Ferrexpo Plc (FXPO), a producer of iron ore in Ukraine, plans to extend the maturity of some bonds and cut its debt by as much as $300 million over two years on expectations prices of the steelmaking raw material will drop in the period.
It’s offering holders of $500 million of bonds, maturing April 2016, 20 percent cash and 2.5 percent higher yields to extend them to 2019, Chief Financial Officer Chris Mawe said in an interview. That will give Ferrexpo time and cash to cut debt by $150 million to $300 million, he said. It had $712 million of net debt on Sept. 30.
“We are trying to match the cash generation with the maturity of debt in the next 24 months, a period of uncertainty around the iron-ore prices,” Mawe said. “We are putting our house in order for a lower iron-ore price environment during that period. We are making a fair and balanced offer.”
Ferrexpo, which produced about 11 million metric tons of ore pellets last year, plans to raise output in 2015 and for production to reach 12 million tons next year. It postponed plans to invest about $800 million to extend the output of ore concentrate to 22 million tons due to low prices, Mawe said.
Iron ore, which entered a bear market in March, declined 47 percent last year. It will stay low through 2016 as new supply comes on line from Australia to Brazil. UBS AG sees the surplus growing about sixfold to more than 200 million tons by 2018.
Ferrexpo sees prices recovering in about two years as the dominance of buyers in China, where demand has been weakening, will decline so that the market is evenly split with the rest of the world. High-cost producers will cut output and consumption will increase by about 3 percent a year, Mawe said.
The company, whose operations haven’t so far been affected by the crisis in Ukraine, faces power shortages due to a lack of coal at power stations in the country, he said. Production may be cut by 15 percent in the first quarter as a result though it isn’t affected yet, he said. Ferrexpo, which has lowered output costs about 22 percent to $47.1 a ton mainly due to declining oil prices, expects the costs to shrink for the year, he said.
Source: Bloomberg
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