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9and a special dividend (3.3 US cents)during the year, and today we haveannounced a final ordinary dividend of 3.3US cents per share as well as a specialdividend of 6.6 US cents per share. Ifthe final ordinary dividend is approvedby shareholders, the total dividendrelating to 2017 will be 16.5 US cents pershare (2016: 6.6 US cents per share).1its operations to access additional ore,upgrade its processing facilities to improvethe quality of its pellet, and establishreliable and cost-effective transportationroutes to European and seaborne markets.As a result, it has more than doubledproduction of its high-quality 65% Fepellets, and today it is the third largestexporter of blast furnace pellets by volume.Over the past two years, the Group hasfocused on strengthening its balancesheet and during this time has reducednet debt by US 465 million. Given thisstrong reduction and the improvement inGroup profitability, total dividends of 16.5US cents per share have been declaredfor 2017. Going forward, the Group willcontinue to focus on debt reduction.Health and SafetyWe deeply regret a fatality at FerrexpoPoltava Mining (“FPM”) in 2017 (2016:two). Our goal remains firmly focusedon achieving zero fatalities or injuries.On behalf of the Group, I would like toexpress our sincere condolences tothe family of our valued colleague.At the same time, Ferrexpo is one of thelowest cost pellet producers in the world.Going forward, the Group will look tomaintain its low cost position within theindustry, further improve the quality of itsoutput and increase its production volume.Following the reduction in capitalinvestment in 2015, due to the low ironore price environment, investment wasgradually increased in 2017. Ferrexpo isimplementing a project to increase outputof pellet feed by approximately 1.5 milliontonnes. Once completed in 2020, it willallow the Group to produce sufficientconcentrate to feed all four of its pelletisinglines and increase pellet production to 12million tonnes per annum. Ferrexpo alsocommenced detailed engineering studiesregarding the expansion of its pelletisingcapacity. Capital will be invested subjectto cash flows and market conditions.For further information on healthand safety performance,see pages 25 and 44.IndustryThe steel industry experienced strongprofitability in 2017 primarily due toglobal demand growth and capacityrationalisation in the Chinese steel sector.As such, steel mills looked to increasetheir utilisation rates, while in China millsalso sought to decrease their air emissionsby reducing sintering and using higherquality inputs. These factors resulted inincreased demand for high-grade ore,including pellet. Meanwhile, additionalsupply of high grade iron ore, includingpellet, was limited, resulting in pelletpremiums trading at nine-year highs.For further information on themarket environment, see theMarket Review on pages 12–16.StrategySince its IPO in 2007, Ferrexpo hasestablished itself as a high quality producerand exporter of iron ore pellets to the beststeel mills in the world. It has done this byinvesting more than US 2.15 billion into1In 2017, production volumes were primarilyimpacted by the refurbishment of one ofthe Group’s pelletising lines as well as ageneral increase in maintenance levels. TheGroup’s refurbishment programme of itspellet lines will continue into 2018 and 2019.For further information onproduction, see page 25.Ferrexpo, however, has compellingbrownfield projects to incrementallyincrease its production volumessubject to available cash flows.US CENTS PER SHARE2017 TOTAL RECOMMENDED DIVIDEND(2016: 6.6 US cents per share)Looking to the future, I am confident thatFerrexpo will make further progress byimproving the quality of its product andincreasing production volumes within theconstraints of its capital allocation strategy.The Group’s capital allocation strategyis to maintain an appropriate balancebetween a strong balance sheet,attractive shareholder returns (in theform of dividends) and investment ingrowth opportunities. This strategyhas been designed to reduce the risksinherent in operating in an emergingmarket while selling our product ina volatile commodities market.The special dividend will be paid on 16 April 2018 toshareholders on the register at the close of business on 3 April2018. Subject to approval at the Group’s AGM, payment ofthe final ordinary dividend will be made on 27 June 2018 toshareholders on the register at the close of business on 1 June2018. The dividend will be paid in UK Pounds Sterling with anelection to receive US Dollars.Ferrexpo plc 2017 Annual Report & AccountsFINANCIAL STATEMENTS16.5US CENTS 109% DILUTED EPS(2016: 31.91 US cents)CORPOR ATE GOVERNANCE66.85 95% PRE-TAX PROFIT(2016: US 231 million)STRATEGIC REPORTUS 450M

10STR ATEGIC REPORTCHAIRMAN’S STATEMENTCONTINUEDBoard ChangesDuring 2017, Sir Malcolm Field andOliver Baring retired as planned. TheBoard is most grateful to both of themfor the valuable contributions theyhave made. Simon Lockett, who haswide experience of natural resourceoperations in emerging markets, joinedthe Board in June and took over as SeniorIndependent Director in September.The Board’s refreshmentprogramme is now complete.Social ResponsibilityFor the year ended 2017, it is expectedthat Ferrexpo’s pellet exports will beapproximately 1.9% of Ukraine’s totalexport revenue. The Board believes itis fundamental to ensure that Ferrexpocontinues to make a positive contributionto the society in which it operates,aiding the long-term developmentof Ukraine and creating a stableoperating environment for the Group.Ferrexpo provides financial support fora broad array of social programmesacross the country and in 2017 investedapproximately 2.4% of total Group revenuein these programmes, in line with 2016.These programmes underpin Ferrexpo’slicence to operate and ensure that thecommunity is supported when required.For further information seeResponsible Business onpages 41–49.UkraineThe National Bank of Ukraineexpects 2017 GDP growth ofapproximately 2%, in line with 2016.Over the year, there were variousencouraging developments. Thegovernment implemented several reformsto reduce the regulatory burden onbusinesses operating within the country.The World Bank’s Doing Business reportfor the period from 30 June 2016 to30 June 2017 ranked Ukraine four placeshigher at 76th out of 190 countries interms of overall ease of doing business.In August 2017, Moody’s rating agencyupgraded Ukraine’s sovereign ratingfrom Caa3 to Caa2 with a positiveoutlook. The driver for the upgradewas based on the cumulative impact ofstructural reforms that, if sustained, areexpected to improve the government’sfinancial position. The rating upgradewas constrained by the government’sheavy debt maturity profile over the nextseveral years that is expected to requireadditional foreign currency lending.In terms of IMF funding, Ukraine receiveda US 1 billion tranche in April 2017, aspart of the US 17.5 billion programmeagreed in March 2015. To date, US 7.7billion has been paid out. The IMFhas stressed that further progress isrequired in the fight against corruption,including the establishment of anindependent anti-corruption court.Against this background of GDPgrowth, improvements to the regulatoryenvironment and a credit rating upgrade,the Board of Ferrexpo believes Ukraineis gradually moving in the right directionalthough challenges remain.Ferrexpo plc 2017 Annual Report & AccountsOutlookIn 2018, Ferrexpo expects furtherrationalisation of steel capacity inChina which should support globalsteel margins, and, in turn, is likely toencourage a continued focus on ironmaking productivity. These dynamics,together with a continued focus byChinese authorities on the environmentand a reduction of air emissions, providea favourable environment for higherquality iron ore, including pellets.Ferrexpo expects to benefit from higherpellet premiums compared to 2017,reflecting agreements already reachedwith customers and the prevailing strengthin demand for high-quality pellets.From an operational point of view, costsremain subject to commodity prices,the Hryvnia exchange rate and inflationlevels in Ukraine. Production volumes willreflect a 65-day pellet line shutdown inthe second quarter of 2018. As such, firsthalf 2018 production is expected to be inline with the first half of 2017. Productionin the second half of 2018 is expected tobe ahead of the second half of 2017.Strategic ReportThe 2017 Strategic Report, from pages2 to 49, was reviewed and approvedby the Board on 20 March 2018.Steve LucasChairman

11STRATEGIC REPORTCAT 793D truck operating in FYM pitCORPOR ATE GOVERNANCEFINANCIAL STATEMENTSFerrexpo plc 2017 Annual Report & Accounts

12STR ATEGIC REPORTMARKET REVIEWSERVICING THE DEMAND FOR PELLETSEXTERNAL TRENDS1 R ATIONALISATIONOF CHINESESTEEL INDUSTRY2 I MPLEMENTATIONOF STRICTENVIRONMENTALCONTROLS INCHINA3 S TRONG DEMANDFOR HIGHERGRADE IRONORES4 C ONTINUEDSHORTAGE OFPELLETS ON THEWORLD MARKET5 R ECORD PELLETPREMIUMSCapesize vessel waiting for loading at Ferrexpo’sberth in Port YuzhnyFerrexpo plc 2017 Annual Report & Accounts

13STRATEGIC REPORTGraph 1: Price Graph for Different Grades of Iron Ore(US per tonne)1601401201008060CORPOR ATE GOVERNANCE4020Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Oct 2017 Jan 2018Platts 58% Fe finesPlatts 62% Fe finesPlatts 65% Fe fines65% Fe pellets1Source: Bloomberg1 65% Fe pellet price is calculated as 62% Fe CFR fines price Atlantic pellet premium Fe premium(based on 62% Fe fines price).While anti-dumping duties gave traditionalsteel-producing countries good reasonto lift their own steel production, in Chinaaround 50 million tonnes of steel capacitywas closed during the year. At the sametime, World Steel Association (“WSA”)figures show that China increased itsoverall crude steel production to 832million tonnes in 2017 (up from 787million tonnes in 2016), which includeda 30% reduction in steel exports,indicating healthy domestic demand.The elimination of less efficientcapacity in the Chinese steel industryincreased the profitability of incumbentmills. Higher profitability led mills tomaximise their steelmaking capacity,demanding higher quality inputswhich also help to limit emissions.improving steel profitability (at a high sincethe global financial crisis in 2007). In termsof the markets most important to globaliron ore, besides China, European steeloutput (including CIS countries) increased3.8% to 313 million tonnes while NorthEast Asia increased steel production by1.7% to 175 million tonnes (Source: WSA).Higher steel production combinedwith high rates of productivity meantdemand for iron ore pellet was strongthroughout the year. While a limitedsupply of seaborne pellet resulted in pelletpremiums trading at nine-year highs.The average Platts 62% Fe iron orefines price rose 22% in 2017 to US 71per tonne (2016: average US 58 pertonne). While the average Platts 65%index increased 35% to US 88 pertonne (2016: average US 65 per tonne),implying strong demand for high gradeproducts through the year. Conversely,the Platts 58% Fe price index decreased4% in 2017 to an average of US 43 pertonne for the year (2016 average: US 45per tonne) as low grade products wereheavily discounted through most of theyear. Graph 1: Price Graph for DifferentGrades of Iron Ore above shows thegrowing price differential through the year.Ferrexpo’s pellets are used for high quality steelsSteel and Iron Ore Production(million tonnes)2,0001,5001,000500020162017China steel productionWorld steel productionOverall, global crude steel productionexpanded in 2017 by approximately 5.3%due to strong industrial demand andFerrexpo plc 2017 Annual Report & AccountsFINANCIAL STATEMENTSOverview of the Iron Ore Marketin 2017Key developments in the steel andiron ore industry in 2017 included: (1) asignificant increase in the anti-dumpingduties imposed on steel products by manycountries around the world; (2) ongoingChinese government rationalisation of thesteel industry as well as implementationof environmental controls to reduceemissions from the local productionof pig iron and sintering; and (3) awidening price differential between lowgrade and high grade raw materials.

14STR ATEGIC REPORTMARKET REVIEWCONTINUEDThe Iron Ore Pellet MarketAccording to CRU, in 2017, iron orepellets accounted for approximately22% (443 million tonnes) of totaliron ore consumption, while lumpaccounted for 16% (321 million tonnes)and fines 62% (1.2 billion tonnes), seeTable 1: Iron Ore Consumption.The proportion of actively traded pelletson global markets, however, comprisesonly around 8% of total exported ironore, or the equivalent of 124 milliontonnes in 2017. The majority of pelletsare captive to certain steel mills orregions, while iron ore fines and lumpare mined remotely and predominantlytraded on the open (seaborne) market.The largest consumers of pellets arein China, Russia, India, the USA andIran (accounting for 65% of total pelletconsumption in 2017). The largestimporters of pellets are China, Japan,Germany, Saudi Arabia and Turkey,with Europe importing approximately47 million tonnes, followed by North EastAsia, which imported approximately21 million tonnes in 2017.Table 1: Iron Ore Consumption2017 globalconsumption(Mt)2017 % oftotal iron oreconsumption2017 exports(Mt)Exportsas a % ofconsumptionPelletsLumpFines (incl. pellet feed)4433211,23022%16%62%1242601,13028%81%92%Total iron ore consumption1,994100%1,51476%Source: CRU Market Outlook January 2018The table below shows that since 2010 exports of lump and fines have increased by 62%and 44% respectively while the supply of pellets has decreased by nearly 20%. 2010marked the peak of pellet availability on the export market with 151 million tonnes, 27million tonnes higher than 2017 levels, of which Samarco accounted for 25 million tonnes.Table 2: Iron Ore ExportsExports of pelletExports of lumpExports of finesTotal iron ore exports2010 exports(Mt)2017 exports(Mt)% changesince 20102016 641,0981,51438%1,543Source: CRU Market Outlook January 2018Graph 2: Breakeven Pellet Cost Curve – Delivery to EuropeDespite representing approximately28% of global pellet usage, the 124million tonne pellet export market setsthe price for pellets through negotiationsbetween a limited supply of independentpellet producers and steel mills.The supply of actively traded pelletsincreased by a net 5 million tonnes in2017 (2016: 119 million tonnes) fromproducers in India, Russia and Brazil,while pellet premiums were trading at anine-year high. This would suggest thatmost pelletising plants elsewhere werealready operating near capacity andcould only increase production marginallydespite attractive pellet premiums.y-axis: Business costs for pellet exports, 2017, CFR Rotterdam, US /tx-axis: Cumulative pellet exports, 2017, MtDefinition: Business costs are the sum of realisation costs and site costs. Realisation costs include the cost of getting the material tomarket, the marketing of the material and the financing cost of selling the material. The power of business costs is that by adjusting all productqualities relative to the same benchmark (62% Fe fines product delivered to North China) it allows all mines to be compared on a cost curveon a like-for-like basis. This also means that by subtracting the benchmark price from the business costs for a mine you get an estimate ofcash flow from that operation.Ferrexpo plc 2017 Annual Report & Accounts

15Table 3: Global Pellet Exporters showsthat of the 124 million tonnes of pelletexported in 2017, approximately 30%went to DRI production while theremaining 70% was utilised in blastfurnace steel operations. DR pelletsare typically higher grade and receivea US 5 to US 10 per tonne premiumabove the blast furnace pellet premium.Definition: Business costs are the sum of realisation costs and site costs. Realisation costs include the cost of getting the material tomarket, the marketing of the material and the financing cost of selling the material. The power of business costs is that by adjusting all productqualities relative to the same benchmark (62% Fe fines product delivered to North China) it allows all mines to be compared on a cost curveon a like-for-like basis. This also means that by subtracting the benchmark price from the business costs for a mine you get an estimate ofcash flow from that operation.Table 3: Global Pellet rectreduction20.817.121.616.3LKAB (Sweden)11.87.012.06.5Ferrexpo (Ukraine)10.5–11.7–Rio Tinto (IOC, Canada)7.72.68.01.8Severstal (Russia)6.0–4.9–Metalloinvest (Russia)5.60.14.0–ArcelorMittal (QCM Canada)5.60.65.10.8Metinvest (Ukraine)4.8–3.4–CMP (Chile)2.8–2.4–Bahrain Steel2.8–3.0–Grange .480.735.379.233.8Vale (Brazil & Oman)US ExportsSub-totalOtherTotal pellet exports 2017 (BF DR)Ferrexpo’s share of total export market81248.5%The capacity restart of further seabornesupply remains uncertain in terms oftiming and the volume to be produced.Barriers to entry into the pellet market arehigh, with significant capital investmentrequired. When developing a greenfieldpellet operation it is usually necessary toinvest in mining, beneficiation, pelletisingand logistics capability. Table 4: RecentCapacity Additions to the Pellet Marketshows the cost of the most recent capacityadditions to the seaborne pellet market.As a pellet exporter, which has establishedoperations and is well positionedgeographically to supply major importmarkets, Ferrexpo benefits from operatingin a niche sub-sector of the iron oremarket with high barriers to entry, at alow cost relative to the competition.Sources: CRU, government statistics, Bloomberg, Ferrexpo analysis.Ferrexpo plc 2017 Annual Report & AccountsFINANCIAL STATEMENTS2017BlastfurnaceMillion tonnesIn order to satisfy high demand, the largestsupplier has announced that it will bringback capacity in 2018 with the restart

6 RATEGIC REPORT Ferrexpo plc 2017 Annual Report Accounts FERREXPO AT A GLANCE HIGH QUALITY PRODUCT In 2015, the Group completed its Quality Upgrade Programme to increase the iron content of its pellets to 65% Fe. As such, production of 65% Fe pellets has increased from 53% of total output in 2014 to 95% of total output in 2017, a record for .