Ferrexpo acquires a 14% stake in Brazilian iron ore miner

Ferrexpo (FXPO LN) announced on September 18 that it accumulated shares for a 14.4% stake in Ferrous Resources, a Brazilian iron ore miner, during January-September 2013 at a total consideration of USD 80 mln. Ferrous Resources has an annual iron ore production capacity of 5 mmt, with an expansion option of up to 15 mmt. Ferrexpo said it doesn’t plan to increase its stake in Ferrous Resources yet, and is focusing on its investments in Ukraine.

Roman Topolyuk: The USD 80 mln deal amounts to one-third of capital expenditures that the company will invest in its Ukrainian assets in 2013, by our estimates. The deal plays in favor of Ferrexpo’s geographical diversification and may result in a good return in the long term.

In its 1H13 interim results released in early August, Ferrexpo reported a USD 21.3 mln portfolio investment in some overseas company. Now we can identify it as the stake in Ferrous Resources. Therefore, Ferrexpo should report another USD 59 mln investment in the Brazilian company in 2H13. This extra cash spending in 2H will lead to an end-2013 net debt that’s higher than we initially expected and will worsen the net debt/EBITDA ratio to 1.1x from our previous estimate of 1.0x. Nevertheless, the company’s leverage will still remain a healthy level.