London-listed iron ore miner Ferrexpo has paid $80m for a 14.4 per cent stake in Brazilian mining group Ferrous Resources, marking the group’s first significant expansion outside Ukraine.

The deal comes within weeks of Ukrainian businessman Kostyantin Zhevago, Ferrexpo’s majority owner, declaring that his company was on track to continue supplanting its Brazilian rivals– including Vale, the world’s biggest iron ore exporter – as a more proximate supplier to Asian steelmakers.

The tie-up with Ferrexpo in effect values the Brazilian mining group at just over $550m. The Brazilian venture abandoned plans for an initial public offering in London in 2010 that its backers, then led by Harbinger Capital, hoped might have valued Ferrous Resources at up to $4bn. Subsequent takeover talks with BHP Billiton also floundered.

Ferrous Resources has since attracted investment from activist investor Carl Icahn, who this month abandoned his attempt to thwart the buyout of US computer maker Dell, and Glencore Xstrata, the commodities and mining group.

Ferrexpo is ranked as the CIS region’s biggest iron ore pellets exporter and last year produced 9.3m tonnes of iron ore pellets at its main production asset, Ukraine-based Poltava Ore.

Ferrous Resources aims to produce about 5m tonnes this year from its Brazilian mines, up from last year’s 2.9m tonnes.

The acquisition took some by surprise. “While Ferrexpo reported the acquisition as strategic, we believe it’s more of a financial investment as holding a 14.4 per cent stake does not provide any operational synergies for the company and is likely to give it only minor, if any, leverage in terms of management,” Dragon Capital said in a note.

“We find the news slightly negative,” the Kiev-based investment bank added.

However, Louise Collinge, London-based analyst with brokers Investec, maintained a “buy” recommendation on Ferrexpo as she welcomed the deal.

“We believe that the step towards geographical diversification out of Ukraine is in no small part related to the economic pressures that the country faces, which have adversely impacted Ferrexpo through the $300m in VAT that it is owed,” she said.

“The investment [in Ferrous Resources] appears sound to us, although we still believe that the group has an impressive asset and a unique position in Ukraine that can be further capitalised upon.”

Mr Zhevago, who owns a 51 per cent stake in Ferrexpo, has a diversified business empire but it remains heavily concentrated in Ukraine – a country with a notoriously tough investment climate. The businessman’s interests span from mining, banking, energy to the manufacturing of tyres, trucks and ships.

Ferrexpo’s ownership of Poltava Ore, its main production asset, has for years faced legal challenges by a Russian business group with interests in Ukraine.

Mr Zhevago is a former backer of Yulia Tymoshenko, the jailed opposition leader.

Although his interests are concentrated in Ukraine, Mr Zhevago has made a flurry of small-scale foreign acquisitions in recent months.

On September 13, Austria’s Voestalpine said it had agreed to sell him a 38.5 per cent stake in VA Intertrading, a commodities trading company with revenues of €1.3bn in 2012, for more than $10m.

In July, Mr Zhevago’s Zalyv Ukrainian shipbuilder acquired for $18.2m a majority stake in a shipbuilding joint venture with Norway’s Bergen Group.

Ferrexpo shares, down 14 per cent over the past year, traded 1.91p lower at 181.8p on Wednesday.

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