Ferrexpo Share Discussion Threads

[granto2] 26/10/2016 13:47

Part 2.
even then they can dismiss it, and refuse to issue the license. At best this looks like Dec 2017 at best. I cannot see any civil servant issuing a license unless he or she is 100% certain that the dam will not burst again. otherwise they will be on the hook and facing the jail. So, I expect this to be torture for Samarco. I could run for years and years….
It gets worse, the $5billion payout, is now being challenged and a new figure of $40billion is afoot. Clearly this is impossible to pay. But even if a figure of $10billion is reached, this could be a way of the Brazilian government taking over the mine, and booting out the people its police say are responsible for the disaster. BUT all this will take years as its fought out.
Meanwhile, various environmental fines are in place.
and the bond holders who are not getting paid their coupons for the last two months could apply to seize the assets - the mine. BUT that would be seen as Samarco LTD 'putting assets beyond reach' akin to, and blocked.
The local miners and the minister of mining want the mine reopened, so Samarco has soon friends….
My read on this is that the Brazilians kept their powder dry for the last year, got their homework done to lay the blame on the company, and now they are going to squeeze them from every angle, Environmental laws licenses and fines, Federal Fines, Regional Fines, Not to mention individual claims, and then the police chasing the executives for homicide !!!. I'd say the current CEO of BHP and Vale won't be visiting the area any time soon. would you? you could be arrested next.
conclusion.
The Brazilians are going to torture them, they will try to get anything they can off them, but the mine is the base line, all of it. I think this circus will run for years and in the end, the fine will be closer to $10 Billion, and the mine will be handed over in part payment. all this 5 years from now. My guess is that this has little or no chance of opening before then.

[granto2] 26/10/2016 13:20

Samarco Update.
Ferrexpo's main competitor is Samarco. And despite Vale's statement that it will reopen next summer, I don't believe them. Here's why.
Firstly the Brazilian authorities, and there are several different powers at play here are slowly getting more aggressive towards the mine and its owners. There are police prosecutions facing 19 Samarco executives mostly based in Australia, this recent criminal aspect will copper-fasten Brazil's different battles against the mine for both its local and national government, and that's the commercial fines aspect where payouts range form $5billion to $50billion USA dollars. It doesn't stop there, there is the Ministry of Mines, and a Ministry of the environment, and several sub sections inside that alone. It is this Environment Dept that the biggest hurdle lies. They have removed the mining license in August, and here comes the killer- they say its 'temporary' but they have issued the mine with a ball breaking report that they want answers and reassurances to before re-issuing the license. and they say that Samarco has 1 year to get back with its submission, meaning they expect this will take close to a year to compile ( august 2017 that is ). BUT, once complied don't you know the civil servants will take a year to read the report and come back with its remarks….

[pbutterworth1] 26/10/2016 13:14

...For the record, a notable performance on a bad day for miners (excl Petra) and the market overall...

[telbap] 26/10/2016 13:08

We need 120 plus at 4.30 to put us on the next leg up.... looking good.

[bigbigdave] 26/10/2016 12:57

Yep, breakout here.

[mister md] 26/10/2016 12:41

nice prediction - seems to be breaking out now

[telbap] 25/10/2016 18:13

Nice price range today, putting in a lot of support in the 114-118 range, living for a close above 120 tomorrow

[telbap] 25/10/2016 07:43

140/150 still my target for next review, may take a few weeks before we see next leg up. I think we will see next stage of the journey before mid November, possible retrace before Christmas close.

[gilesgraves] 24/10/2016 12:19

It is thanks to share chat sites like this that novice investors can hold firm through stomach churning volatility and take the profits that experienced investors know to wait for.

[mreasygoing] 24/10/2016 11:27

Erm, this is a high beta share so I would expect some stomach churning moments with this. A lot of weak holders will be shaken out. But the trend is now up.

[pbutterworth1] 24/10/2016 10:14

Was preparing, as long term holder, to weather three straight down days on this one. Looks like I won't have to. Fasten your seatbelts :-)

[telbap] 24/10/2016 08:02

Nice open, let's see if it is sustained over the first hour.

[gilesgraves] 23/10/2016 08:17

Another interesting angle on Iron Ore prices is the weather. Did you see the reports that there is an unusually high chance of cyclones this season in Western Australia. When this last happened (2011) admittedly there were many other factors at play but the coking coal and iron price peaked. I am not selling Ferrexpo. Friday's 7% drop is literally a drop in the ocean, to be expected after such a big run up. The rise will no doubt continue and patient investors holding through to Spring 2017 will IMO be very richly rewarded.

[jjhbev] 21/10/2016 15:35

Hi again Granto & spooky

Sorry – I need to correct my share price figures quoted in my above post!

I wrote :-

“At a 4X P/E multiple the share price would be approx £1.3 and at a 6X multiple the share price would be £1.6. For what it is worth, if output was 13m tons at a sale price of $92.5 and a P/E multiple of 6x the share price would be £3+. Wouldn’t that be nice!”

In fact I was mixing up some of my figures and – as an American politician might put it – I “miswrote̶1;.

What I should have written is:-

Using the figures for a sales price of $85 per ton and a 4X multiple the share price would be approx £1.30 and using the sales price of $90 per ton and a 4X multiple the share price would be approx £1.60.

Doh!

In addition if a multiple of 6X is used the share price figures would be (obviously!) 1.5x the amount the figures for the 4X multiple – i.e. approx £1.95 and £2.40 respectively.

Again – Doh!

Personally, I believe that a 4X multiple rather than say 6X or higher is justifiable given that the outlook for iron ore is still regarded by most analysts as being distinctly negative. Also, whilst I feel comfortable about the debt management issue I can understand that “The Market” will want to see evidence via the upcoming results – and possibly/probably refinancing of the bonds. Should performance remain positive into 2017 and the iron ore market remain above say $50 per ton I could envisage that multiple moving towards 6X.

So, I am surprised by the current level of the share price – but I hope that we will move higher (much higher would be nice!) as we move into and through 2017.

Now – off to the naughty corner!!!

Best wishes

[spooky] 21/10/2016 10:49

JJHBev - Great post.

[granto2] 21/10/2016 10:12

JJHB,
Not long winded at all, short posts have little meaning here. I like what you wrote as it shows you have a good grasp of the company. I will come back later and comment in-depth.

[jjhbev] 21/10/2016 09:57

Hi Granto

I read your posts over on LSE with great interest (but I am not registered there & therefore do not post there myself). I must say that I do like your input as it is both reasoned and balanced i.e risks highlighted as well as potential upsides.

As regards your question re Fxpo valuation here are my somewhat long winded thoughts!

I continue to see a lot of upside BUT with significant risks attached. Personally I had not expected the share price to be anywhere near its current level until the early part of next year and then only if the iron ore base price was remaining north of $50. So, to be here in mid Oct is IMO pretty darn bullish. Having said that, the iron ore price dynamics including the pellet premium demand (with the situation of Samarco v local authorities becoming more adversarial) do currently support the share price – including the possibility of further significant upside.

I think it is worth remembering how things have changed for Fxpo this year. Looking back only six/nine months Fxpo was facing IMO three major risks:-

1 The iron ore price scenario – including low pellet premiums and forecast of prices continuing around $40 or even less!
2 Mad Vlad – the risk of expansion of the turmoil in the East. Whilst Poltava would not be affected other than in all out war there could have been (and still could be) major disruption around some of the port areas used by Fxpo. There would also be major sentiment issues affecting the share price
3 The debt burden. The size of the debt and its short term nature represented a huge problem when measured against market conditions in the first quarter of this year.

IMO risks 1 & 3 justified the share price level in the first quarter of this year but not as we moved through the second quarter. Now, I believe that we are very close to a situation where the debt risk is close to being eliminated from that list even if iron ore prices do reduce quite significantly. Given the market conditions from mid year and the cash that will have been generated I believe that cash at year end should be well in excess of $100m even after further debt repayments of $62m.

Debt principal repayments due in 2017 total $200m. IMO these are easily serviceable from the level of cash I believe the company will have and the level of cash it should be generating. As regards cash generation it is worth remembering that EBITDA for the first half of 2016 – which included the utterly dire Q1 – was $160m. For the current half year, subject always to Nov/Dec performance, I believe the figure should be $75m+++ higher. The bonds falling due after 2017 should be refinanced and with debt to EBITDA probably below 1.5X these should be straightforward to refinance at much lower cost.

So – I believe that the debt burden is already substantially downrisked and that this will become clear after the results in the first quarter of 2017.

It also appears to be the case that – as a premium pellet producer - Fxpo is insulated from some of the potential downside risks re iron ore prices. Fxpo achieved an average sale price per ton of $76 for the first half. Indications are that it has so far probably achieved $95+ for the second half

Now – finally! – moving to my guesstimate of value.

I believe that if Fxpo achieves $90 per ton of pellets & 11.5m tons of production it should achieve a net profit of $275m+. To be clear, this is profit as reported in the statutory accounts and is after all costs including interest and tax. At $85 per ton that net profit figure drops to $230m. I hope that the tonnage of production for 2017 will in fact be in excess of 12m but, after the recent production update, I am being conservative. Should higher output be achieved – and there are strong indications of the ability to quickly achieve brownfield expansion of 1 – 2m tons pa – then the bottom line impact is very significant (particularly because the marginal costs of the extra production is so low)

At a 4X P/E multiple the share price would be approx £1.3 and at a 6X multiple the share price would be £1.6. For what it is worth, if output was 13m tons at a sale price of $92.5 and a P/E multiple of 6x the share price would be £3+. Wouldn’t that be nice!

So, sorry to be so long winded, but in summary I think that the Deutsche Bank figure of £1.3 makes a heck of a lot of sense but that each day/week/month of output with prices at current levels moves that figure to between £1.5 and £2. BUT significant risks do remain so, as always, DYOR!

Any thoughts?

Best wishes

[mreasygoing] 21/10/2016 09:43

Run your winners and buy the dips.

[fruitninja84] 21/10/2016 09:33

A lovey time to take profits here imoI took mine a bit too soon yesterday @105p when my trailing stop got triggered on that crazy 104-113 morning spread yesterday ... Doh! Still 25% in a few days makes me happy!Remember bulls and bears make money - Greedy little piggies get slaughtered!

[telbap] 21/10/2016 08:48

1.50/1.70 near term.Also very jittery about how the world markets would view a president Clinton, but worse a president Trump! I can see a huge dow drop it he makes it in, or even if there is a hint he is ahead on the day after polling day.

[mister md] 21/10/2016 08:45

this is impressive stuff. Shame its always been one of my smaller holdings ...

[mr.oz] 20/10/2016 22:59

MrE - in and out all the way up from 20's
Not falling in love with it

[panic investor] 20/10/2016 21:51

I'm in just jittery about the overall market that's all - converted a lot of stocks to cash just in case - old enough to remember 2000 - put it that way

[mreasygoing] 20/10/2016 21:30

Hmm, looks like a lot want in but missed the boat.