Ferrexpo secures US$350m credit line for expansion projects

The only pure iron ore producer listed in London Ferrexpo (LON:FXPO) has successfully renewed its debt facilities, securing a larger than expected credit line after the initial loan was oversubscribed.

The initial plan was to secure a US$300 million facility, which was subsequently increased to US$350 million.

The Swiss-based Ukrainian miner now has the means to fund its expansion projects.

“Ferrexpo is pleased to have successfully renewed its debt facilities.

“The group remains strongly cash generative and this financing, in addition to our growing cash balance, provides the company with the financial flexibility to progress with key expansion projects,” said chief financial officer Chris Mawe. Deutsche Bank (NYSE:DB) acted as coordinator, mandated lead arranger and sole bookrunner for the loan.

Besides DB, funding was provided by 10 other prominent financial institutions including ABN AMRO (Euronext:ABN), Credit Suisse (NYSE:CS), Societe Generale (Euronext:GLE), JP Morgan (NYSE:JPM), UBS Investment Bank and BNP Paribas (Euronext:BNP), among others.

Evolution Securities analyst Charles Kernot highlighted that the new facility ‘sets the company up for a one third increase in output and reduces interest costs.’

“This enhances the visibility of the company attaining our 450p target price and reduces the need for the group to bring in a dilutive joint venture partner”, Kernot said.

In its interim results released in early August, Ferrexpo reported a 74% increase in revenue, a 340% increase in pre-tax profit, a 384% increase in basic EPS (earning per share) and a 456% increase in underlying EPS.

The strong performance in the first half prompted Edison Investment Research to upgrade its earnings estimate for the company and predict record full year results for Ferrexpo, surpassing even 2008.

The research house expects full year production to be at least 9.7% higher than in 2009.

Broker Evolution Securities responded to the results report by stating that Ferrexpo was undervalued, while projecting pre-tax profits to jump to £492 million this year from £82 million in 2009.

“The second half is set to be substantially better as the group benefits from two quarters of high prices rather than just one. The company is also increasing its capital expenditure in line with increased cash flow generation and this is set to yield additional production growth,” said Evolution mining analyst Charles Kernot.

Ferrexpo has performed very well on the London Stock Exchange this year. Since January, the share price increased by roughly 50% to the current 299 pence.

Shares in the group rose 2% on today’s news.