Ferrexpo EBITDA to reach USD 700-750 mln in 2019

Ukraine’s largest iron ore pellet exporter Ferrexpo
(FXPO LN) outlined its expectations and plans for 2019 and beyond during an
Apr. 23 conference call with analysts and investors. The management expects
profitability to rise USD 20-25/t yoy in 2019, including USD 10/t from pellet
premium and USD 10-15/t from the higher benchmark iron ore index, while a USD
5/t drop in sea logistics will compensate for a USD 5-6/t increase in other
costs.

Ferrexpo’s management reiterated plans to spend USD 220-300 mln on CapEx this year
(2018: USD 135 mln), and said that dividends in 2019 might reach USD 160 mln
(2018: USD 135 mln declared, USD 97 mln paid). The company also intends to
reduce its net debt by USD 50-100 mln in 2019, the management said.

Kostyantyn Zhevago, Ferrexpo’s CEO and majority owner,
outlined very tentative plans for Ferrexpo expanding its capacities from 12 to
20 mmt per year. The company plans first to increase its concentrate capacities
to 14 mmt per year by 2022 (from 12 mmt per year expected by 2020), and then to
boost pelletizing capacities to 14 mmt per year by the end of 2023 (from the
current 12 mmt per year). Subsequently, Ferrexpo plans to add 2 mmt per year of
capacities (concentrate ahead of pelletizing) in each of 2024, 2025 and 2026.
The company expects CapEx not to exceed USD 300 mln a year under such an
expansion schedule.

Dmytro Khoroshun: We estimate
that Ferrexpo’s EBITDA might reach USD 700-750 mln in 2019 given the company’s
expectations on prices and costs, which look reasonable. This will result in
net operating cash flow of USD 550-575 mln, which – after USD 300 mln of CapEx
and USD 160 mln of dividends – will leave about USD 90-115 mln for net debt
reduction, which is consistent with the management’s plans.

Looking at Ferrexpo’s plans beyond 2020, it is on
schedule to reach its target of reducing its net debt to USD 200 mln or below
by 2020, and seems to be getting closer to expanding its capacities to 20 mmt
per year, which is positive provided pellet prices do not plunge too low in the
long term.