Last checked at 15 Oct 2008 08:00
15 October 2008
Interim Management Statement
Ferrexpo plc ("Ferrexpo" or the "Group") today issues its interim management statement for the period from 1 July to 15 October 2008, in accordance with the UK Listing Authority's Disclosure and Transparency Rules.
Production Report for Q3 2008
| Production in Tonnes '000 | Q3 | Q2 | Change | Q3 | Change | YTD | YTD | Change |
| 2008 | 2008 | % | 2007 | % | 2008 | 2007 | % | |
| Iron Ore | 7,238.6 | 7,229.9 | 0.1 | 7,305.0 | (0.9) | 21,599.9 | 21,751.0 | (0.7) |
| Concentrate | 2,772.8 | 2,744.9 | 1.0 | 2,694.9 | 2.9 | 8,212.7 | 7,988.0 | 2.8 |
| Pellets from produced raw materials | 2,265.0 | 2,271.7 | (0.3) | 2,183.5 | 3.7 | 6,769.4 | 6,633.6 | 2.0 |
| 62% Fe | 1,194.0 | 1,304.7 | (8.5) | 1,228.8 | (2.8) | 3,778.1 | 3,901.4 | (3.2) |
| 65% Fe | 1,071.0 | 967.0 | 10.8 | 954.7 | 12.2 | 2,991.3 | 2,732.2 | 9.5 |
| Pellets Total | 2,505.1 | 2,328.1 | 7.6 | 2,229.5 | 12.4 | 7,101.4 | 6,882.3 | 3.2 |
| 62% Fe | 1,434.1 | 1,361.1 | 5.4 | 1,274.8 | 12.5 | 4,110.1 | 4,150.1 | (1.0) |
| 65% Fe | 1,071.0 | 967.0 | 10.8 | 954.7 | 12.2 | 2,991.3 | 2,732.2 | 9.5 |
Production Highlights
Operating and Financial Performance
Ferrexpo's pellet production in the first three quarters of 2008 has been in line with management expectations. No material operational issues have been identified, and guidance for full year production remains unchanged.
Inflationary cost pressures in Ukraine have abated slightly, with the rate of increase falling from the high levels seen at the end of the first half of 2008. Official PPI inflation is 34% for the first three quarters of the year. Falling diesel and steel prices and a depreciating Hryvnia have meant that the Group's C1 costs of production in the third quarter of 2008 have been lower than management forecasts. Reducing costs of cyclical inputs should ensure Q4 costs remain under control.
Steel production in Ukraine has slowed considerably in Q3 2008, which has resulted in a decrease in the demand for iron ore products in the region. The Group exports the majority of its production, but it does supply one long term framework contract customer and several smaller supply contracts in Ukraine, together constituting approximately 15% of the Group's total sales. The Group is endeavouring to divert a portion of its production previously destined for its Ukrainian customers to other customers in stronger demand areas outside Ukraine.
Update on Growth Projects
The Definitive Feasibility Study ("DFS") for the development of the Yeristovskoye mine and associated processing plants and infrastructure (the "Yeristovskoye Project") and the DFS relating to the project to upgrade the beneficiation facilities at the existing Gorishne-Plavninskoye Lavrikovskoye ("GPL") mine (the "GPL Upgrade Project") have now been completed. The results of these studies were reviewed by the Board of Ferrexpo at its meeting on 14 October 2008.
The DFS for the Yeristovskoye Project contemplates the development of an open cut mine and the construction of a concentration plant, a pelletising plant and the associated infrastructure. The GPL Upgrade Project will allow the Group to upgrade the existing concentration plants to enable the production of exclusively 65% Fe pellets. Both projects are economic as presented, and the total DFS capital remains broadly in line with the preliminary capital expenditure figure indicated for these projects in the Group's IPO Prospectus (the IPO estimate did not include a new pellet plant). However, the DFS capital estimates are considered to be conservative with equipment and bulk commodities pricing having being obtained at the top of the market and opportunities for realising the benefits of the Ukrainian location still to be fully explored.
Given the current uncertainties in financial and commodity markets, the Board has deferred decisions on the ultimate investment in these projects until the end of the first quarter of 2009. During this interim period a programme of activities will be undertaken to reduce project capital by maximising the procurement opportunities and other cost benefits that could be realised in Ukraine. During this time the Group will seek to maintain the schedules of these Projects by commencing pre-stripping operations at the Yeristovskoye mine, launching the necessary regulatory approvals processes for the Projects and preparing to place orders for schedule-critical and long delivery items.
The Company will also take the opportunity to assess the availability of finance to continue proceeding with these projects on an accelerated basis, taking into account current financial market uncertainty and any contributions from potential Strategic Investors.
The Group has already committed $116 million to the Yeristovskoye Project inclusive of the procurement of six draglines and an initial fleet of mining equipment. The first of this equipment is already on site, with the first two draglines currently being assembled for the commencement of stripping works during November 2008. The Yeristovskoye mine is currently scheduled to produce first ore by the end of 2011 and achieve plateau production of approximately 28 million tonnes per annum of iron ore by 2014.
Strategic Investor Programme
The Group continues to seek a strategic investor to partner with it in developing its major growth projects (the "Strategic Investor Programme"). The selection process remains on schedule, and a final shortlist of candidate companies has been identified, all of which have completed detailed due diligence on the Group over the past two months. The shortlisted companies all meet the Group's criteria for a strategic investor in terms of funding ability and project execution capability, and they have recently been provided with the Yeristovskoye Project DFS. While the Board recognises the current international financial crisis has had an impact upon all the potential partners, the intention of the Group remains to enter into valuation discussions in mid-November. The Group expects the Strategic Investor Programme to conclude towards the end of Q4 2008.
Outlook
Notwithstanding growing uncertainty in the worldwide financial and commodity markets, the Board remains hopeful that the Group's performance in 2008 will be broadly in line with previous guidance. The Group achieved substantial price increases for its contracted production in April 2008, and the majority of these prices are fixed until the end of March 2009. Production volumes remain on target, while cost pressures are easing. However, the current softness in the Ukrainian iron ore and steel market referred to above may emerge in certain of the Group's other geographic sales sectors during Q4 2008. Other than the Ukrainian situation, there have been no material developments as at the date of this announcement which would cause the Board to revise its full year sales guidance, but management expect the Group to face continued uncertainty in the iron ore industry imposed by the global economic crisis for the remainder of the year.
Mike Oppenheimer, Ferrexpo CEO, said:
"The completion of the definitive feasibility studies for our GPL Upgrade and Yeristovskoye projects represents a significant milestone for the Group. Like the rest of the industry, Ferrexpo is faced with significant challenges arising from the current worldwide economic uncertainty and the Board has borne this in mind in considering its commitment to these projects. Our planned activities through the first quarter of next year will enable us to maintain the momentum of our projects while giving us the opportunity to optimise capital estimates, explore funding opportunities and wait for the markets to settle.
We are also continuing the Strategic Investor Programme, which is proceeding on schedule. The fundamentals of our operations remain strong, and we are on track to meet our production targets while inflationary cost pressures are starting to ease.
It is difficult to make a definitive statement on the market outlook for the remainder of the year given the uncertainty in global commodity markets and the weakness in the Ukrainian steel sector. We have taken corrective action around the weakness seen in our Ukraine market and remain in close contact with all of our customers to ensure full understanding of their forward requirements."
Next Update
In line with its normal reporting pattern, Ferrexpo will issue its Q4 2008 Production Report in January 2009, and its 2008 Preliminary Results on 11 March 2009.
For further information, please contact:
Ferrexpo: +44 207 389 8304
Gavin Mackay
Finsbury: +44 207 251 3801
Robin Walker
Alex Simmons
Notes to Editors:
Ferrexpo is a Swiss headquartered resources Group with assets in Ukraine, principally involved in the production and export of iron ore pellets, used in producing steel. Current output is over 9 million tonnes per annum, approximately 85% of which is exported to steelmakers around the world, and the Group is currently undertaking a significant growth programme. 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.