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Rating Action:

Moody's assigns Ferrexpo Plc B2 Corporate Family Rating; Outlook Stable

28 Sep 2010

First time rating

Frankfurt am Main, September 28, 2010 -- Moody's Investors Service has today assigned Corporate Family and Probability of Default Ratings of B2 to Ferrexpo Plc, a Ukrainian iron ore pellet producer. The outlook is stable. This is the first time that Moody's has rated Ferrexpo Plc.

RATINGS RATIONALE

The B2 corporate family rating recognizes the company's (i) access to sizeable iron ore reserves and unexploited iron ore resources adjacent to its existing exploited iron ore deposits (almost 7 billion tons of measured and indicated resources including 1.5 billion tons of proven and probable reserves), (ii) geographical location with good access to the European markets and to the seaborne market thanks to its proximity to the Black Sea, (iii) long history of iron ore mining and iron ore pellet production at its main operating subsidiary Ferrexpo Poltava GOK Corporation, (iv) relatively strong market position in iron ore pellets as the sixth largest pellet producer worldwide, (v) sound balance sheet structure and debt metrics to date despite having experienced volatility in iron ore and pellets prices over the last eighteen to twenty four months, and (vi) the group's continued focus on reducing operating cash costs which are currently at the bottom end of the second quartile of the pellet production industry cost curve.

On a more negative tone, the rating is constrained by (i) the exposure of the group to a single commodity which has proven volatile over the recent past, (ii) Ferrexpo's concentration in iron ore resources in one single location which increases the production outage risk notwithstanding that the production track record of the group has been good so far, (iii) the relatively low grade of the group's mining deposits compared to some competitors, (iv) the average cash cost structure of the group with a position at the low end of the second quartile of the iron ore pellet production industry cost curve, (v) the group's strong customer concentration with material revenues generated under long term contracts with Voest Alpine (unrated) and US Steel (Ba2, Negative Outlook) notwithstanding that Ferrexpo has had long standing relationships with these customers and no significant volume off-take disruptions despite turbulent times in the steel industry, and (vi) the group's concentrated ownership structure with 51% of the shares of the company being controlled by an individual.

The B2 Corporate Family Rating also reflects the country ceiling of the Republic of Ukraine (B1, Negative Outlook) which owns the iron ore reserves and resources notwithstanding that Ferrexpo exports all its products outside of Ukraine and is largely funded through non domestic banks.

The liquidity position of Ferrexpo is adequate. At 30th June 2010 the group had USD60 million of cash on balance sheet. The liquidity needs of the group over the next twelve months mainly consist of capex, working capital requirements and dividends and are expected to be funded from operating cash flows and cash on balance sheet. Moody's expects Ferrexpo to apply discretion in the development of its unexploited mining resources in order to maintain an adequate liquidity profile in the future. The agency positively notes the refinancing of the group's USD230 million pre-export finance facility with a USD350 million pre-export finance facility, which will push back first monthly amortization to 2012 from 2011.

The stable outlook assigned to the ratings reflects Moody's expectation that Ferrexpo will maintain a prudent balance sheet strategy going forward and will continue to benefit from supportive demand fundamentals for its iron ore pellets. The stable outlook also reflects the agency's expectation that Ferrexpo will continue to focus on the optimisation of its cost structure and will apply discretion in the development of its commercially unexploited iron reserves. Finally the stable outlook reflects Moody's expectation that Ferrexpo will maintain an adequate liquidity profile through the cycle.

The principal methodologies used in rating Ferrexpo Plc were Global Mining Industry published in May 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Ferrexpo Plc, headquartered in Switzerland and incorporated in the UK, is an iron ore pellet producer with all its mining and processing assets located in Ukraine. Ferrexpo has the fourth largest iron ore reserves worldwide behind Vale, Rio Tinto and BHP Billiton with access to approximately 1.5 billion tonnes of JORC proved and probable reserves included in approximately 6.9 billion of resources at an average ore grade of 30% Fe. Ferrexpo is the 6th largest pellet producer behind Cliffs, Vale, Samarco Metinvest and LKAB. In 2009, the group generated sales of USD649 million and an EBITDA of USD138 million.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

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Frankfurt am Main
Stanislas Duquesnoy
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany

Moody's assigns Ferrexpo Plc B2 Corporate Family Rating; Outlook Stable
No Related Data.
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