Shares in Ferrexpo, the Ukrainian iron ore miner, rose 10 per cent to 340.6p on the back of a solid performance in a tough year for the industry.
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Pre-tax profit fell 78 per cent to $81m (£54m) in 2009 on revenue that was down 42 per cent to $649m. That was largely due to tumbling iron ore prices, with the average price of a tonne of iron ore pellets falling from $124 in 2008 to $66 last year.
Analysts are expecting an 80 per cent jump in contract year iron ore prices this year as China and a recovering Europe boost demand. Iron ore is priced through a 40-year-old system of annual contracts, although this system is under threat after criticism by the big operators.
Ferrexpo’s pricing is linked to that of Vale, the largest iron ore miner in the world. Last year no settlement was reached so market prices were used, but last week Vale asked steel producers to pay 80-100 per cent more for supplies in the coming year.
Kostyantin Zhevago, Ferrexpo’s chief executive, said: “We are very hopeful for the year to come, we look forward to sustainable pricing, improved quality and continued expansion in brownfield sites.”
Expansion is set to be focused on the Yeristovskoye mine where the company has completed a definitive feasibility study and hopes to move to production within two years.
“The real focus was whether they had outlined plans for funding at Yeristovskoye and GLP, they are still being quite coy,” said Richard Knights, analyst at Liberum. “They haven’t settled iron ore prices yet so they don’t have complete visibility on earnings, but once they have a better indication then they can start to give more details about expansions.”
When asked about funding options, Chris Mawe, chief financial officer, said: “We’re looking at the markets, we have low gearing and a good performance. Clearly under these circumstances, the debt market is available.” He estimated the company needed $1bn to bring expansion sites to production stage.
The company reported earnings per share of 12.08 cents, down 75 per cent, but held the dividend at 3.3 cents.