Ferrexpo Regulatory News (FXPO)

14 March 2012

FERREXPO plc

("Ferrexpo" or the "Group")

2011 Full Year Results

A Year of Strong Financial and Operational Performance

Ferrexpo, the FTSE 250 iron ore pellet producer, today announces its full year results for the 12 months ended 31 December 2011.

The Group made significant progress during the year, despite a changeable financial and political environment globally. It produced at full capacity, increased its pellet quality and achieved record sales volumes and prices.

Ferrexpo's growth projects to increase production capacity by one third to 12 million tonnes per annum and to improve the average quality of its pellets gained momentum during the year, as total investment more than doubled to US$378 million, representing 75% of net operating cash flows.

Michael Abrahams, Non-Executive Chairman, said:

"It is Ferrexpo's strategy to develop its significant resource base, one of the largest iron deposits in the world, and to improve the quality of its product mix. Ferrexpo is well placed to capitalise on the progress made in 2011. With its extensive reserve base, low-cost structure, proximity to key markets and logistics infrastructure, Ferrexpo is a key supplier to leading global steel manufacturers.

"The Board believes that although there is likely to be increased volatility in the world economy in the short term, the Group is well placed to continue to deliver sustainable value creation."

Highlights

Financial

Record financial performance

1 EBITDA - the Group calculates EBITDA as profit from continuing operations before tax and finance plus depreciation and amortisation and non-recurring exceptional items included in other income and other expenses, and the net of gains and losses from disposal of investments, property, plant and equipment.

Operational

Production

Consistent operational performance at full capacity

·; Production, from own ore, of 9.1 million tonnes of pellets (2010: 9.0 million tonnes of pellets)

·; 5% increase in output of 65% Fe pellets to 4.3 million tonnes

·; Capital investment more than doubled to US$378 million (2010: US$167 million)

·; Growth projects progressing as planned, first ore from FYM end of 2012

Sales and Marketing

Record sales volume

·; Sales volumes of 9.9 million tonnes (2010: 9.7 million tonnes)

·; Commencement of index linked pricing - first step to ensure Ferrexpo achieves prices in line with its international peer group

·; Continued addition to logistics capabilities

·; 52% of sales delivered to customers through Ferrexpo's supply chain (2010:14%)

·; Ordered 712 rail cars, at year-end total holding was 1,045 (2010: 933)

·; Purchase of 143 barges providing delivery capability on the Danube River corridor

·; Loaded 9 capesize vessels reducing freight costs, for that tonnage, by US$7/ tonne

Funding

Strong balance sheet with low levels of liquidity

·; Net debt reduced to US$80 million at 31 December 2011 from $104 million as of 31 December 2010

·; US$500 million Eurobond raised at 7.875% coupon

·; US$420 million credit facility secured

·; Minimal debt repayments in 2012 and 2013

·; Average debt maturity profile 4 years

·; Growth projects fully funded

For further information, please contact:

Notes to Editors:

Ferrexpo is a Swiss headquartered iron ore company with assets in Ukraine. It is principally involved in the production and export of high quality iron ore pellets, which are used in the manufacture of steel. Ferrexpo's resource base is one of the largest iron ore deposits in the world. Its current producing asset, FPM, currently produces approximately 10 million tonnes of iron ore pellets per year making it the largest exporter of pellets in the Commonwealth of Independent States. The Company has a diversified customer base supplying steel mills in Austria, Serbia, Slovakia, Czech Republic, Germany and other European states, as well as in China, India, Japan, and other Asian countries. Ferrexpo is listed on the main market of the London Stock Exchange under the ticker FXPO. For further information, please visit www.ferrexpo.com

CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'SSTATEMENT

Introduction

2011 was another year of significant development for Ferrexpo, despite a volatile financial and political environment globally. The Group delivered an excellent operational performance with record production from own ore further increasing the quality of its pellets. Sales volumes and average pricing reached historic highs and net profit grew by 35%.

The Group's growth projects gained momentum as investment increased to record levels at approximately 75% of operating cash flows. This is part of Ferrexpo's strategy to upgrade and modernise existing mining facilities and to access new ore so as to increase pellet production output by one third from 2013 onwards and, following further Board approvals, to 20 million tonnes. These projects are proceeding on budget and schedule.

In 2011, Ferrexpo developed its resource base, expanded and strengthened its customer mix, maintained a competitive cost of production, improved the quality of its product and expanded its logistics capabilities while ensuring sufficient financial liquidity. This has positioned the Group favourably for the short and medium-term, increasing value to all stakeholders - employees, customers, its country of operation and shareholders.

Results and Dividend

Group revenue increased by 38% to US$1.8 billion for the 12 months ended 31 December 2011 (2010: US$1.3 billion) primarily driven by higher sales prices. The Group's C1 cash cost1 of production increased by 28% to US$50.7 per tonne, compared to the average C1 cash cost in 2010 of US$39.7 per tonne.

Prices of key inputs increased in line with world market prices for commodities, in particular energy and steel. This accounted for 56% of the C1 cash cost increase. Local costs were higher due to Ukrainian producer price inflation of 19%. Continued progress in the Business Improvement Programme ('BIP') improved efficiencies, and production at full capacity further enabled maximum absorption of the fixed cost base. The Ukrainian Hryvnia remained stable against the US Dollar during the period.

Overall EBITDA rose by 37% to US$801 million (2010: US$585 million). Group profit after tax increased to US$575 million (2010: US$425 million).

Operating cash flow after interest and tax and before acquisitions was US$503 million for the period (2010: US$380 million). Capital expenditure amounted to US$378 million (2010: US$167 million) with the increase reflecting higher spend on growth projects.

At the period end, Ferrexpo had net debt of US$80 million.

The Board's strategy remains to fund capital expenditure out of operating cash flows and to pay a modest consistent dividend throughout the economic cycle, while maintaining adequate liquidity to develop the significant project pipeline. The Directors therefore recommend a final dividend in respect of profits generated for the Group in 2011 of 3.3 US cents per Ordinary Share (2010 final dividend: 3.3 US cents per Ordinary Share) for payment on 1 June 2012 to shareholders on the register at the close of business on 4 May 2012. The dividend will be paid in UK Pounds Sterling with an election to receive US Dollars.

1 The C1 cash cost of production per tonne is defined as the cash costs of production of iron pellets from own ore divided by production volume of own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements, costs of purchased ore, concentrate and production cost of gravel.

Market Environment

In 2011 China's crude steel output grew 8.9% to 695.5 million tonnes, an increase of 56 million tonnes. Global steel production in 2011 grew 6.8% to a record 1.5 billion tonnes. Asia accounted for 64.7% of the global production (source: World Steel Association).

As a result of the growth in steel production, especially in China, the average realised price for iron ore was an industry record in 2011. This reflected a 35% fall in the China CFR index price for 62% Fe fines in September 2011 from US$181 per tonne to a low of US$117 per tonne in October before the price recovered towards the year end.

A key factor in price realisation and contract performance throughout the year was the continued evolution of the iron ore price setting mechanism. In China, the period of duration for calculating the average price was shortened, with many of the major iron ore producers moving to monthly time periods. In most other markets, the leading producers continued to follow a quarterly pricing mechanism which moved to the average quarter of loading following the fall in the spot price in September and October. Such a move assisted contract performance; in contrast with the second half of 2008, where contract prices did not immediately adjust to the changing market conditions and subsequently resulted in customers being reluctant to fulfil their contractual commitments.

In this market environment Ferrexpo has continued as a price follower but has made significant strides towards:

1. Establishing Index Linked Pricing:

During the year, Ferrexpo established index linked pricing using the average for the quarter of loading as the preferred pricing mechanism. This move was aligned with that of the major iron ore suppliers who moved to a similar pricing methodology for the October to December quarter. This is the first step towards ensuring that Ferrexpo achieves prices in line with its international peer group.

2. Capitalising on its Geographic Proximity to Major Steel Markets:

Ferrexpo successfully loaded its first capesize ship in May, allowing it to realise significant freight cost benefits as compared to using smaller panamax vessels. By the end of 2011, nine capesize ships had been loaded reducing freight costs, for that volume, by approximately US$7 per tonne.

3. Strengthening its Customer Base:

It is the Group's strategy to expand sales to high quality customers and to develop new customer relationships in Asia. Sales volumes to Asia increased to 40% of total sales compared to 27% in 2010. The increased Asian sales included additional trial shipments to target blue chip customers in the region. The Group intends to maintain such geographic diversity in the sales portfolio.

As Ferrexpo increases its production and sales volumes and targets growth regions, dependence on some traditional markets is expected to decrease. Reliance on these markets was reduced to 44% of total sales in 2011 from 55% of sales in 2010.

As a result of the above developments, the Company achieved satisfactory pricing during the year under review. While market prices have moderated so far in 2012, and are not expected to reach the highs of 2008 or 2011, the Group still believes that they will be above average historic levels. Meanwhile, Ferrexpo will continue with its programme of developing its customer base and shipping capabilities as well as increasing the quality of its pellets supplied to global markets.

Production

In 2011, Ferrexpo Poltava Mining ('FPM'), the Group's current mining operation, achieved one of its best production years in history, once again operating at full capacity throughout the year. The Division produced 9,063 thousand tonnes of pellets from own ore compared to 9,033 thousand tonnes of pellets produced in 2010. Over the last 10 years, production, from own ore, has doubled on a 100% Fe equivalent basis.

Ferrexpo has made significant strides towards improving the quality of its pellet output. 2011 was FPM's best performance on record regarding the production of its Premium 65% Fe pellets, from own ore, which increased 4.8% to 4,256 thousand tonnes.

The production of pellets from purchased third party concentrate was the second highest in the Group's history, despite lower availability in local markets. 747 thousand tonnes of pellets were produced from purchased concentrate compared to 998 thousand tonnes in 2010. Total pellet production, including pellets processed from purchased concentrate, for 2011, was 9,810 thousand tonnes compared to 10,031 thousand tonnes in 2010.

The current level of production from own ore represents full mining capacity of approximately 30 million tonnes per year (30% average iron content). This is expected to remain at this level until first ore from the Ferrexpo Yeristovo Mining ('FYM') deposit is achieved at the end of 2012 (see Capital Investments below).

Health and Safety

In accordance with the Group's clearly stated policy of improving safety standards, Ferrexpo is pleased to report that there were no fatalities at its mines in 2011 and that the lost-time injury frequency rate ('LTIFR') FPM fell to 0.82 per million man hours worked, the lowest rate in its history (2010:1.43). FYM experienced no lost-time injuries during the year which was a major accomplishment. Overall, the Group's total LTIFR in 2011 was 0.77 compared to 1.46 in 2010.

The management of Ferrexpo fosters a culture of safety in the organisation, linking safety performance to remuneration. The Group has regular safety audits by Du Pont and is determined to follow international best practice as well as to set the standard for mining companies operating in the CIS.

Cost Environment

In common with all metals and mining producers, the cost environment in 2011 was impacted by commodity price increases and inflation in Ukraine. Specifically, the full year impact of higher energy prices, following the oil price hike at the end of 2010, as well as increased prices for steel grinding bodies, resulted in higher operating costs overall for the Group. Ferrexpo's C1 cash cost increased by 28% to US$50.7 per tonne.

Within this environment, Ferrexpo focused on limiting cost inflation through production increases and BIP initiatives aimed at reducing consumption norms. For the year BIP reduced the C1 cash cost of production by 1.8%, in line with the Group's annual target of 1% to 2%.

70% of total operating costs are in Ukrainian Hryvnia. In 2011, the Hryvnia remained stable against the US Dollar compared to 2010 at approximately UAH8 per US Dollar.

Ferrexpo is well placed, in the lowest quartile of the global pellet cost curve, to sustain its competitive position should iron ore pricing decrease. In the meantime, it will invest up to 80% of cash flows after operating activities in the expansion and modernisation of the existing mine and processing facilities and in new mining operations, starting with FYM. This investment should further ensure that Ferrexpo at least maintains its position on the pellet cost curve.

Capital Investments

Ferrexpo is currently investing substantial sums of money into its mining complex to increase the quality and volume of its production output, thereby underpinning future profit and earnings growth. The approved investment programmes are on schedule and will increase the Group's output by one third by the end of2013 and the overall quality of its pellets to 65% Fe for all production.

In 2011, reflecting these programmes, the Group more than doubled its capital expenditure investing US$378 million (2010: US$167 million). This included investments of US$121 million for improving the efficiency, reliability and output of the existing mining complex, and US$49 million in respect of extending the life of FPM's open pit and for initial engineering work for the upgrade of the Group's pellet quality. The FYM operation received investment of US$129 million as part of its programme to reach first ore by the end of 2012.

These projects are progressing on time and to budget and are discussed fully in the operating review.

After this first phase of investment, Ferrexpo intends to increase further its production output by another 60% to 20 million tonnes by 2016, following approval by the Board of a new concentrating and pelletising facility.

Currently, the Group is finalising the engineering design for the concentrator to ensure it complies with international best practise and local design institute requirements. Ferrexpo anticipates final approval of this project, in its entirety, during 2012.

Financial Management

Ferrexpo issued its debut Eurobond in 2011 for US$500 million. The bond has a duration of five years and was issued at a yield of 7.875%. This is the lowest yield achieved by a company with Ukrainian assets since 2005, reflecting the quality of Ferrexpo's iron ore assets and operations.

The Group also refinanced its main bank debt facility during the year. It replaced its previous facility of US$350 million with an interest rate of LIBOR plus 550 basis points with a five-year revolving US$420 million facility paying 225 basis points over LIBOR on drawn amounts. The facility will begin amortising in 2014. This is the lowest priced bank facility achieved by a corporate in Ukraine and is at 10 basis points lower than the pre-crisis levels achieved by Ferrexpo in 2006 and 2007.

The above treasury management has secured the Group's financial position and provides the necessary financial flexibility for the Group to develop its project pipeline.

The Group's net gearing (net debt to EBITDA) as of 31 December 2011 was 0.1 times. The long-term nature of Ferrexpo's financing arrangements means the Group has minimal debt repayments of approximately US$11 million per year in 2012 and 2013. As of 31 December 2011, the Group had total available debt facilities of over US$1 billion, of which US$978 million was drawn. The Group's cash position as of 31 December 2011 was US$890 million.

Ukraine

As a significant employer in the Poltava region of Ukraine and the country's leading pellet exporter, Ferrexpo is committed to the future development of the local area and the country.

Ukraine is a young democracy which has been subject to various changes in government over the past 20 years. As is common with developing economies there is a risk that the country may develop in a manner that is adverse to general business practice. These operating risks are commonly faced by all mining companies in emerging markets, and the Board believes Ferrexpo has the expertise to manage them.

As of 31 December 2011, it was estimated that the Ukrainian government owed the industrial sector over UAH15 billion (US$2 billion) of overdue VAT repayments. Ferrexpo is not unique in being affected by this situation and was due UAH1 billion (US$172 million) in VAT repayments at the end of the year, an increase of US$71 million compared to 2010. Ferrexpo is working together with the authorities to ensure the arrears return to normal levels.

In 2011, Ferrexpo spent approximately UAH102 million (US$12 million) on community projects. These included providing financial support to over 4,000 vulnerable people, the provision of free medical treatments and modernisation of the local hospital as well as refurbishment of schools and sporting facilities.

Since the Group's IPO in 2007, Ferrexpo has invested over US$1 billion in its local asset benefitting the Ukrainian economy. Ferrexpo believes it sets the standard for best practise within Ukraine by raising operational standards, maintaining high levels of transparency in all its business dealings and attracting new investments through debt financing, thus demonstrating that Ukraine is a sound country in which to invest.

Corporate Governance

The Board remains committed to maintaining the highest standards of corporate governance throughout the Group in the conduct of its business. Ferrexpo has fully complied, since listing in 2007, first with the Combined Code on Corporate Governance, and since 2011 with the UK Corporate Governance Code 2010. During the year, the Group implemented the required procedures to ensure full compliance with the UK Bribery Act which came into effect in July 2011.

The Board has eight members: a Non-Executive Chairman, four independent Non-Executive Directors, one Non-Executive Director and two Executive Directors. The Board believes that this is an appropriate size and structure to manage the Group successfully.

People

The Board would very much like to thank all the management and staff for their continued hard work and dedication which has led to another excellent year of progress at Ferrexpo.

During the second half of the year, Ferrexpo was pleased to welcome Jason Keys as the new Group Marketing Officer. Jason has already made a significant contribution towards the evolution of new pricing terms agreed with customers. He joined Ferrexpo from BHP Billiton where he was the Global Marketing Manager for iron ore for five years. He has significant industry experience in both the European and the Asian bulk commodity markets having also previously worked for Rio Tinto. The Board would like to thank Yaroslavna Blonska, the Group's Marketing Manager for the Commonwealth of Independent States ('CIS') and Eastern Europe, for acting as the Group Marketing Officer in the period prior to Jason's arrival.

Strategy

It is Ferrexpo's strategy to develop its significant resource base, one of the largest iron deposits in the world, and to improve the quality of its product mix. In addition, the Group intends to remain in the lowest quartile of the global pellet cost curve so as to ensure consistent production at full capacity and thereby a good financial performance through the commodities cycle. Ferrexpo will look to expand its logistics capabilities and to open new markets prior to the planned increase in production output. Finally, as previously stated, the Group plans to fund capital expenditure out of operating cash flows while maintaining adequate liquidity.

Outlook

Ferrexpo, with its substantial iron ore reserves, is well placed to capitalise on the progress made in 2011. Its low-cost structure and, proximity to its customer base together with its logistics infrastructure makes it a key supplier to its customers. These factors enable Ferrexpo to develop long-term supply relationships to the major steel producers in Europe, the Middle East and Asia.

The Board believes that although there is likely to be increased volatility in the world economy in the short term, the Group is well placed to continue to deliver sustainable value creation.

REVIEW OF OPERATIONS

Reserves and Resources

Ferrexpo's resource base consists of a magnetite ore of 30% iron content, which is particularly well-suited for pelletising. The ore body is a single 50 kilometre-long strike divided into ten adjacent deposits. Five of these deposits are classified according to the international JORC Code and as at 1 January 2012 represented estimated resources of 6.8 billion tonnes. The other five deposits representing an estimated 14.2 billion tonnes, are FSU classified.

Table 1: JORC Reserves and Resources as of 1 January 2012

Note: Five further deposits are estimated to contain resources of over 14.2 billion tonnes according to the FSU ('Former Soviet Union') classification code. Ferrexpo is currently working together with international consultants to convert these resources to the universally accepted JORC standards. These deposits are collectively known as the 'Northern Deposits' and are classified under the names Manuilovskoye, Vasilievskoye, Kharchenkovskoye, Zarudenskoye and Brovarkovskoe.

Ferrexpo mines and develops its reserves under the well-established laws and codes governing mining in Ukraine. The State Service for Geology and Use of Natural Resources of Ukraine has granted Ferrexpo development licenses for the Gorishne-Plavninskoye, Lavrikovskoye, Yeristovskoye, Belanovskoye and Galeschinskoe deposits. Exploration licenses are held for the remaining Northern Deposits. In general, a development license is granted for a period of 20 years and an exploration license is granted for ten years. Renewal is deemed automatic, subject to adherence of stipulated requirements in terms of development of the deposit and community obligations.

Production

In 2011, Ferrexpo was the largest exporter of pellets in the CIS and one of the top ten pellet producers in the global seaborne iron ore market. Production continued at full capacity and a record quantity of iron units was produced and shipped in the form of pellets. On a Fe equivalent basis, the Group's output of iron units has doubled in the last 10 years of production. In addition, the average grade of its pellets has increased significantly by over 1% to 63.5% Fe.

Review of Operations Ferrexpo Poltava Mine ('FPM')

Pellet production began at FPM in 1977 after construction of the mine, processing facilities and local town of Komsomolsk under Soviet Union ownership. The pit is open cut and approximately 330 metres deep and seven kilometres long. Some key milestones of production output have recently been reached. In December 2010, the processing facilities reached total production of 250 million tonnes of pellets, while in 2011 the mining division extracted the one billionth cubic metre of rock and ore since the start of mining activities.

FPM once again increased the amount of iron ore mined per annum. In 2011, it mined 29,637 thousand tonnes, 2.4% higher than 2010. This is in line with Ferrexpo's strategy to expand the mining capacity of the pit in conjunction with the Mine Life Extension project (see Development Capital Investment at FPM below). Stripping volumes increased in 2011 by 10.7% to 28,214 thousand tonnes reflecting the age of the mine and required pre-stripping to access new reserves as part of the mine life extension.

The FPM processing facilities have latent processing capacity of approximately 3.0 million tonnes of pellets per annum as a result of insufficient mined ore from the existing operations. During the year, 747 thousand tonnes of pellets were produced from purchased third party concentrate (2010: 998 thousand tonnes). The Group purchases third party concentrate subject to availability in the local market and will substitute this with own ore as the capacity expansion and ore from FYM comes on line.

In total, the processing facilities produced 9,811 thousand tonnes of pellets (2010: 10,031 thousand tonnes) of which 4,799 thousand tonnes were Premium 65% Fe pellets (2010: 4,879 thousand tonnes) and 5,012 thousand tonnes were Basic 62% Fe pellets (2010: 5,152 thousand tonnes).

Table 2: Production Statistics

Health and Safety

There were no fatalities at FPM in 2011, and lost-time injuries reduced from 19 in 2010 to 11, reducing the LTIFR to 0.82 per million man hours worked which is the lowest rate in FPM's history (2010: 1.43 per million man hours worked). This reduced the three-year moving average to a LTIFR of 1.12 compared to the prior three average of 1.16 per million man hours worked.

The management of Ferrexpo strongly encourages a culture of safety in the organisation linking safety performance to remuneration. The Group has regular internal safety audits and external audits by DuPont and is committed to following international best practice and to set the standard for mining companies operating in the CIS.

Business Improvement Programme ('BIP')

In 2011, FPM completed and implemented 34 projects as part of the BIP. This reduced the C1 cash cost of production by UAH67.6 million or 1.8%, in line with its goal of 1% to 2% per annum. Of these projects, 18 concerned transportation efficiencies in the open pit, seven projects were focused on improving productivity in the processing facilities and nine projects focused on reduced downtime in the service departments. Table 3 shows the actual resource savings achieved in 2011.

Table 3: Resource Savings under BIP

It is an essential part of the Group's strategy to reduce costs in order to remain in the lowest cost quartile of global pellet producers. This has been achieved through on-going efficiency improvements and cost reductions over many years. Table 4 below illustrates the effect of these projects. Since 2005, the year before the start of the BIP, FPM has achieved savings of US$6.6 per tonne C1 cash cost of production.

Table 4: Improvement in Consumption Norms

Examples of the BIP in 2011:

Decrease in consumption of steel grinding media in concentration plant

Cost: no capital cost required.

Savings: 1,257 tonnes of steel grinding media, UAH8 million (at current prices).

Description of project:

A programme was designed to monitor electrical consumption of the motors on the ball mills in the concentration plant. Ball mills contain steel grinding media which are used to grind the iron ore into an optimum size for further processing. By studying the pattern of power consumption, FPM could assess when grinding media were being over or under loaded. As a result, FPM could optimise the process for consistent loading of grinding media and reduce overall power consumption.

Benefits:

1. More efficient energy management.

2. Reduction of grinding media required.

3. Consistent particle size achieved.

Reduction of power consumption at the tailings plant

Cost: UAH13 million.

Savings: 18 million kWh power; UAH11 million per annum.

Description of project:

Tailings, fine particles of waste which are a by-product of pellet production, are stored in a tailings dam. During 2010 and 2011 FPM redesigned the piping from the dam to the processing plant to allow water to flow by gravity, instead of via electrical pumps, back to the processing area for reuse.

Benefits:

1. Lower electricity consumption.

2. Reduction in wear and tear of water pumps.

3. Recycling water.

Dispatch system in open pit

Cost: UAH28 million.

Description of project:

Trucks used in the pit to collect ore have been fitted with GPS tracking systems. This allows for better scheduling of pick-ups thereby improving overall mining efficiency. In 2011, the focus was to set up the hardware for this dispatch platform. Now that this has been achieved the system can be expanded to monitor other performance criteria, such as the pressure and temperature of tyres and engine performance, in trucks. The system can also be used in the future to evaluate the performance of other equipment in the pit such as drilling rigs.

Expected project outcomes:

1. Reduced downtime for trucks waiting-to-load.

2. Reduction of instances of 'zero mileage' for trucks.

3. Increase of mine fleet capacity by 7% after first year of operation.

The BIP is embedded in the Company's culture with targeted outcomes linked to operational managers' performance evaluations. The Group believes the programme is essential to ensure continued improvement in the cost reduction of its mining and processing activities.

Sustaining Capital Investment at FPM

During the period, the Group allocated US$121 million for the modernisation and debottlenecking of FPM's production facilities (2010: US$49 million).

Included in sustaining capital investments are projects to upgrade FPM's facilities to allow processing capability of 35 million tonnes of crude ore per annum by the end of 2013. This will ensure FPM can process additional ore from the FPM open pit and first ore from FYM, increasing the Group's pellet output to 12 million tonnes per year. Activities during the year, focused on the redesign and reinstallation of parts of the crushing plant, were completed and commissioned in January 2012.

Sustaining capex investment also provides for the modernisation of existing assets and systems to increase operating efficiencies benefiting the cash cost of production.

Development Capital Investment at FPM

Quality Upgrade Project

Of the total pellets produced at FPM in 2011, 49% represented Ferrexpo Premium pellets (65% Fe) while the remaining were Ferrexpo Basic pellets (65% Fe). The Group's strategy is to increase the quality so that all output is Premium pellets. To achieve this, the Board approved a US$212 million investment programme in November 2011.

The FPM pit consists principally of two types of ore seams. The Quality Upgrade Programme will enable the Division to upgrade (beneficiate) leaner ore to a higher iron content through the modification of the existing flotation circuit and the installation of two additional circuits. The project also involves the upgrade and replacement of filters to remove water from the concentrate prior to it entering the pelletising plant. The project is scheduled for completion by the end of 2014.

During the year, FPM completed the majority of the engineering and design documentation and prepared the sites for the flotation sections. Long-lead orders for the vertical mills, used in the beneficiation process were placed, with delivery expected to start in mid-2012.

Mine Life Extension

The FPM open pit mine has been in operation since 1977 and contains ore beyond the original planned pit limits and depths. In November 2010, US$168 million was approved for expenditure to extend the life of the mine to 2038. This project involves stripping and removal of overburden to access further iron rich ore by 2014. The project began in 2011 and is scheduled for completion by the end of 2018.

During the year, approximately 13 million cubic metres of overburden was removed in line with the plan. Higher diesel prices resulted in increased costs, however, the Company expects these costs to moderate over the remaining life of the project. Orders for a drilling rig and two excavators were placed and are expected to be delivered in the first quarter of 2012, while three dump-trucks were delivered in September 2011.

Total development capital investment at FPM in 2011 was US$49 million (2010: US$55 million).

Review of Operations Ferrexpo Yeristovo Mine ('FYM')

Development Capital Investment

Phase 1 - First Ore:

Capital investment at FYM during the period was US$129 million (2010: US$43 million). This project is proceeding on time and on budget (total cost US$267 million) with first ore expected at the end of 2012.

Overall, 60% of the required pre-stripping has been completed. In 2011, 16 million cubic metres of overburden was removed, with 15 million cubic metres of pre-stripping remaining. Currently, five draglines, 16 CAT 789 haul trucks, five CAT 793 haul trucks and a hydraulic excavator are in operation. A further excavator and five additional CAT 793 trucks are expected to be in operation by 2Q 2012. Meanwhile, construction of permanent pit infrastructure is well under way and the Division employed 677 permanent staff as of 31 December 2011.

Once first ore is achieved, Ferrexpo will be able to increase its pellet output by one third to 12 million tonnes per annum using the facilities at FPM.

Phase 2 - Construction of Concentrating Facilities:

Ferrexpo intends to increase its total production output by over 60% to 20 million tonnes by 2016. FYM plans to produce approximately 28 million tonnes of crude ore output per annum. In order to process this material, a new concentrator facility will process the surplus ore to increase output from 12 million tonnes per annum to 20 million tonnes per annum.

Currently, the Group is finalising the engineering design for the concentrator to ensure it complies with international best practise and local design institute requirements. Ferrexpo anticipates final approval of the project, in its entirety, during 2012.

Although concentrate is saleable as a product in its own right, Ferrexpo recognises the benefits of producing iron ore pellets, which are of higher value to end customers. As a result, approval of the concentrator will also initiate the third phase of the project, subject to Board approval, which is to construct a 10 million tonnes per annum pelletiser to be established in the most favourable location.

Health and Safety

Since the start of the project in 2008, FYM has had an excellent safety record. There were no fatalities or lost time injuries in 2011.

Ferrexpo Belanovo Mining ('FBM')

The Ferrexpo Belanovo deposit has total JORC resources of 1,702 million tonnes. Drilling works and site preparation activities were undertaken in 2011 amounting to US$8 million. A Bucyrus RH340 hydraulic face shovel and five Caterpillar 793D haul trucks have been ordered for delivery in mid-2012 in order to begin stripping works. It is anticipated that in 2012, capital investment will be in the region of US$50 million as part of the programme to reach first ore at this deposit.

Marketing andLogistics

Marketing

Evolution of Iron Ore Pricing

In 2011, the majority of physical iron ore traded globally was priced against the Platts iron ore index for 62% Fe fines on a CFR North China basis. Producers and customers would then agree a quotation period to calculate the average fines price and negotiate a quality adjustment and a premium for lump or pellets. The resulting price reflected value in use to the steel mill, taking into account iron content as well as any impurities, and for pellet producers, the pellet premium reflected the benefits to the steel mill of using pellets compared with fines or lump.

Within this context, in 2011 Ferrexpo commenced index linked pricing with a significant number of long-term customers using the average of the quarter of loading as the preferred time period for calculation of the price. Leading iron ore suppliers moved to a similar pricing methodology in most markets during the October to December quarter.

The Group, however, has a number of relationships mainly in Eastern Europe, where long-term contracts exist and where Ferrexpo conducted direct negotiations on a quarterly basis using international pricing trends as a guide.

In 2011, approximately 76% of sales were conducted under long-term volume framework agreements. The remaining sales were made on a short-term or spot basis as new target customers were introduced to the Ferrexpo product ahead of the considerable growth in production in coming years. It is Ferrexpo's strategy to place its products where it can consistently achieve the best market prices.

During the period, the Group was able to further diversify its customer base and, in the process, reduce its dependence on its two largest customers. Sales to these customers reduced to 44% of total sales volume from 55% in 2010. This trend is expected to continue as Ferrexpo finalises additional long-term contracts in China, Japan and Western Europe in 2012.

Logistics Infrastructure

Ferrexpo's mining operations are integrated with both port facilities, on the adjacent Dnieper River, and with the Ukrainian rail network. The Group transports most of its finished product by rail to border dispatch points and, as of 31 December 2011, it owned 1,045 rail cars (31 December 2010: 933 rail cars) which can transport approximately two thirds of current Group output. The remaining production is transported by state owned rail cars or by barge. Ferrexpo aims to become self-sufficient in rail car transportation and expects a further 600 rail cars to be delivered in the first half of 2012. This ensures availability of rail cars during peak times and provides a competitive advantage on railway costs. Currently, a quarter of the Group's pellets are transported via rail to the western Ukrainian border for customers in Central and Western Europe. The remaining pellets are transported via rail or barge to:

1. The Group's port terminal in Yuzhny on the Black Sea where the product is shipped to seaborne markets around the world;

Ferrexpo has guaranteed capacity at its ocean port terminal of five million tonnes per annum. In May 2011, in addition to loading panamax vessels, this facility began loading standard capesize vessels. The Group completed nine capesize shipments by the year end, loading up to 130 thousand tonnes at the berth and topping up the vessel with a further 40 to 50 thousand tonnes at the anchorage. By moving into capesize shipments, Ferrexpo was able to significantly reduce freight costs to Far East and Western European markets resulting in increased free on board ('FOB') returns from CFR sales. Further improvements in loading efficiency and cost are expected in 2012 as new loading systems are embedded.

2. Or, the Group's barge loading facility at the Port of Ismail where the product is shipped to customers along the Danube River.

From the barge loading terminal at the mouth of the Danube River, pellets are transported via Ferrexpo's barging subsidiary, Helogistics, to customers in Eastern and Central Europe along the Danube/Rhine River corridor. Since acquisition, Helogistics has become an integral part of the supply chain to support key customers in this region.

Overall in 2011, the proportion of sales controlled by Ferrexpo along the supply chain to customers increased to 52% of sales from 14% in 2010. This was achieved through a combination of increased use of the Group's barges, and increased CFR sales to Asia.

Logistics Capital Investment

In 2011, Ferrexpo invested US$58 million in its logistics infrastructure (2010: US$18 million). This included US$41 million for 112 rail wagons and part prepayment for delivery of 600 wagons in 2012. The Group acquired land for trans-shipment from barge to rail in Austria for US$4 million, which will allow it to access markets in Northern Europe. In addition, Ferrexpo paid US$38 million for Helogisitcs in January 2011.

Markets

Ferrexpo sells its product to the key steel producing regions in the world, focusing on three market segments:

Traditional Markets: these lie within Central and Eastern Europe and include steel plants that were designed to use Ferrexpo pellets. Ferrexpo has been supplying some of these customers for more than 20 years. Ferrexpo has well-established logistics routes and infrastructure to these markets by both river barge and rail. These markets include Austria, Czech Republic, Hungary, Serbia and Slovakia.

In 2011, approximately 53% of sales volumes went to these markets compared with 66% in 2010. The reduction in volume is part of the Group's strategy to develop Growth and Natural markets ahead of the increase in production output in order to maximise returns for this new tonnage.

Natural Markets: these include Turkey, the Middle East and Western Europe, and are those markets where Ferrexpo has a competitive advantage over more distant producers, but where market share remains relatively low. In 2011 approximately 7% of sales volumes went to these markets in line with 2010; and

Growth Markets: these are predominantly in Asia and have the potential to deliver new and significant sales volumes to the Group. In 2011, approximately 40% of sales volumes went to these markets compared with 27% in 2010.

Financial Review

Table 5: Summary Financial Results

Revenue

Total revenue increased by 38.1% to US$1.8 billion for the year ended 2011 compared to US$1.3 billion in 2010.

The average realised price achieved by the Group for its pellets rose 28.4% during the period, which increased revenues by US$349.9 million. 40% of sales were on a CFR or similar basis adding US$44.7 million to revenue. Sales volumes reached a historic high at 9.9 million tonnes compared to 9.7 million tonnes in 2010 enhancing growth in margins.

Reliance on the Company's two largest customers, in Central and Eastern Europe, was reduced to 43.5% of pellet sales from 55.4% of sales in 2010. Ahead of an increase in production volumes the Group increased sales to customers in China, Japan, India and Germany which accounted for 41.9% of sales volumes compared to 29.6% in 2010.

Other revenue, not related to pellet sales, amounted to US$88.1 million (2010: US$5.8 million). This included revenue from third party services, such as bunker fuel sales, at the Group's barging subsidiary Helogistics (acquired in December 2010) as well as sales from gravel.

Cost of Sales

Total cost of sales for the year ended 31 December 2011 increased 34.8% to US$649.5 million (2010: US$481.9 million). Cost of sales consists of the C1 cash cost of sales and other costs including depreciation. These are reviewed below:

C1 Cash Cost

The C1 cash cost of production per tonne is defined as the cash costs of production of iron pellets from own ore divided by production volume of own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements, costs of purchased ore, concentrate and production cost of gravel.

The C1 cash cost increased by 27.7% to US$50.7 per tonne compared to US$39.7 per tonne in 2010, principally as a result of global commodity price inflation.

Of the US$11.0 per tonne increase in the C1 cash cost, commodity related price inflation accounted for 55.5% of the increase compared to 2010. In 2011, gas and electricity prices rose by 38.0% and 21.8% respectively while the cost of diesel fuel was 40.6% higher, reflecting a full year impact of the increased oil price at the end of 2010. Higher steel prices resulted in a 14.6 % increase in steel grinding media costs. In total, these factors added US$6.1 per tonne to the C1 cash cost.

Personnel, repair and maintenance and other material costs increased the C1 cash cost by US$3.3 per tonne. These expenses are principally denominated in local currency. On average Ukrainian producer price inflation was approximately 19.0% in 20111.

The Group produced at full capacity throughout the period which helped to absorb the cost increases. In addition, the Business Improvement Programme ('BIP') reduced the C1 cash cost by 1.8%, generating savings of US$0.9 per tonne. Since the inception of the BIP in 2006, cumulative productivity gains have achieved savings of approximately US$6.6 per tonne of pellets produced, or US$56.1 million to the 31 December 2011.

Just over half of the C1 cash costs are denominated in Ukrainian Hryvnia. The Hryvnia remained on average broadly stable in 2011 compared to 2010 at around UAH8.0 to the US Dollar.

1 Average of January 2011 to December 2011 compared to average January 2010 to December 2010

Table 6: C1 Cash Costs

Non C1 Cost of Sales Relating to Pellet Production

Non C1 cost of sales amounted to US$190.0 million for the period (2010: US$123.3 million).

Depreciation increased by 16.1% to US$28.6 million, reflecting capital investments at FPM in 2011.

The remainder of non C1 cost of sales related to the purchase of concentrate for reprocessing into pellets. The Group has nameplate pelletising capacity of 12 million tonnes of pellet production per year. Ferrexpo is currently able to mine ore sufficient to produce around 9.0 million tonnes of pellets. To utilise the spare pelletising and process capacity efficiently, third party concentrate was purchased when available on the local market. The Group will continue to purchase third party concentrate, provided adequate margins can be achieved. During the year, 747.3 thousand tonnes of pellet equivalent third party concentrate was acquired (2010: 998.1 thousand tonnes) which generated a positive contribution.

Gross Margin

The Group's gross margin increased to 63.6% in 2011 compared to 62.8% in 2010. This reflected higher sales prices and volumes, which were partially offset by an increase in production costs.

Selling and Distribution Expenses

Selling and distribution expenses were US$318.0 million for the year compared to US$212.0 million in 2010.

Selling and distribution costs to the Ukrainian border increased by US$10.7 million to US$138.0 million in the period (2010: US$127.3 million), equating to US$14.0 per tonne (2010: US$13.1 per tonne). These costs primarily include railway freight to the southern ports at Yuzhny and Ismail and to the western Ukrainian border as well as port charges.

Rail tariffs increased on average by approximately 10.8% during the year, this was partially offset by a discount for volumes transported by the Group's own rail cars. Currently, two thirds of the sales volumes are railed using Ferrexpo's wagons receiving a 6.5% discount for these volumes.

International freight costs amounted to US$152.7 million (2010: US$74.9 million). These costs, which are also reflected as part of revenue on associated CFR1 sales, relate to the shipping of pellets by ocean vessel to customers in Asia (on a CIF5 or CFR basis), and by barge to customers in Serbia (on a DAP3 basis) and Austria (through Helogistics). In 2011, Helogistics' operations were included for the first time. The Group doubled shipments of pellets to Asia to three million tonnes on a CFR or equivalent basis principally through the loading of nine capesize vessels thus increasing costs recognised.

Depreciation amounted to US$8.2 million (2010: US$1.8 million) and related to amortisation of Helogistics river vessels as well as to capital investment from the purchase of new rail cars.

1  CFR is defined as delivery including cost and freight

2  CIF is defined as delivery including cost, insurance and freight

3  DAP is defined as delivered at place

Table 7: Selling and Distribution Expenses

General and Administrative Expenses

General and administrative expenses were US$52.0 million (2010: US$49.2 million). This was related to an increase in professional fees, including legal services reflecting increased activities and projects.

Other Income and Expense

Other income was US$6.9 million in 2011 (2010: US$4.5 million). The increase reflected higher operating income from the lease of premises to third parties at FPM.

Other expenses increased to US$17.1 million (2010: US$5.9 million). This reflected increased spending on support for the local communities in the Poltava region, where FPM is based and is a key part of the Group's strategy.

EBITDA

The Group calculates EBITDA as profit from continuing operations before tax and finance plus depreciation and amortisation and non-recurring exceptional items included in other income and other expenses, and the net of gains and losses from disposal of investments, property, plant and equipment.

EBITDA increased by 36.8% to US$800.9 million for the year compared to US$585.3 million for in 2010. This is the highest EBITDA achieved by the Group. The increase was mainly due to a higher average delivery at frontier/free on board sales price contributing US$323.4 million to EBITDA. This was partially offset by increased production costs of US$100.5 million, driven by domestic and commodity cost inflation, as discussed previously. The EBITDA margin was in line with 2010 at 44.8% (2010: 45.2%).

Finance Income and Expense

Finance income was US$2.5 million (2010: US$1.3 million). During the year, income from interest earned increased by US$1.1 million to US$2.5 million. This was driven by higher average cash balances in 2011 of US$604.8 million compared to US$165.7 million in 2010 as well as longer-term deposits receiving more attractive interest rates.

Finance expense increased to US$68.2 million (2010: US$41.6 million) which includedUS$28.8 million of interest cost on the Group's US$500 million Eurobond, issued in April 2011 at a coupon of 7.875%. Due to financial instability in the global banking sector, particularly in Western Europe, Ferrexpo drew in full its US$420 million revolving bank facility in October 2011. Interest on this facility is 225 basis points above LIBOR on drawn amounts. The average gross debt for the period was US$697.1 million (2010: US$346.8 million).

Foreign Exchange Gains and Losses

Operating Foreign Exchange Gains and Losses

Ferrexpo prepares and reports its financial statements in US Dollars and operating foreign exchange gains and losses reflect the revaluation of trade receivables and trade payables that are denominated in a currency other than the Group's reporting currency at the balance sheet date.

During the period, the Ukrainian Hryvnia remained stable against the US Dollar at an average rate of UAH7.9579 (2010: UAH7.9547). As a result, there was no significant operating foreign exchange movements, with a loss of US$1.4 million recorded (2010: loss of US$1.1 million).

Non-operating Foreign Exchange Gains and Losses

Non-operating foreign exchange gains or losses result from the retranslation of financial liabilities, loans and other similar items.

Non-operating foreign exchange losses for the period were US$1.9 million compared to US$3.9 million in 2010. The losses were primarily related to the revaluation of income tax payable in Swiss Francs. The average exchange rate between the US Dollar and the Swiss Franc was 0.88 in 2011 compared to 1.04 in 2010.

Cash Flows

Net cash flow from operating activities was US$502.7 million for the period, an increase of 32.4% compared to 2010 (US$379.8 million).

Working capital increased by US$111.4 million reflecting higher VAT and trade receivables. As a result of high capital expenditure during the year, and a delay in respect of VAT repayments for May, June and July 2011, VAT receivables increased by US$72.1 million during the period. Higher average prices increased trade and other receivables by US$17.4 million.

Total capital investment for the year was US$378.3 million, which was more than double 2010's investment of US$167.4 million.

Sustaining and modernisation capital investment was US$128.0 for the Group, of which US$121.3 million was invested at FPM (2010: US$49.1 million). The remaining US$6.7 million was invested at Helogistics.

In November 2010, the Board approved US$646.9 million for development projects at FPM and FYM. In 2011, the Group spent US$177.9 million in this regard (2010: development capex US$97.5 million). US$49.0 million was spent at FPM, while US$129.0 million went towards achieving first ore at FYM. The expected spend for 2012 is fully funded while the Group's low level of gearing will underpin future development spend for processing facilities at FYM.

US$8.3 million was spent on the Belanovo deposit (FBM) during the period (2010: US$2.4 million). This was for drilling works and site preparation activities.

In terms of logistics, capital investment was US$57.8 million in 2011 (2010: US$17.7 million) which was primarily related to the acquisition of rail cars.

In January 2011, Ferrexpo paid US$38.0 million for the Helogistics acquisition which was agreed in December 2011, which was disclosed in the 2010 financial statements.

The Group's closing cash balance increased by US$570.7 million to US$890.1 million as of 31 December 2011 partly as a result of the net financing inflow of US$521.3 million following the placement of a US$500.0 million bond and the increase of the pre export facility from US$350.0 million to US$420.0 million.

Ferrexpo's gross debt had an average maturity of 4.0 years at the 31 December 2011. The Group has minimal debt repayments of US$10.8 million and US$10.4 million in 2012 and 2013 respectively. Net debt to EBITDA as of 31 December 2011 was 0.1 times.

Table 8: Summary of Group Liquidity and Debt

Statement of Directors' Responsibilities

Responsibility statement of the Directors in respect of the Annual Report and Accounts

We confirm on behalf of the Board that to the best of our knowledge:

(a) the financial statements give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

(b) the management report (entitled 'Business Review') includes a fair review of the development and performance of the business, and the principal risks and uncertainties that they face.

For and on behalf of the Board

Michael Abrahams

Chairman

Christopher Mawe

Chief Financial Officer

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

The financial statements were approved by the Board of Directors on 13 March 2012.

Kostyantin Zhevago Christopher Mawe

Chief Executive Officer Chief Financial Officer

Consolidated Statement of Cash Flows

1 The movement in the prior year includes effect of VAT receivable amounting to US$72,318 thousand, which was recovered through VAT bonds. See note 9 for further details

2 The prior year balance of cash and cash equivalents includes restricted cash of US$37,768 thousand.

Consolidated Statement of Changes in Equity

1 Transfer of shareholdings in subsidiaries resulted in change of non-controlling interests

Notes to the Consolidated Financial Statements

Note 1: General information

The financial information for the year ended 31 December 2011 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The audited statutory accounts for the year ended 31 December 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the Company's annual general meeting convened for Thursday, 24 May 2012.

The auditor has reported on the statutory accounts for year ended 31 December 2011. The auditor's report was unqualified.

Note 2: Summary of significant accounting policies

International Financial Reporting Interpretations Committee (IFRIC)

Whilst the preliminary announcement has been prepared in accordance with International Financial Reporting Standards ('IFRS') and International Financial Reporting Interpretation Committee ("IFRIC") interpretations adopted for use by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Board approved the full financial statements that comply with IFRS on Tuesday, 13 March 2012. The financial statements have been prepared under the historical cost convention as modified by the recording of pension assets and liabilities and the revaluation of certain financial instruments.

The accounting policies applied are consistent with those adopted and disclosed in the Group's annual financial statements for the year ended 31 December 2010 except for the following.

The Group has adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2011.

International Financial Reporting Interpretations Committee (IFRIC) Effective date

• IAS 24 Related party disclosures 1 January 2011

• IAS 32 Financial instruments: presentation 1 February 2010

• IFRIC 14 Prepayment of minimum funding requirements 1 January 2011

• IFRIC 19 Extinguishing financial liabilities with equity instruments 1 July 2010

None of the new and amended standards or interpretations affected the reported results and financial positions.

Changes occurring as a result of improvements to IFRSs

• IAS 1 Financial instruments

The amendment requires an analysis of components of other comprehensive income either in the statement of changes in equity or the notes to the financial statements. The Group decided to disclose the analysis in the notes to the financial statements.

None of the following new or revised to be adopted for the financial year 2011 affected the presentation and disclosures:

• IFRS 3 Business combinations

• IFRS 7 Financial instruments: disclosure

• IAS 27Consolidated and separate financial statements

• IFRIC 13 Customer loyalty programme

The Group amended its accounting policies where applicable however the adoption of the above standards did not have an impact upon the financial position or performance of the Group.

The Group has elected not to early adopt the following revised and amended standards:

• IAS 1 Financial statements presentation - presentation of items of other comprehensive income

• IAS 12 Income taxes - recovery of underlying assets

• IAS 19 Employee benefits

• IFRS 7 Financial instruments: disclosures - enhanced derecognition disclosure requirements

• IFRS 9 Financial instruments: classification and measurement

• IFRS 10 Consolidated financial statements

• IFRS 11 Joint arrangements

• IFRS 12Disclosure of involvement with other entities

• IFRS 13 Fair value measurement

• IFRIC 20Stripping costs in the production phase of a surface mine

Seasonality

The Group's operations are not affected by seasonality.

Note 3: Segment information

The Group is managed as a single entity which produces, develops and markets its principal product, iron ore pellets, for sale to the metallurgical industry. While the revenue generated by the Group is analysed, there are no separate measures of profit reported to the Group's Chief Operating Decision-Maker (CODM). In accordance with IFRS 8 Operating Segments, the Group presents its results in a single segment which are disclosed in the income statement for the Group.

The management monitors the operating result of the Group based on a number of measures including EBITDA, 'C1' costs and the net financial indebtedness.

EBITDA

The Group presents EBITDA because it believes that EBITDA is a useful measure for evaluating its ability to generate cash and its operating performance.

'C1' costs

'C1' costs represents the cash costs of production of iron pellets from own ore divided by production volume of own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements, costs of purchased ore, concentrate and production cost of gravel.

Net financial indebtedness

Net financial indebtedness as defined by the Group comprises cash and cash equivalents, term deposits, interest bearing loans and borrowings and amounts payable for equipment.

Disclosure of revenue and non-current assets

The Group does not generate significant revenues from external customers attributable to the country of domicile. The information on the revenues from external customers attributed to the individual foreign countries is given in note 4.

The Group does not have any significant non-current assets that are located in the country of domicile of the Group. The vast majority of the non-current assets are located in Ukraine.

Note 4: Revenue

Revenue for the year ended 31 December 2011 consisted of the following:

Export sales of iron ore pellets and concentrate by geographical destination were as follows:

During the year ended 31 December 2011 sales made to three customers accounted for approximately 50.2% of the sales revenue (2010: 62.5%).

Sales made to two customers individually amounted to more than 10% of the total sales. These are disclosed below:

Note 5: Cost of sales

Cost of sales for the year ended 31 December 2011 consisted of the following:

Note 6: Finance income and expense

Finance income and expenses for the year ended 31 December 2011 consisted of the following:

Bank charges include arrangement fees charged in relation to the Group's major bank debt facility.

Note 7: Income tax expense

The income tax expense for the year ended 31 December 2011 consisted of the following:

Other comprehensive income contained taxes on the following items charged or credited to it for the year ended 31 December 2011:

The effective income tax rate differs from the corporate income tax rates. The weighted average statutory rate was 15.3% for 2011 (2010: 13.1%). This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the profits/(losses) before tax of the subsidiaries in the respective countries, as included in the consolidated financial information. The effective tax rate is 16.8% (2010: 14.7%).

A reconciliation between the income tax charged in the accompanying financial information and income before taxes multiplied by the weighted average statutory tax rate for the year ended 31 December 2011 is as follows:

Note 8: Earnings per share and dividends paid and proposed

Basic earnings per share ('EPS') is calculated by dividing the net profit for the year attributable to ordinary equity shareholders of Ferrexpo plc by the weighted average number of Ordinary Shares.

The calculation of the basic and diluted earnings per share is based on the following data:

The basic number of Ordinary Shares is calculated by reducing the total number of Ordinary Shares in issue by the shares held in treasury.

Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary Shares in issue on the assumption of conversion of all potentially dilutive Ordinary Shares. All share awards are potentially dilutive and have been included in the calculation of diluted earnings per share.

'Underlying earnings' is an alternative earnings measure, which the Directors believe provides a clearer picture of the underlying financial performance of the Group's operations. Underlying earnings is presented after non-controlling interests and excludes adjusted items. The calculation of underlying earnings per share is based on the following earnings data:

Adjusted items are those items of financial performance that the Group believes should be separately disclosed on the face of the income statement to assist in the understanding of the underlying financial performance achieved by the Group. Adjusted items that relate to the operating performance of the Group include impairment charges and reversals and other exceptional items. Non-operating adjusted items include gains and losses on disposal of investments and businesses and non-operating foreign exchange gains and losses.

Dividends paid and proposed

Note 9: Taxes payable, recoverable and prepaid

As at 31 December 2011 taxes recoverable and prepaid comprised:

A VAT receivable results from VAT paid on domestic purchases of goods and services and on the import of equipment and services into Ukraine, to the extent that this cannot be offset with VAT on domestic sales.

During the financial year 2011, FPM received VAT refunds in respect of 2010 and 2011 amounting to US$93,983 thousand.

Following tax audits during the year, VAT receivables of US$26,033 thousand from May, June and July 2011 were disputed by tax authorities. FPM has challenged these amounts in the court and has won in the first instance in respect to May amounts. The June and July amounts are currently subject to ongoing proceedings and a positive result is expected shortly.

As a result of high capital expenditure during the year, and the case noted above, the VAT receivable balance has increased by US$70,751 thousand to US$172,434 thousand as of 31 December 2011. Management expects this amount to be recovered within one year through cash repayment, or for the amount outstanding to be offset against corporate profit tax payable or through a combination of the above options.

Note 10: Commitments, contingencies and legal disputes

Legal

In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group.

The Group is currently involved in a share dispute which commenced in 2005 and which was disclosed and as relevant updated in the Group's IPO and Eurobond prospectuses. Relevant information and the current status of the dispute are stated below:

In 2005, a former shareholder of OJSC Ferrexpo Poltava Mining ("FPM") initiated legal proceedings against certain nominee companies that were ultimately controlled by Kostyantin Zhevago in order to seek the invalidation of the agreement related to the sale of a 40.19% stake in FPM sold to these nominee companies in 2002. The case was considered several times by different courts in Ukraine. A final decision in the proceeding was taken by the Supreme Commercial Court of Ukraine on 21 April 2010 in favour of the claimant so that the agreements on the sale of the FPM shares were recognized as invalid on the grounds of formal defects under Ukrainian law. On 6 October 2011, the claimants filed a new court claim in Ukraine with the intention to invalidate the decision of the general shareholders meeting of FPM as taken place on 20 November 2002 and all subsequent shareholders meetings decisions in order to obtain restitution to the shareholding position as existed before the 20th November 2002 and to register the shares in their names. On 22 November 2011, Ferrexpo AG filed a claim against the claimants at the High Court in London seeking a confirmation of ownership in FPM shares. The claim was launched in order to take an active step outside the Ukraine to resolve this long-running dispute.

The management of the Group, after having taken local legal advice assesses the risk related to this share dispute to be remote as the claim has no merits. Neither the final decision by the Supreme Commercial Court of Ukraine nor the subsequent Ukrainian claim entitles claimants with direct enforcement rights to the shares of FPM currently owned by the Group through Ferrexpo AG. The restitution of the status quo ante of the shareholding position as sought by claimants is impossible under Ukrainian law for various legal, technical and practical reasons.

It follows that except for related legal costs, no provision was recorded for this dispute as of 31 December 2011.

Note 11: Events after the reporting period

No material adjusting or non-adjusting events have occurred subsequent to the year-end other than the proposed dividend disclosed in note 8.