Ferrexpo Continues to Seek Strategic Investor to Exploit Key Deposits

Ferrexpo (FXPO LN: N/R) Executive Director Mike Oppenheimer reiterated that the company still intends to attract a strategic investor to help with the USD 2 mln of the investment needed to develop the Yeristovskoye and Belanovskoye deposits, according to Interfax. Ferrexpo intends to put in USD 2 mln of its own financing to the project. According to Oppenheimer, the USD 4 bln over 10 years will help the company to increase production from 9 mln mt to 32 mln mt yoy. Eugene Cherviachenko: Though specific details are not available at this stage, a 50/50 joint venture with a strategic investor to exploit the two deposits could create some risks in terms of their ownership, the brunt of which will be felt by minority shareholders, who would see diminished EV/Reserves multiples. Although, we assume this concern is likely to be mitigated by additional cash flow from the mining operation. If a strategic investor does get involved, in our view, it would dull the chances of success for legal challenges by VS Energy over Ferrexpo assets in courts (the Ukrainian High Economic Court invalidated Ferrexpo’s purchase of a 40.19% stake in Poltava Iron Ore (PGOK: U/R) in July 2007; Ferrexpo pledged to appeal the decision to the Supreme Court but a ruling has been delayed by the government reshuffle). We see the jump in Poltava Iron Ore, which made 26.5% over the last five days to a new historical high at USD 20.42 per share, as largely speculative; according to Oppenheimer, it will not be affected by the deal and is therefore unlikely to be materially affected by the investment plans. Accounts on the development of the Yeristovskoye and Belanovskoye deposits will be carried on another balance sheet.