Ferrexpo planning production rebound

Ukrainian iron ore miner Ferrexpo (FXPO) is back to its pre-invasion status quo in one way – that is, through spats with the government and legal troubles. The company cancelled an interim dividend announced in January after a freezing order on the holdings of 49.5 per cent shareholder Kostyantin Zhevago. 

The payout itself was a sign of greater operational confidence – the miner managed to sell 4.2mn tonnes of iron ore pellets in 2023, bringing in underlying Ebitda of $130mn (£104mn). This was a significant reduction on 2022’s $765mn, but the balance sheet is protected by the $108mn net cash position. The pre-tax profit was knocked by a $124mn provision covering more Zhevago legal troubles. 

This year, the company said it would restart the third pelletiser line (which converts iron ore into pellet form) depending on Black Sea port availability, opening the door for production increases. The shares have fallen further this year because of the legal troubles, trading around 46p this month compared with 90p at the end of 2023. 

Executive chair Lucio Genovese said the company had hit the ceiling of its production capability given the constraints imposed by the war. “Our results demonstrate that we have learnt to be nimble and how to adapt and respond to ever-changing circumstances,” he said. 

Liberum analyst Ben Davis has forecast pellet production of 5mn tonnes for 2024, a 20 per cent increase on last year, and said added export options could result in a more significant hike as soon as the second half. “This is on the assumption that the Black Sea export routes become financially and logistically viable,” he added.  

This stock will surely surge if the combatants ever reach détente, but the legal dramas should give investors pause for thought. Hold. 

Last IC View: Hold, 92p, 3 Aug 2023