Ferrexpo has record production but weak metal prices hit hard

Suzie Neuwirth
RECORD production in the third quarter was not enough to stop FTSE 250-listed iron ore miner Ferrexpo’s shares sliding 2.5 per cent yesterday, as the low base metal price weighed down on the sector.

Ferrexpo delivered 2,681kt of pellets from its own ore, up 3.2 per cent from the second quarter.

Total pellet production for the fiscal year so far rose 12.5 per cent.

“The results were in line with expectations, there were no surprises there,” Richard Knights, analyst at Liberum Capital, told City A.M. “But all iron ore producers have been hit by [iron ore] pricing. Rio Tinto, BHP Billiton and London Mining all fell.”

Spot iron ore prices have fallen by nearly a third from a record near $200 (£124) per tonne in 2011, reflecting the slowdown in China, the world’s largest importer of commodities, after years of double-digit economic expansion.

Despite a small recovery recently, some analysts forecast prices to fall as low as $80-$90 per tonne soon.

However, Deutsche Bank thinks Ferrexpo is significantly undervalued. “In our view, the stock price does not factor in the current iron ore price, nor the near-term production growth,” said analyst Rob Clifford yesterday.