Ferrexpo shut down two pelletizing lines due to non-refund of VAT – CFO

Ferrexpo, a London-listed iron ore producer with operations in Ukraine, has suspended two pelletizing lines due to the non-refund of value added tax (VAT) on exported products. This was stated by the company’s Chief Financial Officer (CFO) Mykola Kladiev.

According to him, the tax authorities suspended VAT refunds after sanctions were imposed on businessman Konstantin Zhevago.

“However, Zhevago does not own any shares in Poltava and Yeristovo Minings, so he is not legally the owner of these companies. This situation has led to a decrease in production and salary payments, a reduction in social spending and potential tax contributions to budgets of all levels,” explained Ferrexpo’s CFO.

According to him, the company filed a complaint with the tax service in Kyiv and had a meeting with the tax authorities. However, in January and February, the VAT refund debt amounted to about $25 million, and this amount was not reimbursed by the state.

“So we filed an application with the London Stock Exchange and informed the government about the possibility of international arbitration. We have about two more months to start solving the issue,” Kladiev said.

Shareholders have reacted negatively to the situation due to the production cuts. More than half of our shareholders include some of the largest and most well-known investment companies, who have seen a fall in the market value of their shares.

Mykola Kladiev noted that last year Ferrexpo invested $102 million and had planned to keep investments at a similar level in 2025. However, the suspension of VAT refunds has forced the company to suspend investment projects. Now the company invests only in the minimum necessary to maintain the fixed assets in use.

The company wishes to diversify production, not just of iron ore pellets but also high-grade concentrates, including opportunities to expand exports as soon as it is economically possible. It is also considering plans to introduce new electric powered equipment and technology for its mining operations. Ferrexpo is currently working on projects to expand its own solar power generation and the replacement of natural gas for biofuels. However, these activities are currently paused because of the reduced  funds available for investment.

Ferrexpo continues to prepare for EU environmental requirements by communicating with major European customers, looking for options to reduce the CO2 content of its products or during transportation. However, the company cannot invest the same resources in decarbonization as it did before the war. Mykola Kladiev also reminded of the importance of the Ukrainian authorities’ appeal to the EU to postpone the CBAM for Ukrainian producers.

As GMK Center reported earlier, in the first quarter of 2025, Ferrexpo increased its total commercial production by 20% q/q and 3% y/y – to 2.1 million tons. This included 1.3 million tons of pellets and 0.8 million tons of high-quality iron ore concentrate with an iron content of 67%. The suspension of VAT refunds will however, lead to a decline in production in the coming months and until VAT refunds are reinstated.