Ferrexpo Annual Report 2009

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FY2009 Annual Report · Ferrexpo

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Ferrexpo plc
Registered Office:
2–4 King Street
London
SW1Y 6QL

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Annual
Report &
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Producing for
over 30 years

Ferrexpo plc is a Swiss-
headquartered resources
company with assets in Ukraine
and is principally involved in the
production and export of iron ore
pellets which are used in the
manufacture of steel.

Ferrexpo is committed to realising the potential of
its principal asset, which is one of the largest iron
ore resources in the world. The Group produces
around 9 million tonnes of iron ore pellets per year
and has several large-scale growth projects in
advanced stages of planning which are currently
on hold pending improvements in global market
conditions. We remain committed to our aim to
be a leading global supplier of iron ore pellets,
providing outstanding service to our customers
and strong returns to our shareholders.

As part of this commitment, Ferrexpo plc
became the first Ukrainian company to be listed
on the main market of the London Stock
Exchange (ticker: FXPO) following its successful
Initial Public Offering on Friday 15 June 2007.

Ferrexpo plc is a constituent of the FTSE UK
Index Series. It is currently the only pure-play
iron ore company listed on the LSE.

Cautionary note regarding forward-looking statements
This Annual Report has been prepared for the members of the Company, as a body, and for no other persons. The
Company, its directors, employees, agents or advisers do not accept or assume responsibility to any other person
to whom this document is shown or into whose hands it may come, and any such responsibility or liability is
expressly disclaimed.

This Annual Report includes statements that are forward looking in nature, particularly relating to the business,
strategy, investments, production, major projects and their contribution to expected production and other plans of
the Ferrexpo Group and its current goals, assumptions and expectations relating to its future financial condition,
performance and results.

By their nature, forward looking statements involve risks and uncertainties because they relate to events and
depend on circumstances that may or may not occur in the future and may be beyond our ability to control or
predict. These factors may include, but are not limited to, general economic and business conditions, industry
trends, changes in government and other regulation, changes in political and economic stability, currency
fluctuations and other risks, including those described in the Business Review section of this Annual Report.
Forward looking statements and past performance are therefore not guarantees of future performance.

The forward looking statements reflect knowledge and information available at the date of preparation of this
Annual Report. Except as required by the Listing Rules, Disclosure and Transparency Rules and applicable law,
Ferrexpo undertakes no obligation to update or change any forward looking statements to reflect events occurring
after the date of this document. Nothing in this Annual Report should be construed as a profit forecast.

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Company Overview
Highlights 2009

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Company
Overview

IFC Activity and Mission Statements
01 Highlights 2009
02 Our Business at a Glance
04 Chairman’s and Chief Executive

Officer’s Review

08 Board of Directors and
Executive Committee

Business
Review

12 Key Performance Indicators
14 Overview
17 Operating Review
24 Financial Review
32 Corporate Social Responsibility Review

Corporate
Governance

42 Corporate Governance Report
48 Remuneration Report
56 Directors’ Report
60 Statement of Directors’ Responsibilities
Independent Auditors’ Report to the
61
Members of Ferrexpo plc

Financial
Statements

64 Consolidated Income Statement
65 Consolidated Statement of
Comprehensive Income
66 Consolidated Statement of

Financial Position

67 Consolidated Statement of Cash Flows
68 Consolidated Statement of Changes

in Equity

69 Notes to the Consolidated
Financial Information

115 Glossary
118 Shareholder information

Sales Volumes

Production Quality

Up by 3.5%

Up by 7.2%

Production maintained at full capacity with
sales volumes up by 3.5%

7.2% increase in production of high quality
(65% Fe) pellets

Revenue

Pre-tax Profit

US$648.7m

Reduction in revenues mitigated by
increased production of 65%
Fe grade pellets

US$80.9m

Despite difficult market conditions,
Ferrexpo remained profitable
throughout 2009

Renewal of Debt Facility

EBITDA

US$230m

New debt facility – the first successful
refinancing completed by a mining
group with assets in the CIS since
September 2008

US$138.1m

EBITDA decreased by 72.6% to
US$138.1m principally as a result of the
substantial fall in iron ore pellet prices

Average Achieved Price

Cash Costs of Production

US$66.3/t

Lower settlement prices and a temporary
exposure to high freight charges resulted
in a decrease in the average achieved price

Reducing

C1 cash costs of production for the year
decreased by 18.6% to US$34.4/t

Dividend

3.3 US cents

Final dividend maintained at US$19.3m
(3.3 US cents per share)

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Company Overview
Our Business at a Glance

Ferrexpo’s operations are situated on the
Kremenchuk Magnetic Anomaly, a 50km long iron
ore deposit in Ukraine’s Poltava region making it
the largest iron ore resource in Europe. The Group
holds licences to explore or mine the entire
deposit; its current operations are situated at the
southern end of the deposit, adjacent to the
Dnieper River.

The GPL Mine

A single open-cut mine, 6km long and over 300m deep
>

Encompassing two deposits in a single pit – Gorishne-Plavninskoye
and Lavrikovskoye
Produced 28.5mt of iron ore in 2009, equating to 8.6mt of pellets
Expansion to approximately 32mtpa of iron ore is being rescheduled,
but remains a priority for the Group
3.8bt of JORC-classified resource remaining (magnetite, c.30%
Fe content)
Potential pelletising capacity of 12mtpa

>
>

Our most advanced growth project.
Definitive Feasibility Study completed
in September 2008
>

Over 800mt of JORC-classified resource
(magnetite, c.30% Fe content)
27mtpa open-cut mine planned
Plan includes dedicated new processing and
pelletising facilities

>
>

Meaningful progress has been achieved
during 2009:
>
>

Over 4m cubic metres of overburden removal
Initial CAT 789 truck fleet delivered and
commissioned
Mining licence transferred from FPM
Mining DFS study update completed

>
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Dnieper
River

Advanced pipeline of growth
projects Despite the Board’s
decision to put a hold on capital
expenditure during the economic
downturn, our growth projects
remain a priority.

Progress was made at our most advanced
development project – Yeristovskoye –
with US$23 million expended on stripping
works, construction and machinery.

Additional work is ongoing at the
Belanovskoye and Galeschinskoye
deposits where drilling is currently
testing the geotechnical conditions
and ore quality.

GPL Mine Expansion
GPL Concentrator Upgrade
Yeristovskoye Mine

Yeristovskoye Concentrator
Yeristovskoye Pelletising Plant
Belanovskoye Mine

Belanovskoye Concentrator
Belanovskoye Pelletising Plant

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Yeristovskoye

Gorishne-Plavninskoye/
Lavrikovskoye (GPL)

Mining
Beneficiation
Pelletising

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Our locations
Our operations are located in central
Ukraine providing an unmatched
competitive advantage in terms of
logistics and establishing us as an
iron ore producer with one of the
lowest costs of supply to our
principal customers.

1,105
miles

749 miles
7

Ukraine

Preliminary Feasibility Study
completed in September 2008
>

1.6bt of JORC-classified resource
(magnetite, c.30% Fe content)
Mining licence transferred from
FPM to new entity Ferrexpo
Belanovo Mining (‘FBM’)

1,786 miles

3,151 miles

8,600 miles

Markets served by rail

Markets served by ocean vessel
Markets part served by
ocean vessel

1 Netherlands
2 Serbia
Germany
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4 Romania
Italy
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6 Bulgaria
7 Austria
Turkey
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9 Czech Republic
Middle East
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11 Poland
12 Russia
13 Slovakia
India
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China

Japan

Mine concept studies completed
325mt high-grade haematite
>
deposit (c.60% Fe content) within
a larger magnetite deposit

Further potential
>
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Four large northern deposits
Approximately 14bt of magnetitic
ore reserves, classified under the
Soviet GKZ code

Belanovskoye

Galeschinskoye

Vasilevskoye

Kharchenkovskoye

Manuilovskoye

Brovarskoye

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Company Overview
Chairman’s and Chief Executive
Officer’s Review

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“

Ferrexpo’s strong operational performance in 2009 is a
testament to the Company’s fundamental strength and
our successful marketing strategy that has allowed us to
maintain profitability at a time of a worldwide drop in iron
ore demand.

In the second half of 2009, there were signs of recovery
in our key Traditional Markets and we returned to long-
term contract deliveries which increased margins and
rebalanced our sales mix. In 2010, the outlook for iron
ore is positive and we are well placed to capitalise on any
growth opportunities.

In the coming year, the Board will focus on resuming
development of our growth projects once a recovery has
firmly taken hold, while continuing to add capability to
project execution and consolidating our strengths in best
practice mining and marketing.

Kostyantin Zhevago, CEO

”

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We are pleased to report that Ferrexpo
performed extremely well in 2009 in a
challenging economic environment.
Overall, demand visibility for iron ore
remained poor until the final quarter of the
year. This was exacerbated by a marked
decoupling effect with demand from China
and other developing regions remaining
strong, while demand from developed
regions only began a slow recovery in the
latter half of the year. Consequently, no
formal settlement of the international
benchmark price materialised, exposing
us to spot and provisional market prices
for much of the year. Nonetheless, our
flexible and responsive marketing strategy,
strong customer relationships and access
to the seaborne market enabled us to
continue to produce and sell at full
capacity and to remain profitable
throughout the year.

In 2009 Ferrexpo demonstrated its
fundamental strength and the resilience of
its business model. Following the collapse
in demand for iron ore in Europe in late
2008, a decision was taken to continue to
produce at full capacity throughout 2009
to minimise the effect of our fixed cost
base on unit costs and to offset this
demand weakness in our Traditional
Markets with increased sales to China.
This strategy proved highly successful
given our access to the seaborne market
through our TIS-Ruda joint venture port
terminal at Yuzhny Port on the Black Sea
and our established marketing presence
and good customer relationships in China.
Our mining operations also responded
well to our strategy for continued high
levels of iron ore pellet output, delivering a
strong production performance both in
terms of absolute output and, in particular,
the proportion of higher grade 65% Fe
pellets produced. Costs were rigorously
controlled by management and our
Business Improvement Programme once
again achieved notable success in helping
to reduce unit costs and increase
operating efficiency.

Re-stocking by European steel mills in the
third quarter of 2009 and a slow recovery
in steel demand in the fourth quarter
allowed Ferrexpo to rebalance its
geographic sales mix and to resume
supply to its established portfolio of
long-term contract customers. This
marketing flexibility and strong operating
performance during the year delivered a
solid financial performance enabling the
Group to become the only mining
company with assets primarily in the CIS
to refinance its principal debt facility.

2009 Results
Revenues for 2009 declined to US$648.7
million compared with the prior year (2008:
US$1,116.9 million). Earnings before
interest, tax, depreciation and amortisation
(‘EBITDA’) for the period decreased to
US$138.1 million (2008: US$503.9 million),
and pre-tax profit was lower at US$80.9
million (2008: US$375.6 million).

The price settlement for iron ore pellets
agreed during the summer of 2009
between Vale, the world’s largest pellet
producer, and its major customers outside
China, reflected a 48.3% decrease in the
price of pellets compared with the
2008/2009 contract settlement. This Vale
settlement eventually gained worldwide
acceptance, although it was not formally
recognised by the China Iron and Steel
Association as a ‘benchmark’ price. As a
result of this and our strong customer
relationships, ‘value-in-use’ marketing and
our ability to provide small-lot ‘just-in-time’
deliveries to our Traditional Market
customers, the Group was able to settle
the majority of its contracts at around this
level from the start of the fourth quarter.
The lower settlement price and the
temporary exposure to seaborne markets
and high freight rates in the earlier part of
the year resulted in Ferrexpo achieving an
average Delivered at Frontier/Free on
Board (‘DAF/FOB’) price for its pellets of
US$66.3/t (2008: US$124.6/t). Importantly,
Ferrexpo remained profitable throughout
the 2009 downturn and minimised the
reduction in revenues by continuing to
increase production of its 65% Fe
grade pellets.

Lower production in January and
February, resulting from poor weather
conditions impacting our logistics chain,
was followed by a 10-month period of
record output. Production of pellets from
own ore was in line with the record levels
achieved in 2007 and 2008 and, in line
with our strategy, included a higher ratio of
high grade 65% Fe pellets (an increase of
7.2% compared with 2008). Our mining
operations gave another strong
performance, increasing production
efficiency and operating at full capacity
despite a cash-constrained environment.

The Group’s C1 costs fell by 18.6% to
US$34.4 per tonne in 2009 compared with
US$42.3 per tonne in the previous year.
The significant cost pressures we faced
for much of 2007 and 2008 were largely
absent in 2009. We experienced more
stable prices for state-controlled inputs
and lower domestic inflation. A step
change occurred in the Group’s C1 costs
at the end of 2008, primarily as a result of

the depreciation of the Ukrainian hryvnia
and falling oil prices, following which the
December 2008 C1 cost was reduced to
US$34.7 per tonne. We were able to
maintain the Group’s C1 costs at or below
this level for the whole of 2009 as a result
of efficiency improvements which offset
cost increases. Overall, our 2009
production and distribution costs ended
the year slightly below their 2008 level.
This strict control of our unit costs enabled
us to maintain positive margins throughout
2009 and has provided a strong starting
point for 2010.

Cash flow was robust over the year
despite the challenging industry
conditions. Net cash flow from operating
activities was US$76.9 million. This was
after an increase in working capital of
which US$24 million related to an increase
in overdue VAT. This is being closely
managed by the Group and it is expected
that VAT refunds will be resumed in 2010,
following the expected stabilisation of the
Ukrainian economy.

As previously announced, the Group
successfully secured a new pre-export
finance facility of US$230 million. The new
facility was drawn down to repay in full the
amount outstanding on the existing loan.

Marketing and logistics
As we reported at the time of our interim
results, in the first half of 2009, 54% of our
sales were made to China, the majority of
these being on a spot market basis. This
high level of spot market activity was
necessary to counteract the weakness in
demand in our Traditional Markets, but we
remain committed to our strategy of selling
the majority of our production on long-
term contracts to our well established
customer base. In line with our strategy,
the Group reverted to selling typical
contract volumes to its portfolio of
long-term contract customers when
economic conditions permitted, which
occurred in the third quarter. We shall
retain the flexibility to compensate at
short notice any further reduced demand
in our Traditional and Natural Markets
with sales in seaborne markets, where
demand has remained more resilient and
Ferrexpo has a well established presence
and reputation.

The Group’s strong customer relationships
have stood it in good stead in the past
12 months and we remain committed to
maintaining our relationships with our
long-standing customers and supporting
them during the forthcoming period of
tentative economic recovery. At the same
time, we have continued to develop new

Our strategy explained

Retain flexibility in the marketing and
production aspects of our operations
in order to respond swiftly to
changes in the iron ore market

Conserve cash and protect margins
through aggressive cost management
and prudent investment in growth,
maintaining the cost competitiveness
of our existing operations

Leverage our marketing platform
using our strong customer
relationships and beneficial location
to maintain sales volumes and
increase market share in our
Traditional Markets

Pursue best practice in our mining
operations, financial and risk
management and corporate
governance

Resume modest expenditure on our
extensive undeveloped iron ore
deposits on a prudent basis to
ensure future production growth

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Company Overview
Chairman’s and Chief Executive
Officer’s Review continued

Our year in review

January 2009
Pellet production reduced as a result of
adverse weather conditions impacting
the logistics chain

February 2009
Trading update announcing increased
spot sales to China to compensate for
weaker iron ore demand in Europe, as
Chinese steel mills commence re-stocking

New World Resources NV abandons plan
to purchase a stake in Ferrexpo from
RPG Industries SE (its parent company)
and appoints Kostyantin Zhevago to its
Board as a Non-executive Director

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March 2009
Pellet production increased to full
capacity, where it remained for the rest of
the year

Mike Salamon and Marek Jelinek
appointed to the Ferrexpo Board as
Non-executive Directors

April 2009
No Benchmark Price settlement agreed,
owing to worldwide lack of visibility of
demand for iron ore. No contract
settlement is possible, so most
producers (including Ferrexpo) continue
to sell largely on a spot or provisional
pricing basis

June 2009
Vale, the world’s largest iron ore pellet
producer, settles pellet prices with its
contract customers outside China
at a 48.3% reduction on the previous
year’s Benchmark Price. Although this
settlement is not officially recognised
as a Benchmark by China, it slowly
gains universal acceptance during the
following months

August 2009
Ferrexpo interim dividend deferred
pending contract settlements

July 2009
Ferrexpo enters into talks with its
Traditional Market customers for the
purpose of settling prices for its
2009/2010 contracts

September 2009
Ferrexpo settles its long-term contracts
at or about the Vale ‘implied Benchmark’,
as adjusted for quality and freight for the
fourth quarter of 2009 and first quarter of
2010 and returns to supplying its portfolio
of long-term contract customers

October 2009
RPG Industries SE, a large shareholder of
Ferrexpo, enters into a Total Return Swap
transaction over 12% of the Company
which effectively returns Ferrexpo’s free
float to above the 25% level

December 2009
Ferrexpo refinances its principal debt
facility, replacing it with a new US$230
million pre-export finance facility through
a syndicate of leading international
financial institutions

Deferred interim dividend of US$20.0
million declared following contract
settlements

The Ferrexpo share price rose 506%
between 1 January 2009 and
31 December 2009

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global market opportunities and in
particular we were able to begin supplying
the north-west Indian region on a spot
basis in 2009. We believe that this could
become an important new Growth Market
for Ferrexpo in the future. The Group has
good access to seaborne markets through
the TIS-Ruda Terminal at Yuzhny, our joint
venture Panamax port terminal on the
Black Sea. Going forward we are exploring
the possibility of expanding the TIS-Ruda
Terminal to allow for the loading of larger
vessels up to cape size 150,000 tonnes.

Ferrexpo enjoys several unique logistical
advantages, the most notable of which is
our proximity to our key customers. Our
operations in central Ukraine are several
times closer to our principal European
markets than most of our global
competitors and, as a result, we are in
many cases the lowest cost supplier to
our customers. The advantage of
proximity is enhanced by our location next
to a navigable river and established rail
links to our customers. By capitalising on
this proximity to Traditional and Natural
Market customers and our ability to
provide them with continuous small-lot
iron ore deliveries, we believe we have
increased our share of those markets in
2009 and are well placed to further
consolidate those gains in 2010. The
Group remains Ukraine’s largest exporter
of iron ore pellets.

Management and people
The Board is deeply grateful for the efforts
of our management and staff over the past
year. 2009 has proved to be a particularly
difficult period in the industry and globally
and our staff have risen to the challenge
admirably. Ferrexpo has come together as
a single entity of great strength and
resilience and our excellent results in the
face of adversity would not have been
possible if it were not for the tireless efforts
of our people.

As we have previously announced, Mike
Salamon and Marek Jelinek of New World
Resources (‘NWR’) joined the Board as
Non-executive Directors in March and
have been making an invaluable
contribution. As part of the arrangement
under which NWR directors sit on the
Board, Marek will be retiring from the
Board at this year’s AGM. We are most
grateful to him for his contribution to the
Group’s affairs.

Ferrexpo has once again been able to
avoid any forced redundancies in 2009
despite the challenging economic climate.
We shall continue actively to manage the
size of our workforce over time to

maximise productivity, but as one of the
major employers in Ukraine, maintaining
the employment of our people is a priority.

Corporate governance and social
responsibility
The Group continues to meet the high
standards of corporate governance set by
the Board and we remain committed to
continuing compliance with the UK
Combined Code.

The Board’s Corporate Safety and Social
Responsibility (‘CSR’) Committee
continues to monitor the management of
the Group’s health, safety, environmental
and community programmes in line with
best practice for mining companies.
Safety-conscious behaviour has become
more entrenched in 2009 and we are
pleased to be able to report that there
were no production-related fatalities at our
operations this year. While this represents
good progress, CSR remains a priority
and we are pursuing further initiatives to
ensure a culture of continuing
improvement in this regard.

Growth projects and strategy
While the Board placed all significant
capital expenditure on hold in October
2008 in response to the global financial
crisis, we are pleased to have progressed
with critical path items, which have
enabled the Group to maintain a
significant level of control over the
schedule of core growth projects. No
material capital commitments were made
in 2009 as the Group focused its efforts
on cash conservation and the
maximisation of production from its
existing facilities. The Group nonetheless
considers its major growth projects to be
a priority and is working to continue their
development in the short-term in order to
leverage off strengthening iron ore prices
going forward. These core development
projects are focused primarily on the
increase of output, enhancing product
quality from our existing operations and
accessing more of the Group’s substantial
ore reserves at the Yeristovskoye deposit
with the aim of doubling production.

In 2009, we took the opportunity to review
the scope and capital expenditure
requirements of all these projects and we
believe that we are in a position to reduce
substantially the capital required for their
development. We also spent US$4.6
million on overburden removal at the new
Yeristovskoye mine, using both local
contractors and equipment already
purchased by the Group. Pre-stripping is a
critical path item and this capital was
expended in order to preserve the value of

the project and maintain its schedule to
the extent possible. It is notable that this
stripping was achieved at a cost less than
budgeted for in the Yersitovskoye
feasibility study.

Uniquely among companies in the region,
the Group was able to refinance its
principal debt facility at the end of 2009.
The new US$230 million pre-export
finance facility was provided by a
syndicate of leading global financial
institutions and provides Ferrexpo with a
facility which will enable the Group to
invest a higher proportion of its cash flow
from operations in its growth projects. We
plan further pre-stripping works at
Yeristovskoye and at the expansion of the
existing open pit in 2010 and will
accelerate the development of all projects
as soon as market conditions permit.

The outlook for 2010 is considerably more
positive than it was for 2009, marked by
increased visibility and strengthening iron
ore prices. In 2010, we aim to increase our
cost competitiveness through continuing
efficiency improvements, while exploiting
our strategic location and strong customer
relationships to maintain sales and
production tonnages and to increase
market share in our Traditional and Natural
Markets. Throughout 2010, the Board and
management will continually assess
opportunities to accelerate investment into
key development projects, in line with the
economic climate. Our operating, financial
and risk management capabilities have
been proven during the past 12 months
and we are confident that this strategy
will optimise value for the Group while
effectively protecting it from any further
market downturn.

Dividend
The Board is of the view that Ferrexpo
should pay modest consistent dividends
based on continuing profitability through
the economic cycle. The Group has
operations which are cash generative and
can both support returns to shareholders
and form a platform to finance the
development of its significant world class
undeveloped reserves.

The Board believes that the business has
sufficient operational flexibility to respond
to the demands it will face in 2010 and as
a result, it is appropriate to continue with a
dividend in line with prior years. The
Directors therefore recommend a final
dividend in respect of profits generated for
the Group in 2009 of 3.3 US cents per
Ordinary Share for payment on 4 June
2010 to shareholders on the register at the

close of business on 30 April 2010. The
dividend will be paid in UK pounds sterling
with an election to receive US dollars.

Outlook
In 2009, Ferrexpo produced at full
capacity and remained cash flow positive
and profitable even in the face of
dramatically weaker demand for iron ore
and steel worldwide. As the iron ore
market began to show signs of stabilising
in the second half, visibility increased and
Ferrexpo was able to return to long-term
contract pricing. We believe that market
conditions will continue to improve during
2010 with a slow but definite recovery in
steel demand now evident in Europe.
Encouragingly, Chinese spot prices for
iron ore have stabilised above the current
contract level and the cycle of de-stocking
and re-stocking by steel mills is largely
behind us.

The Group has resumed contract sales to
its higher-margin Traditional Market
customers, but retains the ability to
access the seaborne market to
compensate for any recurring weakness in
these markets. The Group is exposed to
the positive outlook for iron ore pricing. In
view of higher pricing, we expect Ferrexpo
to continue to trade profitably and to
increase margins in the year ahead.

In 2010, the Board will be focused on
increasing margins and resuming
development of our growth projects at a
modest level while continuing to add
capability in project execution and
consolidating our strengths in best
practice mining and marketing. We believe
that growth from developing and
industrialising nations will continue to
underpin the strong fundamentals of
global steel demand as demand in
developed nations continues slowly to
recover. Ferrexpo is well placed to take
advantage of improvements in the iron ore
markets in both the developed and
developing world.

Michael Abrahams CBE DL
Chairman

Kostyantin Zhevago
Chief Executive Officer

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Company Overview
Board of Directors and Executive
Committee

The Board

1. Michael Abrahams, CBE DL (72)
Non-executive Chairman
Michael Abrahams joined the Board on
14 June 2007. He is chairman of the London
Clinic, the Prudential Staff Pension Scheme
and imJack plc. He was deputy chairman of
Prudential plc until May 2000, and has served
as chairman and as a director of a number of
quoted and unquoted companies.

2. Kostyantin Zhevago (36)
Chief Executive Officer
Kostyantin Zhevago joined the Board as a
Non-executive Director on 14 June 2007
and was appointed Chief Executive on
1 November 2008. He is ultimately the
controlling shareholder of Ferrexpo. He has
been a member of the Ukrainian Parliament
since 1998. He is currently a member of the
Parliamentary Committee on Law Policy
and Chairman of the Parliamentary Group
for Inter-Parliamentary Relations with
Japan. Since 2002, he has been a member
of the permanent delegation of the
Ukrainian Parliament in the Parliamentary
Assembly of the European Council and a
member of the Ukrainian faction of the
Committee for Parliamentary Cooperation
between Ukraine and the European Union.
He has previously served as chairman of
the management board and deputy
chairman of the supervisory board of CJSC
Commercial Bank Finance and Credit
(‘Finance and Credit Bank’) and as a
member of the supervisory board of JSC
Ukrnafta. Between 1993 and 1996, he was
financial director of Finance and Credit
Bank. He is a non-executive director of

New World Resources NV, a subsidiary of
RPG Industries SE. Kostyantin Zhevago
graduated from the Kyiv State Economic
University in 1996, specialising in
international economics.

3. Christopher Mawe, FCA (48)
Chief Financial Officer
Chris Mawe joined the Board on 7 January
2008. He qualified as a Chartered
Accountant with Coopers and Lybrand in
1991, having gained a First Class Honours
degree in Engineering. He has held senior
financial positions for the past 16 years,
firstly with IMI plc both in the UK and
Europe, and then with Carclo plc as finance
director. Most recently he was finance
director of UK Coal plc.

4. Oliver Baring (65)
Senior Independent Non-executive
Director
Oliver Baring joined the Board on
1 December 2007. He has been chairman
of Mwana Africa plc since its reverse
takeover of African Gold plc in September
2005. He retired from UBS Warburg in
2001, having led the International Mining
Group with responsibility for Africa and
Europe. Previously he had been head of
the UBS Warburg mining equity sales
team and was responsible for its
respected coverage and sales capability.
He was a partner in Rowe and Pitman
before its merger with SG Warburg. He is
non-executive chairman of First Africa
Holdings Limited, and is a non-executive
director of Blackrock World Mining Trust
plc, and a member of the Advisory Council
of Sentient Resources Fund.

5. Raffaele (Lucio) Genovese (48)
Independent Non-executive Director
Lucio Genovese joined the Board on 14 June
2007. He is the chief executive officer of
Nage Capital Management, a Swiss-based
advisory and proprietary company
specialising in the metals and mining sector,
and serves on a number of boards of
directors. He has previously served as
investment officer and a member of the
board of Taj Investment Limited with
responsibility for its Indian public and private
investment portfolio. Prior to that, he held a
number of positions with Glencore
International, including senior member of the
Copper Division, CEO of CIS Operations,
manager of the Moscow office and trader in
the Ferrous Division. He was an assistant
manager in the Audit Division of
PriceWaterhouseCoopers in South Africa.
He is a Chartered Accountant (South Africa).

6. Wolfram Kuoni (43)
Independent Non-executive Director
Wolfram Kuoni joined the Board on 14 June
2007. He is the founder and senior partner of
Kuoni Attorneys-at-Law, Zurich, Switzerland,
and serves on a number of boards of
directors. He has over 12 years of experience
in investment banking. Prior to 2005, he held
a number of positions within UBS Investment
Banking (Zurich and New York), including
head of the European Export and Project
Finance Team. He also originated and
structured cross-border acquisitions and
equity capital markets transactions. He
graduated with a law degree from the
University of Berne, and holds
a doctorate in law from the University of
Zurich and an MBA from INSEAD in France.
He is a member of the Zurich Bar.

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Viktor Lotous (45)
Chief Operating Officer, Ferrexpo
Poltava Mining
Viktor Lotous joined Ferrexpo Poltava
Mining in 1986. He is a graduate of Kryvy
Rih Mining and Ore Institute, and of the
Kyiv State Economic University,
specialising in Finance. He became chief
engineer in 1997 and General Director and
Chief Operating Officer in April 2007.

Simon Wandke (50)
Chief Marketing Officer
Simon Wandke joined the Group in 2006.
He was vice president strategy for the
Minerals Group and vice president coal,
iron ore and HBI marketing at BHP Billiton
until 2001. Between 2002 and 2006, he
was a partner of Destra Consulting Group
in Melbourne, specialising in Change
Management. Simon Wandke is a
graduate of the University of Melbourne in
Psychology and Marketing, and completed
post graduate studies in Corporate
Finance at Swinburne University, Australia.

David Webster (58)
Chief Projects Officer
Dave Webster joined the Group in June
2006. He previously spent five years as
project director with ProMet in Australia
and before that spent 25 years at BHP
Billiton specialising in business
performance and strategic planning. Dave
has overall responsibility for the Group’s
growth projects both at its existing GPL
mine and its planned new mines. He has a
Bachelor of Metallurgy degree from the
University of Newcastle.

7. Ihor Mitiukov (57)
Independent Non-executive Director
Ihor Mitiukov joined the Board on 14 June
2007. He is the managing director and head
of country for Ukraine, Morgan Stanley. He
was the general director of the Financial
Policy Institute until March 2008. From 2002
to 2005 he served as Extraordinary and
Plenipotentiary Ambassador of Ukraine in
the United Kingdom. He also represented
Ukraine in the International Maritime
Organisation. From 1997 to 2001 he served
as Minister of Finance of Ukraine and, from
1995 to 1997, as Ukraine’s Special
Representative (with Vice-Prime Ministerial
status) to the European Union in Brussels. In
1994, he was deputy governor of the
National Bank of Ukraine and then Vice-
Prime Minister of Ukraine for Banking and
Finance. Prior to that, he held various
positions at Agrarian-Industrial Bank
Ukraine, and was appointed as its deputy
governor in 1992. Ihor Mitiukov graduated
from the Cybernetics Department, Kyiv State
University and has a PhD in Economics
(1985) from the Institute of Economy,
Academy of Sciences (Ukraine).

8. Miklos Salamon (55)
Non-executive Director
Mike Salamon joined the Board on 27 March
2009. He is executive chairman of New
World Resources NV, a subsidiary of RPG
Industries SE. He is also a non-executive
member of the board of directors of OKD,
Co-President of AMCI Capital and a
non-executive director of Central Rand Gold
and of Gem Diamonds. With a career
spanning more than 30 years, recently with
BHP Billiton, he has extensive knowledge of
the international mining and extractive
industries. Between 2003 and 2006, he
served as an executive director of BHP
Billiton with responsibilities for the
aluminium, copper and nickel businesses.
From 2001 to 2006, he also chaired BHP
Billiton’s Operating Committee, which was
accountable for inter alia the BHP Billiton
group’s health, safety and environment,
projects, purchasing and operating
excellence. In 2001 Mr. Salamon oversaw
the merger integration of Billiton plc and
BHP Limited. He was a co-founding director
of Billiton plc in 1997, and oversaw the
company’s listing on the London Stock
Exchange in 1997. Before 1997 he held a
number of positions, first at Anglo American
and later in the coal divisions of Shell and
Gencor Ltd. He graduated in 1975 from The
University of the Witwatersrand,
Johannesburg with a degree in Mining
Engineering (Cum Laude) and obtained an
MBA from the London Business School,
University of London in 1981.

9. Marek Jelinek (37)
Non-executive Director
Marek Jelinek joined the Board on 27
March 2009. He is chief financial officer of
New World Resources NV (NWR) (a
subsidiary of RPG Industries SE) and he
has also been a member of the board of
directors of OKD since his appointment on
1 November 2007. Within NWR, he is
responsible for the restructuring activities
within the NWR Group and the build-up of
NWR’s headquarters team, including the
group-wide finance and treasury
functions. In 2007 and 2008 he led the
group’s bond issue and the successful
Initial Public Offering in London, Prague
and Warsaw. He was a director of Bakala
Crossroads Partners a.s. (formerly RPG
Advisors) from 2005 to 2006. Before
joining the RPG Group in December 2004,
he worked in the corporate finance
department at Patria Finance, a Prague
based investment banking boutique, from
1995 to 2004. He graduated from the
Anglo-American College in Prague in 1995
with a Bachelor of Science degree in
Business Administration.

The Executive Committee

Kostyantin Zhevago
Chief Executive Officer
(See profile under The Board)

Christopher Mawe, FCA
Chief Financial Officer
(See profile under The Board)

Nikolay Goroshko (50)
Chief Financial Officer, Yeristovo Project
Nikolay Goroshko has worked for Ferrexpo
Poltava Mining since 1984. He is a
graduate of the Kyiv Institute of National
Economics, specialising in Industrial
Planning. He was Acting Group Chief
Financial Officer in April 2007 and Chief
Commercial Officer in charge of the
Group’s Growth Projects in December
2007 prior to his current role.

Nikolay Kladiev (37)
Chief Financial Officer, Ferrexpo Poltava
Mining
Nikolay Kladiev joined FPM in June 2005.
Over the course of his career Nikolay
Kladiev spent several years as an audit
manager with Ernst & Young and CFO of a
large Russian factory. He holds a Masters
in International Economic Relations from
the Kyiv National University of Economics.

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12 Key Performance Indicators
14 Overview
17 Operating Review
24 Financial Review
32 Corporate Social

Responsibility Review

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.
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Business Review
Key Performance Indicators

The Board and Executive
Committee of Ferrexpo monitor
the Group’s performance over
time using a range of key
performance indicators (‘KPIs’).
These KPIs are reported on
monthly or quarterly by
management and provide a
useful measure of the Group’s
operational, financial and safety
performance. They are reported
in this Annual Report to enable all
stakeholders to assess the
Group’s results on a clear and
consistent basis.

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Safety

Fatalities

LTIFR

0.57

0.95

1.11

2007

2008

2009

2007

2008

2009

Definition
Work-related fatal accidents

Definition
Lost time injury frequency rate1

Target
0 Fatalities

Target
Below 0.75

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Operations

Pellet production
(million tonnes per annum)

Production quality

C1 costs (US$ per tonne)

8.793

8.608

8.609

41%

44%

49%

31.8

42.3

34.4

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2007

2008

2009

2007

2008

2009

2007

2008

2009

Definition
Pellet production from own produced
concentrate

Definition
Percentage of 65% Fe pellets produced
as a proportion of total production

Target
Increase production

Financials

Target
Continuous improvement – 100% of
pellets to be 65% Fe by 2013

Definition
Total cash costs of production ex-works

Target
Limit any increases in C1 costs below
rate of Ukrainian PPI2 inflation

EBITDA (US$ million)

EPS (US cents per share)
Title to go here
Title to go here

Title to go here
Dividend (US cents per
Title to go here
share)

000000
246.1

000000
503.9

000000
138.1

000000
20.41

000000
48.60

000000
12.08

000000
3.2

000000
3.3

2007
20072007

2008
20072007

2009
2009
2009

2007
20072007

2008
20072007

2009
2009
2009

2007
20072007

2008
20072007

2009
2009
2009

Definition
Earnings before interest, tax,
depreciation and amortisation3

Target
Increase EBITDA

Definition
Earnings per share4

Target
Increase EPS

Definition
Dividend per share

Target
To pay modest, consistent dividends
based on continuing profitability through
the economic cycle

1 Lost Time Injury Frequency Rate: The rate of lost time injuries per million hours worked. Following the increased focus on safety and the review by DuPont,
incidents that previously went unreported are now being reported. As a result the 2009 and 2008 figures are not directly comparable with previous years.

2 Producer Price Index
3 The Group calculates EBITDA as profit from continuing operations before tax and finance plus depreciation and amortisation (included in cost of sales,

administrative expenses and selling and distribution costs) and non-recurring cash items included in other income, non-recurring cash items included in
other costs plus the net gain/(loss) from disposal of subsidiaries and associates. The Group presents EBITDA because it believes that EBITDA is a useful
measure for evaluating its ability to generate cash and its operating performance. See note 19 to the accounts.

4 EPS is calculated by dividing the net profit for the year attributable to ordinary equity shareholders of Ferrexpo plc by the number of Ordinary Shares.

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Business Review
Overview

Summary
Ferrexpo demonstrated a solid
and reliable performance in 2009
in spite of the unprecedented
weakness affecting all markets
and industries particularly during
the first months of the year. The
Group outperformed
operationally and was able to
produce and sell at full capacity
throughout the global economic
crisis from March 2009. This
enabled us to manage costs
effectively and to remain
profitable throughout the year.
Our flexible marketing strategy,
strong operations and fiscal
discipline all contributed to a
financial performance which,
although down on the prior year,
was nonetheless exceptional
under the circumstances.

With the onset of the economic downturn
in late 2008, we re-examined the
operational goals of the Group for 2009
with a view to adapting the Company to an
environment of lower iron ore demand and
prices and the attendant constraints on
the Company’s cash position. The Group
exceeded these new ambitious goals,
maintaining production volume while
increasing both cost efficiency and
product quality. Despite lower production
in January and February as a result of
adverse weather conditions, Ferrexpo
produced broadly the same volume of iron
ore pellets in 2009 as in 2008, but at
significantly lower cost.

The Group’s favourable location, together
with its good seaborne access through
the TIS-Ruda Terminal at Yuzhny, our joint
venture Panamax port terminal on the
Black Sea, gave us the flexibility in our
2009 marketing activities to out-sell our
competitors in the markets in which we
operate. We cemented our status as the
iron ore supplier of choice for our key
Traditional and Growth Markets. We
achieved this by managing to increase
spot sales to our long-term contract
customers in our Growth Markets during
times of weak demand in our Traditional
Markets and ultimately increased our
market share in our Traditional Markets
when demand there began to recover. As
a result, our brand was successfully
protected during a volatile and difficult
market period.

General market uncertainty resulted, for
the first time, in the absence of a formal
global international iron ore benchmark
price settlement in 2009, although the
pellet price settled between Vale and its
larger non-Chinese customers gained
general acceptance by the start of the
fourth quarter. At this point we were able
to settle prices with our contract
customers at approximately this implied
benchmark level with prices applicable
until the end of the first quarter of 2010.
This settlement brought to a close a
nine-month period of higher spot market
sales and the associated exposure to
seaborne freight rates and enabled
Ferrexpo to resume supplying close to
normal volumes to its portfolio of long-
term contract customers.

In 2009, 93% (by volume) of the Group’s
iron ore products were exported. As a
result of demand weakness in Europe in
the first half of the year, approximately 70%
of our 2009 sales by volume were made
under long-term supply agreements with
iron and steel producers, compared with
88% in 2008. The Group resumed normal
long-term contract-based supply

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World class standards

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One of the features of Ferrexpo’s drive
to reduce costs and increase
operating efficiencies is the
application of innovative solutions to
mining operations. A good example is
the direct loading of CAT 789 haul
trucks by dragline to avoid costly
re-handling. The draglines
manufactured locally by NKMZ, which
appeared in the 2008 Procurement
Case Study, are now in operation at
the new Yeristovskoye mine.

Ferrexpo’s expansion plans and
growth projects are based on best
international design and world class
equipment as evidenced by the
group’s fleet of new CAT 789 haul
trucks and support equipment being
commissioned for use in the new
Yeristovskoye mine. These 180
tonne-capacity trucks are the largest
in Ukraine and together with the five
draglines that have been
commissioned, will contribute to
world class standards of operating
efficiency at the mine.

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arrangements during the third quarter of
2009 and it remains our strategy to
increase the number and duration of such
contracts and continually improve our
customer portfolio and build strong
customer relationships. Development of the
customer profile continued through 2009,
during which the Group began supplying
the north-west coast of India, an important
new potential Growth Market. The Group’s
principal export markets are Central and
Eastern Europe and China. At the end of
2009, approximately 91% of iron ore pellets
were committed under long-term
framework contracts with major customers.

The Group remains focused on the
development of its substantial iron ore
resource. Significant capital commitments
were placed on hold by the Board in late
2008 and during 2009 we continued to
advance our growth projects at a low level,
spending small amounts of capital to
preserve their value while maintaining
prudent cash management. Good
progress was made on pre-stripping
works at the new Yeristovskoye mine
during the year and the Group has taken
the opportunity afforded by the
moratorium on significant capital
expenditure to re-examine the scope and
capital costs of all of its major projects. We
are of the view that the capital estimates
for the Yeristovskoye project and the plan
to upgrade our product quality at Ferrexpo
Poltava Mining (‘FPM’) can be reduced
significantly. Meanwhile work has
continued on product quality improvement
and market development.

The outlook for 2010 is clearer and more
positive than it was for 2009 and the
Group was able to renew the majority of
its banking facilities at the end of 2009
during a difficult period for the debt capital
markets. The Company has ambitious
development plans, but 2010 will also be a
cash-constrained year. As a result, our
primary focus next year will be on
maintaining the strong performance of the
Group’s existing mining operations, while
continuing to invest in our growth projects
at a modest level. The key performance
drivers in 2010 will be safety, operating
efficiency, product quality and output
volume. FPM, the Group’s operating
subsidiary, once again demonstrated
continuous improvement in these areas in
2009. The Group will continue with its
structured Business Improvement
Programme (‘BIP’) designed to continue
these positive trends by targeting
operating costs and optimising capital
expenditure and these, together with the
likelihood of a lower local currency, should
help to maintain 2010 cash costs of
production at approximately 2009 levels.

Business Review
Overview
continued

Ukrainian official domestic Producer Price
Index (‘PPI’) inflation fell to 14.3% and the
Consumer Price Index (‘CPI’) fell to 12.3%
in 2009. Both indices are likely to increase
in 2010.

Market environment
The market environment for iron ore in
2009 was affected by substantially
different demand dynamics between
developed and developing regions of the
world. The demand for iron ore pellets is
directly linked to steel demand which fell
sharply at the end of 2008 following the
onset of the economic crisis. Steel
demand is closely correlated to the global
economic cycle as a result of its
dependence on the automotive and
construction industries, both of which are
economic bellwethers. In early 2009,
however, demand for iron ore and steel
rapidly recovered in certain developing
economies, most notably China, as a
period of re-stocking commenced there.
The re-stocking effect in regions such as
Europe and North America was both later
and more muted, commencing only late in
the second quarter.

This decoupling has continued with
consumption of iron ore in Asia back at
record levels, while only a fragile recovery
is evident in the steel industries of the
developed world. As a result, the market
environment in 2009 has varied for
different iron ore producers, largely as a
function of market access. Ferrexpo was
able to sell to customers in both
developed and developing countries, with
the result that demand was sufficient for
us to produce at 100% of capacity and
place all our production volumes into the
market. Many of our competitors were
forced to reduce production owing to a
lack of market access. The low levels of
demand in much of the world outside
China nonetheless resulted in low prices
for iron ore relative to 2008 as well as a
lack of price and demand visibility for
much of the year. This visibility improved
towards the end of 2009 and pricing is
expected to improve in 2010 as the slow
global economic recovery continues.

Strategy
The Group holds exclusive licences to a
world class iron ore resource which is
uniquely positioned close to existing
infrastructure and core steel-producing
markets. FPM operations have been
producing continuously for several
decades and the Group has established a
resilient and flexible marketing model over
several years. Ferrexpo’s strategy is to
remain flexible, utilising our strategic
location, low cost base and strong
customer relationships to maximise the
return on our existing operations whilst
accelerating the exploitation of our
extensive undeveloped iron ore reserves.

Our plans in the medium term are to
strengthen our existing business through
product quality upgrades and incremental
production growth, while continuing to
practise financial prudence and strict cost
control. Our priority is the development of
our resource base while maintaining
flexibility throughout the economic cycle
through continuous improvement of our
operational, financial and risk
management capabilities.

Operations
The mining operation at FPM is well
developed and has produced iron ore on an
uninterrupted basis for over 30 years. The
mining and processing operation is situated
on a large, substantially under-exploited, iron
ore deposit located in Ukraine.

Our principal business is the mining,
processing and sale of iron ore in the form
of pellets, used in the production of steel.
The Group owns and operates an
integrated mining and processing facility,
comprising an open-cut iron ore mine,
concentrating facility and pelletising plant
in the city of Komsomolsk. Our operations
are fully integrated from the mining of ore
through to the production of pellets. All
production is converted into pellets in our
own facilities. Third party iron ore
concentrate is also converted into pellets
to utilise surplus plant capacity where this
provides adequate margins.

The FPM operations are located on the
Dnieper River in Ukraine in close proximity by
rail and waterways to our major customers in
Central and Eastern Europe. FPM has access
to both the Black Sea for seaborne
shipments throughout the world and to
extensive rail networks throughout Europe.

up to cape size (150,000 tonnes). In
addition, the marketing of iron ore pellets
for export is managed by the Group’s
specialist sales and marketing arm, based
in Switzerland with branches in Kiev,
Shanghai and (as of December 2009)
Hong Kong.

Operating environment – Ukraine
The Ukrainian economy has been severely
affected by the global economic
recession, partly as a result of its reliance
on industries such as the steel sector. The
Ukrainian steel industry is relatively
high-cost and the majority of its
production is commodity-grade
construction steel for export. Ukraine has
thus been more severely affected by the
economic downturn than many other
steel-producing nations. The economy of
Ukraine shrank by 15% in 2009. Ukraine
was granted a US$16.4 billion International
Monetary Fund loan in late 2008 in
response to the significant effects of the
global financial crisis on its economy, of
which US$10.4 billion has already been
advanced. This loan prescribes several
conditions relating largely to economic
policy-setting, some of which have not
been met. As a result there has been a
delay in advancing the final tranche of the
loan. We expect this to be resolved in the
first quarter of 2010. Following this, there
has been some delay in the Company
recovering its VAT payments on a timely
basis and this has affected the cash flow
of the business in December 2009 and in
the early part of 2010. This is covered
further in the Financial Review.

Ukraine is a socially stable parliamentary
presidential republic which was formerly
part of the Soviet Union. The recent
elections passed off peacefully and
democratically and it is hoped this will
restore some stability to the country’s
political structure which in any event tends
not to interfere in Ukrainian business.

The Group benefits from the location of its
operations in Ukraine because of a well
educated and cost-competitive workforce,
a depreciating local currency and the
efforts of government to take measures to
ensure the survival of its large mining and
metallurgical industry. Being primarily an
exporter, Ferrexpo has minimal exposure
to the Ukrainian steel industry. Ukraine is
conveniently situated close to our principal
customers in Europe.

To access further the large and growing
market outside Ukraine, Ferrexpo is
actively working to reduce ocean vessel
shipping costs and volatility to Growth
Markets via longer-term ocean vessel
chartering, and loading of larger vessels

The average exchange rate of the
Ukrainian local currency (the hryvnia) was
UAH7.7912 to the US dollar in 2009. Any
weakening of the local currency is likely to
have a positive effect on our US dollar
cost base.

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Operating Review

Highlights

FPM
Iron ore pellet production from
the Group’s own ore in line with
last year at 8.6mt
7.2% increase in production of
high quality (65% Fe) pellets
Business Improvement
Programme – further reductions
in the use of raw materials and
energy per unit of output

Yeristovskoye
Five draglines delivered,
assembled and in operation
4.0 million cubic metres
stripped from the new
Yeristovskoye mine – second
bench visible

Marketing
Sales successfully re-balanced
from Europe to China and back
– full sales volumes maintained
throughout the year

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The Group’s operations focused primarily
on maximising production volumes in
2009, following a strategic decision early
in the year to produce at maximum
capacity to minimise unit fixed costs in the
low iron ore price environment. At the
same time FPM management continued to
drive the improvement of product quality
and operating efficiency which continued
throughout the year. As a result of this
decision and focused management effort,
FPM produced at full capacity from March
with overall output for the year declining
only very slightly as a result of lower
production volumes in January and
February 2009, caused by unseasonably
adverse weather conditions that affected
the logistics chain.

Most months from March onward yielded
record production levels, and pellet
production from own ore was higher than
in 2008 by 1,000 tonnes. Total pellet
production fell by 3% as a result of a lack
of available third party concentrate at
acceptable prices. This incremental pellet
production from purchased raw materials
makes use of our surplus pelletising
capacity, but has historically yielded low
margins. 157kt of pellets were produced
from purchased ore and concentrate in
2009 (2008: 427kt).

The Gorishne-Plavninskoye Lavrikovskoye
(‘GPL’) mine produced 28,547mt of iron
ore in 2009, 3% more than in the previous
year. Our focus on quality improvement
prompted the use of selective mining
techniques which increased the proportion
of rich (K22) ore mined by 10%. This
increased the overall quality of the ore
available to the GPL concentrating plant,
thereby increasing its operational
efficiency and ultimately improving pellet
quality as measured by the proportion of
higher grade (65% Fe) pellets produced.

For the sixth consecutive year FPM was
able to increase substantially its
production of higher quality (65% Fe)
pellets. The production of 65% Fe pellets
from our own ore increased by 7% to
4,304kt, and now constitutes 49% of
FPM’s total production (44% in 2008).
This is consistent with our commitment
to quality enhancement and our ‘value in
use’ marketing strategy and we intend to
continue to increase the proportion of
higher quality pellets produced in
future years.

Business Improvement Programme (‘BIP’)
2009 was another successful year for the
ongoing BIP projects. The managers and
employees of FPM have firmly taken
leadership of the BIP and continue to build

Business Review
Operating Review
continued

a culture of continuous improvement at
our operations. In addition, FPM engaged
Partners in Performance International
(‘PiP’) to assist in the identification of areas
for broader improvement in FPM’s
operational performance.

We conducted a wide range of workshops
in 2009 designed to entrench the BIP
culture. BIP initiatives were responsible for
2-3% of the reductions to operating costs
during the year, resulting in total savings
of US$8.7 million. BIP continues to be a
priority for management in respect of both
short and long-term objectives and KPIs,
driving FPM continuously towards global
best practice across its operations. For
further information see the Financial
Review.

Operating costs
Operating costs declined modestly but
steadily throughout the year, benefiting
from further depreciation in the local
currency and lower local inflation than in
past years. Producing at full capacity
allowed the Group to recover its fixed
costs efficiently.

Efficiency gains, driven largely by the various
BIP projects, enabled us to reduce the rates
of consumption of energy and raw materials
in 2009. The average number of employees
at FPM fell by 5% in 2009 through normal
turnover driven by efficiency programmes.
Management was able to avoid any forced
redundancies during the year. As of
31 December 2009, 8,204 people were
employed by FPM (31 December 2008:
8,243). This number includes 65 temporary
workers employed for the development of
Yeristovskoye until the transfer of mining
licences from FPM to Ferrexpo
Yeristovskoye Mining (‘FYM’) is completed.

Further detail on the Group’s employment
costs is available in note 39 to the accounts.

Growth Projects
Ferrexpo is committed to increasing
production from its existing mine,
improving its product quality and
commercialising the substantial
undeveloped resources located adjacent
to its existing operations. Consequently,
the Group’s major growth projects remain
a priority and modest progress was made
in 2009 even though large capital
commitments were on hold. The focus has
been on re-examining the scope and
capital expenditure estimates of all the
projects and on the pre-stripping works at
the new Yeristovskoye mine where
progress has been made this year.

The capital expenditure for these projects

Production – Operating Statistics

(’000t unless otherwise stated)

Iron ore mined

Fe content

Iron ore processed

Concentrate produced (‘WMS’)

Fe content

Floated concentrate

Higher grade

Fe content

Purchased concentrate

Fe content

Purchased iron ore

Pellets produced from own ore

Higher grade

Fe content

Lower grade

Fe content

Pellets produced from purchased
concentrate and ore

Lower grade

Fe content

Total pellet production

Pellet sales volume

Gravel output

Stripping volume

2009

2008

28,547 27,763

30.3

30.2

27,720 27,582

10,565 10,459

63.3

63.4

6,671

6,167

4,675

4,375

67.05

180

65.4

67.1

386

65.2

276

Change

+/–

784

138

106

504

300

2.8

0.5

1.0

8.2

6.9

(206)

(53.4)

(276)

(100)

8,609

8,608

4,304

4,014

290

0.0

7.2

64.9

65.0

4,305

4,594

(289)

(6.3)

62.2

157

427

(270)

(63.2)

62.2

8,767

9,035

(268)

(3.0)

9,015

2,846

8,711

2,751

304

3.5

’000m3 23,559 20,573

2,986

14.5

was estimated at the peak of the commodity
cycle in 2008 and consequently we expect
that capital costs will be reduced when final
commitments to these projects are made.
The process of restating these costs is
progressing and planned to be completed
in the first half of 2010.

GPL Projects
Open pit mine expansion
Work on this project was suspended at
the end of 2008 and has remained on hold
in 2009 as the Group has focused on
maintaining current production from the
mine at minimal C1 costs and progressing
stripping at Yeristovskoye. This project
remains a priority for the Group as it
enables us to take advantage of currently
under-utilised processing capacity and will
increase production of 65% Fe pellets by
approximately 15%. We anticipate a
decision on the phasing of this project in
conjunction with the Yeristovskoye
expansion to be made in 2010.

GPL Concentrator plant upgrade
A Definitive Feasibility Study (‘DFS’) for the
GPL concentrator plant upgrade was
completed in September 2008. The project
was not presented to the Board for
approval owing to the onset of the

economic crisis. Significant additional work
has been done this year on optimising the
scope and cost of this project and the
Group is currently considering an initial
Stage 1 investment that would enable the
production of all 65% Fe pellets. The
market will be informed of the revised
scope and cost of this project once the
assessment is completed.

This Stage 1 upgrade remains a priority
as it will enable all of the Group’s mined
ore to be processed into 65% Fe pellets in
line with market preference. The project
design will provide for a Stage 2 project
for the production of Direct Reduction
(‘DR’) grade (68% Fe) pellets. 65% Fe
pellets enjoy more robust demand, and
DR pellets would constitute a new
premium product for Ferrexpo which we
could sell into world markets and in
particular the Middle East, a nearby
attractive Growth Market.

Yeristovskoye
The Yeristovskoye project remains the
Group’s primary and most advanced major
growth project. The scope of the project
includes the construction of the new
Yeristovskoye mine, a dedicated
concentrator plant and potentially also a

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dedicated pelletising facility. Following
completion of the Yeristovskoye DFS in
September 2008, formal commitment to
the project was not sought from the Board
because of the economic climate. However,
Board clearance was given to continue
some operational expenditure and small
future commitments at a limited level to
enable the value of the project to be
maintained and to minimise delays to the
original development schedule. In addition
to investing in the DFS, the Group had
already purchased five dragline excavators
and the initial mining fleet for the purposes
of pre-stripping at the site of the new mine.

In 2009, the Group took delivery of and
commissioned five draglines and four CAT
789 haul trucks, and commenced work on
the pre-stripping of the Yeristovskoye
mine. Construction of the Yeristovskoye
mine requires a three-year pre-strip before
first ore is reached. It was decided by the
Board that scaled down stripping works
should proceed at Yeristovskoye in 2009,
as stripping is time-consuming and a
major delay would impact the schedule of
the entire project significantly. As a result,
the Group spent US$23 million on
stripping works, mining fleet and site
facilities construction at Yeristovskoye in
2009 and removed 4.0 million cubic
metres of overburden from the site. The

Group also engaged the services of local
small trucking contractors to supplement
the CAT fleet for the first phase of
overburden removal and this enabled us to
remove overburden at minimal cost.

Significant progress was achieved with the
Ukrainian Central Land Authority
(DerzhComZem) approval process for the
west and east Yeristovskoye area land
acquisition programme which is required
for ongoing development of the mine.

Stripping will continue at the Yeristovskoye
mine in 2010 and first ore can be achieved
in early 2013, subject to full project
approval during 2010. Subject to further
reviews in 2010, it is envisaged that a
portion of Yeristovskoye ore will be
processed using excess processing
capacity at GPL for the first two years.
This will enable the Group to defer
commitment to the capital expenditure for
the Yeristovskoye concentrator plant by up
to 24 months.

In 2008, the Group established a separate
company called Ferrexpo Yeristovskoye
Mining (‘FYM’) to provide for a separate
legal and management structure for the
development of the Yeristovskoye project.
FYM is 51% owned by FPM and 49% by
Ferrexpo AG. In December 2009, the
Yeristovskoye mining licence formerly held
by FPM was re-issued to FYM.

Belanovskoye and Galeschinskoye
Developments are planned at the
Belanovskoye and Galeschinskoye
deposits which are less advanced. The
Group continues to perform the work at
these deposits required for licence
maintenance as well as undertaking
further drilling for the detailed testing of
geotechnical conditions and ore quality.
All of the Group’s developments will take
place on the same ore body that we are
currently exploiting and are situated
adjacent to our existing logistics
infrastructure. As a result, these
investments represent low risk additions to
new iron ore capacity compared with
many other iron ore projects globally.

Strategic Investor Programme
During 2008, we identified several
potential strategic investors, but this
programme remains on hold pending
completion of the review of our capital
expenditure requirements and
improvements to market conditions and
asset prices.

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Business Review
Operating Review
continued

exposed the Group to freight volatility.
Freight rates from the Black Sea to Asia
were high relative to other routes in the
second and third quarters of 2009 and
this put pressure on the Group’s average
achieved DAF/FOB price during
that period.

Of the total iron ore exported by the Group
in 2009 by value, 39% was sold into China
(2008: 18%). Most of the remainder was
sold into the Group’s established markets
in Central and Western Europe and Turkey.
The Group actively continues to seek to
open new markets and in 2009 we began
supplying new customers on the north-
west coast of India on a spot basis. We
believe that India will prove to be an
important new Growth Market for the
Group. An analysis of sales by market is
contained in note 6 to the accounts.

The following table shows our principal
export markets for iron ore pellets for the
years ended 31 December 2009 and 2008
(by volume):

(’000t)
Traditional
Markets

Natural
Markets

Growth
Markets

Total
exports

2009

2008

Change
+/_ %

4,083

5,781

(1,698)

(29)

713

323

390

121

3,545 1,558

1,986

127

8,341 7,662

678

Approximately 70% of our 2009 sales by
volume were made pursuant to long-term
supply contracts, a lower level of contract
sales than the 88% seen in 2008. This was
again the result of increased spot selling in
the first seven months of the year in
response to continuing demand weakness
from European and Ukrainian contract
customers. During the third quarter of
2009, re-stocking began in Europe and we
began actively shifting back to supplying
our portfolio of long-term contract
customers there during this period.
Throughout the year our solid customer
relationships have demonstrated their
value, first in assisting us to place
additional spot volumes through our
long-term contract customers in China
and then later in returning to full contract
volumes with our European customers
ahead of competing suppliers. Despite
demand weakness in Ukraine and our
Traditional Markets (see market definitions
on page 21), our seaborne access,
marketing flexibility and customer
relationships resulted in higher overall full
year 2009 sales by volume. We continue

Marketing
Marketing performance in 2009
The visible weakness in demand for iron
ore in Europe in the final quarter of 2008
continued into the first half of 2009. As a
result, while the Group was able to sell
volumes comparable with other years in
2009, our geographic sales mix reflects a
greater proportion of sales to seaborne
markets such as China than has
historically been the case. In addition, the
Ukrainian steel industry was more severely
affected than those in Western Europe,
with the result that 95% of our output by
volume was exported in 2009 (2008: 88%).
The share of pellet sales to Ukrainian
customers therefore decreased from 12%
in 2008 to 8% in 2009. We increased
seaborne export sales in response to this
weakness in Europe and Ukraine by
actively and carefully selling into the spot
market in Asia to known customers in
order to protect the Ferrexpo brand, whilst
increasing shipments to long-term export
customers. Domestic Ukrainian sales are
made on an ex-works basis while export
sales are usually made on a Delivered at
Frontier (‘DAF’) or Free on Board (‘FOB’)
basis. The Group reports average
achieved prices on a DAF/FOB basis. It is
noteworthy that spot sales are generally
made on a Cost and Freight (‘CFR’) basis.
The higher proportion of spot sales in the
first eight months of 2009 therefore

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“The Group holds

exclusive licences to
a world class iron ore
resource, uniquely
positioned close to
existing infrastructure
and core steel-
producing markets.

”

stability is returning to the global economy,
as most of them are effectively re-
industrialising. Total sales to Traditional
Markets in 2009 were 4.1mt, a decrease of
29% compared with 2008.

Natural Markets
‘Natural Markets’ are relatively new
markets for us in regions where we believe
we have a competitive advantage which
has yet to be exploited. This segment
includes Western Europe, Turkey and the
Middle East. Turkey has plans to increase
its steel-making capacity significantly and
FPM’s proximity across the Black Sea
affords an important mutual advantage to
both the Group and iron ore buyers in
Turkey. Our long-term supply contract in
Turkey is only a year old, but it was one of
the best-performing contracts in 2009.
This segment represents a major target for
future sales growth. We are building
commercial and technical relationships in
the Middle East as a base for our future
planned sales as we continue to improve
product quality.

Growth Markets
‘Growth Markets’ are those which offer to
add new and significant tonnage
expansion potential to our customer
portfolio. Currently China is the major
target, although as stated above we have
now made progress in opening India as a
new Growth Market. The Group has six
long-term contracts in place with Chinese
steel mills. These customers provide a
solid base for future sales growth and
were instrumental in the Group’s success
in placing excess volumes from Europe
into the Chinese spot market in 2009. We
have a shorter ocean shipping distance to
these markets than competitor iron ores
from Brazil, although ocean freight rates
from the Black Sea have been unusually
high in 2009 relative to other routes as a
result of the severe and prolonged
economic downturn in Europe. This
resulted in a significant reduction in dry
bulk ocean vessels open for trade in the
Atlantic but we expect this situation to
normalise. The Ferrexpo Growth Market
region also provides the primary source of
demand for spot market business which
has been highly active throughout 2009.

to build on our strong track record of close
relationships with all our customers.

The global iron ore market environment in
2009 was affected by low visibility of both
demand and price (see ‘Pricing’ below).
This resulted in a higher proportion of
sales on the spot market, and these sales
were made at lower prices than those
under contract. We expect that the
proportion of sales that will be made
under long-term contracts in 2010 will be
higher than in 2009, as markets have
normalised to some extent and the Group
is already selling at close to normal levels
to its portfolio of long-term contract
customers. We remain committed to the
strategy of maintaining a high level of the
Group’s sales under long-term contract
and to this end we have despatched trial
cargoes to prospective new contract
customers in the second half of 2009.

We believe that we have increased our
market share in 2009 with our contract
customers in our Traditional Markets as a
result of our proximity to these customers
and our long-standing relationships with
them. This has been critical in enabling us
to maintain output during the year. Our
ability to provide small-parcel ‘just-in-time’
deliveries to these customers is an
attractive service for those companies that
are engaged in careful inventory
management. We are well positioned to
continue this trend of substituting our
supply for that of our competitors in
Europe in 2010 and we will continue to sell
aggressively into these markets.

We shall also continue to focus on
achieving higher prices through enhanced
pellet quality and a better understanding of
our customers’ requirements of our
products. This is necessary in order to
capture the maximum price relative to our
competitors’ delivered cost to the customer
on a ‘value to the customer’ basis.

Traditional Markets
Our ‘Traditional Markets’ are those
markets that we have supplied historically
and in which we enjoy a competitive
advantage based on our location. These
include Austria, Ukraine, Czech Republic,
Poland, Slovakia, Romania, Bulgaria and
Russia. The former CIS countries within
the Traditional Markets have been
particularly affected by the adverse
conditions in global commodities markets,
with Ukraine the worst affected, given its
steel export focus and relatively high steel
production costs. We believe that
continued growth in per capita steel
consumption in many of these markets is
likely to resume slowly now that some

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Business Review
Operating Review
continued

“Our priority is the

development of our
resource base while
maintaining flexibility
throughout the
economic cycle.

”

Logistics
Our logistics strategy is to manage as
much of the delivery chain to our
customers as possible in order to ensure
punctual supply of the contracted quality
of product at a competitive cost. The total
scope of our delivery logistics chain
includes rail, trans-shipment (loading and
unloading), barge and ocean vessels.

In 2009, our focus was on maintaining
production and ensuring the integrity of
the logistics chain in order to maximise
sales volumes in a capital-constrained
environment. Our 49.9%-owned dry bulk
minerals Panamax terminal on the Black
Sea (the ‘TIS-Ruda Terminal-Yuzhny’) has
proven an asset critical to our efforts to
increase seaborne sales in the face of
Traditional Market demand weakness. Our
access to the TIS-Ruda Terminal-Yuzhny
has been a vital differentiator between
Ferrexpo and its competitors in the region
which have had to rely on congested State
ports for seaborne access.

During the downturn, the Group has
followed a strategy of conservative cash
management. In 2009, little expenditure
was made on the development of our
logistics capability. The expansion of our
delivery chain logistics capability in order
to meet current and future growing
customer demands nevertheless remains
a critical contributor to our long-term
market shares and margins. We expect to
resume some capital expenditure in this
area in 2010. Specifically, Ferrexpo is
working to reduce ocean vessel shipping
costs and volatility to Growth Markets via
longer-term ocean vessel chartering and
loading of larger vessels up to cape size
(150,000 tonnes).

Pricing
We achieved an average DAF/FOB price
for the pellets we sold in 2009 of US$66.3
per tonne, a decrease of 47% over the
average achieved price for 2008
(US$124.6 per tonne). The calculation of
the average DAF/FOB price includes sales
made on a CFR basis, adjusted for freight.
As stated above, high freight rates caused
pressure on the average DAF/FOB price in
the third and fourth quarters. Variations in
our achieved price stem from price
variations of pellets sold into different
geographical segments, as well as the mix
between our 62% Fe pellets and our 65%
Fe pellets (which attract a premium). In a
typical year, most of our export sales are
based on annually negotiated prices
contained in supplements to our long-term
supply contracts. A proportion of this
sales tonnage is linked to the international
seaborne traded iron ore benchmark price

(‘Benchmark Price’) movement agreed
between the major iron ore producers and
specific Western European or Asian steel
producers for a given year. However,
owing to low demand visibility in 2009, a
Benchmark Price settlement was not
globally agreed as usual in April. As a
result, in order to maintain volumes and
margins, Ferrexpo was exposed to an
unusually high proportion of spot or
provisional prices, as were almost all iron
ore producers during the year. This
affected the 2009 average achieved price.

No formal global Benchmark Price was
established at all in 2009 as a result of
CISA’s (the China Iron and Steel
Association) failure to recognise price
settlements made between the major iron
ore producers and their non-Chinese
customers during the summer. Price
settlements were nonetheless reached
outside China and by early in the second
half of the year, these had eventually
gained universal acceptance even with
Chinese steel mills. This was partly as a
result of continuing iron ore spot price
strength. Vale, the largest iron ore pellet
producer in the world, settled its price for
pellets with its customers ex-China at a
level 48.3% below the 2008/2009 contract
price. The improving economic outlook in
the third quarter enabled Ferrexpo to
agree prices with the majority of its
long-term contract customers at
substantially this Vale Benchmark Price
after adjustments for the impact of freight,
quality, proximity and logistics. This
coincided with the return to supplying
pellets largely in terms of our normal
geographic market mix. These new
contract prices apply from the start of the
fourth quarter to the end of the first
quarter of 2010, when we expect a new
price to be agreed.

Pellet premium
The iron ore pellet premium is the price
paid by purchasers to producers of iron
ore pellets (such as Ferrexpo) in excess of
the price of iron ore sinter fines, to reflect
the fact that pellets have undergone
further processing which may create
improved ‘value in use’ for the end users.
The Group’s pellets are therefore an
intermediate product between raw ore and
metallic iron, providing productivity gains
in blast furnaces. Usage of our pellets can
lead to reduced coke consumption in the
steelmaking production process,
beneficial when this is in tight supply or
relatively highly priced. The pellet premium
also reflects other benefits of using pellets,
most notably their advantages in
transportation and increased
environmental concerns with sinter

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notice to counteract any recurring
demand weakness in any given region.
We shall continue to cultivate relationships
in our Growth Markets and to hold
available our seaborne market access,
seeking to maximise sales volumes where
possible by taking advantage of potential
opportunities for seaborne spot sales
while maintaining our strong customer
relationships in our Traditional and Natural
Markets. Where possible, we will use
these relationships to increase our market
share position in the Traditional and
Natural Markets to capitalise on
smaller-lot deliveries to customers. We
believe that, for customers throughout
Central Europe, our products represent
an attractive alternative to those of major
seaborne suppliers due to the lower costs
of transporting pellets over a shorter
distance from Ukraine, together with an
ability to provide many customers with a
continuous small-parcel delivery chain
and in many instances a bespoke
logistics solution.

Corporate social responsibility
We are pleased that in 2009, we made
good progress in our efforts to transform
the culture at FPM into one of behavioural
safety. There were no fatalities at our
operations during the year. We continue to
work with DuPont Safety Resources as we
strive for further improvements across all
areas of CSR and especially safety.

The Group’s CSR Review can be found on
page 32 of this Annual Report.

production, particularly for blast furnace
operators in the European Union.

Following the Vale price settlements in
mid-2009, the iron ore pellet premium in
Europe was 25 US cents per dry metric
tonne unit (dmtu), after reaching a record
high of 86 US cents per dmtu in April
2008. Pellets tend to trade at a very
significant premium to iron ore fines only
when the industry is in a state of under-
supply as was the case in the first part of
2008. The efficiency gained through the
use of pellets becomes less of a factor
when blast furnaces are not running at full
capacity, as was the case in many markets
through much of 2009. Nonetheless, the
current level is below the long-term
average of approximately 30 US cents per
dmtu, and we believe this to be below the
marginal cost of pelletising for some
producers. As a result, we expect the
premium for our pellets to increase in
2010. This is supported by the fact that
good supply discipline practised by the
larger pellet producers in 2009 has, in late
2009, resulted in a shortage of pellets in
some key markets. An increase in the
pellet premium is also likely to be
underpinned by the transport and
environmental benefits of using our pellets.

2010 Marketing strategy
Demand in 2010 will depend on the
continued growth of steel output in China,
a sustainable recovery by the steel
industry in Ukraine and the continuation of
the slow recovery in developed nations.
We believe that the re-stocking by steel
mills following the worst months of the
crisis is now complete and a fragile
recovery is under way, driving a slow
return of global steel output to sustainable
levels. We remain well placed to continue
to produce at full capacity and to supply

our key customers because of our
proximity to them. We have made
significant progress already in increasing
our market share to these customers, and
our return to supplying our portfolio of
long-term customers late in 2009 bodes
well for sales in 2010.

Government stimulus packages and
‘quantitative easing’ are likely to result in
some inflation in 2010, but for Ferrexpo
this is likely to be offset to a large degree
by further operational currency weakness.
Economic conditions have reduced costs
of production across the industry in 2009,
as demand has fallen. This is a partial
reversal of the changes to the cost
structure of the iron ore industry witnessed
over the past five years as a result of
declining availability of direct-charge lump
ore and the fact that incremental iron ore
can only be supplied by increasingly
distant and relatively lower quality ore
bodies. The cost of the marginal tonne
is therefore expected to increase slightly
in 2010.

Industry inventory control has been good
given the pressures of the economic
downturn and the recovery in demand in
China was unexpectedly rapid. As a result,
the build-up of inventories which have
historically prevented the recovery of
commodity prices once growth conditions
resume, has been avoided. In 2010,
continuing strong demand from China and
the slow recovery elsewhere should give
support to stronger iron ore prices.

Our sales strategy in 2010 will be an
extension of the highly successful flexible
strategy we practised in 2009. We believe
the worst of the downturn in the global
economy is behind us, but we remain
prepared to switch sales volumes
between our various markets at short

Ferrexpo plc – Reserves and Resources
The following table sets out the Group’s JORC-classified reserves and resources:

Gorishne-Plavninskoye

Lavrikovskoye

Total (Producing Assets)

Yeristovskoye

Belanovskoye

Galeschinskoye

Total (Projects)

Total (All Assets)

Reserves

Resources (incl. Reserves)

Proved and probable || Measured and indicated ||

Inferred

Million Fe grade
(%)
tonnes

798

157

955

632

1,587

Million
tonnes

1,443

812

2,255

765

1,627

325

2,717

4,972

Fe grade Million Fe grade
(%)
tonnes

(%)

30 1,275

174

30 1,449

33 162

32 1,611

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Business Review
Financial Review

Highlights
>

Revenue of US$648.7 million
(2008: US$1,116.9 million)
decreased owing to lower iron
ore prices
EBITDA US$138.1 million
(2008: US$503.9 million)
Principal debt facility refinanced
– new pre-export finance facility
of US$230 million
Production from own ore in line
with 2008 at 8.6 million tonnes
Production of premium 65% Fe
pellets increased by 7.2%
Higher priced 65% Fe pellets
increased to 49.1% of total sales
(2008: 44.6%)
C1 cash costs of production
improved by 18.7% reducing to
US$34.4/t
Net cash flow from operating
activities of US$76.9 million
(2008: US$370.9 million)
Dividend maintained at 3.3 US
cents per share

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Revenue and sales
The revenue generated by the Group was
41.9% lower than in 2008, with sales
volumes in line with the prior year. Overall
revenue decreased by US$468.2 million to
US$648.7 million as a result of lower
pricing following a sharp contraction in
demand for steel and iron ore in late 2008
and early 2009. The average DAF/FOB
price achieved by the Group for iron ore in
2009 was US$66.3 per tonne compared
with US$124.6 per tonne in the previous
calendar year. The Group nonetheless
remained profitable throughout the year,
reflecting a strong operating result and
good cost control.

The weaker iron ore demand in our
Traditional European markets was offset
by increased sales to China and India,
enabling the Group to continue to sell all
its production. Some of these additional
sales were made on a spot market basis
which exposed the Group to seaborne
freight rate volatility. As a result, the cost of
international freight increased in 2009 by
US$22.9 million to US$45.2 million.

Production
The Group maintained production output
at full capacity during the year and
increased the proportion of higher priced
65% Fe pellets to 49.1% of total sales in
2009 compared with 44.6% in 2008. The
Group produced 8,609 k/t in 2009 from
own ore compared with 8,608 k/t in 2008.

Costs and margins
The majority of C1 costs (defined as the
cash cost of pellet production per tonne
from own ore, ex-works) are incurred in
Ukrainian hryvnia. In 2009, the average C1
cost decreased from US$42.34 to
US$34.44 per tonne, reflecting the effect
of the weaker local currency in 2009
compared with 2008, lower oil prices and
improved efficiency through our Business
Improvement Programme (‘BIP’).

During 2009, Ferrexpo Poltava Mine
(‘FPM’) was involved in 97 projects ranging
from reducing the utilisation of key
materials to improvements in IT, internal
power infrastructure, rail operations and
maintenance procedures. In total the BIP
yielded savings amounting to US$8.7
million of which US$6.2 million related to
direct mining and processing activities.

Selling and distribution costs
Selling and distribution costs represent the
cost of freight to deliver the goods to
agreed sales transfer points within
Ukraine. For certain sales, the Group
incurs additional costs to arrange
transport and delivery to the customer’s

plant which results in higher sales prices
to these customers. Owing to the
increased CFR sales to China and India in
2009, referred to above, increased freight
costs for certain deliveries to these
destinations were borne by the Group.
This resulted in temporarily higher
distribution costs in the middle part of the
year. Domestic freight tariffs, comprised
principally of Ukrainian rail tariffs, benefited
from the devaluation of the Ukrainian
hryvnia at the end of 2008. Overall, the
selling and distribution costs increased by
US$9.7 million given the higher sales
made on a CFR basis compared with the
prior year.

General and administrative expenses
Following a cost reduction programme
during the year, general and administrative
expenses were reduced by US$24.0
million. This reflected lower head office
costs of US$18.9 million as a result of
reorganisation and significantly lower legal
and professional costs owing to reduced
project activity.

Other income
Other income reduced from US$6.4 million
in 2008 to US$4.1 million in 2009. This
reflected a reduced level of sales of
current assets.

Other expenses
Other expenses of a recurring nature
reduced by US$4.7 million in 2009
following cost reduction measures. The
total charge decreased by US$34.6 million
as the prior period included doubtful debt
expenses amounting to US$18.8 million.
These doubtful debt expenses were not
repeated in 2009 following a stabilisation
in markets during the latter part of the
year. The prior year also included foreign
exchange differences of US$6.0 million
which were not repeated as the Ukrainian
hryvnia to US dollar exchange rate
remained stable during the year.

Currency translation
The functional currency of FPM is the
Ukrainian hryvnia. Gains and losses on
foreign currency-denominated operating
assets that result from exchange rate
movements are recorded in the income
statement.

The operating foreign exchange gains
decreased from US$29.3 million to US$2.5
million owing to a more stable Ukrainian
hryvnia throughout 2009 and non-
operating foreign exchange losses
declined from US$72.8 million to US$2.6
million.

Currency movements resulting from the
translation of net assets of foreign
operations into US dollars are shown in
the consolidated statement of
comprehensive income. In 2009 a loss of
US$24.5 million was recorded (2008:
US$332.7 million). This reduced loss
reflected a more stable local currency in
2009 which depreciated from UAH7.700 to
UAH7.985 to the US dollar (2008:
UAH5.050 to UAH7.700)

Write-offs and impairment losses
The Group holds various investments that
are classified as available-for-sale. The
most significant of these is a 9.9%
investment in a Ukrainian oil and gas
exploration company, LLC Atol. IFRS
requires the Group to value available-for-
sale assets at fair value. This resulted in a
total impairment charge of US$1.9 million
for 2009 compared with US$26.4 million
for 2008. The investment is valued at
US$2.1 million as at 31 December 2009
(2008: US$4.0 million).

Negative goodwill
During the 2008 financial year, FPM
exercised its call option to repurchase
6.2% of its issued share capital at a cost
of US$11.0 million from DCM Decometal
International Trading GmbH (‘DCM’). This
resulted in an increase in the Group’s
ownership of FPM from 90.9% to 97.1%

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Business Review
Financial Review
continued

and negative goodwill of US$35.0 million.
These shares, which were originally held in
treasury by FPM, were transferred to
Ferrexpo AG (FPM’s parent company) in
August and November 2009. This resulted
in an increase in the Group’s ownership to
97.3% as at 31 December 2009 and
negative goodwill of US$0.5 million.

Taxation
The Group generates taxable income
mainly in Switzerland and Ukraine. The tax
charge to profits in the year was 12.2%
compared with 16.6% in 2008. This
reduction was as a result of change in the
mix of profits between the Company’s
countries of operation in 2009.

Finance costs and borrowings
The interest expense on the financial
liabilities increased in the year by US$1.8
million to $16.8 million owing to higher
average debt as the Group drew on
available facilities during Q4 2008.

In November 2009, the Group successfully
secured a new pre-export finance facility
of US$230 million. The new facility was
available from 1 January 2010 and was
drawn down to repay in full the amount
outstanding on the existing loan. The new
loan matures 36 months from 1 January
2010 and is to be repaid in 24 equal
monthly instalments with the first
instalment falling due in January 2011. This
transaction is the first successful financing
concluded by a metals and mining
company with assets located primarily in
the CIS since the beginning of the global
financial crisis in September 2008.

The gross indebtedness of the Group
decreased from US$307.9 million at the
end of 2008 to US$269.6 million as of 31
December 2009. At the year-end, the
Group had US$12.0 million of cash (2008:
US$87.8 million). In line with its treasury
policy, the Group currently places up to a
maximum of 50% of its surplus cash on
deposit within Ukraine in US dollars,
depending on market conditions.

US$ millions

EBITDA

Working capital movements

Net financial payments

Income tax paid

Movement in provisions and other non-cash items

Net cash flow from operating activities

Sustaining capital expenditure

Free cash flow

(Paid for)/received from: expansionary projects

Purchase of available for sale investments

Loans to associates

Year ended
31.12.09

Year ended
31.12.08

138.1

(12.5)

(19.2)

(18.9)

(10.6)

76.9

(20.5)

56.4

503.9

(33.8)

(15.4)

(67.2)

(16.6)

370.9

(70.6)

300.3

(65.7)

(205.8)

–

6.5

(0.3)

(4.0)

Distributions including to minorities and share repurchases

(36.6)

(126.3)

Other receipts

Currency translation differences

Movement in net debt

2.1

(0.3)

(37.6)

2.5

(68.9)

(102.5)

Earnings
As a result of the decline in iron ore prices
on the international markets described
above, underlying earnings decreased
from US$347.4 million in 2008 to US$74.8
million in 2009. Fully diluted EPS was
12.05 US cents per share in 2009 (2008:
48.46 US cents per share). Fully diluted
underlying EPS similarly decreased to
12.77 US cents per share in 2009 (2008:
57.58 US cents per share).

Repurchased shares in treasury
No share repurchase took place during
the 2009 financial year. The shares
repurchased in September 2008 are held
in treasury at their acquisition cost of 170
pence per share, equating to US$77.3
million. For the purposes of comparison,
the closing market price at 31 December
2009 was 198 pence per share.

Statement of financial position and
cash flow
Key figures relating to the cash flow of the
business and changes in the statement of
financial position are summarised in the
table below.

The Group achieved strong operating
results in 2009, particularly in light of the
challenging conditions in the international
iron ore market. EBITDA decreased from
US$503.9 million in the record 2008
financial year to US$138.1 million in 2009
as a result of lower prices for iron ore. This
is reflected in a decline in the EBITDA
margin to 21.3% in 2009 compared with
45.1% in 2008.

Net cash flow from operating activities
amounted to US$76.9 million in 2009
(2008: US$370.9 million). Operating cash
flow was invested in sustaining and
development projects for the existing
operations, as well as into the
Yeristovskoye development project. Total
capital expenditure in 2009 amounted to
US$85.8 million (2008: US$276.3 million),
of which US$20.5 million was sustaining
capital. Major capital expenditure
commitments remain largely on hold
owing to the economic situation, but
modest expenditure continued in order to
maintain the value of previous investments
and in preparation to accelerate the
implementation of our development

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projects when conditions improve. Net
financial indebtedness (‘NFI’) increased
from US$220.1 million to US$257.7 million
as at 31 December 2009. At the year-end,
the Group held cash balances of
US$12.0 million (2008: US$87.8 million).

As disclosed in note 28 to the accounts,
Ferrexpo has experienced delays in
recovering VAT which it has paid on
purchases in Ukraine. As an exporter, the
Group’s goods are not subject to VAT and
the Group relies on the timely repayment
of VAT to ensure sufficient cash flows.

During the year, the amount of VAT to be
recovered from state authorities increased
by US$24.0 million to US$81.3 million.
This, offset by lower accounts receivable,
accounted for the increase in working
capital at the end of 2009 compared with
2008. No VAT amounts are in dispute.

The amount of VAT to be repaid to the
Group not only relates to purchases made
by FPM, but additionally to purchases
made by FYM. Under Ukrainian law, newly
established companies are unable to
reclaim VAT during their first 12 months of
operation. FYM was established in July
2008 and paid approximately US$2 million
of VAT in the period to July 2009
(principally relating to imported

equipment). This will apply to any new
subsidiary company that may be
established by the Group as its growth
projects are realised.

Further detail and material terms relating
to the Relationship Agreement are
available in the Group’s Listing Prospectus
dated 15 June 2007.

Related party transactions
The overview of the Group’s related party
transactions undertaken during the
financial year 2009 is disclosed in note 36
to the accounts.

Key relationships and significant
contracts
The Group has several key relationships
and significant contracts which are critical
to its business. These include, but are not
limited to, the Group’s relationships with its
majority shareholder, customers, lenders
and employees.

Majority shareholder
The majority shareholder of the Group is
Fevamotinico S.a.r.l. (‘Fevamotinico’), a
company owned by The Minco Trust, one
of the beneficiaries of which is Kostyantin
Zhevago, the Group’s Chief Executive
Officer. At the time that this report was
published, Fevamotinico held 51.0%
(2008: 51.0%) of Ferrexpo plc’s issued
share capital. Ferrexpo plc entered into a
Relationship Agreement with
Fevamotinico, The Minco Trust and
Mr Zhevago in June 2007.

Principal customers
The Group sells approximately 41%
(2008: 50%) of its production on the basis
of long-term supply contracts to its two
largest customers, Voestalpine AG
(‘Voestalpine’) in Austria and the Slovakian
and Serbian operations of United States
Steel Corporation (‘USS’). The long-term
supply contract with Voestalpine expires
on 31 March 2015 and with US Steel on
31 December 2010.

Lenders
The Group has entered into several loan
agreements. The main facility is the
US$335 million pre-export finance loan
agreement entered into by the Group on
27 December 2006 and amended on
5 July 2007 and 4 August 2009. This was
with ABN AMRO Bank N.V., BNP Paribas
(Suisse) S.A. and Société Générale as
arrangers, BNP Paribas (Suisse) S.A. as
agent and security trustee and certain
other financial institutions as lenders.
Further details of this facility can be found
in note 31 to the accounts, and in the
Group’s Listing Prospectus. It was repaid
in full on 8 January 2010 using the new
pre-export finance facility (see below).

A new pre-export finance facility in an
amount of US$230 million was entered
into by the Group on 27 November 2009.
Deutsche Bank AG acted as coordinator,
mandated lead arranger and book runner
for the loan and provided funding, together
with 10 other financial institutions. The
new loan matures 36 months from
1 January 2010 and is to be repaid in
24 equal monthly instalments with the first
instalment falling due in January 2011.
The new pre-export finance facility bears
interest at a floating rate linked to the
US$ LIBOR plus a margin and is also
guaranteed and secured on the same
basis as the bank debt existing at
31 December 2009 (see note 31).

Employees
Critical employees are the members of the
Group’s Executive Committee details of
whom can be found on page 9 of this
Annual Report.

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Business Review
Financial Review
continued

Risks to our business

The Group faces several risks to its business and strategy and
management of these risks is an integral part of the
management of the Group. The Group’s Executive Committee
has put in place a formal process to assist it in identifying and
reviewing risks. Plans to mitigate known risks are formulated and
the effectiveness of, and progress in, implementing these plans
is reviewed regularly, in accordance with the Turnbull Guidance.
Despite the Group’s best efforts to factor these known risks into

its business strategy, inevitably risks will exist of which the Group
is currently unaware.

The list of the principal risks and uncertainties facing the Group’s
business that follows below is based on the Board’s current
understanding, but because of the very nature of risk it cannot be
expected to be exhaustive. New risks may emerge and the severity
or probability associated with known risks may change over time.

Risks relating to the Group’s operations

Iron ore prices and market

Description:
In the current economic environment, uncertainty remains
regarding the iron ore price and iron ore demand in both the
short and long-term. The Group’s business is dependent on
price developments in the international iron ore market. Sale
prices and volumes in the worldwide iron ore market depend
predominantly on the prevailing and expected level of demand
for iron ore.

Ukrainian VAT receivable

Description:
Ferrexpo Poltava Mining, as an exporter, and Ferrexpo Yeristovo
Mining, as an investor, do not have substantial amounts of VAT
on revenues to offset against VAT incurred on purchases. The
Group relies on the timely repayment of VAT from the Ukrainian
government to ensure sufficient cash flows.

Mining risks and hazards

Description:
The Group’s operations are subject to risks and hazards,
including industrial accidents, equipment failure, unusual or
unexpected geological conditions, environmental hazards,
labour disputes, changes in the local regulatory environment,
extreme weather conditions (especially in winter) and other
natural phenomena. Hazards associated with open-pit mining
include accidents involving the operation of open-pit mining
and rock transportation equipment and the preparation and
ignition of large scale open-pit blasting operations, collapses of
the open-pit wall and flooding of the open pit.

Impact:
Fluctuations in iron ore prices as well as demand may
negatively impact the financial result of the Group.

Mitigation:
Developments in the market are closely monitored by
management and by the Board in order for the Group to be in a
position to react in a timely manner to changes to iron ore
prices and demand.

The Group successfully reacted to adverse market conditions
during the 2009 financial year by recognising the importance of
cost reduction and marketing flexibility at an early stage.

Impact:
The late repayment of VAT will result in increased working
capital which has to be funded by the Group. This will incur
increased borrowing costs or result in temporary reduced levels
of investment.

Mitigation:
The repayment of VAT is closely monitored by management.
Funding plans, including the commitment to capital
expenditure, are developed to manage temporary increases in
VAT receivable.

Impact:
The Group may experience material mine or plant shutdowns or
periods of reduced production as a result of any of the before
mentioned factors, and any such events could negatively affect
the Group’s results of operations.

Mitigation:
The Group is dedicated to a zero-harm objective and the
mitigation of mining risk is one of the primary operational goals
of the Group. However, given the nature of mining operations
there is no guarantee that accidents and fatalities will not occur
in the future, despite all the safety initiatives undertaken and
processes put in place. In 2009 the Group had no operational
fatalities, compared with three in 2008 and one in 2007.

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Costs and reliance on State monopolies

Description:
Ukraine and Russia entered into a dispute relating to natural
gas in January 2009. The issues in dispute included the price to
be paid by Ukraine for the use of Russian gas and the
distribution of Russian gas across Ukraine to Western Europe.
The dispute resulted in a two-week period in which the gas
supply to Ukraine and Western Europe was disrupted. The
dispute was settled on 20 January 2009, and resulted in
Ukraine being required to pay significantly more for natural gas
than was the case previously. There can be no assurance that
such a dispute will not recur again in the future.

In addition to that, the Group currently relies substantially on the
rail freight network operated by Ukrzaliznytsya, the Ukrainian
State-owned southern railway authority, for transportation of its
raw materials and finished products. Railway tariffs for freight
increase periodically and there can be no assurance that
additional increases will not occur in the future.

Logistics

Description:
The Group is dependent on logistics services provided by third
parties and State-owned organisations. The dependency is
primarily related to the rail freight network services, services
from port facilities and barging companies and may result in
logistics bottlenecks which could adversely impact the Group’s
ability to expand its operations.

Licences

Description:
Licences are critical to the Group’s operations, and there is no
guarantee of their renewal or reconfirmation in the future, nor
is there a guarantee that the Group will be able to obtain any
additional licences. See also ‘Risk relating to the Group’s
strategy – Government approvals of expansion’.

Risks relating to finance

Exchange rate risk

Description:
The Group receives the majority of its income in US dollars.
A large proportion of the Group’s costs are denominated in
Ukrainian hryvnia and exposed to the variation in the exchange
rate between the US dollar and the Ukrainian hryvnia.

Impact:
Increased gas prices will affect the Group’s costs and, if gas
supplies are disrupted in future for any substantial period of
time, this may have a detrimental effect on the Group’s ability to
conduct its operations.

Changes in costs of the Group’s mining and processing
operations could occur as a result of unforeseen events and
consequently result in changes in profitability or the feasibility
and cost expectations in mining existing reserves. Many of
these changes may be beyond the Group’s control, such as
those input costs controlled by Ukrainian state regulation,
including railway tariffs, energy costs and royalties.

Mitigation:
The factors having an impact on the Group’s future cost
structure are closely monitored and cost reduction initiatives
are planned and reported to the Board.

The reduction of average C1 cash costs in the 2009 financial
year emphasises the successful processes in place throughout
the Group.

Impact:
The identified potential logistics bottlenecks, if left unmanaged,
could adversely impact the ability of the Group to distribute its
products on time and may affect its future growth strategy.

Mitigation:
The Group has embarked upon a programme of investing in its
own railcars and making further investments at its TIS-Ruda
port facility for dredging in order to reduce the risk of these
potential bottlenecks.

As an example, the investment in TIS-Ruda enabled the Group
to meet delivery commitments requiring shipment from the port
of Yuzhny at all times throughout 2009.

Impact:
The lapse of licences held by the Group as well as any failure to
obtain any additional licences may adversely affect the Group’s
ability to meet future growth targets.

Mitigation:
The Group continues to monitor and review its commitments
under its various licences, and continues to work to ensure that
the conditions contained within the licences are fulfilled or the
appropriate waivers obtained.

Impact:
Variations in the exchange rate can have a significant impact on
the profitability of the Group.

Mitigation:
As the depreciation of the Ukrainian hryvnia compared with
the US dollar resulted in lower costs and improvement of the
operating results, there was no need to enter into foreign
currency hedging agreements during the current year.

However, the exposure to foreign currency fluctuation is closely
monitored by the Group in order to make appropriate decisions
on a timely basis, if needed.

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Business Review
Financial Review
continued

Interest rate risk

Description:
The majority of the Group’s borrowings are linked to US$
LIBOR rates so the Group is exposed to interest rate changes.

Impact:
An increase in interest rates will have a negative impact on the
financial results of the Group.

Financing risk

Description:
Development projects require additional funding above the cash
generation capabilities of the existing operations which need to
be covered with specific finance arrangements.

The Group’s principal loan facility contains covenants relating to
Earnings Before Interest, Tax, Depreciation and Amortisation
(‘EBITDA’) as well as the normal short and long-term cover
ratio requirements.

Counterparty risk

Description:
In the current economic climate, there is an increased likelihood
of unrecoverable debts and customer and supplier credit
constraints and insolvency.

Mitigation:
Conditions in the financial markets and financing facilities in
place are regularly reviewed by management in order to
maximise the profitability of the Group.

The Group did not enter into derivative financial instruments
such as interest rate swaps in 2009.

Impact:
There is a risk that cancellation of contracts as a result of force
majeure events and/or low price outcomes in subsequent price
negotiations would require the Group to seek the lenders’
permission to assign additional contracts under this facility to
meet certain ratios.

Mitigation:
The Group’s financing risk has been mitigated by the new loan
facility that was secured in November 2009. The draw-down of
the new loan in January 2010 was used to repay the previous
pre-export finance facility. The new loan matures 36 months
from 1 January 2010 and is to be repaid in 24 equal monthly
instalments with the first instalment falling due in January 2011.

The Group expects to have sufficient liquidity to operate
successfully throughout 2010 and 2011 and sufficient long-term
contracts in order to meet the requirements of all debt covenants.

Impact:
Financial instability on the part of the Group’s counterparties
could adversely affect its financial results.

Mitigation:
The outstanding customer balances are subject to regular and
thorough review. The results of these reviews are used to
change sales terms with customers in order to mitigate the risk
of uncollectible receivable balances.

As a result of the rigorous procedures put in place, the Group
did not have any significant bad debt losses in 2009.

The profile of the Group’s suppliers is regularly reviewed in order
to assess and mitigate any dependence on major suppliers.

Risks relating to the Group’s strategy

Delays to major growth projects

Description:
The Group has placed material capital expenditure on its major
growth projects on hold owing to the depressed market
conditions in late 2008 and the first half of the 2009 financial year.

Impact:
A further delay to any substantial future increase in production
by more than 12 months may cause the Group to lose potential
future revenues once iron ore markets recover.

Mitigation:
Rigorous project planning and capital expenditure approval
processes are in place in order to ensure that growth projects
can be immediately recommenced and/or started when market
conditions are considered by the Board to have stabilised.

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Expansion capital expenditure

Description:
Although not a risk in the short-term, the Group is planning
major expansion projects once the iron ore market and global
economy stabilises, which will require the investment of
significant capital.

Impact:
As with all major capital projects of this kind, there is a risk of
insufficient controls and cost overruns which could impact the
time to completion of these projects and the return on the
capital invested.

Government approvals of expansion

Description:
The Group does not yet have all governmental approvals
required to implement its expansion projects. Despite the fact
that none of the approvals that have been applied for to date
have been refused, there is no guarantee that others will be
granted in the future.

In particular, there are some small communities located
on the proposed sites of the Group’s expansion projects at
Yeristovskoye and Belanovskoye. Although the Group considers
that there is a low risk of difficulties being encountered in
relocating these communities, there can be no assurance of this.

Risks relating to operations in Ukraine

Ukrainian inflation

Description:
Ukraine experienced very high inflation in the years up to and
including 2008 as a result of high government spending and
rapid economic growth. Ukrainian inflation was lower in 2009 as
a result of global economic conditions, but there are indications
that it may rise again in 2010.

Ukrainian economic and social risks

Description:
Ukraine has been adversely affected by the global financial
crisis and by continuing government instability. The Ukrainian
steel industry, the largest industry in the country, collapsed in
late 2008. The Ukrainian national currency, the hryvnia, was
informally tied to the US dollar and artificially strengthened
during the first half of 2008, to the detriment of the Group. The
Ukrainian government decided to weaken the local currency to
assist the country in recovering from the economic crisis and
high Ukrainian inflation. This benefited the Group, as a large
proportion of its costs are denominated in hryvnia. However, it
may also result in business failures, repossessions and social
unrest in Ukraine owing to extensive borrowing in foreign
currencies by the Ukrainian private sector.

Mitigation:
The Group has established procedures to control, monitor and
manage this expenditure, and has appointed a Chief Projects
Officer. Monthly asset reviews occur on site, and investment
risks are periodically reviewed by the Board.

Impact:
A failure to receive governmental approvals will have a negative
impact on achieving the Group’s growth plans for the future.

Mitigation:
The Group maintains an open and proactive relationship with
the different governmental authorities and is aware of the
importance of compliance with local legislation and standards.

Impact:
If not mitigated by further devaluation of the Ukrainian currency
and efficiency improvements, this inflationary environment
poses a risk to the costs and profitability level of the Group’s
business.

Mitigation:
Ukrainian inflation is closely monitored and relevant conclusions
are made by the Board, management of the Group or other
committees of the Group in order to assess and address the
implications for the Group in a timely manner.

Impact:
The uncertainties in the Ukrainian economic and politicial
environment could have an adverse effect on the Group’s
business and financial results.

Mitigation:
The Board is closely monitoring any developments and
changes and maintains regular contact with regional and
national government authorities.

Government activities were impacted by Ukraine’s presidential
elections in February 2010 but this situation is expected to
normalise as stability is restored.

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Business Review
Corporate Social Responsibility
Review

Ferrexpo’s commitment to
corporate social responsibility
The Ferrexpo Board’s
commitment to corporate social
responsibility (‘CSR’) derives from
a shared belief that the Group’s
licence to operate will be
underpinned by the Group’s CSR
performance. For many
operations within former CIS
countries, the traditional
response has been to use legal
requirements as the sole
benchmark for CSR compliance.
By contrast, we view legal
standards for CSR as a minimum
level and we are committed to
striving to achieve the highest
international standards of
performance in CSR matters.
We will ensure that during 2010
investment in health, safety and
the environment is maintained.

The Board’s approach to CSR
The Board demonstrates its commitment
to CSR through:
>
>
>
>

group policies;
board and management focus;
asset level management systems; and
performance management at all levels.

The Board believes that Ferrexpo has
made good progress during the year and
has established a sound base from which
to continue to develop its CSR
programmes. A group wide Code of
Corporate Responsibility and Business
Ethics (the ‘Code’) enshrines the
Company’s values in three main areas.
These are:

Business principles
We must maintain high standards of
behaviour with all those we deal with, both
inside and outside the Group. Our conduct
and business dealings should be
associated with honesty and integrity,
making us an attractive and reliable
business partner.

Community relations
Our presence should benefit those around
us and our operations will benefit if local
communities are thriving. Any member
company of the Group should be
considered an attractive local employer.

Stewardship
We must develop and manage our
resources and facilities in a sensible
manner, having regard for the natural and
social environment in which we operate.
Companies within the Group should be
associated with a commitment to
achieving the highest environmental and
safety standards.

The Code has been translated into the
Ukrainian and Russian and communicated
to employees. Management will continue
to engage with employees to obtain their
feedback to ensure the Code is developed
and improved.

The Corporate Safety and Social
Responsibility Committee
The Group has a Corporate Safety and
Social Responsibility Committee (the ‘CSR
Committee’) which monitors the
implementation of CSR policies.

The CSR Committee is chaired by Viktor
Lotous (Ferrexpo Poltava Mining (‘FPM’)
Chief Operating Officer). The other
members of the CSR Committee are
Michael Abrahams (Chairman of the
Board), Kostyantin Zhevago (Chief
Executive Officer) and Dave Webster
(Chief Projects Officer). To assist them in

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the exercise of their duties, the CSR
Committee will, from time to time, engage
specialist technical advisers. The CSR
Committee met once during 2009. In
addition, the Board received a detailed
presentation on safety when it visited the
site during the year.

Case Study 1 – DuPont

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During the year the business reviewed by
the CSR Committee included the following
items:
>

Review of environmental KPIs against
those of other London-listed mining
companies.
Update on the work of DuPont Safety
Resources (‘DuPont’) and their
recommendations.
Code of Corporate Responsibility and
Business Ethics: this was finalised,
translated into Ukrainian and Russian,
and published to the staff.
CSR Reporting.

The CSR framework
Management recognises that reaching the
highest standards will entail a continuous
process of evaluation and improvement
founded on a sound CSR framework.
Ferrexpo has adopted a seven point CSR
framework covering values, strategy,
policies, objectives, targets, monitoring
and auditing, and communication.

CSR at FPM
As the only currently operating asset
within the Group, FPM provides the focus
for development and implementation of
the Group’s CSR procedures, based on
established Group policies. Within FPM a
single department has been created with
responsibility for all aspects of health and
safety, security and environmental
protection. This department is
responsible for air and water testing
laboratories, the medical centre, fire
prevention service, gas service, civil
defence and emergency response
headquarters and workshops. This
department reports directly to the FPM
Chief Operating Officer.

All Group employees are expected to
take personal responsibility for their
conduct, and management recognises
the need to create a cultural and
behavioural environment among the
Group’s workforce that will allow the
policies agreed by the Board to be
successfully implemented.

Health and safety
Ferrexpo’s Health and Safety Policy
>

The prevention of injuries to employees
is the highest priority of the Board and
management. Our policies and
practices at all levels need to reflect this.

Ferrexpo continued its collaboration
with the consultancy company
DuPont Safety Resources (‘DuPont’)
during 2009. The investigation of
accidents to determine the cause and
identify appropriate remedial action
now also covers minor accidents not
involving time spent off work
(‘microtraumas’) and is carried out
according to a methodology agreed
with DuPont. Fatalities and other
serious accidents continue to be
investigated additionally by the
State authority.

During 2009 Ferrexpo entered into a
new contract with DuPont for the
provision of leadership training to FPM
management in the area of labour
safety, providing methodological
assistance to the administration of
FPM on the introduction of the

behavioural audits programme, and
increasing employees’ awareness in
the field of labour safety.

Within the framework of this contract
practical leadership training of
company management has been
carried out in the field of safety, and a
6-man working group has been set up
by FPM for training operational
managers in the theory and practice
of behavioural audits and safety
leadership. DuPont has conducted
theoretical and practical training
workshops on behavioural audits for
this working group, whose members
then started to carry out training
programmes for operational managers
at the middle level (i.e. those who are
immediately involved in maintaining
workplace safety).

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Business Review
Corporate Social Responsibility
Review continued

“In 2009 a new strategic

objective was
introduced with the aim
of continuing to drive
forward improvements
in the area of health
and safety: this objective
is to have the best
mining safety record
in Ukraine.

”

Within our operating assets,
accountability for health and safety
performance lies with senior line
management.
All operating assets are required to
develop and implement health and
safety management systems in line with
Group policy, including performance
management.
Performance metrics will be developed
that are reflective of the Group’s
commitment to strive to achieve the
highest standards of health and safety
performance.
Senior line management is responsible
for ensuring that adequate resources
are committed to health and safety.
They have an obligation to secure their
resources through the Group’s planning
and budgeting processes.
Adequate health and safety training
will be given to all employees
and contractors.
Specific focus needs to be applied to
behavioural safety at all levels, to fatal
risk prevention and to the major
industrial health hazards associated with
our operations.
Employees are personally responsible
for their own safety and that of
their colleagues.

Health and Safety objectives for 2009
In 2009 a new strategic objective was
introduced with the aim of continuing to
drive forward improvements in the area of

health and safety. This objective is to have
the best mining safety record in Ukraine.
To support this objective, targets were set
in 2009 which included a reduction of 20%
in the lost-time injury frequency rate,
making organisational changes that would
improve safety in the production process,
improvements to the protective clothing
and the tools used by staff, subjecting
subcontractor staff to safety rules in the
same way as the Group’s own employees,
and audits of labour safety behaviour.
These are expanded on below.

Monitoring the effectiveness of health and
safety policies includes the review of
health and safety performance, as
measured by key KPIs as shown below:

Health and safety performance

2009

2008 2007

Lost Time Injury Frequency Rate
(LTIFR – see note)

1.11 0.95 0.57

Fatal accidents

Total accidents

Lost days

530

591 590

Note
LTIFR – Number of lost time injuries per million man
hours. Following the increased focus on safety and
the review by DuPont, incidents that previously
went unreported are now being reported. As a
result the 2009 and 2008 figures are not directly
comparable with previous years.

Health and safety management
systems
In accordance with Ukrainian law, FPM has
developed a health and safety policy
applicable to its operations and types of
activity that is in line with the Group health
and safety policy. Compliance with this
policy is monitored via a three-tiered
system. Daily control is conducted by
operating personnel, engineers and
technicians. Production managers carry out
weekly inspections, and senior
management conducts periodic inspections
in conjunction with government personnel.

During 2009 the Labour Safety Department
was restructured, with a centralised
Directorate for Industrial Labour Safety and
Environmental Protection taking the place of
the previous more localised structure in
which there was a smaller Labour Safety
department, with labour safety engineers
working in the various operating
departments of FPM. Remuneration of
safety engineers is no longer directly linked
to operational output. The purpose of
setting up the Directorate was to develop a
uniform policy and achieve the maximum
degree of co-ordination of progress towards
achievement of the goals set in the field of
labour safety. Procedural manuals on labour

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safety and environmental protection at
the operational level were developed
during 2009.

As it updates the current procedures of the
labour safety management system, the FPM
management continues to take into account
best practice both in Ukraine and abroad. In
2009 this took the form of co-operation with
labour safety experts at Ukrainian and
Russian mining companies, as well as
signing a six-month contract with DuPont
labour safety consultants.

In 2006 FPM initiated the development of a
health and safety management system
consistent with the requirements of OHSAS
18001, the internationally recognised
standard for health and safety
management. During 2006 FPM revised a
number of procedures to adapt the
management system to the requirements of
OHSAS 18001. This system was externally
audited under the Ukrainian UkrSEPRO
system in March 2007 and accreditation
was obtained in April 2007. The system was
audited again in March 2008, and the
accreditation was confirmed by
external auditors.

Fatalities and reportable accidents
The prevention of injuries to employees is
the highest priority of the Board and
management who follow the principle that
all accidents are avoidable.

In line with policy at FPM, all accidents are
investigated to determine the cause and
identify appropriate remedial action. This
analysis, which now also covers minor
accidents not involving time spent off work
(‘microtraumas’) is carried out according
to a methodology agreed with DuPont.
Fatalities and other serious accidents are
also investigated by the State authority.
The CSR Committee and Group Executive
Committee require senior management to
provide full reports on the causes of fatal
and serious accidents, details of corrective
actions to prevent these types of accident
from recurring and plans for enhancing
overall safety management based on the
lessons learnt. Senior managers are
expected to present these reports, in
person, at the first Executive Committee
meeting after the accident concerned.

There were no work-related fatalities at
FPM in 2009. However, there were 15
accidents that were investigated by the
State authorities. There were no work-
related accidents at FYM.

In accordance with Ukrainian compulsory
social insurance laws, compensation
equivalent to up to five times annual salary
is payable to the victims of accidents (or
their families). Individual workers
contribute to a statutory insurance fund
which is responsible for paying the
compensation. FPM is aware that it has a
moral as well as a legal responsibility
towards the families of employees affected
by accidents at work and will also make
additional voluntary payments to the family
of employees on a case-by-case basis to
ensure that they do not suffer hardship.

Safety initiatives
In 2009 FPM continued to implement
safety programmes to improve the health
and safety of its workers. These included:
>
Further improvement to the quality of
working clothes, personal protective
equipment and tools, based on
workplace risk assessments and on
analysis of accidents.
Organisational changes to improve
workplace conditions and minimise
accident risks.

Subjecting the increasing number of
subcontractor staff to the same safety
norms as FPM staff, by means of a
company standard on Subcontractors’
Work and Services Safety.
Conducting labour safety behavioural
audits.

During 2009 Ferrexpo entered into a
new contract with the DuPont Safety
Resources consultancy: see case study 1
on page 33.

In order to improve company safety culture
and eliminate dangerous work practices,
we carry out training workshops and
practical behavioural audits for the
specialists from various departments
of FPM.

FPM is required by Ukrainian labour
protection laws to dedicate at least 0.5%
of sales revenue to labour protection and
safety. This statutory payment amounted
in 2009 to approximately UAH 25,303,000
(US $3.25 million, or 0.63% of sales)
(2008: US $5.72 million, 0.62% of sales).

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Case Study 2 – Air Quality

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The work on dust pollution reported
in the 2008 report continued in
2009, with initiatives for the
protection of air quality including
stabilising dry sand banks for waste
storage by chemical and biological
methods (grass sowing) (cost UAH
768,000); intensive watering of the
work face in the pit after blasting
and in dry weather (cost UAH
7,033,000); and repairs to the gas
and dust filter unit in the pellet
production area (cost
UAH 281,000).

activities. Emergency procedures
were followed on each occasion,
including the issue of suitable
protective equipment and
evacuation of the affected areas of
the pit. Meanwhile, investigations
have shown that the gas does not
come from Ferrexpo’s operations.
At the initiative of FPM,
Komsomolsk City Council has
commissioned the Scientific and
Research Institute of the Ministry of
Health to identify the source of the
gas.

During 2009 there were 14 cases of
a build-up of gas in some parts of
the pit. In 6 cases employees
complained of sickness and were
evacuated from the pit. The type of
gas was not characteristic of FPM’s

Occupational health initiatives
In accordance with the requirements of the
Ministry of Health in Ukraine and to prevent
or detect occupational diseases at an early
stage, FPM employees, particularly those
engaged in potentially hazardous work, are
given medical examinations both upon
recruitment and at regular intervals during
their employment. The health of employees
who have worked for 10 years or more
under potentially hazardous working
conditions is assessed more rigorously.

As an integral part of the Directorate of
Industrial and Labour Safety and
Environmental Protection, FPM owns an
on-site health centre. The health centre
carries out medical examinations of staff
on joining the company, as well as annual
medical examination of the employees
aimed at preventing and treating
occupational diseases, according to the
requirements of the current labour
legislation of Ukraine. Additionally, on a
contract basis, the health centre provides
services for subcontractors’ employees.
The cost of providing medical services in
2009 was UAH 4,253k (US$546k).

In the past three years, there have been 7
recorded cases of industrial disease (2 in
2007, 3 in 2008 and 2 in 2009); most cases
are associated with prolonged exposure to
elevated dust concentrations. Other
diseases included auditory impairment due
to excessive noise and two cases of cancer
(which whilst classified as industrial disease
in accordance with Ukrainian legislation and
therefore recorded, are not believed to have
been directly attributable to the Group’s
operations).

The industrial diseases that have been
recorded include some – silicosis and
bronchial complaints – which can be
caused by exposure to particular forms of
dust (although there are also other possible
causes for some of these diseases).
Improvements to dust control systems are
part of a long-term package of measures
designed to improve the working
environment. To reduce the dust level in the
production area in the mine and at the
processing plants and workshops, the
pit-face and roads in and around the mine
are watered each shift (depending on the
weather pattern).

During 2009 there have on several
occasions been a build up of gas within
parts of the pit. This caused a variety of
symptoms including nausea to some
employees. Emergency procedures were
followed on each occasion, including the
issue of suitable protective equipment and
evacuation of the affected parts of the pit. It
has been confirmed that the source of the
gas is outside Ferrexpo’s operations, and a
thorough investigation is being carried out
under the supervision of the local authority.

Employees
The employment principles adopted in
2008 include policies and practices on
company standards, security, recruitment,
remuneration, equal opportunities and
training and development. These are
backed up by subsidiary company
employment manuals to cover local legal
and regulatory requirements.

As part of the restructuring process
involving an outsourcing of non-core
mining activities, during 2009 25 security
staff previously employed directly were
transferred to the local security company
that provides services to FPM.
Additionally, the Specialised Electric
Equipment and Networks Repairs
Department (212 staff) was moved outside
the company structure.

FPM continues to recruit specialist
graduates from Dnepropetrovsky Mining
Academy, Kyiv University, Krivoy-Rog
Institute and Komsomolsk Polytechnical
School among other places to fill available
technical and financial positions.

Further information on employee numbers
is set out in note 39 to the accounts.

Training and development
The Group is committed to developing its
employees. The Group provides technical
training for all employees consistent with
their duties and responsibilities. In
particular, investment has been made in
facilities for health and safety training. In
2009, 29 employees were sponsored by
Ferrexpo at institutes of higher education.
The total educational spending for
employees in higher educational
establishments was US$64,175.

Trade unions
The Group does not have individual
contracts with its employees in Ukraine
other than with its senior managers. Most
of FPM’s workers are members of a trade
union (the ‘Poltava Trade Union’). There
has been no significant industrial action or
labour dispute at Poltava since its
privatisation in 1995. FPM entered into a
new collective bargaining agreement with
the Poltava Trade Union on 18 January
2008. Management has also signed a
protocol of intent with the Poltava Trade
Union for the period from 2008 to 2010 in
which it has agreed to ensure that
individual salaries will be increased at least
in line with inflation and that an annual
reduction in headcount will occur, subject
(except for any jobs that are outsourced)
to an agreed maximum.

Management believes, having conducted
market research that wages paid by the
Group are higher than average wages in
Ukraine, although they tend to be less
than the average wages paid by other
Ukrainian mining companies.

Environment
Ferrexpo’s Environmental policy
>

Our operating practices and growth
plans will be implemented in a manner
consistent with the principles
underlying long-term sustainable
resource development; we will balance
the long-term environmental
consequences of our actions against
short-term economic returns.
All operating assets are required to
develop and implement environmental
management systems in line with
Group policy.
All new capital projects will include
environmental risk assessments and
mitigation plans.

Monitoring the effectiveness of
environmental policy includes the review of
key KPIs for emissions which are
shown below.

Emissions in tonnes

2008
Total gas emissions 6,161 6,177
Of which:

2007

2009
6,167

Nitrogen dioxide
>
>
Carbon
monoxide
>

Sulphur dioxide

2,876 2,879

2,876

2,299 2,312 2,306
888
886

888

Total solid emissions 3,235 3,224 3,212
9,396 9,401 9,379
Total emissions

In 2009 FPM spent UAH 45 million
(US $5.78 million) on the implementation of
environmental measures. Payments for
emissions and waste placement amounted
to UAH 18 million (US $2.31 million).

Environmental management systems
The primary responsibility of FPM’s
dedicated Environmental Department is to
ensure that all necessary permits are in
place, to undertake monitoring in
accordance with the prevailing regulatory
requirements and to supervise the
implementation of an agreed programme
of environmental improvements based on
the Department’s own assessments.

Environmental laws in Ukraine set
requirements for the protection of the
natural environment, the use of natural
resources, emissions into the atmosphere
and water and waste disposal. FPM holds
a number of environmental licences and
permits, including permits for atmospheric
emission control, solid waste disposal,
tailings disposal, mine waste disposal and
industrial use of fresh water. Until 2007, the
environmental monitoring and
management programme was designed
solely to meet the current statutory
requirements. However, in 2006, the
Environmental Department started to
develop a full Environmental Management
System (‘EMS’) in accordance with ISO
14001. The EMS was externally audited by
the Ukrainian UkrSEPRO authority and
given a certificate of conformity with ISO
14001 in the second quarter of 2007.

Project evaluation
In 2007 the Group endorsed the Equator
Principles as a benchmark when evaluating
new projects. As part of any new project
proposal, the Group will undertake an
environmental impact assessment and this
will be reviewed alongside other project
evaluation documents presented to the
Board for approval. During 2009 Ferrexpo
completed an independent review of the
Ukrainian EIA (OVOS), which covers our
regulatory environmental requirements, for
the Yeristovo mine pre-strip and the actual
environmental performance of the current
Yeristovo operations against the
requirements of the International Finance
Corporation’s (‘IFC’) Environmental and
Social Performance Standards. Ferrexpo
remains committed to applying the IFC
requirements as it prepares plans for further
development of the Yeristovo project.

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Initiatives for the reduction of air
pollution included stabilising banks of
dry waste material by sowing grass on
them, and intensive watering of the
work face in the pit after blasting and in
dry weather.
Planting seedlings and more mature
deciduous and coniferous trees and
shrubs, and sowing and maintaining
grassland.
Investment in waste management
included management of the depositing
sites and tailings dam. This allowed for
use of slurry (tailings) and stripping
material in production, as well as
securing of continuous operation of
water recycling system of water supply
to the company departments.

Waste rock management
The currently operating Gorischne-
Plavninskoye Lavrikovskoye (‘GPL’) open
pit has generated some 500 million m3 of
waste rock that is deposited in two
dumps. Annual monitoring of the western
and eastern dumps indicates that run-off
from the waste rock dumps has no
negative effect on air quality or water
basins, and vegetation has been
successfully cultivated on the inaccessible
and abandoned areas of the rock dumps.
Waste rock from future operations,
including the Yeristovskoye pit now being
excavated, is being deposited on these
two dumps or used to back-fill part of the
GPL pit. The annual tree and bush
planting project assists in the absorption
of gases that would otherwise pollute the
air, whilst also reducing noise.

Mine closure and rehabilitation
FPM recognises that its activities have an
impact on the environment and
communities in which it operates. We are
aware that a commitment to sustainability
requires FPM to prepare now for the
cessation of mining operations even
though that eventuality remains many
years in the future. In 2005, we developed
a closure and rehabilitation plan for the
existing GPL pit and associated waste
rock dumps. The site will be restored
primarily to forestry, with an area of open
water remaining in part of the open pit.

The Company will provide fully for the costs
of mine closure and rehabilitation as they
develop, and it is committed to complying
fully with the terms of its operating licences
and the requirements of Ukrainian law.

Environmental initiatives
Air quality
Dust and gas emissions are two major
issues that FPM carefully monitors and
controls to ensure that air quality is not
adversely impacted by its operations. In
recent years, there have been a
substantial number of initiatives taken to
meet this need. Those undertaken in 2009
are set out below.

Water management
FPM uses some 458 million m3 of water
each year, much of which is recycled
through the tailings facility, although
approximately 3.4 million m3 is extracted
from a combination of the local river and
the municipal drinking water supply.

The Tailings Storage Facility (‘TSF’) also
receives the treated effluent from
Komsomolsk’s sewage treatment plant.
Excess water from the TSF is passed
through an extensive bio-engineered
treatment system commissioned in
May 2002.

Storm water from the site is treated in a
new cascade treatment plant with a
filtering dam commissioned in late 2005.
The plant is designed to remove
suspended solids and organic pollutants.
Other rain and melt water is pumped to
the slurry pit for clarification; in the case of
excess water it is directed to the bio-
engineered treatment unit for additional
treatment together with the remainder of
TSF dam-filtered water.

During 2006 and 2007, the washing
facilities of the mining transport
department were rebuilt to prevent the
pollution of ground water by oil products
that had been carried by the surface water
as it drained away. This had previously
occurred due to damage of the washing
area and dirt collector.

Initiatives undertaken in 2009
According to the requirements of the
Ukraine Law on Environment Protection,
FPM specialists developed the following
measures aimed at improving the
ecological situation. They mainly
concerned water and air protection, sound
management of underground resources,
waste treatment, and planting greenery on
the production site.
>

Initiatives for the protection of the local
river system included advanced water
treatment of clarified water at the
sludge depository in the biological
purification plant; this ensured that the
concentration of pollutants in the water
discharged into the local river system
lay within the standard accepted range.

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Communities
Ferrexpo’s Community policy
>

Our presence should benefit those
communities around our operations;
our operations will benefit if local
communities are thriving.
We strive to be recognised as an
attractive local employer and a
concerned corporate citizen.
We will assist in the development of the
micro-economic environment within the
communities in which we operate to
ensure that their dependence on us for
their livelihood is reduced.
We aim to have a positive relationship
with and enhance the communities
around us. We wish to have an open
dialogue with these communities and to
ensure that our involvement with them is
cost effective and relevant to their needs.

Community context
The Poltava region is located in an area of
predominantly flat agricultural land close to
the Dnieper River, one of the largest
European river systems and an important
transport artery for Ukraine, Belarus and
Russia. Iron ore mining in the area dates
from the 19th century, although the major
expansion of mining activity occurred in
the early 20th century. The town of
Komsomolsk was established adjacent to
the mine to support the mining operation
and ancillary industries (transport, power
etc.). FPM is still by far the largest employer
in the town, which has a population of
around 51,500 people, with approximately
16% of the working population of
Komsomolsk being employed by the mine
in one capacity or another.

Community initiatives
FPM
FPM has been a significant investor in local
community initiatives from the outset,
investing substantial funds in the social
infrastructure of Komsomolsk and the
surrounding area. These funds have been
spent on charities, medical facilities, social
services, education, religion, culture and
sporting activities, as well as on the
maintenance of certain of the city’s social
and cultural structures. Total expenditure
on social projects in 2009 was UAH 30.3m
(2008: UAH 30.5m). This included
expenditure on medical centres in
Komsomolsk, educational organisations,
local community and sports associations.
Links with the local community are
strengthened by meetings of senior
management with heads of schools and
colleges, supporting local celebration
days, giving vocational guidance and
vacation work to the students of local
schools and organising student excursions
to FPM and its museum.

Case Study 3 – Community
Investment

Historically, FPM has employed a significant
number of people in providing support
services to the Group’s mining activities.
In many cases, these services could be
made available on a commercial basis to
other enterprises within the local community
which in turn improves the viability and
sustainability of the local economy. To
encourage this process, FPM has offered
finance and other support to employees
who provide these in-house services so
as to encourage them to transform internal
departments into stand-alone businesses.
In 2009 the objects of such support
included railcar repair operations, lift
repair and some cleaning services.
In 2009, 237 employees were transferred
into stand-alone businesses. During 2009,
FPM donated UAH 7,900k to support and
develop social infrastructure and enhance
welfare of the local communities (see Case
Study 3 opposite).

FYM
FYM strives to contribute to all spheres
of the life of the local community, believing
that a healthy and flourishing community
is of crucial importance for sustainable
growth in our operations (see Case Study
3 opposite).

Links with the local community are
strengthened by meetings of senior
management with heads of schools and
colleges, supporting local celebration
days, giving vocational guidance and
vacation work to the students of local
schools and organising student
excursions to FPM and its museum.
During 2009, FPM paid UAH 7,900k to
support and develop social infrastructure
and enhance welfare of the local
communities. Included in this was
support for Dmitrovka village council of
UAH 1,500 k for school maintenance and
repair, UAH 260k for outpatient clinic
upgrading, and UAH 104k for village gas
pipeline construction. Prishyb village,
in a similar way, received contributions
of UAH 300 k for school repairs, and
UAH 298 k for outpatient clinic
upgrading. Additionally, UAH 640k was
invested in water supply improvement
(installation of a water tower and pipeline,
drilling of wells).

In addition to the work done by FPM,
FYM strives to contribute to the life of the
local community. As a newly-launched
growth project, FYM conducts an open
dialogue with the local communities in
order to develop positive relationships
built on mutual understanding and trust.
In relation to land acquisition activity this
has meant that, as well as paying the
mandatory compensation required under
the law, FYM has concluded special
agreements with the Councils of
Komsomolsk City and neighbouring
villages regarding support for the local
community in addressing vital issues in
social services and infrastructure
development sectors such as
environment, healthcare, education,
sports and charities.

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42 Corporate Governance

Report

48 Remuneration Report
56 Directors’ Report
60 Statement of Directors’

Responsibilities
Independent Auditors’
Report to the Members
of Ferrexpo plc

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Corporate Governance
Corporate Governance Report

Introduction
The Board continues to be committed to good corporate
governance practices, in its management of the affairs of the
Group and in its accountability to shareholders. As detailed in this
report, the Directors’ Report and the reports of the Audit,
Nominations and Remuneration Committees, the Group has
taken action to institute an effective corporate governance
framework by establishing Board committees, internal procedures
and Group policies which are critical for the proper management
of the Group and good governance of an international business.
As an English incorporated company with a primary listing on the
London Stock Exchange the Company is subject to the
Combined Code on Corporate Governance issued in June 2008
(the ‘Combined Code’). The Combined Code is available from the
Financial Reporting Council’s website, www.frc.org.uk. This report
outlines the steps taken to achieve compliance with the
Combined Code. The Board and management of the Group
believe in conducting their affairs in a fair and transparent manner
and in maintaining high ethical standards in their dealings with all
relevant parties.

During the year the Board was strengthened by the appointment
of two additional Non-executive Directors, Marek Jelinek and
Mike Salamon, following the acquisition of shares representing
just under 25% of the voting rights of Ferrexpo plc by a wholly-
owned subsidiary of RPG Industries SE.

Statement of compliance
During the year to 31 December 2009 the Company complied
with the provisions of section 1 of the Combined Code.

The Combined Code establishes principles of good governance
in four areas: Directors, Remuneration, Accountability and Audit,
and Relations with Shareholders. The following three sections
explain how these principles were applied, with the exception of
those relating to Directors’ remuneration (a detailed report on
Directors’ remuneration can be found in the Remuneration
Report on pages 48 to 55).

The Group’s auditor has reviewed those parts of this statement
which it is required to review under the Listing Rules of the
Financial Services Authority.

Directors
The Board
The Board is composed of a Non-executive Chairman:
Michael Abrahams; two Executive Directors: Kostyantin Zhevago,
Chief Executive Officer, and Chris Mawe, Chief Financial Officer;
and six Non-executive Directors. Oliver Baring continues as the
Senior Independent Director. The other Non-executive Directors
are Lucio Genovese, Wolfram Kuoni, Ihor Mitiukov, Marek Jelinek
and Mike Salamon. Messrs Jelinek and Salamon joined the
Board on 27 March 2009.

Biographical details of the Directors at the date of this report
are set out on pages 8 and 9 together with details of their
membership of Board committees. Brief details of the roles of the
Chairman, the Chief Executive Officer and the Senior
Independent Director are set out below.

The Board is responsible for setting the Group’s objectives and
policies, providing effective leadership and control required for a
public company and for approving the Group strategy, budgets,
business plans and major capital expenditure. The Board has a
formal schedule of matters which sets out those matters
requiring Board approval and specifically reserved to it for
decision. It also monitors financial performance and critical

business issues. Major project approvals, contract awards and
key policies and procedures require the approval of the Board.

The Board is supported by the Executive Committee which
meets approximately monthly. All of the information that is
submitted to the Board by management is reviewed and
approved by the Executive Committee.

Directors receive briefing notes and reports for their consideration
in advance of each Board meeting, including reports on the
Group’s operations to ensure that they remain briefed on the
latest developments and are able to make fully informed
decisions. These notes and reports take into account the factors
set out in section 172 of the Companies Act 2006 (Directors’ duty
to promote the success of the Company), which are considered
by the Executive Committee when making any proposals and
recommendations to the Board. Decisions made by the Board
are set within the framework of the Directors’ statutory duty to
promote the success of the Company for the benefit of its
members as a whole.

A procedure is in place to deal with Directors’ conflicts of interest
and related party disclosures. This procedure is in line with
published guidance, the Company’s Articles of Association and
the provisions in section 175 of the Companies Act 2006 on
conflicts of interest. Schedules of a Director’s actual or potential
conflicts and related party transactions have been compiled
based on disclosures made by the Director. These are updated
and reviewed on a regular basis by the Executive Committee.
Any changes to the schedules are noted and minuted at the
beginning of each Board meeting. The Committee of
Independent Directors has delegated authority to authorise
conflicts of interest on behalf of the Board. This procedure
operates effectively, and the Group undertakes to follow
emerging best practice in this area.

All Directors have access to the advice and services of the
Company Secretary, who is responsible for ensuring that Board
procedures are followed and that applicable rules and regulations
are complied with. All Directors may take independent
professional advice at the expense of the Group in the
furtherance of their duties. On appointment, all Directors are
advised of their duties, responsibilities and liabilities as a Director
of a public listed company.

Directors have the right to request that any concerns they have
are recorded in the appropriate committee or Board minutes.

The Board met five times during the reporting period. Attendance
by Directors at Board meetings and Board committee meetings
is shown below. All Board meetings are held in Switzerland.

Chairman, Chief Executive Officer (‘CEO’) and
Senior Independent Director
The roles of the Chairman and CEO are held by different
individuals. The division of responsibilities between the Chairman
and CEO has been clearly established in writing and agreed by
the Board.

The Chairman is responsible for leadership of the Board,
ensuring its effectiveness, setting its agenda and ensuring
effective communication with shareholders. The Chairman also
ensures that there is a constructive relationship between the
Executive and Non-executive Directors. From time to time the
Chairman holds meetings with the Non-executive Directors
without the Executive Directors present.

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The Chairman’s other current responsibilities are set out in the
biographical notes on pages 8 and 9. There has been no
increase in those commitments during the reporting period.

The role of the CEO is to provide leadership of the executive
team, to develop proposals for the Board to consider, and to
oversee and implement Board-approved actions. Details of
Mr Zhevago’s other appointments are set out in the biographical
notes on pages 8 and 9.

The Senior Independent Director, Oliver Baring, in conjunction
with the other independent Non-executive Directors, assists in
communications with shareholders concerning corporate
governance matters if that is required. He also chairs the
Nominations Committee and the Committee of Independent
Directors. At least once a year, the Senior Independent Director
meets the Non-executive Directors, without the Chairman
present, to evaluate the Chairman’s performance.

Board balance and independence
The Board believes that its current membership of two Executive
Directors, with a Non-executive Chairman and six Non-executive
Directors, four of whom are deemed by the Board to be
independent, is of an appropriate size and structure to manage
the Group in an effective and successful manner. It also
considers that no single Director can influence or dominate
decision making. The Relationship Agreement with Kostyantin
Zhevago specifically deals with decision making. More details are
given below.

The Board has carefully considered the guidance criteria on
independence of Non-executive Directors under the Combined
Code. In the opinion of the Board, all the continuing
Non-executive Directors bring independence of judgement and
character to the Board and to the Board committees on which
they sit. The Board considers that, with the exception of Messrs
Jelinek and Salamon who represent a significant shareholder, all
of the Non-executive Directors as at the date of this report are
independent of the Group within the terms of provision A.3.1 of
the Combined Code.

As part of the annual process of performance evaluation (see
below) the Board has reviewed the amount of time needed by the
Non-executive Directors to perform their duties, and has
recognised that Lucio Genovese and Wolfram Kuoni have
needed, and will continue to need, to devote more time to their
duties as Non-executive Directors of Ferrexpo AG than had been
expected at the time of their appointment. The Board therefore
decided to increase their remuneration with effect from 1 January
2009 (as set out in the Remuneration Report on pages 48 to 55).
In reaching this decision the Board also concluded, in the light of
the supervisory and non-executive nature of their duties as
directors of Ferrexpo AG, that both Mr Genovese and Mr Kuoni
remain independent in character and judgement, as defined by
provision A.3.1 of the Combined Code.

Mr Zhevago is a beneficiary of The Minco Trust which owns
100% of Fevamotinico S.a.r.l., the major shareholder in the
Group. Consequently he and Fevamotinico S.a.r.l. have entered
into a Relationship Agreement with the Company to ensure that
the Group is capable of carrying on its business independently,
that transactions and relationships between the Group,
Fevamotinico S.a.r.l. and Mr Zhevago are at arm’s length and on
normal commercial terms, and that there shall be at all times a
majority of Directors independent of Fevamotinico S.a.r.l. and
Mr Zhevago on the Board (the ‘Relationship Agreement’).

The Board has established a Committee of Independent
Directors to consider and, if appropriate, approve related party
transactions and conflicts of interests (whether in relation to
Mr Zhevago or any other Director), and to consider any matters
referred to it concerning the operation of the
Relationship Agreement.

Appointments to the Board and re-election
Under its terms of reference the Nominations Committee is
responsible for leading the process for appointments to the
Board. The process for election and re-election of Directors
under the Company’s Articles of Association is set out in the
Directors’ Report on pages 56 to 59.

Information and professional development
Professional development and training are provided in a number
of ways including updates on changes and proposed changes in
laws and regulations affecting the Group, and site visits to ensure
Directors are familiar with the Group’s operations. During the year
the Board received a briefing on the implications of the
Companies (Shareholders’ Rights) Regulations 2009 and, as in
previous years, spent two days visiting the site in Ukraine.

Appropriate induction is provided to a Director on appointment
taking into consideration the individual qualifications and
experience of the Director.

Performance evaluation
A process of evaluation of the Board and its Audit and
Remuneration Committees has been conducted by the chairmen
of these bodies. All Directors and committee members
completed a questionnaire and the results have been analysed
and discussed by those concerned. The conclusion of the
evaluation process was that the Board as a whole and its
committees had functioned effectively during the year. The mix of
skills and experience on the Board was felt to be appropriate.
The Senior Independent Director and the other Non-executive
Directors have evaluated, and will continue to monitor, the
performance of the Chairman.

Board committees
The Board has a number of committees consisting of certain
Directors, and in the case of the Executive Committee and
Corporate Safety and Social Responsibility (‘CSR’) Committee,
certain senior managers, to which specific responsibilities have
been delegated and for which written terms of reference have
been agreed. These terms of reference are available for
inspection on the Group’s website at www.ferrexpo.com.
Membership of the various committees, including the Chairman
of each committee, is shown below.

The Board periodically reviews the membership of its committees
to ensure that committee membership is refreshed. The Group
provides the committees with sufficient resources to undertake
their duties, including access to the Company Secretary.

The table of attendance of members of the Board and its
principal committees at meetings during the financial period
together with a summary of the terms of reference is set on
page 44.

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Corporate Governance
Corporate Governance Report continued

Board
Five Board meetings were held during the year.

Board members

Michael Abrahams
Kostyantin Zhevago
Chris Mawe
Oliver Baring
Lucio Genovese
Wolfram Kuoni
Ihor Mitiukov
Marek Jelinek1
Mike Salamon1

1 Joined the Board on 27 March 2009.

Non-executive Chairman
Chief Executive Officer
Chief Financial Officer
Senior Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Non-executive Director
Non-executive Director

Attendance
record

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5/5
5/5
5/5
2/3
3/3

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The structure and business of the Board is designed to ensure that the Board focuses on strategy, management, governance and
control issues. Certain aspects of the Board’s responsibilities have been delegated to appropriate committees to ensure compliance
with the Companies Act 2006, FSA Listing Rules and the Combined Code. It is the responsibility of the Chief Executive Officer and
the Executive Committee to manage the day-to-day running of the Group. The Board is supported by the Executive Committee which
meets approximately monthly. All of the information that is submitted to the Board by management is reviewed and approved by the
Executive Committee.

Audit Committee
Four Audit Committee meetings were held during the year.

Committee members

Wolfram Kuoni
Lucio Genovese
Ihor Mitiukov

Chairman

Attendance
record

4/4
4/4
3/4

Under its terms of reference the Audit Committee is required to meet at least three times a year at the most appropriate times in the
reporting and audit process. The Committee monitors the integrity of the financial statements of the Group, including its annual and
interim reports, interim management statements, preliminary results announcements and any other formal announcement relating to
its financial performance, reviewing significant financial reporting issues and judgements which they contain. The Audit Committee is
also responsible for reviewing internal controls and risk management systems, whistleblowing procedures and internal audit
processes, and oversees the relationship with the external auditors.

Remuneration Committee
Five Remuneration Committee meetings were held during the year.

Committee members

Lucio Genovese
Michael Abrahams
Ihor Mitiukov
Oliver Baring

Chairman

Attendance
record

5/5
5/5
4/5
4/5

The Remuneration Committee meets as required and is responsible for reviewing and approving all aspects of remuneration for the
Executive Directors and members of the Executive Committee. Further details concerning the Remuneration Committee are set out in
the Remuneration Report on pages 48 to 55.

Nominations Committee
One Nominations Committee meeting was held during the year.

Committee members

Oliver Baring
Michael Abrahams
Wolfram Kuoni
Ihor Mitiukov
Kostyantin Zhevago

Chairman

Attendance
record

1/1
1/1
1/1
1/1
1/1

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Nominations Committee Report
The Nominations Committee meets as required. The role of the Nominations Committee is to identify and nominate candidates for the
approval of the Board, to fill vacancies and make recommendations to the Board on Board composition and balance. The
Nominations Committee consults regularly with the Board when filling vacancies. The Executive Directors and Chairman also assist in
identifying the scope and required skills for the vacant role. During the year a review of the Non-executive Directors’ time
commitments was carried out by the Board, with results that are described above under ‘Board balance and independence’.
Succession planning was reviewed by the Nominations Committee in March 2010.

Corporate Safety and Social Responsibility Committee
One Corporate Safety and Social Responsibility Committee meeting was held during the year.

Committee members

Viktor Lotous
Michael Abrahams
Dave Webster
Kostyantin Zhevago

Chairman

Attendance
record

1/1
1/1
1/1
1/1

The CSR Committee’s role is to formulate and recommend to the Board the Group’s policy on corporate safety and social
responsibility issues as they affect the Group’s operations. In particular it focuses on ensuring that effective systems and standards,
procedures and practices are in place in the Group. The CSR Committee is responsible in conjunction with the Executive Committee
for reviewing management’s investigation of incidents or accidents that occur in order to assess whether policy improvements are
required. Further details concerning the activities of the CSR Committee are set out in the Corporate Social Responsibility Review on
pages 32 to 39.

Committee of Independent Directors
The Committee of Independent Directors (‘CID’) (which consists of all five Independent Directors) considers and, if appropriate,
authorises on behalf of the Board related party transactions and otherwise ensures compliance with Chapter 11 of the Listing Rules of
the Financial Services Authority and the Relationship Agreement entered into between Fevamotinico S.a.r.l., Mr Zhevago, The Minco
Trust and the Company. The CID holds delegated authority to consider and, if appropriate, authorise conflicts of interest of any
member of the Board under the relevant section of the Companies Act 2006. The CID met five times during the year.

The Executive Committee
The Executive Committee acts as the main decision making body of the Group. Its members are detailed on page 9. It is responsible
for taking all material decisions relating to the Group apart from those that are reserved for the entire Board, such as approving the
Group’s strategy, capital expenditure and budget. It meets regularly during the year, and no meetings are held in the United Kingdom.
It is the responsibility of the Executive Committee to ensure its duties are at all times set in the context of the requirements of the
Schedule of Matters Reserved for the Board. The Board has delegated to the Executive Committee the responsibility for the
successful execution of Board approved strategies for the Group, the ensuring of appropriate levels of authority delegated to senior
management, the review of organisational structures and the development and implementation of Group policies.

Accountability and audit
Financial Reporting
The Board is mindful of its responsibility to present a balanced and clear assessment of the Group’s financial position and prospects.
This assessment is primarily provided in the Chairman’s and Chief Executive’s Statement and the Financial Review contained in this
Annual Report. Statements of the respective responsibilities of the Directors and auditors are set out on pages 60 and 61.

Audit Committee Report
The Combined Code recommends that all members of the Audit Committee are independent Non-executive Directors, and that at
least one member should have recent and relevant financial experience. All members of the Audit Committee are considered to
possess appropriate knowledge and skills. Wolfram Kuoni, an independent Non-executive Director, is Chairman of the Audit
Committee. The terms of reference of the Audit Committee and attendance by members at its meetings are outlined on page 44.

During the reporting period the Audit Committee met four times and carried out the following activities:
>

Reviewed with Ernst & Young LLP, the external auditors, the annual and interim financial statements and associated documents
and the preliminary results statement, ensuring that all material information was properly and clearly disclosed.
Reviewed with Ernst & Young LLP the scope of the audit work proposed for 2009 and audit fees.
Reviewed the risk matrix and the internal audit plan, and discussed with BDO Visura International as internal auditors the findings
of the internal auditors, and oversaw the transition from BDO Visura to an in-house internal auditor at the end of the year.
Reviewed the whistleblowing policy whereby staff may, in confidence, raise concerns about financial improprieties or
other matters.
Reviewed the effectiveness of the external auditors and the non-audit services they provided.

>
>

In view of the current economic climate, the Audit Committee has paid particular attention throughout the year to the Company’s
position as a going concern. The Committee reviewed Group budgets, cash flow forecasts and liquidity, and concluded that the
Company can continue to adopt the going concern basis in preparing the financial statements. A statement on the Board’s position

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Corporate Governance
Corporate Governance Report continued

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regarding the Group as a going concern is contained in the
Directors’ Report on page 58.

Internal control
The Board has overall responsibility for the Group’s system of
internal control which includes risk management and reviewing
its effectiveness. The system of internal control is designed to
identify, evaluate and manage significant risks associated with
the achievement of the Group’s objectives. Because of the
limitations inherent in any system of internal control, this system is
designed to meet the Group’s particular needs and the risks to
which it is exposed rather than eliminate risk altogether.
Consequently it can only provide reasonable and not absolute
assurance against material misstatement or loss.

The Board has delegated its responsibility for reviewing the
effectiveness of these controls to the Audit Committee. The
Audit Committee reviews these systems on an annual basis. The
day-to-day responsibility for managing risk and the maintenance
of the Group’s system of internal control is collectively assumed
by the Executive Committee. Key risk and control issues are
reviewed regularly by the Executive Committee.

On behalf of the Board, the Executive Committee has established
a process for identifying, evaluating and managing the significant
risks faced by the Group in accordance with the Turnbull
Guidance. The Group has also adopted a risk-based approach in
establishing the Group’s system of internal control and in
reviewing its effectiveness. To assist in managing key internal
risks, it has established a number of Group-wide procedures,
policies and standards and has set up a framework for reporting
matters of significance. The Audit Committee is responsible for
reviewing the effectiveness of the Group’s risk management,
internal control systems and the interim and annual financial
statements before their submission to the Board.

Full details of the Group’s policy on risk and uncertainties are set
out in note 41 of the ‘Notes to the Consolidated Financial
Information’ on pages 102 to 109. See also the Risks section of
the Financial Review on pages 28 to 31.

The Board has, through the Executive Committee and the Audit
Committee, reviewed the effectiveness of the Group’s system of
internal controls.

As a result of the continual review of internal control procedures
several key elements have been established within the Group to
ensure a sound system of internal control which is described in
detail below.

These include:
>

Regular review of risk and identification of key risks at the
Executive Committee which are reviewed by the
Audit Committee.
Clearly defined organisational and reporting structure and
limits of authority applied to subsidiary companies including
monitoring and reporting on the regular board meetings held
at FPM, the key Ukrainian subsidiary.
Clearly defined information and financial reporting systems
including regular forecasts and a rigorous annual budgeting
process with reporting against key financial and
operational milestones.
Rigorous investment appraisal underpinned by the budgetary
process where capital expenditure limits are applied to
delegated authority limits.
Clearly defined treasury policy monitored and applied in

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accordance with pre-set limits for investment and
management of the Group’s liquid resources including a
separate treasury function.
Internal audit, previously by an external firm of auditors and
since December 2009 by an in-house internal auditor based in
Ukraine (see below) who monitors, tests and improves internal
controls operating within the Group at all levels and reports
directly to the CFO and the Audit Committee.
Fraud management through an independent department
operating in the Group’s key operating subsidiary FPM.

There are a number of components to the system of internal
controls within the Group which facilitate the control procedures
and these are detailed as follows:
>

A risk matrix has been developed and is monitored and
reviewed by the Executive Committee and the Audit
Committee.
A framework of transaction and entity level controls to prevent
and detect material error and loss.
A budgetary and periodic reporting review process performed
by the Executive Committee.
A documented structure of delegated authorities and
approvals for transaction and investment decisions, including
any with related parties.
A programme of internal audit reviews has been performed by
BDO Visura International and will be pursued by the new
internal auditor.
The Financial Risk Management Committee (“FRMC”) reviews
monthly financial information and management accounts, and
meets fortnightly.

Treasury
Details of the Group Treasury policy are referred to in the
Business Review on page 26 and in the financial statements on
pages 102 to 109.

Investment proposals
A budgetary process and authorisation levels regulate capital
expenditure. For expenditure beyond specified levels, detailed
written proposals are submitted to the Executive Committee and
then to the Board for approval.

Internal audit
A Group-wide internal audit function has been established using
BDO Visura International as an outsourced service provider
which reports to the Chairman of the Audit Committee. In
December 2009, for reasons of effectiveness and economy, the
Audit Committee agreed to recruit an experienced internal
auditor who is based in Ukraine and is independent of
operational management, reporting directly to the CFO and the
Audit Committee.

An internal audit programme for 2009 and 2010 has been
approved by the Audit Committee and focuses on the areas of
risk identified by the risk reviews carried out on an ongoing basis
by the Executive Committee and the Board.

Auditor independence
The Audit Committee and Board place great emphasis on the
independence and objectivity of the Group’s external auditors,
Ernst & Young LLP, when performing their role in the Group’s
reporting to shareholders.

The overall performance, independence and objectivity of the
auditors is reviewed annually by the Audit Committee, taking into
account the views of management, and the outcome of this

review is relayed to the relevant partners of Ernst & Young. The
Audit Committee has regular discussions with the external
auditors, without management being present.

The Audit Committee has approved separate policies in respect
of the provision of non-audit services and employment of former
employees of the auditors. These policies ensure that the
external auditors are restricted to providing only those services
which do not compromise their independence, and for instance
prohibit the use of the auditors for the provision of transaction or
payroll accounting, outsourcing of internal audit and valuation of
material financial statement amounts. Any assignment that is
proposed to be given to the auditors above a value of
US$500,000 must first be approved by the Audit Committee or
its Chairman. The auditors will also be expected to provide to the
Audit Committee information about policies and processes for
maintaining independence and monitoring compliance with
relevant current requirements, including those regarding the
rotation of audit partners and staff, the level of fees that the
Group pays in proportion to the overall fee income of the firm,
and other regulatory requirements.

Relations with shareholders
The Board attaches great importance to effective communication
with shareholders. Executive Directors and senior executives
have frequent discussions with institutional shareholders on a
range of issues affecting the Group’s performance, which include

meetings following the announcement of the annual and
interim results. The Chief Executive Officer, Chief Financial
Officer, and Head of Investor Relations meet with major
shareholders to discuss performance, strategy and governance,
and the Non-executive Directors are available for discussions
with shareholders if required.

JPMorgan Cazenove, the Group’s brokers, also provide regular
reports to the Board on changes to the shareholdings of the
Group’s major investors. Information about the views of major
investors is provided to the Board on a regular basis by the CFO
and the Head of Investor Relations.

The Board uses the Annual General Meeting (AGM) each year to
communicate with shareholders and welcomes their
participation. The Chairmen of the Audit, Remuneration and
Nominations Committees endeavour to be present at the AGMs
to answer questions from shareholders. Notice of the AGM and
related papers are sent to shareholders at least 20 working days
before the meeting. The voting results of the AGM are available
on the Company’s website following the meeting.

Information on matters of interest to investors can be found on
the Group’s website at www.ferrexpo.com.

The Board approved this report on 22 March 2010.

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Corporate Governance
Remuneration Report

Activities of the Remuneration Committee
During the year the Remuneration Committee considered the
following items of business:
>

remuneration packages for Executive Directors and members
of the Executive Committee
Long-Term Incentive Plan implementation
general market issues around remuneration packages
performance evaluation of the Remuneration Committee.

>
>
>

Remuneration policy
Ferrexpo’s remuneration policy is designed to help attract,
motivate and retain talented executives to help drive the future
growth and performance of the business. The policy aims to:
>
>
>

align executive and shareholder interests;
link a high proportion of remuneration to performance;
reward a balanced portfolio of performance measures (e.g.
relative Total Shareholder Return (‘TSR’) outperformance
of sector peers, annual business priorities and individual
performance); and
provide competitive rewards assessed against the relevant
market to attract, motivate and retain talented executives.

In determining the Company’s remuneration policy, the
Remuneration Committee takes into account the particular
business context of the Ferrexpo Group, the geography of its
operations, the relevant talent market for each executive and best
practice guidelines set by institutional shareholder bodies. During
the year, the structure and competitiveness of performance-related
and fixed elements of the remuneration packages of the Executive
Directors were reviewed against mining comparators and
FTSE-listed companies of similar size. No major changes were
made to the policy as a result of the review.

The Remuneration Committee will be keeping under review
remuneration policy and incentive plans during the forthcoming
year. The Remuneration Committee will continue to give full
consideration to the principles set out in the Combined Code on
Corporate Governance in relation to Directors’ remuneration and
to the guidance of investor relation bodies. It will continue to
implement policy so as to align executive remuneration with
shareholders’ interests and also to engage and retain the talented
individuals that the business needs in order to succeed.

Executive Directors
In setting the basic levels of pay for the Executive Directors, the
Remuneration Committee seeks to ensure that salaries are
market-competitive, with the potential for total remuneration to be
above average subject to satisfaction of suitably stretching
performance conditions. In making this determination, the
Committee makes reference to pay levels of international mining
companies and other FTSE-listed companies of similar size.

Introduction
This Report has been prepared by the Remuneration Committee
on behalf of the Board and complies with the requirements of the
Listing Rules of the UK Listing Authority, Schedule 8 of the Large
and Medium-Sized Companies and Groups (Accounts and
Reports) Regulations 2008 and the Combined Code on Corporate
Governance. Part A of the report, which is not subject to audit,
sets out the Company’s remuneration policy and Part B, which has
been audited, provides details of remuneration and share
incentives of the Directors for the year ended 31 December 2009.

This Report will be subject to an advisory shareholder vote at the
Company’s 2010 Annual General Meeting.

PART A: UNAUDITED INFORMATION
Remuneration Committee
The Remuneration Committee is composed of four independent
Non-executive Directors. Lucio Genovese is the Chairman of the
Remuneration Committee and its other members are Michael
Abrahams, Oliver Baring and Ihor Mitiukov. The Remuneration
Committee met five times during the year. Attendance at
meetings of the Remuneration Committee by individual members
is detailed in the Corporate Governance Report on page 44.

Terms of reference for the Remuneration Committee have been
approved by the Board and its duties include the determination of
the policy for the remuneration of the Executive Directors and the
members of the Executive Committee, as well as their specific
remuneration packages, including pension rights and, where
applicable, any compensation payments. In determining such
policy, the Remuneration Committee is expected to take into
account all factors which it deems necessary to ensure that
members of the senior executive management of the Group are
provided with appropriate incentives to encourage strong
performance and are, in a fair and responsible manner, rewarded
for their individual contributions to the success of the Company.

The composition of the Remuneration Committee and its terms
of reference comply with the provisions of the Combined Code
and are available for inspection on the Company’s website at
www.ferrexpo.com.

The Chief Executive Officer usually attends meetings of the
Remuneration Committee at the invitation of the Chairman of the
Remuneration Committee, and the Company Secretary acts as
secretary to this committee. No Director is present when his own
remuneration is being discussed.

Advisers
The Remuneration Committee retains Kepler Associates as its
advisers to provide advice on remuneration policy, with particular
emphasis on the structure of long-term incentives for senior
management. Other than advice to the Remuneration Committee
no other services were provided by Kepler Associates to
the Company.

The Chief Executive Officer provides guidance to the
Remuneration Committee on remuneration packages of senior
executives employed by the Group (but not in respect of his
own remuneration).

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Incentive Plans
A substantial proportion of Executive Directors’ remuneration is based on performance via the Long-Term and Short-Term Incentive
Plans described below.
>
>

Long-Term Incentive Plan (‘LTIP’) – aims to motivate participants to deliver appropriate longer-term returns to shareholders.
Short-Term Incentive Plan (‘STIP’) – aims to focus management efforts on delivery of annual business priorities, based on a
scorecard of key performance indicators relating to both Company and individual performance.

The Board intends to continue to operate the LTIP and STIP for the Executive Directors and senior executives in 2010.

Long-Term Incentive Plan
The LTIP framework was approved by shareholders at the 2008 Annual General Meeting. The LTIP provides for annual awards of
performance shares and options up to an aggregate limit of 200% of salary in normal circumstances. Initial awards were made in
2008 on the basis of the same number of shares to participants at the same level in the organisation. Further awards were made in
2009 to the same participants, on a similar basis. None of the awards granted in 2009 exceeded 100% of salary. These awards are in
the form of performance shares which vest according to the extent to which Ferrexpo’s three year TSR matches or outperforms that
of a comparator index (see below).

The Remuneration Committee has chosen relative TSR as the primary long-term incentive measure as it considers this to be the most
objective external measure of the Company’s success. The Remuneration Committee reviewed the constituents of the comparator
index and their weightings prior to the grant of 2009 LTIP awards and increased the weighting on the focused iron ore miners from
30% to 40% and reduced the weighting on the single commodity/emerging market miners commensurately. The resulting comparator
index for 2009 awards is based 50% on the median TSR of global diversified mining companies, 40% on the median TSR of
smaller focused iron ore miners and 10% on the median TSR of selected other single commodity/emerging market miners, as
illustrated below.

Index component

Constituents

Global diversified miners (10% each)

Focused iron ore miners (10% each)

Single commodity/emerging market miners
(0.5% each)

Vale
BHP Billiton
Anglo American

Rio Tinto
Xstrata

Cliffs Natural Resources
Fortescue Metals Group

Kumba Iron Ore
Mount Gibson Iron

African Rainbow Minerals
Alcoa
Alumina
Aluminum Corp of China
Antofagasta
Boliden
ENRC
Eramet
First Quantum Minerals
Freeport McMoRan

Industrias Penoles
Katanga Mining
Kazakhmys
KGHM Polska Miedz
Lundin Mining
Norilsk
OZ Minerals
Peabody Energy
Teck Cominco
Vedanta Resources

Aggregate
weighting

50%

40%

10%

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Corporate Governance
Remuneration Report continued

TSR is calculated on a common currency basis to ensure that comparisons with international comparators listed overseas are fair.

The Remuneration Committee has discretion to review the comparator index if any of the constituent companies are affected by
mergers and acquisitions.

The Remuneration Committee also reviews the constituents and their weightings prior to the start of each LTIP cycle to ensure they
remain appropriate. The comparator index will be similar for 2010 LTIP awards.

No performance shares will vest if Ferrexpo’s TSR underperforms the comparator index. 20% will vest if Ferrexpo’s TSR is equal to
Index TSR; full vesting will occur only if Ferrexpo’s TSR exceeds the Index by at least 8% p.a.; there will be straight-line pro rata
vesting in between those points. In addition, for any shares to vest, the Remuneration Committee must be satisfied that the recorded
TSR is a fair reflection of Ferrexpo’s underlying business performance. The vesting schedule is illustrated below:

2008 LTIP vesting schedule

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f
o
%

100%

80%

60%

40%

20%

- - - - - - - - - - - - - - - - - -

Ferrexpo 3-year TSR

Index

Index +8% p.a.

Dividends will accrue on performance shares over the vesting period, and be paid on shares that vest. In the event of a change of
control, awards will be pro-rated for time and performance. The Remuneration Committee will retain discretion to vary this treatment if
it deems it to be in shareholders’ interests to do so.

Transitional award of performance shares
The two-year TSR performance period of these awards ended on 31 December 2009. The Remuneration Committee concluded that
the performance condition had not been satisfied and that the awards should therefore not vest.

Proposed 2010 LTIP awards
The Remuneration Committee intends to operate the LTIP framework in 2010 in the same manner as in 2009. For 2011 the
Committee is considering measures to help improve the performance comparison to short-term share price movements at Ferrexpo
or at comparator companies.

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LTIP: share ownership guidelines
The Committee has agreed that, with effect from 2010, Executive Directors and members of the Executive Committee should, in line
with the growing practice among FTSE 250 companies, be encouraged to build up a holding of shares of equivalent value to a year’s
salary (in the case of Executive Directors) or six months’ salary (for other members of the Executive Committee). Executives will be
encouraged to retain their vested LTIP shares on an after-tax basis until the applicable guideline is achieved.

Short-Term Incentive Plan
A Short-Term Incentive Plan is in place which applies to the members of the Executive Committee, excluding Mr Zhevago.

For 2009 the maximum STIP opportunity for Executive Directors was 150% of salary. The maximum actual outcome was 90% of
salary, due to the exceptionally difficult trading conditions. The Key Performance Indicators (‘KPIs’) for 2009 were agreed for each
member of the Executive Committee and were weighted to reflect the contribution of each executive to the achievement of that KPI.

KPIs during the year included Financial KPIs and KPIs relating to corporate social responsibility, projects and governance. Their
respective weightings for the relevant Executive Director during the year were as follows:

KPI

EBITDA
Net operating profit after tax (‘NOPAT’)
CSR
Personal, projects and governance

Chris Mawe

25%
25%
10%
40%

In view of the exceptional trading conditions in 2009 and the challenge involved in setting robust performance targets, the Committee
retained a broad discretion when deciding on the amounts to be paid out under the STIP. In 2009 overall financial performance was
rated between 20% and 50%. CSR (including health and safety-related performance), projects and governance were rated as
between 50% and 80%. Taking into account these results the Remuneration Committee awarded the Chief Financial Officer a STIP
award of 90% of salary.

For 2010, the Remuneration Committee is reviewing the KPI weightings in the light of current market conditions.

Service agreements, notice periods and termination payments
The Executive Directors are employed under contracts of employment with Ferrexpo AG, a Group company.

The principal terms of the Executive Directors’ service contracts are as follows:

Name

Position

Date of
contract

Notice
period

Kostyantin Zhevago

Chief Executive Officer

1 November 2008

Chris Mawe

Chief Financial Officer

7 January 2008

1 Kostyantin Zhevago’s basic fee of US$240,000 is donated at his request to Ukrainian charities.

Six months from the
employee; six months
from the employer

Six months from the
employee; 12 months
from the employer

Current
basic fee (p.a.)

US$240,0001

CHF596,000

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Corporate Governance
Remuneration Report continued

The Remuneration Committee sets notice periods for the Executive Directors at 12 months or less, which reduces the likelihood of
having to pay excessive compensation in the event of poor performance. The policy on termination payments is to pay no more than
what may be stipulated in an individual’s service agreement. The Executive Directors’ service contracts contain a provision
exercisable at the option of the employer to pay an amount on early termination of employment equal to the respective notice period.

If the Company elects to make a payment in lieu of notice, the Executive Director will also be entitled to receive all components of
remuneration, allowances and expenses for the extent of the notice period. The payment in lieu of notice clauses will be invoked when
the speed and certainty afforded by such clauses are thought to be in the best interests of the shareholders.

Benefits-in-kind
Under his service agreement, Kostyantin Zhevago is entitled to 25 working days’ paid holiday per year. He is also entitled to furnished
accommodation in Switzerland (and elsewhere in Europe if necessary for the performance of his duties) which cost US$38,000 in
2009, and up to US$5,000 per annum for professional tax advice.

Under his service agreement, Chris Mawe is entitled to 25 working days’ paid holiday per year. Ferrexpo AG also provides him with
CHF63,000 of accommodation rental assistance per annum.

Pensions
The Group does not operate a separate pension scheme for Executive Directors. Chris Mawe and Kostyantin Zhevago are members
of the Ferrexpo AG pension plan which is a mandatory insurance scheme under Swiss law provided for all employees of Ferrexpo AG
to which the Company contributes an average of 10% of their annual base salaries. During the year, the operation of the pension plan
was reviewed and changes were made as to limit Ferrexpo AG’s potential exposure and also require the employees’ contributions to
be made on a more uniform basis.

Pension benefits earned by the Directors in the year ended 31 December 2009 were:

US$000

Chris Mawe

Kostyantin Zhevago

Accrued
Increase in
benefit at period (net of
indexation)

1 Jan 2009

208

Age

Transfer
Accrued
value of
increase
benefit at
in period 31 Dec 2009

259

Movement
in transfer
value during
Transfer
the period
value at less Directors’
1 Jan 2009 31 Dec 2009 contributions

Transfer
value at

122

114

Chairman and Non-executive Directors
The remuneration of the Chairman of the Board and the Non-executive Directors consists of fees that are paid monthly. The Chairman
and Non-executive Directors do not ordinarily participate in any of the Company’s long-term incentive or short-term incentive
schemes, nor do they accumulate any pension entitlement. Neither the Chairman nor any of the Non-executive Directors has a
service contract with the Company; however, each has entered into a letter of appointment with the Company.

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Non-executive Directors’ letters of appointment
Each of the Non-executive Directors has signed a letter of appointment with the Company. The Non-executive Directors have each
been appointed for an initial period of three years, and their appointments (with the exception of those of Mike Salamon and Marek
Jelinek) may then be renewed on a three-yearly basis, subject to re-election when appropriate by the Company in general meeting.
Unless otherwise determined, neither the Company nor the Director concerned may give less than three months’ notice of termination
of the appointment.

The Non-executive Directors’ fees are reviewed each year. The Non-executive Directors’ fees have been set at a level to reflect the
time commitment and level of involvement that they are required to devote to the activities of the Board and its committees. The key
appointment terms of the Non-executive Directors are as follows:

Director

Michael Abrahams
Oliver Baring1
Lucio Genovese2,4
Marek Jelinek
Wolfram Kuoni3,4
Ihor Mitiukov
Mike Salamon

Position

Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director

Date of
appointment

14 June 2007
1 December 2007
14 June 2007
27 March 2009
14 June 2007
14 June 2007
27 March 2009

Duration
of term

3 years
3 years
3 years
3 years5
3 years
3 years
3 years

Fees p.a.

US$400,000
US$140,000
US$180,000
US$120,000
US$215,000
US$120,000
US$120,000

1 Oliver Baring receives a fee of US$120,000 p.a. as a Non-executive Director and an additional fee of US$20,000 p.a. in total for his roles as Senior

Independent Director and Chairman of the Nominations Committee and Committee of Independent Directors.

2 Lucio Genovese receives a fee of US$120,000 p.a. as a Non-executive Director and additional fees of US$20,000 p.a. for his role as Chairman of the

Remuneration Committee and US$40,000 for his role as a Non-executive Director of Ferrexpo AG.

3 Wolfram Kuoni receives a fee of US$120,000 p.a. as a Non-executive Director and additional fees of US$20,000 p.a. for his role as Chairman of the Audit

Committee and US$75,000 for his role as a Non-executive Director and as Chairman of Ferrexpo AG.

4 See note on Board balance and independence in Corporate Governance Report on page 43.
5 Marek Jelinek retires from the Board at the 2010 AGM.

External appointments
It is the Board’s policy to allow the Executive Directors to accept directorships of other quoted companies provided that they have
obtained the consent of both the Chairman of the Board and Mr Zhevago. Any such directorships must be formally notified to
the Board.

Performance review

O
P

t
a
d
e
t
s
e
v
n

0
0
1
£

e
u
a
V

350

300

250

200

150

100

Ferrexpo

FTSE250 index

2009 LTIP index

31 May 07
Source: Bloomberg

31 Dec 07

31 Dec 08

31 Dec 09

The above graph shows the value, at 31 December 2009, of £100 invested in Ferrexpo’s shares at the time of the IPO compared
with the current value of the same amount invested in the FTSE 250 index or in the shares of the LTIP comparator group.

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Corporate Governance
Remuneration Report continued

PART B: AUDITED INFORMATION
Directors’ remuneration
Directors’ remuneration for the period from 1 January 2009 or their appointment date (if later) to 31 December 2009.

Salary, annual bonus and other benefits

Chairman
Michael Abrahams

Executive Directors
Kostyantin Zhevago
Chris Mawe

Non-executive Directors
Oliver Baring
Lucio Genovese
Marek Jelinek
Wolfram Kuoni
Ihor Mitiukov
Mike Salamon

Former Executive Directors
Mike Oppenheimer
Dennis McShane

Total

Salary or fees
US$000

Pension
US$000

Benefits
US$000

Bonus
US$000

Total
2009
US$000

Total
2008
US$000

575¹

280³
574

140
180
90
215
120
90

–
–

2,264

–

331²

–

906

718

4
117

–
–
–
–
–
–

–
–

121

38
62

–
–

–

184
–

449

–
484

322
1,237

64
1,005

–
–
–
–
–
–

–
–

140
180
90 –
215
120
90 –

18
–

484

3,318

173
184

184
154

4,143
5665

7,191

1 Includes US$175,000 in respect of significant additional work performed in 2008 and disclosed in the 2008 Remuneration Report, but paid in 2009.
2 Relates solely to share-based valuation of listing bonus awards.
3 Includes US$40,000 in respect of 2008 salary, paid in 2009.
4 In respect of obligations under his employment contract.
5 Employment contract terminated on 2 January 2009.

Directors’ interests in shares of the Company
Interests of the Directors in office as at 31 December 2009

Michael Abrahams1
Kostyantin Zhevago2
Christopher Mawe
Oliver Baring
Lucio Genovese
Marek Jelinek
Wolfram Kuoni
Ihor Mitiukov
Mike Salamon

At
31 December
2009

242,229
300,198,313
0
20,130
168,719
0
28,004
31,011
100,000

At
1 January
2009
or date of
appointment
if later

258,634
300,198,313
0

20,130
168,280

27,566
30,527
5,000

1 90,657 Ordinary Shares included in the table above are held on behalf of Michael Abrahams by Appleby Trust (Jersey) Limited as part of his listing bonus

award (see below) and will vest in his favour on 15 June 2010.

2 Kostyantin Zhevago is interested in these shares by reason of being a beneficiary of The Minco Trust, which is the sole shareholder of Fevamotinico S.a.r.l.,

which owns 300,198,313 Ordinary Shares in the Company.

There have been no changes in the interests of the Directors from the end of the period under review to 14 March 2010, being a date
not more than one month prior to the date of notice of the Annual General Meeting.

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Listing bonus awards
The Chairman and the Non-executive Directors were all awarded shares in the Company following their appointment to the Board
as follows:

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p
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G
o
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e
r
n
a
n
c
e

Director

Michael Abrahams
Oliver Baring
Lucio Genovese
Wolfram Kuoni
Ihor Mitiukov

Award date

15 June 2007
1 December 2007
15 June 2007
15 June 2007
15 June 2007

Shares due
to vest
on third
anniversary
award date of award date of award date of award date

Shares
vested
on second
anniversary

Shares
vested
on first
anniversary

Shares
vested on

Nil
12,060
16,318
16,318
16,318

90,657
12,060
16,318
16,318
16,318

90,657
Nil
Nil
Nil
Nil

Total
shares
awarded

271,971
24,120
32,636
32,636
32,636

Under the terms of the Trust Deed under which the shares in the Company were awarded upon appointment, the Trustee may deduct
shares in order to settle tax and related liabilities on behalf of the Director concerned. As a consequence of this provision, a deduction
of shares was made during the year in respect of Michael Abrahams.

Long-Term Incentive Plan awards
In 2009 the following performance shares were awarded to Executive Directors as nil cost options under the LTIP. Further details of
the LTIP and the applicable performance conditions are shown on pages 49 and 50.

During year

At
1 January
2009

100,000
65,000

Granted
(2009 LTIP
Award)

100,000

Chris Mawe

TOTAL

Total at

Market
price on
31 December date of award
(pence)

2009

Lapsed

Exercised

–
–
–

–
65,000
–

100,000
0
100,000

200,000

411
411
143

Market
price at
date of
exercise

Date from
which
exercisable

Expiry date

– 01.01.2011 16.05.2018

– 01.01.2012 14.09.2019

Former Executive Directors vesting of LTIP awards
In accordance with the provisions of the LTIP rules and applicable employment contracts, LTIP awards totalling 360,000 shares made
to Mike Oppenheimer in 2008 with a vesting period that ended on 31 October 2009, did not vest as the performance condition had
not been met. The LTIP award made to Dennis McShane in 2008 will vest as follows:

Dennis McShane

2008 LTIP award1

100,000 31 Dec 2010

61%

61,111

Grant

Number
of shares

Vesting date

Pro rated
for time

Adjusted
number
of shares

Apply
TSR test

Yes

1 A Transitional award of 75,000 shares made in 2008 did not vest and lapsed at the end of 2009.

Other transactions involving Directors are set out in note 36 (related parties) to the Financial Statements.

This Report was approved by the Board on 22 March 2010.

Signed on behalf of the Board.

Lucio Genovese
Chairman of the Remuneration Committee

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Corporate Governance
Directors’ Report

The Directors present their report to shareholders for the financial
year ending 31 December 2009.

Details of the remuneration of the Directors, their interests in
shares of the Company and service contracts are contained in
the Remuneration Report on pages 48 to 55.

The Company was incorporated under the name Ferrexpo plc as
a public company limited by shares on 22 April 2005. Ferrexpo
plc listed on the London Stock Exchange in June 2007 and is a
member of the FTSE 250 index.

Business review
A review of the business, its principal activities and likely future
developments can be found in the sections listed below which
are incorporated into this Directors’ Report by reference. The
pages referred to incorporate all requirements of section 417
Companies Act 2006 (‘the Act’), including details of the principal
risks and uncertainties facing the Group and analysis using Key
Performance Indicators (as set out in the Business Review).

Chairman’s and Chief Executive Officer’s Review on pages 4
to 7.
the Business Review on pages 12 to 39 including the
Corporate Social Responsibility Review on pages 32 to 39.

Directors’ duties
The duties of Directors are set out in sections 170 to 177 of the
Act. The duties that are specifically referred to in the Corporate
Governance Report on pages 42 to 47 include the duties under
section 172 (to promote the success of the Company), section
175 (to avoid conflicts of interest), section 176 (not to accept
benefits from third parties), and section 177 (to declare any
interests in existing or proposed transactions or arrangements
with the Company).

Results and dividends
Results for the year are set out in the Consolidated Income
Statement on page 64.

The Directors recommend a final dividend of 3.3 US cents per
Ordinary Share. Subject to shareholders approving this
recommendation at the Annual General Meeting (the ‘AGM’), the
dividend will be paid in UK pounds sterling on 4 June 2010 to
shareholders on the register at the close of business on 30 April
2010. Shareholders may receive UK pounds sterling dividends by
direct bank transfer, provided that they have notified the
Company’s registrars in advance. Shareholders may also elect to
receive dividends in US dollars (the procedure for this is set out in
the Notice of the AGM).

Directors
The Directors of the Company who served during the year were:
Michael Abrahams
Oliver Baring
Lucio Genovese
Marek Jelinek (appointed 27 March 2009)
Wolfram Kuoni
Chris Mawe
Ihor Mitiukov
Mike Salamon (appointed 27 March 2009)
Kostyantin Zhevago

In accordance with the Articles of Association of the Company
(the ‘Articles’), Messrs Jelinek, Mawe and Mitiukov will retire by
rotation at the forthcoming AGM. Mr Jelinek does not seek
re-election at the AGM. Messrs Mawe and Mitiukov, being
eligible, will offer themselves for re-election.

Further details about the Directors and their roles within the
Group are given in the Directors’ biographies on pages 8 and 9.

Appointment and replacement of Directors
Directors may be elected by the shareholders (by ordinary
resolution) or appointed by the Board. A Director appointed by
the Board holds office only until the next following AGM and is
then eligible for election by the shareholders.

In accordance with the Articles, at each AGM one-third of the
Directors who are subject to retirement by rotation, or if this
number is not three or a multiple of three, the number nearest to
but not less than one-third, will retire from office and stand for
re-election. New Directors appointed since the last AGM are not
taken into account in determining the number of Directors who
are to retire by rotation. If any Director has served more than
three years since his last appointment, or if he has served more
than eight years as a Non-executive Director, he must also stand
for re-election.

Powers of the Directors
Subject to the Company’s Articles, the Act and any directions
given by special resolution, the business of the Company will be
managed by the Board who may exercise all the powers of
the Company.

Directors’ and Officers’ insurance
The Company maintains Directors’ and Officers’ Liability
Insurance in respect of legal action that may be brought
against its Directors and Officers.

Directors’ indemnity provision
During the period under review, the Group had in force a
qualifying third-party indemnity provision in favour of one or more
of the Directors of Ferrexpo plc against liability in respect of
proceedings brought by third parties, subject to the conditions
set out in the Act.

Share capital and rights attaching to the
Company’s shares
The Company has a single class of Ordinary Shares of 10p each.

Subject to applicable statutes and other shareholders’ rights,
shares may be issued with such rights and restrictions as the
Company may by ordinary resolution decide, or (if there is no
such resolution or so far as it does not make specific provision)
as the Board may decide. At each AGM, the Board proposes to
put in place annual shareholder authority for the Company’s
Directors to allot new shares in accordance with the guidelines of
the Investor Protection Committee.

Details of the issued share capital of the Company are shown in
note 30 of the financial statements. On 1 October 2009 changes
to the Articles took effect in line with the Act’s abolition of the
requirement for companies to have an authorised share capital.

Variation of rights
Subject to the provisions of the Act, the rights attached to a class
of shares may be varied or abrogated either with the consent in
writing of the holders of at least three-quarters of the nominal
amount of the issued shares of that class (excluding any shares
of that class held as treasury shares) or with the sanction of a
special resolution passed at a separate meeting of the holders of
the issued shares of that class validly held in accordance with the
Articles.

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Voting
At a general meeting of the Company, every member has one
vote on a show of hands and on a poll, one vote for each share
held. Under the Act, members are entitled to appoint a proxy or
proxies to exercise all or any of their rights to attend, speak and
vote at a general meeting. A member that is a corporation may
appoint one or more individuals to act on its behalf at a general
meeting as a corporate representative.

Restrictions on voting
No member is entitled to vote at any general meeting in respect
of any shares held by him if any call or other sum outstanding in
respect of that share remains unpaid. Currently, all issued shares
are fully paid. In addition, subject to the Articles no member shall
be entitled to vote if he has failed to provide the Company with
information concerning interests in those shares required to be
provided under the Act.

Shares held in the EBT
The trustees of the Company employee benefit trust (‘EBT’) may
vote or abstain from voting on shares held in the EBT as they
think fit and in doing so may take into account both financial and
non financial interests of the beneficiaries of the EBT or their
dependants.

Deadline for voting rights
The Articles provide a deadline for submission of proxy forms
of not less than 48 hours before the meeting. The Directors will
also specify in the notice of any general meeting a time, being not
more that 48 hours before the meeting, by which a person must
be entered in the register of members in order to have the right to
attend and vote at the meeting The Directors may decide, at their
discretion, that no account should be taken of any day that is not
a working day when calculating the 48 hour period.

Transfer of shares
Any share in the Company may be held in uncertificated form
and, subject to the Articles, title to uncertificated shares may be
transferred by means of a relevant system. Registration of a
transfer of an uncertificated share may be refused in the
circumstances set out in the Uncertificated Securities
Regulations 2001 and where, in the case of a transfer to joint
holders, the number of joint holders to whom the uncertificated
share is to be transferred exceeds four.

Subject to the Articles, any member may transfer all or any of his
certificated shares by an instrument of transfer in any usual form
or in any other form which the Board may approve. The Board
may decline to register a transfer of a certificated share if it is not
in the approved form. The Board may also decline to register any
transfer of any share which is not a fully paid share. The Board
may decline to register a transfer of any of the Company’s
certificated shares by a person with a 0.25% or greater interest if
such a person has been served with a notice and has failed
within 14 days to provide the Company with information
concerning interests in those shares required to be provided
under the Act, unless the transfer is shown to the Board to be
pursuant to an arm’s length sale.

Repurchase of shares
Subject to authorisation by shareholder resolution, the Company
may purchase its own shares in accordance with the Act. Any
shares which have been bought back may be held as treasury
shares or cancelled immediately upon completion of
the purchase.

The Company was given authority to make market purchases of
up to approximately 10% of its existing Ordinary Share capital by
a resolution passed on 19 May 2009. This authority will expire at
the conclusion of the Company’s 2010 AGM. A special resolution
to renew the authority will be proposed at the forthcoming AGM.
Details of the resolution renewing the authority to purchase
Ordinary Shares are set out in the notice of Annual General
Meeting enclosed with this report.

The Company did not make use of the authority mentioned
above during 2009.

Dividends and distributions
Subject to the provisions of the Act, the shareholders may by
ordinary resolution, from time to time, declare dividends not
exceeding the amount recommended by the Board. The Board
may pay interim dividends and also any fixed rate dividends
whenever the financial position of the Group, in the opinion of the
Board, justifies their payment.

Under the Company’s Articles, the Board may withhold payment
of all or any part of any dividends or other monies payable in
respect of the Company’s shares from a person with a 0.25% or
greater interest (as defined in the Articles) if such person has
been served with a notice under section 793 of the Companies
Act 2006 and has failed within 14 days to provide the Company
with information concerning interests in those shares required to
be provided under the Acts.

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Corporate Governance
Directors’ Report continued

Substantial shareholdings
As at 14 March 2010, the following major interests in the Ordinary Shares of the Company had been notified to the Company:

Name of shareholder

Fevamotinico S.a.r.l.1
Wigmore Street Investments No. 3 Ltd2

Ordinary
Shares

300,198,313
147,156,035

Number of
voting rights

300,198,313
147,156,035

% of the Company’s
total voting rights
at date of notification

51.00%
24.99%

1 Fevamotinico S.a.r.l. is a wholly owned subsidiary of The Minco Trust of which Kostyantin Zhevago is a beneficiary.
2 Wigmore Street Investments No. 3 Ltd is a wholly owned subsidiary of RPG Industries SE.

Significant agreements
There are no circumstances connected with significant agreements to which the Company is a party that would take effect, alter or
terminate upon a change of control following a takeover bid, except those referred to below:

Long-Term Incentive Plan
The rules of the Company’s Long-Term Incentive Plan set out the consequences of a change of control of the Company on employee
rights under the plan. Generally, such rights will vest on a change of control to the extent that the performance conditions have been
satisfied and on a time pro-rated basis, subject to the discretion of the Remuneration Committee. Participants will become entitled to
acquire shares in the Company, or in some cases, to the payment of a cash sum of equivalent basis.

Bank loan facility
Under the US$230 million pre-export finance facility with Deutsche Bank AG and other banks, entered into in November 2009, if
Kostyantin Zhevago ceases to own directly or indirectly at least 50% plus one share of the Company, any of the lenders is entitled to
demand repayment of its commitment.

Relationship Agreement
Details of the Relationship Agreement entered into between Fevamotinico S.a.r.l., Kostyantin Zhevago, The Minco Trust and the
Company can be found in the Business Review (page 27) and in the Corporate Governance Report (page 43). The Relationship
Agreement ceases to apply if the holding of Fevamotinico S.a.r.l., The Minco Trust or Mr Zhevago individually or collectively falls
below 25% of the issued share capital of the Company.

Events since the balance sheet date
Information on events since the balance sheet date is provided in note 44 to the financial statements on page 110.

Market value of land and buildings
Land is carried in the balance sheet at deemed cost resulting from a valuation undertaken on 1 January 2003 as part of the Group’s
transition to reporting under IFRS. It is not practicable to estimate the market value of land and mineral reserves and resources at
each balance sheet date.

Policy on derivatives and financial instruments
The Group does not hold any derivative financial instruments. Group policy on financial instruments is set out in note 2 to the
Consolidated Financial Information on pages 72 to 73.

Creditor payment policy and practice
It is the Group’s policy that payments to suppliers are made in accordance with the terms and conditions agreed between the
Company and its suppliers, provided that all relevant trading terms and conditions have been complied with. The average creditor
payment period for the period ended 31 December 2009 for the Company was 27 days (2008: 28 days).

Charitable and political donations
The Group made no political donations during the year. Group donations to charities worldwide were US$4,043,000 (2008:
US$6,081,000), with UK charities receiving US$nil (2008: US$nil).

Risk management policies
Full details of the Group’s policy on risk and uncertainty and an overview of the Group’s exposure to credit, liquidity and market risks
are set out in note 41 of the ‘Notes to the Consolidated Financial Information’ on pages 102 to 109. Further references to risk are
made in the Business Review on pages 28 to 31 and the Internal Control section of the Corporate Governance Report on page 46
which provides a summary of the internal control procedures put in place by the Board to identify key risks and review risk
management and its effectiveness.

Going concern
The Directors consider that the Group has adequate financial resources to continue operating for the foreseeable future and that it is
therefore appropriate to adopt the going concern basis in preparing the financial statements. The Directors have satisfied themselves
that the Group is in a sound financial position and that it has access to sufficient borrowing facilities and can reasonably expect those
facilities to be available to meet the Group’s foreseeable cash requirements.

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Corporate governance statement
The Disclosure and Transparency Rules (DTR 7.2) require certain information to be included in a corporate governance statement set
out in a company’s Directors’ Report. In common with many companies, Ferrexpo has an existing practice of issuing, within its annual
report, a Corporate Governance Report that is separate from its Directors’ Report. The information that fulfils the requirements of
DTR 7.2 is located in Ferrexpo’s Corporate Governance Report on pages 42 to 47 (and is incorporated into this Directors’ Report by
reference), with the exception of the information referred to in DTR 7.2.6, which is located in this Directors’ Report.

Statement on disclosure of information to auditors
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no
relevant audit information of which the Group’s auditors are unaware, and that each Director has taken all reasonable steps to make
himself aware of any relevant audit information and to establish that the Group’s auditors are aware of that information.

A Statement of the Responsibilities of the Directors for preparing the Group and Company financial statements is set out on page 60.

Amendments to Articles of Association
The Articles may be amended by special resolution in accordance with the Act.

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Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00am on Thursday 27 May 2010 at Grosvenor House, Park Lane,
London W1K 7TN. A separate letter from the Chairman summarising the business of the meeting and the Notice convening the AGM
have been sent to shareholders with this Annual Report.

Auditors
Having reviewed the independence and effectiveness of the auditors, the Audit Committee has recommended to the Board that the
existing auditors, Ernst & Young LLP, be reappointed. Ernst & Young LLP have indicated their willingness to continue in office and an
ordinary resolution reappointing them as auditors and authorising the Directors to set their remuneration will be proposed at the 2010
Annual General Meeting.

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This report was approved by the Board on 22 March 2010.

David Leonard
Company Secretary

Ferrexpo plc

Registered Office:
2–4 King Street
London SW1Y 6QL
Registered number: 5432915

Headquarters:
Bahnhofstrasse 13
CH–6340 Baar
Switzerland

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Corporate Governance
Statement of Directors’ Responsibilities

Under applicable UK law and requirements of the Financial
Services Authority, the Directors are responsible for the
preparation of a Directors’ report, Directors’ remuneration report
and corporate governance report that comply with these laws
and requirements. In addition the Directors are responsible for
the maintenance and integrity of the corporate and financial
information included on the Company’s website. Legislation in
the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Under the requirements of Chapter 4 of the Disclosure and
Transparency Rules the Directors are responsible for including a
fair review of the development and performance of the business
and the position of the Group taken as a whole, together with a
description of the principal risks and uncertainties that they face.

Responsibility Statement of the Directors in respect of the
Annual Report and Accounts
We confirm on behalf of the Board that to the best of our
knowledge:
(a) the financial statements give a true and fair view of the assets,
liabilities, financial position and profit of the Company and the
undertakings included in the consolidation taken as a
whole; and

(b) the management report (entitled ‘Business Review’) includes a

fair review of the development and performance of the
business, and the principal risks and uncertainties that
they face.

For and on behalf of the Board

Michael Abrahams
Chairman

Christopher Mawe
Chief Financial Officer

In relation to the Group financial statements
The Directors are responsible for preparing the financial
statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the financial statements in accordance with
International Financial Reporting Standards as adopted by the
EU. Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and of the profit
or loss of the Group for that period. In preparing those financial
statements, the Directors are required to:
>

select suitable accounting policies and then apply
them consistently;
make judgements and estimates that are reasonable
and prudent;
state whether applicable International Financial Reporting
Standards have been followed, subject to any material
departures disclosed and explained in the financial
statements; and
prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.

In relation to the parent company financial statements
The Directors are responsible for preparing the financial
statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss for that period. In preparing those financial statements, the
Directors are required to:
>

select suitable accounting policies and then apply
them consistently;
make judgements and estimates that are reasonable
and prudent;
state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.

In relation to the Group and parent company
financial statements
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company and
enable them to ensure that the Group and Company financial
statements comply with the Companies Act 2006 and, with
respect to the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities.

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Independent Auditor’s Report to the
Members of Ferrexpo plc

We have audited the financial statements of the Group and
parent company for the year ended 31 December 2009 which
comprise the Consolidated income statement, the Consolidated
statement of comprehensive income, the Consolidated statement
of financial position, the Consolidated statement of cash flows,
the Consolidated statement of changes in equity and the parent
company statement of financial position and the related notes 1
to 44 for the Group financial statements and notes 1 to 7 for the
parent company financial statements. The financial reporting
framework that has been applied in the preparation of the Group
financial statements is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
The financial reporting framework that has been applied in the
preparation of the parent company financial statements is
applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.

Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
>

the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the
Companies Act 2006; and
the information given in the Directors’ Report for the financial
year for which the financial statements are prepared is
consistent with the financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you
if, in our opinion:
>

adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
the parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law
are not made; or
we have not received all the information and explanations we
require for our audit.

Under the Listing Rules we are required to review:
>

the Directors’ statement, set out on page 58. in relation to
going concern; and
the part of the Corporate Governance Statement relating to
the Company’s compliance with the nine provisions of the
June 2008 Combined Code specified for our review.

Ernst & Young LLP
Bob Forsyth (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
22 March 2010

Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 60, the Directors are responsible for
the preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit the
Group and parent financial statements in accordance with
applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Group’s and the parent company’s
circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements.

Opinion on financial statements
In our opinion:
>

the financial statements give a true and fair view of the state of
the Group’s and of the parent company’s affairs as at
31 December 2009 and of the Group’s profit for the year
then ended;
the Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice;
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006; and, as
regards the Group financial statements, Article 4 of the
IAS Regulation.

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64 Consolidated Income

Statement

65 Consolidated Statement
of Comprehensive Income
66 Consolidated Statement
of Financial Position
67 Consolidated Statement

of Cash Flows

68 Consolidated Statement
of Changes in Equity
69 Notes to the Consolidated
Financial Information

115 Glossary
118 Shareholder Information

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Financial Statements
Consolidated Income Statement

US$000

Revenue
Cost of sales

Gross profit

Selling and distribution expenses
General and administrative expenses
Other income
Other expenses
Operating foreign exchange gains

Operating profit from continuing operations before adjusted items

Write-offs and impairment losses
Share of profit of associates
Negative goodwill
Initial public offering costs
Gain on disposal of property, plant and equipment
Gain on disposal of available-for-sale investment

Profit before tax and finance from continuing operations

Finance income
Finance expense
Non-operating foreign exchange loss

Profit before tax

Income tax expense

Profit for the year from continuing operations

Attributable to:
Equity shareholders of Ferrexpo plc
Minority interests

Earnings per share:
Basic (US cents)
Diluted (US cents)

Year ended
31.12.09

Notes

Year ended
31.12.08

6
7

648,667
(341,067)

1,116,854
(434,238)

8
9
10
11
12

13
14
15
42

16
16
12

307,600

682,616

(162,266)
(43,161)
4,102
(3,418)
2,534

(152,528)
(67,185)
6,387
(38,040)
29,309

105,391

460,559

(2,757)
1,304
503
(427)
213 –
–

(27,326)
1,003
35,049
(4,120)

1,571

104,227

466,736

2,893
(23,718)
(2,552)

2,467
(20,834)
(72,788)

80,850

375,581

(9,852)

(62,533)

70,998

313,048

70,627
371

292,436
20,612

70,998

313,048

18
18

12.08
12.05

48.60
48.46

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Consolidated Statement of Comprehensive Income

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US$000

Profit for the period

Exchange differences on translating foreign operations
Exchange differences arising during the year
Exchange differences arising on hedging of foreign operations
Available-for-sale investments
Gain arising on revaluation during the year
Net loss on disposal of available-for-sale financial assets
Change in deferred taxes on transaction costs
Tax impact on employee benefits
Income tax effect

Other comprehensive income for the period, net of tax

Total comprehensive income for the period, net of tax

Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc
Minority interests

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Year ended
31.12.09

Year ended
31.12.08

70,998

313,048

(20,842)
(3,697)

(210,616)
(122,068)

400
–
–
–
2,895

–
(1,789)
(3,454)
(317)
40,805

(21,244)

(297,439)

49,754

15,609

49,633
121

49,754

16,304
(695)

15,609

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Financial Statements
Consolidated Statement of Financial Position

US$000

Assets
Property, plant and equipment
Goodwill and other intangible assets
Investments in associates
Available-for-sale financial assets
Other non-current assets
Deferred tax assets

Total non-current assets

Inventories
Trade and other receivables
Prepayments and other current assets
Income taxes recoverable and prepaid
Other taxes recoverable and prepaid
Available-for-sale financial assets
Cash and cash equivalents

Total current assets

Total assets

Equity and liabilities
Issued capital
Share premium
Other reserves
Retained earnings

Equity attributable to equity shareholders of Ferrexpo plc

Minority interests

Total equity

Interest bearing loans and borrowings
Trade and other payables
Defined benefit pension liability
Provision for site restoration
Deferred tax liabilities

Total non-current liabilities

Interest bearing loans and borrowings
Trade and other payables
Accrued liabilities and deferred income
Income taxes payable
Other taxes payable

Total current liabilities

Total liabilities

Total equity and liabilities

The financial statements were approved by the Board of Directors on 22 March 2010.

Kostyantin Zhevago
Chief Executive Officer

Christopher Mawe
Chief Financial Officer

Notes

As at
31.12.09

As at
31.12.08

20
21
14
22
23
24

25
26
27
28
28
22
29

30
30
30

31
32
33
34
24

31
32
35
28
28

452,100
100,354
19,915
2,917
9,824
13,673

412,440
103,755
18,640
4,435
10,116
14,043

598,783

563,429

59,636
38,117
19,394
9,741
81,284
626
11,991

61,270
59,636
18,108
5,835
57,285
650
87,822

220,789

290,606

819,572

854,035

121,628
185,112
(347,858)
501,175

121,628
185,112
(330,714)
470,098

460,057

446,124

11,387

11,769

471,444

457,893

18,143
–
14,529
1,268
3,739

231,373
570
12,940
1,071
5,298

37,679

251,252

251,379
27,926
12,146
11,105
7,893

74,523
35,033
14,470
14,439
6,425

310,449

144,890

348,128

396,142

819,572

854,035

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Consolidated Statement of Cash Flows

US$000

Net cash flows from operating activities

Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Purchases of available-for-sale financial assets
Interest received
Proceeds from loans to associates/(provided)

Net cash flows used in investing activities

Cash flows from financing activities
Proceeds from borrowings and finance
Repayment of borrowings and finance
Dividends paid to equity shareholders of Ferrexpo plc
Dividends paid to non-controlling shareholders
Proceeds from issue of share capital to minority interests
Acquisition of non-controlling interest in subsidiaries
Share buy back

Net cash flows used in financing activities

Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Currency translation differences

Cash and cash equivalents at the end of the year

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Notes

Year ended
31.12.08

76,869

370,943

(85,823)
213
(598)
–
2,104
6,450

(276,264)
2,016
(1,597)
(266)
2,472
(4,000)

(77,654)

(277,639)

35,637
(73,168)
(36,325)
(234)
–
–
–

172,143
(69,412)
(38,954)
(1,186)
2,123
(11,048)
(77,260)

(74,090)

(23,594)

(74,875)
87,822
(956)

69,710
86,966
(68,854)

15
30

11,991

87,822

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Financial Statements
Consolidated Statement of Changes in Equity

Attributable to equity shareholders of Ferrexpo plc

US$000

Issued
capital
(note 30)

Share
premium
(note 30)

Uniting
of
interest
reserve
(note 30)

At 1 January 2008

121,628 188,566

31,780

Profit for the period
Other comprehensive
income

Total comprehensive
income for the period
Equity dividends paid to
shareholders of
Ferrexpo plc
Equity dividends paid by
subsidiary undertakings
to non-controlling
shareholders
Share-based
payments (note 42)
Participation of
non-controlling
shareholders in
subsidiary share issue
Adjustments relating to
the decrease in minority
interests
Share buy back (note 30)

–

–
–

–

(3,454)

–

–
–

–

–
–

Employee
benefit

Net
trust unrealised

Treasury
share
reserve
(note 30)

–

–
(77,260)

reserve
(note 30
and 42)

gains Translation

reserve
(note 30)

reserve Retained
earnings

(note 30)

Total
capital
and
reserves

Minority
interests
(note 1)

Total
equity

(20,092)

2,384

186 216,616 541,068

45,854 586,922

–

– 292,436 292,436

20,612 313,048

(317)

(1,571) (270,790)

–

(276,132)

(21,307) (297,439)

(317)

(1,571) (270,790) 292,436

16,304

(695) 15,609

–

4,966

–

–
–

–

–
–

–

(38,954)

–

(38,954)

–

–
–

–

–
–

–

(301)

4,966

–

4,966

–

1,960

–
(77,260)

(35,049)
–

(35,049)
(77,260)

At 31 December 2008

121,628 185,112

31,780

(77,260) (15,443)

813 (270,604) 470,098 446,124

11,769 457,893

Profit for the period
Other comprehensive
income

Total comprehensive
income for the period
Equity dividends paid to
shareholders of
Ferrexpo plc
Share-based payments
(note 42)
Adjustments relating to
the decrease in
minority interests (note 15)

–

3,850

–

70,627

371

70,998

301

(21,295)

–

(20,994)

(250)

(21,244)

301

(21,295) 70,627

49,633

121

49,754

–

(39,550)

–

(39,550)

–

3,850

–

3,850

–

(503)

At 31 December 2009

121,628 185,112

31,780

(77,260) (11,593)

1,114 (291,899) 501,175 460,057

11,387 471,444

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Notes to the Consolidated Financial Information

Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the ‘Company’) is incorporated in the United Kingdom with registered office at 2–4 King Street, London, SW1Y 6QL, UK.
Ferrexpo plc and its subsidiaries (the ‘Group’) operate a mine and processing plant near Kremenchuk in Ukraine, an interest in a port in
Odessa and a sales and marketing company in Switzerland and Kiev. The Group’s operations are vertically integrated from iron ore
mining through to iron ore concentrate and pellet production. The Group’s mineral properties lie within the Kremenchuk Magnetic
Anomaly and are currently being exploited at the Gorishne-Plavninsky and Lavrikovsky deposits. These deposits are being jointly mined
as one mining complex.

The Group’s operations are largely conducted through Ferrexpo plc’s principal subsidiary, Ferrexpo Poltava GOK Corporation. The
Group comprises of Ferrexpo plc and its consolidated subsidiaries as set out below:

Name
Ferrexpo Poltava GOK Corporation1
Ferrexpo AG2
DP Ferrotrans3
United Energy Company LLC3
Ferrexpo UK Limited1
Ferrexpo Services Limited1
Ferrexpo Hong Kong Limited1
Ferrexpo Yeristovo GOK LLC4
Ferrexpo Belanovo GOK LLC4

Country of incorporation
Ukraine
Switzerland
Ukraine
Ukraine
England
Ukraine
China
Ukraine
Ukraine

Principal activity
Iron ore mining
Sale of iron ore pellets
Trade, transportation services
Holding company
Finance
Management services and procurement
Marketing services
Iron ore mining
Iron ore mining

Equity interest
owned at
31 December

2009
%
97.3
100.0
97.3
97.3
100.0
100.0
100.0
98.6
98.6 –

2008
%
97.1
100.0
97.1
97.1
100.0
100.0
100.0
98.5

1 The Group’s interest in these entities is held through Ferrexpo AG. For details in respect to the change in equity interest we refer to note 15.
2 Ferrexpo AG was the holding company of the Group until, as a result of the pre-IPO restructuring; Ferrexpo plc became the holding company on 24 May 2007.
3 The Group’s interest in these entities is held through Ferrexpo Poltava GOK Corporation.
4 The Group’s interest in this entity is held through both Ferrexpo AG and Ferrexpo Poltava GOK Corporation.

The Group also holds an interest of 49.9% (2008: 49.9%) in TIS Ruda, a Ukrainian port located on the Black Sea. As this is an
associate, it is accounted for using the equity method of accounting and further disclosed in note 14.

Note 2: Summary of significant accounting policies
Basis of preparation
The consolidated financial statements of Ferrexpo plc and its subsidiaries have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union (EU). IFRS as adopted by the EU differs in certain respects
from IFRS as issued by the International Accounting Standards Board (IASB). However, the consolidated financial statements for the
years presented would be no different had the Group applied IFRS as issued by the IASB.

The consolidated financial statements have been prepared on a historical cost basis, except for post-employment benefits and
available-for-sale financial instruments, the latter measured at fair value in accordance with the requirements of IAS 39 ‘Financial
instruments: Recognition and measurement’, the former measured in accordance with IAS 19 ‘Employee benefits’. The consolidated
financial statements are presented in thousands of US dollars and all values are rounded to the nearest thousand except where
otherwise indicated.

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the
preparation of the Group’s annual financial statements for the year ended 31 December 2008, except for those changes detailed in
note 3. Risks in relation to the facilities and re-financing are contained in the Business Review of this report.

Basis of consolidation
The consolidated financial statements comprise the financial statements for Ferrexpo plc and its subsidiaries as at 31 December each
year. The financial statements of the subsidiaries are prepared as at the same reporting date as Ferrexpo plc’s, using consistent
accounting policies.

All intercompany balances and transactions including unrealised profits arising from intra-group transactions have been eliminated in
full. Unrealised losses are eliminated unless costs cannot be recovered.

Business combinations
Subsidiaries acquired are fully consolidated from the date of acquisition, being the date on which the Group obtains effective control,
and are accounted for using the purchase method of accounting. Similarly, subsidiaries disposed of are deconsolidated from the date
on which the Group ceases to hold effective control.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 2: Summary of significant accounting policies continued
Subsidiaries acquired from entities under common control, such that the ultimate controlling party has not changed as a result of the
transaction, are fully consolidated from the earliest period presented, but not before the date that they came under common control.
As there is currently no specific IFRS guidance relating to this issue the Group has developed a policy that is consistent with the
pronouncements under UK GAAP. The Group’s subsidiaries are accounted for using the pooling of interests method of accounting
whereby net assets are pooled at their historic carrying value. This has been applied in the accounting for Ferrexpo plc’s interest in
Ferrexpo Poltava GOK Corporation, the principal subsidiary.

Changes in ownership interests in subsidiaries
The Group has adopted the parent extension concept method of accounting for changes in ownership interest in subsidiaries. The
differences between the carrying values of net assets attributable to interests in subsidiaries acquired (or disposed of) and the
consideration given (or received) for such increases are recorded as goodwill.

Investments in associates
The Group’s investments in associates are accounted for under the equity method of accounting. An associate is an entity in which
the Group has significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post-acquisition
changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the
investment and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise
any additional impairment loss with respect to the Group’s net investment in the associate. The income statement reflects the share of
the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the
Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity.

The reporting dates of the associates and Ferrexpo plc are identical and the associates’ accounting policies conform to those used
by the Group.

Functional and presentational currencies
Based on the economic substance of the underlying business transactions and circumstances relevant to the parent, the functional
currency of the parent has been determined to be the US dollar, with each subsidiary determining its own functional currency based
on its own circumstances. The Group has chosen the US dollar as its presentation currency and Ferrexpo Poltava GOK Corporation
(the principal subsidiary) has determined that its functional currency is Ukrainian hryvnia.

Foreign currency translation
For individual subsidiary Company accounts, transactions in foreign currencies (ie other than the functional currency) are recorded at
the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the
functional currency at the rate of exchange ruling at the reporting date and non-monetary assets and liabilities at the historic rate.
Foreign exchange differences arising on translation are recognised in the income statement.

For presentation of Group consolidated accounts, if the functional currency of a subsidiary is different to the presentation currency as
at the reporting date, the assets and liabilities of this entity are translated into the presentation currency at the rate ruling at the
reporting date and the income statement is translated using the average exchange rate for the period. The foreign exchange
differences arising are taken directly to a separate component of equity. On disposal of a foreign entity the deferred cumulative
amount recognised in equity relating to the particular foreign operation is recognised in the income statement.

Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably
measured. The following specific recognition criteria must also be met before revenue is recognised:

Sale of goods including pellet sales and other sales
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be
reliably measured.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods
provided in the normal course of business, net of discounts, customs duties and sales taxes. Risks and rewards of the ownership of
goods passes when title for the goods passes to the customer. This is determined by the terms of the sales agreement. Typically,
sales are made FOB (Free On Board), CIF (Cargo Insurance and Freight) or DAF (Delivery At Frontier).

Other sales include the processing and sale of ore and ore concentrate, the sale of parts, materials and crushed rocks and the repair
and rental of railway wagons.

Rendering of services
Revenue from the rendering of services is recognised when services are complete. Sales of services primarily include repairs and
spare parts, canteen revenue and recharges to local customers for electricity consumption and railway usage.

Rental income
Rental income arising from operating leases is accounted for on a straight-line basis over the lease terms.

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Foreign exchange gains and losses
Foreign exchange gains and losses are reported on a net basis. Operating foreign exchange gains and losses are those items that are
directly related to the production and sale of pellets (eg trade receivables, trade payables on operating expenditure). Non-operating
gains and losses are those associated with the Group’s financing and treasury activities.

Finance income and expense
Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in the income statement
using the effective interest method.

Finance expenses comprise the interest expense on borrowings and other financial liabilities.

Taxes
Current income tax
Current tax assets and liabilities for the current and prior periods are measured at the amount estimated to be recovered from or paid
to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively
enacted by the reporting date.

Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, if it is probable that they become taxable, except:
>

where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures,
where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences
will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused
tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and
the carry forward of unused tax credits and unused tax losses can be utilised except:
>

where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset
or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint
ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the
foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised
deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that
future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised
or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Value added tax
Revenues, expenses and assets are recognised net of the amount of value added tax (‘VAT’) except:
>

where VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case VAT is
recognised as part of the cost of acquisition of the asset or as part of expense item as applicable; and
receivables and payables are stated with the amount of VAT included.

The net amount of VAT recoverable from, or payable to, the taxation authority is disclosed in the note 28 to the financial statements.

Overdue VAT receivable balances are not discounted.

Equity
Ordinary Shares
Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary Shares and share options are
recognised as a deduction from equity, net of any tax effects.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 2: Summary of significant accounting policies continued
Employee benefit trust reserve
Ferrexpo plc shares held by the Group are classified in capital and reserves as the ‘employee benefit trust reserve’ and recognised at
cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale
and the original cost taken to revenue reserves. No gain or loss is recognised on the purchase, issue or cancellation of equity shares.

Treasury shares
Own equity instruments which are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is
recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any
difference between the carrying amount and the consideration is recognised in other capital reserves.

Financial assets
Derivative financial instruments
The Group does not hold any derivative financial instruments.

Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities (promissory notes), trade and other
receivables, cash and cash equivalents, loans and borrowings and trade and other payables. Non-derivative financial instruments are
recognised at fair value (being the fair value of the consideration given or received) plus any directly attributable transaction costs.

All regular way purchases and sales of financial assets are recognised on the trade date (ie the date that the Group commits to
purchase or sell the asset). Regular way purchases or sales are those that require delivery of assets within the period generally
established by regulation or convention in the marketplace.

The Group has not designated any financial assets as at fair value through profit or loss (FVTPL).

Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when the
loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets
All investments, except for investments in associates are accounted for as available-for-sale. Available-for-sale financial assets are
those non-derivative financial assets that are designated as available-for-sale or are not classified as either loans or receivables,
held-to-maturity investments or financial assets at fair value through profit or loss (FVTPL).

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or
losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised. At this time
the cumulative gain or loss is recognised in other operating income, or determined to be impaired, at which time the cumulative loss is
recognised in the income statement in finance costs and removed from the available-for-sale reserve.

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid
prices at the close of business on the reporting date. For investments where there is no active market, the fair value is determined
using discounted cash flow analysis.

Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest method less any impairment losses.

Financial liabilities
Trade and other payables
Trade and other payables are recognised and initially measured at cost. Subsequently, instruments with a fixed maturity are
remeasured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any
transaction costs and any discount or premium on settlement. Financial liabilities which do not have a fixed maturity are subsequently
carried at fair value.

Interest bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction
costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective
interest method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through
the amortisation process.

Impairment of financial assets
The Group assesses at each reporting date whether a financial asset or group of financial assets is impaired.

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The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually
significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective
evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group
of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not
included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an
impairment loss is recognised in the income statement to the extent that the carrying value of the asset does not exceed its amortised
cost at the reversal date.

Available-for-sale financial assets
For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an
investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in
the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss (measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the
income statement) is removed from other comprehensive income and recognised in the income statement.

Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment
are recognised directly in other comprehensive income.

Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date,
i.e. whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to
use the asset.

Group as a lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are
capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will
obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset
and the lease term.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating
leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and
recognised over the lease term on the same bases as rental income.

Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing
costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection
with the borrowing of funds.

The Group capitalises borrowing costs for all eligible assets where construction was commenced on or after 1 January 2009. The
Group continues to expense borrowing costs relating to construction projects that commenced prior to 1 January 2009.

Property, plant and equipment
Property, plant and equipment is stated at cost at the date of transition to IFRS (hereinafter referred to as ‘the cost’) less accumulated
depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an
appropriate proportion of production overheads.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 2: Summary of significant accounting policies continued
Upon recognition, items of property, plant and equipment are divided into components, which represent items with a significant value
that can be allocated to a separate depreciation period. Overhaul costs also represent a component of an asset. Assets are initially
recognised in assets under construction and then transferred to the appropriate categories on completion.

Major spare parts and stand-by equipment qualify as property, plant and equipment when they are expected to be used during more
than one period.

Expenditure incurred after the properties have been put into operation, such as repairs and maintenance and overhaul costs, are
normally charged to the income statement in the period the costs are incurred. In situations where it can be clearly demonstrated that
the expenditure results in future economic benefits, the expenditure is capitalised as an additional cost.

Property, plant and equipment is depreciated over its estimated useful life which is calculated with due regard to both its own physical
life limitations and the present assessment of economically recoverable reserves of the mine property at which the item is located.
Estimates of remaining useful lives are made on a regular basis for all mine buildings, machinery and equipment, with annual
reassessments for major items. Changes in estimates, which affect unit of production calculations, are accounted for prospectively.
Depreciation commences when the item is available for use. Freehold land is not depreciated.

Except for mining assets which are depreciated using the unit of production method, depreciation is calculated on a straight-line basis
over the estimated useful life of the asset, as follows:
>
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Buildings:
Plant and equipment:
Vehicles:
Fixtures and fittings:

20–50 years
5–15 years
7–15 years
2.5–10 years

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised.

Assets in the course of construction are capitalised as a separate component of property, plant and equipment. On completion, the
cost of construction is transferred to the appropriate category. Assets under construction are not depreciated.

On acquisition the cost of property, plant and equipment is capitalised on the statement of financial position.

Stripping costs included in mining assets and assets under construction
Stripping costs in relation to mine exploration, evaluation and development costs incurred up to the commencement of the production
are included in assets under construction. Stripping work comprises overburden removed at the pre-production, mine extension and
production stages.

After the commencement of production, the respective pre-production stripping costs are transferred to mining assets and
depreciated using a unit of production method based on the estimated economically recoverable reserves to which they relate.

The production stripping costs are generally charged to the income statement as variable production costs. The production stripping
costs are only capitalised if the stripping activities are related to a betterment of the mining property and the duration of the future
benefits is ascertained without a high degree of judgement. If capitalised, the production stripping costs are included in mining assets
and depreciated using the same methodology as for the capitalised pre-production stripping costs (see above).

The cost of removal of the waste material during a mine’s production phase is expensed as incurred.

Intangible assets
Goodwill
Goodwill is not amortised but rather tested annually for impairment through a value-in-use calculation. An impairment loss in respect
of goodwill is not reversed. Refer to note 4 for details of the approach taken and assumptions used in impairment testing.

To the extent that the fair value of the acquired entity’s identifiable assets and liabilities is greater than the cost of investment, a gain is
recognised immediately in the income statement.

Other intangible assets
Other intangible assets, including mineral licences, which are acquired by the Group and which have finite useful lives, are stated at
cost less accumulated amortisation and impairment losses.

Amortisation
Intangible assets, other than goodwill, primarily comprise mineral licence acquisition costs, which are amortised on a unit of
production basis. All other intangible assets are amortised on a straight-line basis over the estimated useful life of the asset, ranging
between one and 20 years.

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Impairment of assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists,
or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An
asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value-in-use and is
determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other
assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their
present value using a market-determined pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset. Impairment losses of continuing operations are recognised in the income statement.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses
may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised
impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since
the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount.
That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment
loss been recognised for the asset in prior years. Such reversal is recognised in the income statement. After such a reversal the
depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a
systematic basis over its remaining useful life.

Impairment losses relating to goodwill cannot be reversed in future periods.

Inventories
Inventories are valued at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:
>
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Raw materials – at cost on a first-in, first-out basis.
Finished goods and work in progress – at cost of direct materials and labour and a proportion of manufacturing overheads based
on normal operating capacity but excluding borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the
estimated costs necessary to make the sale.

Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The
expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of
money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Site restoration costs
Site restoration provisions are made in respect of the estimated future costs of closure and restoration and for environmental
rehabilitation costs (determined by an independent expert) in the accounting period when the related environmental disturbance
occurs. The provision is discounted where material and the unwinding of the discount is included in finance costs. At the time of
establishing the provision, a corresponding asset is capitalised where it gives rise to a future benefit and depreciated over future
production from the mine to which it relates.

The provision is reviewed on an annual basis for changes in cost estimates, discount rates or the life of operations.

Pension obligations and other employee benefits
The Group makes defined contributions to the Ukrainian state pension scheme at the statutory rates in effect during the year, based
on gross salary payments; such expense is charged in the period the related salaries are earned.

In addition, the Group has a legal obligation to compensate the Ukrainian State Pension Fund for additional pensions paid to certain
categories of the current and former employees of the Group. These obligations being unfunded are substantially similar to those
typically existing under an unfunded defined benefit plan.

The Group also makes contributions to the defined benefit pension fund for employees of Ferrexpo AG.

Costs relating to these plans are accrued in the consolidated financial statements using the projected unit credit method in respect of
those employees entitled to such payments. Management uses actuarial techniques in calculating the liability related to this retirement
obligation at each reporting date.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 2: Summary of significant accounting policies continued
Gains and losses resulting from the use of external actuarial valuation methodologies are recognised when the cumulative
unrecognised actuarial gains or losses for the scheme exceed 10% of the defined benefit obligation for unfunded plans and the higher
of planned assets/obligation for funded schemes. These gains or losses are recognised as income or expense over the expected
average remaining working lives of the employees participating in the plan.

The past service cost is recognised as an expense on a straight-line basis over the average period until the benefits become vested. If
the benefits are already vested immediately following the introduction of, or changes to, a pension plan, the past service cost is
recognised immediately.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not
recognised reduced by the past service cost not yet recognised.

Earnings per share
The basic number of Ordinary Shares is calculated based on the weighted average number of shares in issue, excluding shares held
in treasury.

For the current and prior year periods, basic EPS is calculated by dividing the net profit for the year attributable to ordinary equity
shareholders of Ferrexpo plc by the number of Ordinary Shares as defined above. The number of Ordinary Shares in issue excludes
the shares held by the Employee Benefit Trust and the treasury shares held by the Group. Diluted earnings per share is calculated by
adjusting the number of Ordinary Shares in issue on the assumption of conversion of all potentially dilutive Ordinary Shares. All share
awards are potentially dilutive and have been included in the calculation of diluted earnings per share.

Share-based payments
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the grant date and is recognised
as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award.
Fair value is determined by reference to the quoted closing share price on the grant date.

In valuing equity-settled transactions, no account is taken of any vesting conditions, except for market conditions.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is dependent upon a market
condition. In these cases, the awards are treated as vesting irrespective of whether or not the market condition is satisfied, provided
that all other performance conditions are satisfied.

At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has
expired and management’s best estimate of the achievement or otherwise of non-market conditions and of the number of equity
instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the
income statement, with a corresponding entry in equity.

Long-Term Incentive Plans (LTIPs)
The LTIPs are share-based schemes whereby certain senior management and executives receive rewards based on the relative Total
Shareholder Return (TSR) performance of the Group compared with a group of companies which operate within a similar
environment. The cost of equity-settled awards is measured as described above together with an estimate of future social security
contributions payable in respect of this value. Where the granting of an LTIP is subject to the satisfaction of certain market conditions,
a vesting charge is recognised irrespective of whether or not the market condition is satisfied, provided that all other performance
conditions are satisfied.

Where an award terminates before the performance period is complete, any unamortised expense is recognised immediately.

Events after the reporting date
Events after the reporting date that provide additional information on the Group’s position at the reporting date (adjusting events) are
reflected in the consolidated financial statements. Events after the reporting date that are not adjusting events are disclosed in the
notes when material.

Note 3: New accounting policies
The Group adopted the following new and amended standards as at 1 January 2009:

Standards affecting presentation and disclosures
IFRS 7 Financial instruments: Disclosures (amendments)
The amendments to the standard outline additional disclosure requirements for fair value measurements and in respect of the liquidity
risk. The Group adopted the amendments resulting in the disclosure of fair value hierarchy table in the notes to the financial
statements. The Group has elected not to provide comparative information for these expanded disclosures in the current year in
accordance with the transitional reliefs offered in these amendments.

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IFRS 8 Operating Segments (new)
This standard requires disclosure of information about the Group’s operating segments and replaces the requirement to determine
primary (business) and secondary (geographical) reporting segments of the Group. Adoption of this standard did not have any effect
on the financial position or performance of the Group. The Group determined that it only has one operating segment under the new
standard. Additional description of the operating segment under IFRS 8 and the segments under IAS 14 Segment Reporting are
shown in note 5.

IAS 1 Presentation of Financial Statements (revised)
The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of
transactions with owners, with non-owner changes in equity presented as a single line. In addition, the standard introduces the
statement of comprehensive income: it presents all items of recognised income and expense, either in one single statement, or in two
linked statements. The Group has elected to present two statements which are contained on pages 64 and 65 of the financial
statements.

IAS 23 Borrowing Costs (revised)
The standard has been revised to require capitalisation of borrowing costs on qualifying assets and the Group has amended its
accounting policy accordingly. In accordance with the transitional requirements of the standard this has been adopted as a
prospective change. Therefore, borrowing costs have been capitalised on qualifying assets with a commencement date on or after
1 January 2009. No changes have been made for borrowing costs incurred prior to this date that have been expensed.

None of the above stated standards affected the reported result or financial position.

Standards and interpretations adopted with no effect on presentation and disclosure
IFRS 2 Share-based Payment – Vesting Conditions and Cancellations (amendments)
The standard has been amended to clarify the definition of vesting conditions and to prescribe the accounting treatment of an award
that is effectively cancelled because a non-vesting condition is not satisfied. The adoption of this amendment did not have any impact
on the financial position or performance of the Group.

IAS 32 Financial Instruments: Presentation and IAS 1 Puttable Financial Instruments and Obligations Arising on
Liquidation (amendments)
The standards have been amended to allow a limited scope exception for puttable financial instruments to be classified as equity if
they fulfil a number of specified criteria. The adoption of these amendments did not have any impact on the financial position or
performance of the Group.

IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items (amendments)
The amendments address the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or
portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow
variability of a financial instrument as hedged item. The Group has concluded that the amendment had no impact on the financial
position or performance of the Group, as the Group has not entered into any such hedges.

New standards and interpretations not yet adopted
The Group has elected not to early adopt the following revised and amended standards:

IFRS 3 Business combinations (revised) and IAS 27 Consolidated and separate financial statements (revised)
The revised standards were issued in January 2008 and become effective for financial years beginning on or after 1 July 2009. The
changes will affect future acquisitions or loss of control and transactions with minority interests. The standards may be early-adopted
however the Group does not intend to take advantage of this possibility.

IAS 7 Statement of cash flows (amendments)
The revision to IAS 27 principally affects the accounting for transactions or events that result in change in the Group’s interest in
subsidiaries. The amendments will be adopted for the Group’s financial statements for the period beginning 1 January 2010.

IAS 28 Investments in associates (revised)
The principle adopted under IAS 27 (2008) that a loss of control is recognised as a disposal and re-acquisition any retained interests
at fair value is extended by consequential amendment to IAS 28. The Group does not intend to take advantage of the possibility of an
early adoption. The revised standard will be adopted for the Group’s financial period beginning 1 January 2010.

IFRIC 17 Distributions of Non-cash Assets to Owners
This interpretation is effective for annual periods beginning on or after 1 July 2009 with early application permitted. It provides
guidance on how to account for non-cash distributions to owners. The interpretation clarifies when to recognise a liability, how to
measure it and the associated assets, and when to derecognise the asset and liability. The Group does not expect IFRIC 17 to have
an impact on the consolidated financial statements as the Group has not made non-cash distributions to shareholders in the past.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 4: Use of estimates
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are
based on information available as at the date of authorising the consolidated financial statements for issue. Actual results, therefore,
could differ from those estimates.

In particular, information about significant areas of estimation, uncertainty and critical judgements made by management in preparing
the consolidated financial information are described in the following notes:

Property, plant and equipment
The determination of fair value and value-in-use requires management to make estimates and assumptions about expected
production and sales volumes, commodity prices (considering current and historical prices, price trends and related factors),
reserves, operating costs, closure and rehabilitation costs and future capital expenditure. These estimates and assumptions are
subject to risk and uncertainty; hence there is a possibility that changes in circumstances will alter these projections, which may
impact the recoverable amount of the assets. In such circumstances, some or all of the carrying value of the assets may be impaired
and the impairment would be charged against the income statement.

Property, plant and equipment items of the Group were subject to a cost as at 1 January 2003, the date of Group’s transition to IFRS,
performed by independent appraisers. The value of buildings and construction was determined with reference to the market value.
Buildings and construction of a specialised nature were valued at their depreciated replacement cost. This fair value has been
adopted by the Group as the deemed cost at the transition date to IFRS.

The calculation of the average stripping ratio is based on the total estimated proved and probable reserves and is used to determine
whether stripping costs are capitalised as mining assets or whether capitalised costs are released through the income statement.

Goodwill and other intangibles
Formal impairment tests are carried out annually for goodwill. Formal impairment tests for all other assets are performed when there
is an indication of impairment. At each reporting date, an assessment is made to determine whether there are any indications of
impairment. The Group conducts annually an internal review of asset values which is used as a source of information to assess for
any indications of impairment.

External factors, such as changes in expected future processes, costs and other market factors are also monitored to assess for
indications of impairment. If any indication of impairment exists an estimate of the asset’s recoverable amount is calculated. The
recoverable amount is determined as the higher of fair value less direct costs to sell and the asset’s value-in-use.

If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to the
income statement so as to reduce the carrying amount in the statement of financial position to its recoverable amount.

Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between
knowledgeable and willing parties. Fair value for mining assets is generally determined as the present value of the estimated future
cash flows expected to arise from the continued use of the asset, including any expansion prospects, and its eventual disposal, using
assumptions that an independent market participant may take into account. These cash flows are discounted by an appropriate
discount rate to arrive at a net present value of the asset.

Value-in-use is determined as the present value of the estimated future cash flows expected to arise from the continued use of the
asset in its present form and its eventual disposal. Value-in-use is determined by applying assumptions specific to the Group’s
continued use and cannot take into account future development. These assumptions are different to those used in calculating fair
value and consequently the value-in-use calculation is likely to give a different result (usually lower) to a fair value calculation.

In testing for indications of impairment and performing impairment calculations, assets are considered as collective groups and
referred to as cash-generating units. Cash-generating units are the smallest identifiable group of assets, liabilities and associated
goodwill that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill
acquired through business combinations has been allocated for impairment testing purposes to one cash-generating unit. This
represents the lowest level within the Group at which goodwill is monitored for internal management purposes. For the year ended
31 December 2009 cash flows have been projected for a maximum of 20 years.

The impairment assessments are based on a range of estimates and assumptions, including:

Estimates/assumptions
Future production
Commodity prices
Exchange rates
Discount rates

Basis
Proved and probable reserves, resource estimates and, in certain cases, expansion projects
Contract prices, and longer-term price protocol estimates
Current market exchange rates
Cost of capital risk adjusted for the resource concerned

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Fair value of financial instruments
Where the fair value of financial assets and liabilities recorded in the statement of financial position cannot be derived from active
markets, they are determined using valuation techniques including the discounted cash flow model. The inputs to these models are
taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair
values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about
these factors could affect the reported fair value of financial instruments.

Defined benefit pension liability
The valuation for defined benefit superannuation schemes requires management to make judgements as to the nature of benefits
provided by each scheme and thereby determine the classification of each scheme. For defined benefit schemes, management is
required to make annual estimates and assumptions about future returns on classes of scheme assets, future remuneration changes,
employee attrition rates, administration costs, changes in benefits, inflation rates, exchange rates, life expectancy and expected
remaining periods of service of employees. In making these estimates and assumptions, management considers advice provided by
external advisers, such as actuaries.

Provision for site restoration
The Group’s accounting policy for the recognition of site restoration provisions requires significant estimates and assumptions such
as: requirements of the relevant legal and regulatory framework; the magnitude of possible contamination and the timing, extent and
costs of required closure and rehabilitation activity. These uncertainties may result in future actual expenditure differing from the
amounts currently provided.

The provision recognised is periodically reviewed and updated based on the facts and circumstances available at the time. Changes
to the estimated future costs are recognised in the statement of financial position by adjusting both the closure and rehabilitation
asset and provision.

Deferred income tax
The Group’s accounting policy for taxation requires management’s judgement as to the types of arrangements considered to be a tax
on income in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred
tax liabilities are recognised on the statement of financial position. Deferred tax assets, including those arising from unrecouped tax
losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be
recovered, which is dependent on the generation of sufficient future taxable profits. Deferred tax liabilities arising from temporary
differences in investments, caused principally by retained earnings held in foreign tax jurisdictions, are recognised unless repatriation
of retained earnings can be controlled and are not expected to occur in the foreseeable future.

Assumptions about the generation of future taxable profits and repatriation of retained earnings depend on management’s estimates
of future cash flows. These depend on estimates of future production and sales volumes, commodity prices, reserves, operating
costs, closure and rehabilitation costs, capital expenditure, dividends and other capital management transactions. Judgements are
also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty,
hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets
and deferred tax liabilities recognised on the statement of financial position and the amount of other tax losses and temporary
differences not yet recognised. In such circumstances, some, or all, of the carrying amount of recognised deferred tax assets and
liabilities may require adjustment, resulting in a corresponding credit or charge to the income statement.

Note 5: Segment information
The Group is managed as a single entity which produces, develops and markets its principal product – iron ore pellets – for sale to
the metallurgical industry. In accordance with IFRS 8 Operating Segments, the Group presents its results in a single segment which
are disclosed in the income statement for the Group.

In the prior period, in accordance with the requirements of IAS 14 Segment Reporting, the Group disclosed geographical segments
split between Ukraine and Switzerland. This is no longer required.

The Group does not generate significant revenues from external customers attributable to the country of domicile. The information on
the revenues from external customers attributed to the individual foreign countries is given in note 6.

The Group does not have any significant non-current assets that are located in the country of domicile of the Group. The vast majority
of the non-current assets are located in Ukraine.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 6: Revenue
Revenue for the year ended 31 December 2009 consisted of the following:

US$000

Revenue from sales of ore pellets:
Export
Ukraine

Revenue from services provided
Revenue from other sales

Total revenue

Export sales by geographical destination were as follows:

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US$000

China
Austria
Serbia
Slovakia
Turkey
Czech Republic
India
Hungary
Germany
Japan
Russia
Poland
Bulgaria
Italy
Other

Total exports

Year ended
31.12.09

Year ended
31.12.08

612,829
34,483

973,420
134,413

647,312

1,107,833

790
565

1,229
7,792

648,667

1,116,854

Year ended
31.12.09

Year ended
31.12.08

241,882
105,690
84,193
77,537
39,272
21,293
21,225 –
6,539 –
5,573 –
5,027
–
–
–
–
4,598

173,761
298,209
170,972
117,093
30,649
80,746

34
42,606
31,708
12,189
10,340
5,113

612,829

973,420

During the year ended 31 December 2009 sales made to three customers accounted for approximately 51.9% of the sales revenue
(2008: 52.5%).

Sales made to two customers individually amounted to more than 10% of the total sales. These are disclosed below:

US$000

Customer A
Customer B

Year ended
31.12.09

Year ended
31.12.08

161,730
105,690

288,065
298,209

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Note 7: Cost of sales
Cost of sales for the year ended 31 December 2009 consisted of the following:

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US$000

Materials
Purchased ore and concentrate
Electricity
Personnel costs
Spare parts and consumables
Depreciation and amortisation
Fuel
Gas
Repairs and maintenance
Royalties and levies
Stock movement
Other

Total cost of sales

Cost of sales is reconciled to ‘C1’ costs in the following manner:

US$000

Cost of sales
Depreciation and amortisation
Purchased ore and concentrate
Processing costs for purchased ore and concentrate
Production cost of gravel
Stock movement in the period
Pension service costs
Other

C1 cost

Own ore produced (tonnes)
C1 cash cost per tonne (US$)

Year ended
31.12.09

Year ended
31.12.08

60,607
8,914
81,438
41,670
13,007
23,370
23,969
28,744
38,503
6,484
10,543
3,818

79,321
47,491
92,021
68,781
17,613
28,860
41,517
34,106
33,120
6,764
(19,596)
4,240

341,067

434,238

Year ended
31.12.09

Year ended
31.12.08

341,067
(23,370)
(8,914)
(1,206)
(357)
(10,543)
(1,857)
1,662

434,238
(28,860)
(47,491)
(5,418)
(375)
19,596
(5,058)
(2,214)

296,482

364,418

8,609,200
34.44

8,607,500
42.34

‘C1’ costs represent the cash costs of production of iron pellets from own ore divided by production volume of own ore, and excludes
non-cash costs such as depreciation, pension costs and stock movements, costs of purchased ore, concentrate and production cost
of gravel and excludes one-off items which are outside the definition of EBITDA.

Note 8: Selling and distribution expenses
Selling and distribution expenses for the year ended 31 December 2009 consisted of the following:

US$000

Railway transportation
Other transportation and port charges
Agent fees
Custom duties
Advertising
Personnel cost
Depreciation
Other

Total selling and distribution expenses

Year ended
31.12.09

Year ended
31.12.08

69,477
80,998
799
1,423
2,757
1,055
1,581
4,176

95,477
43,697
1,656
1,678
2,395
1,448
1,406
4,771

162,266

152,528

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 9: General and administrative expenses
General and administrative expenses for the year ended 31 December 2009 consisted of the following:

US$000

Personnel costs
Buildings and maintenance
Taxes other than income tax and other charges
Consulting and other professional fees
Depreciation and amortisation
Communication
Vehicles maintenance and fuel
Repairs
Audit fees
Non-audit fees
Security
Research
Other

Total general and administrative expenses

Year ended
31.12.09

Year ended
31.12.08

23,933
2,391
3,930
2,731
2,534
529
854
1,041
1,112
184
1,659
1
2,262

43,161

38,900
3,092
4,185
7,000
3,137
826
1,096
1,120
1,348
1,153
1,641
352
3,335

67,185

Auditor remuneration
Auditor remuneration paid in respect of the audit of the financial statements of the Group and its subsidiary companies and for the
provision of other services not in connection with the audit is disclosed below:

US$000

Audit services
Ferrexpo plc Annual Report
Subsidiary entities

Total audit services

Non-audit services
Tax advisory
Assurance related services
Other

Total non-audit services

Total auditor remuneration

Note 10: Other income
Other income for the year ended 31 December 2009 consisted of the following:

US$000

Sale of surplus maintenance spares
Lease income
Reversal of fines and penalties
Refunds from social security institutions
Other income

Total other income

Year ended
31.12.09

Year ended
31.12.08

628
484

1,112

154
–
30

184

1,296

1,058
290

1,348

742
323
88

1,153

2,501

Year ended
31.12.09

Year ended
31.12.08

867
670
4
1,735 –
826

4,102

3,434
1,090
926

937

6,387

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Note 11: Other expenses
Other expenses for the year ended 31 December 2009 consisted of the following:

US$000

Charitable donations
Doubtful debts expense
Loss on disposal of plant, property and equipment
Other personnel costs
Foreign exchange difference arising on consolidation
Other

Total other expenses

Year ended
31.12.09

Year ended
31.12.08

4,043
(5,199)
1,121
830
–
2,623

6,081
18,755
1,280
1,056
5,992
4,876

3,418

38,040

The allowance for doubtful debts relates to receivables from certain customers in Russia and other former CIS countries. Following a
stabilisation in the markets during the latter part of the financial year the recorded allowance has been partially released.

Note 12: Foreign exchange gains and losses

US$000

Operating foreign exchange gains
Revaluation of trade receivables
Revaluation of trade payables

Total operating foreign exchange gains

Non-operating foreign exchange losses
Revaluation of interest-bearing loans
Revaluation of cash equivalents
Other

Total non-operating foreign exchange losses

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Year ended
31.12.09

Year ended
31.12.08

1,818
716

2,534

31,200
(1,891)

29,309

(1,639)
84
(997)

(85,907)
13,422
(303)

(2,552)

(72,788)

Note 13: Write-offs and impairment losses
Impairment losses relate to adjustments made against the carrying value of assets where this is higher than the recoverable amount.
Write-offs and impairment losses for the year ended 31 December 2009 consisted of the following:

US$000

Write-off of inventories
Write-off of property, plant and equipment
Impairment of available-for-sale assets

Total write-offs and impairment losses

Note 14: Investments in associates
As at 31 December 2009 investments in associates comprised:

Year ended
31.12.09

Notes

Year ended
31.12.08

144
717
1,896

2,757

941
21
26,364

27,326

TIS Ruda

Port development

Ukraine

49.9

19,915

Principal
activity

Country of

incorporation Ownership %

As at
31.12.09
US$000

As at
31.12.08
US$000

18,640

For the year ended 31 December 2009 the summarised financial information for the associate was as follows:

US$000

TIS Ruda

Total assets

Total liabilities

Revenue

Net profit

As at
31.12.09

27,187

As at
31.12.08

29,672

As at
31.12.09

4,837

As at Year ended
31.12.09

31.12.08

Year ended Year ended
31.12.09

31.12.08

Year ended
31.12.08

9,048

20,147

18,865

2,614

2,010

The information above is for 100% of the associate named and not as a percentage based on Group ownership. The movement in the
investment in the year represents the Group’s share of profit of US$1,304,000 in TIS Ruda (2008: US$1,003,000).

TIS Ruda operates a port on the Black Sea which the Group uses as part of its distribution channel.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 15: Negative goodwill
Negative goodwill arose as a result of several equity transactions in Ferrexpo Poltava GOK Corporation during the prior period:

Rights issues
On 30 June 2008 Ferrexpo AG purchased additional shares in the Ferrexpo Poltava GOK Corporation in to which certain minorities
did not participate, thus increasing its shareholding from 85.9% to 87.8%. As a result Ferrexpo AG held a larger proportion of
previously generated retained profit. The resulting negative goodwill of US$5,077,018 was recognised in the income statement in
accordance with the Group’s accounting policy on accounting for changes in ownership interests in subsidiaries.

A second rights issue occurred on 16 December 2008, increasing Ferrexpo AG’s shareholding to 90.9%. This resulted in an additional
negative goodwill charge of US$5,027,479.

Treasury shares in Ferrexpo Poltava GOK Corporation
On 22 December 2008, Ferrexpo Poltava GOK Corporation repurchased own shares from DCM Decometal International Trading
GmbH (‘DCM’). These shares were placed in treasury for cancellation or subsequent sale to its principal shareholder, Ferrexpo AG.
Ferrexpo AG. As a result of this transaction Ferrexpo AG’s shareholding increased to 97.1%, which resulted in a further negative
goodwill charge of US$24,944,267 recognised through the income statement.

In 2009, the remaining treasury shares of Ferrexpo Poltava GOK Corporation have been transferred to Ferrexpo AG resulting in an
increase of the shareholding from 97.1% to 97.3%. This transaction resulted in a negative goodwill of US$503,000 which is included in
the income statement.

Note 16: Finance income and expense
Finance income and expenses for the year ended 31 December 2009 consisted of the following:

US$000

Finance income
Interest income
Other finance revenue

Total finance income

Finance expense
Interest expense on financial liabilities measured at amortised cost
Interest on defined benefit plans
Bank charges
Other finance costs

Total finance expense

Net finance expense

Year ended
31.12.09

Year ended
31.12.08

1,894
999

2,893

1,448
1,019

2,467

(16,805)
(2,967)
(535)
(3,411)

(15,002)
(1,776)
(336)
(3,720)

(23,718)

(20,834)

(20,825)

(18,367)

Other finance costs include the unwinding of the discount on the site restoration provision, discounting of the share redemption
liability and other costs.

Note 17: Income tax expense
The income tax expense for the year ended 31 December 2009 consisted of the following:

US$000

Current income tax
Deferred income tax

Total income tax expense

Year ended
31.12.09

Year ended
31.12.08

10,162
(310)

79,016
(16,483)

9,852

62,533

Refer to note 24 for a breakdown of the deferred tax balances.

The effective income tax rate differs from the corporate income tax rates. The weighted average statutory rate was 13.0% for 2009
(2008: 18.2%). This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates,
weighted by the profit/(loss) before tax of the subsidiaries in the respective countries, as included in the consolidated financial
information. The effective tax rate is 12.2% (2008: 16.6%).

The changes in the weighted average income tax rate are largely due to a change in the profit/(loss) before tax in the various
jurisdictions in which the Group operates.

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A reconciliation between the income tax charged in the accompanying financial information and income before taxes multiplied by the
weighted average statutory tax rate for the year ended 31 December 2009 is as follows:

US$000

Profit before tax
Notional tax computed at the weighted average statutory tax rate of 13.0% (2008: 18.2%)
Derecognition of deferred tax assets
Inflation related indexation of fixed assets for tax
Expenses not deductible for tax purposes
Tax exempted income
Tax effect on asset impairment and negative goodwill
Non-recognition of deferred taxes on current year losses
Tax related to prior years
Other

Total income tax expense

Year ended
31.12.09

Year ended
31.12.08

80,850
10,526
135
(1,792)
3,359
(942)
–
780 –
(2,497)
283

375,581
68,496
4,359
(12,456)
9,669
–
(7,849)

(286)
600

9,852

62,533

Note 18: Earnings per share and dividends paid and proposed
Basic earnings per share (EPS) is calculated by dividing the net profit for the year attributable to ordinary equity shareholders of
Ferrexpo plc by the weighted average number of Ordinary Shares.

Profit for the year attributable to equity shareholders:
Basic earnings per share (US cents)
Diluted earnings per share (US cents)

Underlying earnings for the year:
Basic earnings per share (US cents)
Diluted earnings per share (US cents)

The calculation of the basic and diluted earnings per share is based on the following data:

Thousands

Weighted average number of shares
Basic number of Ordinary Shares outstanding
Effect of dilutive potential Ordinary Shares

Diluted number of Ordinary Shares outstanding

Year ended
31.12.09

Year ended
31.12.08

12.08
12.05

48.60
48.46

12.80
12.77

57.74
57.58

Year ended
31.12.09

Year ended
31.12.08

584,652
1,361

601,697
1,717

586,013

603,414

The basic number of Ordinary Shares is calculated by reducing the total number or Ordinary Shares in issue by the shares held in
treasury (refer to note 30).

Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary Shares in issue on the assumption of
conversion of all potentially dilutive Ordinary Shares. All share awards are potentially dilutive and have been included in the calculation
of diluted earnings per share.

‘Underlying earnings’ is an alternative earnings measure, which the Directors believe provides a clearer picture of the underlying
financial performance of the Group’s operations. Underlying earnings is presented after minority interests and excludes adjusted
items. The calculation of underlying earnings per share is based on the following earnings data:

US$000

Profit attributable to equity holders
Write offs/impairments
IPO costs
Negative goodwill generated on rights issue
Gain on disposal of available-for-sale investment
Gain on disposal of property, plant and equipment
Non-operating foreign exchange losses
Tax on adjusted items

Underlying earnings

Year ended
31.12.09

Notes

Year ended
31.12.08

13
42
15

70,627
2,757
427
(503)
–
(213)
2,551
(823)

292,436
27,326
4,120
(35,049)
(1,571)
–
72,788
(12,619)

74,823

347,431

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 18: Earnings per share and dividends paid and proposed continued
Adjusted items are those items of financial performance that the Group believes should be separately disclosed on the face of the
income statement to assist in the understanding of the underlying financial performance achieved by the Group. Adjusted items that
relate to the operating performance of the Group include impairment charges and reversals and other exceptional items. Non-
operating adjusted items include gains and losses on disposal of investments and businesses and non-operating foreign exchange
gains and losses.

Dividends paid and proposed

US$000

Dividends proposed
Final dividend for 2009: 3.3 US cents per Ordinary Share

Total dividends proposed

Dividends paid during the period
Interim dividend for 2009: 3.3 US cents per Ordinary Share
Final dividend for 2008: 3.3 US cents per Ordinary Share

Total dividends paid during the period

US$000

Dividends proposed
Final dividend for 2008: 3.3 US cents per Ordinary Share

Total dividends proposed

Dividends paid during the period
Interim dividend for 2008: 3.2 US cents per Ordinary Share
Final dividend for 2007: 3.2 US cents per Ordinary Share

Total dividends paid during the period

Year ended
31.12.09

19,289

19,289
20,261

39,550

Year ended
31.12.08

20,000

19,505
19,449

38,954

Note 19: EBITDA
The Group calculates EBITDA as profit from continuing operations before tax and finance plus depreciation and amortisation
(included in cost of sales, administrative expenses and selling and distribution costs) and non-recurring cash items included in other
income and other expenses plus the net of gains and losses from disposal of investments and property, plant and equipment. The
Group presents EBITDA because it believes that EBITDA is a useful measure for evaluating its ability to generate cash and its
operating performance.

US$000

Profit before tax and finance
Write-offs and impairment losses
Gain on disposal of property, plant and equipment
Gain on disposal of available-for-sale investment
Initial public offering costs
Share-based payments
Negative goodwill generated on rights issue
Severance payments
Depreciation and amortisation

EBITDA

Year ended
31.12.09

Notes

Year ended
31.12.08

42
42
15

104,227
2,757
(213)
–
427
3,423
(503)
–
28,018

466,736
27,326
–
(1,571)
4,120
1,495
(35,049)
6,764
34,125

138,136

503,946

The severance payments disclosed above relate to the amounts paid to the former CEO and the Director of Business Development
upon their resignation in the prior year.

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Note 20: Property, plant and equipment
As at 31 December 2009 property, plant and equipment comprised:

US$000

Cost:

At 1 January 2008

Additions
Transfers
Disposals
Translation differences

At 31 December 2008

Additions
Transfers
Disposals
Translation differences

Mining
assets1

Buildings

Plant and
equipment

Vehicles

Fixtures
and fittings

Assets
under

construction1

Total

11,371

137,849

179,910

92,704

–
13,396
(420)
(8,598)

–
35,005
(507)
(59,816)

50
40,464
(3,347)
(75,335)

64
80,593
(4,045)
(59,564)

3,655

239
1,323
(25)
(991)

74,882

505,255

284,670
(170,779)
(836)
(50,917)

285,023
37
(9,180)
(256,915)

15,749

112,531

141,742

109,752

4,201

137,020

524,220

–
–
–
(562)

535
24,289
(3,409)
(4,008)

5
57,524
(3,033)
(5,059)

–
5,719
(1,154)
(3,917)

21
575
(53)
(66)

85,445
(88,107)
(530)
(3,342)

86,006
–
(8,179)
(17,069)

Land

4,884

–
35
–
(1,694)

3,225

–
–
–
(115)

At 31 December 2009

3,110

15,187

129,938

191,179

110,400

4,678

130,486

584,978

Accumulated depreciation:

At 1 January 2008

Depreciation charge
Disposals
Transfers
Impairment
Reversals
Translation differences

At 31 December 2008

Depreciation charge
Disposals
Transfers
Impairment
Translation differences

At 31 December 2009

Net book value at:

31 December 2008

31 December 2009

87,717

26,340

1,655

140,710

–

–
–
–
–
–
–

–

–
–
–
–
–

–

633

199
–
–
–
–
(289)

543

278
–
–
–
(20)

801

24,324

6,425
(273)
73
168
–
(10,626)

18,478
(2,600)
(72)
–
–
(35,895)

9,465
(2,991)
–
–
–
(11,403)

962
(20)
(106)
–
–
(384)

20,091

67,628

21,411

2,107

5,366
(1,657)
–
450
(874)

15,124
(2,413)
–
14
(2,441)

7,924
(908)
–
233
(764)

829
(37)
–
(1)
(26)

23,376

77,912

27,896

2,872

–
–
105
–
(147)
1

–

–
–
–
21
–

35,529
(5,884)
–
168
(147)
(58,596)

111,780

29,521
(5,015)
–
717
(4,125)

132,878

3,225

3,110

15,206

92,440

74,114

14,386

106,562

113,267

88,341

82,504

2,094

1,806

137,020

412,440

130,465

452,100

1 Mining assets and assets under construction constitute mine stripping costs which are accounted for under the Group’s accounting policy outlined in note 2.
Capitalised pre-production stripping costs are included in assets under construction whereas the production stripping costs are shown under mining assets.

The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 December 2009 was
US$20,204,282 (2008: $nil). During the year, a sale and lease back transaction for assets of plant and equipment was completed and
is considered to be a finance lease. No gain or loss was realised on the sale of the assets subject to this finance lease. Leased assets
and assets under hire purchase contracts are pledged as security for the related finance lease and hire purchase liabilities.

US$82,505,184 (2008: US$61,966,218) of property, plant and equipment have been pledged as security for liabilities.

The gross value of fully depreciated property, plant and equipment that is still in use is US$30,148,597 (2008: US$26,745,388).

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 21: Goodwill and other intangible assets
As at 31 December 2009 goodwill and other intangible assets comprised:

US$000

Cost:

At 1 January 2008

Additions
Disposals
Translation differences

At 31 December 2008

Additions
Disposals
Translation differences

At 31 December 2009

Accumulated amortisation and impairment:

At 1 January 2008

Amortisation charge
Disposals
Translation differences

At 31 December 2008

Amortisation charge
Disposals
Translation differences

At 31 December 2009

Net book value at:

31 December 2008

31 December 2009

Other
intangible
assets

Goodwill

Total

155,682

1,781

157,463

–
–
(53,578)

1,597
(13)
(1,125)

1,597
(13)
(54,703)

102,104

2,240

104,344

–
–
(3,646)

598
(53)
(74)

598
(53)
(3,720)

98,458

2,711

101,169

–

–
–
–

–

–
–
–

–

636

279
(13)
(313)

589

301
(53)
(22)

815

636

279
(13)
(313)

589

301
(53)
(22)

815

102,104

98,458

1,651

1,896

103,755

100,354

The major component of other intangible assets as at 31 December 2009 comprises licences in respect of the Group’s mining
operations. The amortisation charge for the year is allocated to production expenses and administrative expenses as appropriate.

Goodwill acquired through business combinations has been allocated for impairment purposes to one cash-generating unit, as the
Group only has one primary operational segment, being the production and sale of iron ore. This represents the lowest level within the
Group at which goodwill is monitored for internal management purposes.

Impairment testing was performed at 31 December 2009 based on a value-in-use calculation using cash flow projections over a
20-year period, a common practice in the industry. The cash flow projection was based on the financial budget approved by senior
management.

Key assumptions
The key assumptions used in the value-in-use calculations were:
>
>

production volume from own ore; and
evolution of iron ore prices, costs of raw materials and other production and distribution costs.

The cash flows were projected based on management expectations regarding the development of the iron ore and steel market and
the cost of producing and distributing the pellets.

The Company takes into account two principal key assumptions, selling price and total production costs. Within this both macro and
local factors which influence these are considered.

In determining the future long-term selling price, the Company takes into account external and internal analysis of the long-term and
shorter-term supply and demand dynamics in the local region and throughout the world along with costs of production of competitors
and the marginal cost of incremental production in a particular market. The Company considers local supply demand balances
affecting its major customers and the effects this could have on the longer-term price.

Cost of production and shipping is considered taking into account local inflationary pressures, major exchange rate developments
between local currency and the US dollar and the longer-term and shorter-term trends in energy supply and demand and the effect
on costs along with the expected movements in steel related commodity prices which affect the cost of certain production inputs.

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For the purpose of the goodwill impairment test, the future cash flows were discounted using the real pre-tax discount rate of 15%
(2008: 15%) per annum. This rate reflects the time value of money and risk associated with the asset, and is in line with the rates used
by competitors with a similar background.

Sensitivity to changes in assumptions
Management believes that due to the high value of the projects and resulting reserve base no reasonable change in the above key
assumptions would cause the carrying value of the unit to materially exceed its value-in-use.

Note 22: Available-for-sale financial assets
As at 31 December 2009 available-for-sale financial assets comprised:

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e
m
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n
t
s

US$000

Current
Investments available for sale – equity instruments:
Vostock Ruda

Total current available-for-sale financial assets

Non-current
Investments available for sale – equity instruments:
OJSC Stahanov
LLC Atol
CJSC AMA
CJSC Amtek

Total non-current available-for-sale financial assets

All investments relate to companies incorporated in Ukraine.

Ownership %

Carrying value

As at
31.12.09

As at
31.12.08

As at
31.12.09

As at
31.12.08

1.10%

626

650

3.14%
9.95%
9.00%
9.00%

813
2,104
– –
– –

2,917

435
4,000

4,435

Impairment testing
Ferrexpo Petroleum
The fair value of the unquoted equity investment in LLC Atol, CJSC AMA and CJSC Amtek, companies engaged in the exploration
and development of oil and gas fields in the Poltava Region of Ukraine, is determined by management using a discounted cash flow
projection, having taken into account the estimated value of reserves provided by an expert third party valuer.

The key assumptions used in this calculation were gas/condensate prices, gas/oil/condensate conversion rates, production volumes,
production costs, tax rates, projected capital expenditure, the Ukrainian hryvnia to US dollar exchange rate and the discount rate. The
calculation took into account the projected future cash flows attributable to the Lubachevsko-Sherbakivska licence (projected to
make up 90% of the total value of the investment) over a period of 19 years (the length of the licence) with an applied real discount
rate of 15.0% (2008: 14.5%) per annum.

As a result of the above review, management recognised impairment charges against carrying value of investment in LLC Atol, CJSC
AMA and CJSC Amtek. The total fair value of the investment as of 31 December 2009 was determined as US$2,104,000 (2008:
US$4,000,000), being entirely attributable to LLC Atol. The decrease of the carrying value of the investment is related to the
impairment testing performed for the interim report as of 30 June 2009, when an additional impairment loss was recorded through
profit or loss.

The impairment testing performed at year-end supported the carrying value so that no additional impairment or reversal of impairment
had to be booked.

OJSC Stahanov
The value of OJSC Stahanov was increased due to a positive change in the quoted market price for the Company’s shares on the
Ukrainian stock exchange (PFTS) as of 31 December 2009. As of 30 June 2009, an additional impairment loss of US$63,884 has
been recorded through profit or loss. The increase of the fair value in the amount of US$440,661 has been recorded against the net
unrealised gains reserve as a reversal of previously recorded impairment losses.

Further details regarding available-for-sale investments can be found in note 13 – write-offs and impairment losses as well as
note 36 – related party transactions.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 23: Other non-current assets
As at 31 December 2009 other non-current assets comprised:

US$000

Prepayments for property, plant and equipment
Loan provided to associate
Other non-current assets

Total other non-current assets

Note 24: Deferred income tax
Deferred income tax assets and liabilities at 31 December 2009 relate to the following:

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US$000

Trade and other receivables
Trade and other payables and advance receivables
Property, plant and equipment
IPO costs netted against share premium
Tax losses recognised
Other financial assets
Trade and other payables
Accrued expenses
Defined benefit pension liability
Provision for site restoration
Other financial liabilities

Total deferred tax assets

As at
31.12.09

7,320
2,000
504

9,824

As at
31.12.08

6,922
3,000
194

10,116

Consolidated statement
of financial position

Consolidated
income statement

As at
31.12.09

As at Year ended
31.12.09

31.12.08

Year ended
31.12.08

2,466
144
9,122
1,226
743
187
77
1,602
3,596
298
134

4,160
16
9,063
1,725
–
204
29
1,485
3,219
269
–

(1,584)
132
393
(499)
743
(10)
47 –
169
504
41
136

5,888
(1)
11,972
–
(1,564)
–

3,508
1,554
180
119

19,595

20,170

21,656

Thereof netted against deferred tax liabilities

Total deferred tax assets as per the statement of financial position

(5,922)

(6,127)

13,673

14,043

Trade and other receivable
Inventories
Accrued income/prepaid expenses
Property, plant and equipment
Intangible assets
Exploration rights
Advances and other current assets
Other non-current assets
Loans and borrowings
Employee benefit trust
Trade and other payables and advance receivables
Lease obligations
Other items

Total deferred tax liabilities

– –

(498)
1,424
(638)
(398)
(69)
–
–
(11)
–
204 –
422
(4)
(132)

–
(5,170)
–
34
–
154
(189)
–
(520)

518
–
–

(498)
(2,522)
(2,477)
(554)
(277)
–
–
(171)
–
(3,025)
–
(4)
(133)

–
(4,052)
(1,915)
(210)
(218)
–
–
(166)
–
(4,442)
(420)
–
(2)

(9,661)

(11,425)

300

(5,173)

Thereof netted against deferred tax assets

Total deferred tax liabilities as per the statement of financial position

Net deferred tax asset/net change

5,922

(3,739)

9,934

6,127

(5,298)

8,745

– –

372

16,483

The movement in the deferred income tax balance is as follows:

US$000

Opening balance
Income statement credit
Changes booked through equity
Foreign currency exchange rate adjustment

Closing balance

Year ended
31.12.09

Year ended
31.12.08

(8,745)
(372)
(1,251)
434

(9,934)

(7,082)
(16,483)
7,896
6,924

(8,745)

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As at 31 December 2009, the Group had deductible temporary differences on current financial receivables in the amount of
US$2,182,216 (2008: US$7,180,000) for which no deferred tax assets have been recognised.

Temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognised amount
to US$147,080,471 (2008: US$181,204,000).

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Note 25: Inventories
As at 31 December 2009 inventories comprised:

US$000

Raw materials and consumables
Finished ore pellets
Work in progress
Other
Provision for slow moving and obsolete stock

Total inventories

As at
31.12.09

47,405
5,135
7,565
104
(573)

59,636

As at
31.12.08

41,889
15,456
4,294
76
(445)

61,270

Inventory is held at cost or fully provided for through the provision for slow-moving and obsolete stock provision above.

Note 26: Trade and other receivables
At 31 December 2009 trade and other receivables comprised:

US$000

Trade receivables
Other receivables
Allowance for uncollectability

Total trade and other receivables

As at
31.12.09

42,956
1,616
(6,455)

38,117

As at
31.12.08

70,113
1,479
(11,956)

59,636

Trade receivables at 31 December 2009 includes US$2,098,000 (2008: US$1,898,000) owed by related parties.

The movement in the allowance for uncollectability during the year was:

US$000

Opening balance
Recognition
Reversal
Foreign currency translation

Closing balance

Year ended
31.12.09

Year ended
31.12.08

11,956
187
(5,386)
(302)

6,455

401
18,629
(320)
(6,754)

11,956

The following table shows the Group’s receivables at the reporting date that are subject to credit risk and the ageing and impairment
profile thereon:

US$000

Trade receivables
Other receivables

US$000

Trade receivables
Other receivables

As at 31.12.09

Receivables Receivables
past neither past
due nor
impaired

due and
impaired

Receivables past due but
not impaired

Less than
45 days

45 to
90 days

Over
90 days

6,322
133

33,932
1,263

2,160
7

173
12

369
201

Gross
amount

42,956
1,616

As at 31.12.08

Receivables
past
due and
impaired

Receivables
neither past
due nor
impaired

11,521
435

34,883
1,028

Gross
amount

70,113
1,479

Receivables past due but
not impaired

Less than
45 days

14,065
–

45 to
90 days

2,781
–

Over
90 days

6,863
16

The Group’s exposures to credit and currency risks are disclosed in note 41.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 27: Prepayments and other current assets
As at 31 December 2009 prepayments and other current assets comprised:

US$000

Prepayments to suppliers
Electricity and gas
Materials and spare parts
Services
Other prepayments
Loan provided to associate
Accrued income
Other

Total prepayments and other current assets

Note 28: Taxes payable, recoverable and prepaid
The income tax payable balance as of 31 December 2009 is shown below:

US$000

Opening balance
Income statement charge
Tax paid
Changes booked through equity
Foreign exchange adjustment

Closing balance

Split by:

US$000

Income tax receivable balance
Income tax payable balance

Total income tax payable at the year end

As at 31 December 2009 taxes recoverable and prepaid comprised:

US$000

VAT receivable
Other taxes prepaid

Total taxes recoverable and prepaid

As at
31.12.09

As at
31.12.08

4,036
1,879
1,922
3,110
550
6,062
1,835

1,830
2,954
2,059
663
6,000
3,869
733

19,394

18,108

As at
31.12.09

(8,604)
(9,852)
18,899
(99)
(1,708)

As at
31.12.08

(2,367)
(79,016)
67,217
4,125
1,437

(1,364)

(8,604)

As at
31.12.09

9,741
(11,105)

As at
31.12.08

5,835
(14,439)

(1,364)

(8,604)

As at
31.12.09

81,269
15

81,284

As at
31.12.08

57,244
41

57,285

During the year the VAT receivable increased from US$57,243,752 to US$81,268,909 mainly relating to Ferrexpo Poltava Mining. As
an exporter, Ferrexpo Poltava Mining, the Group’s principal subsidiary, does not have substantial amounts of VAT received on sales
which can be offset against VAT paid for purchases of goods and services. It therefore relies heavily on the government for refunds.
VAT on trading items is due to be repaid three months after it is incurred. However, due to slow repayments VAT amounting to nine
months of trading was outstanding at the end of the year with none of the amounts being in dispute. It is expected that VAT refunds
will resume in 2010.

Further information is given in the Financial Review of this report.

As at 31 December 2009 other taxes payable comprised:

US$000

Withholding tax
Environmental tax
Source tax
Other taxes

Total other taxes payable

As at
31.12.09

As at
31.12.08

3,233
2,267
317
2,076

7,893

2,420
1,698
236
2,071

6,425

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Note 29: Cash and cash equivalents
As at 31 December 2009 cash and cash equivalents comprised:

US$000

Cash at bank
Petty cash

Total cash and cash equivalents

S
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e
m
e
n
t
s

As at
31.12.09

11,987

4 3

As at
31.12.08

87,819

11,991

87,822

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The cash at bank balance as of 31 December 2008 includes an amount of US$1,046,000 held in an escrow account which was
unavailable to the Group. This amount was released subsequent to year end. No such balances existed as of 31 December 2009.

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 41.

Note 30: Share capital and reserves

Balance at 31 December 2009 and 2008

US$000

Number of
shares

121,628 613,967,956

Share capital represents the nominal value on issue of the Company’s equity share capital, comprising £0.10 Ordinary Shares.

The fully paid share capital of Ferrexpo plc at 31 December 2009 was 613,967,956 (2008: 613,967,956) Ordinary Shares at a
par value of £0.10 paid for in cash, resulting in share capital of US$121,627,585 (2008: US$121,627,585) per the statement of
financial position.

The closing balance includes 25,343,814 shares which are held in treasury.

Share premium
Share premium represents the premium paid by subscribers to the share capital issues, net of costs directly attributable to the share
issue.

Treasury share reserve
During September 2008, Ferrexpo plc completed a buyback of 25,343,814 shares for a total cost of US$77,260,476. These shares
are currently held as treasury shares by the Group. The Companies Act 2006 forbids the exercise of any rights (including voting rights)
and the payment of dividends in respect of treasury shares.

Employee benefit trust reserve
This reserve represents the treasury shares held by Ferrexpo AG setting up an employee benefit trust reserve. The reserve is used to
satisfy future grants of shares in connection with the listing bonus, as well as future senior management incentive schemes.

Uniting of interest reserve
The uniting of interest reserve represents the difference between the initial investment by Ferrexpo AG in Ferrexpo Poltava GOK
Corporation to gain control of the subsidiary in 2005 and the net assets acquired, which under the pooling of interests method of
accounting are consolidated at their historic cost, less minority interests.

Subsequent increases in the stake have been accounted for using the parent extension concept method of accounting as described
in the accounting policy section.

Net unrealised gains reserve
This reserve records fair value changes on available-for-sale investments.

Translation reserve
The translation reserve represents exchange differences arising on the translation of non-US dollar (ie hryvnia) functional currency
operations within the Group into US dollars.

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 31: Interest bearing loans and borrowings
This note provides information about the contractual terms of the Group’s interest bearing loans and borrowings, which are measured
at amortised cost. All loans are in US dollars. For more information about the Group’s exposure to interest rate, foreign currency and
liquidity risk, see note 41.

US$000

Current
Ukrainian banks
Other banks
Obligations under finance leases
Interest accrued

Total current interest bearing loans and borrowings

Non-current
Ukrainian banks
Other banks
Obligations under finance leases

Total non-current interest bearing loans and borrowings

Total interest bearing loans and borrowings

Notes

As at
31.12.09

As at
31.12.08

25,738
223,647
1,264 –
730

251,379

738
71,715

2,070

74,523

844
89
17,210 –

24,659
206,714

18,143

231,373

269,522

305,896

As at 31 December 2009 the Ukrainian bank facilities are secured by property, plant and equipment with a carrying amount of
US$82,505,184 (2008: US$61,966,218) and rights to a purchase contract in respect of equipment to be delivered of US$20,890,000
(2008: US$nil). Secured Ukrainian property, plant and equipment includes crushing and locomotive buildings, excavators, and mine
transport, flotation and crushing equipment. Non-Ukraine bank loans of US$207,723,000 are secured by rights to proceeds from
future export sales of US$370,444,800 (2008: US$775,173,008), and US$15,919,000 secured by Ukrainian mine transport equipment
with a carrying value of US$22,074,460.

As at 31 December 2009 the Group’s major bank debt facility was a US$335,000,000 (2008: US$335,000,000) pre-export finance
facility with no unutilised amount (2008: nil). On 8 January 2010 the remaining outstanding balance of US$207,727,272 was repaid
in full.

The Group entered into a new three year bank debt term facility on 27 November 2009 in the amount of US$230,000,000. This
pre-export finance facility was drawn in full on 8 January 2010 and was used for refinancing the existing pre-export finance facility.

The term loan and revolving credit facilities as at 31 December 2009 were guaranteed and secured as follows:
>
>
>
>

Ferrexpo AG assigned the rights to revenue from certain sales contracts;
Ferrexpo Poltava GOK Corporation assigned all of its rights for 10 export contracts for the pellets sales to Ferrexpo AG;
the Group pledged its bank account into which all proceeds from the sale of certain iron ore pellet contracts are received; and
Ferrexpo AG pledged all its rights under certain contracts for the sale of iron ore pellets and its rights under certain related credit
support documents.

It should also be noted that Ferrexpo AG is subject to minimum capital requirements which restrict the amount of profit that can be
distributed to the parent.

The new major bank debt facility drawn on 8 January 2010 is also guaranteed and secured on the same basis as the bank debt
existing at 31 December 2009.

Note 32: Trade and other payables
As at 31 December 2009 trade and other payables comprised:

US$000

Current trade and other payables
Payables for equipment
Commodity loans
Materials and services
Promissory notes
Dividends payable
Liability for severance payments
Other

Total current trade and other payables

Non-current trade and other payables
Commodity loans

Total non-current trade and other payables

As at
31.12.09

As at
31.12.08

4,323
124
20,255
–
78
–
3,146

27,926

–

3,821
1,446
23,114
797
312
1,046
4,497

35,033

570

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Trade and other payables at 31 December 2009 includes US$1,662,000 (2008: US$1,909,000) due to related parties. See note 36.

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 41.

Note 33: Defined benefit pension liability
Ukrainian defined benefit plan
The Group makes defined contributions to the Ukrainian state pension scheme at the statutory rates in effect during the year, based
on gross salary payments. Such expense is charged to the income statement in the period the related salaries are earned.

In addition, the Group has a legal obligation to compensate the Ukrainian State Pension Fund for additional pensions paid to certain
categories of the current and former employees of the Group. These obligations are unfunded. Costs relating to this plan are accrued
using the projected unit credit method in respect of those employees entitled to such payments. Actuarial techniques have been used
in calculating the liability related to this retirement obligation at the reporting date.

Gains and losses resulting from the use of internal actuarial valuation methodologies are recognised when the cumulative
unrecognised actuarial gains or losses for the scheme exceed 10% of defined benefit obligation. These gains or losses are
recognised as income or expense over the expected average remaining working lives of the employees participating in the plan.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not
recognised reduced by past service cost not yet recognised.

At 31 December 2009 this defined benefit plan covered 4,669 current employees (2008: 4,673 people). There are 1,246 former
employees currently in receipt of pensions (2008: 1,226 people).

In addition, the Group has a legal obligation to its employees (in the form of a collective agreement) to make a one off payment on
retirement to employees with a long term of service; this has also been included in the provision.

Swiss defined benefit plan
The employees of the Group’s Swiss operation are covered under a multi-employer pension plan, which is governed in accordance
with the requirements of Swiss law. The assets of the pension scheme are held separately from those of the Group and are invested
with an insurance company. The annual pension costs and the defined benefit obligation as well as the fair value of the plan assets
are assessed annually by an independent professionally qualified actuary.

The accumulated capital of the employees is subject to interests determined by the local legislation and defined in the regulatory of
the pension scheme.

On retirement employees are entitled to receive either a lump sum or an annual proportion of their accumulated capital as a pension
underpinned by certain guarantees. The Group and in certain cases the employees make contributions to the pension scheme as a
percentage of the insured salaries and depending on the age of the employees.

At 31 December 2009 this defined benefit plan covered 21 people (2008: 23 people).

The principal assumptions used in determining the defined benefit obligation are shown below:

Discount rate
Retail price inflation
Expected future salary increase
Expected future benefit increase
Female life expectancy (years)
Male life expectancy (years)

Year ended 31.12.09

|||

Year ended 31.12.08

Swiss
Scheme

Ukrainian
Scheme

3.25%
1.50%
3.00%
0.00%
86.0
82.9

15.00%
7.00%
7.00%
0.00%
74.5
63.5

Swiss
Scheme

3.25%
2.40%
3.00%
0.00%
86.9
83.5

Ukrainian
Scheme

10.00%
6.00%
7.61%
0.00%
74.7
63.5

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 33: Defined benefit pension liability continued
Changes in the net present value of the defined benefit obligation are as follows:

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US$000

Opening defined benefit obligation
Current service cost
Employee contribution
Interest cost
Contribution by plan participants
Benefits paid
Actuarial loss
Past service cost
Foreign exchange translation adjustment

Closing defined benefit obligation

Opening plan assets
Expected return on plan assets
Employer contribution
Employee contribution
Contribution by plan participants
Benefits paid
Actuarial loss
Foreign exchange translation adjustment

Closing plan assets

Net funded status

Unrecognised actuarial losses
Unrecognised past service cost
Foreign exchange translation adjustment

Year ended 31.12.09

Year ended 31.12.08

Swiss
scheme

Ukrainian
scheme

2,096
375
14
66
469
(926)
101
–
39

22,187
1,142
–
3,074
–
(2,987)
1,230
3,502
(4,268)

Total

24,283
1,517
14
3,140
469
(3,913)
1,331
3,502
(4,229)

Swiss
scheme

Ukrainian
scheme

1,647
310
–
46
697
(766)
52
–
110

18,853
1,607
–
1,730
–
(4,103)
6,167
9,972
(12,039)

2,234

23,880

26,114

2,096

22,187

1,507
48
474
14
469
(926)
(230)
19

1,375

859

(807)
–
(34)

–
–
–
–
–
–
–
–

–

1,507
48
474
14
469
(926)
(230)
19

1,375

23,880

24,739

(6,333)
(3,113)
77

(7,140)
(3,113)
43

Total

20,500
1,917
–
1,776
697
(4,869)
6,219
9,972
(11,929)

24,283

1,039
33
274
–
942
(766)
(84)
69

1,507

–
–
–
–
–
–
–
–

–

22,187

22,776

(5,767)
(5,543)
2,001

(6,294)
(5,543)
2,001

12,878

12,940

1,607
1,730
92
–
4,429
–
–

7,858

1,917
1,776
62
(33)
4,429
–
(162)

7,989

15,978

16,169

–
7,858
(4,103)
–
(6,855)

12,878

6,167

–
7,989
(4,103)
(274)
(6,841)

12,940

6,219

1,039
33
274
–
942
(766)
(84)
69

1,507

589

(527)
–
–

310
46
(30)
(33)
–
–
(162)

131

191

–
131
–
(274)
14

Defined benefit liability at the end of the year

14,511

14,529

Benefit expense
Current service cost
Interest cost
Amortisation of actuarial loss/(gain)
Expected return on plan assets
Recognised past service cost
Employee contribution
Curtailment gain

Net movement on defined benefit liability

Opening balance

Recognition of liability
Benefits expense
Benefits paid
Employer contribution
Foreign exchange translation adjustment

Closing balance

Experience adjustments arising on plan liabilities

389
66
37
(48)
–
(14)
–

430

1,142
3,074
439
–
389
–
–

5,044

1,531
3,140
476
(48)
389
(14)
–

5,474

12,878

12,940

–
430
–
(474)
–

101

–
5,044
(2,897)
–
(514)

14,511

1,230

5,474
(2,897)
(474)
(514)

14,529

1,331

The Group expects to contribute US$3,643,545 to its defined benefit plans in 2009.

The asset allocation of the plan assets of the Swiss scheme is as follows:

US$000

Plan assets at fair value
Equities
Bonds
Properties
Other

Fair value of plan assets

As at
31.12.09
%

18.3
49.7
18.1
13.9

100

As at
31.12.09

As at
31.12.08

252
683
248
192

1,375

15.3
53.4
19.4
11.9

100

231
805
292
179

1,507

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The actual returns on the plan assets for the Swiss Scheme were US$114,008 (2008: US$156,402).

The overall expected rate of return on assets is determined based on the market value weighted expected return applicable to the
underlying asset category.

S
t
a
t
e
m
e
n
t
s

F
n
a
n
c
a

Expected rate of return on plan assets:
Equities
Bonds
Properties
Other

Average expected rate of return on plan assets

Actual rate of return on plan assets:
Equities
Bonds
Properties
Other

Average actual rate of return on plan assets

A change in the assumed discount rates would have the following effects:

US$000

Effect on the aggregated current service costs and interest costs
Effect on the defined benefit obligation

Year ended
31.12.09
Swiss Scheme

Year ended
31.12.08
Swiss Scheme

6.50%
2.50%
4.50%

6.50%
2.50%
4.50%
2.25–4.00% 2.25–4.00%

3.50%

3.43%

28.53%
8.93%
5.59–33.60%
(44.94)–24.63%

(47.10%)
0.47%
6.05%
2.9–55.71%

11.60%

(11.38%)

As at/year ended 31.12.09

Increase

Decrease

Swiss
scheme
(+0.25%)

Ukrainian
scheme
(+1.00%)

Swiss
scheme
(–0.25%)

Ukrainian
scheme
(–1.00%)

(23)
(87)

(122)
(1,460)

25
93

139
1,650

The history of experience adjustments (unrecognised losses) is as follows for the current and previous three periods:

Opening balance
Experience adjustments on plan liabilities
Experience adjustments on plan assets
Gain on change in assumptions
Foreign exchange translation adjustment

Closing balance

Year ended
31.12.09

Year ended
31.12.08

Year ended
31.12.07

Year ended
31.12.06

(6,294)
(1,331)
(230)
–
715

(6,294)

(3,292)
(6,219)
(84)
–
3,376

(3,292)

(945)
(2,347)
–
–
–

(945)

(286)
(659)
–
–
–

(7,140)

Note 34: Provision for site restoration
The costs of decommissioning open pit mines are based on the amounts determined by third party experts on the basis of Ukrainian
legislation. The provision represents the discounted value of the estimated costs of decommissioning and restoring the mines at the
dates when the deposits are expected to be depleted. The present value of the provision has been calculated using a nominal pre-tax
discount rate of 10.25% per year (2008: 12.00%). The liability becomes payable at the end of the useful life of the mine, currently
estimated to be 2035. Uncertainties in estimating these costs include potential changes in regulatory requirements, decommissioning
and reclamation alternatives and the levels of discount and inflation rates. The increase as of 31 December 2009 is due to the
unwinding of the discount.

$000

Opening balance
Unwind of the discount
Arising during the year
Translation adjustment

Closing balance

Year ended
31.12.09

Year ended
31.12.08

1071
159
76
(38)

1,268

1,746
269
(385)
(559)

1,071

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0
9

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 35: Accrued liabilities and deferred income
As at 31 December 2009 accrued liabilities and deferred income comprised:

US$000

Accrued expenses
Accrued employee costs
Advances from customers

Total accrued liabilities and deferred income

As at
31.12.09

1,582
10,398
166

12,146

As at
31.12.08

3,413
10,993
64

14,470

Note 36: Related party disclosure
During the periods presented the Group entered into arm’s length transactions with entities under common control of the majority
owner of the Group, Kostyantin Zhevago and with other related parties. Management considers that the Group has appropriate
procedures in place to identify and properly disclose transactions with the related parties.

The related party transactions undertaken by the Group during the periods presented are summarised below:

Revenue, expenses, finance income and finance costs

US$000

Iron ore pellet sales
Other sales1

Total revenue

Purchase of materials
Purchase of services2
General and administration expenses
Selling and distribution
Other expenses

Total expenses

Finance income
Finance expense

Net finance income/(expense)

Year ended 31.12.09

Year ended 31.12.08

Entities under

common Associated
companies

control

Other Entities under
common
control

related
parties

Associated
companies

–
506

506

4,458
444
3,315
–
91

8,308

1,329
(816)

513

–
–

–

–
–
–
11,849
–

11,849

267
–

267

–
1,480

1,480

11,930
23
–
11,736
8

23,697

–
–

–

–
853

853

22,999
477
2,642
–
43

26,161

239
(761)

(522)

–
–

–

–
–
–
3,482
–

3,482

394
–

394

Other
related
parties

–
2,937

2,937

20,293
426
128
11,332
247

32,426

–
–

–

1 Following initial stripping operations at Yeristovo, the Company disposed of surplus ballast material on the 30 June 2008 for US$515,000. This was recorded

in revenue as income and is disclosed in the table above showing revenue, expenses, finance income and finance costs.

2 Kuoni Attorneys-at-Law has provided services to the Group for fees of US$23k (2008: nil) during the year. Wolfram Kuoni who is a partner in the firm is also

an independent Non-executive Director of Ferrexpo plc. The services were provided on an arm’s length basis by other members of the firm.

Finance income and finance expense
The Group has transactional banking arrangements with Finance & Credit Bank in Ukraine which is under common control of the
major shareholder of Ferrexpo plc. Finance income and finance expense are disclosed in the table above.

F
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2
0
0
9

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Sale and purchases of property, plant and equipment and investments

US$000

Sale of investments6
Purchase of investments4
Purchase of own Ordinary Shares3
Sale of property, plant and equipment
Purchase of property, plant and equipment1,2,5

Year ended 31.12.09

Year ended 31.12.08

Entities under

common Associated
companies

control

Other Entities under
common
control

related
parties

Associated
companies

Other
related
parties

–
–
–
–
2,200

–
–
–
–
–

1,849
270
58,249
–
192

–
–
–
–
–

–
–
–
–
16

1 On 31 March 2009, the Company acquired a trial filter press from Progress Plant Company, an entity under common control for US$2,200,000.
2

On 28 November 2008, the Group entered into a purchase agreement for property, plant and equipment (principally trucks and cranes) with Auto Kraz, an
entity under common control. A first instalment amounting to US$138,000 of an approved order of totally US$1,067,000 has been made for part delivery.
Subsequent to this delivery, it has been decided to postpone further deliveries.
On the 16 September 2008, Ferrexpo plc repurchased 19,398,814 of its own Ordinary Shares from Fevamotinico S.a.r.l., an entity under common control, at
the market price of £1.673 per share for settlement on 19 September 2008. The gross consideration paid amounted to US$58,248,826.
On 16 July 2008, Ferrexpo Poltava GOK Corporation and DP Ferrotrans (Group subsidiaries) subscribed for additional share capital for consideration of
US$244,000 and US$26,000 respectively in OJSC Stahanov, as part of the rights issue of that company. The total share holding of the Group as of
31 December 2009 is 3.14% (2008: 3.14%).
As at 31 December 2009 the market value of the total shares held by the Group through its subsidiaries amounted to US$812,000 (31 December 2008:
US$435,000). The increase of the market value was treated as a reversal of a previously recorded impairment loss through other comprehensive income.

5 On 25 June 2008, the Group acquired a truck from Auto Kraz, an entity under common control, for US$54,000.
6

On 23 May 2008, the Group disposed of a 2.10% share holding in Vostock Ruda, an available-for-sale investment, to entities under common control for a
consideration of US$1,849,000 resulting in a gain on disposal of US$1,571,000. The remaining share holding in Vostock Ruda of the Group is 1.10% as of
31 December 2009 (2008: 1.10%).

The outstanding investments/balances with related parties for the periods presented are as follows:

US$000

Investments available-for-sale
Loans

Total non-current assets

Investments available-for-sale
Trade and other receivables
Prepayments and other current assets
Short-term deposits with banks
Cash and cash equivalents

Total current assets

Trade and other payables

Total current liabilities

As at 31.12.09

As at 31.12.08

Entities under

common Associated
companies

control

Other Entities under
common
control

related
parties

2,917
–

2,917

626
1,999
995
411
1,712

5,742

514

–
2,550

2,550

–
93
–
–
–

–

–
–

–

–
6
1
–
–

1,146

–
–

–

650
1,890
145
5,000
36,984

44,669

659

Associated
companies

–
9,000

9,000

–
–
299
–
–

299

–

Other
related
parties

–
–

–

–
8
581
–
–

589

1,250

As of 31 December 2009 trade and other receivables included outstanding amounts relating to the disposal of shares in Vostock
Ruda of US$1,169,000 (2008: US$1,212,000).

As of 31 December 2009 cash and cash equivalents with Finance & Credit Bank were US$1,709,000 (2008: US$36,984,000) and
short-term deposits with the same institution US$411,000 (2008: US$5,000,000).

Other related party transaction
In August 2009, the Group paid Swiss Withholding Tax of US$984,106 on behalf of Kostyantin Zhevago on costs incurred for the
Initial Public Offering completed in June 2007. This was settled in accordance with terms and conditions entered into at the time of
the Initial Public Offering of the Company.

F
n
a
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c
a

S
t
a
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e
m
e
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s

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p
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A
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a

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a
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0
0
9

w
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p
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100

Financial Statements
Notes to the Consolidated Financial Information continued

Note 37: Reconciliation of profit before tax to net cash flow from operating activities

US$000

Profit before tax
Adjustments for:
Depreciation of property, plant and equipment and amortisation of intangible assets
Interest expense
Interest income
Share of income of associates
Movement in allowance for doubtful receivables
Write-off/reversal of payables
(Profit)/loss on disposal of property, plant and equipment
Assets received free of charge
Write-offs and impairment losses
Site restoration provision
Gains on disposal of available-for-sale financial assets
Employee benefits
IPO costs
Share-based payments
Negative goodwill generated on rights issue
Operating foreign exchange gains
Non-operating foreign exchange losses

Operating cash flow before working capital changes

Changes in working capital:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in inventories
(Decrease)/increase in trade and other accounts payable
(Increase)/decrease in other taxes recoverable and prepaid

Cash generated from operating activities

Interest paid
Income tax paid
Post-employment benefits paid

Net cash flows from operating activities

Note 38: Net financial indebtedness

US$000

Cash and cash equivalents
Current borrowings
Non-current borrowings
Current commodity loans
Non-current commodity loans

Net financial indebtedness

Year ended
31.12.09

Year ended
31.12.08

80,850

375,581

28,018
20,622
(2,893)
(1,304)
(5,199)
–
(213)
–
2,757
159
–
5,474
427
3,423
(503)
(2,534)
2,552

34,125
18,496
(2,467)
(1,003)
19,095
(1,043)
1,280
(325)
27,325
269
(1,571)
7,715
4,120
1,495
(35,049)
(29,309)
72,788

131,636

491,522

14,961
1,777
(6,474)
(24,038)

(36,167)
(5,070)
8,094
(673)

117,862

457,706

(19,197)
(18,899)
(2,897)

(15,443)
(67,217)
(4,103)

76,869

370,943

Year ended
31.12.09

Notes

Year ended
31.12.08

29
31
31
32
32

11,991
(251,379)
(18,143)
(124)
–

87,822
(74,523)
(231,373)
(1,446)
(570)

(257,655)

(220,090)

Net financial indebtedness as defined by the Group comprises cash and cash equivalents, term deposits, interest bearing loans and
borrowings and amounts payable for equipment.

Payables for equipment comprised balances due to foreign suppliers for mining equipment denominated in US$ and euro which are
interest-bearing.

Note 39: Employee benefits expenses
Employee benefits expenses for the year ended 31 December 2009 consisted of the following:

US$000

Wages and salaries
Social security costs
Post-employment benefits
Other employee costs
Share-based payments

Total employee benefits expenses

Year ended
31.12.09

Year ended
31.12.08

39,905
11,520
2,653
7,248
3,850

65,738
20,598
6,127
12,756
4,966

65,176

110,185

F
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2
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0
9

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Average number of employees

Number

Production
Marketing and distribution
Administration
Other

Total average number of employees

Compensation for key management was as follows:

US$000

Wages and salaries
Social security costs
Other employee costs

Total compensation for key management

Year ended
31.12.09

Year ended
31.12.08

6,319
169
958
907

8,353

6,728
159
1,002
870

8,759

Year ended
31.12.09

Year ended
31.12.08

4,540
646
287

5,472

22,836
1,015
8,748

32,599

Share-based payments of US$560,295 (2008: US$16,033,308) are included in wages and salaries.

The balances above include compensation for Non-executive and Executive Directors as well as for other key management
personnel. Refer to the Remuneration Report for details of compensation relating to Non-executive and Executive Directors.

Note 40: Commitments and contingencies
Operating lease commitments – Group as lessee
Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:

US$000

Less than one year
Between one and five years
More than five years

Total minimum rentals payable

As at
31.12.09

849
2,374
16,479

19,702

As at
31.12.08

1,137
3,473
21,895

26,505

During the year ended 31 December 2009 US$1,665,000 was recognised as an expense in the income statement in respect of
operating leases (2008: US$986,000).

The Group leases land and buildings under operating leases. The leases on land typically run for 49 years, with a lease period of 5 to
10 years on buildings.

Operating lease commitments – Group as lessor
The Group does not have any commitments from lease agreements acting as lessor.

Finance lease commitments
Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as
follows:

US$000

Less than one year
Between one and five years
More than five years

Total minimum lease payments
Less: amounts representing finance charges

Present value of minimum lease payments

As at 31.12.09

Present
value of
payments
(note 31)

1,264
6,049
2,906

10,219
–

10,219

Minimum
payments

1,264
9,023
8,188

18,475
(8,256)

10,219

101

F
n
a
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S
t
a
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m
e
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A
n
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R
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a
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A
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2
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0
9

w
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p
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o
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102

Financial Statements
Notes to the Consolidated Financial Information continued

Note 40: Commitments and contingencies continued
Other

US$000

Capital commitments on purchase of property, plant and equipment
Guarantees provided

As at
31.12.09

41,404
208,000

As at
31.12.08

42,198
280,000

Legal
In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate
liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of
future operations of the Group.

Tax and other regulatory compliance
Ukrainian legislation and regulations regarding taxation and custom regulations continue to evolve. Legislation and regulations are not
always clearly written and are subject to varying interpretations and inconsistent enforcement by local, regional and national
authorities, and other Governmental bodies. Instances of inconsistent interpretations are not unusual.

The uncertainty of application and the evolution of Ukrainian tax laws, including those affecting cross border transactions, create a
risk of additional tax payments having to be made by the Group, which could have a material effect on the Group’s financial position
and results of operations. The Group does not believe that these risks are any more significant than those of similar enterprises in
Ukraine.

Note 41: Financial instruments
The accounting classification of each category of financial instruments, and their carrying amounts, are set out below:

US$000

Financial assets
Cash and cash equivalents
Available-for-sale investments
Trade and other receivables
Other financial assets

Total financial assets

Financial liabilities
Trade and other payables
Accrued liabilities and deferred income
Interest bearing loans and borrowings
Other financial liabilities

Total financial liabilities

US$000

Financial assets
Cash and term deposits
Available-for-sale investments
Trade and other receivables
Other financial assets

Total financial assets

Financial liabilities
Trade and other payables
Accrued liabilities and deferred income
Interest bearing loans and borrowings

Total financial liabilities

As at 31.12.09

Available-
for-sale
financial
assets

At fair
value

Financial
liabilities
through measured at
amortised
profit or
cost
loss

Notes

Loans and
receivables

29
22
26

32
35
31

11,991

38,117
3,719

53,827

–
3,543
–
–

3,543

–
–
–
–

–

–
–
–
–

–

–
–
–
–

–

–
–
–
–

–

As at 31.12.08

24,780
12,146
269,522
3,161

309,609

Total

11,991
3,543
38,117
3,719

57,370

Total

87,822
5,085
59,636
10,169

162,712

–
–
–
–

–

–
–
–
–

–

31,106
14,470
305,896

351,472

–
–
–
–

–

–
–
–

–

At fair
value

Financial
liabilities
through measured at
amortised
profit or
cost
loss

Notes

Loans and
receivables

29
22
26

32
35
31

87,822
–
59,636
10,169

157,627

–
–
–

–

Available-
for-sale
financial
assets

–
5,085
–
–

5,085

–
–
–

–

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Financial risk management
Overview
The Group has exposure to the following risks from its use of financial instruments:
>
>
>

credit risk
liquidity risk
market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes
for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout
these consolidated financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and
obligations.

The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures
and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is
assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls
and procedures, the results of which are reported to the Audit Committee and the CFO.

The Group operates a centralised financial risk management structure under the management of the Executive Committee,
accountable to the Board. The Executive Committee delegates certain responsibilities to the CFO. The CFO’s responsibilities include
authority for approving all new physical, commercial or financial transactions that create a financial risk for the Group. Additionally, the
CFO controls the management of treasury risks within each of the business units in accordance with a Board approved Treasury Policy.

Financial instrument risk exposure and management
Natural hedges that can be identified and their effectiveness quantified are used in preference to financial risk management
instruments. Derivative transactions may be executed for risk mitigation purposes only – speculation is not permitted under the
approved Treasury Policy – and are designed to have the effect of reducing risk on underlying market or credit exposures.
Appropriate operational controls ensure operational risks are not increased disproportionately to the reduction in market or credit risk.

The Group has not used any financial risk management instruments that are derivative in nature, or other hedging instruments, in this
or prior periods.

Credit risk
Trade and other receivables
The Group through its trading operations enters into binding contracts which contain obligations that create exposure to credit,
counterparty and country risks. It is the primary objective of the Group to manage such risks to reduce uncertainty of collection from
buyers. A secondary objective is to minimise the cost of reducing risks within acceptable parameters.

In order to react to the significant weakness in iron ore demand during the financial year 2009, certain sales arrangements with
customers have been changed from long-term to spot.

Trade finance is used to balance risk and payment. These risks include the creditworthiness of the buyer, and the political and
economic stability of the buyer’s country. Trade finance generally refers to the financing of individual transactions or a series of
revolving transactions and are often self-liquidating whereby the lending bank stipulates that all sales proceeds to be collected are
applied to settle the loan, the remainder returned to the Group. Trade finance transactions are approved by the Group treasurer. The
primary objective is to ensure that the margins paid and conditions applicable should be the same as, or better than, those which
other organisations with similar credit worthiness would achieve, and compared with other financing available to the Group.

Credit risk is the risk associated with the possibility that a buyer will default, by failing to make required payments in a timely manner
or to comply with other conditions of an obligation or agreement. Where appropriate, the Group uses letters of credit to assist in
mitigating such risks.

Counterparty risk crystallises when a party to an agreement defaults. Where letters of credit are used to minimise this risk, the Group
uses a confirming bank with a similar or higher credit rating to mitigate country and/or credit risk of the issuing bank.

Country risk is the potential volatility of foreign assets, whether receivables or investments, that is due to political and/or financial
events in a given country. During the year the Group reduced its exposure to Ukraine trade receivables risk by increasing the level of
production exported.

Group treasury monitors the concentration of all outstanding risks associated with any entity or country, and reports to the Group
CFO on a timely basis.

103

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104

Financial Statements
Notes to the Consolidated Financial Information continued

Note 41: Financial instruments continued
Investment securities
The Group limits its cash exposure to credit, counterparty and country risk by only investing in liquid securities and with
counterparties that are incorporated in an A+ or better (S&P) rated OECD country; and is rated by S&P or Moody’s at a level to
long-term A (S&P) or short-term A2 (S&P) or better.

Recognising that the principal activities of the Group are predominantly in Ukraine, special consideration is given to investments with
Ukrainian counterparties. Exceptions may be made under the following conditions:
>
>
>

the counterparty is resident in Ukraine, and
the counterparty is included in the Top 15 financial institutions in Ukraine, and
the counterparty is either:
>
>

owned and controlled by the State with its obligations guaranteed by the State, or
majority owned and controlled by an international financial institution capable of covering the counterparty exposure which in
itself meets the criteria of an eligible counterparty, or
a local financial institution that has achieved a minimum investment grade rating from Fitch, S&P or Moody’s.

Cash and deposits are held with the Group’s transactional bank in Ukraine, which is a related party financial institution. This bank is
registered with the National Bank of Ukraine for receiving and disbursing payments under Group intercompany loans, and is an
approved Ukrainian counterparty. The Group is therefore exposed to Ukraine country risk.

Guarantees
The Group’s policy is to provide financial guarantees only to wholly-owned subsidiaries. At 31 December 2009 Ferrexpo AG and
Ferrexpo UK Ltd were jointly and severally liable under a $335 million loan agreement having an outstanding balance of US$208
million (31 December 2008: US$280 million).

Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the
reporting date was:

US$000

Cash and cash equivalents
Trade and other receivables
Other financial assets

Total maximum exposure to credit risk

As at
31.12.09

11,991
38,117
3,719

As at
31.12.08

87,822
59,636
10,169

53,827

157,627

The total receivables balance relating to the Group’s top three customers was US$24,999,505 (2008: US$29,740,000) making up
68.5% of the total amounts receivable (2008: 51.1%).

Impairment profile
The Group’s exposure to credit risk relating to trade and other receivables is disclosed in note 26.

Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach is to
ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation by holding surplus cash or undrawn
credit facilities.

The Group prepares detailed rolling cash flow forecasts, which assist it in monitoring cash flow requirements and optimising its cash
return on investments. Typically the Group ensures that it has sufficient cash on demand and/or lines of credit to meet expected
operational expenses for a period of 30 days, including the servicing of financial obligations; this excludes the potential impact of
extreme circumstances that cannot reasonably be predicted, such as natural disasters.

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The following are the contractual maturities of financial liabilities by interest type:

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US$000

Interest bearing
Ukrainian banks (fixed rate interest)
Other banks (floating rate interest)
Interest accrued
Future interest payable
Non-interest bearing
Trade and other payables
Accrued liabilities and deferred income
Other financial liabilities

Total financial liabilities

US$000

Interest bearing
Ukrainian banks (fixed rate interest)
Other banks (floating rate interest)
Interest accrued
Non-interest bearing
Trade and other payables
Accrued liabilities and deferred income

Total financial liabilities

As at 31.12.09

Less than
1 year

Between
1 to 2
years

Between
2 to 5
years

25,738
224,911
730
9,923

24,780
12,146
3,161

738
6,725
–
3,827

106
10,574
–
2,674

–
–
–

Total

26,582
242,210
730
16,424

24,780
12,146
3,161

301,389

11,290

13,354

326,033

As at 31.12.08

Between
1 to 2
years

Between
2 to 5
years

Total

23,557
206,714
–

72
–

1,102
–
–

25,397
278,429
2,070

–
–

35,603
14,470

Less than
1 year

738
71,715
2,070

35,531
14,470

124,524

230,343

1,102

355,969

Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the
respective functional currencies of the Group. Operating currencies for the Group are primarily the Ukrainian hryvnia, but also US
dollars, Swiss francs, euro and sterling.

The Group’s major lines of borrowings and the majority of its sales are denominated in US dollars, with costs of local Ukrainian
production mainly in hryvnia. During the year the value of the hryvnia moved from being pegged to a managed float.

Further devaluation of the Ukrainian hryvnia will reduce the operating costs of the production unit in US dollars terms and the
value of hryvnia payables recorded in the statement of financial position at the year end in US dollars. As the majority of sales
and receivables are denominated in US dollars, a devaluation in the local currency will result in operating exchange gains
recorded in the income statement.

With a devaluation of the local currency, US dollar denominated loans held by the Ukrainian subsidiary will result in non-operating
exchange losses to the extent these are not matched by US dollar denominated assets. Fixed assets are similarly held in local
currency amounts and a devaluation in the currency will result in reduced net asset vales which are recorded in reserves.

The National Bank of Ukraine (NBU) manages and determines the official exchange rates. An inter-bank market for exchange of
currencies exists in Ukraine and is monitored by the NBU. The Group, through its financial institutions, exchanges currencies at bank
offered market rates.

Trade receivables are predominately in US dollars and are not hedged. Trade payables denominated in a US dollars are also not
hedged on the market, but are matched against US dollar currency receipts.This includes the interest expense which is principally
payable in US dollars. Trade receivables and trade payables in other currencies are not hedged as a forward market for the currency
is generally not available.

Other Group monetary assets and liabilities denominated in foreign currencies are considered immaterial as the exposure to currency
risk mainly relates to corporate costs within Switzerland and the United Kingdom.

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106

Financial Statements
Notes to the Consolidated Financial Information continued

Note 41: Financial instruments continued
The Group’s exposure to foreign currency risk was as follows based on notional amounts:

US$000

Total financial assets

Financial liabilities
Ukrainian banks
Interest accrued

Total borrowings

Commodity loans
Trade and other payables
Other financial liabilities

Total financial liabilities

Ukraine
hryvnia

249

–
–

–

–
–
–

–

US dollar

816

(45,315)
(188)

(45,503)

–
(2,246)
(17)

(47,766)

Net financial assets/(liabilities)

249

(46,950)

US$000

Total financial assets

Financial liabilities
Ukrainian banks
Interest accrued

Total borrowings

Commodity loans
Trade and other payables
Other financial liabilities

Total financial liabilities

Ukraine
hryvnia

US dollar

264

56,050

–
–

–

–
–
–

–

(25,396)
(205)

(25,601)

–
(2,957)
–

(28,558)

Net financial assets/(liabilities)

264

27,492

As at 31.12.09

euro

–
(5)

(5)

(124)
(811)
(5)

(945)

(943)

Swiss
franc

Other
currencies

–
–

–

–
(763)
(419)

(1,182)

(1,106)

–
–

–

–
(139)
(106)

(245)

(201)

Total

1,187

(45,315)
(193)

(45,508)

(124)
(3,959)
(547)

(50,138)

(48,951)

As at 31.12.08

euro

–

–
(1)

(1)

(2,017)
(3,754)
–

(5,772)

Swiss
franc

921

Other
currencies

Total

1,288

58,523

–
–

–

–
(4,575)
(14,334)

(18,909)

(17,988)

–
–

–

–
(1,933)
(1,506)

(25,396)
(206)

(25,602)

(2,017)
(13,219)
(15,840)

(3,439)

(56,678)

(2,151)

1,845

Interest rate risk
The Group predominantly borrows funds that are at floating interest rates and is exposed to interest rate movements. The interest rate
exposure to US dollars remained relatively low during the period, and no interest rate swaps have been entered into in this or
prior periods.

Profile
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:

US$000

Financial assets
Cash and cash equivalents
Available-for-sale investments
Trade and other receivables
Other financial assets

Total financial assets

Weighted av. interest rate (%)

Financial liabilities
Trade and other payables
Accrued liabilities and deferred income
Interest bearing loans and borrowings
Other financial liabilities

Total financial liabilities

Weighted av. interest rate (%)

As at 31.12.09

Other
Fixed non-interest
bearing

interest

1,465
–
–
–

1,465

7.7

299
3,543
38,117
1,169

43,128

Floating
interest

10,227
–
–
2,550

12,777

–

Total

11,991
3,543
38,117
3,719

57,370

24,780
12,146
–
3,161

24,780
12,146
269,522
3,161

40,087

309,609

251,036
–

251,036

4.1

18,486
–

18,486

–

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107

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S
t
a
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e
m
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Total

87,822
5,085
59,636
10,169

As at 31.12.08

Floating
interest

Fixed
interest

Other
non-interest
bearing

30,157
–
–
–

30,157

0.3

–
–
305,895
–

305,895

5.0

54,769
–
–
–

54,769

2.7

2,017
–
1
–

2,018

–

2,896
5,085
59,636
10,169

77,786

162,712

29,089
14,470
–
–

31,106
14,470
305,896
–

43,559

351,472

US$000

Financial assets
Cash and cash equivalents
Available-for-sale investments
Trade and other receivables
Other financial assets

Total financial assets

Weighted av. interest rate (%)

Financial liabilities
Trade and other payables
Accrued liabilities and deferred income
Interest bearing loans and borrowings
Other financial liabilities

Total financial liabilities

Weighted av. interest rate (%)

The interest rate maturity profile for financial liabilities is shown under the liquidity risk section. The interest rate maturity profile for
financial assets is all current for both years, except for US$2 million of the floating rate loan to associate which matures between two
to five years as at 31 December 2009 (2008: US$3 million).

Commodity risk
The Group is exposed to longer-term movements in the price of iron ore, but does not have a commodity risk exposure to its financial
assets and liabilities once the sale has been made. Trade receivables are based on a fixed contract price, and so do not fluctuate with
iron ore market prices. Similarly finished goods are held at cost, with revaluation to a spot price not applicable for iron ore pellets,
there being no tradable exchange in the product to ascertain its market value.

Sensitivity analysis
A 20% strengthening of the US dollar against the following currencies at 31 December would have increased/(decreased) income
statement and equity by the amounts shown below. This assumes that all other variables, in particular interest rates, remain constant.

US$000

UAH
EUR
CHF

Total

Year ended 31.12.09
Income
statement/
Equity

Year ended 31.12.08
Income
statement/
Equity

(9,440)
189
221

(9,030)

5,446
1,154
3,598

10,198

A 20% weakening of the US dollar against the above currencies would have an equal but opposite effect to the amounts shown
above, on the basis that all the other variables remain constant.

Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does
not hold any derivatives (eg interest rate swaps). Therefore a change in interest rates at the reporting date would not affect profit
or loss.

Cash flow sensitivity for fixed and variable rate instruments
An increase of 100 basis points in interest rates would have increased/(decreased) equity and profit or loss by the amounts shown
below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

US$000

Net finance charge

Year ended
31.12.09

Year ended
31.12.08

(2,080)

(1,449)

A decrease in of 100 bp would have an equal but opposite effect to the amounts shown above, on the basis that all the other
variables remain constant.

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108

Financial Statements
Notes to the Consolidated Financial Information continued

Note 41: Financial instruments continued
Set out below are the carrying amounts and fair values of the Group’s financial instruments that are carried in the consolidated
statement of financial position:

US$000

Financial assets
Available-for-sale financial assets
Cash and cash equivalents

Total financial assets

Financial liabilities
Interest bearing loans and borrowings

Total financial liabilities

Carrying amount

Fair value

As at
31.12.09

As at
31.12.08

As at
31.12.09

As at
31.12.08

3,543
11,991

15,534

5,085
87,822

92,907

3,543
11,991

15,534

5,085
87,822

92,907

269,522

305,896

276,295

274,668

269,522

305,896

276,295

274,668

The fair values of interest bearing loans and borrowings are based on the cash flows discounted using market interest rates.

The fair values of cash and cash equivalents, trade and other receivables and payables are approximately equal to their carrying
amounts due to their short maturity.

Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value,
grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
>

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets
or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).

US$000

Available-for-sale financial assets

Total available-for-sale financial assets

There were no transfers between Level 1 and 2 in the period.

Reconciliation of Level 3 fair value measurements of financial assets

As at 31.12.09

Level 1

Level 2

Level 3

1,449

–

2,104

Total

3,553

As at 31.12.2009
US$000

Opening balance
Total gains or losses:
– in profit or loss
– in other comprehensive income
Purchases
Issues
Settlements
Transfer out of level 3

Closing balance

Available-for-sale
financial assets
Unquoted equities

4,000

(1,896)
–
–
–
–
–

2,104

Capital management
The Board’s policy is to maintain a strong capital base. The Board of Directors monitors both the demographic spread of
shareholders, as well as the return on capital, which the Group defines as total shareholders’ equity, excluding minority interests, and
the level of dividends to Ordinary Shareholders. Please refer to the Statement of Changes in Equity for details of the capital position of
the Group.

The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and
advantages and security afforded by a sound capital position. Access to securing borrowings in the context of the events affecting
the global financial credit markets during the year has affected the elasticity at which the Board can maintain this balance. The Board
continues to support maintaining a sound capital base balanced against these market constraints.

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The Board maintains a dividend policy consistent with the Group’s profile, reflecting the investment activities the Group is making on
major projects for future production growth and the cash generated by existing operations, whilst maintaining a prudent level of
dividend cover.

During 2008 Ferrexpo plc undertook an on-market share buy-back of its shares, and off-market buy-back of shares held by the
Group’s principal shareholder. Further details are provided in notes 30 and 36.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements other than a bank covenant
requirement to maintain consolidated equity in respect of the Ferrexpo AG group of US$300 million including minority interests.
Compliance is ensured by balancing dividend payments against the earnings of the Ferrexpo AG group.

For more information about the Group’s interest bearing loans and borrowings, see note 31.

Note 42: Share-based payments
Listing bonus share award
Share awards were granted in 2007 to certain senior management following the successful listing of the Company on the London
Stock Exchange in June 2007. A proportion of the award vests immediately with the remainder vesting over a period of up to four
years, provided that the individual is still in the employment of the Group on the date of vesting. It has been assumed that all awards
will vest.

The fair values of the awards were determined to be the closing share price on the date of award. The weighted average fair value
(WAFV) of awards granted was determined at the date of grant to be $3.33 per share.

The unvested portion of the award does not accrue dividends. There are no cash settlement alternatives.

The expense recognised under the scheme during the year to 31 December 2009 is US$427,000 (2008: US$3,471,000), all of which
arose from equity-settled share-based payment transactions.

Beginning of the year
Awards granted during the year
Vested during the year
Forfeited during the year

Outstanding at 31 December

Year ended
31.12.09
WAFV ($)

Year ended Year ended
31.12.09
No. (’000)

31.12.08
WAFV ($)

Year ended
31.12.08
No. (’000)

3.63
–
3.63
3.63

3.63

3.63
–
3.63
3.63

3.63

442
– –
(349)
(2)

2,403

(1,948)
(13)

442

Long-Term Incentive Plans (LTIPs)
320,000 share awards were granted on 15 September 2009. In 2008, 695,000 shares were awarded under the LTIP, which runs for
three years and 415,000 shares were awarded under the Interim LTIP, which runs for two years.

The LTIP and Interim LTIP are subject to a performance condition based on the Total Shareholder Return (‘TSR’) compared to a
comparator group, measured over the vesting period, as described in the Director’s Remuneration Report.

The expense recognised during 2009 was in respect of the 2009 LTIP was US$80,000. In addition to the costs for the 2009 LTIP,
US$1,863,000 (2008: US$809,000) in respect of the 2008 LTIP and US$1,480,000 (2008: US$686,000) in respect of the Interim LTIP
have been recorded in 2009. The awards of the Interim LTIP were forfeited as they did not satisfy the market related performance
conditions as of 31 December 2009.

The fair value of these awards was assessed at their grant date using a simulation or ‘Monte Carlo’ model consistent with the
mathematics underlying the standard Black-Scholes options pricing model, extended to allow for the performance conditions. Each
simulation of the model projects the Company’s and comparator’s share prices (with reinvested dividends) over the vesting period,
allowing for the volatilities and correlations between the shares as estimated from historical data. From this projection the proportion
of awards vesting, and the value to employees, is calculated. 100,000 simulations were run to calculate the fair values. The fair value
is set as the average value over all the simulations.

109

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Financial Statements
Notes to the Consolidated Financial Information continued

Note 42: Share-based payments continued

LTIP
Beginning of the year
Awards granted during the year
Forfeited during the year
Lapsed during the year
Vested during the year

Outstanding at 31 December

Interim LTIP
Beginning of the year
Awards granted during the year
Forfeited during the year
Vested during the year

Outstanding at 31 December

Note 43: Operating profit by function

US$000

Revenue
Cost of sales

Gross profit

Selling and distribution expenses
General and administrative expenses
Other income
Other expenses
Operating foreign exchange gain

Operating profit

Gain on disposal of available-for-sale investment
Share of gains of associates

Notes

6
7

8
9
10
11
12

Year ended
31.12.09
WAFV ($)

Year ended Year ended
31.12.09
No. (’000)

31.12.08
WAFV ($)

Year ended
31.12.08
No. (’000)

5.52
1.94
5.52
5.52
–

4.11

5.22
–
5.22
–

–

–
5.52
–
–
–

5.52

–
5.22
–
–

5.22

695 –
320
(180)
(25)
– –

810

415 –
–
(415)
– –

–

695
–
–

695

415
–

415

Before
adjusting
items

648,667
(341,067)

307,600

(162,266)
(43,161)
4,102
(3,418)
2,534

Adjusted
items

Year
ended
31.12.09

Before
adjusting
items

Adjusted
items

–
–

–

648,667
(341,067)

1,116,854
(434,238)

307,600

682,616

–
–
–
(2,468)
–

(162,266)
(43,161)
4,102
(5,886)
2,534

(152,528)
(67,185)
6,387
(38,040)
29,309

105,391

(2,468)

102,923

460,559

–
1,304

–
–

–
1,304

–
1,003

Year
ended
31.12.08

1,116,854
(434,238)

682,616

(152,528)
(67,185)
6,387
(34,437)
29,309

464,162

1,571
1,003

466,736

–
–

–

–
–
–
3,603
–

3,603

1,571
–

5,174

Total profit from operations and associates

106,695

(2,468)

104,227

461,562

Summary of adjusted items

US$000

Operating adjusting items
Write-offs and impairment losses
Negative goodwill
Initial public offering costs
Gain on disposal of property, plant and equipment

Total operating adjusting items

Non-operating adjusting items
Gain on disposal of available-for-sale investment

Total non-operating adjusting items

Year ended
31.12.09

Notes

Year ended
31.12.08

13
15
42

(2,757)
503
(427)
213 –

(27,326)
35,049
(4,120)

(2,468)

3,603

–

1,571

Note 44: Subsequent events
No material adjusting or non-adjusting events have occurred subsequent to the year end other than the proposed dividend disclosed
in note 18 and the refinancing of the Group described below.

The Company entered into a new three year bank debt term facility on 27 November 2009 in the amount of US$230 million. This
pre-export finance facility was drawn in full on 8 January 2010 and was used for refinancing the existing pre-export finance facility.

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Parent company statement of financial position

US$000

Assets
Investments

Total non-current assets

Amounts due from subsidiaries
Deferred tax assets
Prepayments and other current assets
Other taxes recoverable and prepaid
Cash at bank and in hand

Total current assets

Total assets

Equity and liabilities
Share capital
Share premium
Treasury share reserve
Employee benefit trust reserve
Retained earnings

Equity attributable to equity shareholders of the parent

Trade and other payables
Accrued liabilities and deferred income
Income taxes payable
Other taxes payable

Total liabilities

Total equity and liabilities

All liabilities held by the Company are current in nature.

The financial statements were approved by the Board of Directors on 22 March 2010.

Kostyantin Zhevago
Chief Executive Officer

Christopher Mawe
Chief Financial Officer

Notes

As at
31.12.09

As at
31.12.08

134,732

4
4
4
4
4

181,026
1,596
1,121
10
25

213,025
1,725
724
12
295

183,778

215,781

318,510

350,513

121,628
185,112
(77,260)
(11,593)
96,583

121,628
185,112
(77,260)
(15,443)
134,508

314,470

348,545

357
450
– –
3,233

4,040

109
1,494

365

1,968

318,510

350,513

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112

Financial Statements
Notes to the Consolidated Financial Information continued

Note 1: Parent company accounting policies
Basis of preparation
The parent company financial statements of Ferrexpo plc are presented as required by the Companies Act 2006 and were approved for
issue on 22 March 2010. The financial statements are prepared under the historical cost convention and are prepared in accordance
with applicable UK accounting standards. No profit and loss account is presented by the Company as permitted by Section 408 of the
Companies Act 2006.

The Company is exempt from the disclosure requirements of FRS 29 Financial Instruments, under its section 2D (a).

Disclosures and narratives have not included information required by that standard, as the Group’s consolidated financial statements,
in which the Company is included, provide equivalent disclosures for the Group under IFRS 7 Financial Instruments: Disclosures.

The Company has taken advantage of the exemption in paragraph 3C of FRS 8 Related Party Disclosure:

Related party transactions and balances of wholly owned subsidiaries are not disclosed. There are no related party transactions and
balances for subsidiaries to be disclosed, which are not wholly owned.

Investments
Equity investments in subsidiaries are carried at cost less any provision for impairments.

Deferred income tax
Deferred income tax is recognised in respect of all timing differences that have originated but not reversed at the reporting date where
transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more,
tax, with the following exceptions:
>

provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries, associates and
joint ventures only to the extent that, at the reporting date, dividends have been accrued as receivable; and
deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be
suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is
measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse,
based on tax rates and laws enacted or substantively enacted at the reporting date.

Foreign currencies
The Company’s functional currency and presentation currency is US dollars. Transactions in foreign currencies are initially recorded in
the functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. Non-
monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the
dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined.

Financial instruments
Derivative financial instruments
The Company does not hold any derivative financial instruments.

All regular way purchases and sales of financial assets are recognised on the trade date ie the date that the Group commits to
purchase or sell the asset. Regular way purchases or sales are those that require delivery of assets within the period generally
established by regulation or convention in the marketplace.

The Company has not designated any financial asset as financial assets at fair value through profit or loss.

Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest method less any
impairment losses.

Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market,
do not qualify as trading assets and have not been designated as either fair value through profit or loss or available-for-sale. Such
assets are carried at amortised cost using the effective interest method if the time value of money is significant. Gains and losses are
recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

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Impairment of financial assets
The Company assesses at each reporting date whether a financial asset or a group of financial assets is impaired. Investments in subsidiaries
undertakings are held at cost. The Company assesses investments for impairment whenever events or changes in circumstances indicate
that the carrying amount of an investment may not be recoverable. If any such indication of impairment exists, the Company makes an
estimate of its recoverable amount (valuation). Where the carrying amount of an investment exceeds its recoverable amount, the investment is
considered impaired and is written down to its recoverable amount.

Assets carried at amortised cost
If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the
amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (ie
the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced, with the amount of the loss
recognised in administration costs. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed.
Any subsequent reversal of an impairment loss is recognised in the profit and loss account, to the extent that the carrying value of the
asset does not exceed its amortised cost at the reversal date.

113

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Derecognition of financial assets and liabilities
A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and
the recognition of a new liability, such that the difference in the respective carrying amounts together with any costs or fees incurred
are recognised in profit or loss.

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In valuing equity-settled transactions, no account is taken of any vesting conditions, except for market conditions. No expense is
recognised for awards that do not ultimately vest.

At each reporting date before vesting, the cumulative expense is calculated; representing the extent to which the vesting period has
expired and management’s best estimate of the achievement or otherwise of non-market conditions and of the number of equity
instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the
income statement, with a corresponding entry in equity.

All costs related to the share-based payments of the Group are recorded in Ferrexpo plc. Note 42 provides further information on the
valuation related to the share-based payments and the costs recorded.

Employee benefit trust reserve
Ferrexpo plc shares held by the Company are classified in capital and reserves, as ‘employee benefit trust reserves’ and recognised
at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds
from sale and the original cost taken to revenue reserves. No gain or loss is recognised on the purchase, sale issue or cancellation of
equity shares.

Note 2: Investments

US$000

At 31 December 2009 and 2008

Investment in
subsidiary equity

134,732

The balance above relates to the Company’s investment in Ferrexpo AG which is a 100% owned subsidiary based on Switzerland.

Note 3: Deferred tax assets
Deferred tax assets at 31 December 2009 relate to the following:

US$000

Deferred tax assets:
Tax loss recognised
Timing difference on IPO costs

As at
31.12.09

As at
31.12.08

370 –

1,226

1,596

1,725

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114

Financial Statements
Financial Statements
Notes to the Consolidated Financial Information continued

Note 4: Capital and reserves

US$000

At 1 January 2008

Profit for the period

Total comprehensive income for the year
Deferred tax on transaction costs
Write off of deferred tax on IPO costs
Deferred tax on employee benefits
Share buyback in parent company
Equity dividends paid to shareholders
Share-based payments

At 31 December 2008

Profit for the period

Total comprehensive income for the year
Equity dividends paid to shareholders
Share-based payments

Issued
capital

Share
premium

121,628

188,566

–

–
–
–
–
–
–
–

–

–
1,725
(5,179)
–
–
–
–

Treasury
share
reserve

Employee
benefit trust
reserve

Retained
earnings

Total
equity

–

–
–
–
–
(77,260)
–
–

(20,092)

(17,401)

272,701

–

190,863

–
–
–
(317)
–
–
4,966

190,863
–
–
–
–
(38,954)
–

190,863
1,725
(5,179)
(317)
(77,260)
(38,954)
4,966

121,628

185,112

(77,260)

(15,443)

134,508

348,545

–

–
–
–

–

–
–
–

–

–
–
–

–

1,625

–
–
3,850

1,625
(39,550)
–

1,625
(39,550)
3,850

At 31 December 2009

121,628

185,112

(77,260)

(11,593)

96,583

314,470

Note 5: Other taxes payable
Other taxes payable at 31 December 2009 comprises the following taxes:

US$000

Other taxes payable:
Withholding tax on dividend
Other taxes

As at
31.12.09

As at
31.12.08

3,225 –
8

3,233

365

Note 6: Auditor remuneration
The audit fee in respect of the parent company was US$16,000 (2008: US$10,000).

Note 7: Subsequent events
No material adjusting or non-adjusting events have occurred subsequent to the year end other than the proposed dividend disclosed
in note 18 to the consolidated financial statements and the refinancing of the Group described below.

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Glossary

Act
The Companies Act 2006

115

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CSR Committee
The Corporate Safety and Social Responsibility Committee of the
Board of the Company.

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AGM
The Annual General Meeting of the Company to be held on
Thursday 27 May 2010

Articles
Articles of Association of the Company

DAF
Delivery at frontier

DFS
Detailed Feasibility Study

Audit Committee
The Audit Committee of the Company’s Board

Directors
The Directors of the Company

Benchmark Price
International seaborne traded iron ore benchmark price agreed
between the major iron ore producers and specific
West European or British steel producers for a given year

BIP
Business Improvement Programme

Board
The Board of Directors of the Company

bt
Billion tonnes

Cape size
Cape size vessels are typically above 150,000 tonnes
deadweight. Ships in this class include oil tankers, supertankers
and bulk carriers transporting coal, ore, and other commodity
raw materials.

Capital Employed
The aggregate of equity attributable to shareholders, minority
interests and borrowings

CFR
Delivery including cost and freight

C1 Costs
Cash costs per tonne of pellets, ex-works, excluding
administrative and distribution costs

CIF
Delivery including cost, insurance and freight

CIS
The Commonwealth of Independent States

Dragline excavators
Heavy excavators used to excavate material. A dragline consists
of a large bucket which is suspended from a boom.

EBITDA
The Group calculates EBITDA as profit from continuing
operations before tax and finance plus depreciation and
amortisation (included in cost of sales, administrative expenses
and selling and distribution costs) and non-recurring cash items
included in other income and other expenses plus the net of
gains and losses from disposal of investments and property,
plant and equipment

EBT
Employee Benefit Trust

EPS
Earnings per share

Executive Committee
The Executive Committee of management appointed by the
Company’s Board

Executive Directors
The Executive Directors of the Company

Fe
Iron

Ferrexpo
Ferrexpo plc

Ferrexpo AG Group
Ferrexpo AG and its subsidiaries including FPM

Fevamotinico S.a.r.l.
A company incorporated with limited liability in Luxembourg

Combined Code
The Combined Code on Corporate Governance published by the
Financial Reporting Council in June 2008

FOB
Delivered free on board

Company
Ferrexpo plc, a public company incorporated in England and
Wales with limited liability

CPI
Consumer Price Index

CSR
Corporate Safety And Social Responsibility

FPM
Ferrexpo Poltava Mining, also known as Ferrexpo Poltava GOK
Corporation or PGOK, a company incorporated under the laws of
Ukraine

FRMC
Financial Risk Management Committee, a sub-committee of the
Executive Committee

FTSE 250
Financial Times Stock Exchange top 250 companies

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116

Financial Statements
Glossary continued

FYM
Ferrexpo Yeristovskoye Mining, also known as YGOK, a company
incorporated under the laws of Ukraine to administer the three
major growth projects

LTIP
Long-Term Incentive Plan

m3
Cubic metre

GPL
Gorishne, Plavninskoye and Lavrikovskoye Mine, the mine
operated by FPM

Group
The Company and its subsidiaries

Growth Markets
Those markets that offer to add new and significant tonnage
expansion potential

HSE
Health, safety and environment

IAS
International Accounting Standards

IASB
International Accounting Standards Board

Majority Shareholder
Fevamotinico S.a.r.l., The Minco Trust and Kostyantin Zhevago
(together)

mm
Millimetre

mt
Million tonnes

mtpa
Million tonnes per annum

Natural Markets
Relative new markets in regions where the Group believes it has
competitive advantage which is yet to be exploited

Nominations Committee
The Nominations Committee of the Company’s Board

IFRS
International Financial Reporting Standards, as adopted by the
EU

Non-executive Directors
Non-executive directors of the Company

IPO
Initial public offering

NOPAT
Net operating profit after tax

Iron ore concentrate
Product of the flotation process with enriched iron content

Iron ore sinter fines
Fine ground iron ore

Iron ore pellets
Dried and hardened agglomerate of iron ore concentrate, whose
physical properties are well suited for transportation and
downstream processing in a blast furnace

JORC
Australasian Joint Ore Reserves Committee – the internationally
accepted code for ore classification

K22
GPL ore has been classified as either K22 or K23 quality, of
which K22 ore is of higher quality (richer)

KPI
Key Performance Indicator

kt
Thousand tonnes

LIBOR
The London Inter Bank Offered Rate

LLC
Limited Liability Company

LTIFR
Lost-Time Injury Frequency Rate

OHSAS 18001
International safety standard ‘Occupational Health & Safety
Management System Specification’

Ordinary Shares
Ordinary Shares of 10 pence each in the Company

Ore
A mineral or mineral aggregate containing precious or useful
minerals in such quantities, grade and chemical combination as
to make extraction economic

Panamax
Modern Panamax ships typically carry a weight of between
65,000 to 75,000 tonnes of iron ore and can transit both Panama
and Suez canals

PPI
Ukrainian producer price index

Probable reserves
Those measured and/or indicated mineral resources which are not
yet ‘proved’, but of which detailed technical and economic studies
have demonstrated that extraction can be justified at the time of
the determination and under specific economic conditions

Proved reserves
Measured mineral resources of which detailed technical and
economic studies have demonstrated that extraction can be justified
at the time of determination and under specific economic conditions

Relationship Agreement
The relationship agreement entered into among Fevamotinico
S.a.r.l., Kostyantin Zhevago, The Minco Trust and the Company

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Remuneration Committee
The Remuneration Committee of the Company’s Board

Reserves
Those parts of mineral resources for which sufficient information
is available to enable detailed or conceptual mine planning and
for which such planning has been undertaken. Reserves are
classified as either proved or probable

$/t
US dollars per tonne

Sinter
A porous aggregate charged directly to the blast furnace which is
normally produced by firing relatively courser fine iron ore, other
materials, and coke breeze as the heat source

Spot price
The current price of a metal for immediate delivery

Sterling/£
Pound sterling, the currency of the United Kingdom

STIP
Short-Term Incentive Plan

Tailings
The waste material produced from ore after economically
recoverable metals or minerals have been extracted. Changes in
metal prices and improvements in technology can sometimes
make the tailings economic to process at a later date

TIS-Ruda
Ukrainian port facility on the Black Sea

Tolling
The process by which a customer supplies concentrate to a
smelter and the smelter invoices the customer the smelting
charge, and possibly a refining charge, and then returns the
metal to the customer

Ton
A US short ton, equal to 0.9072 metric tonnes

tonne or t
Metric tonne

TSR
Total shareholder return. The total return earned on a share over
a period of time, measured as the dividend per share plus capital
gain, divided by initial share price

Ukraine
The Republic of the Ukraine

Underlying earnings
An alternative measure which the Directors believe provided a
clearer picture of the underlying financial performance of the
Group’s operations. Underlying earnings is presented as profit
attributable to equity shareholders before adjusted items.
Adjusted items are those items of financial performance that the
Group believes should be separately disclosed on the face of the
income statement to assist in the understanding of the underlying
financial performance achieved by the Group. Adjusted items that
relate to the operating performance of the Group include
impairment charges and reversals and other exceptional items.
Non-operating adjusting items include profits and losses of
investments and businesses as well as IPO costs and non-
operating foreign exchange gains and losses

UAH
Ukrainian hryvnia, the currency of the Republic of the Ukraine

Ukr SEPRO
The quality certification system in Ukraine, regulated by law to
ensure conformity with safety and environmental standards

US$ or Dollars
United States dollars, the currency of the United States
of America

USS
United States Steel Corporation

VAT
Value Added Tax

Value-in-use
The implied value of a material to an end user to use one material
relative to other options, eg comparing performance of several
types of iron ore pellets into a blast furnace; taking into account
the delivered cost of a material and rates relative to other
competition materials on a quality and landed cost adjusted basis

Treasury Shares
A company’s own issued shares that it has purchased but
not cancelled

WMS
Wet magnetic separation

TSF
Tailings storage facility

Traditional Markets
Markets that the Group has supplied historically and in which it
enjoys a competitive advantage based on its location. These
include Austria, Ukraine, Poland, Slovakia, Romania, Bulgaria
and Russia

Yeristovo or Yeristovskoye
The mine being developed by FYM

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118

Financial Statements
Shareholder information

Registered Office
2–4 King Street
London
SW1Y 6QL
Web: www.ferrexpo.com

Advisors

Share Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
UK
Tel: 0871 384 2030
Overseas +44 121 415 7047
Web: www.equiniti.com

Financial
JPMorgan Cazenove Ltd
20 Moorgate
London EC2R 6DA

Corporate brokers
JP Morgan Cazenove Ltd
20 Moorgate
London EC2R 6DA

Deutsche Bank AG
1 Great Winchester Street
London EC2N 2DB

Legal
Allen & Overy LLP
One Bishops Square
London E1 6AD

Auditors
Ernst & Young LLP
1 More London Place
London SE1 2AF

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Notes

119

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120

Financial Statements
Notes

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Ferrexpo plc is a constituent of the FTSE UK
Index Series. It is currently the only pure-play
iron ore company listed on the LSE.

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Ferrexpo plc
Registered Office:
2–4 King Street
London
SW1Y 6QL

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2
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9

Annual
Report &
Accounts

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Producing for
over 30 years