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Ferrexpo hopes for complete abolition of freezing Poltava Mining's accounts in March in case of underpayment of iron ore royalties in 2018-2021

KYIV. March 17 (Interfax-Ukraine) – Mining company Ferrexpo with assets in Ukraine hopes for a complete cancellation of freezing accounts of PJSC Poltava Mining in March in the case of a potential underpayment of royalties for iron ore mining between 2018 and 2021.

According to Ferrexpo’s annual report, on February 3, 2022, Poltava Mining and Yeristovo Mining LLC received letters from the Prosecutor General’s Office (PGO) notifying them of an ongoing investigation into a potential underpayment of iron ore mining royalties between 2018 and 2021.

The amount of underpayment was not specified in the letters.

As part of the investigation, the Office of Prosecutor General requested documents related to iron ore royalty payments and requested four representatives of the group’s subsidiaries to appear as witnesses for investigations.

On 8 February 2022, Poltava Mining received a tax audit report, which claims the underpayment of iron ore royalty payments during the period from April 2017 to June 2021 in the amount of approximately UAH 1.042 billion (approximately $28.424 million as at 31 December 2022).

“The group provided its objections to the claims made in the tax audit report and it was expected that this case will ultimately be heard by the courts in Ukraine. However, due to the current situation in Ukraine, it is unknown if and when the tax office will provide the final tax audit report considering or refusing Poltava Mining’s objections as well as if and when a first hearing will take place in respect of a final claim received and how the aforementioned investigation is going to further develop,” the group said in the report.

On 16 November 2022, the detectives from the Bureau of Economic Security of Ukraine conducted searches at Poltava Mining and Yeristovo Mining in connection with the royalty-related investigation. On 3 February 2023, a notice of suspicion was delivered to a senior manager of Poltava Mining, which claimed underpayment of royalty payments in the amount of approximately UAH 2 billion (approximately $54.557 million as at 31 December 2022) and a bail UAH 20 million ($546,000 as at 31 December 2022) was approved by the court on 9 February 2023.

On 6 February 2023, the court arrested the bank accounts of Poltava Mining. Following a motion to change the scope of the arrest filed by Poltava Mining, the court on 8 February 2023 and on 16 February 2023 added exceptions to the original court order to arrest the bank account of Poltava Mining in order to allow Poltava Mining to make payments for salaries, local taxes, social security charges, payments for utilities as well as payments to state and municipal companies.

Other motions to change the scope of the arrest and an appeal to cancel the arrest are expected to be considered by the courts in March 2023.

“Based on legal advice obtained, it is management’s view that each of Poltava Mining and Yeristovo Mining have compelling arguments to defend their positions in the court,” the group said in the document.