Ferrexpo (LON:FXPO) said it has agreed to buy 400 newly built open rail car wagons with an option to purchase an additional 600 wagons, and they are to be used for the transportation of its iron ore pellets to the Ukrainian border for delivery to its customers.
The deal was struck between Ferrexpo 97.3 percent held subsidiary Open Joint Stock Company Ferrexpo Poltava GOK Corporation (FPM) and Open Joint Stock Company Stakhanov Wagon Works.
The Supplier is an associate of Ferrexpo chief execuitive Kostyantin Zhevago, and the deal is therefore under the Listing Rules classified as a "related party transaction" and subject to shareholder approval.
The wagons shall be delivered in consignments of 50 units per month, the first of which will be delivered in March 2011. The option for the additional 600 wagons expires on 31 December 2012.
The price per wagon is US$65,000, although this will be subject to adjustment for each monthly consignment to reflect the current market price of open wagons in the Commonwealth of Independent States. The price is capped at US$120,000 apiece.
Ferrexpo will pay for the rolling stock in cash or put in place a leasing arrangement with a Ukrainian bank for all or some of the wagons.
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 by 2013.
Chairman Michael Abrahams said: "This acquisition adds to and benefits Ferrexpo's extensive logistics capabilities and secures our access to quality wagons in the extremely tight CIS market. This comes at an important time in Ferrexpo's development with our production growing significantly in the medium-term."
Early in January, the group reported it continued its strong production through December. It continued full capacity production in December, to end a record breaking 2010.
Over the twelve month period Ferrexpo produced 10 million tonnes of iron pellets, a 14.4 percent increase compared to the previous year.
Ferrexpo is a Swiss headquartered iron ore company with assets in Ukraine. It is principally involved in the production and export of high quality iron ore pellets, which are used in the manufacture of steel.
Ferrexpo's resource base is one of the largest iron ore deposits in the world. It supplies steel mills in Austria, Serbia, Slovakia, Czech Republic, Germany and other European states, as well as in China, India, Japan, and other Asian countries.