Rising cash costs a worry at Ferrexpo

Switzerland-headquartered iron ore company Ferrexpo saw first-quarter production rise in the first quarter of 2012, compared with the same period the year before, but cash costs increased significantly.

As announced earlier this month, total pellet production from own ore increased by 6.3% year-on-year in the first three months of the year, but this was 3.3% down compared with the fourth quarter of 2011.

Sales volumes in the quarter were 2.2m tonnes, in line with the same period of 2011 but the average realised price was 7% under the same period of last year owing to customer mix and lower market prices.

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However, the cash cost of production was $59.4, 17.2% higher than the average for the 2011 full year as a result of higher oil prices and local inflation. "The group continues to mitigate these increases through its business improvement programme and by increasing production from own ore," Ferrexpo said.

"Production is up for the first quarter of this year as compared to 1Q 2011, a trend which is expected to continue as first ore from Ferrexpo Yeristovo Mining comes on stream in 2013," said the firm's Chairman, Michael Abrahams.

"Ferrexpo continues to focus on its growth projects to increase annual production and the quality of its pellets. All of the projects underway are on schedule and it remains the group's intention to produce one million tonnes of pellets per month from 2014," he said.

Net debt at the end of the period was $180.7m, compared with $80m at the end of 2011, with the increase mainly relating to recoverable VAT of which half is overdue, the group said.

Shares fell 0.9% to 286.1p in early trading on Friday.

BC