Delivering growth. Ferrexpo plc Interim Report

Transcription

1 Delivering growth Ferrexpo plc Interim Report 2008

2 Ferrexpo is a resources company listed on the London Stock Exchange and a member of the FTSE indices. Ferrexpo is headquartered in Switzerland, with its principal operating assets in Ukraine. The Company is primarily involved in the production and export of iron ore pellets, used in producing steel. We are committed to realising the potential of one of the largest iron ore resources in the world, and aim to be recognised as a leading global supplier of iron ore pellets, providing outstanding service to our customers and strong returns to our shareholders. Contents IFC Activity and mission statements 01 Highlights H Ferrexpo at a glance 04 Chairman s statement 06 Operating and financial review 10 Independent review report to Ferrexpo plc 10 Statement of Directors responsibilities 11 Consolidated income statement 12 Consolidated balance sheet 13 Consolidated cash flow statement 14 Consolidated statement of changes in equity (unaudited) 15 Notes to the consolidated financial information 23 Glossary

3 Ferrexpo plc Interim Report Highlights H US$519m revenue up by 58% to US$519m 106 % underlying earnings up by 106% to US$139m 101 % EBITDA up 101% to US$228m 8 % increase of 8% in production of higher-grade pellets 3.2 US cents dividend of 3.2 US cents per Ordinary Share Revenue increased by 58% to US$519.5m (H1 2007: US$327.9m) EBITDA increased by 101%, to US$228.0m (H1 2007: US$113.3m) Profit increased by 288%, to US$157.7m (H1 2007: US$40.6m) Average pellet prices increased by over 90% from 1 April Product quality improved, 8% increase in production of higher grade 65% Fe pellets Project to expand and extend existing operations proceeding on schedule and within budget Definitive Feasibility Study for new Yeristovskoye mine near completion First equipment for Yeristovskoye development delivered to site

4 02 Ferrexpo plc Interim Report 2008 Ferrexpo at a glance Our business at a glance Where we operate Our operations are located in central Ukraine, giving us an unmatched competitive advantage in terms of logistics, making us an iron ore producer with one of the lowest costs of supply to our principal customers. 1,105 miles 749 miles Ukraine Ferrexpo transports its product via rail and barge to its customers in Eastern and Central Europe, Turkey and to the Port of Yuzhny on the Black Sea for onward transport by ship to China, Japan and India. Superior logistics management is the key to maximising the benefit of our location on the doorstep of Europe. The Group owns half of the TIS-Ruda private bulk commodity terminal at Yuzhny, the only one of its kind in the former CIS, and is in the process of building up its own fleet of railway cars. 10 1,786 miles 3,151 miles 14 8,600 miles 15 1 Netherlands 4 Romania 7 7 Austria 10 Middle East 13 Slovakia 2 Serbia 5 Italy 8 Turkey 11 Poland 14 India 3 Germany 6 Bulgaria 9 Czech Republic 12 Russia 15 China Markets served by rail Markets served by ocean vessel Markets part served by ocean vessel

5 Ferrexpo plc Interim Report Our operations Ferrexpo s operations are situated on the Kremenchug Magnetic Anomaly, a 50km long iron ore deposit in Ukraine s Poltava region, making it the largest iron ore resource in Europe. The Group holds the licences to explore or mine the entire deposit, with its current operations situated at the southern end of the deposit, adjacent to the Dnieper River. Our operating asset Brovarskoye Manuilovskoye Kharchenkovskoye Vasilevskoye Galeschinskoye Belanovskoye Yeristovskoye The GPL Mine A single open-cut mine, 6km long and 300m deep Encompassing two deposits Gorishne-Plavninskoye and Lavrikovskoye Lavrikovskoye Produced 14.4mt of iron ore in H1 2008, equating to 4.6mt of pellets Announced expansion to approximately 32mtpa of iron ore Gorishne- Plavninskoye by late 2010, and an extension of the mine life to at least 2035 in Dnieper River November 2007 Resource restated in H bt of JORC-classified resource now remaining (magnetite, c.30% Fe content) Processing and pelletising capacity of over 12mtpa Further potential Four large northern deposits Approximately 14bt of magnetitic ore reserves, classified under the Soviet GKZ code Our projects Three large, well-explored deposits Galeschinskoye Mine concept studies currently under way 325mt high-grade haematite deposit (c.60% Fe content) within a larger magnetite deposit Belanovskoye Preliminary Feasibility Study currently under way 1.6bt of JORC-classified resource (magnetite, c.30% Fe content) Large open-cut mine planned c.56mtpa of iron ore Plan includes dedicated new processing and pelletising facilities Yeristovskoye Our most advanced growth project. Detailed Feasibility Study near completion Over 800mt of JORC-classified resource (magnetite, c.30% Fe content) Open-cut mine planned approximately 27mtpa of iron ore Plan includes dedicated new processing and pelletising capacity US$103m of capex committed to the project in 2007 Pre-stripping commences in Q First ore in 2011

6 04 Ferrexpo plc Interim Report 2008 Chairman s statement An eventful and successful year I am pleased to present another set of excellent results for Ferrexpo plc. Throughout the first half of 2008, the Group has continued to build on the track record of strong financial and operational delivery that it established in Results The Group s results over the past six months reflect the continuing strength of our business in the face of a challenging global economic environment. Once again, the Group achieved significant growth in both revenues and profits as a result of very strong contract pricing outcomes and the continuing positive impact of the Business Improvement Programme on operating efficiency. Revenues in the first half of 2008 were US$519.5m, 58% above those achieved in the same period last year (US$327.9m). Despite substantial inflationary pressures on the Group, its EBITDA for the period increased by 101% to US$228.0m (US$113.3m), and Group pre-tax profit increased by 269% to US$201.4m (US$54.5m). Market Environment The global market for iron ore, and in particular iron ore pellets, remains strong, driven principally by demand for iron and steel from industrialising nations such as China, and despite record benchmark iron ore price settlements in the first half of Seaborne benchmark prices in Europe and Asia increased by between 65% and 96.5% for fine and lump ores, and a record premium paid for blast furnace pellets resulted in an 86.7% benchmark increase for these pellets as of 1 April Importantly for Ferrexpo, demand for blast furnace pellets continues to rise in our traditional markets as steel companies seek to improve performance and reduce emissions. The Group was able to achieve a premium to the pellet benchmark, realising price increases of over 90% on average across all of its longterm supply contracts compared with the twelve months to 31 March The new prices resulted in very strong earnings growth in the second quarter of the year, and contributed to the 58% increase in the Group s average price per tonne achieved in the first six months of 2008, as compared with the same period last year. Operations At the time of our preliminary results in April, we announced that the Group had suffered two fatal accidents at its Poltava site at the beginning of 2008, and regrettably we had another in July. To further reinforce the Group s ongoing efforts to enhance its safety standards, Du Pont Safety Resources were engaged early in the year to implement a cultural and behavioural change throughout Ferrexpo s operations, and tangible progress has been made in this regard. The management of health, safety and the environment remains an absolute priority for the Group. This year, the Group s production operations have continued to perform well, and Ferrexpo remains the largest Ukrainian iron ore exporter. Iron ore extraction was comparable with the same period last year and in line with our expectations following substantial increases in production in prior periods. The volume of pellets produced from the Group s own raw materials increased by 1.2% to 4.50 million tonnes compared to the first six months of 2007 (4.45 million tonnes), and this was accompanied by a 8.0% increase in the volume of higher quality 65% Fe pellets, to 1.92 million tonnes (1.78 million tonnes). The Group has all but ceased to produce iron ore pellets from third party concentrate due to lack of availability of concentrate supply, which resulted in a marginal decline in overall pellet production over the period. This has had negligible financial impact on the Group due to the increasingly low margin nature of this business. The Group has faced significant cost pressures in the first six months of Inflation in Ukraine has risen substantially, with Producer Price Inflation ( PPI ) reaching 29.4% by the end of the period. There were also substantial increases in the costs of cyclically priced commodities, a theme common to most of the global mining industry. These increases were principally for steel grinding media and energy including diesel fuel, which collectively account for 58% of the Group s C1 cash costs of production. The price of the Group s grinding media increased by 48% in the first six months of 2008, and diesel by 31%, with natural gas and electricity increasing by 55% and 30% respectively. The Ukrainian Hryvnia has been permitted to appreciate to an average rate for the period of UAH5.017/US$, which has also increased the dollar costs of certain inputs in the period to June. However, our Business Improvement Programme continued to drive efficiency and reduce the utilisation of cost inputs per tonne of production, thereby mitigating some of these inflationary pressures. Nonetheless, the Group s cash production costs rose by 36.9% compared with the average production cost per tonne in the first half of This compares favourably against the Ukrainian Producer Price Inflation over the period between 1 July 2007 and 30 June 2008 of 43.7%. The Group will continue to pursue further improvements in efficiencies and productivity via the Business Improvement Programme and other initiatives, but increasing cost pressures on key input prices are likely to remain a feature of our business for at least the remainder of the year. The Group s marketing department has delivered a very successful first six months of 2008, having secured record price settlements during the period. Marketing and distribution remain critical to our business, and our focus is now firmly on ensuring that the Group s extensive growth plans are matched by expanded logistical capabilities. Investing Activities The Group has a pipeline of significant growth projects, and our increasingly strong cash flow generation has given us the financial capacity to accelerate our investment in this growth programme. The Group s operating cash flow in the first half of 2008 has increased by 70% to

7 Ferrexpo plc Interim Report This year, the Group s operations have continued to perform well, and Ferrexpo remains the largest Ukrainian iron ore exporter. US$141.8m, when compared to the same period last year (US$83.3m). These funds are being used to execute our strategy to accelerate the commercialisation of our vast iron ore resource. During the first half of 2008, the Group invested US$51m in the project to expand and extend our existing operations, and US$43m for the development of the new Yeristovskoye mine. The Group s investment policy remains focused on our organic growth projects. The project to expand and extend the existing mining operation that was announced in November last year is proceeding on schedule and within budget. Development plans for the new mines to be built on the Yeristovskoye and Belanovskoye deposits are well advanced and these remain the Group s major growth projects, with expected total development costs of approximately US$5bn. The Yeristovskoye Definitive Feasibility Study and Belanovskoye Preliminary Feasibility Assessment are expected to be completed in September, and the Board expects to review and, if appropriate, approve the capital commitment for the entire Yeristovskoye project in October. By this time, the initial draglines and mining fleet purchased with the US$103m of capital expenditure committed to the project last year will be on site and assembled in preparation for the commencement of stripping works. The first two of these draglines are already on site in the early stages of assembly. Significant progress has also been made on plans to upgrade existing pellet quality and to further enhance the efficiency and productivity of our existing beneficiation plants. The definitive feasibility study for the various projects intended to achieve these objectives will also be completed in September and will be reviewed by the Board in October. Dividend The Group is declaring an interim dividend of 3.2 US cents per share for the first six months of 2008 (H1 2007: nil), in line with the policy of the Board to pay a dividend which reflects the cash flow of the business and the growth profile of the Group. The Board is committed to maintaining a dividend which enables the Group to invest in the substantial growth projects within its portfolio. The full year dividend will be split approximately equally between the interim and final dividend. The Board is also considering further returns of capital or dividends in the coming months, in view of the high prices and significant cash generation of the Group in the first half of the year. This is consistent with sound capital management, as cashflows have exceeded both expectations and the funding requirements of the Group. People The Group has continued to evolve as a listed company in the first six months of 2008, and the Board would like to thank all the employees of Ferrexpo, who continue to make this positive development possible. We continue to build our organisation, adding capability in project execution and consolidating our strengths in best practice mining and marketing. Corporate governance and social responsibility I am proud to say that the Group is delivering on its promise, and is substantially compliant with the Combined Code within the first year of listing. Ferrexpo has a strong and experienced Board dedicated to the highest standards of corporate governance and capable of providing continuing best practice management and strategic guidance to the company. The Board has established a Corporate Social Responsibility Committee to fulfil its commitment to the ongoing health and safety of the Group s employees, active engagement with local communities and environmental awareness. Corporate Social Responsibility remains the first priority of the management of the Group. Strategy The Board remains committed to its strategy of maximising the value of the Group through the accelerated commercialisation of its extensive undeveloped iron ore deposits, increasing the productivity of its existing operations, and improving product quality. Planning for the new mines at Yeristovskoye and Belanovskoye is now at an advanced stage, and the Group is actively seeking the involvement of other industry participants to form a joint venture to assist it in the development of these mines. The Board believes the formation of such a joint venture to be the best strategy to accelerate the exploitation of these assets through access to additional funding capability, project execution expertise and a significant reduction of the risks associated with project execution. Outlook Favourable iron ore market conditions are expected to continue for at least the next eighteen months and potentially far beyond, driven by China and the developing countries of Asia and Europe. We believe the Group is extremely well positioned to benefit further from this positive environment. Most importantly for Ferrexpo, very strong demand growth is forecast in the markets closest to our Poltava operations, which will enable the Group to sell the majority of its expanded production to our traditional and natural customer base. Our unique logistical advantages in supplying these customers will result in sustained high margins for growth. The principal risks and uncertainties facing the Group over the next six months relate to costs, in particular those concerned with energy, and Ukrainian inflation. Cost pressures on the Group are expected to remain significant for the rest of 2008, but given that the prices for the Group s products have been set at record highs for the 2008/2009 contract year, we nonetheless expect the Group to achieve very strong growth in revenues and profits in We will continue to drive the development of our growth projects to extract maximum value from our extensive reserves and resource base. Michael Abrahams CBE DL Chairman

8 06 Ferrexpo plc Interim Report 2008 Operating and financial review Operating and financial review Operating highlights Average pellet prices increased by over 90% from 1 April Product quality improved, 8% increase in production of higher grade 65% Fe pellets 330 own rail cars delivered and operating with remaining 220 expected by year end Project to expand and extend existing operations proceeding on schedule and within budget Definitive Feasibility Study for new Yeristovskoye mine near completion First equipment for Yeristovskoye development delivered to site Preliminary Feasibility Study for new Belanovskoye mine near completion Actively seeking strategic partner for joint venture of major growth projects Financial highlights Revenue increased by 58% to US$519.5m (H1 2007: US$327.9m) EBITDA increased by 101%, to US$228.0m (H1 2007: US$113.3m) Profit after tax increased by 288%, to US$157.7m (H1 2007: US$40.6m) Net cash flow from operating activities US$141.8m (H1 2007: US$83.3m) Operating review Key statistics 6 months 6 months ended ended 30 June 30 June % UOM Change Iron ore mined 000 t 14,361 14,446 (0.6) Average Fe content % Produced concentrate 000 t 5,440 5, Average Fe content % (0.1) Purchased concentrate 000 t (76.7) Average Fe content % Purchased iron ore 000 t Average Fe content % Total pellet production (BFP) 000 t 4,596 4,653 (1.2) From produced concentrate 000 t 4,504 4, Higher grade 000 t 1,920 1, Average Fe content % (0.2) Lower grade 000 t 2,584 2,672 (3.3) Average Fe content % From purchased raw materials 000 t (54.7) Lower grade 000 t (54.7) Average Fe content % Pellet sales volume 000 t 4,517 4, Gravel production 000 t 1,637 1, Existing operations Ferrexpo Poltava Mining ( FPM ) continued to improve its operational performance during the first six months of 2008, focusing on product quality improvement and accelerating stripping operations for the Gorishne-Plavninskoye Lavrikovskoye ( GPL ) Expansion Project. This will in due course form the basis of future production increases from the Group s existing GPL mine. Ore extraction volumes were comparable to the equivalent period in 2007, but through selective mining, FPM was able to increase the proportion of richer ore mined (48% versus 45% in the equivalent period last year). The greater proportion of higher quality ore enabled FPM to increase the yield during the beneficiation process, resulting in an increase in the production of iron ore concentrate to 5,440kt, a 3% increase over the equivalent period last year. The quality of the concentrate produced in the first six months of 2008 was also improved, which enabled FPM to increase production of higher grade 65% Fe pellets by 8% to 1,920kt, enabling further sales in the higher quality markets to be made. Pellet production from produced concentrate increased by 1% in the period. A sharp decline in the availability of third party concentrate at acceptable prices meant overall pellet production volume for the period was 4,596kt, a decline of 1% compared to the first half of The Group has historically produced a small volume of pellets from purchased concentrate, but this activity has generated low contributions to profitability. Stripping volumes increased by 14% in the first half of 2008 to 10,550 cubic metres. This was to rectify low stripping in prior years and place the pit in a position to yield higher production when the GPL Expansion Project is completed. Stripping costs of US$6.2m associated with the project to expand the GPL mine were capitalised during the period. The ongoing Business Improvement Program ( BIP ) has continued to achieve tangible efficiency savings at FPM. The BIP

9 Ferrexpo plc Interim Report continues to be driven forward by FPM management. FPM is now approximately halfway through a four-year programme. The aim of the BIP is to introduce global best practice in efficiency and productivity into the different areas of operation at FPM. Ongoing BIP initiatives in the first six months of 2008 enabled FPM to reduce the consumption per tonne of pellets produced for both energy and raw materials. More efficient use of mining vehicles and equipment has reduced the consumption of diesel fuel over the period by 2.6% per tonne of ore mined. Use of steel grinding bodies has been similarly reduced by 1.4%, and FPM s largest single cost item, the consumption of electricity per tonne of pellets produced, declined by 6.2%. Gas consumption also declined by 3.3%. The increased operating efficiency and associated cost savings demonstrated by FPM in the first half of 2008 are material improvements in the context of the inflationary cost environment and sector in which the Group is operating. Ukrainian Consumer Price Index inflation was 15.5% for the period, increasing unit labour costs. The official Ukrainian Producer Price Inflation ( PPI ) was 29.4% over the same period. Overall in the six months to 30 June 2008, the Group incurred a 36.6% increase in the price of diesel fuel and a 47.9% increase in the price of grinding bodies and spare parts. Both diesel and steel price increases were in line with the cyclical trends in those commodities experienced globally in the first half of the year. The price of electricity also increased by 29.8% and that of natural gas by 55.0%. As a result of these trends, the Group s nominal cash costs of pellet production (C1) was US$40.92/t for the six months to 30 June 2008, an increase of 36.9% over that in the equivalent period last year (US$29.88/t) and an increase of 28.72% over the C1 cost in FY 2007 (US$31.79/t). Placing these increases in context, Ukrainian CPI for the twelve months to 30 June 2008 was 29.3%, and Ukrainian PPI was 43.7% over the same period. The Group s costs are principally denominated in Ukrainian Hryvnia, which until 2008 was a currency managed in a mid range of UAH5.05/US$. Since the middle of May, the currency has been permitted to appreciate to an official rate for the period of UAH4.85/US$. This has increased the dollar costs of all inputs, which accounted for US$1.82/t in June 2008 and US$0.30/t in the six month period to 30 June The Group continued to actively manage its labour costs, introducing further measures to reorganise its key skills and heighten productivity and efficiency during the first half of The number of personnel on the FPM payroll decreased by 3.9% from 9,008 at the end of 2007 to 8,655 as at 30 June Average salaries in June 2008 were 20.4% higher than those in December Marketing and distribution Marketing and distribution skills and routes to market remain a major driver of the value of the Group s business. Demand for Ferrexpo blast furnace pellets was at extremely high levels in the first half of 2008, consistent with continued strong global demand for iron and steel products. Demand for the Group s products has continued to outstrip its ability to supply. Pellet sales in the first six months of the year amounted to 4,517kt, with a similar segment mix to the equivalent period in This was driven by the fact that 81% of sales were to the Group s highest margin Traditional Markets (Eastern and Central Europe). This trend is set to continue, with strong demand growth forecast in the Group s Traditional and Natural Markets, enabling the Group to continue to sell the majority of its production to higher-margin customers in these regions, while expanding its output. Progress continues in the Group s marketing and logistics department in developing a profitable portfolio of customers in a range of global markets to underpin our growth plans. Over the past two years the marketing strategy has focused on structuring a stable customer base, culminating in approximately 90% of planned 2008 sales being made to long term framework contract customers. Deliveries to Turkey commenced in the first half of the year under a new long term contract from TIS Ruda, the Group s joint venture ocean vessel shipping terminal in Yuzhny on the Black Sea. This Turkish contract gives another customer in close proximity to FPM that enables smaller lot just in time delivery to be achieved. This better serves the Group s target customers needs relative to their other long-haul pellet supply options. A new long term contract also commenced to Russia during the period, marking the return to that market in the Group s sales portfolio. Taking advantage of very high spot market prices, the Group also sold product on a spot basis whenever supply beyond contract requirements was available. Further evidence of the Group s efforts in its Traditional Markets was the honour of receiving a Supplier of the Year 2007 award from US Steel in the first quarter of the year. Annual contract pricing for 2008/9 was largely completed in the first half of the year with the average price increase exceeding 90% as compared to 2007/8 contracted prices. This result was well above global benchmark blast furnace pellet price outcomes, reflecting the Group s continuing efforts to maximise value by focusing on value in use to customers based on quality, reliability and logistics service. Heightened focus on logistics chain management continued in the first half of 2008 in response to significant increases to rail tariffs imposed by the Ukrainian state railways during the period. Tariffs rose by 46%. This was the major contributing factor to the 41% increase in distribution costs per tonne of pellets sold in the first six months of the year, to US$14.77/t (US$10.46/t). The Group took delivery of and deployed a further 330 rail wagons in the first half. This initiative underscores the Group s commitment to mitigate such cost increases and add further reliability into the supply chain to its customers. The Group plans to have 550 of its own rail cars in operation

10 08 Ferrexpo plc Interim Report 2008 Operating and financial review continued during the second half of 2008, all of which incur a discounted tariff when used on the Ukrainian state rail network. The Group also increased throughput in its joint venture TIS Ruda terminal, and commenced detailed assessments of further potential investments in logistics, which will enhance the reliability of the Group with its core customers. Investments to upgrade inbound rail capacity to the TIS Ruda terminal and channel dredging were committed in the period under review and will be undertaken in the second half of the year. Capital expenditure and growth projects The Group s total capital expenditure during the first half of 2008 was US$131.2m, an increase of 145% over the equivalent period in US$19.5m of this was invested in the GPL Expansion Project, and includes US$6.2m of capitalised stripping. The project is proceeding according to schedule and remains within budget. A further US$21m was spent on mining equipment for the Yeristovskoye mine, much of which has already arrived on site. The Definitive Feasibility Study for this project is expected to be completed in September, along with the Preliminary Feasibility Study on Belanovskoye, the Group s other major growth project. Stripping at the Yeristovskoye deposit is expected to commence in the fourth quarter of this year. Subject to Board approval, the final capital commitment for the project should follow before the end of the year. Scoping studies continue at the Galeshina deposit, and technical activities continue on the Group s northern deposits in line with its licence commitments. In the fourth quarter the Board will also consider a series of upgrade projects for the GPL processing facilities. The most material of these relate to the upgrade of the first concentrator line such that it will be able to produce higher quality (65% Fe) blast furnace pellets from the Group s leaner ore, and an upgrade of the second concentrator line to enable the production of a low-silica Direct Reduction pellet with an iron content of approximately 68%. These projects include an upgrade to concentrate mixing and filter systems in the pellet plants. If both of these concentrator projects are approved and executed in parallel, the likely capital expenditure will be approximately US$350m. Definitive Feasibility Studies for both of these projects will be completed in September. Principal risks and uncertainties The principal risks and uncertainties facing the Group s business for the remainder of the year relate to production costs. The Group has experienced substantial increases to most of its cost inputs in the first half of the year, as stated elsewhere in this report, and there is a risk that these increases may continue in the second half. As a mining company, the Group is also subject to the ordinary risks associated with largescale mining operations. Financial review Summary of financial results 6 months 6 months to 30 June to 30 June % US$ Change Revenue 519, , EBITDA 1 228, , As % of revenue 44% 34% Profit before taxation 201,350 54, Income tax 43,692 13, Profit for the period 157,658 40, Underlying earnings 3 138,783 67, Underlying earnings per share Earnings per share Defined in Notes to Accounts 2 After IPO costs of US$30m 3 Defined in Notes to Accounts The Group increased its revenues by 58% to US$519.5m in the period under review compared to the first six months of 2007 (US$327.9m). This excellent performance was due to strong pellet prices, particularly in the second quarter of the year, when the Group was successful in achieving an average price increase of over 90%. Growth in sales volume of higher grade 65% Fe pellets also contributed to improved margins. C1 Cost, defined as cash cost of production, increased by 36.9% over the first half of Production costs were impacted by domestic Ukrainian inflation and increases in the costs of energy including diesel, steel and spare parts. These increases were partly mitigated by ongoing efficiency improvements.

11 Ferrexpo plc Interim Report The table below sets out the breakdown of the Group s C1 Cost of Sales. 6 months 6 months to 30 June 2008 to 30 June 2007 % % US$000 of total US$000 of total Materials 34, , Electricity 44, , Personnel costs 28, , Spare parts and consumables 26, , Fuel 22, ,985 9 Gas 17, ,488 9 Royalties and levies 3, ,911 3 Other 7,073 4 C1 Cost of sales 184, % 132, % C1 Cost per tonne increased its net cash flows from operating activities to US$141.8m from US$83.3m in the comparable prior period. The Group s debt to equity ratio (Net Debt divided by Net Debt plus Equity) was 14% as at 30 June 2008 (16% as at 31 December 2007). Dividend The Group is declaring an interim dividend of 3.2 US cents per share for the first six months of 2008 (H1 2007: nil). The interim dividend will be paid in Pounds Sterling, but those shareholders who have in the past elected to receive dividends in US dollars will continue to do so. Other shareholders wishing to receive dividends in US dollars should obtain a Currency Election Form from the Ferrexpo website and return the completed form to the Company s registrars by 5 September The dividend is payable on 17 October 2008 to shareholders on the register on 5 September Depreciation 16,317 11,298 Cost of sales 207, ,287 Selling and Distribution costs increased by 42% to US$67.1m in the first half (H1 2007: US$47.2m), primarily as a result of increases to rail tariffs in Ukraine imposed by the state railway authority. General and Administrative Expenses in the first half of 2008 increased, reflecting increases in costs as a result of the full six month period as a listed company compared to pre IPO operations in The strong revenue growth was reflected in increased EBITDA for the first six months of the year. EBITDA rose by 101% to US$228.0m, with the Group s EBITDA margin increasing from 34.5% in the first half of 2007 to 43.9% in the current period. As price rises were effective from the first of April, the Group enjoyed significantly enhanced margins in the second quarter. As a result, the EBITDA margin of 22.4% in the first quarter of 2008 increased to 53.6% in the second quarter, demonstrating the effect of the Group s improved sales contracts. The Group experienced an increase in its effective tax rate in the first half of 2008 to 21.7% (FY 2007: 16.6%) due to increased profitability in the Ukraine as a result of strong price rises. The delays experienced historically by the Group s Ukrainian operations in recovering VAT from the government on a timely basis have been resolved, and this additional working capital requirement was removed as at 30 June These strong results together with a considerable increase in net cash flow from operating activities have enabled the Group to continue to strengthen its Balance Sheet. The Group

12 10 Ferrexpo plc Interim Report 2008 Independent review report to Ferrexpo plc Introduction We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Consolidated Statement of Changes in Equity, and the related notes 1 to 20. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed. Directors responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority. Ernst & Young LLP 1 More London Place 28 August 2008 Statement of Directors responsibilities The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the European Union and that the half-yearly report included a fair review of the information required by DTR and DTR 4.2.8, namely: an indication of important events that have occurred during the first six months of the financial year and their impact on this condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and material related party transactions in the first six months of the year and any material changes in the related party transactions described in the Ferrexpo plc Annual Report The Directors of Ferrexpo plc are listed in the Ferrexpo Annual Report 2007.

13 Ferrexpo plc Interim Report Consolidated income statement US$ 000 Notes (unaudited) (unaudited) (audited) Revenue 3, 4 519, , ,216 Cost of sales 5 (207,508) (160,287) (335,936) Gross profit 311, , ,280 Selling and distribution expenses 6 (67,113) (47,178) (100,614) General and administrative expenses 7 (32,438) (19,962) (44,308) Other income 2,736 1,680 4,844 Other expenses (5,916) (3,203) (5,096) Operating profit from continuing operations before adjusted items 209,259 98, ,106 Write-offs and impairment losses 8 (94) (1,101) (1,568) Share of gains/(losses) of associates 1,420 (118) 687 Initial public offering costs (3,897) (30,142) (34,004) Negative goodwill generated on rights issue 5,077 Gain on disposal of available-for-sale investments 1,547 4,714 Profit before tax and finance 213,312 67, ,935 Finance income 1, ,242 Finance expense (9,110) (12,985) (25,950) Foreign exchange loss (4,066) (989) (3,467) Profit before tax 201,350 54, ,760 Tax (43,692) (13,905) (26,725) Profit for the period 157,658 40, ,035 Attributable to: Equity shareholders of Ferrexpo plc 141,449 36, ,076 Minority interest 16,209 3,945 9, ,658 40, ,035 Earnings per share Basic (US cents) Diluted (US cents)

14 12 Ferrexpo plc Interim Report 2008 Consolidated balance sheet As at As at As at US$ 000 Notes (unaudited) (unaudited) (audited) Assets Property, plant and equipment , , ,545 Goodwill and other intangible assets 157, , ,827 Investments in associates 19,267 16,832 17,637 Available-for-sale financial assets 35,962 36,040 47,134 Deferred tax asset 10,494 8,107 Other non-current assets 39,131 3,699 15,179 Total non-current assets 737, , ,429 Inventories 75,234 55,383 56,545 Trade and other receivables 78,447 49,951 43,575 Prepayments and other current assets 21,543 10,310 10,773 Income taxes recoverable and prepaid ,350 Other taxes recoverable and prepaid 45,855 46,812 52,362 Available-for-sale financial assets 8, ,941 Short term deposits with banks 12 1,460 Cash and cash equivalents 13 62,600 71,904 86,966 Total current assets 292, , ,512 Total assets 1,029, , ,941 Equity and liabilities Share capital , , ,628 Share premium 183, , ,566 Other reserves 33,339 7,903 14,258 Retained earnings 338, , ,616 Equity attributable to equity shareholders of the parent 676, , ,068 Minority interest 60,693 39,840 45,854 Total equity 737, , ,922 Interest-bearing loans and borrowings , , ,091 Trade and other payables 1,705 4,994 2,583 Shares redemption liability 15 9,532 Defined benefit pension liability 16,746 15,136 16,169 Provision for site restoration 1, ,746 Deferred tax liability 4,521 2,613 1,025 Total non-current liabilities 136, , ,614 Interest-bearing loans and borrowings 16 73,693 15,350 54,537 Trade and other payables 42,849 29,002 25,127 Accrued liabilities and deferred income 15,496 27,331 13,812 Shares redemption liability 15 10,998 10,036 Income taxes payable 11,073 2,579 7,717 Other taxes payable 1,416 5,097 2,176 Total current liabilities 155,525 79, ,405 Total liabilities 291, , ,019 Total equity and liabilities 1,029, , ,941 The condensed half-yearly financial statements were approved by the Board of Directors on 27 August 2008.

15 Ferrexpo plc Interim Report Consolidated cash flow statement US$ 000 Notes (unaudited) (unaudited) (audited) Net cash flows from operating activities ,805 83, ,846 Cash flows from investing activities Purchase of property, plant and equipment (131,200) (53,430) (104,352) Proceeds from sale of property, plant and equipment 46 14,870 1,896 Purchase of intangible assets (545) (435) Deposits lodged at banks 7,475 9,011 Purchases of available for sale securities (12,126) Proceeds from sale of financial assets ,704 Interest received ,805 Loans provided to associates (5,000) (5,000) Net cash flows used in investing activities (131,147) (35,617) (100,497) Cash flows from financing activities Proceeds from borrowings and finance 175, ,244 Repayment of borrowings and finance (22,049) (267,749) (276,084) Dividends paid to equity shareholders of the parent (19,449) Dividends paid to minority interests (232) (465) (786) Distribution under 50/50 tax ruling (5,000) (5,000) Proceeds from issue of share capital in Ferrexpo plc: Initial public offering proceeds 202, ,072 Non initial public offering proceeds 99 Initial public offering costs (32,250) (48,648) Share buy back in previous parent (64,055) (64,055) Net cash flows (used in)/from financing activities (41,730) 7,797 (17,158) Net increase/(decrease) in cash and cash equivalents (31,072) 55,504 71,191 Cash and cash equivalents at the beginning of the period 86,966 16,236 16,236 Currency translation differences 6, (461) Cash and cash equivalents at the end of the period 13 62,600 71,904 86,966

16 14 Ferrexpo plc Interim Report 2008 Consolidated statement of changes in equity (unaudited) Attributable to equity shareholders of the parent Employee Net Uniting of Benefit unrealised Issued Share interest Trust gains Translation Retained Total Minority Total US$000 capital Premium reserve reserve reserve reserve earnings reserves interests equity At 1 January , , ,646 36, ,792 Profit for the period 36,634 36,634 3,945 40,579 Total income and expense for the period recognised in equity 36,634 36,634 3,945 40,579 Items recognised directly in equity: Distribution under 50/50 tax ruling (4,835) (4,835) (4,835) Equity dividends paid by subsidiary undertakings to minority shareholders (251) (251) Share issue in parent company 121, , , ,903 Transaction costs associated with issue of shares (34,388) (34,388) (34,388) Uniting of interest elimination (105,516) (105,516) (105,516) Share buyback of previous parent of Group (64,055) (64,055) (64,055) Shares issued to Employee Benefit Trust (29,216) (29,216) (29,216) Share based payments 5,153 5,153 5,153 At 30 June , ,887 31,780 (24,063) , ,326 39, ,166 Deferred tax on transaction costs 5,179 5,179 5,179 Revaluation of available-for-sale assets 2,384 2,384 2,384 Profit for the period 87,442 87,442 6,014 93,456 Total income and expense for the period recognised in equity 5,179 2,384 87,442 95,005 6, ,019 Items recognised directly in equity: Distribution under 50/50 tax ruling (1,734) (1,734) (1,734) Transaction costs associated with issue of shares 2,500 2,500 2,500 Share-based payments 3,971 3,971 3,971 At 31 December , ,566 31,780 (20,092) 2, , ,068 45, ,922 Profit for the period 141, ,449 16, ,658 Realised gains on financial assets available for sale (1,530) (1,530) (1,530) Unrealised losses on financial assets available for sale (4,447) (4,447) (618) (5,065) Deferred tax 1,040 1, ,184 Write-off of deferred tax asset on IPO costs (5,179) (5,179) (5,179) Foreign currency translation adjustments 19,094 19,094 2,879 21,973 Total income and expense for the period recognised in equity (5,179) (4,937) 19, , ,427 18, ,041 Items recognised directly in equity: Equity dividends paid to shareholders of Ferrexpo plc (19,449) (19,449) (19,449) Equity dividends paid by subsidiary undertakings to minority shareholders (324) (324) Share based payments 4,924 4,924 4,924 Adjustments relating to the increase in minority interest (3,451) (3,451) At 30 June , ,387 31,780 (15,168) (2,553) 19, , ,970 60, ,663

17 Ferrexpo plc Interim Report Notes to the consolidated financial information Note 1: Corporate information Organisation and operation Ferrexpo plc (the Company ) is incorporated in the United Kingdom with registered office at 2 4 King Street, London, SW1Y 6QL, UK. Ferrexpo plc and its subsidiaries (the Group ) operate a mine and processing plant near Kremenchuk in Ukraine. The Group s operations are vertically integrated from iron ore mining through to iron ore concentrate and pellet production. In addition, the Group owns a 49.9% interest in TIS Ruda, a port on the Black Sea. The Group s mineral properties lie within the Kremenchuk Magnetic Anomaly and are currently being exploited at the Gorishne-Plavninsky and Lavrikovsky deposits. These deposits are being jointly mined as one mining complex. The Group s operations are largely conducted through Ferrexpo plc s principal subsidiary, Ferrexpo Poltava GOK Corporation. The Group is comprised of Ferrexpo plc and its consolidated subsidiaries and associates as set out below: Equity interest owned at Country of Name incorporation Principal activity % % % Ferrexpo Poltava GOK Corporation* Ukraine Iron ore mining Ferrexpo AG** Switzerland Sale of iron ore pellets DP Ferrotrans*** Ukraine Trade, transportation services United Energy Company LLC*** Ukraine Holding company Ferrexpo UK Limited* England Finance Ferrexpo Services Limited* Ukraine Management services & procurement Ferrexpo Yeristova GOK LLC Ukraine Iron ore mining TIS Ruda **** Ukraine Port * The Group s interest in these entities is held through Ferrexpo AG. ** Ferrexpo AG was the holding company of the Group until, as a result of the pre-ipo restructuring, Ferrexpo plc became the holding company on 24 May *** The Group s interest in these entities is held through Ferrexpo Poltava GOK Corporation. **** Accounted for using the equity method of accounting. Note 2: Summary of significant accounting policies The interim consolidated financial statements for the six months ended 30 June 2008 have been prepared in accordance with International Accounting Standard ( IAS ) 34 Interim Financial Reporting. The interim consolidated financial statements do not include all of the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s annual financial statements. The interim consolidated financial statements do not constitute statutory accounts as defined in section 240 of the Companies Act The financial information for the full year is based on the statutory accounts for the financial year ended 31 December A copy of the statutory accounts for that year, which were prepared in accordance with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standard Board ( IASB ), as adopted by the European Union up to 31 December 2007, has been delivered to the Register of Companies. The auditors report under section 235 of the Companies Act 1985 in relation to those accounts was unqualified. Changes in accounting policy The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group s annual financial statements for the year ended 31 December 2007, except for the adoption of the following IFRIC interpretation mandatory for annual periods beginning on or after 1 January 2008: International Financial Reporting Interpretations Committee (IFRIC) Effective date IFRIC 14 (IAS 19) The limit on a defined benefit asset, minimum funding requirements and their Interaction 1 January 2008 The adoption of this IFRIC interpretation did not affect the Group results from operations or financial positions. Foreign currency translation The following exchange rates have been applied: Average 30 June Average 30 June Average 31 December Currency rates (US$1) HY HY FY Ukrainian Hryvnia Note 3: Segmental information A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group s activity is primarily the processing and sale of iron ore and only one business segment is therefore identified as a reportable segment. As a result, we have not presented the segment information in respect of the Group s business segment.