FERREXPO (FXPO)

Indeed, following Ferrexpo's flotation on London's main market in June 2007, broker Cazenove estimates that each 10 per cent increase in iron ore prices will add 25 per cent to earnings, based on 2008 production guidance. Russian investment bank Troika Dialog's earnings estimate of 49¢ for 2008 presumes a 20 per cent price increase, so there's plenty of upgrade potential should the contract negotiations achieve better prices than this. Even on this conservative basis, and despite the shares having gained almost 70 per cent since flotation, the forward PE ratio of 10, based on 2008's earnings estimate, remains cheap when compared to the ratings of other FTSE-listed miners. Moreover, the shares are merely rated in line with those of other pure iron ore players traded elsewhere in the world.

But in terms of enterprise value compared with the company's iron ore resources, Ferrexpo trades at a massive discount to its peers - about 80 per cent. This is because, although only the 12th-largest producer of iron ore worldwide, Ferrexpo owns the fourth-largest iron ore resource in the world, at around 4bn tonnes. And this is only based on the worldwide standard 'JORC' classification of resources - Ferrexpo has a further 14bn tonnes of resource as classified under old Soviet standards.

This massive resource base has two key benefits - first, it guarantees production across the company's Poltava region footprint for decades to come, and second it means that expanding production from current levels of around 9m tonnes per year (mtpy) of iron ore pellets to the targeted 16mtpy by 2014 should be relatively easy. The company simply needs to expand northwards up its licence area from already-established open-pit operations and associated infrastructure, with the first such expansion already underway. If the company meets its milestones, its compound annual growth rate in production in the period 2006-2013 will be an outstanding 9.4 per cent.

That's not to say that there aren't challenges ahead, such as rising production costs. In the first half of 2007, these were held flat in nominal terms, a fantastic achievement given 11 per cent inflation in Ukraine - however, management says it will be doing well merely to keep cost growth in line with local inflation. Ferrexpo is, however, unlikely to become a marginal supplier as far as its primary customer base of steelmakers in central and eastern Europe are concerned, because the relatively high price of Ferrexpo pellets is offset by the much lower delivery costs from Ukraine as opposed to South America or Australia.

Investors may also be wary of a company with such a small free float, with 72 per cent of the company owned by Ukrainian industrial entrepreneur Kostyantin Zhevago. Yet Ferrexpo has jumped through the hoops required for a full London listing. Moreover, the float looks positively liquid when compared to the average 7 per cent free-float for most Ukrainian-listed companies. Add in London's liquidity compared with the home market and some analysts think Ferrexpo has become something of a 'must-have' for investors seeking general exposure to Ukraine. Indeed, daily volumes-by-value of trade in Ferrexpo are 1.5 times that of the whole Kiev stock market.

Add that to a combination of higher iron ore prices and Ferrexpo's strong growth and asset potential, and the shares look like a cast-iron buy.

BULL POINTS:

• Benefiting from high iron ore prices

• Earnings estimates could prove conservative

• Vast resource base

• Shares undemandingly rated compared with those of rivals

BEAR POINTS:

• Small free float

• Faces cost challenges

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