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07Ferrexpo plcAnnual Report & Accounts 2018KYIVP O LTA VAFERREXPOUZHHORODZOLOTNISHINOCHOPB AT ’ O V OZNAMENKA20AVERAGE NUMBER CAPESIZE VESSELSLOADED PER YEAR1562,252OWNBARGESDNIEPER RIVERPORTYUZHNYDANUBE RIVERPORT IZMAILSAILING TIME TO ASIAUKRAINE/30 DAYSBRAZIL/40 DAYSNORWAY/50 DAYSCANADA/55 DAYSSEA OF AZOVPORTODESACRIMEAP O RT C O N S TA N TAOWN RAIL CARSFINANCIAL STATEMENTSLV I VMOSTYSKACORPOR ATE GOVERNANCEThe Group’s logisticsinfrastructure enables it totransport its pellets by rail to thewestern border of Ukraine toconnect with the European railnetwork, by barge on the DanubeRiver into Europe and by capesizevessel from its TIS Ruda Terminalin the southern port of Yuzhny.STR ATEGIC REPORTESTABLISHED LOGISTICSINFRASTRUCTURE

08Ferrexpo plcAnnual Report & Accounts 2018FERREXPO AT A GLANCE CONTINUEDWORLD CLASSCUSTOMER BASECENTRAL EUROPE*47%WESTERN EUROPE*16%A trial shipment to the USaccounted for just under 1%of sales volume in 2018.CHINA & SOUTHEAST ASIATURKEY, MIDDLEEAST & INDIA13%NORTHEAST ASIA6%17%Ferrexpo’s world classcustomer base produces highquality steels for value addedfinished products. Thesecustomers look to operateefficiently and to reducetheir CO2 footprint.3RDLARGEST EXPORTER OFPELLETS IN THE WORLDHigh Quality Sales PortfolioThe Group has continued to implement itsstrategy of selling the vast majority of itsproduction under long-term contracts withcrisis-resistant customers. During 2018, inboth Asia and Europe, several long-termcontracts were renewed or extended whilstnew markets continued to be developedtoward long-term business in the future.In this regard, during the year, the Groupmade its first trial shipment of DR pellets toNorth America representing just under 1%of sales volumes in 2018.GLOBAL PELLET EXPORTERS IN 2018MarketShare2018Pellet Exportsin 2018(Mt)BF Pelletsin 2018DR Pelletsin 2018Vale (Brazil Oman)LKABFerrexpoIOCIndiaQCMSeverstalBahrain SteelUS TotalNote - ‘Other’ category includes CRU estimate of exports from the following countries: Iran, Venezuela and CIS outside ofUkraine/Russia, in addition to Metinvest.

09Ferrexpo plcAnnual Report & Accounts 2018SUSTAINABLEFUTURELARGEST EMPLOYER IN POLTAVA REGIONCONTRACTORSEMPLOYED IN 2018STR ATEGIC REPORT9,0351,620STAFF EMPLOYEDIN 2018CORPOR ATE GOVERNANCEFINANCIAL STATEMENTSFerrexpo has a sustainablelong-term profile due toinvestment in its operationsand its strong customer base.This ensures the future viabilityof the business and continuedsupport for the communityand Ukraine.#1DRIVERS OFPELLET DEMANDEnvironmental– Government regulations in China require mills touse higher quality iron ore to lower emissions– Increasing CO2 costs in EuropeFerrexpo is a major user andpayer of state infrastructureEXPORTER OF IRON ORE PELLETS(railways, electricity, gas, port) IN THE FORMER SOVIET UNIONthrough the commodities cycle.LARGEST EXPORTER OF IRON OREPELLETS IN THE FORMER SOVIET UNION2.0%OVERUS 700MFERREXPOACCOUNTEDFOR 2.0% OFUKRAINE’STOTAL GOODSEXPORTEDIN 2018.TOTAL TAXESPAID INUKRAINESINCE 2007.Productivity– Chinese government looking to move steelproduction up the value chain – this generallyrequires lower impurity ores– Steel capacity closures in China and Europeshould support steel prices in the medium termdriving demand for higher productivity rawmaterials– Pellets are a growth enabler for steel mills in caseof sinter or blast furnace bottlenecksNatural Decline of High Grade Ore Reservesand Rising Coking Coal Costs– Decline of high quality lump– Increasing supply of ultrafine ores– Depletion of low alumina and low phosphateores in Australia– Pellet use reduces coke requirementsRise of DRI Production in MENA, CIS and USA– DR pellets account for a third of the global pelletmarket, 25% since 2010

10Ferrexpo plcAnnual Report & Accounts 2018BUSINESS MODELWe create value for our stakeholders through the carefuldevelopment of our long-life iron ore deposit in Ukraine into a highquality iron ore product. Vital to our ongoing success are the peoplewho we employ, investment into our operations, our diversifiedglobal customer base and the support of our communities.OUR KEY RESOURCESWHAT WE DO– LONG-LIFE IRON ORE DEPOSITIN UKRAINE– WELL INVESTED PRODUCTIONPROCESS– SKILLED WORKFORCEORE EXTRACTIONDRILLINGBLASTINGEXCAVATIONHAULAGEORE TO CRUSHER– INFRASTRUCTURE NETWORK(WITH ACCESS TO WATER/ELECTRICITY/GAS)– GLOBAL LOGISTICS CAPABILITY– CUSTOMER RELATIONSHIPS(WITH HIGH QUALITY ‘CRISIS-RESISTANT’ STEEL TION– FINANCIAL STABILITYOUR MARKETING POSITIONWe operate in a niche market with high barriers to entry. Oursignificant capital and operational investments enable the businessto be cash generative throughout the commodities cycle.

11Ferrexpo plcAnnual Report & Accounts 2018STR ATEGIC REPORTSUSTAINABLE STAKEHOLDER RELATIONSHIPSRevenue generated(2017: US 1.2BN)CRUSHINGCOARSE CRUSHINGMEDIUM CRUSHINGSCREENINGFINE CRUSHINGDRY MAGNETIC SEPARATION– EMPLOYEESWages and salaries paid(2017: US 64M)– COMMUNITIESCharitable donations made(2017: US 28M)– GOVERNMENTTaxes and royalties paid(2017: US 33M)– INVESTORSBENEFICIATIONGRINDINGCLASSIFICATIONHYDRO SEPARATIONMAGNETIC SEPARATIONFLOTATION UPGRADETAILINGSDividends declared for thefinancial year– SUPPLIERSMoney spent on suppliers(2017: 16.5 US CENTS PER SHARE)(2017: US 717M)UNDERPINNED BY OUR VALUESOur key value is to ensure the safety of all our employees from thoseworking at our mines and processing facility in Ukraine, to those inour logistics and marketing operations located around the world.FINANCIAL STATEMENTSUS 1.3BNUS 86MUS 15MUS 73M23.1 per shareUS 844MCORPOR ATE GOVERNANCE– CUSTOMERS

12Ferrexpo plcAnnual Report & Accounts 2018PRODUCTION PROCESSAN EFFICIENT ANDWELL INVESTEDPRODUCTION PROCESSORE EXTRACTIONOpen cut, hard rock iron ore mining,using truck and shovel. Average Fecontent of 31%.BENEFICIATIONThe ore is ground to produceconcentrate which is then upgraded to67% Fe content. Waste material isremoved to the tailings storage area.THE FINE ORE PARTICLES ARE COLLECTEDTO PRODUCE 67% FE CONCENTRATE

13Ferrexpo plcAnnual Report & Accounts 2018The ore is crushed and screenedbefore entering one of twocrushing plants.CORPOR ATE GOVERNANCECRUSHINGSTR ATEGIC REPORT35%96% OF OUTPUT PARTICLESWITH 35% FE CONTENTFINANCIAL STATEMENTSPELLETISINGFour kiln grate units heat and formthe pellet feed into pellets ofaround 16mm.To view our animated videovisit: www.ferrexpo.com/media/video-library

14Ferrexpo plcAnnual Report & Accounts 2018PRODUCTION PROCESS CONTINUEDDRILLING AND BLASTINGEXCAVATIONHAULING TO RELOADING POINTMEDIUM CRUSHERSSCREENINGFINE CRUSHINGBENEFICIATIONGRINDING IN MAIN MILLSCLASSIFICATION IN SPIRAL CLASSIFICATORSFLOTATION UPGRADE AREAGRINDING IN VERTICAL MILLSWET MAGNETIC SEPARATIONBLENDING ORE WITH BENTONITE AND LIMESTONEBALLINGDRYING GREEN PELLETS IN TRAVELLING GRATE

15Ferrexpo plcAnnual Report & Accounts 2018STR ATEGIC REPORTTRANSPORTING TO CRUSHING FACILITYPRIMARY CRUSHERSSCREENINGDRY MAGNETIC SEPARATIONFINE CRUSHINGCLASSIFICATION IN HYDROCYCLONESWET MAGNETIC SEPARATIONMAGNETIC-HYDRAULIC SEPARATIONFLOTATIONTHICKENINGDEWATERING BY VACUUM FILTERSINDURATION IN ROTARY KILNTRANSPORTING BY RAILTRANSPORTING BY SEA VESSELSCORPOR ATE GOVERNANCELOADING TO DUMPCARSFINANCIAL STATEMENTS

16Ferrexpo plcAnnual Report & Accounts 2018CHAIRMAN’S STATEMENTHealth and SafetyWe deeply regret the fatality (2017: one) inOctober 2018 of Maxim Blinkov, acontractor at Ferrexpo Poltava Mining(“FPM”), who was fatally injured after fallingfrom a height in the processing plant. Ourgoal remains firmly focused on achievingzero fatalities or injuries. On behalf of theGroup, I would like to express our sincerecondolences to the family of our colleague.For more informationSee pages 29, 33, 42, 52Steve Lucas, ChairmanYear in SummaryI am pleased to report another strong yearfor iron ore pellet demand with premiumsrising 30% over 2017 levels. In general,the iron ore market in 2018 was notablefor its unusually low levels of volatility.Average iron ore prices for 58% Fe finesand the benchmark 62% Fe fines declinedmarginally compared to 2017, while theaverage price for 65% Fe fines increasedby 3%. Pellets, however, were an exceptionas steel mills looked to boost productivity.The steel industry experienced strongprofitability for most of 2018 due to highglobal demand. As such, mills looked toincrease their utilisation rates to maximiseoutput, while in China mills also soughtto decrease their emissions by reducingsintering and increasing use of highergrade direct charge material, such aspellet. Meanwhile, additional supplyof pellet was limited, resulting in pelletpremiums trading at ten-year highs.In the 4Q of 2018, steel marginscontracted reflecting increased globaltrade tensions and slower economicactivity, especially in China, while steeloutput remained at relatively high levels.As a result steel demand and profitmargins fell. To date in 1Q 2019, the steelindustry in China has seen a gradualrecovery in margins, while margins inEurope have been slower to improve.In 2018, commodity producers experiencedsignificantly higher oil prices with anaverage 31% increase in the price of Brentcompared to 2017. This drove an increasein Ferrexpo’s cost of pellet productionalong with other external factors, such aslocal PPI inflation of 18% while the HryvniaRECORD PROPOSEDDIVIDEND PAY-OUTRATIO 41%(2017: 25%)

17Ferrexpo plcAnnual Report & Accounts 2018Underlying EBITDA for 2018 was US 503million (2017: US 551 million). Profit forthe period was US 335 million (2017:US 394 million) while net cash flowsfrom operating activities were US 292million (2017: US 353 million).Finally, I am pleased to report, subject toshareholder approval, a record dividendfor the 2018 financial year of 23.1 US centsper share, a 40% increase comparedto 2017 (16.5 US cents per share).IndustryIt is with immense sadness that wesaw reports of the catastrophic breachof a tailings dam in Brazil in January2019. As would be expected, there arelikely to be far-reaching consequences,including increased scrutiny of theglobal mining industry. Ferrexposupports the establishment of anindependent organisation to monitor thesafety of all tailings dams on a globalbasis to ensure compliance with thehighest level of safety standards.Ferrexpo operates one tailings damcovering an area of 1,500 hectares. Thedam is constructed on flat topographyand the method of construction is theModified Centreline methodology. Thedam is inspected twice a year by theUkrainian mining regulator. Followingthe breach in Brazil in January,Ferrexpo appointed Knight Piesold, aninternational independent consultant,to further review and verify the dam’sdesign, construction and monitoring.For further information on the marketenvironment see Operational ReviewSee page 29RECORD PELLETPREMIUMRECEIVED IN 2018Pellets are one of the most efficient sourcesof iron in the steelmaking process. Thishas underpinned demand and profitabilityfor established pellet producers for manyyears. As in the past, Ferrexpo continue tobelieve long-term demand for pellet will besupported by requirements for iron ore ofa higher grade and in a form that reducesenergy inputs, slag volumes and airemissions in the steelmaking process whileimproving the quality of the final product.This is likely to be further supported by thegeneral decline of naturally occurring highquality iron ore fines and lump as well asongoing consolidation in the steel industryin China and Europe, which underpinsa general increase in utilisation rates.23.1 For these reasons Ferrexpo expectspellets to continue to receive a healthyprice premium relative to other types ofiron ore which will underpin the Group’sprofitability. The size of the premium,however, is likely to vary in line with steelmill profitability reflecting the cyclical natureof the industry. Given the limited availabilityof seaborne pellets, however, supplydisruptions can also influence pricinguntil the market is able to adjust. TheGroup expects reduced supply of globalpellet exports in 2019 and 2020 followingthe major supply disruptions in Brazil.With the best steel mills in the worldamongst Ferrexpo’s customers,the Company is well positioned tobenefit from increasing demand.For further information on the marketenvironment see Market ReviewSee pages 20-23TOTA L RECOMMENDED DIVIDENDPER SH A RE 40% (2017: 16.5 US CENTS)REDUCTION IN NE T DEBT60%SINCE 1 JANUARY 2016 TO US 339MFor further informationSee pages 24-28FINANCIAL STATEMENTSFerrexpo further strengthened itsbalance sheet during 2018 and net debtreduced for the third consecutive yearto US 339 million as of 31 December2018 (31 December 2017: US 394million). The Group has strong creditmetrics with net debt to underlyingEBITDA comfortably below 1 times.Iron Ore Pellet MarketIron ore pellets are a niche market segment,representing 8% of the total iron ore exportmarket, principally due to high barriersto entry, including the requirement tobeneficiate and upgrade the iron ore andthe high capital intensity to establish a fullmine-to-port pelletising operation whichis typically in excess of US 300 per tonneof output for a greenfield operation.CORPOR ATE GOVERNANCEappreciated marginally against the USDollar adding further to cost pressures.Ferrexpo remains a low cost producerrelative to the majority of its peers.STR ATEGIC REPORTRECORD DIVIDEND PROPOSED,INCREASED CAPITAL INVESTMENTAAND REDUCTION IN NET DEBT

18Ferrexpo plcCHAIRMAN’S STATEMENTCapital AllocationThe Group’s capital allocation strategyis to maintain an appropriate balancebetween investment grade credit metrics,attractive dividends and investmentin growth opportunities. This strategyhas been designed to reduce the risksinherent in operating in an emergingmarket while selling our product ina volatile commodities market.Balance SheetDuring the year, Ferrexpo’s credit ratingwas upgraded by Moody’s, Fitch andS&P. Ferrexpo’s credit rating is restrictedby Ukraine’ country ceiling and theGroup’s rating should improve in linewith positive developments in Ukraine.Ferrexpo aims to maintain prudent leveragemetrics with net debt to underlying EBITDAas of 31 December 2018 at 0.67 times. TheGroup’s priority since 2015 has been toreduce debt and it has repaid over US 500million of gross debt since 1 January 2016.As such, the Board feels it is appropriateto readjust the use of available free cashflows from primarily deleveraging to includea more balanced focus on dividends andinvestment projects whilst ensuring theGroup’s credit metrics remain strong.DividendsThe Board is pleased to announce a specialdividend of 6.6 US cents per share (2017final special dividend: 6.6 US cents pershare) and propose a final ordinary dividendper share of 6.6 US cents per share (2017final ordinary dividend: 3.3 US centsper share). If the final ordinary dividendis approved by shareholders, the totaldividend declared for the 2018 financialyear will be a record 23.1 US cents pershare, equivalent to US 138 million (2017total dividend declared: 16.5 US cents pershare or US 97 million). This reflects thelong-term structural factors underpinningpellet demand and the continuedsolid cash generation of the Group.Capital Investment ACapital investmentA increased by 31% in2018 to US 135 million (2017: US 103million). This included the Group’sConcentrate Expansion Programme 1(“CEP1”) which will enable the Groupto increase pellet output by 13% orapproximately 1.5 million tonnes to 12million tonnes per annum in 2021.Annual Report & Accounts 2018CONTINUEDThis portfolio of projects has the potentialto increase pellet production volumesup to 20 million tonnes per annum.In total, capex A for 2019 is expectedto be in a range of US 220 millionto US 300 million, subjectto realised pricing.Ferrexpo’s investment strategy remainsto identify opportunities which arevalue accretive to the Group andthat can reduce operating risk.Social ResponsibilityFor the year ended 2018, it is expectedthat Ferrexpo’s pellet exports will beapproximately 2%1 of Ukraine’s total exportrevenue. The Board believes it is essentialto the Group’s long-term viability to ensurea positive contribution to the society inwhich it operates, aiding the long-termdevelopment of Ukraine and creating astable operating environment for the Group.In order to maintain its social licenceto operate, Ferrexpo provides financialsupport to a broad array of socialprogrammes and, in 2018, it investedapproximately 1% of total Grouprevenue in these programmes.Independent Review of CharitableDonations to Blooming LandAs part of the Group’s Corporate SocialResponsibility (“CSR”) programme inUkraine, since 2013 the Group hasdonated to a charity called Blooming Landwhich operates through three sub-funds(the “Charity”). The Charity’s activitiesinclude diabetes prevention, eyesight careand support for the elderly. In the yearended 31 December 2018, the Groupmade contributions to the Charity ofUS 9.5 million (2017: US 24.0 million).The Board suspended donations to theCharity in May 2018 following continueddelays in receiving additional information,which the Charity regarded as beyondthe normal requirements expected of aUkrainian charity, and while it awaited theoutcome of a review into the Charity’s2017 audited financial statements.Following the publication of the Group’sInterim Results in August 2018, anumber of irregularities were reported tothe Board including inconsistencies incopy bank statements provided by theCharity to Deloitte, the Group’s auditor.Explanations were received fromthe Charity which were consideredincomplete and unsatisfactory andcould not be independently verified. Asa result in February 2019, the Boardestablished the Independent ReviewCommittee (“IRC”) to look into this andother matters which included seekingto determine that Ferrex

LOST TIME INJURY FREQUENCY RATE1.18 x Group LTIFR in line with 2017 (2017: 1.17x) 1 fatality during the year (2017: 1) TOTAL PRODUCTION10.6 MT 94% of production of 65% Fe pellets (2017: total production 10.4Mt, 95% of production of 65% Fe pellets) REVENUE US 1.3BN (2017: US 1.2BN) UNDERLYING EBITDAA US 503 (2017: US 551M) PROFIT FOR THE YEAR US .