UPDATE 2-Ferrexpo sees higher profit, continues review of charity donations

* Continues review into charity's misuse of funds

* Appoints E&Y veteran to committee reviewing matter

* Search for new auditor ongoing after Deloitte quit

* Shares up 8%, among top gainers on FTSE midcap (Adds shares, graphic, context on fund misuse, results)

June 7 (Reuters) - Iron ore miner Ferrexpo on Friday forecast higher first-half core earnings and said a review into the possible misuse of funds it donated to a charity had not yet found any evidence of wrongdoing, sending its shares 8% higher.

The world's third-largest producer of iron ore pellets for the global steel industry said earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to have increased materially in the first half compared with last year, driven by higher pricing, production and sales volumes.

Ferrexpo, which has been looking at possible misuse of funds it donated to a charity in Ukraine, named Ernst and Young veteran Graeme Dacomb as a member of an independent committee reviewing the matter.

Switzerland-based Ferrexpo said in April that some of the funds it donated to a charity in Ukraine - Blooming Land - could have been misappropriated. Blooming Land coordinates Ferrexpo's Corporate Social Responsibility (CSR) programme.

Dacomb's appointment comes after Deloitte quit as Ferrexpo's auditor in April, saying the company had delayed an investigation into the use of funds by the charity partner. The company rejected those allegations.

REVIEW ONGOING

"To date, after a significant amount of work on the part of our forensic accountants and legal advisors, there has been no conclusive evidence of any wrongdoing," Chairman Steve Lucas said, adding that the review was ongoing.

The company had said in April it was unable to conclude whether Chief Executive Kostyantin Zhevago controlled a charity that is being investigated over its use of company donations.

The Ukrainian billionaire is also Ferrexpo's majority owner.

Ferrexpo, which had delayed its full-year results twice as it awaited further progress of the review, reported a 13 percent drop in annual pretax profit in April, but declared a special dividend and a 40% hike in total dividend.

On Friday, the company flagged that the average cost of production is likely to increase in the first half, but added that cost inflation has been lower.

"Cost inflation has been lower than expected due to a fall in the Brent oil price and the European gas price partially offset by an appreciation of the Ukrainian Hryvnia versus the U.S. Dollar," the company said.

Shares of the company were up 8.2% at 258 pence, trading at the top of FTSE midcap index.

(Reporting by Justin George Varghese in Bengaluru Editing by Saumyadeb Chakrabarty and Keith Weir)