7 July 2017
In latest reporting quarter the company decreased its general production volume by 10.5% vs. Q2 2016 to 2.536M tons, the reason – scheduled maintenance works at production facilities.
Premium 65% Fe pellets made 96% of total production volume.
General Ferrexpo production dynamics during last years looked as follows:
In total in H1 2017 Ferrexpo pellets output made 5.16M tons, which has been by 9.8% lower than in corresponding period of Y2016.
Despite decline of output we expect good financial performance of the company in H1 2017. Average iron ore price index (for iron ore with 62% Fe content) in Q1 made USD 85/t. After sharp fall since the end of February (index declined from USD 94/t to USD 53/t in the beginning of June), its average value in Q2 is estimated at USD 60-62/t (dynamics is represented on the chart below, source - Business Insider):
In Q1 2017 65% Fe pellets premium has been at above USD 30/t. Also in March during latest conference call with investors CEO of the company noted that the company had also already fixed significant part of premiums for Q2. So, we can assume that average premium in H1 has been at about USD 25-30/t.
With C1 cash cost of pellets production at about USD 32-35/t, forecast EBITDA of Ferrexpo in H1 2017 will make not less than USD 260M. So, if iron average ore price index value in H2 2017 will make USD 50/t, total Y2017 EBITDA of the company will make USD 400M (in line with our earlier projections).
If we subtract from this amount planned investments (USD 110M), interest expenses (about USD 50M) and dividends (USD 40M), remaining free cash flow will be close to USD 200M, which will be sufficient to repay debt principal without decrease of cash balance (USD 145M as of 31.12.16, in Y2018 the group is to repay USD 320M of debt principal).