Fitch: Ferrexpo’s rating assigned at 'B', outlook stable

Wednesday, 21 July 2010 17:06:06 (GMT+2)

The leading global ratings agency Fitch Ratings has assigned the long-term foreign currency issuer default rating (IDR) and the short-term IDR of the UK-incorporated Ukrainian iron ore producer Ferrexpo at ‘B', with a stable outlook.

Accordingly, the ratings of Ferrexpo reflect its significant iron ore reserves and mine development plans which are forecast to result in a more than 50 percent increase in production volumes over the next five years.

Fitch noted that from a cost perspective Ferrexpo's production and distribution cash costs are in line with the global average for iron ore pellets of around $50/mt in FY 2009.

The ratings also incorporate the expectation that Ferrexpo will maintain a moderately leveraged financial profile over the next three to four years, despite its large investment program and the inherent cyclicality of the mining industry.

Meanwhile, rating constraints include Ferrexpo's limited scale of operations (single mine) and commodity diversification. As over half of its sales are to three customers, Ferrexpo faces the risk of being materially affected by deterioration in the performance of these customers. Ferrexpo does, however, have a number of other high-end customers in the Far East and during the recent downturn demonstrated its ability to redistribute sales to countries where demand for pellets was growing.

Fitch expects Ferrexpo's 2010 revenues to increase 45-50 percent year on year due to higher iron ore volumes and pricing, while its EBITDAR margin is expected to be in the range of 40-50 percent. In 2009, Ferrexpo reported consolidated revenues of $649 million and an EBITDAR margin of 20 percent.

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