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Ferrexpo acquires portion of infrastructure in Poltava region

Ferrexpo acquires portion of infrastructure in Poltava region

1 September 2014

Iron ore miner and pellet maker Ferrexpo (FXPO LN) has agreed to purchase a two-kilometer railway line and a separate power line for a total of USD 0.4 mln in two transactions from related Vorskla Steel, the company reported on Aug. 28. The transaction will reduce Ferrexpo’s costs of access to railway lines. Vorskla Steel is a project launched by Ferrexpo’s major shareholder, Kostyantyn Zhevago, in 2004 that involves the construction of steel slab production facilities with a capacity of 3.4 mmt, the implementation of which slowed down after 2008.

 

Roman Topolyuk: As we understand it, the purchased infrastructure will be a part of Yeristovo Mine’s iron ore concentrator, which has yet to be built. The news might serve as an indication that Ferrexpo is gradually pursuing its concentrator expansion plans, which it hasn’t approved in bulk, but rather is implementing in stages.  Such an approach will let the company to avoid overleveraging amid a weakening iron ore market, relying on own cash flows for the construction of the project valued at USD 600-700 mln. We estimate that the purchase price of the railway line is about 10x below construction cost.

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