Ferrexpo reports lower production as Russia-Ukraine war weighs

Ferrexpo PLC reported significant reduction in production levels as the Russia-Ukraine war continued to weigh on operational activity.

The Ukraine-focused exporter of high-grade iron ore pellets said total commercial production in the third quarter ended September 30 was 779,975 tonnes, down 19% from 963,409 tonnes in the second quarter.

Total commercial production in the nine months to September fell 54% to 2.3 million tonnes from 5.1 million tonnes a year earlier. Total pellet production declined 27% to 2.04 million tonnes from 2.81 million tonnes.

Direct reduction pellet production was 141,220 tonnes in the third quarter, down 13% from 163,171 tonnes in the second quarter. Premium pellet production was 515,430 tonnes, down 26% from 697,042 tonnes, while commercial concentrate production rose 20% to 123,325 tonnes from 103,196 tonnes.

However, direct reduction pellet production rose 272% year on year to 304,391 tonnes in the nine months to September, as Ferrexpo maintained production of higher-value products.

"Tight liquidity, constrained logistics capacity, and the temporary suspension of production resulted in lower production levels in the quarter," the company said.

Ferrexpo successfully raised about USD100 million through an equity fundraise in September in a bid to raise funds and counter the withholding of VAT refunds by Ukrainian tax authorities which Ferrexpo said have "significantly eroded" its cash position. "Despite our intensive efforts, as time advanced it became clear to sustain production, and protect jobs and livelihoods, fresh funds were needed," it said.

"The fundraise has allowed us to restart production activities, albeit at significantly lower capacity than before the full-scale invasion. With access to Ukrainian ports severely restricted, there are limited options to expand exports and therefore production capacity at present."

In further cost saving measures, the company pulled back production and cut costs, including reducing working hours and placing employees on furlough.

Ferrexpo remains in advanced negotiations with a trade finance provider over a secured facility. However, logistics disruption on its Black Sea export route has affected the timing of a final agreement, and there is no certainty the facility will be concluded.

In July, a chartered vessel carrying Ferrexpo cargo was damaged in a Russian drone attack, resulting in the death of a crew member. Ferrexpo said it remains committed to the safety and wellbeing of its workforce.

Shares in Ferrexpo were down 0.7% at 30.46p on Wednesday morning in London.

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