Ferrexpo declares DPS of USc 3.3, 1H18 C1 cost jumps 31%

Ukraine’s largest iron ore pellet exporter Ferrexpo
(FXPO LN, FXPOLN) reported its 1H18 financial results on Aug. 2. Revenue
increased 4.3% yoy to USD 617 mln, while EBITDA dropped 18.4% yoy to USD 234
mln. Operating cash flow before working capital decreased 15.3% yoy to USD 245
mln, while net cash from operating activities slid 19.5% yoy to USD 156 mln.
CapEx grew 23.1% yoy to USD 56 mln.

The cash outflow due to stockpiling of lean ore was USD
24 mln in 1H18, down from USD 27 mln a year ago, bringing the inventories of
lean ore to USD 213 mln at the end of 1H18, up from USD 163 mln a year ago, the
company reported.

Ferrexpo’s net debt amounted to USD 369 mln at the end
of 1H18, a 21.8% yoy drop. The net debt-to-EBITDA ratio dropped to 0.74x at the
end of 1H18, down from 0.94x a year ago.

Ferrexpo’s C1 cash production cost swelled 31.5% yoy
to USD 41.6/t. The company disclosed that out of the USD 10.0/t yoy increase in
C1 production cost, approximately USD 2.6/t was due to increases in maintenance
and USD 2.6/t due to higher stripping volumes at FPM.

Ferrexpo also announced that its directors have
declared a USD 0.033 per share interim dividend, to be paid on Sept. 26. The
record date for this dividend is Aug. 24, and the ex-dividend date is Aug. 23.

Dmytro Khoroshun: The
substantial increase in C1 cost is discouraging, especially if the higher
stripping costs persist in the future. We also emphasize that the cash cost per
ton of lean ore that Ferrexpo stockpiles is high. For example, in 2017 Ferrexpo
experienced USD 53 mln of cash outflow related to the stockpiling of 11.4 mmt
of unprocessed lean ore during the year. This comes to USD 4.6 per ton of raw
ore, which seems high.

We retain our neutral view on FXPOLN Eurobonds.