* Maintains annual dividend at 13.2 cents per share
* Iron pellet prices healthier than iron ore fines
* Takes contingency measures to counter disruption from conflict
* Expects no power disruption through summer months (Adds CFO quotes, analyst)
By Silvia Antonioli
LONDON, March 11 (Reuters) - Ukrainian miner Ferrexpo said higher iron ore pellet premiums and lower production costs helped offset a steep fall in iron ore prices and limit the fall in its annual core profit to just 2 percent.
Benchmark iron ore prices fell 28 percent last year due to a supply glut and Ferrexpo said it expects 2015 prices to be "materially below" last year's average.
But the market for the higher-quality pellets that Ferrexpo mainly produces is far less oversupplied, with steady demand from steel mills, and premiums over the benchmark rose slightly in 2014.
The miner, which has so far experienced only minor disruptions due to the separatist conflict in eastern Ukraine, also benefited from higher sales volumes and a weaker local currency, as well as lower freight and energy costs.
It posted earnings before interest, taxes, depreciation, and amortisation (EBITDA) of $496 million, down from $506 million in 2013 but well above a consensus forecast of about $441 million, according to Thomson Reuters I/B/E/S.
It maintained total dividends in line with the previous year at 13.2 U.S. cents per share.
"Ferrexpo is doing very well in a challenging iron ore and political environment," Investec analysts said in a note. "The maintenance of the dividend is perhaps the most surprising ... it clearly has confidence in its ongoing cash generating ability, notwithstanding a still declining iron ore price."
Shares in Ferrexpo, majority owned by Ukrainian billionaire and independent parliamentarian Kostyantin Zhevago, rose as much as 10 percent after the results and were up 7.5 percent at 1126 GMT.
The Swiss-headquartered firm's average 2014 price for all its various grades of iron ore - realised net free-on-board iron ore price - fell 18 percent, compared with the 28 percent drop in the iron ore fines benchmark price.
The miner has facilities in Ukraine's central Poltava region, about 400 km (250 miles) away from the fighting in the east. In December, electricity shortages - caused by the conflict disrupting operations at power plants - forced it to lower production that month.
"We have put contingency in place. We know the risks and we try and mitigate them," Chief Financial Officer Chris Mawe said. "Anything can always come up, as it did and surprised us slightly in December. But throughout the summer months, unless the situation deteriorates, I wouldn't expect any issues."
To counter any potential lack of supply, the company has been importing gas from the West through a trader and, to avoid any disruption from a deteriorating Ukrainian financial sector, it is keeping a high level of cash on its balance sheet.
Ferrexpo produced 11 million tonnes of iron ore pellets in 2014 and expects to produce 11.5-11.6 million this year.
It has got the mining capacity to reach 20 million tonnes per year but has put a plan to build a concentrator to process the ore at Yeristovo on hold, on the back of weaker iron ore prices and to preserve cash. It has also fully impaired its 15 percent stake in Brazil-focused iron ore miner Ferrous Resources, resulting in a $82 million non-cash charge. (Editing by David Clarke and Pravin Char)