Ferrexpo 1Q12 costs grow 17% vs. FY11

Ferrexpo (FXPO LN) released an interim management statement last week: 1Q12 pellet sales of 2.2 mmt were close to output in the previous quarter (2.3 mmt) and in line with sales volumes in 1Q11. The C1 cash cost of production grew 17.2% compared to the average of 2011 to USD 59.4/t.

Roman Topolyuk: The sharp increase in production costs was expected, caused by rising energy prices – natural gas, diesel fuel and electricity. Coupled with a decline in average selling prices last quarter, which is likely to persist until yearend, we believe the high profitability of Ferrexpo’s operations will be slashed in 2012, with its EBITDA margin falling to below 40% compared to 45% in 2011.