Ferrexpo pellet output rises 2.6% in 9M14

Ferrexpo (FXPO LN, FXPOLN) total pellet production rose 13% qoq to 2.9 mmt in 3Q14 following the completion of the modernization of one of its four production lines. In 9M14, total pellet output increased 2.6% yoy to 8.3 mmt, including 8.1 mmt of pellets, produced from own ore (+3.7%). In January–September 2014, the company sold 8.2 mmt of pellets (+8% yoy). Ferrexpo also disclosed that it will reduce its capital expenditures, given the current low prices of iron ore. The FYM concentrator project will be resumed “when appropriate,” according to the company.

Roman Topolyuk: The 3Q14 production results came in as expected, with the company increasing its 2H14 output after upgrading its facilities. As a result, Ferrexpo is also close to meeting our expectations of 11.5 mmt of pellet production in 2014 (+6% yoy). The company’s comments regarding CapEx reduction are beneficial for its Eurobonds: minimization of investments could mean that Ferrexpo is postponing placing orders for long-lead items for the concentrator project, preliminarily announced in April.

Such an approach to capital distribution will ensure that Ferrexpo will generate free cash flow of around USD 165-200 mln annually, which, together with USD 359 mln cash on the company’s balance sheet as of end-June 2014, makes the smooth repayment of 2016 Eurobonds look much more viable.