Ukraine is a socially stable parliamentary presidential republic which was formerly part of the Soviet Union. The long-awaited elections in January and February 2010 are expected to be peaceful and democratic, and should restore some stability to its political structure, which in any event tends not to interfere in Ukrainian business.

Ukraine has a population of approximately 47 million people, making it the 27th largest country by population in the world. It is rich in natural resources, and its deposits are relatively well explored but substantially under-exploited, as a result of the policies of the Soviet Union. During the height of the Cold War, the Soviet government made a decision to shift its mineral extraction efforts from Ukraine to Siberia, reasoning that Ukraine was strategically more vulnerable as it was too close to the NATO countries. At the time of the fall of the Soviet Union, Ukraine represented approxiamtely 25% of the economy of the whole Soviet Union.

The currency of Ukraine is the Hryvnia ('greev-na'), symbol UAH. The average exchange rate of the Hryvnia was approximately UAH8 to the US dollar in 2009. The Hryvnia was pegged at approximately UAH5 per US dollar for several years until October 2008. The Hryvnia is Ferrexpo's operational currency, with approximately 70% of the Group's cash costs denominated therein. 100% of Ferrexpo's revenues are in US dollars. 

The Ukrainian economy has been severely affected by the global economic recession that began in late 2008, partly as a result of its reliance on industries such as the steel sector. Steel is the largest industry in Ukraine, but it is relatively high-cost and the majority of its production is commodity-grade construction steel for export. Ukraine has thus been more severely affected than many other steel-producing nations by the economic downturn. The economy of Ukraine is expected to have shrunk by approximately 15% in 2009. Ukraine was granted a US$16.4 billion International Monetary Fund loan in late 2008 in response to the significant effects of the global financial crisis on its economy, of which US$10.4 billion has already been advanced. This loan prescribes several conditions relating largely to economic policy-setting.

Ferrexpo benefits from the location of its operations in Ukraine, because of a well-educated and cost-competitive workforce, a depreciating local currency and the efforts of the government to take measures to ensure the survival of its large mining and metallurgical industry. Being primarily an exporter, Ferrexpo has minimal exposure to the Ukrainian steel industry. Ukraine is conveniently situated close to our principal customers in Europe and any further weakening of the local currency is likely to have a positive effect on our cost base.

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