UPDATE 2-Ferrexpo Q2 iron ore output down 1 pct, costs rise

(Adds analyst comment, shares)

By Eric Onstad

LONDON, July 22 (Reuters) - Ukrainian iron ore producer Ferrexpo PLC (FXPO.L) posted a 1 percent year-on-year fall in second-quarter iron ore production to 7.2 million tonnes on Tuesday and warned that it faced cost pressures.

The shares, which have shed 35 percent over the past six weeks, fell as much as 3.3 percent and were 1.2 percent weaker at 287 pence by 0857 GMT. This compares to a 1.2 percent rise in the UK mining index .FTNMX1770

London-listed Ferrexpo, the world's 12th-largest producer of iron ore pellets, said it continued to fight rising costs as producer price inflation in Ukraine surged 29.4 percent during the first six months of the year.

The cost pressures were especially high in diesel fuel and steel used for mining infrastructure.

"We are pleased that these cost pressures have been partly mitigated by continuing successes in operational efficiency improvement at our GPL operations," Chief Operating Officer Viktor Lotous said.

Last year cash costs associated with extracting ore increased 8.6 percent, better than a 23.3 percent rise in the Ukrainian producer price index.

Analyst Michael Rawlinson at Liberum Capital in London said following the trading update he had increased his forecast of cash costs to $42-43 per tonne from $38-39 per tonne.

The firm said prices it received when selling iron ore in the second quarter nearly doubled, soaring 92.6 percent compared to the first quarter.

Ferrexpo said it was able to extract richer ore in the second quarter after it commissioned several items of new mining equipment. Purchases of third-party concentrates were low due to market tightness so the company focused on producing iron ore pellets from its own raw materials.

Last year, the firm doubled net profit to $134 million on the back of higher output and prices.

Iron ore production in 2007 rose 9 percent to 28.9 million tonnes and pellet production gained 6 percent to 9.1 million tonnes. (Reporting by Eric Onstad; Editing by Erica Billingham)