Midas: Ferrexpo set to double its iron output
After Ukraine gained independence from the USSR in 1991, its citizens were given vouchers in a number of nationalised industries.
Metal guru: Kostyantin Zhevago has seen Ferrexpo’s profits rise sixfold in the past year
They could keep these or trade them in for cash, which many did.
One of those enterprises was a large iron ore mine in central Ukraine and as vouchers in this asset were sold, Kostyantin Zhevago, a local entrepreneur, bought them.
By the late Nineties he had effective control of the operation and then spent several years modernising the facilities and ensuring strong transport links were in place.
In 2007, the operation was listed on the London Stock Exchange as Ferrexpo, the first Ukrainian business to join the main market and the only London-listed company focused exclusively on iron ore.
Iron ore comes in different grades, but almost all of it is used to make steel, which is a key component in objects as wide-ranging as DVD players, bridges and saucepans. Each needs a different type of ore.
Ferrexpo makes little round pellets and aims to sell primarily to customers making highquality goods, such as the Austrian steelmaker Voest- Alpine, which supplies BMW, Audi and Porsche, or Japan's JFE Steel, which supplies Panasonic and Sony.
The iron ore industry is dominated by Rio Tinto, BHP Billiton and Vale of Brazil, but Ferrexpo is still one of the largest players and it has certain advantages, particularly when compared with other, smaller rivals.
Ukraine's location and Ferrexpo's strong transport links make the company the lowestcost supplier of pellets to central and eastern Europe and the Middle East.
It is also much closer to China and the rest of Asia than a number of iron ore producers, many of which are based in Brazil or Canada.
Ferrexpo produces nine million tons of pellets a year but plans to double production in five years.
Financing is in place to increase production to 12m tons by 2013 and the group should be able to manage most expansion from its own cash.
The price of iron ore has been rising steadily since the financial crisis. In 2009, it hit $60 a ton. Now it is more than $150 a ton and most experts predict prices will stay high.
As emerging economies build entire cities and the transport that runs between them, they need huge amounts of steel. And as the people become wealthier, they will use more steel products.
In 2009 Ferrexpo's profits were $81.4m (£51m) but 2010 profits, to be announced in two weeks, are likely to be about $475m rising to at least $510m next year.
Midas verdict: Ferrexpo shares are 377.6p, but they should rise as the company ramps up production. Buy.
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