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Ferrexpo Net Falls, Pays Special Dividend as New Mine Starts

Ferrexpo Plc, the Ukrainian iron-ore producer, said 2012 profit dropped by more than half as lower demand from Asia weighed on prices while it recommended a special dividend after starting up a second mine.

Net income fell to $214.3 million from $567.8 million a year earlier, the Baar, Switzerland-based company said today in a statement. That missed the $231.3 million average estimate of 12 analysts surveyed by Bloomberg. Sales slid 20 percent to $1.42 billion. The company proposed a dividend of 3.3 cents a share and a special dividend of 6.6 cents a share.

Iron ore for immediate delivery at the Chinese port of Tianjin, a global benchmark, averaged $128.30 a metric ton last year, down from $167.59 in 2011, according to The Steel Index Ltd. Ferrexpo, which in 2012 produced 9.7 million tons of iron-ore pellets, expects to raise output to 12 million tons next year after ramping up its newly opened Yeristovo mine.

“The first special dividend we paid reflects the progress in the business” in the past five years, Chief Financial Officer Chris Mawe said in a telephone interview. “We brought Yeristovo on board and are now producing from our second mine; that has cemented the special dividend.”

Ferrexpo plunged 7.5 percent to 203.5 pence at the close in London after iron ore prices declined the most in two months.

“One of the issues that could be weighing on shares today is the recent decline in the iron ore price and concerns of further weakness to come in Q2,” Seth Rosenfeld, an analyst at Jefferies Group Inc. said by phone. “The company’s production ramp-up and operating cost control are incremental positives, but remain out of focus amongst investors.”

Rising Output

Output in 2013 will rise to “significantly higher” than 10 million tons and below 11 million tons, Mawe said. Iron ore prices will probably average $120 to $130 a ton in 2013, he said, forecasting volatility because of restocking and destocking in the market.

“We see the market remaining relatively well balanced with some ups and downs,” Mawe said. “It’s very dependent on the cyclical nature of steel production in China.”

The cash cost to produce iron ore rose to $60 a ton in 2012 from $51 a year earlier, mainly because of higher power prices and inflation in Ukraine, the company said. Costs declined to $58.90 a ton in the second half from $60.40 a ton in the first half, Mawe said.

Ferrexpo is seeking to maintain the average cash cost in 2013 at last year’s level of $60, Mawe said.

“It’s very hard to predict the price of oil, gas and electricity, but the environment we are in is less aggressive in terms of inflation,” Mawe said. “We have got higher output coming through, so we expect to mitigate any cost increases.”

The company spent $429 million last year on “capital investment in its existing and new mines as well as on logistics infrastructure, which was the highest level of annual capital investment at Ferrexpo on record,” according to the statement.

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