- Ferrexpo shares are up 5% on 2021 full-year results
- FXPO also increased humanitarian fund 150% to $12.5m
- Q1 trading results are also looking good
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Ferrexpo (LON: FXPO) shares are up 5% on the full 2021 results announcement. FXPO is an iron ore producer whose operations are within Ukraine, which produces obvious problems currently.
The results for last year are significantly ahead of the previous year. The major influence here has been the rise in the iron ore price over that time. It’s worth noting that Ferrexpo isn’t as reliant upon the Chinese economy as many other iron ore producers – much of the production flows into Europe for DRI and such processes. This delinks results, a bit at least, from that traditionally monitored net landed China price.
But last year’s results, while interesting, aren’t really the determinant of the current share price. Being Ukraine-based, of course, it is events in Ukraine which are the real driver. As the company has announced itself, the Ukrainian government has asked that economic activity continue so they are producing. As the Q1 production report says, it is transport that is the constraint. Ports are closed, so only that material that can go by rail into Europe is being shipped. This is not a significant constraint upon production.
As we’ve noted before, the grand risk at Ferrexpo is that events might lead to a reworking of property rights. Such things have been known to happen in Russia, after all. That risk might be seen as receding, of course. It’s worth noting that Ferrexpo is not involved with the Azovstal works in Mariupol which is so much in the news right now. Ukraine’s a big place.
The other recent announcement from the company is that the humanitarian fund has been increased. From an initial $5 million to a 150% increase, to $12.5 million. This is not money being put aside, this is money being spent right now on problem alleviation.
The pile of information then leads to the difficulty of producing a share price valuation for Ferrexpo. For there are still great uncertainties. Of course, the humanitarian fund will produce considerable goodwill after this is all over. That the mines and plant are not – as yet – damaged means that interruptions in production might not happen at all. Damage to the export ports might stop exports other than to Europe but the company can weather that for a time.
We end up with that usual war risk concerning all corporations and investments in the locality. And then after that? Well, actually, it’s the same macroeconomic risks that all mining companies face at present. It’s a reasonable – not certain, but reasonable – bet that there’s a significant recession on the horizon. The effects of inflation and interest rate rises do make that likely. This will have an effect on prices that can be achieved for mined products like iron ore. That is, coming through war risk leaves Ferrexpo still exposed to price risk. Which way that’s going to go is what should determine trading positions.