Аннотация

В прошлом году, слияние Метинвест и Смарт-групп в середине года и передача железорудных активов группы Приват русскому Евраз в конце 2007-го полностью изменили структуру украинской железорудной отрасли. К концу года, Метинвест контролировал около 50% производства и поставки концентрата на локальный рынок. Более того, совместно с Евраз, Метинвест управляет Южным ГОКом, и далее увеличивая свое влияние на региональный рынок железной руды.

Все шесть производителей железной руды, покрываемые нами, получают выгоду от стремительно растущего спроса. Руководствуясь проектами развития украинской сталелитейной промышленности, мы прогнозируем значительный рост локального спроса на агломераты, окатыши и крупнокусковую руду. Экспорт также будет продолжать расти, поддерживаемый явным ростом азиатских рынков (+125% в 2007). Мы прогнозируем, что цены на железную руду резко подскочат в 2008 на почве возросшего спроса по всему миру.

Трое локальных железнорудных игрока собираются увеличить отпуск руды в среднесрочной перспективе, в то время как потенциал роста других трех будет небольшим. На наш взгляд, только две из шести компаний отрасли не искажают реальную финансовую отчетность.

Без сомнения, Ferrexpo - №1 по уровню ликвидности, с ежемесячным объемом торгов на LSE 50-70 млн долл США. Двое следующих – Полтавский и Южные ГОКи, с общим объемом торгов на уровне 90% от общих торгов отрасли на ПФТС: 9-10 млн долл США ежемесячно. Остальные три компании торгуются единичными случаями из-за ограниченного количества акций в свободном обращении. 

Англоязычная версия отчета

Last year, the Ukrainian iron ore industry was completely reshuffled by two large deals: the merger of Metinvest and Smart group midyear and the divestiture of Privat group's ferrous metals & mining assets to Russian Evraz in late 2007. By yearend, Metinvest controlled nearly xx% of domestic sinter feed production and supplied xx% of sinter feed to the tradable local market. Moreover, with Evraz group, Metinvest jointly operates Pivdenny Iron Ore, further extending its influence on the regional iron ore market.

All six iron ore producers in our coverage universe benefit from stellar demand. Driven by expansion projects in the Ukrainian steel industry (consumer of xx% of domestic iron ore), by 2012 local demand will increase xx% for agglomerate and pellets, and xx% for lump ore. Exports will continue to rise as well, supported by the sheer growth of Asian markets (+125% yoy in 2007). We forecast prices for Ukrainian iron ore to jump in 2008 on the back of strong demand worldwide: local sinter feed prices by xx% yoy to USD xx/mt, while pellet prices by xx% yoy to USD xx/mt and export prices by xx% yoy to USD xx/mt.

Three local iron ore players are set to increase production in the mid-term, while the growth potential at the other three will be benign. Only two companies in the sector report financials that reflect their true economies, in our view.

Number one in liquidity, without a doubt, is Ferrexpo, with monthly volumes averaging USD 50-70 mln on the LSE. The next two are Poltava and Pivdenny Iron Ore, which together print 90% of the sector's combined USD 9-10 mln in turnover on the PFTS each month. The other three stocks trade sporadically due to limited free float.

Содержание отчёта

• 1. Investment thesis
  Investment summary
  Investment opportunities
  Valuation summary
  Stock market monitor

  2. Iron ore market overview
  Supply: controlled by four
  SECTOR RESHUFFLED: LIFE BEFORE AND BEYOND 2007
  NEW PROJECTS: DRI PELLETS & KGOKOR
  IMPORT POTENTIAL IS LIMITED
  Demand plays into suppliers' hands
  Local market: favorable outlook
  Exports: shipments growing as we expected
  EXPORTS GREW 10% YOY IN 2007
  GLOBAL IRON MARKET WILL REMAIN TIGHT IN THE MID-TERM
  Ferrexpo: the only non-integrated local player
  FERREXPO NEEDS SECURE CONSUMERS IN THE LONG RUN
  METINVEST, EVRAZ, ARCELOR MITTAL: SHIPMENTS ARE SPOKEN FOR
  Demand strong for DRI pellets
  Price outlook: bullish in the mid-term
  Global prices to stay around historical high
  Local pricing system has been changed
  LONG-TERM CONTRACTS COME TO UKRAINE
  PRICE FORECASTS

  3. Financial performance
  The numbers misrepresent reality
  ONLY FERREXPO, PIVDENNY IRON ORE REPORT RELIABLE FINANCIALS
  WHAT IS THE TRUE PROFITABILITY OF UKRANIAN IRON ORE BUSINESS?

  4. Company Profiles
  Ferrexpo (FXPO LN)
  Quest for strategic partner presents risks for minorities
  Key forecasts
  Key forecasts: looking at life without Yeristovksoe pit
  DCF Valuation (Scenario 1)
  DCF Valuation (Scenario 2)
  Key forecasts
  DCF Valuation
  Key forecasts
  DCF Valuation
  Key forecasts
  DCF Valuation
  Key forecasts
  DCF Valuation (Non-transparent business)
  DCF Valuation (True business)

• 5. Appendices
  Appendix A: Adjustment of financials
  TRANSFER PRICING (UNDERREPORTED SALES)
  A MIX OF NON-RELATED SALES AND TRANSFER PRICING
  ADJUSTED PRODUCTION COST
  Appendix B: M&A in iron ore will spur steel consolidation
  TRADABLE SINTER FEED DEFICIT IN UKRAINE BY 2012?
  Appendix C: Ferrexpo iron ore deposits
  Appendix D: Comparative valuation
  Appendix E: Key peer financials
  Appendix F: Global iron ore projects
  Appendix G: What is iron ore?
  Appendix H: Iron ore processing scheme
  Disclosures

  CHARTS

  EV/S vs. EBITDA margin
  Average market multiples, ‘08E
  Pivnichny Iron Ore (SELL; downside 30.7%)
  Centralny Iron Ore (SELL; downside 22.2%)
  Pivdenny Iron Ore (HOLD; upside 0.7%)
  Sukha Balka (SELL; downside 40.2%)
  Poltava Iron Ore (SELL; downside 28.9%)
  Ferrexpo (HOLD; downside -3.4%)
  Ferrexpo. Stock performance. Spread, %. Monthly trading volumes, USD mln
  Poltava Iron Ore. Stock performance. Spread, %. Monthly trading volumes, USD mln
  Pivdenny Iron Ore. Stock performance. Spread, %. Monthly trading volumes, USD mln
  Pivnichny Iron Ore. Stock performance. Spread, %. Monthly trading volumes, USD mln
  Centralny Iron Ore. Stock performance. Spread, %. Monthly trading volumes, USD mln
  Sukha Balka. Stock performance. Spread, %. Monthly trading volumes, USD mln
  Ukrainian iron ore sector
  Stock price performance Jan 07- Feb 08, %
  Stock price performance YTD, %
  Trading on PFTS by stock, %
  Monthly average spread by stock, %
  Sinter feed production breakdown
  Tradable sinter feed breakdown
  PRODUCTION FORECASTS & INVESTMENT PLANS
  Ukrainian iron ore supply, mln mt
  Local demand for iron ore, mln mt
  Ukrainian iron ore export breakdown, mln mt
  Sinter feed by producer
  Sinter feed by country
  Pellets by producer
  Pellets by country
  Global iron ore seaborne trade, mln mt
  Iron ore supply to China, %
  Ukrainian scrap deficit
  Ukrainian export duty for scrap, EUR/mt
  Ukrainian iron ore prices, USD/mt (EXW)
  Diff. between local and export prices, %
  Iron ore price forecasts, USD/mt
  EBITDA margin comparison, %
  Ferrexpo EBITDA margin by region in 1H07
  Ferrexpo. Sales forecasts, USD mln. Scenario 1
  Ferrexpo. Sales forecasts, USD mln. Scenario 2
  Profitability forecasts
  DCF Valuation (Scenario 1)
  DCF Valuation (Scenario 2)
  Valuation results, USD per share
  Sales forecasts, USD mln
  Profitability forecasts
  Valuation results, USD per share
  Sales breakdown, USD mln
  Profitability forecasts
  Underreported sales
  Pivnichny Iron Ore
  Centralny Iron Ore
  Reported COGS/Output, USD/mt
  Ukrainian average production cost of iron ore, USD/mt (EXW)
  Ukrainian production cost breakdown by input
  Balancing domestic sinter feed market in 2012
  Ukrainian export and import of sinter feed
  What is iron ore?

  
  TABLES

  Planned investments, USD mln
  Import barriers to Ukraine
  Metinvest's local contracts, mln mt
  Revenues, USD mln
  EBITDA margin, %
  Net margin, %
  Earnings quality by company
  Reported vs. true financials, USD mln
  Ferrexpo. Key forecasts
  DCF output, UAH mln, as of March 05
  Sensitivity analysis
  DCF output, UAH mln, as of March 05
  Sensitivity analysis
  Income Statement Summary, USD mln
  Balance Sheet Summary, USD mln
  Key forecasts
  DCF output, UAH mln, as of March 05
  Sensitivity analysis
  DCF output, UAH mln, as of March 05
  Sensitivity analysis
  Income Statement Summary, USD mln
  Balance Sheet Summary, USD mln
  Forecast revision
  DCF output, UAH mln, as of March 05
  Sensitivity analysis
  Factors influencing domestic supply by business group
  Comparative valuation
  Appendix E: Key peer financials
  Global iron ore projects