Ukraine and US start mineral deal fund: What could derail investments

Arrival of the US delegation

Important steps for launching the fund’s work are planned for September this year. Next month, the fund’s investment council is to hold its first meeting, Minister of Economy, Environment and Agriculture Oleksii Sobolev said on August 18.

Technical decisions on the launch of the fund will be announced at this meeting.

“There are agreements with the US on filling the fund from both their and our side with the first money. We are now working on a list of investment projects in which the fund can invest,” the minister commented.

He added that in September, a delegation from the US government will arrive in Ukraine to visit various locations in our country and assess projects in which the fund’s money can be invested.

“We hope that this year it will already be clear about the first investments of the Fund from the US,” Sobolev added.

Photo: Minister of Economy, Environment and Agriculture Oleksii Sobolev speaks about the stages of launching the investment fund (Vitalii Nosach, RBC-Ukraine)

Speaking about the investment conditions needed for the successful implementation of large projects, the minister said that there are currently several draft laws in parliament to stimulate large investments, as well as a program for the development of geological exploration.

Problems of investments in subsoil development

When the fund begins to invest in mineral extraction projects, including critical ones that are of particular interest to the US, it will face a number of problems. For example, investors will need to allocate funds for additional geological exploration, since much of the data obtained back in Soviet times has either not been preserved or exists only in paper documentation.

“Any deposit will need to be drilled further in order to obtain a sufficient number of samples and subsequently correctly assess the level of reserves in accordance with international standards,” Head of the Department for Administration of Resource Payments, Rent and Local Taxes of Legal Entities of the State Tax Service, Oleksandr Shumskyi, told RBC-Ukraine.

An interlocutor of RBC-Ukraine specializing in taxation and subsoil use added that a Western investor will need to prepare a feasibility study, which will later be evaluated by capital owners, the US Securities Commission, that is, the Western financial market.

Photo: Investors in mineral extraction must prepare a project that will be accepted by the US stock market (Getty Images)

This document must contain reliable information about geological reserves, the technical feasibility of their extraction, the economic viability, and the environmental soundness of this process.

“We have nothing, we have paper information, and that’s all. It will be necessary to take new samples, bring specimens to certified laboratories, to receive from them data that the Western capital market will recognize,” Shumskyi said.

Ukrainian state authorities need to focus on creating for subsoil user companies all the conditions so they can prepare such documentation for the development of a specific deposit. The duration of just this preparatory stage is estimated at 5 or more years.

“A feasibility study in 5 years — this is a realistic term for an investor. The entire work should be focused on the preparation of several real projects, such as feasibility studies. This is the main task and the real prospect for the coming years,” he added.

Having received such a mining and marketing project, an investor will be able to begin the search for a financial partner who will provide capital for the industrial development of the deposit, the construction of a quarry, and an enrichment plant.

Photo: An investment project must calculate the economic feasibility of building a quarry and an enrichment plant (Getty Images)

Another problem in Ukraine is the high cost of electricity for industrial enterprises. This factor, Shumskyi believes, significantly reduces the investment attractiveness of building processing facilities (a hydrometallurgical plant), which weakens Ukraine’s prospects of supplying not only raw materials (ore concentrate) but also higher value-added products to the global market.

The mechanism of sharing agreements, which provides for the transfer by the investor to the state of part of the extracted material or money, needs substantial revision. “Such agreements must include the following requirements for the investor: the conduct of minimum works to prepare a mining and marketing project, that is, documents for obtaining Western financing in the project,” Shumskyi said, adding that other requirements should not be included in such contracts.

On May 1, US Secretary of the Treasury Scott Bessent and Minister of Economy Yulia Svyrydenko signed the minerals agreement. According to this agreement, an investment fund was created to invest money in mineral extraction and infrastructure projects in Ukraine. It will be managed by representatives of the US and Ukraine on a parity basis. Both parties will contribute funds to this fund, which may invest in the extraction of rare earth metals, energy resources (oil, gas, uranium ores), and infrastructure projects.

At the beginning of August, Svyrydenko said that the fund would launch the first three projects within a year and a half. She also discussed with the American side the possibility of the fund’s investments in the defense-industrial complex.

In an interview with RBC-Ukraine, founder and head of the titanium mining company Velta Holding, Andrii Brodskyi, said that the cost of electricity in Ukraine is significantly higher than, for example, for an industrial enterprise in the US. He added that today in Ukraine, there are only two completed feasibility studies in the field of critical raw material extraction, meaning there is a shortage of ready-made projects for attracting capital.