Ferrexpo plc issues its interim management statement in accordance with the UK Listing Authority's Disclosure and Transparency Rules.
1. Production
As announced on 6 October 2011, total pellet production from own ore in 3Q 2011 increased by 2.8% compared to Q2 2011. Production of higher grade 65% Fe pellets increased by 12.3% compared to Q3 2010 and by 6.6% year to date. Production of pellets from third party concentrate is dependent on availability in local markets. Overall, including third party concentrate, total pellet production in Q3 2011 was in-line with Q2 2011 at 2.5 million tonnes.
Production in October was in line with expectations and represented 774,000 tonnes of pellets compared to 781,000 tonnes of pellets in September 2011. Year to date production from own ore is in line with 2010 at 7.5 million tonnes.
2. Costs
From 1 July 2011 to 31 October 2011, the cost environment reflected local PPI inflation of 15.6% year to date driven principally by higher electricity and gas prices. The increase in the average C1 cash cost for the period was offset by higher production and efficiency improvements and as a result increased by 8.9% to USD 52.5 per tonne. The Ukrainian Hryvnia in which 70% of the Group’s operating costs are denominated, remained stable against the US Dollar at around UAH 7.99 to USD 1.
3. Sales
Sales volumes from 1 July 2011 to 31 October 2011 were 3.3 million tonnes. The average realised price in Q3 2011 was in line with that achieved for Q2 2011. For the full year the Group is expected to sell approximately 25% of its output on spot with new long term contracts commencing in 2012. These new long term contracts are expected to be on an index linked price mechanism which will complement existing contracts on an index linked and quarterly negotiated basis.
4. Growth projects
The investment program announced in November 2010 is progressing as planned:
1. Ferrexpo Yeristovo Mining
First ore
The Group is progressing in line with its schedule and budget to achieve first ore from the Yeristovo deposit in 2013. FYM took delivery of five 220 tonne CAT trucks in October 2011 increasing the current haul truck fleet to 21 units.
In terms of the next stage of development for FYM, design of the concentrator is ongoing. Full board approval is expected in March 2012 subject to market conditions.
2. Ferrexpo Poltava Mining (FPM)
Mine Life Extension Project
This project is proceeding on schedule and is progressing as planned to extend the life of the FPM mine to 2038. Higher energy costs for stripping have inevitably caused cost increases; the Company expects this to moderate over the remaining life of the project which runs to 2018.
3. Quality Upgrade Project
The project is underway to increase the proportion of 65% Fe pellets to 100% of production and costs are in line with the budget. The planned works will increase FPM’s capacity by upgrading the existing ore floatation circuit and adding two additional circuits. Orders for long lead items have been placed and detailed design is underway. The Company forecasts that the project will be completed and fully commissioned in 2014 and ramp up to full 65% Fe production will occur in 2015.
In summary, the Group remains on track to increase pellet output capacity to 12 million tonnes per annum by the end of 2013 and to increase production of 65% Fe pellets to 100% of output by the end of 2014. These projects are fully financed.
4. Funding
During the period under review, Ferrexpo secured a new credit facility for USD 420 million at 225 basis points above LIBOR. The Group now has gross borrowing facilities of over USD 1 billion with an average tenor of 4 years. Net debt as of 31 October 2011 was USD 60.0 million. The Group believes that it has sufficient financing to complete the core projects in its investment pipeline.
Mr Michael Abrahams Ferrexpo Chairman said “Ferrexpo continues to benefit from its established reputation as a quality long term pellet supplier. Should there be further deterioration in market conditions, the Group remains well positioned in the global market to maintain full production due to its low cost position on the supply curve and established infrastructure to seaborne markets, supporting the local economy and its reputation as reliable supplier to the global steel industry.”
