Ferrexpo subsidiary ordered to freeze bank accounts amid claims of underpaying royalties

A Ukrainian court has ordered the bank accounts of FTSE 250 Ferrexpo subsidiary Poltava Mining to be frozen as part of an investigation into royalty payments.

The Swiss-based commodities trader has denied all allegations related to the investigation, which concerns the alleged underpayment of iron ore royalties between 2018 and 2021.

A year ago, the company’s two largest divisions – Poltava Mining and Yeristovo Mining – received requests from the Ukrainian Attorney General’s Office for information and witnesses to assist in the investigation of the case.

Soon after, Poltava received a tax audit report from authorities claiming that it had failed to pay approximately $35,600 in royalties from April 2017 to June 2021.

Ferrexpo disagreed with the findings, later telling investors that Poltava had “convincing arguments to defend its position in court.”

Following the recent court order against the subsidiary, the London-listed miner intends to appeal the decision.

Ferrexpo said: ‘The group has consistently followed established legal process for such disputes and has so far cooperated fully with local authorities during this process.

“In addition, the group notes that the nature of the investigation is similar to two separate investigations previously faced by other major international metals and mining companies operating in Ukraine.”

Tuesday’s announcement represents the latest legal battle for Ferrexpo, which is already experiencing significant financial and operational turmoil due to the Russian invasion of Ukraine.

Last September, an appeals court ruled that a 40.2 percent stake in Poltava sold to nominee companies controlled by former CEO Kostyantin Zhevago was not valid and had to be transferred to the previous investors.

Zhevago, a former member of the Ukrainian parliament and also the largest shareholder of Ferrexpo, stepped down as one of the non-executive directors shortly after being arrested by French police in late December.

In 2021, an international arrest warrant was issued against him on money laundering and embezzlement charges related to the $113 million disappearance of Finance & Credit, a defunct commercial bank he once owned.

Zhevago has consistently denied any wrongdoing, while Ferrexpo insists his arrest had nothing to do with the company.

In January, the company revealed that its iron ore pellet production plummeted 46 percent last year to 6.1 million tons due to the war.

Production was affected by the Russian military blockade of vital Black Sea ports and airstrikes against Ukraine’s rail network and electrical infrastructure.

This particularly impacted the company’s business in the fourth quarter, when it produced only about 400,000 tons of iron ore, compared to 3.1 million tons last year.

Ferrexpo Shares were down 2.75 percent at 148.3 pence late Tuesday morning, meaning their value is down about 45 percent over the past 12 months.