Deloitte drops Ferrexpo amid charity funds investigation

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Deloitte has cease to be Ferrexpo’s auditor as it has dropped the mining company on Friday.

This came after Blooming Land, the charity which coordinates Ferrexpo’s Corporate Social Responsibility (CSR) program, came under scrutiny over its use of company donations.

Ukraine is currently investigating Blooming Land for money-laundering and tax evasion. According to Ferrexpo’s 2018 annual statement, the group contributed $9.5m (£7.3m) to the charity.

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Ferrexpo on Tuesday said findings of an ongoing independent investigation launched in February indicated some Blooming Land funds could have been “misappropriated”. It did not provide any details or publish its findings.

Ferrexpo’s annual results state, “The board has formed a unanimous view, based on a lack of clear evidence to the contrary and unambiguous representations given to the board by the CEO over many years, that the CEO does not have significant influence or control over Blooming Land.”

Shares in Ferrexpo, the third largest exporter of pellets to the global steel industry, were 23.4 percent lower at 206.1 pence at 1022 GMT following news of Deloitte’s resignation.

“Ferrexpo’s shares are deeply discounted vs peers … following the resignation of Deloitte, we expect downside risks to dominate Ferrexpo’s shares near term.” JP Morgan analyst Dominic O’Kane said in a note on Friday.

Swiss-headquartered Ferrexpo did not provide a reason for the resignation of Deloitte, which declined to comment, while Blooming Land did not respond to a request for comment.

Funding for Blooming Land’s CSR activities is provided by one of Ferrexpo’s units in Ukraine and Khimreaktiv LLC, an entity ultimately controlled by Ferrexpo’s CEO and majority owner Kostyantin Zhevago, Ferrexpo said on Tuesday.

Ferrexpo’s board has found that Zhevago did not have significant influence or control over the charity, but Deloitte said it was unable reach a conclusion on this.

In a qualified opinion, a statement addressing an incomplete audit, Deloitte said it had been unable to conclude whether $33.5 million of CSR donations to Blooming Land between 2017 and 2018 was used for “legitimate business payments for charitable purposes”.

Deloitte said on Tuesday that total CSR payments made to Blooming Land by Ferrexpo since 2013 total about $110 million.

Ferrexpo, whose major mines are in Ukraine, has said that the investigation was ongoing and new evidence pointed to potential discrepancies.

Zhevago, 45, who ranked 1,511 on Forbes magazine’s list of billionaires for 2019 with a net worth of $1.4 billion, owns the FC Vorskla soccer club and has been a member of Ukraine’s parliament since 1998.

Ferrexpo says it will continue to update shareholders “as appropriate”.

Yetunde Adegoke

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