Ferrexpo will have produced 11.6 mmt pellets in 2015, expert says

Ukraine’s largest iron ore pellet exporter Ferrexpo (FXPOLN, FXPO LN) will have produced 870-890 kt of pellets in December, a 11-13% m/m decline, the Metal Expert newsletter estimated on Dec. 14, based on its own sources in the company. The decline is being caused by the stoppage of one of its four pelletizing machines for a scheduled repair of half a month, Metal Expert reported. According to its preliminary estimates, Ferrexpo will have produced 11.6 mmt of pellets in 2015 (+5% yoy).

Roman Topolyuk: Ferrexpo is demonstrating strong operating performance up-to-date, with its production volumes expected to come very close to our projections (11.6 mmt). However, record high pellet production volumes will not offset the negative effect on its P&L from the adverse iron ore market environment, as iron ore prices have fallen 45% YTD to USD 39.4/t, and iron pellet prices plunged 49% YTD to USD 55.3/t. We now expect the company to report EBITDA of USD 217 mln in 2015 (a 56% yoy decline), implying its total debt-to-EBITDA ratio at 4.6x (compared to its Eurobonds covenant of 2.5x). The high estimated leverage multiple (which is hindering Ferrexpo’s ability to incur new debt) reveals only partially the deepness of Ferrexpo’s problems, we believe. We estimate currently Ferrexpo’s EBITDA is breaking even at pellet prcies of USD 55/t, and unless iron ore prices rebound or the hryvnia devalues significantly, we expect the company will face the challenge of even paying smoothly the interest on its debt. Our view on Ferrexpo’s bonds is negative.