Ferrexpo Deep Dive: A small undervalued miner?

Key Takeaways

1. Company Overview: Ferrexpo plc, listed on the London Stock Exchange, is a major exporter of iron ore pellets with mining operations in Ukraine, including two mines, a processing plant, and a port facility.

2. Fundamentals: In H1 2024, revenue rose 64% to $549 million due to higher sales volume, but FCF per share remains negative amid increased costs and geopolitical challenges.

3. Risks and Opportunities: Key opportunities include growing steel demand, Ukraine's reconstruction, and sustainable pellet leadership, while risks involve geopolitical instability, price volatility, and operational uncertainties.

4. Valuation: A DCF analysis, using normalized FCF of $0.37 and a 15% discount rate, estimates Ferrexpo's intrinsic value at $2.04 per share.

5. Market Context: A low P/B ratio of 0.3 reflects market concerns, but Ferrexpo's resilience and strategic position may offer upside for risk-tolerant investors.

Table of Contents

1. Company Overview

2. Thesis

3. Fundamental Overview

4. Status Quo

5. Risks and Opportunities

6. Valuation

7. Conclusion

Company Overview

Ferrexpo plc is a public company incorporated in England and Wales, with its registered office in London, UK. It is listed on the London Stock Exchange and is a member of the FTSE 250 Index.

Ferrexpo was founded in 1977, originally under the name Poltava Mining, and has grown into a leading exporter of iron ore pellets, primarily to the global steel industry. The company's mining operations are based in Ukraine, where it operates two iron ore mines, the Gorishne-Plavninske-Lavrykivske (GPL) and Yerystivske deposits. Ferrexpo also owns a processing plant near Kremenchuk, Ukraine. Additionally, it has a port facility in Odessa and logistics assets, including a fleet of vessels operating on the Rhine and Danube waterways.

Ferrexpo's business model is vertically integrated from mining iron ore to producing high-quality iron ore pellets and concentrates. The company primarily sells its products to steel manufacturers across the world, including markets in Europe, Turkey, China, Japan, and other regions in Asia. In the first half of 2024, Ferrexpo produced a total of 3.7 million tonnes of iron ore pellets and commercial concentrate, with revenues reaching USD 549 million due to increased sales volume despite lower prices compared to the previous year.

The controlling shareholder of Ferrexpo is Fevamotinico S.a.r.l., a company incorporated in Luxembourg and wholly owned by The Minco Trust. The Minco Trust is a discretionary trust with three beneficiaries, including Kostyantin Zhevago and two other family members. As of December 31, 2023, Fevamotinico S.a.r.l. held 49.32% of Ferrexpo's voting rights. Other significant shareholders include BlackRock, Inc. and Schroder Investment Management.