Ferrexpo (Price: 156p | Target: 176p | Rec: Buy) Ferrexpo’s Q1 FY14 production update demonstrates a solid start to the year, with production continuing to increase from the new FYM mine.

We estimate full-year FY14E production of 11.4Mt, anticipating that the group reaches a 12.0Mt/year run-rate by the end of this year.

Our slightly reduced target price from 183p to 176p is unrelated to today’s production result and reflects the results of our quarterly commodity price review.

We reiterate our Buy recommendation. * Q1 FY14E production: During Q1 FY14, Ferrexpo produced 2.82Mt of iron ore pellets, compared with total pellet production of 2.77Mt in Q4 FY13.

Pellet production from FYM ore increased by 6.6%.

We estimate total FY14E pellet production of 11.4Mt, rising to 12.0Mt next year.

Today’s production figures demonstrate progress towards the 12Mt/year run-rate and we believe the company looks on track to meet our forecasts from today’s production numbers. * Valuation and recommendation: As part of our wider sector note, we have marked to market Q1 FY14 iron ore prices and blended our full-year assumption for the 62% Fe fines CFR China price down from US$125/t to US$120/t.

This reduces our FY14E EPS from 51c to 48c.

Our target price, which is based on an equal blend of the company’s NPV and a peer group multiple of FY14E earnings, falls from 183p to 176p.

The shares have recovered well in the last couple of weeks, but we still see around 15% upside to our new target price so we reiterate our Buy recommendation. * Risks: Operationally, we continue to believe Ferrexpo offers lower risk compared with other mining companies.

Key risks include the future of the iron ore price, which is widely estimated to fall, and Ukrainian political risk.
To access the full note please click here Analyst: Louise Collinge +44 (0)20 7597 5779
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