Ferrexpo invests USD 90 mln in 9M18

Iron ore miner and pellet producer Ferrexpo (FXPO LN,
FXPOLN) invested USD 90.1 mln in its Ukrainian assets during 9M18, the
Interfax-Ukraine news agency reported on Oct. 31, citing the company’s press
release.

Capital expenditure at Ferrexpo Poltava Mining,
Ferrexpo’s main asset, amounted to USD 63.8 mln, of which USD 21.1 mln was
spent on sustaining projects, USD 21.8 mln went to large strategic projects,
and USD 20.9 mln was expended on purchases of components.

The remaining USD 26.3 mln was spent at Ferrexpo’s two
other assets, Ferrexpo Yeristovo Mining and Ferrexpo Belanovo Mining.

Dmytro Khoroshun: We
calculate that in 3Q18, Ferrexpo boosted its large strategic projects
investment to USD 10.1 mln, up 38% from USD 7.3 mln in 2Q18
and more than double from USD 4.4 mln in 1Q18.
This is positive for the company’s prospects in completing its 1.5 mmt p.a.
concentrator expansion project on time (by 2020). Ferrexpo had USD 65 mln to
invest into its concentrator expansion project at the end of 2017, and we
calculate that, as of end-3Q18, the company has at least USD 43 mln more to
invest, or about four quarters at the 3Q18 pace.

As we noted before, Ferrexpo’s capital allocation
strategy does not focus on expansion alone, but instead includes investments
with uncertain return characteristics, such as stripping and storing lean ore. We hope
that Ferrexpo, having invested a total of USD 37 mln in 3Q18, further boosts
its CapEx in 4Q18, particularly its spending on strategic projects, in order to
meet its 2018 CapEx target of USD 120-150 mln
and to increase its return on capital.

We retain our neutral view on FXPOLN Eurobonds.