Ferrexpo selling price rises 19% yoy

Ferrexpo (FXPO LN) reported 2.6 mmt of pellet sales in 1Q13 (+15% yoy) on May 10, in line with production during the quarter. More revealing, the mining firm hinted its selling (FOB/DAF) price increased 19% qoq in 1Q13, somewhat below the 23% qoq hike in the Chinese benchmark of iron ore prices. That reflects a lagging increase in quarterly contract prices in the company’s product mix, according to Ferrexpo. 

C1 production costs grew 8% qoq to USD 63.9 per ton as a result of first ore processing from its Yeristovo mine.

Ferrexpo reported it expected the approval of its 10 mmt concentrator by the company’s board and first payments for long lead items by the end of 2013. The company also said it obtained extensions for the exploration licenses of five northern deposits in April 2013.

Ferrexpo succeeded in stabilizing the aggravation of its VAT receivables – in exchange for receiving VAT redemptions from the state budget, the company prepaid corporate profit tax equal to the half of its total reclaimed VAT. Nevertheless, the company’s net debt increased to USD 539 mln as of end March 2013, compared to USD 423 mln in December 2012. Net debt remains in somewhat safe territory so far (the net debt-to-2012 EBITDA ratio is 1.3x).

Roman Topolyuk: In our estimation, the company obtained a FOB/DAF selling price of USD 136.5 per tonne in 1Q13. In the next quarter, we expect a qoq decrease in Ferrexpo’s blended selling price. Some positive impact of quarterly contracts on Ferrexpo’s pricing in 2Q13 (influencing more than a third of its sales) will most likely be offset by a 8% qoq decline in Chinese benchmark price, compared to the average price in 1Q13 (to USD 136 mln in April-May). 

The extension of exploration licenses is a strong positive sign for the company, indicating some improvement in Ukraine’s investment climate.