Ferrexpo boosts pellet output 2.3% in 1H14

Total pellet production for iron ore miner and pellet maker Ferrexpo (FXPO LN) fell 9.4% qoq to 2.6 mmt in 2Q14, the company reported on July 7, since it performed a scheduled refurbishment of one of four pellet lines for six weeks. In 1H14, Ferrexpo boosted total pellet production by 2.3% yoy to 5.4 mmt. Out of that volume, pellet output from iron ore extracted at its Yeristovo Mine almost doubled yoy to 1.6 mmt. At the same time, pellet production from its Poltava Mine’s ore decreased 13.4% yoy to 3.7 mmt. The company stated it remained on track to fully load its pelletizing capacity and achieve annualized production volume of 12 mmt in 2H14.

Roman Topolyuk: Ferrexpo’s production guidance update implies pellet output of 11.5 mmt, close to our expectations. Repair work at pellet production facilities in 1H14, which will seemingly conclude in 3Q14, hasn’t enabled the company to reach full capacity, despite abundant iron ore from the Yeristovo Mine. So the full production capability of 12 mmt per year will be reached only next year. We maintain our bearish outlook on Ferrexpo stock on weak iron ore prices, which averaged USD 111/t (CFR, China port) compared to the previous consensus outlook of USD 120/t for 2014. Currently, the stock trades at 4.5x EV/EBITDA, which is close to the historical average multiple for Ferrexpo, and we believe it leaves limited room for upside in the near term.