Ferrexpo Regulatory News (FXPO)



11 November 2010

Ferrexpo PLC

Interim Management Statement

Ferrexpo plc ("Ferrexpo", the "Company" or the "Group") today issues its interim management statement for the period from 1 July to 10 November 2010, in accordance with the UK Listing Authority's Disclosure and Transparency Rules.

Highlights

·; Very strong cash flow generation

·; Board approval of US$647 million of capital expenditure

·; Record production levels

·; C1 cash costs in-line with expectations

Ferrexpo is pleased with the overall progress of the business achieving record production and maintaining good cost control. Significantly higher cash flow generation has enabled the Board to approve projects to restart the development of the Yeristovo mine and to accelerate investment in the existing mine to improve product quality and increase output.

Net debt as of 31 October 2010 reduced by US$97 million to US$160 million compared to US$257 million as of 30 June 2010. The decrease in net debt was a result of higher profitability and the receipt and part sale of VAT bonds. At 31 October 2010 the Group held cash amounting to US$253 million.

Production

Total pellet production in Q3 2010 increased 0.5% to 2,560kt, an increase from record production levels in Q2 2010. Production of own ore increased 0.9% to 2,300kt over the period. Year to date, including production in October 2010, total pellet production has increased 15.7% to 8,336kt compared with 2009, while production of 65% and 62% Fe pellets has increased 15.7 % and 15.8% respectively. Production in October 2010 was the highest monthly production of 65% Fe pellets on record while total production in September 2010 was the highest since 1987.

Production of pellets from third party concentrate has increased significantly to meet ongoing higher demand. Production of third party pellets also allows Ferrexpo to test its excess pelletising capacity ahead of the planned ramp up to produce 12 million tonnes of pellets from own ore by the end of 2013.

Sales and Pricing

Sales volumes were 2,499 kt in Q3 2010 inline with Q2 2010 (2,512 kt).

Currently in the global iron ore market, there are different pricing mechanisms being applied under long term contract tonnage depending on region and customer. Ferrexpo believes that whilst it will take some time for industry pricing mechanisms to clarify, the end result will likely be a combination of pricing horizons driven by the specific product and sales mix of the relevant steel mill.

Ferrexpo has agreed a number of different pricing arrangements with its customers including quarterly and six month pricing agreements.

Ferrexpo has long term contracts in place for approximately 90% of its own output, with the remainder comprising trial cargoes to prospective new long term customers.

Costs

The average C1 cash cost of production for Q3 2010 was US$40.4/t an 8.6% increase compared with the average C1 cost in Q2 2010 of US$37.2/t. The increase in the C1 cash costs was below the increase in electricity tariffs over the quarter of 9.5% and significantly below annual PPI inflation to 30 September of 19.2%. The Group benefitted from production at full capacity and increased output through-out the period allowing for full absorption of the fixed cost base. The Business Improvement Programme continued to help mitigate inflationary cost pressures while the Ukrainian Hryvnia remained stable against the US dollar at approximately 7.9 UAH to the US$. The year to date average C1 cash cost, including October, was US$39.1/t.

Financing

In September 2010 Ferrexpo secured a new Pre-Export Financing facility for US$350 million. The facility matures on 31 March 2014, amortising over 24 months following an 18 month grace period. 

This facility together with the realization of overdue VAT from 2009 and the Group's very strong cash generation provides the Company with the financial flexibility and cash on hand to progress with key expansion projects.

Growth Projects

The Company is progressing well with its development projects which had largely been on hold since October 2008. Following re- appraisal of the timings and economics, the Board has approved total capital expenditure of US$647 million to commence immediately.

Ferrexpo Yeristovo Mine ("FYM")

The Board has authorised expenditure of US$267 million to achieve first ore from the Yeristovo deposit which will deliver 5.5 million tonnes of primary crushed ore to Ferrexpo Poltava Mine ("FPM") processing facilities for conversion into 1.9 million tonnes of pellets. This is expected to be completed by the first quarter of 2013 and will increase total Group pellet output to 12 million tonnes per annum of own ore.

Of the US$267 million approved capital expenditure, US$153 million is expected to be committed in 2011.

Subsequent approvals are expected, subject to the availability of funding and the performance of the Group, for additional processing and pelletising facilities to bring total Group output to around 20 million tones of pellets / concentrate equivalent per annum.

Quality Upgrade Project at FPM

The Board has approved US$212 million for the upgrade of the existing concentrator facilities at the FPM processing facilities to increase the proportion of 65% Fe pellets to 100%. Currently approximately half of the Group's production is split between 65% Fe pellets and 62% Fe pellets. The project is scheduled for completion by the end of 2014.

Of the US$212 million approved capital expenditure, US$49 million is expected to be committed in 2011.

Mine Life Extension Project at FPM

The Board has approved capital expenditure of US$168 million over a period of 8 years to extend the life of the existing FPM mine to 2038. The project will involve additional stripping works in 2011 of around 15 million cubic metres to allow access to additional ore from 2014. As a result the ore output from the existing mine will peak at 35 million tonnes per annum by 2014 compared to the current output of 28 million tonnes per annum.

Michael Abrahams, Ferrexpo Chairman, said:

"Ferrexpo continued to deliver an excellent performance operating at full capacity during the period, achieving record levels of production, and once again demonstrating C1 cash cost control. The Group has continued to make progress with increased sales in its core markets and has penetrated new markets such as Japan. These factors are expected to underpin a strong financial performance for the remainder of 2010 and into 2011 where the Group will remain focused on enhancing cash flows to support growth projects. The Board approval of US$647 million of capital expenditure is the first stage for the Group to increase significantly the quantity and quality of its pellet output."

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Notes to Editors:

Ferrexpo is a Swiss headquartered resources company with assets in Ukraine, principally involved in the production and export of iron ore pellets, used in producing steel. Current output is approximately 9 million tonnes, which is exported to steelmakers around the world. The Group is listed on the main market of the London Stock Exchange under the ticker FXPO. For further information please visit www.ferrexpo.com.