Ferrexpo hails capital position after record sales volumes

Swiss iron ore miner Ferrexpo achieved record sales volumes in 2016, but produced fewer pellets as it focused on reducing its debt.

The FTSE 250 company, which has assets in Ukraine, said it now enters 2017 with a “much improved capital structure” and expects to benefit from higher pellet premiums while production volumes will reflect better-quality output with total production increasing “modestly” compared to 2016.

Costs will also remain subject to commodity prices, the Ukrainian hryvnia exchange rate and inflation levels in the country.

Some $196m of debt was retired during 2016.

Last year the miner made record sales volumes of about 11.7m tonnes compared to 11.3m tonnes in 2015, due to “strong” demand for its pellets.

After producing 2.77m tonnes in the fourth quarter, annual production fell to 11.2m tonnes from 11.7m tonnes, which reflected a 1m tonne increase of higher performance premium pellets to 3.3m tonnes, the refurbishment of the pelletiser and a decrease in production from low-margin third party concentrate.

The company's average pellet price in 2016 rose slightly compared to the previous year due to a recovery in the 62% iron ore price to an average of $58.50 per tonne, compared to an average $55.50 the previous year, and a “steadily improving pellet premium” following lows in the first quarter of 2016.

Cost of production fell to about $29 per tonne from $31.90 in 2015 and the cash balance improved to $145m at the end of December 2016 from $35m the previous year.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said Ferrexpo looks like it is in "improving health".

“With an average cost of $29 a tonne, the group’s assets are still some way off the likes of Rio Tinto, who’s average cost of production at Pilbara is as low as $14.3 a tonne. But, with both debt and production costs falling, the group looks in improving health."

Shares in Ferrexpo were up 3.4% to 133.90p at 1536 GMT.