* 2013 core profit rises 25 percent to $506 million
* No disruption from political tension in Ukraine
* Hryvnia devaluation should help to control costs
LONDON, March 12 Ukraine-focused iron ore miner
Ferrexpo announced its second special dividend in as
many years after it posted increased annual profit and said it
is on track to boost production this year.
Though Ferrexpo, like other iron ore miners, is grappling
with weakening iron ore prices, the company is pressing ahead
with plans to ramp up output at its new Yeristovo mine in
Its target is to hit a run rate equivalent to annual
production of 12 million tonnes, having lifted production 12
percent to 10.8 million tonnes last year, with the higher
volumes helping to offset price weakness compressed by growing
supply and slowing demand growth, particularly in China.
Core profit (EBITDA) of $506 million was up 25 percent from
the previous year and ahead of a consensus forecast of almost
$477 million, according to Thomson Reuters I/B/E/S.
The company said it will pay a special dividend of 6.6 cents
per share, reflecting progress made in 2013, in addition to a
final dividend of 3.3 cents per share, in line with 2012.
"We have now paid two special dividends in a row and we will
always consider that if it is appropriate," Chief Financial
Officer Christopher Mawe said.
"In this particular year we have increased profit through
volumes, so that's why we have paid this particular one. We are
aware of the volatility that you can get in commodity prices and
that's why we prefer special (rather than annual) dividends."
Spot iron ore prices fell the most since 2009
on Tuesday amid mounting signs of an economic slowdown in China,
with Citigroup saying it expects prices to remain at lower
levels given the high supplies.
Mawe said he thought the recent plunge in the iron ore price
would be temporary because of destocking and a slight credit
squeeze in China coupled with tighter rules to combat pollution
in the country curbing steel production.
The Swiss-headquartered miner could even benefit from
China's stricter environmental regulation through a potential
boost to sales of more efficient, higher-grade iron products
such as its pellets.
"While the market could be concerned about further iron ore
price decline, we believe that strong pellet premiums in 2014
provide an edge to Ferrexpo's story which could well be a
structural tailwind," Citi analysts said in a research note.
The company, majority owned by Ukrainian billionaire and
parliamentarian Kostyantin Zhevago, also has longer-term plans
to build a processing plant that could boost production to 20
million tonnes a year.
Its completion is expected in 2017 but could be delayed by
balance sheet constraints, Mawe said.
"We are still on track but the button has not yet been
pressed for the capital commitment," Mawe said. "We are not in a
blazing rush, so if we had to postpone it by three to six months
because of cashflow, we would do so."
The miner said that political tension between Ukraine and
Russia has caused no disruptions to its operations in Ukraine.
"Clearly, while a timeframe for meaningful resolution in
Ukraine remains uncertain, the share price will stay under
threat," Cantor Fitzgerald analysts said in a note.
Mawe said that Ferrexpo's shipments have not suffered delays
and the company does not expect any negative impact on the
business from the political situation.
"We are a resilient business. We don't expect it to get
worse and don't feel contingency plans are necessary," he said.
In the past few weeks Ferrexpo shares have come under
pressure from concerns over its chief executive's political ties
to West-leaning former Prime Minister Yulia Tymoshenko.
The miner also said that a weaker hryvnia, the Ukrainian
currency, should help it to control costs.
Average cash costs of production rose slightly to $59.8 per
tonne in 2013, from $59.6 a year earlier, despite efforts to
increase output to offset the impact of high fixed charges.
Ferrexpo shares were up 1.3 percent by 1149 GMT,
outperforming a 0.7 percent drop in the sector.