March 14, 2012 / 7:43 AM / 6 years ago

UPDATE 2-Ferrexpo 2011 profit rises as Asia sales climb

* Full-year EBITDA $801 mln vs forecast $772 mln

* Cash cost of production up 28 percent to $50.7 per tonne

* Follows market move to index-linked pricing

* Sales volumes to Asia at 40 pct of total vs 27 pct in 2010

By Clara Ferreira-Marques

LONDON, March 14 (Reuters) - Ukrainian iron ore miner Ferrexpo posted a 37 percent jump in 2011 core profit, at the higher end of expectations, thanks to robust prices for the key steelmaking ingredient and an increase in Asian sales that offset softer European demand.

The pellet producer has been reducing its dependence on its traditional European markets, where steelmakers have been battered by the debt crisis and falling consumer demand.

It said on Wednesday sales to Asia, mostly China and Japan, rose to 40 percent of its total from 27 percent in 2010, with traditional markets accounting for less than half of the total.

London-listed Ferrexpo, which has one of the mining world’s largest iron ore resource bases, has capitalised on its geographic position in Ukraine, which gives it a shorter shipping distance to key destinations like Shanghai and Hong Kong than some of its peers, excluding Australia’s miners.

“Demand in China remains strong and robust ... from our point of view demand continues at good levels, we are not seeing any significant changes in the market,” Chief Financial Officer Chris Mawe said in an interview.

Ferrexpo’s core profit, or earnings before interest, tax, depreciation and amortisation, jumped to $801 million, compared to forecasts of $772 million, according to Thomson Reuters I/B/E/S, thanks to higher than expected achieved prices. Profit before tax rose 39 percent to $691 million.

Along with the rest of the industry, however, the miner reported a jump in costs, with the cash cost of production up 28 percent to $50.7 per tonne, mostly reflecting the increase in oil, fuel-oil and gas prices. The miner said oil-linked increases accounted for $6.10 of the cost rise.

Ferrexpo is increasing production to combat rising costs, and said its projects to increase capacity by a third to 12 million tonnes per year from 2013 were on track. Capital expenditure in 2012 is set to be flat on 2011’s $378 million, though that could rise if a plan to increase output further to 20 million tonnes is approved during the year.

Ferrexpo, which produces iron ore pellets for the European, Turkish and Asian steel industries, said in January its overall production dipped 2 percent in 2011 as demand softened. Sales volumes, however, ticked 1.6 percent higher.

The group said it expected iron ore prices to remain around current levels and above the historic average. Ferrexpo has followed the industry’s shift to index-linked prices, saying the move allowed the industry to avoid customers failing to fulfil contracts when prices fell last year - as they did in 2008.

Six out of 10 core contracts that account for the bulk of its turnover are already on index-linked prices, it said.

The iron ore price dropped at the end of last year to its lowest levels since the summer of 2010, but has since recovered and is trading above $140 a tonne. Iron ore with 62 percent iron content was trading around $144 on Wednesday, according to the Steel Index.

Shares in Ferrexpo, which trade at a premium to West African pure iron ore producers, were up 0.3 precent at 334.2 pence, marginally below a 0.5 percent rise in the sector.

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