripping and storing lean ore. We hope
that Ferrexpo boosts its CapEx in 2H18, particularly the spending on strategic
projects, in order to meet its 2018 CapEx target of USD 120-150 mln
and to increase its return on capital.

We retain our neutral view on FXPOLN Eurobonds.