Reuters reported that Fitch Ratings has affirmed UK incorporated Ukrainian iron ore pellets producer Ferrexpo Plc's Long term foreign currency Issue Default Rating at 'B', and its Short term foreign currency IDR at 'B'. The Outlook on the Long term foreign currency IDR is Stable. In addition, Ferrexpo Finance plc's guaranteed notes issue senior unsecured rating was affirmed at 'B' with a Recovery Rating of 'RR4'.
Ferrexpo's ratings are constrained by Ukraine's sovereign rating and Country Ceiling of 'B'/Stable, and an adjustment to the sovereign rating may lead to a rating action on Ferrexpo.
The ratings are supported by Ferrexpo's extensive iron ore reserve base with reserves of over 40 years and the expected increase to its production capacity to 12,000 tonne per annum of pellets by 2014 from the ramp up of the Yeristova mine. Cash costs rose markedly to USD 60 per tonne in H112 due to higher Ukrainian energy tariffs, inflation and oil costs, but Fitch notes that the increase in production of its own ore should yield some scale and substitution benefits over the coming years (given the higher iron content of the new production), which should translate into improved cash costs of below USD50 per tonne over the medium-term.
The company is considered to be cost competitive among global peers, with average cash costs currently in the higher-second quartile of global iron ore producers. This favorable cost position, specifically related to transport costs to central Europe, provides some financial flexibility in a possible protracted commodity price downturn scenario. The ratings also reflect Ferrexpo's favourable geographic location and its access to Black Sea ports.
The ratings however remain constrained by the concentration of sales in a single commodity, iron ore pellets, which exposes the company to fluctuations in commodity prices and cyclical demand factors, a key factor in weaker profitability in the half year to end June 2012. The company also remains reliant on one key mining asset in Ukraine, and is exposed to high end-user concentration of sales with four key customers accounting for the majority of total sales volumes in 2011. Furthermore, the company's relatively limited scale of operations (with EBITDAR below USD1bn) constrains financial flexibility, particularly in the event of a further industry downturn, although Fitch takes some comfort that flexibility exists in the execution of the planned five-year capital expenditure program.
Source - Reuters
(www.steelguru.com)
