Ferrexpo had a good start to 2025. The Ukrainian iron ore pellet producer reported output of 2.1Mt, comprising 1.3Mt of pellets and 0.8MT of 67% Fe concentrate, even with only two of its four pellet lines running. 

This was the best showing since the Russian invasion of Ukraine in February 2022, and a display of resilience in the face of severe logistical challenges. 

But the miner now has to contend with a new challenge, an attempt by Ukrainian courts to expropriate ownership, and a series of court decisions that have put operations at risk. 

Volatile markets

As one of the largest Ukrainian companies that can be traded on the LSE, Ferrexpo equity has seen huge volatility from news flow from the war. Shares have risen whenever a peace deal seems near, and fallen back sharply when those hopes fade.

But despite the ongoing impact of the war on production, Ferrexpo's biggest constraint is now the Ukrainian courts.

"After three years we have learned how to operate within the constraints of war…. The biggest challenge for us now is from the government," Ferrexpo chief financial officer Nikolay Kladiev told Mining Journal.

Ferrexpo's founder, largest shareholder, and former director Kostyantyn Zhevago has faced prolonged legal proceedings initiated by Ukrainian authorities.

despite the ongoing impact of the war on production, Ferrexpo's biggest constraint is now the Ukrainian courts.

The case does not relate to the conduct of Ferrexpo, but instead on the alleged embezzlement by Zhevago of funds from the defunct Finance & Credit bank. 

Zhevago resigned as executive director when criminal proceedings were initiated in 2019, but retains his stake in Ferrexpo.

Zhevago was arrested in France in 2022 on a warrant issued by Ukrainian authorities, but French courts have blocked his extradition.

Ukrainian authorities have subsequently directed their attention to Ferrexpo Poltava, the wholly-owned local subsidiary that holds all of Ferrexpo plc's operating assets. 

This poses a threat to other Ferrexpo shareholders in London, who risk having their own holdings diluted by loss of around half of the revenues from Ferrexpo Poltava, despite having no direct relationship with Zhevago, and being in no way implicated in the allegations. 

Such an expropriation of value could be made even more complex by the terms of a minerals deal recently signed between the Ukraine and the US, which means all new state-owned assets would be part of a fund jointly owned by the US Federal Government. 

VAT refund stalled

In March of this year, Ferrexpo warned of the impact of a decision by Ukrainian tax authorities to suspend VAT refunds to the company, relating to the dispute. 

Ferrexpo announced that a refund for January 2025 of UAH512.9 million (approximately US$12.5 million) would force the company to "radically reduce the scale of its business to 25% of its full capacity". 

"We hope that the rule of law prevails in Ukraine."

Ferrexpo said it would be "forced to reduce production and sales," and also warned that it would halt any further investment in Ukraine, as well as warning that jobs and local purchasing were at risk. 

In April Ferrexpo announced that the VAT refund for February, to an amount of around US$11.1 million, had also been suspended. 

"The explanation provided by the tax authorities for the suspension relates to the imposition of personal sanctions on Kostiantyn Zhevago," Ferrexpo said. 

"Given these explanations it is likely that subsequent VAT refunds may also be refused."

"We hope that the rule of law prevails in Ukraine."

Railway jam

Ferrexpo's legal issues are the latest and largest challenge the company has faced in the last three years. 

The Russian invasion of Ukraine sent shockwaves through the nation's logistics systems, leaving Ferrexpo struggling to find export routes for its ore. 

The miner faced issues with direct damage to transport infrastructure, soaring utilisation rates by the military, and the closure of Black Sea ports. 

"We reviewed more than 40 alternative logistic routes. We looked at rail directly to Europe, to the North Sea through Poland, to the Black Sea. In the end, we elected to go through the Black Sea port of Constanța in Romania," Kladiev said. 

 "The complexity was really high, because you had to go through by train, then reload into barges, and down the Danube, then to Constanța, then reload on to ships." 

 "But while you are in the territory of Ukraine in 2022 there were also active military activity and missile attacks. Therefore, parts of the railroads were destroyed, including bridges."

"When the railway bridges were destroyed, we had to reload from the wagons to trucks going by the tracks, passing by the destroyed bridges, and then reload back to the to the wagons, and then to Izmail port, then down the Danube to Constanța, and then from Constanta, we sold to Europe, for example, to Rotterdam or to Turkey."

Labour shortage

Railway logistics were not the only concern. The mobilisation of the Ukraine's population soaked up labour and skills. 

"We have approximately 10% of our workforce conscripted and serving in the Ukrainian Armed Forces," Kladiev said.  The difficulty was that the army needed the qualified workers, like electricians, mechanics, welders and drivers. We also needed those people to run our operations."

The solution was to increase training, and to focus on giving workers multiple-skill sets. "We had to train our employees to be multifunctional," Kladiev said. 

"We also extended the number of jobs that can be done by women. But that also required some actions to challenge the labour legislation in Ukraine, which is quite strict on some of the jobs women can do."

 At time of writing, 32% of the workforce of 8,542, at Ferrexpo are female. The company has focused on growing the share of women in management roles, where they now hold 25% of positions. 

22.9% of management roles are held by women was reported in the Annual Report, however, as mentioned yesterday, this has now increased to 25% during the current year, which means Ferrexpo has hit its 2030 target early.

Veterans are also a key part of the workforce. 102 veterans have returned to the work at Ferrexpo. The company has needed to adjust to the needs of veterans, including both injuries and the mental health repercussions of their deployment. 

Keeping the lights on 

While the immediate effects of the invasion were felt in transport and workforce, in 2023 the war took a different turn, as the Russian military stepped up attacks on Ukraine's energy infrastructure. 

In response, Ferrexpo was forced to cut electricity usage.  

"In the second half of 2023 we had also switched operating more during the night shifts when the consumption of electricity is lower," Kladiev said. 

 The miner also moved to secure power as pressure on the grid tightened. "We approached the biggest producers of electricity in Ukraine directly," Kladiev said. 

While the immediate effects of the invasion were felt in transport and workforce, in 2023 the war took a different turn, as the Russian military stepped up attacks on Ukraine's energy infrastructure.

Green steel

Despite the many storms Ferrexpo has had to weather, Kladiev was bullish about the long term prospects of the company: "It's a great and bright future."

Ferrexpo has a number of key advantages in the rapidly reshaping iron ore space. Firstly is the sheer size and life of mine of Ferrexpo Poltava, with a 5.7 billion tonnes JORC-compliant resource.

Second is the work Ferrexpo has already put into upgrading its pelletiser lines, combined with the high grade of the resource. 

This allows the company to position itself in the high-grade direct-reduciton (DR) pellet market. DR pellets can be used in electric arc furnaces, in the production of green steel. This positions the company well at a time when blast furnaces across the region are being closed down due to carbon concerns. 

"The press filtration project is key to improving the quality of the product and being able to produce more DR pellets, and the pellets with better technical specifications, less silica, lower moisture content, and increased strength."

 The third advantage Ferrexpo has is its location, in Europe and with access to the Black Sea, and thereby the Mediterranean. 

"One differentiator with our DR pellets, is that the growth markets are Europe, because it's legislatively driven to lower emissions, and MENA, because of all the cheap gas," Kladiev said. "We have a geographical advantage because we're closer to both these markets."

But these plans are on hold for the time being, as the miner focuses on its legal challenges. 

"Liquidity remains key for us. Profit is a concept, cash is reality," Kladiev said. 

Therefore, I have to secure this efficient amount of cash… we keep this target to secure the liquidity sufficient to fund our operation and also being in a position to respond to the legal cases."