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.
Most watched Money videos
- How to invest for income and growth: SAINTS' James Dow
- Fiat pledges to cease grey car production as they launch new EV
- BMW meets Swarovski and releases BMW i7 Crystal Headlights Iconic Glow
- 2025 Aston Martin DBX707: More luxury but comes with a higher price
- Land Rover unveil newest all-electric Range Rover SUV
- 'Now even better': Nissan Qashqai gets a facelift for 2024 version
- Skoda reveals Skoda Epiq as part of an all-electric car portfolio
- Mercedes has finally unveiled its new electric G-Class
- Mini celebrates the release of brand new all-electric car Mini Aceman
- Blue Whale fund manager on the best of the Magnificent 7
- Mini Cooper SE: The British icon gets an all-electric makeover
- Tesla unveils new Model 3 Performance - it's the fastest ever!
- Bailey pulls his punches on interest rates yet...
- MARKET REPORT: North Sea giant Harbour closes in on £9bn...
- Ford confirms it will cull another of its best-selling...
- Watches of Switzerland buys Italy's Roberto Coin Inc for...
- ITV hit by Hollywood strikes as it pins hopes on Euros...
- BBVA goes directly to shareholders as it steps up bid for...
- Bank of England paves way for Britain to cut interest...
- BAE Systems tools-up for growth as Britain plots defence...
- Cameron left red-faced as Greensill sues Government over...
- Avon Protection handed £38m gas mask contract by MoD
- My uncle has £14,000 in Dart Charge fines despite trying...
- Used car sales hit a five-year high as fresh supply of...
- Mortgage rates are climbing again - should we be worried?...
- Why we need more than a British Isa to move the dial on...
- BUSINESS LIVE: BoE base rate decision; ITV eyes ad market...
- ITV hopes for summer ad boom as it continues to reel from...
- Vodafone told to boost security as £15bn Three merger is...
- Takeover target Wood Group hit by slump in revenues as...