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KYIV – Ferrexpo, the UK-listed miner focused on Ukraine’s iron ore industry, has reported a sharp 26% decline in its first-quarter pellet output for 2025. This downturn is largely due to the suspension of VAT refunds by Ukrainian tax authorities, which has significantly disrupted the company’s liquidity and forced it to scale back operations. As a result, Ferrexpo’s shares slid 4.9% in early trading on Monday.
Impact of VAT Refund Suspension
Ferrexpo has been caught in a challenging financial environment, compounded by the suspension of a VAT refund worth approximately $12.5 million (512.9 million hryvnias). The tax relief suspension follows sanctions imposed on Ukrainian billionaire Kostiantyn Zhevago, a key shareholder in Ferrexpo. Zhevago is one of the beneficiaries of a trust that owns a controlling stake in the company. While the sanctions were not directly imposed on Ferrexpo, they have nonetheless disrupted operations.
Lucio Genovese, Interim Executive Chair of Ferrexpo, stated that the company was facing “lower funds” and was forced to implement significant cost-cutting measures as a result of the liquidity shortfall. The suspension of VAT refunds has led the company to operate just one of its pellet production lines, causing output to drop to 1.35 million metric tons in Q1 2025, down from 1.81 million tons in the same period last year.
Broader Impact on Operations
Despite the setback in pellet production, Ferrexpo’s total commercial production, which includes iron ore concentrate, saw a 20% increase quarter-on-quarter, reaching 2.13 million tonnes for the first quarter. This marks the highest quarterly output since the onset of the war in Ukraine. However, rising operating costs—particularly the high prices of imported electricity—and a decline in iron ore prices have hampered profitability, making it difficult for Ferrexpo to translate higher output into improved earnings.
The Triple Threat for Ferrexpo
Ferrexpo is currently grappling with a “triple threat,” according to analysts at Panmure Liberum: falling iron ore prices, escalating operational costs, and ongoing legal challenges. The suspension of VAT refunds has only exacerbated these pressures, further straining the company’s financial situation.
Despite these challenges, Ferrexpo remains optimistic that the VAT refunds will eventually be reinstated, with analysts predicting the issue could be resolved later in 2025. The company is actively engaging with the Ukrainian government and other stakeholders to restore the refund and ease the financial strain.
What’s Next for Ferrexpo?
Looking ahead, Ferrexpo faces an uncertain financial environment, particularly as it deals with external factors like global iron ore price fluctuations and geopolitical instability in Ukraine. The company is committed to lobbying for the return of its VAT refunds, but it will need to navigate continued cost pressures and legal challenges in the meantime.
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