Ferrexpo reports increase in first quarter production

Ferrexpo achieved a 10 per cent increase in total pellet production in the first quarter compared to the previous year.

Production of pellets increased to 2.5bn tonnes from 2.3bn tonnes in the first three months of 2013 and sales volumes rose by 15% year-on-year to 2,565 tonnes from 2,238.

Sales volumes were, however, lower than the fourth quarter when stocks were drawn down and the group sold 2,716 tonnes.

Cost of production rose to $63.9 per tonne in the first quarter from $59 per tonne in the fourth quarter and $59.4 per tonne in the same period a year earlier.

Costs were higher due to the planned build-up of first ore production at the Yeristovo mine in Ukraine.

The average cash cost of pellet production from the mine was $69.9 per tonne which dropped to $60.1 per tonne in March.

First production of pellets from Yeristovo was achieved in the first quarter with more than 1.3m mined during the quarter and 1.2m tonnes of ore processed. About 328,000 tonnes of pellets were produced from the mine.

At the Poltava mine in Ukraine, the company is continuing to upgrade benefication sections and other key items of the processing plant to ensure output of 12m tonnes of pellets in 2014.

The group is confident that it will meet the target, subject to the performance of Yeristovo ore processing plant.

The quality upgrade project at the Poltava mine is designed to increase the average iron content of the group's pellets to 65% iron by 2015. At the end of March the project was 22% complete and $72m invested. The project is expected to be completed on time and on budget.

The group ended the period with a cash balance of $485m and net debt of $539m.

Ferrexpo had $309m of gross value added tax (VAT) at the end of the quarter compared to $301m at December 31st 2012. Prepaid corporate profit tax amounted to $49m, up from $25m at the end of December.

The company said it was working with local regional and central authorities to resolve the tax issue. It hopes to make progress in 2013 to reduce the total outstanding balance of VAT and prepaid corporate profit tax.

"Ferrexpo has performed creditably in the first quarter of the year despite concern of impending overcapacity in the global steel sector and local difficulties associated with VAT in Ukraine," said Chairman Michael Abrahams.

"The Yeristovo mine is building up production output and is set to reduce the group's overall operating costs.

"Ferrexpo remains committed to its growth projects, including increasing its volume output to 12m tonnes of ore and beyond, and will invest prudently in the further development of the company's processing capability taking into account industry conditions and the economic and political environment in Ukraine."

Shares increased by 1.63% to 199.30p at 09:05 Friday.

RD