Producing iron ore pellets for over 35
years
1 H 2 0 1 4 I N T E R I M R E S U LT S
D I S C L A I M E R
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I N T R O D U C T I O N
M I C H A E L A B R A H A M S C B E D L , C H A I R M A N
3
1 H 2 0 1 4 F I N A N C I A L R E S U LT S
C H R I S M AW E , C F O
4
1 H 2 0 1 4 : S O L I D O P E R AT I O N A L A N D F I N A N C I A L
P E R F O R M A N C E
US$M (unless otherwise stated) 1H 2014 1H 2013 Change 2013
Pellet production (000’ tonnes) 5,369 5,246 2% 10,813
Pellet sales (000’ tonnes) 5,498 5,324 3% 10,689
Revenue 759 775 (2%) 1,581
C1 cost (per tonne) 47.8 61.8 (23%) 59.8
EBITDA 321 244 32% 506
Profit for the period 208 126 65% 264
Diluted eps 34.7 21.4 62% 44.7
Dividend – ordinary & special (cents) 3.3 3.3 - 9.9
Net cash flow from operating activities 138 83 66% 233
Capital investment 132 147 (10%) 278
Net debt 694 566 23% 639
Net debt to LTM EBITDA 1.2x 1.4x (14%) 1.3x
Shareholders’ funds 1,155 1,595 (28%) 1,713
― Increase in production & sales volumes
― Market price declines partly mitigated by higher
pellet premiums & improved marketing performance
― Lower costs due to efficiency improvements & UAH
devaluation
― EBITDA reflects a US$47M one-off non-cash gain
― Profit for the period increased 65%, diluted EPS up
62%
― Strong cash flow from operating activities, up 66%
― Net debt reflects increase in working capital
― Prudent balance sheet metrics, sufficient liquidity
― Shareholders’ equity reflects devaluation
5
R E V E N U E 1 H 2 0 1 4 V S . 1 H 2 0 1 3U
S$M
775
140
17 22
6029
30
759
0
100
200
300
400
500
600
700
800
900
Revenue, 1H 2013 Global iron oreprices
Freight cost toChina
Volume, own ore Pellet premium Pricing terms &mix
CFR sales &other
Revenue, 1H 2014
6
E B I T D A 1 H 2 0 1 4 V S . 1 H 2 0 1 3
US
$M
– Not including FX losses on VAT & prepaid CPT of US$139M or non- cash FX losses on other assets of US$573M, all of which are recorded in reserves
244 218 321
6
37
40
16
47
68
1
0
50
100
150
200
250
300
350
EBITDA, 1H2013
Sales price Volume, own ore C1 / constantcurrency
Other costs /constantcurrency
EBITDA,constantcurrency
C1 / forex effect Other costs /forex effect
Forex one-offnon-cash gain
EBITDA, 1H2014
7
L O W E R C O S T S D U E TO F Y M & D E VA L U AT I O N
― US$14 decline in C1 costs to US$47.8/t
― US$6.8/t due to FYM ore & higher volumes (constant currency)
― US$7.2/t due to UAH 29% devaluation, 55% of costs in UAH
― 8% increase in electricity tariffs
― 1H 2014 royalties US$1.45 per tonne
C1 cash cost evolution
61.8
47.8
30
35
40
45
50
55
60
65
1H 2013 1H 2014
Reported C1 Cost Constant Currency C1 Cost
7.2
US
$ C
1 C
ash
cost
Breakdown of C1 cash cost
Electricity, 25%
Materials, 16%
Gas, 15%Fuel, 11%
Personnel costs, 10%
Grinding media, 7%
Maintenance & consumables, 6%
Spare parts, 4%
Explosives, 3% Royalties, 3%
30 June 2014 1 January 2014 Change Avg. 1H 2014 Avg. 1H 2013 Change
UAH vs. US dollar 11.823 7.993 (47.9%) 10.276 7.993 (28.6%)
8
C A S H F L O W 1 H 2 0 1 4 V S . 1 H 2 0 1 3
US$M (unless otherwise stated) 1H 2014 1H 2013 Change 2013
EBITDA 321 244 32% 506
FX non-cash gain (47) - - (1)
Interest paid (28) (28) - (57)
Tax paid (45) (63) (29%) (108)
Working capital movements & other (63) (70) (10%) (107)
Net cash flow from operating activities
138 83 66% 233
Capex (132) (147) (10%) (278)
Cash balance at end of period 359 446 (20%) 390
Net debt (694) (566) 23% (639)
Net debt to LTM EBITDA 1.2x 1.4x (14%) 1.3x
― EBITDA increased by 32% to US$321M
― Working capital reflects stocking of FPM lean ore & concentrate
― 5 VAT repayments received in 1H 2014
― % of prepaid CPT declined from 50% in January to 25% in June
― VAT bonds received 2 July c. US$115M
― US$89M corporate profit tax (CPT) balance at 30 June 2014
― Growth projects near completion
― Prudent credit metrics
9
C A P E X : O N T R A C K TO I N C R E A S E V O L U M E & Q U A L I T Y
Delivering benefits to consumption norms
Electricity consumption (kWh/t)
FPM
Sustaining
US$11.4M
FPM Capacity
Upgrade
US$28.3M
FPM Mine
Life Extension
US$4.6M
FYM Mining
and
Infrastructure
US$36.8M
FYM ph. II
(concentrator)
US$6.4M
FBM,
Logistics and
Other
US$17.7M
Expenditure reduced reflecting large past
investments
Delivery of 1 Metso Medium & Fine Crushing
Line / 3 in process
Beneficiation plant sections upgrade
2 million m³ of overburden removed
Mining: 6 milion m³ of overburden removed
Mine infrastructure : service centre and mine
working complex complete
Order for LLI placed with Weir minerals
(HPGR’s)
First pilings for concentrator building
New 300 railcars ordered (will bring fleet to
2,500 units)
Design and engineering works continue at
Belanovo
FPM Quality
Upgrade
US$26.5M
New flotation unit 2 commissioned in March
2014 / new flotation unit 3 expected to be
completed in Q3
Design works on press filtration plant
8
10
12
14
16
18
20
1H 2
011
2H 2
011
1H 2
012
2H 2
012
1H 2
013
2H 2
013
1H 2
014
Gas (m3/t)
140
150
160
170
180
190
1H 2
011
2H 2
011
1H 2
012
2H 2
012
1H 2
013
2H 2
013
1H 2
014
0
1
2
3
4
5
6
1H 2
011
2H 2
011
1H 2
012
2H 2
012
1H 2
013
2H 2
013
1H 2
014
Diesel (t/th.t)
3
4
5
6
1H 2
011
2H 2
011
1H 2
012
2H 2
012
1H 2
013
2H 2
013
1H 2
014
Grinding bodies (t/th.t)
10
Credit Metrics – High Liquidity
L I Q U I D I T Y A N D F I N A N C I N G 1 H 2 0 1 4 V S . 1 H 2 0 1 3
– Increase in net debt due to higher working capital
– Secured long dated US$40M ECA financing, avg maturity of
5.6 years
– Undrawn committed PXF of US$350M, maturing 2018
– Diversified sources of funding (bond, PXF, ECA/leasing)
– No material unfunded debt repayments in 2014 & 2015
Pro forma Gross Debt Maturity Profile at 30 June 20141
US
$M
1. Ferrexpo secured a PXF facility in 2013 for US$350M maturing in 2018. This facility will be drawn in August 2014 to repay a US$420M bank
facility which commences a two year amortization period in September 2014 maturing on 31 August 2016.
0
100
200
300
400
500
600
2014 2015 2016 2017 2018 2019 2020 2021
PXF's ECA Leasing Bond
Net debt Gross debt
Opening net debt - 1 January 2014 (639) (1,029)
Operating cash flow 213 -
Capital expenditure (132) -
Income tax paid (45) -
Net interest paid (28) -
2013 final & special dividend (58) -
Debt facilities repaid - 15
New debt facilities - (40)
Other (5) 1
Closing net debt - 30 June 2014 (694) (1,053)
US
$M
Cash balance at 30 June 2014
0
100
200
300
400
500
Jan-13 Jan-14
Cash
June 2014June 2013
11
C O N C L U S I O N TO F I N A N C I A L R E V I E W
Market weakness mitigated by:
• Higher volume
• Improved pellet premiums
• Index based pricing
• Improved efficiency
• Currency devaluation
Solid financial results
Growth projects remain on track
Devaluation impacted carrying value of VAT & prepaid CPT
Maintained healthy credit metrics
12
B U S I N E S S U P D AT E
K O S T YA N T I N Z H E VA G O
M A R K E T I N G & L O G I S T I C S
I R O N O R E P E L L E T S T R A D I N G AT A P R E M I U M
– Pellet prices reflect:
lack of material new supply,
structure of pellet cost curve,
demand for higher grade product to offset increase in lower grade fines
– Ferrexpo realised net FOB price in 1H 2014 -9% vs -19% for 62% Fe fines
50%
60%
70%
80%
90%
100%
110%
% c
hang
e in
iron
ore
pric
e (r
ebas
ed to
Jan
20
13)
Iron ore fines (62% Fe) Iron ore fines (58% Fe) Metal Bulletin Pellet Index (65% Fe)
15
M A R K E T I N G E X PA N S I O N W I T H F O C U S
O N C R I S I S R E S I S TA N T C L I E N T S
– Not reliant on any one region for demand, optionality to divert volume to strongest regional market
– In 1H 2014: continued to expand long term contract volumes into Japan & Western Europe
– As of 1 January 2014, all long term contracts based on an index with increased pricing transparency
– Freight to Far East in line with C3
Sales Volume by Contract Type
Diversified sales portfolio to high quality steel mills
Sales Volume by Country
0% 20% 40% 60% 80% 100%
Monthly index
Spot fixed
Lagging 3 month index
Current quarter index
Quarterly negotiated
1H 2014 0% 0% 1H 2013 0% 0%
0%
10%
20%
30%
40%
50%
60%
Eastern &Central Europe
China North East Asia WesternEurope
Turkey
1H 2014 1H 2013
16
Pelletising Cost Curve
1. Only reflects costs incurred at the pelletising stage of the production process (i.e. does not include mining, concentration and beneficiation costs) and as such should not be
considered as a cost curve for total cost of pellets production. Site costs are defined as cash operating costs plus share of local overhead and sustaining capital
Source: CRU, January 20130
14
28
42
56
70
US
c/dm
tu
Ferrexpo
0.2 Bnt
ENRC
Metalloinvest
IOC
Metinvest Metinvest
LKABLKABVale
ValeSamarco
Vale
CLIFFS
I N D U S T RY P E L L E T I S I N G C O S T C U RV E :
F E R R E X P O I S W E L L P L A C E D
35% China
10% Russia/Kazak10% Other
7% Vale
7% India
5% Ferrexpo
5% LKAB
5% Cliffs
5%Iran
4% Samarco3% IOC
2% ArcelorM2% GIIC
– Ferrexpo is a significant seaborne supplier
– Ferrexpo is competitively placed on pellet cost curve
– Pellet cost curve is well supported at higher end
– Geographically Ferrexpo is well placed to supply 4/5 major importing regions
Pellet Suppliers
Supply & Demand
Source: Wood Mackenzie, Macquarie Research, June 2014
Source: Customs Statistics, Macquarie Research, June 2014
Source: CRU1
17
O P E R AT I O N S & I N V E S T M E N T S
18
S T R O N G P E R F O R M A N C E F R O M F P M
– Significant increase in processing yields
– Mined ore volumes in 1H 2014 -4.7%
– Pellet output in 1H 2014 +2.5%
– Major repair & maintenance programme, whilst maintaining day to day
activities
– Commissioning of flotation 2
– Allows more concentrate to be floated, increasing 65% Fe pellet
production
– 2H 2014: commissioning of flotation 3, upgrading of flotation 1
– Commissioning of flotation section 3 will allow FPM to process tails
from flotation 1 & 2, increasing concentrate volumes
– Increase to 100% 65% Fe pellet will open up new markets
2014 production exit rate: 12 million tonnes per annum
2015 production exit rate: 100% 65% Fe pelletsNew flotation section number 2, May 2014
19
F Y M P I T M AY 2 0 1 4
20
F Y M P R O D U C I N G , L O W E R I N G C O S T S
& O P E R AT I O N A L R I S K P R O F I L E
– FYM ore and higher volumes reduced C1 costs by US$6.8/t in 1H 2014 vs. 1H 2013
– Lower operational risk through two operating mines
10%
20%
30%
40%
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
Feb
-14
Mar
-14
Apr
-14
May
-14
Jun-
14
Conc Pellets
% of FYM Concentrate & pellet production of total Group production
20%
25%
30%
35%
40%
45%
50%
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
Feb
-14
Mar
-14
Apr
-14
May
-14
Jun-
14
Yield (pellets/ore) Yield (concentrate/ore)
FYM ore
35%
40%
45%
50%
55%
60%
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
Feb
-14
Mar
-14
Apr
-14
May
-14
Jun-
14
Proportion of 65%Fe production from own ore increasing
2.5
3
3.5
4
4.5
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep
-11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep
-13
Nov
-13
Jan-
14
Mar
-14
May
-14
Tonnes of ore per tonne of pellets
21
F Y M A W O R L D C L A S S O P E R AT I O N , C A N A D D F U RT H E R
TO N N A G E
Pilings for concentrator?? Main workshop service bay
Wash centre
Pilings for concentrator
FYM offices
22
U K R A I N E
23
U K R A I N E
Uncertain operating environment but progress has been made:
• Introduction of flexible exchange rate
• VAT refunds reintroduced
• VAT bonds issued for VAT accumulated prior to 2014
But still some difficulties:
• Prepaid corporate profit tax
• Royalties
• Inflation
Strong international financial support
• IMF US$17 billion loan package
The Board continues to monitor the situation closely
24
O U T L O O K
F E R R E X P O A W O R L D C L A S S
I R O N O R E P E L L E T P R O D U C E R
Outlook:
Iron ore price lower due to increased supply but market remains strong for pellets
Costs have benefitted from FYM investment and higher volumes as well as UAH devaluation
Future inflation could offset devaluation impact
Projects on track to deliver 12 million tonnes of pellets per annum and to increase average pellet quality
To date, operations have not been directly impacted by conflict in the East but economy remains fragile
Committed to deliver value to all stakeholders
26
T H A N K Y O U
27
A P P E N D I X
28
G R O U P VAT R E C O N C I L I AT I O N
321
185
115
103
30
3
0
50
100
150
200
250
300
350
1 January 2014 Devaluation loss Anticipated discount onbonds
Net VAT recovered in 1H2014
Net VAT recoverable asof 30 June 2014
1st VAT bonds receivedin July
US
$M
29
I M PA C T O F U A H D E VA L U AT I O N O N F I N A N C I A L
S TAT E M E N T S
US$M 1H 2014
Revaluation of fixed assets (471.7)
Revaluation of gross VAT receivable (103.1)
Revaluation of VAT discount 19.0
Revaluation of prepaid corporate profit tax (35.7)
Revaluation of other net assets (120.5)
Total exchange losses on translating foreign operations (712.0)
Operating foreign exchange gains 47.4
Non-operating foreign exchange losses (3.0)
Total reflected in the income statement 44.4
Total opex benefits per tonne 10.4
30
31
Ferrexpo
Group Investor Relations
Ingrid McMahon – [email protected]
+44 207 389 8304 www.ferrexpo.com