Ferrexpo today announces that its subsidiary, Open Joint Stock Company Ferrexpo Poltava GOK Corporation ("FPM"), in which it holds approximately 97.3% of the share capital, has conditionally agreed an option to purchase from the OJSC Stahanov Rail Cars Plant (the “Supplier”) up to 500 newly built closed rail car wagons (the “Closed Wagons”).
The Supplier is an associate of Mr Kostyantin Zhevago, Chief Executive Officer of Ferrexpo, and therefore a related party of the Company. The Proposed Transaction is classified under the Listing Rules as a "related party transaction” and will be subject to shareholder approval at Ferrexpo’s Annual General Meeting on 24 May 2012.
The Closed Wagons are to be used for the transportation of FPM’s iron ore pellets to the Ukrainian border for delivery to its customers. As part of its growth and marketing strategy, Ferrexpo is committed to the development of its logistic capabilities by investing in its own fleet of railway cars. The Directors believe that such investment is required to support medium-term production growth which is expected to increase by a third to 12 million tonnes of pellets per annum from the beginning of 2014.
The price of a Closed Wagon shall be US$70,000, although this price shall, by agreement between FPM and the Supplier (the “Parties”), be subject to adjustment for each consignment to reflect the current market price of closed wagons in the CIS. The price, however, of a Closed Wagon shall not exceed US$110,000. These prices are exclusive of VAT, which is currently charged at 20%. The maximum potential total expenditure under the contract will therefore be US$66million, inclusive of VAT. There is no fee attached to the option but the option shall expire on 31 December 2014.
The terms and conditions agreed between the Parties are set out in a conditional contract between the Parties dated 20 April 2012. FPM will fund the consideration for the Closed Wagons from its own cash resources or will put in place a leasing arrangement with one of the leading Ukrainian banks for all or some of the Closed Wagons.
A Circular providing additional detail on the Proposed Transaction will be included in the Notice of the 2012 Annual General Meeting and sent to shareholders today ahead of the Annual General Meeting to be held on 24 May 2012.
Michael Abrahams, Chairman of Ferrexpo, commented:
"We are pleased that we have put in place this option to expand our own fleet of railway cars in the extremely tight CIS market. This is consistent with our growth and marketing strategy and confirms Ferrexpo's commitment to invest in logistical capabilities that support the delivery of our production growth targets."
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