Ferrexpo budgets design and ground works for 10mmt concentrator

Ferrexpo’s (FXPO LN) board authorized USD 30 mln spending for the development of iron ore concentrate production facility (concentrator) at Yeristovo deposit, with total annual capacity of 10mmt, according to interim management statement published today. Provisions include USD 20 mln for engineering design and ground works. Further payments for necessary facilities are subject to the board’s approval. The company’s iron ore pellets sales grew 9.9% qoq to 2.472 mmt in 3Q12, 1.7% above the production level. Production C1 costs slid 10% qoq in 3Q12 to USD 58.7/t. Ferrexpo didn’t receive any VAT refunds during the quarter, and VAT receivables grew USD 50 mln qoq to USD 281 mln. Net debt increased USD 91 mln qoq to USD 342 mln, the company reported.

Roman Topolyuk: The news on initiation of concentrator construction at Yeristovo is supportive for the company’s positioning as a growth story, and may cause short-term positive effect on the stock. Hovewer, the estimated project’s CapEx of above USD 700 mln is yet to be approved by the company’s board, meaning that launch of the project may be postponed if market conditions are not favorable (the recent guidance was to review and possibly approve the project in 4Q12). Without final approval of the concentrator project, and with prices, costs and net debt going in line with our expectations that were a basis for our SELL recommendation, we maintain our bearish view on the stock.