AGM Statement

RNS Number : 6119M

Ferrexpo PLC

27 May 2010

 



27 May 2010

Ferrexpo plc

AGM Statement

Ahead of its Annual General Meeting later today Ferrexpo plc ("Ferrexpo" or "the Company") is pleased to update the market on its current trading. 

Summary

·      Sales demand, year to date, has been very strong

·      Over 90 per cent of sales have been based on long term volume framework agreements

·      Significant provisional average DAF/FOB pellet price increases

·      3.2 million tonnes of pellets produced to 30 April 2010

·      Average C1 cash cost to 30 April 2010 US$38.84/tonne

Operating Environment and Financial Performance

Iron ore demand has recovered from its 2009 lows, suggesting that iron ore pellet prices should remain well above 2009 levels for the remainder of 2010. For the April to June 2010 quarter, Ferrexpo has already or expects to secure significant average DAF/FOB price increases inline with international pricing for all of its production.

The industry is in a period of transition with regard to establishing a new pricing methodology.  While it is impossible at this time to predict whether more frequent re-pricing would have any effect on the overall average annual pellet prices we achieve, it would likely give rise to a greater degree of short term period-to-period variability in our results than has previously been the case. 

Quarterly pricing has been introduced in some cases but there is, at the moment, no clarity with respect to the frequency with which price settlements will occur going forward.  We currently expect that it will be some time before a generally accepted methodology emerges and the transparency that existed under annual benchmark price arrangements returns. In the meantime we are achieving increased pricing with our customer base. 

Ferrexpo has maintained own ore production at full capacity. Pellet production, including third party concentrate, to 30 April 2010 was 3.2 million tonnes, a 20.3 per cent increase over prior year levels. Of this amount 2.9 million tonnes was produced from own ore, a 10.4 per cent increase over the previous period.  The split of production between 62 per cent Fe and 65 per cent Fe was 51.5 per cent and 48.5 per cent respectively, for this period.

The average C1 cash cost to 30 April 2010 was US$38.84 per tonne, in-line with our expectations. The Group has been experiencing local inflationary pressures and increases related to cyclical price inputs such as oil and steel. Operational efficiencies and productivity initiatives as well as a small depreciation of the hryvnia versus the US dollar, however, have partly mitigated these pressures.

The Group's working capital has increased over the period due to delayed VAT repayments. The late repayment of VAT is a widespread issue in Ukraine affecting all exporters. To resolve this problem, it has been announced as part of the recent budget that the Ukrainian government may convert all or part of these balances into a tradable financial instrument designed to allow industry to collect these overdue balances

Projects and Capital Expenditure

The Group placed all significant capital expenditure on hold in October 2008 in response to the global financial crisis. It did, however, maintain a moderate level of investment in key projects so as to progress critical path items and maintain value. With the material improvement in iron ore markets and current pricing levels the Group is in a position to increase its level of expenditure and is actively engaged in a process of re-evaluating project budgets and schedules.

Current Trading and Outlook

Prices in April were significantly ahead of the first quarter and the Board expects the Group to realise a strong financial performance as a result of a positive outlook for prices in the remainder of the year compared to 2009 levels. The Board also anticipates ongoing improvements in operating efficiency, notwithstanding higher cost pressures.

 Michael Abrahams, Chairman of Ferrexpo, said:

"We are very pleased to report consistently strong production levels. Costs are under control and the Group is well positioned to capitalise on current conditions in the iron ore market. Ferrexpo is re-assessing development of its growth projects with the intention to realise full value for our shareholders, while our prudent financial management and careful adoption of any new industry pricing methodology should ensure that we deliver sustainable shareholder value over the long term no matter what stage of the economic cycle. "

For further information, please contact:

Ferrexpo:
Ingrid Boon	[phone]
Pelham Bell Pottinger
Charles Vivian	[phone]
Evgeniy Chuikov	[phone]

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, most of 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. 

 

END

 

 

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