By Barbara Lewis
LONDON (Reuters) - Iron ore pellet producer Ferrexpo (L:FXPO) on Thursday said it was resuming dividends after first-half revenue rose 29 percent and debt fell and it said tougher environmental standards in China would help to drive future profits.
Resource companies have bounced back following the commodities crash of 2015-16 and the mining industry's focus has switched from cutting debt to what to do with mounting piles of cash.
Ferrexpo, a Swiss-based company with assets in Ukraine, said it had cut its net debt to less than one times EBITDA (earnings before interest, tax, depreciation and amortisation).
It declared an interim dividend of 3.3 U.S. cents per share to be paid in September after paying no dividend in 2016.
While the outlook for iron ore prices in general is uncertain, it says pellets command a premium, especially as China, the world's biggest commodity consumer, seeks to meet tougher environment standards.
Pellets are partially processed iron ore with the result steel smelted from them produces lower emissions.
"We are seeing increasing demand for pellet. There are environmental constraints in China, with a requirement to reduce emissions per tonne of steel," Chief Financial Officer Chris Mawe told Reuters by telephone.
Rio Tinto (L:RIO) (AX:RIO) said on Wednesday it saw signs of a structural shift in China towards higher grade raw materials.
Mawe said pellets should command a premium over even the best raw iron ore and Ferrexpo has the advantage of being one of the lowest cost pellet producers in the world, even after cash costs of $31.7 per tonne rose from $25.7 per tonne in the first half of 2016 when iron ore prices were lower.
He said Thursday's return to dividends was "the beginning of the story, not the end".
"We have an incremental target of 20 million tonnes (per year). The timescale will depend on the market," Mawe said. For the full-year 2016, Ferrexpo produced just over 11 million tonnes.
Analysts said the results were good, although broadly in line with expectations.
The share price has risen by nearly 80 percent this year, but fell on Thursday. By 0930 GMT, shares were down 0.8 percent.
"Ukraine risk remains but with the balance sheet largely repaired now, we cannot actually think of a better pure play on high-quality iron ore," Investec analysts said in a note.