Ferrexpo Regulatory News (FXPO)

13 March 2013

FERREXPO plc

("Ferrexpo" or the "Group")

2012 Full Year Results

Ferrexpo, the FTSE 250 iron ore pellet producer, today announces its full year results for the 12 months ended 31 December 2012.

Michael Abrahams, Non-Executive Chairman, said:

"In the last five years, since its IPO, Ferrexpo has made significant progress in achieving its strategic objectives.

"In the face of general cost inflation prevalent in the mining industry, the Group has maintained its position as a competitive cost producer of pellets and in 2012 it lowered its seaborne freight costs delivering more product via capesize vessels both enhancing margins and allowing Ferrexpo to provide a better service to first class steel mills around the world with its high quality iron ore product.

"The Group has continued to develop its asset base through the modernisation of the existing mine and processing facilities, Ferrexpo Poltava Mining, and in 2012 by opening its second mine, Ferrexpo Yeristovo Mining, the first new iron ore mine in the CIS for many years. Once mining operations at FYM have ramped up, Ferrexpo will have two mines in full operation providing associated cost benefits through higher output and remains on track to increase production in 2013 and to reach its target of 12 million tonnes of pellet production in 2014.

"As a result of the above factors, Ferrexpo has reduced its operational and financial risk and enhanced its reputation as a premium supplier of pellets with excellent quality and service. In the financial markets Ferrexpo is increasingly recognised for its sound management and good governance.

"In accordance with Ferrexpo's stated dividend policy, the Directors are, as in previous years, recommending an unchanged final ordinary dividend of 3.3 US cents per share.

"In recognition of the progress referred to above, and in particular, of the significant milestone of the opening of the Yeristovo mine, the Directors are pleased to announce a special dividend of 6.6 US cents per share, amounting to approximately US$39 million.

"The Directors look forward to another year of progress in 2013."

Highlights for the year ended 31 December 2012 are presented below:

Ferrexpo increased production from own ore during 2012, and maintained a level of profitability which reflected lower market prices and industry cost inflation, and a continued competitive position on the global cost curve for iron ore.

Sales and Marketing

§ Average benchmark China CFR 62% Fe fines price 23% lower at US$128 per tonne (2011: US$168 per tonne)

§ Sales volumes 9.7 million tonnes of pellets (2011: 9.8 million tonnes of pellets)

§ Lower prices partially mitigated through reduced freight rates to seaborne markets

Operations

§ 9.3 million tonnes of pellet production from FPM (2011: 9.1 million tonnes)

§ First ore at FYM, 0.1 million tonnes of pellet production (2011: nil)

§ C1 cash cost 1 of US$59.6 per tonne (2011: US$50.7 per tonne)

§ C1 cash cost reflected a stable exchange rate between Ukrainian Hryvnia and US Dollar as well as higher energy prices and local inflation

Growth Projects

§ Growth projects progressed as planned

§ First ore achieved at FYM in July 2012, commercial production expected in 2013

§ Significant capital investment of US$429 million (2011: US$380 million)

VAT

§ Gross Ukrainian VAT outstanding as of 31 December 2012 was US$302 million (2011: US$172 million)

§ A US$20 million discount has been recorded to reflect the time value of money for VAT and the expectation that a portion of VAT will be recovered after more than one year

Funding

§ Net debt as of 31 December 2012 was US$423 million (31 December 2011: US$80 million)

§ Minimal debt repayments of US$19 million in 2013

§ 2012 average cost of debt was 5.24% (2011: 6.23%)

§ Net gearing 2 was 21% as of 31 December 2012 (31 December 2011: 5%)

§ Net debt to EBITDA was 1.05x as of 31 December 2012 (31 December 2011: 0.1x)

Key financial information is summarised in the table below

US$'000 unless otherwise stated

 1The C1 cash cost of production per tonne is defined as the cash costs of production of iron ore pellets from own dividend 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.

2 Net gearing is calculated as net financial indebtedness over net financial indebtedness plus shareholder's equity.

3 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 expenses, and the net of gains and losses from disposal of investments, property, plant and equipment.

For further information contact:

Notes to Editors:

Ferrexpo is a Swiss headquartered iron ore company with assets in Ukraine. It produces and exports 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, produced approximately 10 million tonnes of iron ore pellets in 2012 making it the largest exporter of pellets in the CIS. The Company has a diversified customer base supplying steel mills in Austria, Slovakia, Czech Republic, Germany and other European states, as well as in China, India, Japan, Taiwan and South Korea. 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'S STATEMENT

Introduction

In the last five years, since its IPO, Ferrexpo has made significant progress in achieving its strategic objectives.

In the face of general cost inflation prevalent in the mining industry, the Group has maintained its position as a competitive cost producer of pellets and in 2012 it lowered its seaborne freight costs delivering more product via capsize vessels both enhancing margins and allowing Ferrexpo to provide a better service to first class steel mills around the world with its high quality iron ore product.

The Group has continued to develop its asset base through the modernisation of the existing mine and processing facilities at Ferrexpo Poltava Mining ('FPM'), and in 2012 by opening its second mine, Ferrexpo Yeristovo Mining (FYM), the first new iron ore mine in the CIS for many years. Once mining operations at FYM have ramped up, Ferrexpo will have two mines in full operation providing associated cost benefits through higher output and remains on track to increase production in 2013 and to reach its target of 12 million tonnes of pellet production in 2014.

As a result of the above factors, Ferrexpo has reduced its operational and financial risk and enhanced its reputation as a premium supplier of pellets with excellent quality and service. In the financial markets Ferrexpo is increasingly recognised for its sound management and good governance.

Results

Group revenue declined by 20% to US$1.4 billion for the twelve months ended 31 December 2012 (2011: US$1.8 billion) due to lower market prices for iron ore. In 2012, the average benchmark price for 62% Fe iron ore fines to China CFR fell by 24% to US$128 per tonne compared to an average of US$168 per tonne in 2011. Group sales volumes were in line with 2011 at 9.7 million tonnes.

The Group's average C1 cash cost of production increased by 18% to US$60 per tonne, compared to the average C1 cash cost in 2011 of US$51 per tonne. This was due to increased electricity tariffs and gas prices as well as local inflation while the Ukrainian Hryvnia remained stable against the US Dollar. Since October 2008 when C1 costs reached $51, overall cost inflation has amounted to 4% per year.

Ferrexpo maintained satisfactory levels of profitability reflecting lower market prices and industry cost inflation while retaining its competitive position on the global cost curve for iron ore. EBITDA for the period was US$402 million (2011: US$801 million). Group profit after tax declined to US$216 million (2011: US$575 million).

Net cash flows from operating activities were US$119 million for the period (2011: US$503 million) reflecting higher working capital requirements following a US$130 million increase in VAT receivables outstanding in Ukraine during the year. The gross Ukrainian VAT receivable balance as at 31 December 2012 was US$302 million, a US$20 million discount has been recorded to reflect the time value of money for VAT due to the expectation that a portion of VAT will be recovered after more than one year.

During the year the Group spent US$429 million (2011: US$380 million) on capital investment in its existing and new mines as well as on logistics infrastructure, which was the highest level of annual capital investment at Ferrexpo on record.

At the period end, Ferrexpo had net debt of US$423 million (2011: US$80 million).

Dividend

Ordinary Dividend

As is consistent with the Group's dividend policy since listing, of paying a modest sustainable dividend commensurate with the growth profile of the business through the economic cycle, the Board of Directors recommend a final dividend in respect of profits generated for the Group in 2012 of 3.3 US cents per Ordinary Share (2011 final dividend: 3.3 US cents per Ordinary Share) for payment on 31 May 2013 to shareholders on the register at the close of business on 3 May 2013. The dividend will be paid in UK Pounds Sterling with an election to receive US Dollars.

Special Dividend

The Group has invested significantly over the past 5 years and has maintained its dividend at 6.6 US cents per share split equally between interim and final payments. The Group is continuing to invest in its operations and the Directors believe it is appropriate at the current time to maintain the ordinary dividend at its current level until further milestones are achieved. In recognition of the opening of the Yeristovo mine which lowers the operational risk profile of the business and given Ferrexpo's strong balance sheet the Directors are pleased to announce a special dividend of 6.6 US cents per share, amounting to approximately US$39 million, for payment on 28 March 2013 to shareholders on the register at the close of business on 22 March 2013. The dividend will be paid in UK Pounds Sterling with an election to receive US Dollars.

Market Environment

In 2012, according to the World Steel Association, global crude steel production grew 1% to 1.6 billion tonnes while the average capacity utilisation of steel mills declined to 79% from 81% in 2011. China, the principle driver of the iron ore market in recent years, increased its steel production by 3% to 717 million tonnes and accounted for 46% of global steel production.

CRU estimates that in 2012 the global consumption of iron ore increased 1% while production was marginally below 2011 levels. The industry move to a generally accepted benchmark pricing mechanism based on spot prices ensured that the market remained largely in balance although iron ore pricing was volatile moving from US$140 per tonne at the beginning of 2012 to a three year low of US$87 per tonne before finishing the year around the US$145 per tonne level.

Production of iron ore remains highly concentrated with the top four producers accounting for over 70% of seaborne iron ore production in 2012. Historically, there have been challenges in developing greenfield iron ore projects including access to affordable financing, a lack of equipment, skills shortages, prohibitive logistics costs and local permitting and geopolitical restrictions. Bank of America Merrill Lynch estimates that as much as 260 million tonnes of iron ore capacity was either delayed or cancelled during 2012 as the above challenges impacted project economics.

With regards to iron ore pellets, demand has been steadily increasing due to declining availability of high quality lump iron ore and growing environmental pressure on sinter plant emissions. CRU estimates that demand for pellets will show a compound annual growth rate of 5% from 2012 to 2017 compared to total iron ore consumption of 4% per annum for the same period. CRU expects the premium for pellets over sinter fines to remain at around US$30 per tonne for this period although this could fluctuate according to the level of steel demand.

Marketing and Logistics

Ferrexpo's marketing strategy is to supply the world's leading steel producers, who are focused on producing high quality steel for premium applications.

Ferrexpo aims to supply a geographically diversified customer portfolio under long-term framework agreements. Indeed it has been servicing some of its customers for decades securing reliable off-take volumes. The Group enjoys a balanced sales portfolio with approximately half of sales derived from Central and Eastern Europe while the remainder originates from Western Europe, Turkey and Asia.

A critically important focus of the Company is to secure reliable and competitive shipping to customers in Asia compared to the major pellet producers from Brazil. Ukraine's central location allows Ferrexpo to ship at increasingly competitive rates to the major iron ore pellet markets. The Group has a 49% stake in the TIS-Ruda port terminal at Yuzhny on the Black Sea with a capacity of over 5 million tonnes per annum. In 2012, the Group invested in upgrading its loading and shipping capabilities to allow for the routine use of capesize vessels. As a result Ferrexpo loaded 17 capesize vessels compared to 9 in 2011 and it intends to further increase this method of shipment in 2013 by loading over 30 capesize vessels. In December 2012, Ferrexpo's transhipment vessel, Iron Destiny, was put in operation which should allow the Group to further reduce international freight costs.

An integrated and well-invested logistics system is an essential and a key competitive advantage for a bulk commodity producer. In addition to the Group's port facilities, as at 31 December 2012 Ferrexpo owned just under 2,000 rail cars enabling it to transport a high proportion of its pellets to border points with its own fleet, reducing its reliance on state rail cars and lowering transportation costs. Ferrexpo also has in place a large barging fleet operating on the Danube and Rhine rivers in Europe further securing reliable access to customers in Central and Eastern Europe.

Resource Base

Ferrexpo holds the licences to the largest iron ore resource base in Europe. This resource base is situated along a single ore body containing 10 adjacent deposits, which allows the Group to efficiently expand production through brownfield developments. The deposits exploited by the subsidiary Ferrexpo Poltava Mining ('FPM') have consistent geology and a long-life production profile. The opening and development of the Yeristovskoye deposit in 2012 through the subsidiary Ferrexpo Yeristovo Mining ('FYM') fully utilises known and existing technology and infrastructure, as well as the Group's current skills.

As of 1 January 2013, Ferrexpo had estimated proved and probable reserves of 1.5 billion tonnes classified according to the JORC Code. These reserves are included in estimated resources of approximately 6.8 billion tonnes classified according to the JORC Code. Ferrexpo has further estimated resources of over 13.2 billion tonnes classified under the methodology used in the Former Soviet Union.

Production

In 2012, FPM produced 9,409 thousand tonnes of pellets from own ore, a 4% increase compared to 9,063 thousand tonnes of pellets produced in 2011. This includes 108 thousand tonnes of pellets mined from FYM ore. The production of pellets from purchased third party concentrate was lower due to reduced availability of concentrate on the local market at prices able to generate positive margins, as such total production decline by 1% to 9,690 thousand tonnes compared with 9,811 thousand tonnes in 2011. The average pellet iron content from own ore was 63.3% in 2012 in line with 2011.

Importantly, FPM continued throughout the year with the modernisation programme of its existing mining and processing facilities whilst maintaining consistent and reliable production.

The current level of production from own ore represents full mining capacity of approximately 30 million tonnes per year (30% average iron content). Once processed into iron ore pellets with an average content of 63.3% this translates into 9,301 thousand tonnes of pellets. The Group intends to increase its annualised pellet production from own ore to 12.0 million tonnes in 2014. To accomplish this, it will continue to develop the FYM mine, where first ore was reached in the second half of 2012.

Health and Safety

In accordance with the Group's policy of continuously improving safety standards, Ferrexpo is pleased to report that there have been no fatalities at its mines in well over two years and that the lost-time injury frequency rate ('LTIFR') at FPM continued to fall to 0.74 per million man hours worked (2011:0.82). FYM, the Groups new operating mine, experienced no lost-time injuries during the year which was a major accomplishment. Overall, the Group's total LTIFR in 2012 was 0.66 compared to 0.77 in 2011.

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

Costs

FPM is a cost competitive producer on the global iron ore concentrate cost curve on both a FOB and CFR China basis. Furthermore its cost of converting its iron ore concentrate into pellet form positions it as a profitable producer on the global pelletizing market through the commodities cycle. Crucially this combination of low cost concentrate production and pellet conversion has enabled it sustain positive operating cash flows every quarter since 2006.

For the year ended 31 December 2012, the C1 cash cost of production of pellets from own ore was US$60 per tonne compared to US$51 per tonne in 2011. In line with the industry, the increase in costs was driven by higher energy prices and local inflation.

Just over half of C1 cash costs are denominated in Ukrainian Hryvnia. The Hryvnia has remained largely stable since 2009 at UAH8 to the US Dollar. Prior to the devaluation of the Hryvnia at the end of 2008, when it depreciated from UAH5 to UAH8 to the US Dollar, production costs peaked at US$51 per tonne. In this context, since 2008 production costs have increased by a compound annual growth rate of 4% per annum.

Ferrexpo offsets cost increases by increasing output and producing at maximum capacity to ensure full absorption of the fixed cost base. Improved energy efficiencies are also achieved through the Business Improvement Programme ('BIP') which aims to reduce the C1 cost of production by 1% to 2% per annum on a constant output basis. The BIP programme has resulted in an overall reduction in the C1 cost of US$7 per tonne or US64 million since its inception in 2006.

Looking forward, it is anticipated that the mining and processing of FYM ore will have a positive impact on the Group's overall production cost through lower mining costs and the addition of higher grade ore.

Capital Investments

Ferrexpo aims to finance capital investment out of operating cash flows and, excluding the increase in the Group's VAT receivable, has broadly done so in 2012 and the 5 year period since 2007. As such the pace of investment inevitably depends on the market price for iron ore. Group policy is to ensure that the balance sheet does not become over leveraged and that Ferrexpo has a sustainable funding position despite iron ore price fluctuations.

The Group is part way through a US$650 million investment programme to increase the quality and quantity of its pellet output. The successful implementation of this programme will enable Ferrexpo to increase output at FPM by approximately one third to 12 million tonnes of pellet per annum in 2014 (from current production levels of 9.4 Mtpa) and to further increase the quality of the Group's pellet output to 65% iron content (currently average pellet iron content is 63.3%) in 2015. The increase to 12 million tonnes per annum of pellet output is expected to be initially achieved utilising crude ore from FYM. These projects are progressing on time and to budget.

The next phase of investment concerns the construction of a 10 million tonne per annum concentrator at FYM to process the remaining crude ore that it can mine annually (total annual mining capacity is expected to be 28 million tonnes). In October 2012, the Board of Directors approved US$30 million to begin this development in 2013 which, subject to market conditions, is targeted to begin concentrate production in 2016 and to ramp up to full production by the end of 2017. Thus, following further capital expenditure, Ferrexpo expects to produce approximately 12 million tonnes of pellets per annum with 65% iron content and 8 to 10 million tonnes of concentrate per annum with up to 67% iron content, doubling output from 2012 production levels.

The Group will continue to evaluate and if appropriate invest in NPV accretive opportunities, both within the Company and externally, that de-risk and diversify its operations.

Financial Management

Ferrexpo has maintained strict financial discipline over many years. Key aspects of the Group's approach include funding capital expenditures out of operating cash flows and where appropriate debt, maintaining robust liquidity and retaining competitive credit metrics and cost of financing.

Ferrexpo's financial position reflects this strategy, as evidenced by the strong balance sheet, low gearing and EBITDA to debt ratios and competitive cost of financing. Net gearing was 21% as of 31 December 2012 (compared to 5% as of 31 December 2011) and net debt to EBITDA was 1.05x as of 31 December 2012 (compared to 0.1x as of 31 December 2011). The Group's average cost of debt in 2012 was 5.24% a 1% improvement compared to 2011 at 6.23%. As of 31 December 2012, the Group had net debt of US$423 million which included cash of US$597 million. In 2013 Ferrexpo has minimal debt repayments of approximately US$19 million.

VAT

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 2012, Ferrexpo was owed US$302 million of VAT by the Ukrainian government, the majority of which is significantly overdue. This amount has been discounted by US$20 million to US$282 million in order to reflect the cost of financing those VAT balances that are expected to be recovered more than one year after the period in which they arose. As part of the procedure adopted in Ukraine, it is common for VAT claims to be challenged by the government in the court system. A significant portion of the VAT outstanding is currently being challenged in this way, although the Directors believe that the full amounts will eventually be recovered.

The late repayment of VAT is, in the view of the Directors, as a result of the Ukrainian government's current weak fiscal position. The Directors believe that there is a risk that continued fiscal weakness could further preclude the prompt repayment of VAT for some time. This would lead to higher levels of working capital and increase the risk of a financial loss when repayment occurs which would depend on the eventual type of repayment and the prevailing exchange rate if repayment was made in local currency. Ferrexpo continues to have a constructive dialogue with the Ukrainian authorities regarding the repayment of overdue VAT.

CSR

In 1960 the town of Komsomolsk was established adjacent to the Poltava mine to support the mining and processing operations. Ferrexpo remains the largest employer in the town, which has a population of approximately 55,000 people, of which approximately 23% of the working population are employed by the Group. Ferrexpo has been a significant investor in local community initiatives from the outset, investing funds in the social infrastructure of Komsomolsk and the surrounding area. These funds have been spent on medical facilities, social services, education, religion, culture and sporting activities, as well as on the maintenance of certain of the city's social and cultural structures. In 2012, Ferrexpo spent approximately UAH166 million (US$21million) (2011: UAH102 million or US$12 million) on community projects. Due to Ferrexpo's presence as a major local employer and its contributions to community initiatives, unemployment in Komsomolsk is significantly below the national average, and the average salary is significantly above the national average.

Corporate Governance

The Board remains dedicated to maintaining the highest standards of corporate governance in the conduct of its business throughout the Group, as well as instilling a culture of commitment and accountability in all employees. Ferrexpo has fully complied, since its 2007 listing, with the Combined Code on Corporate Governance, and since 2011 with the UK Corporate Governance Code of 2010.

The Board is comprised of 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

2012 has been a notable year in the history of Ferrexpo. Without the dedication and commitment of all Ferrexpo employees this would not have been possible. The Board would very much like to thank the management and staff for their continued hard work which directly contributes to the progress achieved.

Strategy and Outlook

Ferrexpo will continue with its strategy of developing its significant resource base, improving the quality of its products, and further advancing its logistics infrastructure to enhance its service to first class steel customers around the world with its premium iron ore pellets. It will do so in a cost competitive manner to ensure it can deliver its product reliably through the commodity cycle.

The Group is well placed to increase its production from 9.4 million tonnes of pellets, from own ore, with an average iron content of 63.3%, to its stated goal of 12 million tonnes of pellets per annum in 2014. The Group is also on track to increase the average iron content of its pellets to 65% in 2015. As Ferrexpo's total output of crude ore ramps up following the opening of the FYM pit, it will be in a position to build further processing facilities and double production output. This will be undertaken in accordance with the Directors' approach to prudent debt management and adequate levels of liquidity consistent with the cyclical nature of the business.

Overall, pricing for the iron ore market remains difficult to predict while the economic outlook for Ukraine is uncertain. In this environment, Ferrexpo's proven management team will continue to implement its strategy, and the Directors believe that the Group will make further progress during the current year.

REVIEW OF OPERATIONS

Reserves and Resources

Ferrexpo's resource base consists of a magnetite ore of average 30% iron content, which is particularly well-suited for pelletising. The ore body is a single 50 kilometre-long strike divided into 10 adjacent deposits. The Group is currently exploiting the first two deposits through the subsidiary Ferrexpo Poltava Mining ('FPM'). In July 2012, Ferrexpo reached first ore at the third deposit with its subsidiary Ferrexpo Yeristovo Mining ('FYM'), and first commercial production of ore from this mine is expected in 2013. The Group is investing in the development of the fourth deposit through Ferrexpo Belanovo Mining ('FBM').

In total, as of 1 January 2013, Ferrexpo had estimated resources of approximately 6.8 billion tonnes classified according to the Australasian Joint Ore Reserves Committee ('JORC') code, and further estimated resources of over 13.2 billion tonnes classified according to the former Soviet Union method of classification (FSU classification). Based on a combination of the JORC and FSU classified resources, management believes the Group holds the licences to the largest iron ore deposit in Europe 1.

The tables below set out our estimates of iron ore reserves and measured, indicated and inferred mineral resources as at 1 January 2013. The reserves and resources estimates are presented in accordance with the JORC Code.

JORC reserve statements as at 1 January 2013

(1) The reserves estimates for the GPL deposits are those estimated in the report by RHDHV (Former Turgis UK Consulting (Pty) Ltd.) dated 29 May 2009 less the volume of ore mined from GPL deposits in 2009, 2010, 2011 and 2012.

(2) The reserves estimates for the Yeristovskoye deposits are based on a report by SRK Consulting (UK) Ltd. (SRK) dated 15 June 2007 less the volume of ore mined from the Yeristovskoye deposit in 2012.

JORC resource statements as at 1 January 2013

(1) The resource estimates for the GPL deposits were calculated based on a review conducted by SRK in March 2008 less the volume of ore mined from GPL deposits in 2008 (27.8 million tonnes), 2009 (28.6 million tonnes), 2010 (28.9 million tonnes), 2011 (29.6 million tonnes) and 2012 (29.8 million tonnes).

(2) The resource estimates are based on a report by SRK Consulting (UK) Ltd. (SRK) dated 15 June 2007 less the volume of ore mined from the Yeristovskoye deposit in 2012 (1.14 million tonnes).

Five further deposits are estimated to contain resources of over 13.2 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 Brovarkovskoye.

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 licences for the Gorishne-Plavninskoye, Lavrikovskoye, Yeristovskoye, Belanovskoye and Galeschinskoye deposits. The Group is currently extending the exploration licences 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.

1 Excluding European Russia west of the Ural Mountains

Production

In 2012, 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 were produced and shipped in the form of pellets.

Review of Operations

Ferrexpo Poltava Mine ('FPM')

FPM consists of a mine, concentrating and pellet processing facilities that exploit the Gorishne-Plavninskoye and Lavrikovskoye ('GPL') deposits. As of 1 January 2013, the GPL deposits had iron ore resources of 3.6 billion tonnes, of which approximately 839 million tonnes were proved and probable reserves with an average iron content of 30% under the JORC Code. The mine is adjacent to rail and port facilities on the Dnieper River and is 6 kilometres long and over 350 metres deep. FPM operates a traditional shovel and truck open pit mining operation extracting approximately 30 million tonnes per annum of crude ore. This mine has operated successfully for over 40 years without any significant disruptions or delays in production.

At FPM's production facilities, the crude ore is ground and crushed to remove rock and concentrated thereafter it is formed into balls and fired to produce iron ore pellets which have a current average iron content of 63.3%. FPM's production facilities have technical capacity to produce 12 million tonnes per annum of pellets. Output, however, is currently limited to 10 million tonnes per annum due to the amount of crude ore available from the FPM pit and certain bottlenecks in concentrating and pelletising, which are being upgraded and modernised as part of the sustaining capital expenditure programme.

For the year ended 31 December 2012, FPM increased the amount of iron ore mined to 29,761 thousand tonnes compared to 29,637 thousand tonnes in 2011. 9,301 thousand tonnes of pellets from own ore were produced, of which 4,118 thousand tonnes had circa 65% iron content and 5,183 thousand tonnes had circa 62% iron content. FPM also processed 108 thousand tonnes of pellets from FYM ore and 281 thousand tonnes of pellets from purchased third party concentrate.

FPM plans to mine up to 30 million tonnes of ore per year from the pit equating to an estimated mine life in excess of 25 years.

Table 2: Production Statistics

Health and Safety

There were no fatalities at FPM in 2012 and 2011, and lost-time injuries reduced from 11 in 2011 to 10 in 2012, reducing the LTIFR to 0.74 per million man hours worked which is the lowest rate in FPM's history (2011: 0.82 per million man hours worked). This reduced the three-year moving average to a LTIFR of 0.96 compared to the prior three average of 1.12 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 2012, FPM completed and implemented 36 projects as part of the BIP. This reduced the C1 cash cost of production by US$64.2 million or 1.8%, in line with its goal of 1% to 2% cost savings per annum. Of these projects, 17 related to mining activities, six projects were focused on improving productivity in the processing facilities and 13 projects focused on reducing downtime in the service departments. Overall 14 projects were aimed at reducing electricity consumption. Table 3 shows the actual resource savings achieved in 2012.

Table 3: Resource Savings under BIP in 2012

It is an essential part of the Group's strategy to reduce costs in order to remain a competitive pellet producer. This has been achieved through ongoing efficiency improvements and cost reductions over many years. Table 4 below illustrates the effect of these projects. Since inception of the BIP programme in 2006, FPM has achieved savings of US$6.9 per tonne in the C1 cash cost of production.

Table 4: Improvement in Consumption Norms

Examples of the BIP in 2012:

Decrease in consumption of steel grinding media in concentration plant

Cost: no capital cost required

Total savings since the project inception in 2011 are 1,998 tonnes of steel grinding media and reduced electricity costs of UAH18 million.

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 assessed 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 required grinding media

3. Consistent particle size achieved

Reduction of power consumption at the tailings plant

Cost: UAH13 million

Total savings since the project inception in 2010 are 33 million kWh of power and reduced electricity costs of UAH21 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. FPM redesigned the piping from the dam to the processing plant to allow water to flow by gravity back to the processing area thereby eliminating the use of large electrical pumps.

Benefits:

1. Lower electricity consumption

2. Reduction in wear and tear of water pumps

3. Recycling of water

Mine dewatering system

Cost: UAH0.5 million

In 2012 1.7 million kWh of power was saved and electricity costs were reduced by UAH1.2 million.

Description of project:

The project commenced in 2011 with the design and approval by FPM's technical committee. In December 2011 the pit dewatering scheme at the Lavrikovskoye deposit (at the northern end of the pit) was changed from a double stage dewatering system to a single stage system. This allowed FPM to eliminate a transitional pumping station located between near ground level of the pit by installing higher capacity pumps at -90 meters in the pit.

Benefits:

1. Electricity cost reduction

2. Maintenance cost reduction

3. Improved efficiency

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$108.4million for the modernisation and debottlenecking of FPM's production facilities (2011: US$121.0 million).

Included in sustaining capital investments are projects to upgrade FPM's beneficiating and pelletising 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 ore from the FPM pit and, additionally the first ore from the FYM pit, increasing the Group's pellet output capacity to 12 million tonnes per year. Activities during the period, focused on the redesign and refurbishment of the grinding sections. These were completed and commissioned through the year, while maintaining day to day operations and production levels. Future activities will involve the modernisation of additional grinding sections of the existing beneficiation plant, as well as the replacement of vacuum filters, and mixers in the pelletising plant to achieve a higher quality of iron ore concentrate to feed the balling machines.

Sustaining capital 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

FPM is undertaking a number of development and improvement projects that will increase its volume of output, as well as the average quality of its pellets and drive down the overall cost of production through increased operating efficiency.

Quality Upgrade Programme

In November 2010, the Board of Directors approved a US$212 million investment programme to increase the average quality of FPM's pellet output from 63.3% iron content to 65% iron content.

In order to improve the quality of the pellet product, the overall iron content of the concentrate requires upgrading. The primary method to achieve this is through vertimill fine grinding technology and flotation. This will allow for the production of concentrate with an average 67% iron content (compared to the current average iron content of 65%) and will ensure all pellets contain 65% iron content. Below is a summary of the key stages in the project.

• Construction of a new floatation unit consisting of vertimills and floatation tanks to allow for further processing of the lower grade ore mined in FPM's pit.

• Modernisation of the existing floatation unit that currently processes the higher grade ore from the FPM pit, including installation of vertimills.

• Construction of an additional floatation unit to process tailings from the above floatation sections to liberate further iron ore.

• Expansion and upgrade of the tailings facilities to accommodate the increased volumes that will be processed as production of pellets from own ore is increased from 9.3 Mtpa to 12 Mtpa.

Since 2011, FPM has spent US$38.3 million primarily on engineering design works and processing equipment such as vertimills. FPM expects to spend US$67.8 million out of the remaining US$173.7 million in 2013.

FPM expects to be able to deliver pellets with an average grade of 65% iron content in 2015.

Mine Life Extension Programme

Capital expenditure of US$168 million over a period of eight years was approved in November 2010 to extend the estimated life of the existing FPM mine by 12 years to 2038. The project will involve removal of 45.2 million cubic metres of overburden. As of 31 December 2012, 24.8 million cubic metres of overburden had been removed.

For the year ended 31 December 2012, US$48.6 million was spent on mining equipment and stripping works, compared to US$45.7 million in 2011. The successful implementation of this project should result in the ore output from the existing mine peaking at 35 million tonnes per annum in 2014 compared to the current output of approximately 30 million tonnes per annum.

Ferrexpo Yeristovo Mine ('FYM')

Developing the Yeristovskoye deposit

Ferrexpo has a licence to mine the Yeristovskoye iron ore deposit at FYM, which is located approximately two kilometres north of the FPM mine. The FYM deposit has estimated resources of 1,191 million tonnes under the JORC Code, of which approximately 631 million tonnes were proved and probable reserves with an average iron content of 34%. Assuming an iron ore production rate of 28 million tonnes per annum (broadly similar to FPM's current production), it has the capacity to add approximately 23 years to the Group's production profile.

First ore at the Yeristovskoye deposit was reached in the second half of 2012. Ferrexpo spent US$146.3 million and US$128.9 million, respectively, for the year ended 31 December 2012 and 2011. This expenditure was primarily on mining equipment, stripping works and pit infrastructure. In total, US$383 million has been spent since 2008 to develop the mine.

The FYM mine is managed and operated independently from the existing FPM mine, although its proximity to the FPM mine will facilitate the sharing of certain facilities and resources, particularly during the early stages of operation. The ore initially extracted from the FYM mine will be processed at FPM's processing complex. Together with existing output from the FPM mine, the Group expects to increase its annualised pellet production from 9.4 million tonnes of pellets from own ore in 2012 to 12 million tonnes of pellets from own ore in 2014. In 2012, 0.1 million tonnes of pellets were produced from FYM ore. Meaningful commercial production of pellets using FYM ore is expected in the second half of 2013 once FYM has mined through the initial layer of weathered ore. This will contribute to increased production volumes in 2013 and position the Group to reach its 12 million tonnes per annum target in 2014 as production ramps up.

FYM is developing additional processing and pelletising facilities for the remaining available crude ore mined at the FYM pit. These processing facilities will be new and stand alone and are expected to increase combined output of both the FPM and FYM mines to around 20 million tonnes per annum of pellets or concentrate equivalent per annum. This project will add an additional concentrating complex with 10 million tonnes of capacity. In October 2012, the Board of Directors approved US$30 million to begin the detailed engineering work for this development in 2013, which, subject to market conditions, is subject to final approval later in 2013 and targeted to begin concentrate production in the second half of 2016 with full production targeted by the end of 2017.

Health and Safety

Since its inception in 2008, FYM has had an excellent safety record. There were no fatalities or lost time injuries in 2012 or 2011.

Ferrexpo Belanovo Mining ('FBM')

The Belanovskoye deposit has total JORC resources of 1,702 million tonnes. Drilling works and site preparation activities are underway and during the period the Group spent US$32.9 million (2011: US$8.0 million). Topsoil is being removed and donated to the district council. The Belanovo activities are focused on development of a feasibility study, licence maintenance and the acquisition of land. Pre stripping work will start following full financial appraisal and the grant of appropriate permits.

Ferrexpo Galeschino Mining ('FGM') and the Northern Deposits

The Group holds a mining license for the Galeschinskoye deposit, located immediately north of the FBM mine. Galeschinskoye's has estimated total JORC classified resources 326 million tonnes.

The Group is in the process of extending the exploration licences for the five remaining Northern deposits, namely Vasilievskoye, Kharchenkovskoye, Manuilovskoye, Brovarskoye and Zerodonskoye, located to the north of Galeschinskoye. An initial assessment of these deposits has been undertaken and total in situ reserves of 13.2 billion tonnes classified according to the FSU Classification have been delineated. These deposits are situated adjacent to the Group's existing logistics infrastructure and Ferrexpo believes the development will be relatively low risk.

Marketing

Sales and Logistics

Ferrexpo exports 99.9% of its production to markets outside of Ukraine and receives all of its revenues in US Dollars. The marketing strategy is centred on securing sales for a large percentage of production with long-term contracts. Customers are targeted who produce high value added steel products. This is designed to maximise revenue stability and security through the economic cycle. For the year ended 31 December 2012, sales to long-term customers accounted for approximately 75% of our sales volumes from own ore, in line with 2011.

In advance of the planned FYM mine expansion, Ferrexpo currently allocates around 10% of sales to potential new customers to be supplied through trial spot cargos. As a result of this, the Group recently secured long-term contracts with key customers in both Western Europe and Asia.

Ferrexpo services the key steel producing regions in the world through three market segments:

·; Traditional markets: these lie within Central and Eastern Europe and include steel plants that were initially designed to use Ferrexpo pellets. Ferrexpo has well-established logistics routes and infrastructure to service these steel mills by both river barge and rail. The Group's products represent an attractive alternative to Brazilian and Canadian suppliers due to the closer proximity allowing for a continuous small-parcel delivery chain. Key traditional customers are based in Austria, the Czech Republic, and Slovakia.

·; Natural markets: these markets include Turkey, the Middle East and Western Europe and are located where the Group has a similar logistics cost advantage compared to more distant producers. Ferrexpo currently has a relatively low market share in these markets which offer sales growth opportunities.

·; Growth markets: these markets are in Asia and have the potential to deliver new and significant sales volumes to the Group. Within this region Ferrexpo is focused not only on China and India but also on building relationships with the premium steel producers in South Korea, Taiwan and Japan. Ferrexpo concentrates on reducing its freight costs to this region by delivering via capesize vessels enabling it to remain competitive on a landed cost basis.

The following table shows the % of Group sales volume by market segment.

Ferrexpo intends to maintain and consolidate its leadership in Traditional markets while looking to maximise opportunities for sales growth in its Natural and Growth markets.

In Natural and Growth markets, the Group has been steadily reducing the cost of freight. Ferrexpo's 48.6% owned port terminal at Yuzhny on the Black Sea has guaranteed capacity of 5 million tonnes per annum. This port berth was initially designed for vessels of carrying capacity of up to 100,000 tonnes, and historically vessels were loaded in the range of 70,000 to 85,000 tonnes. Ferrexpo has developed a cost effective capability to load standard capesize vessels, typically around 172,000 tonnes, by use of a transhipment vessel. In 2012, Ferrexpo loaded 17 capesize vessels compared to 9 in 2011 and it plans to load over 30 capesize vessels in 2013. As of December 2012, Ferrexpo operates its own transhipment vessel which will further reduce loading costs.

Overall, the lower freight costs achieved in 2012 were as a result of reduced capesize rates in the market generally, the greater use of capesize vessels for shipping and the more efficient transhipment and loading of vessels. This resulted in a higher net sales price for the Group.

Logistics Capital Investment

In 2012, Ferrexpo invested US$43.5 million in the development of its logistics infrastructure (2011: US$57.8 million). This included US$14.4 million for its transhipment vessel, Iron Destiny, as well as US$29.1 million for rail wagons. As of 31 December 2012, the Group owned 1,933 rail cars which allow it to transport a high proportion of its pellets to Ukrainian border points reducing its reliance on state rail cars and lowering transportation costs. In February 2013, the Group ordered a further 267 rail cars which will take the inventory of rail cars to 2,200 units. As part of sustaining capital, the Group invested US$5.0 million (2011: US$6.4million) in its barging operations.

Pricing

Pellets are a premium iron ore product which can be directly charged into the blast furnace and provide steelmakers with a higher level of productivity. As a result iron ore pellets are generally priced at a premium compared to iron ore fines or lump. Ferrexpo's pellets are relatively low in alumina and phosphorus, which is particularly important to flat steel manufacturers. Pellets can generally be shipped consistently in cold climates as the lower moisture content makes them easier to handle and less prone to freezing. Currently in the global iron ore market, there are a number of pricing methodologies being applied by industry participants depending on geography and customer. With regards to the major suppliers, the index based pricing mechanism is now well established in long term contracts whilst it is common for these companies to regularly place shipments to the very liquid spot market. In 2012, 61% of Ferrexpo's sales contracts were priced on a quarterly basis while 14% were priced on a monthly basis and 26% were on a spot basis. This compares to 76% on a quarterly basis and 24% on a spot basis in 2011.

The Group will follow international pricing trends increasing the proportion of contracts priced on a formula or index basis. Ferrexpo will continue utilising a 'value in use' methodology. Ferrexpo believes that its geographic proximity to key steel customers represents an attractive alternative to the major seaborne suppliers due to the lower costs of transporting pellets over a shorter distance from Ukraine.

Financial Review

Table 5: Summary Financial Results

Revenue

Group revenue declined by 20.4% to US$1.4 billion for the 12 months ended 31 December 2012 (2011: US$1.8 billion) due to lower market prices for iron ore. In 2012, the average benchmark price for 62% Fe iron ore fines to China CFR fell by 23.8% to US$128 per tonne compared to an average of US$168 per tonne in 2011.

The average realised price achieved by the Group for its pellets declined 21.7% in line with the market, decreasing revenues by US$326.9 million. 38.8% of sales were on a CFR or similar basis adding US$113.5 million to revenue (2011: US$119.6 million). Group sales volumes for the period were 9,675 thousand tonnes compared to 2011 at 9,876 thousand tonnes.

Reliance on the Company's two largest customers, in Central and Eastern Europe, was reduced to 36.2% of pellet sales from 43.1% of sales in 2011.

Other revenue, not related to pellet sales, amounted to US$94.0 million (2011: US$88.1 million). This included revenue from third party services, such as freight services and bunker fuel sales, at the Group's barging operations as well as sales from gravel.

Cost of Sales

Total cost of sales for the year ended 31 December 2012 increased 6.9% to US$694.6 million (2011: US$649.5 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 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 Group's average C1 cash cost of production increased by 18% to US$59.6 per tonne, compared to the average C1 cash cost in 2011 of US$50.7 per tonne. This was due to increased electricity tariffs and gas prices as well as local inflation while the Ukrainian Hryvnia remained stable against the US Dollar.

Just over half of C1 cash costs are denominated in Ukrainian Hryvnia. The Hryvnia has remained largely stable since 2009 at UAH8 to the US Dollar. Prior to the 60% devaluation of the Hryvnia at the end of 2008, production costs peaked at US$51.0 per tonne in October 2008. In this context, since then production costs have increased by a compound annual growth rate of 4.0% per annum reflecting local inflation and increases in gas and electricity tariffs offset by savings from volume increases and efficiency gains.

Of the US$8.9 per tonne increase in the C1 cash cost in 2012 compared to 2011, commodity related price inflation accounted for 46.0% of the increase. In 2012, gas and electricity prices rose by 24.1% and 18.7% respectively while the cost of diesel fuel was 6.9% higher, reflecting higher global oil prices during the year and increased domestic fuel taxes. In total, these factors added US$4.3 per tonne to the C1 cash cost.

Personnel, repair and maintenance and other material costs increased the C1 cash cost by US$4.5 per tonne. These expenses are principally denominated in local currency.

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$0.8 per tonne. Since the inception of the BIP in 2006, cumulative productivity gains have achieved savings of approximately US$6.9 per tonne of pellets produced, or US$64.2 million to the 31 December 2012.

Table 6: C1 Cash Costs

Cost of Sales outside C1 Relating to Pellet Production

These amounted to US$133.5 million for the period (2011: US$190.0 million).

Depreciation and amortisation increased by 37.2% to US$39.3 million, reflecting the Group's capital investment programmes to modernise and upgrade the existing mine and production facilities.

The remainder of non C1 cost of sales related to the purchase of concentrate for reprocessing into pellets. The Group has nominal 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 its spare pelletising capacity efficiently, third party concentrate is purchased when available at economic prices on the local market. During the year, 281.0 thousand tonnes of third party concentrate was acquired (2011: 747.3 thousand tonnes) which generated a positive contribution. As FYM ore comes on line in 2013 the Group will replace third party concentrate.

Gross Margin

The Group's gross margin was 51.2% for the period compared to 63.7% in 2011. This reflected lower market prices for iron ore and industry cost inflation.

Selling and Distribution Expenses

Selling and distribution expenses were US$311.9 million for the year compared to US$318.1 million in 2011.

Selling and distribution costs to the Ukrainian border increased by US$2.4 million to US$140.4 million in the period (2011: US$138.0 million), equating to US$14.5 per tonne (2011: US$14.0 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 12.2% in 2012 compared to 2011 reflecting a full year impact of tariff increases in 2011. This was partially offset by a discount for volumes transported by the Group's own rail cars. Ferrexpo owns 1,933 rail cars and received discounts from 9% to 15% for using its own cars, depending on direction.

International freight costs amounted to US$113.5 million (2011: US$119.6 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 CIF2 or CFR basis), and by barge to customers in Serbia (on a DAP3 basis). The Group shipped 3.8 million tonnes of pellets by sea to customers in Growth and Natural markets on a CFR or equivalent basis principally through the loading of 17 capesize vessels. Utilisation of capesize vessels allowed Ferrexpo to reduce seaborne freight costs by approximately US$21 million in 2012 compared to 2011.

Depreciation amounted to US$9.8 million (2011: US$8.2 million) and related to amortisation of the Group's river vessels as well as to rail cars.

1 CFR is defined as delivery including cost and freight

2 CIF is defined as delivery including post, 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$56.3 million (2011: US$52.0 million). The increase was related to new marketing offices in Singapore and Japan as well as personnel costs reflecting local inflation.

Other Income and Expense

Other income was US$11.3 million in 2012 (2011: US$6.9 million). The increase reflected higher operating income from the lease of premises to third parties at FPM.

Other expenses increased to US$30.2 million (2011: US$17.1 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.

Ferrexpo maintained satisfactory levels of profitability reflecting a 23.8% fall in market prices and industry wide double digit cost inflation. EBITDA for the period was US$401.5million (2011: US$800.9 million).

Finance Income and Expense

Finance income was US$2.6 million (2011: US$2.5 million). Interest from cash held was US$2.5 million in line with 2011. The average cash balance during the year was US$743.4 million (2011: US$604.8 million).

Finance expense increased to US$88.1 million (2011: US$68.2 million) which included a full year of interest payment on the Group's US$500 million Eurobond totalling US$39.5 million (2011: US$28.8 million). 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 which remained outstanding in 2012. Interest on this facility is 225 basis points above LIBOR which was significantly below the previous bank facility. The average cost of Group debt for the period was 5.24%, almost a percentage point lower than the average of 6.23% in 2011 reflecting a full year of the lower cost bank facility.

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 UAH7.9905 (2011: UAH7.9579). As a result, there was no significant operating foreign exchange movements, with a gain of US$0.7 million recorded (2011: loss of US$1.4 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.

The Group recorded a non-operating foreign exchange gain for the period of US$6.6 million (2011: loss of US$1.9 million). This related to income received from the conversion of US Dollars for settlement of liabilities denominated in Ukrainian Hyrvnia at an exchange rate higher than the one applicable upon initial recognition.

Income Tax Expense

Ferrexpo pays tax in various jurisdictions. The effective income tax rate was 17.8% for the year ended 31 December 2012 compared to 16.8% for 2011. This rate is influenced by the Group's mix of profits primarily between Switzerland, Ukraine and Dubai, as well as the amount of non-deductible expenses for tax purposes.

Cash Flows

Net cash flow from operating activities was US$118.6 million for the period compared to US$502.7 million in 2011.

Working capital increased by US$128.2 million primarily reflecting higher VAT receivables (2011: working capital increase was US$111.4 million). As a result of high capital expenditure during the year on which the Group pays 20% VAT, and a delay in respect of VAT repayments from the Ukrainian government, VAT receivables increased by US$129.9 million during the period to US$301.5 million. A US$20.0 million discount has been recorded to reflect the time value of money for VAT given the expectation that a portion of VAT will be recovered after more than one year.

Total capital investment for the year was US$429.3 million, a 13.5% increase compared to US$380.4 million in 2011.

Sustaining and modernisation capital investment was US$113.5 million for the Group (2011: US$128.0 million) of which US$108.4 million was invested at FPM (2011: US$121.3million). The remaining US$5.1 million was largely invested in the barging operations.

In November 2010, the Board approved US$646.9 million for development projects at FPM and FYM. In 2012, the Group spent US$230.0 million in this regard (2011: development capex US$177.9 million). US$83.7 million was spent at FPM, while US$146.3 million was invested at FYM.

US$41.8 million was spent on the FBM and Northern deposits during the period (2011: US$12.0 million). The spend was primarily related to FBM for topsoil removal and site preparation activities.

Total development expenditure on logistics was US$43.5 million (2011: US$57.8 million). Of this US$29.1 million related to the acquisition of rail cars and US$14.4 million was for the Group's transhipment vessel.

The Group's closing cash balance was US$596.6 million (2011: US$890.1 million). This reflected lower levels of profitability due to a subdued market environment in 2012 as well as record levels of capital investment.

Ferrexpo's gross debt had an average maturity of 3.0 years at the 31 December 2012. The Group has minimal debt repayments of US$19.2 million in 2013. Net debt to EBITDA as of 31 December 2012 was 1.05 times.

Table 8: Summary of Group Liquidity and Debt

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

The financial statements were approved by the Board of Directors on 12 March 2013.

Kostyantin Zhevago Christopher Mawe

Chief Executive Officer Chief Financial Officer

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Equity

Notes to the Consolidated Financial Statements

Note 1: General information

The financial information for the year ended 31 December 2012 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 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's annual general meeting convened for Thursday, 23 May 2013.

The auditor has reported on the statutory accounts for year ended 31 December 2012. 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, 12 March 2013. 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 and methods of computation adopted in the preparation of these consolidated financial statements are consistent with those of the previous year, except for the adoption of new and amended IFRS and IFRIC interpretations effective as of 1 January 2012.

None of the new and amended standards or interpretations affected the reported results and financial positions. The adoption of the standards or interpretations is described below:

IFRS 1 First-time adoption of IFRS - severe hyperinflation and removal of fixed dates for first time adopters

IFRS 7 Financial instruments: disclosures - transfer of financial assets

IAS 12 Income taxes - recovery of underlying assets

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

IFRS 1 First-time adoption of IFRS - government loans

IFRS 7 Financial instruments: disclosures - offsetting financial assets and financial liabilities

IFRS 9 Financial instruments: classification and measurement

IFRS 10 Consolidated financial statements

IFRS 11 Joint arrangements

IFRS 12 Disclosure of involvement with other entities

IFRS 13 Fair value measurement

IAS 1 Financial statement presentation - presentation of items of other comprehensive income

IAS 19 Employee benefits

IAS 32 Financial instruments: presentation - offsetting financial assets and financial liabilities

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

The amendment of the IAS 19 standard will be retrospectively applied in the financial year 2013. The removal of the 'corridor-approach' under the amendments to IAS 19 will result in the recognition of unrecognised actuarial losses and past service costs through other comprehensive income. If the Group would have applied the amended standard for the financial year 2012, the shareholders equity would have been lower by US$51,815 thousand and US$26,885 thousand as of 1 January 2012 and as at 31 December 2012 respectively. As a result, the current year benefit expenses for the financial year 2012 would have been lower by US$3,764 thousand.

The impact on the accounting and the effect on the Group's financial position and performance from the other standards listed above will be assessed. No material impacts are expected from the application of these standards.

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. 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

'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 2012 consisted of the following:

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

During the year ended 31 December 2012 sales made to three customers accounted for approximately 44.7% of the revenues from export sales of ore pellets (2011: 50.2%).

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

Note 5: Cost of sales

Cost of sales for the year ended 31 December 2012 consisted of the following:

Note 6: Selling and distribution expenses

Selling and distribution expenses for the year ended 31 December 2012 consisted of the following:

Note 7: Finance income and expense

Finance income and expenses for the year ended 31 December 2012 consisted of the following:

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

Other finance costs includes the recorded discount of US$20,000 thousand (2011: nil) to reflect the time value of money on the outstanding VAT receivable balances in Ukraine that are expected to be recovered after more than one year of the period end. Further information is provided in note 10.

Note 8: Income tax expense

The income tax expense for the year ended 31 December 2012 consisted of the following:

The effective income tax rate differs from the corporate income tax rates. The weighted average statutory rate was 9.3% for 2012 (2011: 15.3%). 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 17.8% (2011: 16.8%).

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 2012 is as follows:

Note 9: 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 are considered 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 10: Taxes payable, recoverable and prepaid

The income tax receivable/(payable) balance as of 31 December 2012 is shown below:

As at 31 December 2012 other taxes recoverable and prepaid comprised:

VAT receivable is as a result of VAT paid on domestic Ukrainian purchases of goods capital equipment and services and on the import of goods, capital equipment and services into Ukraine to the extent that this cannot be offset on VAT paid on domestic sales. Ferrexpo currently has limited domestic sales and exports the majority of its products. As a result, VAT has to be recovered from the Government tax authority and Ferrexpo is reliant on the normal functioning of this system.

During the financial year 2012, FPM received VAT refunds in respect of 2011 and 2012 amounting to US$70,644 thousand and paid Ukrainian VAT amounting to US$221,973 thousand, including US$81,043 thousand in respect of capital expenditure. As a result the gross recoverable balance increased by US$129,881 thousand to US$301,535 thousand (UAH2,410 million).

Management expects this amount to be fully recovered in local currency. However, the exact timing of recovery and method of settlement is subject to uncertainties, along with the prevailing exchange rate to the US Dollar at the time of repayment. In the past, VAT has been recovered in cash and by the issuance of domestic local currency bonds. An alternative method of settlement could be to offset amounts recoverable against current and future corporate profit tax. A financial loss could result, for example from the issuance of bonds which trade at a discount at the time of issue; continued late repayment as a result of Government fiscal constraints diminishing the present value of the receivable, or the conversion to US Dollar of local currency received at a different exchange rate to that recorded at the time of payment.

Management has considered these uncertainties including potential continued International Monetary Fund support for the Ukrainian national budget, domestic economic and budgetary constraints, and current discussions with fiscal authorities in making an estimate of the timing of recovery of the VAT due. Management concluded that a large portion of the VAT is likely to be repaid considerably beyond the settlement terms which will result in additional funding costs for the Group. As a result, an estimated discount of US$20,000 thousand has been recorded to reflect this uncertainty and its effect is included in finance expense. The discount was calculated on the basis that VAT refunds will continue to be limited to an amount which is double monthly corporation tax payments, which has been our recent experience. Based on current management estimates, US$186,900 thousand of VAT is expected to be recovered within one year of the period end, with the remainder, amounting to US$97,895 thousand, net of the associated discount to reflect the time value of money, recoverable after more than one year of the period end.

Note 11: 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 2007 Annual Report and Accounts and subsequent IPO and Eurobond prospectuses, interim as well as annual reports as appropriate since then.

A former shareholder in OJSC Ferrexpo Poltava Mining ('FPM') brought proceedings in the Ukrainian courts against certain nominee companies that were previously ultimately controlled by Kostyantin Zhevago, among other parties, seeking to invalidate the shares sale and purchase agreement pursuant to which a 40% stake in FPM (which was subsequently diluted to less than 14% following further share issues by FPM) was sold to those nominee companies. On 11 January 2010, a judgment rejecting the claims of the former shareholder that had previously been made by the Commercial Court of Poltava Region was upheld on appeal by the Kyiv Inter Region Appellate Commercial Court. Following the appeal proceedings, the former shareholder filed a cassation complaint with the High Commercial Court of Ukraine requesting that it reverse the judgments of the lower courts. The High Commercial Court of Ukraine granted the cassation complaint of the former shareholder on 21 April 2010 and invalidated the respective shares sale and purchase agreement without ruling on any consequences of such invalidity.

On 6 October 2011, the claimants filed a new claim in Ukraine alleging that as a result of invalidity of the shares sale and purchase agreement with respect to a 40% stake in FPM their rights were infringed by the decisions on the capital increases taken at the general shareholders meeting of FPM which took place on 20 November 2002 and all further decisions of the general shareholders meetings of FPM relating to subsequent changes to FPM's charter capital. Accordingly, the claimants asked the court to invalidate the decisions taken at the general shareholders meeting of FPM which took place on 20 November 2002, restore their status as shareholders of FPM as of 20 November 2002 having a 40% stake in FPM, cancel all share issues of FPM that took place after 20 November 2002 and register shares in their names.

On 22 November 2011, Ferrexpo AG filed a claim against the claimants at the High Court of Justice in London seeking a confirmation of ownership in FPM shares. The claim was launched in order to take an active step outside Ukraine to resolve this long-running dispute. By a judgment dated 3 April 2012, the proceedings in the UK were stayed while the case continued in Ukraine.

On 20 August 2012, the Commercial Court of Poltava Region, which was considering the case as a court in the first instance, upon motion of the claimants ruled that the case be transferred to the Kyiv City Commercial Court, which has exclusive jurisdiction over the case, given that one of the defendants in the case, the National Commission on Securities and Stock Market of Ukraine, has the status of a central executive authority. FPM challenged the transfer of the case to the Kyiv City Commercial Court; however, both the Kharkiv Appellate Commercial Court and the High Commercial Court of Ukraine upheld the ruling of the Commercial Court of Poltava Region dated 20 August 2012.

The case is currently being heard before the Kyiv City Commercial Court by a panel of three judges and at the latest hearing on 28 February 2013 the decision was made to postpone the consideration of the case till 21 March 2013 in order to prepare for further consideration of the case and for the decision on the various motions submitted by the defendants.

After having taken Ukrainian legal advice, the management of the Group believes the claim has little legal merit primarily since neither the final decision by the High Commercial Court of Ukraine nor any subsequent claims entitles claimants to direct enforcement rights to the shares of FPM. In addition, the restitution of the status quo ante of the shareholding position as sought by claimants does not have a basis under Ukrainian law for various legal, technical and practical reasons. It follows that no provision was recorded for this dispute as of 31 December 2012. At the same time, in light of the risks surrounding the operation and independence of Ukrainian courts, including the risks associated with the Ukrainian legal system in general, the claimants may ultimately prevail in this dispute and the Group's ownership of the relevant interest in FPM may be successfully challenged in the future, which could have a material adverse effect on Ferrexpo's business, results of operations, financial condition and prospects.

Tax and other regulatory compliance

Ukrainian legislation and regulations regarding taxation and custom regulations continue to evolve. Legislation and regulations are not always clearly written and are subject to varying interpretations and inconsistent enforcement by local, regional and national authorities, and other Governmental bodies. Instances of inconsistent interpretations are not unusual. The uncertainty of application and the evolution of Ukrainian tax laws, including those affecting cross-border transactions, create a risk of additional tax payments having to be made by the Group, which could have a material effect on the Group's financial position and results of operations. The Group does not believe that these risks are any more significant than those of similar enterprises in Ukraine.

We are disputing several tax claims by domestic tax authorities following inspections for the fiscal years 2011 and 2012 and continue to dispute in the court system amounts resulting from audits in relation to 2009 and 2010. Corporate profit tax claims are, among other things, claims related to the deductibility of expenses for tax purposes, adjustments in respect of prices charged on the export of products and payments of additional environmental and other taxes and duties. The aggregate amount claimed by the Ukrainian tax authorities relating to these matters, together with applicable fines and penalties, is approximately US$16,900 thousand. As we believe the tax authorities claims are unlikely to be enforced no provision has been made for these claims, although there is no guarantee the tax authorities' challenges will not succeed.

Recoverable VAT amounting to US$103,206 thousand outstanding at 31 December 2012 is in the process of being considered by the Ukrainian court system in several different cases. As the VAT is fully recoverable under the relevant Ukrainian legislation, the Group expects to ultimately receive positive court decisions for these ongoing court proceedings. Consequently, the VAT is recorded at its full amount in the financial statements, net of an estimated discount to reflect the time value of money as disclosed in note 10.

Note 12: 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 9.