The Ferrexpo (LSE:FXPO) share price gained 12% at one point on Friday morning before dropping back for a rise of almost 9%. The jump came as the firm issued a production and trading update. The mining company also gave a clearer forecast for its Ukrainian operations.
The stock has been heavily impacted by Russia’s invasion of Ukraine. Ferrexpo’s operating base is in central Ukraine. It also operates three iron ore mines and an iron ore pellet production facility there.
Why did the share price jump?
The FTSE 250 stock reversed a downward trend on Friday morning following its production update. Ferrexpo noted that total first-quarter iron ore pellet production was 2.7m tonnes. The figure is roughly in line with the same period in 2021 but 11% down on the previous quarter. The Switzerland-headquartered firm blamed the quarterly fall on “operational and logistical constraints” following the invasion of Ukraine.
Ferrexpo said its production was continuing, comprising entirely high-grade forms of iron ore, with an iron ore grade of 65% Fe or above. It said that sales for the quarter reached 2.6m tonnes. The company scaled production activity to meet accessible pellet demand.
The mining firm stated that logistics routes to markets in Europe via rail and barge remained open. However, its activities at the Black Sea port of Pivdennyi were still suspended. It described the company’s Ukraine situation as “complex”.
Ferrexpo said that, in accordance with the Government of Ukraine’s request for economic activities to continue, it would carry on its operations as long as it didn’t impact the safety of staff.
“The safety of our workforce remains our highest priority,” chief executive Jim North said in a statement. He added that Ferrexpo’s operations were outside the main conflict zones within Ukraine.
North also noted that the delivery of iron ore pellets to customers in Europe via rail and barge traditionally represented half of sales.
Should I buy?
Ferrexpo is still trading at a considerable discount, despite today’s jump. As I write the stock is trading at 182p a share, that’s down from 512p a share last year. In fact, the stock looks very cheap right now. It has a price-to-earnings ratio of just over two based on today’s price and previous earnings.
However, performance during this tough period is hard to gauge. Investment bank Liberum has maintained its “buy” rating for the stock but noted the “horrific conditions” in the country. Liberum said that Ferrexpo’s production levels implied that it was operating at 70% of capacity during March. Ferrexpo only has some 100,000 tonnes of inventories built, Liberum added.
There is considerable risk here. The company’s operations could be impacted by further escalations in Ukraine and long-term blockages of Black Sea ports. But I still think this stock could be a positive addition to my portfolio and I’ll be looking to buy some shares soon.
