Ferrexpo top manager on justice in Ukraine, ore exports, and investment – interview
Ferrexpo is the only company with main assets in Ukraine, whose shares are listed on the London Stock Exchange. The Swiss Ferrexpo AG, which is owned by Ferrexpo PLC (London), is the shareholder of Ukrainian mining plants in Poltava Oblast. Its shares are owned by dozens of minority shareholders around the world.
But its largest shareholder is Ukrainian businessman Kostyantyn Zhevago. This year, he was not included in NV’s list of TOP-30 richest Ukrainians. Moreover, the assessment of his assets compared to the pre-war year of 2021 decreased by 70%, which has become the biggest drop among those in the rating.
In addition, the entrepreneur has many questions from Ukrainian law enforcement agencies.
He has been wanted in Ukraine since 2019, as well as abroad since 2021. At the end of last year, Zhevago was detained at the ski resort of Courchevel in France in the case of embezzlement of $113 million from the Finance and Credit bank. Only in mid-November 2023, a French court released the businessman and refused his extradition to Ukraine.
At the same time, law enforcement agencies are investigating at least three cases regarding the top management of Ferrexpo Ukrainian assets.
NV Business interview with Wolfram Kuoni, Chairman of the Swiss Ferrexpo Board of Directors, took place in Kyiv almost immediately after the announcement of the French court’s decision in the Zhevago case. Zhevago’s lawyers managed to impress the court with their version of selective justice in Ukraine and avoid extradition of their client.
The Ferrexpo top manager talked about the impact of courts on the company’s activities, plans to improve logistics, and business survival in the coming winter.
Courts, courts, courts
NV: Let’s start with a recent event. The French court released the company’s largest shareholder, Kostyantyn Zhevago, from custody and refused his extradition to Ukraine. How did it affect the company?
Kuoni: Absolutely no way since this decision is related to Mr. Zhevago’s personal case and has no impact on the company.
NV: That is, no improvement in share prices, nor a positive reaction from other shareholders took place, right?
Kuoni: We cannot say that the general situation that has developed around Mr. Zhevago doesn’t affect the company in any way. However, this particular court decision concerned his personal case, i.e., not related to the company. At the same time, we read with interest the reasoning given during the court hearing, which influenced the court’s decision on extradition, which was that Mr. Zhevago cannot expect a fair trial in Ukraine. Many foreign media wrote about it.
NV: You have another top manager who is being pursued by law enforcement agencies. Viktor Lotous, the Chairman of the Board of Poltava Mining, was under arrest. How does his situation affect the company?
Kuoni: These are different situations. He is currently the Chairman of the Board of Poltava Mining. We were shocked to hear about his arrest. We believe this is a completely wrong decision, and the accusations are completely unfounded. The arrest itself, in my opinion, was carried out in violation of Ukrainian law.
We’ll fight in court to defend our rights.
NV: The arguments of Ukrainian law enforcement agencies are constantly changing. After you agreed to post bail, new charges came forward. How long are you ready to spend energy and strength on this?
Kuoni: We’ll do everything necessary to protect the management of enterprises and our employees. It’s important that the people in Horishni Plavni [a town in Poltava Oblast] see and understand that we’ll protect them.
According to criminal law, it’s impossible to be convicted twice for the same violation or crime. That’s why the accusations are changing. Three criminal cases under different articles have been initiated against Viktor Lotous.
He has a good reputation in Horishni Plavni. He is a very respected person in the town, an example to follow. And he was taken from the hospital bed to the court. He spent 38 days in the pretrial detention center. It’s not surprising that employees of Ferrexpo enterprises in Ukraine are surprised by what Ukrainian law enforcement agencies are doing.
NV: Did this event affect the operational activities of Poltava Mining?
Kuoni: No. Viktor has deputies who won’t let stop or reduce operational activities. But it affects the morale of the staff and local residents.
NV: In the summer, the Supreme Court seemed to put an end to the dispute over the shares of Poltava Mining, which had been going on since 2002. But after that, there was a story with a bribe to the head of the Supreme Court, Vsevolod Knyazev. How does this situation affect the company? Do you see the risks?
Kuoni: The most important is that Ferrexpo isn’t involved in the proceedings regarding the alleged bribe. Of course, we’ve heard and read about it, but the company has nothing to do with this case.
NV: That is, the situation with the alleged bribe didn’t affect the court’s decision regarding the ownership of Poltava Mining, right?
Kuoni: As of today, it hasn’t affected the Supreme Court’s decision.
NV: Jim North, Ferrexpo PLC CEO (London), announced his resignation between the court’s decision regarding Poltava Mining shares and the appearance of the Knyazev bribery case. Although I interviewed him a month earlier and nothing predicted such a turn of events. Perhaps he expected some negativity as the company is under constant pressure?
Kuoni: All of us in the company are feeling strong pressure due to legal proceedings. But there is no direct connection between the pressure and Mr. North’s resignation.
Jim is a manager whose knowledge and skills are excellent for companies that are growing, investing, and increasing production. But we have a completely different situation now.
NV: Do you need a crisis manager?
Kuoni: Yes. We had an annual production of 11-12 million tons of pellets, and then it decreased to 4 million tons. This is already another company.
NV: Are you looking for such a crisis manager instead of Jim North?
Kuoni: We have 8,000 crisis managers. In addition, we involve more and more Ukrainians in management. For example, Yaroslavna Blonska heads marketing and sales, Mykola Kladiyev is the chief financial officer, etc.
Logistics and China
NV: You mentioned Yaroslavna Blonska, who was a speaker at one of NV’s events. She is Ferrexpo Service LLC CEO. What kind of company is this?
Kuoni: This is a logistics company. She is really madam sales, madam logistics. These directions are now super-complicated. Before the war, it was also not easy, but easier. We had the port of Pivdennyi [outside Odesa], capesize ships, sales to China, Japan, Taiwan. It’s over. Now each ship is a huge job. We deliver to Izmail where we load it onto barges that go to Constanta (Romania), where we once again transship it to other vessels. Organizing all this is incredibly hard work.
NV: The first capesize ship has recently departed from Ukraine to China since the full-scale invasion. But then a Russian missile hit a ship that was also loading ore. Are you considering resuming exports through the Black Sea and how has this missile strike affected your plans?
Kuoni: We’re closely monitoring the situation in the Black Sea. But for now, we’re focusing on our European customers who receive pellets by rail and the Danube River. The Black Sea is very important to us because 50% of our sales traditionally went to Asian markets. So, it’s only a matter of time before we get back to selling through the port of Pivdennyi. We have our own terminal there, TIS Ruda LLC.
We hope to have our first shipment by sea soon.
NV: This year?
Kuoni: We hope to resume supplies when the time comes. Let’s wait.
NV: How easy will it be to return to the Asian markets, because your products haven’t been there for almost two years? Under what conditions will your former partners be ready to resume cooperation? Will it be necessary to conquer this market in a new way?
Kuoni: We need free access to Black Sea ports for deliveries to Asian consumers as these are maritime markets. Ferrexpo continues to maintain offices throughout Asia and remains close to its customers, particularly in China and Japan. We’re inspired by the establishment of the Black Sea trade corridor, and we’re closely following the developments. Crew, vessel and insurance issues are getting easy, so we continue to consider shipping from the Black Sea and returning to our customers in the future.
Winter in Ukraine and new rules in the European Union
NV: In your opinion, will the next winter be easier or more difficult for Ferrexpo Poltava Mining?
Kuoni: Unfortunately, I’m not qualified enough to understand the military situation. There are many different scenarios being discussed. One of them is that the Russians will resume attacks after the temperature drops. We heard on Saturday [at NV’s conference] from the Naftogaz CEO that the underground gas storages are full. This is good news.
But last year, when the Russians launched attacks on the energy infrastructure, we were forced to stop all four pellet production lines. Now one or two are operating. We rented warehouses close to our main customers not to interrupt deliveries. And we stockpile pellets there.
NV: Why do you keep products close to customers, and not in Ukraine?
Kuoni: Our clients are monitoring the situation in Ukraine. If our production stops due to shelling and we cannot deliver the product quickly, they’ll switch to other suppliers. We show that we are a reliable supplier.
NV: If sea shipments resume and the number of customers increases, will you be able to meet all the demand? Are there any stocks of pellets in Ukraine?
Kuoni: Yes. Our warehouses are more than full now. If we compare the figures before the full-scale invasion and now, the ratio of stocks in warehouses is higher now than before Feb. 24, 2022. This is the case as we prepare for the coming winter.
NV: You’ve built a solar power plant, and you’re also using seed husk pellets instead of gas. Does this help the company during power outages, and do you plan to scale these projects?
Kuoni: We plan to scale these projects in the future. But now we’re fully focused on maintaining current operations that will enable us to supply finished products to customers under long-term contracts.
In addition, logistics, credit resources have become more expensive, as well as huge funds are frozen in warehouse stocks.
In addition, we’re improving the quality of products to produce pellets with an iron content of 65%.
NV: Are these DRI pellets for electrometallurgy?
Kuoni: DRI products contain 67-68% iron, and they really have the future.
NV: Do you plan to become a participant in this market?
Kuoni: We are already part of this market. In 2021, a total of 6% of our products were precisely pellets with an iron content of 67-68%. And our return to supply is only a matter of time.
Investments and possible sanctions
NV: What are the company and its investors’ expectations regarding the end of the active phase of hostilities in Ukraine?
Kuoni: This is a good question. We fully support Ukraine and hope that the situation will only improve. But that means we’re focused on what’s called the “right-scaling business.” We must do everything to keep our first-class customers in Europe and stabilize the company’s operations.
NV: So, you aren’t planning any big investments yet?
Kuoni: We have a clear investment plan for $3 billion. But it can be implemented when the military situation becomes safer. However, we continue to invest, e.g., about $161 million in 2022, while Ferrexpo capital investments reached $58 million in H1 2023.
NV: What are you currently focusing on in your investments?
Kuoni: Support for the work of Poltava Mining. We’ll definitely not start any big projects in the short term. For example, the main projects implemented in H1 2023 included excavation work to ensure future production growth, expansion commitments, including the construction and commissioning of a press filtration complex, as well as work at Belanovo Mining [Poltava Oblast].
And this is where we come back to court proceedings. As for Belanovo Mining, 50.3% of corporate rights are blocked. The company has been sanctioned. Of course, our investors have questions: what’s going on?
NV: It seems the pressure on Kostyantyn Zhevago and his assets in Ukraine is only intensifying. As far as I know, the legislation on subsoil doesn’t quite clearly interpret the possibility of terminating the validity of special permits for the extraction of minerals, if personal sanctions are imposed against the beneficiary or company participant. Have you already analyzed the possible risks if sanctions are imposed against Kostyantyn?
Kuoni: We’re ready for anything. We have no scenarios that we’re ready to reject.
But the fact is that Kostyantyn doesn’t directly own shares of Ukrainian companies. Therefore, if the Ukrainian authorities win the Ukrainian court, they won’t be able to get access to his shares at the level of Ferrexpo PLC. It’s a British company whose shares are listed on the London Stock Exchange. This will already be a case for the international court where we have a strong position.
It’s very important that the Ukrainian authorities stop intertwining Kostyantyn Zhevago as an individual with a company. These are two different things. We’re a publicly traded company. Our shareholders, customers, and suppliers are following the events around Ferrexpo very closely.
And the company cannot be held responsible for the actions of its main shareholder. This is a very big problem for us. That’s why we constantly receive questions from other shareholders: BlackRock, Schroders, and sovereign wealth funds. They don’t understand what’s going on.
And Ukraine doesn’t work in a vacuum. It has signed bilateral investment agreements with the United Kingdom and Switzerland [Ferrexpo holding companies are registered in these countries]. Therefore, the Ukrainian authorities cannot do whatever they want.
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