The last three years have been a rollercoaster ride for the miners but few have seen as many highs and lows as Evraz(LSE: EVR). Is now the time to jump off before it lurches downwards again?
This FTSE 250-listed steel and mining business has had a stunning year, rising 152% in the last 12 months. Over three years, it is up an incredible 295%. Yet those headline figures mask wild swings in performance, with the share price crashing from more than 200p in May 2015 to less than 50p last spring. Today it trades at 225p, but you clearly need nerves of steel to buy this company.
Often described as a Russian steel miner, this £3.19bn company, one-third owned by Roman Abramovich, also has operations in the Ukraine, US, Canada, Czech Republic, Italy, Kazakhstan and South Africa. It is one of the world's top producers of crude steel with production topping 13.5m tonnes in 2016. Evraz is also involved in iron ore and coal mining, and a supplier of rich vanadium slag. Like most other commodity stocks it is a play on global growth, which drives demand for industrial metals and coal.
Iron in the soul
Evraz responded to the sell-off of 2015 and early 2016 by slashing costs to cut debt and protect margins, making $316m of productivity improvements. This has paid off, with once-fearful investors flooding back in force. Although consolidated revenues fell 12% to £7.71m in 2016, EBITDA actually rose 7.2% to $1.54m. Margins increased from 16.4% to 20%.
Evraz also reduced its $5.3bn debt pile to $4.8bn, although free cash flow shrank from $799m to $659m as a result (still plenty of cash though). As one of the lowest-cost producers of steel and raw materials in Russia, it is well placed to survive further commodity price turbulence. It also plans further cost containment measures, while delivering moderate capital expenditure to boost cash flow and further reduce leverage.
2016 results were well received by the market but share price growth has slowed, up just 1.89% year-to-date. Jefferies International puts it down to under-perform with a target of 150p, a third below today's price. Evraz claims to have enough cash and committed credit facilities to cover debts set to mature in 2017 and 2018. Last week, it refinanced some of its debt by issuing $750m of debt to mature in 2023, paying 5.375% a year.
The company's dividend was axed in 2013 but although it should recover to yield 2.5% by 2018, few would view this as an income play. It is a risky call on the global economy so you have to ask whether this is something you want to make right now. The bull market continues to rage and investors are still positive, the share price is up 3.39% in early trading. Evraz seems to have got its own house in order, and if all goes well that debt pile should continue to erode while the cash keeps flowing, but macro events are out of its hands. After the recent growth surge I think you have left it too late. About one year too late.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.