Ukraine Mining Report 2009

Unsurprisingly, iron output was negatively affected through 2008 and 2009 as the automotive and construction industries contracted amid the global economic problems. The biggest steel mill in the Ukraine, owned by Arcelor Mittal, experienced a slump in steel output for the period of January-April 2009 of 43.8%, compared with the same period in 2008. A total of 1.469mn tonnes were produced. Steel output for Arcelor Mittal had been declining steadily throughout 2008, with a 10.5% drop in the period January-September 2008. Steel maker Zaporozhstal also announced cuts in production of liquid steel in October 2008 by 5.1% to 3.205mn tonnes. Switzerland-based Ferrexpo, which owns Poltava Ore Mining and Processing Works had seen estimated production costs for Q308 fall because of the easing of inflation in the Ukraine, though this did little to offset the negative impact of declining demand.

Ferrexpo were looking to increase export sales in a bid to improve sales; as of October 2008 15% of sales occurred within the Ukraine.

The devaluation of the Ukraine currency had made iron exports more competitive and by March 2009 the steel export industry was benefiting from this, experiencing production capacity of 70-80% – up from just 50% by at the end of 2008. Production in February 2009 had increased by 9.1% m-o-m but was still down a significant 33.6% down on the performance of February 2008, according to the World Steel Association. Positive signs within the industry are not yet sufficient to compensate for the overall effects of the economic downturn. The market is expected to stabilise by the end of 2009, with a tentative recovery throughout 2010.

The Ukraine government is adamant that it will achieve self-sufficiency in uranium fuel, especially since a dispute over pricing lead to Russia cutting off the gas supply to the country. With an antiquated coal mining industry and poor natural gas resources, uranium may offer a solution to power demands – 47.5% of the Ukraine’s electricity production in 2007 came from nuclear energy and the country has 15 nuclear power reactors at 4 nuclear power plants. The government is committed to developing the uranium mining industry and wants to provide half of the estimated 307bn kWh of electricity required by 2020 from nuclear power.

In June 2009, 99 mines scheduled for privatisation had the process suspended by the country’s president, Viktor Yuschenko. The mines were approved for privatisation by the Cabinet of Ministers in April, but Yuschenko argues that it is in violation of the constitution to privatise state property and facilities of national importance. Yushchenko said that: ‘Such facilities include the properties enterprises whose main operations are production of goods including minerals of national importance – and that means coal.’ He has asked the Constitutional Court to determine whether there has been a breach of rules in the proposal of the Cabinet of Ministers. The cabinet was hoping to generate funds from the privatisation of the companies to enable financial development of the coal industry. Privatisation would be an opportunity to attract investment and update the mines, which are desperately in need of modernisation. However, such examples of political division on the governance of the coal industry will deter investors, who would be able to find more attractive opportunities elsewhere.

Despite the extensive resources that the Ukraine has to offer, the investment opportunities with its neighbouring counterparts will continue to be more attractive to outside investors because less reform is required and there is more political stability. Uran Ltd pulled out of investment proposals in the country because of political uncertainty and structural instability of the governing bodies of the uranium industry.

The report forecasts the Ukrainian mining industry will grow by 25.6% between 2008 and 2013 in US dollar terms. The industry is expected to reach a value of US$912.76bn by 2013.