Ferrexpo production falls 54% as suspended VAT refunds squeeze operations

Ferrexpo plc (LSE: FXPO), a Baar-headquartered iron ore producer whose principal mining and processing operations are located in central Ukraine, reported a 57% decline in first-half revenue to US$196 million as commercial production fell 54% to 1.56 million tonnes. Sales volumes dropped 62% to 1.46 million tonnes, while underlying EBITDA moved from a US$3.9 million profit a year earlier to a US$4.0 million loss. The group ended June with US$30.4 million of cash and US$21.4 million of net cash before subsequently completing a US$100 million equity financing.

The numbers reveal how dramatically Ferrexpo’s operating environment changed during the first half. Production was largely suspended in January and part of February because electricity could not be secured reliably at the volumes required, while continued suspension of Ukrainian VAT refunds restricted working capital and forced the company to operate only one of its four pellet lines. Ferrexpo said the gross VAT receivable in Ukraine had increased to US$102.2 million by June 30, including US$80.8 million of refund claims dating from March 2025 onward that had not been received.

Why did Ferrexpo’s sales fall even faster than production?

Total commercial production fell 54% year on year, but sales declined by an even larger 62% because the group was managing both limited production availability and severely constrained working capital. First-half sales totalled approximately 1.5 million tonnes compared with 3.8 million tonnes a year earlier, while revenue dropped from US$453 million to US$196 million.

Ferrexpo also shifted its product mix. Pellets accounted for around 89% of production compared with 64% a year earlier, while commercial concentrate production fell 86% to just 171,000 tonnes. Direct-reduction pellet production doubled to approximately 163,000 tonnes, showing that Ferrexpo continued prioritising higher-value premium products even while total volumes contracted sharply.

That mix can improve realised value per tonne, but it cannot fully compensate when absolute tonnage falls this dramatically. The company also faced elevated energy and logistics costs, while C1 cash production costs increased 5% to US$81.30 per tonne because fixed mining, maintenance and personnel expenses were being spread across fewer tonnes.

How important is the US$100 million equity raise to Ferrexpo’s survival?

The financing materially changes the immediate liquidity position. Ferrexpo’s cash had fallen from US$58.4 million at the end of 2025 to US$30.4 million by June, while operating cash flow was negative US$24 million. Capital expenditure was cut by two-thirds to US$10 million as management prioritised liquidity preservation.

Post-period, shareholders approved a US$100 million equity raise designed to fund working capital and support reduced operations while the company navigates continuing legal, operating and cash-flow constraints. Ferrexpo said the additional capital gives it sufficient resources to meet obligations and support operations on a reduced basis for the next 18 months, subject to operating conditions and ongoing legal matters.

That funding buys time rather than solving the underlying issues. A miner with four pellet lines creates considerably more economic value when it can operate them than when equity capital is used simply to absorb fixed costs at reduced utilisation. The rerating case therefore depends on restoring production, improving working-capital access and increasing sales rather than merely extending the liquidity runway.

Why are the suspended VAT refunds such a major investor issue?

Ferrexpo’s VAT receivable has effectively trapped cash that would otherwise support operations. At June 30, the gross Ukrainian VAT receivable stood above US$100 million, an amount more than three times the group’s period-end cash balance. The refund suspension therefore has a direct relationship with the company’s decision to reduce production and seek external equity capital.

The company has described the suspension of VAT refunds as the largest single pressure on working capital. Investors consequently need to monitor any restoration of refunds separately from iron ore prices because releasing even part of the accumulated receivable could materially improve liquidity without further shareholder dilution.

Ferrexpo also sold the Iron Destiny transhipping vessel during the first half for US$7.7 million of net proceeds, another indication of management’s willingness to monetise non-core assets to preserve cash. The vessel had faced usage restrictions and continuing maintenance costs, making its sale financially logical under the circumstances.

Has the operational picture improved since the first half ended?

There are some signs of stabilisation. Ferrexpo resumed production after earlier disruption and has been operating on a reduced basis, while the new equity capital materially strengthens the group’s ability to fund working capital. However, the interim results make clear that operating conditions remain constrained and that electricity availability, logistics, legal matters and VAT refunds continue to influence how much production the group can sustain.

The first-half production comparison also improved sequentially within the period. Commercial production reached 593,000 tonnes in Q1 before strengthening during Q2 as electricity availability improved, with pellet production rising 64% quarter on quarter to approximately 860,000 tonnes. That trajectory suggests the first half contained a severe trough rather than six months of uniformly weak operating conditions.

Investors should nevertheless resist extrapolating one stronger quarter into full recovery. Ferrexpo still operated only a fraction of its installed pellet capacity, and the economics of running one line are structurally less attractive than spreading mining and infrastructure costs across several lines.

What does Ferrexpo’s share price say after the interim results?

Ferrexpo entered September 25 around 28.7p and traded close to 29p following the results, leaving the stock near the bottom of a 52-week range that has extended as high as 87.1p. The relatively contained results-day reaction suggests much of the financial stress was already reflected after the emergency fundraising, production disruption and earlier suspension of trading had reset expectations.

The equity story has consequently shifted from an immediate liquidity crisis toward the conditions required for recovery. The US$100 million fundraising reduces the risk of a near-term cash shortfall, but it also enlarges the share count and means investors now need substantially better operating performance for per-share value to recover.

Ferrexpo still owns a major high-grade iron ore platform capable of supplying premium pellet products into lower-carbon steelmaking markets. The first-half accounts show that asset quality alone cannot overcome restricted power, working-capital pressure and underutilised infrastructure. The next rerating will depend on whether the fresh capital translates into more tonnes and better cash generation rather than simply a longer period of reduced operations.