Emerging Markets Offering Opportunity for Major and Junior Miners  

- January 15th, 2020

Emerging resource markets like Ukraine are showing potential to both major and junior resource companies.

Ukraine has long been an afterthought in the international mining industry despite the country’s significant natural gifts.

The country’s mineral wealth is perhaps its greatest economic asset, but historical corruption and mismanagement have hindered Ukraine from fully benefiting in the past. Today, the country has new leadership and a new economic direction as major miners like ArcelorMittal (NYSE:MT) and Glencore (LSE:GLEN) begin to take advantage of the nation’s move away from Russian influence and towards European integration. The Ukrainian government has stated that the door is open for foreign investment in the country’s mining sector and both major and junior international mining companies have answered the call.

Ukraine’s mining industry

Ukraine’s mineral wealth was a key contributor to the economy of the former Soviet Union but it has been underexploited in the post-soviet era. Located over several platforms and folded tectonic units, the country’s geological structures have given it significant natural resources. Ukraine is home to one of the largest proportions of iron ore deposits on the planet with an estimated 27 billion tons accounting for more than 10 percent of the earth’s reserves. The country is one of the world’s top ten producers of manganese ore with the largest reserve in Europe. Ukraine also holds the largest titanium reserve in Europe as well as significant reserves of coal, natural gas, oil, salt, sulfur, graphite, magnesium, kaolin, nickel and mercury.

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Black Iron Inc., developers of the Shymanivske iron ore mine in Ukraine, is ranked by market intelligence group CRU as having the lowest projected operating costs and second-lowest capital intensity of all iron ore pellet feed development projects in their database.Send me an Investor Kit

Ukraine mining draws international attention

In March of 2019, the Ukrainian people overwhelmingly elected political newcomer Volodymyr Zelensky as the country’s president. The former actor and comedian ran mainly on the promise of increased integration with the European Union while distancing the country from Russian influence. President Zelensky has stressed that combating corruption, poverty and economic stagnation within the country would be a top priority. International integration and support for international investment in Ukraine are core parts of these efforts.

Ukraine’s mining sector currently employs more than 194,000 people and is therefore an important sector of the economy for the government to focus on and grow primarily through foreign investment. President Zelensky likely sees the country’s natural resources as key to economic prosperity and has publicly expressed support for projects like Canadian resource company Black Iron’s (TSX:BKI,OTC Pink:BKIRF,FWB:BIN) Shymanivske project. As of August 2019, the Ukrainian government plans to offer concessions for about 70 different mineral deposits to investors.

According to Black Iron CEO Matt Simpson, “Black Iron is receiving strong support directly from the President and Prime Minister of Ukraine to develop the Shymanivske iron ore project. It is critical for Ukraine to attract foreign investment as this is the most sustainable way to improve living standards for everyday people. Black Iron’s successful project construction is very important as it will further increase other foreign investors’ confidence in Ukraine.”

Low construction and operating costs have been among Ukraine’s key draws for international resource companies, largely driven by excellent major infrastructure, including railway, power lines and ports, coupled with a highly skilled, relatively low-cost labour pool. Black Iron’s independent economic assessment projects that the company will be able to produce ultra high grade 68 percent iron content product in the country for as little as US$31 per ton. As of this writing, lower grade 62 percent iron ore is selling for US$94 per ton, and 65 percent iron for US$107 per ton.

Miners not concerned with Eastern Ukraine conflict

Since 2014, investment in Ukraine has been complicated by the ongoing conflict along the country’s eastern border between Ukrainian and Russian forces. This border region has significant strategic importance.

Importantly for mining companies invested in Ukraine, the conflict has been ongoing since 2014 and is expected to remain localized entirely within the Eastern border, well away from where the majority of the mining currently occurs in Central Ukraine. Russia’s interest in the Ukrainian territory, which is largely ethnically Russian, is strategic, and other Ukrainian territories do not hold the same strategic value for Russia or NATO.

Most recently, tensions are beginning to really thaw as a peace conference was held in Paris on December 9, 2019, attended by Russian President Vladimir Putin and Ukraine President Zelensky, and hosted by French President Emmanuel Macron and German Chancellor Angela Merkel. Following this conference, there have been two successful prisoner exchanges, a deal to transport Russian natural gas through Ukraine to Europe and an agreement for these four leaders to meet again soon to discuss a resolution to the conflict.

Mining development in the Kryviy Rih basin

Located in Central Ukraine, the Krivoy Rog basin (KrivBass) is home to seven producing iron ore mines owned by multi-billion market cap companies, including ArcelorMittal, Metinvest and Evraz (LSE:EVR), along with Black Iron’s new iron ore development project. The region is advantageously positioned between Europe, Russia, Asia and the Middle East for easy access to these markets.

Shortly after his election, President Zelensky singled out Black Iron’s Shymanivske project in a speech on the Ukrainian government’s efforts to attract international investment to the country. Located within the southern half of the KrivBass district, the Shymanivske iron ore deposit features a measured and indicated resource of 646 million metric tons grading 31.6 percent iron and an inferred resource of 188 million metric tons grading 30.1 percent iron, sufficient to support an initial mine life of 20 years.

Major mining company Glencore has signed a non-binding memorandum of understanding with Black Iron for an investment to help fund the construction of the Shymanivske project, and there are several steel mills currently discussing a potential investment with the company. In exchange, Glencore has the option to accept an offtake agreement for up to 100 percent of the estimated output from the project’s first phase. The Shymanivske deposit is surrounded by major iron ore projects including two open-pit mines, one owned by ArcelorMittal as well as one by Metinvest/Evraz Steel. ArcelorMittal acquired their iron ore mine and steel mill from Ukraine’s government in 2005 for US$4.6 billion and has recently announced a US1.8 billion investment to improve environmental emissions and modernize operations, signaling that the company is confident in the future of Ukraine’s mining operations.

Takeaway

As Ukraine moves away from Russian influence and towards the international community, international investment in the country’s mining sector could become key to economic growth. President Zelensky has been vocal in his support for international projects like Black Iron’s Shymanivske, indicating a new era for domestic resource projects. In response, both major and junior resource companies are beginning to explore the potential of the region.


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