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Miner Ferrexpo pays special dividend as profit rises

* 2013 core profit rises 25 percent to $506 million

* No disruption from political tension in Ukraine

* Hryvnia devaluation should help to control costs

LONDON, March 12 (Reuters) - Ukraine-focused iron ore miner Ferrexpo (Other OTC: FEEXF - news) announced its second special dividend in as many years after it posted increased annual profit and said it is on track to boost production this year.

Though Ferrexpo, like other iron ore miners, is grappling with weakening iron ore prices, the company is pressing ahead with plans to ramp up output at its new Yeristovo mine in Ukraine.

Its target is to hit a run rate equivalent to annual production of 12 million tonnes, having lifted production 12 percent to 10.8 million tonnes last year, with the higher volumes helping to offset price weakness compressed by growing supply and slowing demand growth, particularly in China.

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Core (Frankfurt: LJ1.F - news) profit (EBITDA) of $506 million was up 25 percent from the previous year and ahead of a consensus forecast of almost $477 million, according to Thomson Reuters I/B/E/S.

The company said it will pay a special dividend of 6.6 cents per share, reflecting progress made in 2013, in addition to a final dividend of 3.3 cents per share, in line with 2012.

"We have now paid two special dividends in a row and we will always consider that if it is appropriate," Chief Financial Officer Christopher Mawe said.

"In this particular year we have increased profit through volumes, so that's why we have paid this particular one. We are aware of the volatility that you can get in commodity prices and that's why we prefer special (rather than annual) dividends."

Spot iron ore prices fell the most since 2009 on Tuesday amid mounting signs of an economic slowdown in China, with Citigroup (NYSE: C - news) saying it expects prices to remain at lower levels given the high supplies.

Mawe said he thought the recent plunge in the iron ore price would be temporary because of destocking and a slight credit squeeze in China coupled with tighter rules to combat pollution in the country curbing steel production.

The Swiss-headquartered miner could even benefit from China's stricter environmental regulation through a potential boost to sales of more efficient, higher-grade iron products such as its pellets.

"While the market could be concerned about further iron ore price decline, we believe that strong pellet premiums in 2014 provide an edge to Ferrexpo's story which could well be a structural tailwind," Citi analysts said in a research note.

CAPITAL EXPENDITURE

The company, majority owned by Ukrainian billionaire and parliamentarian Kostyantin Zhevago, also has longer-term plans to build a processing plant that could boost production to 20 million tonnes a year.

Its completion is expected in 2017 but could be delayed by balance sheet constraints, Mawe said.

"We are still on track but the button has not yet been pressed for the capital commitment," Mawe said. "We are not in a blazing rush, so if we had to postpone it by three to six months because of cashflow, we would do so."

The miner said that political tension between Ukraine and Russia has caused no disruptions to its operations in Ukraine.

"Clearly, while a timeframe for meaningful resolution in Ukraine remains uncertain, the share price will stay under threat," Cantor Fitzgerald analysts said in a note.

Mawe said that Ferrexpo's shipments have not suffered delays and the company does not expect any negative impact on the business from the political situation.

"We are a resilient business. We don't expect it to get worse and don't feel contingency plans are necessary," he said.

In the past few weeks Ferrexpo shares have come under pressure from concerns over its chief executive's political ties to West-leaning former Prime Minister Yulia Tymoshenko.

The miner also said that a weaker hryvnia, the Ukrainian currency, should help it to control costs.

Average cash costs of production rose slightly to $59.8 per tonne in 2013, from $59.6 a year earlier, despite efforts to increase output to offset the impact of high fixed charges.

Ferrexpo shares were up 1.3 percent by 1149 GMT, outperforming a 0.7 percent drop in the sector.