Ferrexpo plc strong financial performance, with further growth ahead

Iron Ore

Ferrexpo plc (LON:FXPO) have today provided interim results for six months ended 30 June 2021.

Financial Highlights

·   Revenues rise by 74% to US$1,353 million, reflecting market conditions and investments in increasing pellet quality.

·   Underlying EBITDAA increases by 147% to US$868 million (1H 2020: US$352 million).

·   Profit after tax of US$661 million, representing an increase of 165% (1H 2020: US$250 million).

·   Net cashA position of US$213 million (31 December 2020: US$4 million).

·   Capital investment increases to US$142 million (1H 2020: US$96 million).

·   Interim dividend of 39.6 US cents per share (1H 2020: 13.2 US cents per share) in respect of strong performance in 1H 2021.

Lucio Genovese, Ferrexpo Non-executive Chair, said:

“Today’s strong interim financial results reflect our multi-year investment programme in our assets, which has enabled us to not only take full advantage of the current strength of the iron ore market through our high grade iron ore products, but also deliver these results alongside excellent safety performance and continued progress in cutting carbon emissions.

The Group has shown resilience throughout the global COVID-19 pandemic, and we remain vigilant in our approach to protect our workforce and local communities from the spread of this virus. We continue to deliver growth, in terms of our operations, marketing and financial results, culminating in underlying EBITDAA of US$868 million for the first half of 2021, an increase of 147%. This strong all-round performance has enabled the Group to repay its pre-export finance facility early, whilst also investing for the future, as the Group grows from one phase of growth to another. We are also pleased to announce today an interim dividend of 39.6 US cents per share, reflecting the Group’s healthy balance sheet and strong performance to date in 2021.

Looking ahead, we are at an exciting time in the Group’s development. We are currently undertaking expansion work that will deliver growth in the near-term, having invested US$93 million in growth capex in the first half, and we are already looking ahead to our next phase of growth. On product quality, we have secured our first long-term contract for our latest product offering, high-grade (67% Fe) direct reduction pellets, which represent the future of global steel production as economies worldwide seek to decarbonise, and we also continue to cut our own carbon emissions. Finally, on corporate governance, we welcomed Ann-Christin Andersen as a further Independent Non-executive Director during the period.

I would like to conclude by thanking our workforce for delivering the interim results presented here, and to all stakeholders for their continued support in our business going forward.”

Financial Summary:

US$ million (unless otherwise stated)6 months ended 30.06.216 months ended 30.06.20 ChangeYear ended 31.12.20
Total pellet production (kt)5,5635,598(1%)11,218
Sales volumes (kt)5,5676,107(9%)12,062
Average Platts 62% Fe iron ore fines price (US$/t)18491+102%109
Average Platts 65% Fe iron ore fines price (US$/t)212106+100%122
Revenue          1,353776+74%1,700
Average C1 cash cost of productionA (US$/t)46.640.9+14%41.5
Underlying EBITDAA             868352+147%859
Profit after tax for the period             661250+165%635
Diluted EPS (US cents)        112.342.4+165%107.9
Dividends per share declared (US cents)39.613.2+200%85.8
Net cash flow from operating activities661258+156%687
Capital investmentA14296+48%206
Closing net cash / (net debt)             213(174)           +3874
Closing cash and cash equivalents             235169+39%270

Health and Safety

·   Solid safety performance continues, with no work related fatalities in 1H 2021 (FY2020: one), and a lost time injury frequency rate (“LTIFR”) of 0.37, which continues to remain below the Group’s five-year trailing full-year average LTIFR[1]. This also compares favourably against LTIFR for iron ore miners in Western Australia, which was 1.60 for 2019-20 (most recent data available)[2].

·   COVID-19 update: The Group’s facilities continue to operate with minimal impact on operations to date, and the Group continues to closely monitor its workforce. The infection rate in the local communities surrounding the Group’s operations remains low.

Operational Highlights

·   Pellet production of 5.6 million tonnes in 1H 2021, representing a level in line with 1H 2020, despite pelletiser upgrade work during the period.

·   An additional 149 kilotonnes of commercial high grade (67% Fe) concentrate was shipped in the period (1H 2020: none), correlating to periods of pelletiser upgrade work.

·   Sales volumes decreased by 9% compared to 1H 2020, relating to stockpile drawdown process completed in the prior period.

·   Market balance for pellet sales returning to historic levels, following temporary shift in sales to China in 2020.

·   C1 cash cost of productionA of US$46.6 per tonne, increasing by US$5.7 compared to 1H 2020, reflecting higher commodity prices and plant maintenance costs.

·   Capital investmentA of US$142 million in 1H 2021 (1H 2020: US$96 million), reflecting pellet line upgrade work and increased waste stripping activities ahead of further growth phase.

·   Pelletiser upgrade work completed on three out of four lines, with final line to be completed in 3Q 2021. Once complete, this project will add a 0.5-1.0 million tonnes per annum of pelletiser capacity.

·   First long-term contract signed for Group’s high grade (67% Fe) direct reduction (“DR”) pellets.

Market Environment

·   High grade (65% Fe) iron ore prices as assessed by S&P Global Platts increased significantly during 1H 2021 compared to 1H 2020.

·   Tight market conditions for global iron ore pellet supply, combined with increasing demand for pellets as steelmakers seek to increase productivity and lower emissions, resulted in the S&P Global Platts Atlantic pellet premium rising to US$54 per tonne in 1H 2021 (compared to US$30 per tonne in 1H 2020).

·   C3 freight rates[3] rose by 72%, or the equivalent of US$9, to an average of US$22 per tonne in 1H 2021 as a result of higher oil prices and an increase in demand for vessels.

Board of Directors and Corporate Governance

·   Ann-Christin Andersen appointed as an Independent Non-executive Director of the Board of Directors in March 2021.

·   Appointment of Nikolay Kladiev as Group Chief Financial Officer with effect from today.

Environment, Social and Governance (“ESG”)

·   Release of annual Responsible Business Report on the Group’s website today, covering ESG activities in 2020.

·   Carbon emissions footprint decreases 6% in 1H 2021 against FY2020, on a per tonne basis.[4]

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