Metals and Mining in Ukraine

7/27/2019 Metals and Mining in Ukraine

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Metals and mining

in Ukraine

Industry overview


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Dear Reader,It is my great pleasure to introduce you to our newpublication about attractive sectors of Ukraine, made inpartnership with Deloitte.

We developed these brochures to make informationabout sectors of Ukraine accessible and easy to un-derstand. The booklets provide analysis of economicattractiveness, as well as comparative characteristicsand undiscovered opportunities.

Ukraine enjoys a long industrial tradition, robust trans-portation and technical infrastructure, rich natural re-sources, strong secondary and tertiary education, abroad network of research and development institutes,

and a large pool of technically skilled labor. As a WTOmember since 2008 and having signed InternationalAgreements for the Avoidance of Double Taxation with63 countries, Ukraine is a fair player in the businessworld, a transparent and predictable partner.

InvestUkraine offers individual support to investors andis here to assist potential investors with setting up pro-duction in Ukraine. We offer professional support in ob-taining information and analysis, legal advice, site visits,

site selection services, assistance in communicationwith local authorities, and an aftercare program.

I encourage you to consider Ukraine as a place for yourfuture business and discover all the benefits of locatingyour companys operations in our country.

I look forward to welcoming you in Ukraine.

Sergiy Yevtushenko,Head

InvestUkraineState Agency for Investment andNational Projects of Ukraine

Afavorable geographic position, vast consumer mar-ket, ample resources and high level of education all these factors ensure great investment potential forthe economy of Ukraine.

At present, Ukrainian market is at the developmentstage. There are many niches and opportunities for in-troducing new players and strengthening the positionsof existing ones. However, most of Ukraines indus-tries lack investments, though international investorsare highly interested in them. We believe that foreigninvestments will be very successful and promote eco-nomic growth if a favorable investment climate is cre-ated in Ukraine.

To assist you in determining the most promising areasto invest in and get an insight into Ukrainian market,Deloitte experts in cooperation with InvestUkraine haveconducted this research.

We hope that this overview will be useful and interest-ing for all companies interested in investing in variousindustries of our country.

Vladimir Vakht,

Managing PartnerDeloitte


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Table of contents

1. Executive summary

2. Sector overview

3. Trends and developments

4. Leading players

5. Organizations and associations

6. Legislation

7. List of references

5

5

14

16

19

20

22


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1. Executive summary

2. Sector overview

Metals and mining sector in Ukraine is represented by

ferrous and non-ferrous metallurgy which includes va-

riety of processing stages starting from mining and raw

materials enrichment and ending with production of

metals and alloys.

Ferrous metallurgy produces iron ore and ferrous met-

als including steel, pig iron (with a carbon content of a

few percent) and alloys of iron with other metals (such

as stainless steel and other types of alloyed steel). Non-

ferrous metallurgy produces aluminum, copper, zinc, ti-

tanium, nickel, magnesium, platinum, gold, silver as wellas other non-ferrous metals including their alloys.

At the same time the scale and degree of ferrous and

non-ferrous metallurgies development in Ukraine is dif-

ferent. Specifically, the share of non-ferrous industry in

the structure of Ukrainian GDP is relatively small (2010:

less than 5%), which is due to relatively insufficient in in-

dustrial terms known reserves of respective mineral re-

sources in Ukraine. In contrast, due to literally immense

proven and probable reserves of iron ore, ferrous sub-industry has strong potential and historically has played

a key role in Ukrainian economy. In the recent years fer-

General

Metals and mining sector of Ukraine is mainly represented by ferrous metallurgy.

According to the State Statistics Committee of Ukraine turnover of non-ferrous production in 2010 comprised only

6% of the total metallurgical production. As for ferrous metallurgy the highest percentage of the total metallurgical

production comprised pig iron, steel and ferroalloys production 82%, followed by pipes production and other kinds

of primary steel processing, which constituted 8% and 3% respectively. The total turnover of metallurgical production

in Ukraine in 2010 comprised UAH 182,251 m.

rous metallurgy contributed approximately 20-25% into

GDP and generated approximately 30%-35% of Ukrain-

ian export.

High export orientation of entities representing Ukrainian

metals and mining sector (80% of the output would nor-

mally go to export), positions Ukraine among key global

players. Based on the export statistics for 2011, Ukraine

is the 5th largest iron ore exporting country and 6th larg-

est steel exporting country in the world, exporting 34 m

tons of iron ore and 26 m tons of steel respectively.

In spite of Ukraines currently strong ranking, metal and

mining sector of Ukraine needs to invest approximate-

ly USD 15-20 bn within a decade to overcome existing

technological gap.

Without intensive modernization of heavily depreciated

production facilities, minimization of negative environ-

mental impact and long-awaited technology changeo-

ver, in the medium perspective Ukrainian metal and min-

ing producers may loose their leadership due to inabilityto further challenge technological superiority of other

global players.


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Metalurgical products turnover structure in 2011, UAH bn

Source: State Statistic Service of Ukraine

Currently ferrous metallurgy combines more than 200 entities, including 19 integrated steel mills and plants, 12 tube plants,

12 coke plants, 10 refractory plants, 12 mining and metals enterprises, a number of ferroalloy plants and more than 100

companies specializing in scrap and waste metals reprocessing. Metals and mining sector has a long history in Ukraine.

Its main advantages are:

Strong internal metal consumption (metal intensive machine building);

Rich and suitably located resource base (iron ore, coking coal, cheap electricityetc.);

Developed transport network and proximity to global markets;

High degree of vertical integration;

Skilled workforce.

Key production inputs

The mining and metals sector of Ukraine is comprised from enterprises performing the following activities:

Mining and preparation of key inputs for further processing (ore mining, production of ore concentrate and pellets);

Ferroalloys production;

Coke production;

Metal processing key technological process resulting in production of pig iron, steel, semi-finished products from

ferrous metals (slabs, rods, billets, tubes etc.) and alloys;

Scrap and by-products utilization.


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The diagram below schematically demonstrates major production stages within mining and metal sector.

The key production input for ferrous metallurgy in Ukraine

is the iron ore. For instance, combined iron ore and coke

comprise around 50% of a steel billet cost. Apart from iron

ore and coking coal, scrap and ferroalloys form around

17% of a steel billet cost.

Ukraine is fully self-sufficient in iron ore supply, somewhat

reliant on coking coal and significantly reliant on non-fer-

rous ores supply being a net importer of non-ferrous ores

required for production of ferroalloys.

Dressing

Ore extraction

Fines Lumps

DR pellets BF pellets

Alternative

iron making

processes

Scrap and

other

metallics

Sinter

Electric arc furnace steelmaking (EAF)

Blast furnace (BF)

Basic oxygen furnace steelmaking (BOF)

Blooms/Billets/Slabs (semi finished products)

Finished products


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Proven and probable iron ore reserves

Billet production cost, USD per ton, EXW (for non-integrated mills in Ukraine)

According to US Geological Survey (2009) Ukraine has the largest deposits of crude iron ore reserves in the world of ap-proximately 30 bn tons. Relatively low ferrum content (30%) in Ukrainian ore ranks it 3rd after Russian and Australian ores

in terms of ferrum content in proven and probable ore reserves.

World iron ore reserves in 2009

Source: Ukr Prom Zovnish Expertyza

Source: US Geological Survey. www.eavex.com.ua


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Metals and mining sector output and structure

Global ranking

Ukrainian mining and beneficiation companies (also referred to as GOKs) extract iron ore via both underground and open

pit mining. Ore mined from underground has ferrum content of 50-60%, while ferrum content of crude ore mined from

open pits is only around 26-33%.

As can be seen from the diagram above on the whole out-

put of metals and mining sector in Ukraine tends to grow,

except for 2008 when global metal markets collapsed due

to the world financial crisis.

The impact of the crisis can be felt even now: in 2011Ukraine produced 35.5 m tons of steel which is signifi-

cantly lower than in the pre-crisis 2007 and hardly match-

es the level reached in 2002. At the same time the output

of non-agglomerated iron ore (the key input of steel pro-

duction) in 2010 and 2011 surpassed the pre-crisis level.

The latter was in line with the global tendency of raw ma-

terials prices appreciation and more fierce competition

between steel producers on the global arena in the post

crisis period due to existence of unutilized production ca-

pacities. As a result of the mentioned trends since 2008profit margins have been improving for Ukrainian export-

ers of iron ore as well as of other raw materials (coke,

coal) and deteriorating for exporters of steel and semi-

finished products.

The diagram below demonstrates Ukraines metals and mining sector output and structure in dynamics.

Ukraines mining and metals sector output, m tons

Currently Ukraine is a serious global player. In 2011 it ranked No. 8 in terms of global crude steel production, No. 5

among top steel and iron ore exporting nations and No. 3 in terms of proven and probable deposits of iron ore.

Source: State Statistic Service of Ukraine


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TOP steel exporters , m tons TOP-15 crude steel producers, m tons

Exports of iron ore, m tons

Position

2011

1

2

3

4

5

6

7

8

9

10

Country

China

Japan

EU-27

S. Korea

Ukraine

Russia

Turkey

USA

Brazil

Taiwan

Country

Country

Australia

Brazil

India*

S. Africa

Ukraine

Canada

Russia

Sweden

Iran*

Indonesia

Other

2010

38.8

42.2

32.7

23.9

25

27.2

15.9

11.2

8.9

9.8

2010

2010

427

311

104

48

33

31

20

21

15

9

51

2011

466

331

79

53

34

34

27

21

17

14

51

2011

44.4

40.3

36.1

28

25.8

24.6

16.7

12.5

10.7

10.3

2011

China 637.4 683.9 7 45.1

EU-27 172.6 177.2 3 11.7

Japan 109.6 107.6 -2 7.1

USA 80.5 88.4 7 5.7

India 68.3 71.3 4 4.7

Russia 66.9 68.9 3 4.5

S. Korea 58.9 68.5 16 4.5

Ukraine 33.4 35.3 6 2.3

Brazil 32.9 35.2 7 2.3

Turkey 29.1 34.1 17 2.2

Taiwan 19.8 22.9 18 1.5

Mexico 16.9 18.1 7 1.2

Canada 13 13 0 0.9

Iran 12 12.6 5 0.8

S. Africa 7.6 7.5 -1 0.5

Other 70.1 74.3 6 4.9

Change

y-o-y, %

15

-5

10

17

3

-10

5

12

21

5

Change

y-o-y, %

Share in

2011, %

Change

y-o-y, %

9

6

-24

11

4

10

33

2

14

60

0

* imports from

Source: http://www.issb.co.uk

The further development and growth of the mining and

metals industry in Ukraine is highly dependent on the

global and domestic demand, timelines of technological

changeover, and ability to produce new marketable metal

products that would be a descent substitute to the im-

ported metals and alloys.


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Crude steel capacity utilisation in Ukraine Steel making capacity utilization, %

Source: State Statistic Service of Ukraine Source: WSA, OECD, UPE Co

Metals production capacity

In 2011 crude steel production capacity of Ukraine comprised 46.6 m tons. During the year these capacities were

utilized at a rate of 75.8% (2007: 95.4%).

Although the level of unutilized steel production capacity was in high correlation with the global average it declined signifi-

cantly during the post-crisis period.

Together with the overall decline of the global demand for steel this trend also indicates Ukraine in the post crisis period has

experienced more severe competition from other more technologically advanced global steelmaking players.

Technology

Ukraines steelmaking technology, in general, is decades behind that of most other major steel producing countries. As a

result, steel companies have not been able to reap maximum cost benefit from the countrys strong raw material sector.

According to the World Steel Association in 2011 Ukraine was the country with the highest percentage of outdated open

hearth furnace (OHF) technology used in production of crude steel among 10 major steel producing countries.


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TOP-10, crude steel producers by technology used in 2011, %

Ukrainian steel capacities by process, m tons

2007 2011

Country OBC, % EAF,% OHF, % Other, %

China 89.6% 10.4% - -Japan 76.9% 23.1% - -

United States 39.7% 60.3% - -

India 38.1% 60.5% 1.4% -

Russia 63.4% 26.9% 9.7% -

South Korea 61.4% 38.6% - -

Germany 67.9% 32.1% - -

Ukraine 69.3% 4.5% 26.2% -

Brazil 75.0% 23.5% - 1.5%Turkey 25.9% 74.1% - -

Source: World Steel in Figures 2012

Source: State Statistics Service of Ukraine

As can be seen from the table above, OBC technology was the most popular among the major steel producing coun-

tries such as China (89.6%) and Japan (76.9%) in 2011.

According to the State Statistics Service of Ukraine, the technological structure of steel making capacity in Ukraine in

2005-2011 was as follows.


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Continuously-cast steel output by country in percentage to the crude steel output in 2011

Source: World Steel in Figures 2012

During 2011 4.0 m tons of OHF capacities in Ukraine were

decommissioned, whereas 4.0 m tons of OBC and 1.3 m

tons of EAF capacities were put in use. Further replace-

ment of open hearth furnaces by more productive, more

energy efficient and less polluting EAF furnaces and con-

verter units will remain a priority for Ukrainian metallurgy

in the coming years. Complete replacement of OHF in

Ukraine is planned to be completed by 2018.

The graph shows, that only 53.9% of crude steel output

in Ukraine is processed further, while in other major steel

production countries like China, Japan and United States

almost 100% of crude steel is continuously-cast before

going to the finishing mill.

Evidently the lack of modern equipment constrains

Ukraine steel industrys ability to produce and sell higher

value added products, including carbon plate and hot-

and cold-rolled steel, instead concentrating on semi-fin-

ished products.

Furthermore, in first half of 2012 most Ukrainian steel

producers reduced finished roll production by 7% y-o- y,

produced 14.962 m tons of finished roll. During the same

period crude steel production fell by 3% to 16.939 m tons,

but pig iron production rose by 2% to 14.521 m tons.


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3. Trends and developments

Output and consumption trends

Steel products consumption, m tons

Prices for metals and key raw materials in Ukraine

The volume of steel consumption in Ukraine is growing, but is still far below pre-crisis levels.

Source: State Statistics Service of Ukraine, UPE Co

Source: UPE Co

The expected growth rate of apparent steel consumption in Ukraine in 2012 is 10% vs. 26% in 2011. In 2012 steel import

to Ukraine is expected to be nearly 2.1 m tons.

Iron ore concentrate (65% Fe),

USD/t cpt, w/o VAT

Coking coal charge,

USD/t cpt, w/o VAT

Scrap 3A,

USD/t cpt, w/o VAT

Total consumption,

m tons


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Internal market perspectives

Internal consumption

Stronger domestic demand was recorded for rolled

products in 2011 at almost 7.7 m tons, while the last

year`s figure totaled only 5.3 m tons. Analysts attribute

an upward dynamics to the revival of the domestic ma-

chine-building industry (especially, car-building sector)

and partially to the recovery of the construction industry,

including construction works related to Euro 2012. Still

domestic market uses about 25% of the output. Increase

in domestic consumption could be reached through im-

plementation of complex program aimed at renovation of

metal fund (content of metal in the countries production

facilities). Currently 337 out of 571 m tons of Ukraine`s

metal fund is depreciated and worn-out (60%). This fact

shows existence of the powerful internal growth factor

for metals and mining industry in Ukraine.

Prices for iron ore and coking coal in Ukraine in 2012 are expected to decline by 13% and 5% respectively in response to

declining prices at the global steel markets. At the same time shortage of scrap will support growing price trend (+8.6%

to 2011).

Tear-and-wear of metal making facilities

Today, the pace of renovation and modernization of iron and steel enterprises outperforms estimated figures outlined by

the State Program for development and reformation of mining and metallurgical companies till 2012 (approved in 2004).

In 2006-2007, capital investment in the modernization of iron and steel enterprises have reached the average European

levels (USD 28.3 and USD 48.5 per ton, respectively).

At the same time tear-and-wear level of Ukrainian iron and steel production facilities (65% and more) is twice above the

similar indicators in EU.

Vertical integration

Low profitability of Ukrainian iron and steel enterprises in 2009-2011 amid steel prices volatility and high raw mate-

rial prices forced steel making enterprises to join companies controlling highly-profitable iron orereserves. As a result,

Ukraines iron and steel industry consolidated into the vertically merged holdings.


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Opportunities: insights

4. Leading players

The total power consumption of Ukrainian steel making

enterprises required for the production of cast-iron and

steel is about 30% higher than for modern productionfacilities based in EU-27, India and China. Energy-out-

put ratio per ton of steel in Ukraine reaches 840 kg of

equivalent fuel while in EU countries this indicator is 1.9

times lower (450 kg of equivalent fuel). The cost of fuel

and energy resources accounts for 50% of rolled metal

products cost, while in some countries this indicator

equals 20%.

The production of one ton of steel in Ukraine requires

52.8 man-hours, whereas in Russia and Germany thisfigure totals 38.1 and 16.8 man-hours, respectively.

SystemCapital

Management

(SCM)

ArcelorMittal

Metinvest

Smart holding

Ukraines largest business group, major owner of iron ore deposits in Ukraine. SCM owns 75%of Metinvest.

SCM also has a 49.9% stake in Kriviy Rih Iron Ore plant, and shares control over this mining

company with Privat, Ukraines second largest business group, which owns an identical 49.9%

stake.

Multinational ArcelorMittal operates an in-house mining and enrichment plant at its Ukrainian

steel mill, ArcelorMittal Kriviy Rih.

Metinvest is a major steel group fully integrated vertically from iron ore extraction to steel

production and is recognized mining and steel industry leader in Ukraine. It is already the 5th

largest iron-ore producer in the world, and produces 14 m tons per year of crude steel. The

group comprises a mining and steel production facilities located in Ukraine, Europe and theUSA and has a sales network covering all key global markets.

Russian business group Smart holding owns the other 25% of Metinvest. Smart holding is also

a major stakeholder in Pivdenny GOK, owning 48%.

The following companies are considered to be the key players of Ukrainian mining and metals sector

The whole world demonstrates tendency towards de-

velopment of flexible electrometallurgy, thus replacing

inefficient and outdated open-hearth furnaces. Though,open-hearth furnaces are still in operation in Ukraine,

Russia and India.

Operating at full production capacity a Ukrainian entity

doing primary steelmaking from ores, is able to demon-

strate labor productivity close to 200-250 tons of steel

per worker per year. In contrast labour productivity of

a contemporary electrometallurgical mini mill would be

3000-4000 tons per annum.

Key player Description


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Ferrexpo

Evraz

Privat

Minerfin

ISD

The first Ukrainian company listed on the main market of the London Stock Exchange, mem-

ber of the FTSE 250 UK Index.

Ferrexpo is a Swiss- headquartered resources company with its main assets in Ukraine and isprincipally involved in the production of iron ore pellets which are used in the manufacturing

of steel.

Ferrexpos plants are situated on the Kremenchuk magnetic anomaly, a 50 km long iron ore

deposit in Ukraines Poltava region making it the largest iron ore deposit Europe.

EVRAZ is a large vertically-integrated steel, mining and vanadium business with operations

in the Russian Federation, Ukraine, Europe, USA, Canada and South Africa and employs ap-

proximately 110,000 people. The company is ranked the 15th largest steel producer in theworld based on crude steel production in 2010 (16.3 m tons). In 2011 EVRAZ produced 16.8 m

tons of crude steel. EVRAZ is largely self-sufficient in respect of iron ore and coking coal with

the majority of its internal consumption covered by its mining operations. Evraz owns 50% of

Pivdenny GOK and 98% stake in Sukha Balka.

Ukraines second largest business group, which owns an identical 49.9% stake in Kriviy Rih

Iron Ore.

Privat Group controls dozens of companies from practically every industry in Ukraine, Ghana,

Russia, Romania, United States and other countries. Steel, oil&gas, chemical, energy and

food industry are sectors of the groups prime influence and interest.

Slovak-based company focused on steel-related commodity trading, controls Zaporizhia Iron Ore.

Currently, annual extraction is around 4.5 m tons of high quality iron ore (sinter and lump ore),

with iron content making it one of the highest quality ores from the countries of the formerUSSR. MINERFIN bought a stake of 36% in the ZZRK company in 1997. In the following years

it gradually increased its stake in the company to the current 51.17%.

ISD is ranked among Top-40 largest international steel producing companies with the annual pro-

duction capacity amounting to 10 m tons of steel. Corporation owns a diversified product portfolio,

including semi-finished, final flat and long products. The Corporation implements a number of am-

bitious programs in steel industry aimed at reconstruction and expanding of production capaci-

ties. From 2005 till 2011 ISD has invested USD 2.7 bn in technological modernization.

ISD owns and operates the following steel plants in Ukraine: Alchevsk Metallurgical Plant, Alchevsk

Coking Plant, Dneprovskiy Dzerzhinskiy Metallurgical Plant.

Key player Description


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These companies control 100% of Ukrainian GOKs (mining and beneficiation companies) and significant share of

metal production.

GOKs Owner Method of extraction Basin of operation Output 2010*000 t. %

Inguletsky GOK Metinvest Open-pit Kriviy Rih 15,435

Pivnichny GOK Metinvest Open-pit Kriviy Rih 14,219

Poltava GOK Ferrexpo Open-pit Kremenchuk 11,226

ArcelorMittal KR ArcelorMittal Open-pit/underground Kriviy Rih 9,984

Pivdenny GOK Evraz/Smart Open-pit Kriviy Rih 8,953

Centralny GOK Metinvest Open-pit/underground Kriviy Rih 6,072

Kriviy Rih Iron Ore SCM/Privat Underground Kriviy Rih 5,908

Zaporizhia Iron Ore Minerfin Underground Bilozersk 4,500Sukha Balka Evraz Underground Kriviy Rih 1,825

Okrmekhanobr Metinvest Underground Kriviy Rih 905

20%

18%

14%

13%

11%

8%

7%

6%2%

1%

Mariupol Illich Plant Metinvest

Azovstal Metinvest

ArcelorMittal KR ArcelorMittal

Donetskstal Met. Plant Donetskstal

Zaporizhstal Metinvest

Dnipropetrovsk Dzerzhinsky plant ISD

Alchevsky Metall. Plant ISD

Nikopol Ferroally Plant Privat

Enakievsky Met. Plant MetinvestMakeevka Metall. Plant Metinvest

Dneprospetsstal Privat/VS energy

Dnipropetrovsk Petrovsky plant Evraz

Zaporizhya Ferroall. Plant Privat

Stakhanov Ferroalloy Plant Privat

Donetsk Met. Plant Donetskstal

Donetsk Metal-Rolling Plant Donetskstal

24,885.3

23,832.8

23,480.2

18,981.8

13,197.9

10,752.2

10,653.1

9,378.7

8,872.35,402.6

4,014.6

3,674.5

3,001.7

1,488.1

697.5

442.5

13,347.80

15,704.50

14,398.2

9,680.9

8,963.1

9,380.5

10,074.5

5,224.8

6,127.22,762.0

2,149.0

2,856.40

1,815.9

809.9

496.7

273.3

Ferrous metallurgy

Company name Owner Disposable income

2010, USD m

Disposable income

2009, USD m


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Nikolayev Alumina Plant RusalArtemovsk Non-Ferrous Metal Plant Ukrpodshipnik

Zaporizhya Alluminium Plant Rusal

Ukrsplav ISTA

Zaporizhya Ferroall. Plant Privat

2,757.41,857.4

658.3

322.0

583.1

2 ,967.01, 081.5

673.5

179.1

246.3

Avdeevski Koksochim Plant Metinvest 7,040.7

Alchevski Koksochim plant ISD 5,934.2

Yasinovski Koksochim plant Donetskstal 3,518.4

Zaporozhkoks Metinvest 2,870.4

Makeevkoks Donetskstal 2,583.1

Gorlovski Koksohimprom ARS 1,559.5

Dneprokoks Privat 1,537.4

Bagleykoks Evraz 1,365.5

Dneprodzerzhynskiy Koksochim plant Evraz 1,310.0

3,715.0

3,953.6

2,122.2

1,719.5

1,507.0

911.0

793.4

729.1

724.4

Non-ferrous metallurgy

Coke industry

Company name Owner

Company name Owner

Disposable income

2010, USD m

Disposable income

2010, USD m

Disposable income

2009, USD m

Disposable income

2009, USD m

5. Organizations and associations

UKRFA

UAS

Ukrainian Ferroalloy Producers Association (UkrFA) was established in 1998. The aim - to rep-

resent and protect the interests of Ukrainian producers of ferroalloys.

http://www.ukrfa.org.ua/main.html

Ukrainian Association of Steelmakers (UAS) a nonprofit, nongovernmental organization that

is dedicated to development and dissemination of scientific knowledge and technological in-

formation about melting, ladle treatment and casting, as well as the quality of metal.

http://uas.su/articles/raznoe/00004/00004.php

Organization Brief description


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6. Legislation

Licenses, permits, limitations

Federation

of Employers

of Miners of

Ukraine

Ukrrudprom

Ukrainian

Association of

Scrap Ukrscrap

The Ukrainian

Association of

Ferrous

MetallurgyEnterprises

UkrMet

The main goal of the Federation is to protect the interests of owners and their organizations

- employers mining complex - in economic, social, labor and other relations, protection of

their legitimate rights and interests, influence on the process of socio-economic policies to

improve social and labor relations and social partnership development in Ukraine.

http://www.frgu.org.ua/

The structure of the state stock company Ukrrudprom consists of 6 mining and processing

iron ore and three companies for the production of flux products.

Creation of conditions for development and raising of technical standards as well as assisting

in solving state issues and representation and protection of interests of its members

Coordination of processing and trading companies that perform operations on the secondary

metals in domestic and foreign markets of Ukraine.

http://www.ukrscrap.com.ua/index.html

Nowadays UkrMet consists of 38 enterprises, industrial unions and organizations of mining

and metallurgical complex (MMC) of Ukraine.

The main goal of the Association is to protect and coordinate activities of Ukrainian ferrousmetallurgy enterprises on domestic and international market, increase the efficiency of indus-

trys activity and improve MMCs investing attractiveness.

http://www.ukrfer.org.ua/Map_eng.php

As subsoil is the exclusive property of Ukrainian people it

can only be used and not owned. Mining operations includ-

ing those performed according to product sharing agree-

ments (hereinafter referred to as the PSA) are in general

treated as subsoil use.

Ukrainian legislation requires licensing for the following

types of activities within metals and mining sector:

Extraction of precious metals and stones, precious

stones of organigenic origin, semiprecious stones;

The licensing body is the State Service of Geology

and Subsoil of Ukraine (hereinafter referred to as the

SSGS);

Storage, recycling, metallurgical processing of scrap

base and ferrous metals. The licensing body is the Min-

istry of Economic Development and Trade of Ukraine;

Collection, primary operations with waste and scrap of

precious metals and stones, precious stones of organ-

igenic origin, semiprecious stones. The licensing body

is the State Assay Office of Ukraine.

Organization Brief description


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For use of subsoil it is necessary to obtain special permit.

Special permits are issued by SSGS (through auction with

some exceptions) after agreement of the land plot issue

(if required) with local councils. The issue to be noted is

that the owner of special permit cannot alienate his rightson subsoil use granted by the relevant special permit and

cannot contribute such right to authorized share capital.

There is an exception when the rights may be transferred

to the third parties simultaneously with transfer of rights

and obligations under PSA with mandatory reissuance of

respective special permit.

There are three main types of permits:

For the purposes of mining operations special per-

mits are granted for 20 years (30 years for gas and

oil within offshore sea and exclusive economic (sea)

zone). The term can be prolonged;

For the purposes of geological survey of mineral

deposits of state importance, for extraction of fresh

groundwater, development of peat deposits another

special permit is required. There are additional ap-

proval procedures with regard to these types of activi-ties (with Ministry of Ecology and Natural Resources

of Ukraine (hereinafter referred to as MENR), State

Committee of Ukraine for Supervision on Labor Safe-

ty, Ministry of Health of Ukraine). Special permits of

this type are granted for 5 years (10 years for gas and

oil subsoil). For some cases terms are 20 (30) years;

The third type of special permit is permit for some

mining and construction related operations. Such

permits may be granted for 20(50) years.

After obtaining special permit the company should start

mining within two years (180 day for gas and oil) other-

wise such permit will no longer be valid (this rule is not

applicable for PSA).

There are also special requirements for storage, recy-

cling, metallurgical processing of scrap (i.e. companies

which perform such activities should have qualified staff

and relevant equipment, ensure ecological safety, pos-

sess equipped land plot and to be compliant with other

requirements).

Controlling authorities

The central executive bodies in the sphere of metals and

mining are Ministry of Economic Development and Trade

of Ukraine and MENR. Other authorities involved in man-

agement of this field are: SSGS, State Assay Office of

Ukraine etc.

Special regulations

The main legislative act governing the industry is the

Code of Ukraine on Subsoil dated 27 July 1994. Addition-

ally, there is a significant number of other regulatory acts,

including those of the Cabinet of Ministers of Ukraine.

Taxation

Metals and mining enterprises as a general rule are

obliged to pay corporate income tax (hereinafter referredto as CIT), Value added tax (hereinafter referred to as

VAT).

The CIT is currently calculated at a flat rate of 19% until 31

December 2013 and 16% from 1 January 2014 onwards.

VAT is currently levied at a rate of 20% of the taxable value

of domestic supplies, imported goods and auxiliary ser-

vices. The VAT rate will be reduced to 17% from 1 January

2014.

Additionally to CIT and VAT enterprises of metals and min-

ing sector are taxable with special taxes/duties below:

Duty for subsoil use

Business entities using subsoil for the extraction of min-

eral resources (including extraction of mineral resources

during geological surveys), on the basis of abovemen-


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7. List of references:

tioned special permits, must pay subsoil usage duties.

For tax purposes, duty payers should maintain separate

(from other types of activities) financial and tax account-

ing of incomes and expenses for extraction of each type

of mineral resource for each type of subsoil, for which a

special permit is provided. The duty rate depends on thetype of resource extracted and the volume of mineral re-

sources extracted during a reporting period. For example,

use of land to perform oil and gas extraction is charged

at UAH 147.63 (app.EUR 13.8) per ton of oil and at UAH

42.05 (app. EUR 4) per 1000 cubic meters of gas.

Rent duty for extraction of oil, gas and gas conden-

sate in Ukraine

Rent duty rates for extraction of oil, gas and gas conden-

sate depend on the volumes of natural gas, oil and gas

condensate extracted in relation to the depth (i.e., above

or below 5,000 meters) of the subsoil plots, from which

these resources are mined. Rent duty for oil and natural

gas extraction is currently charged at UAH 2,141.86 (app.

200) per ton of oil and at UAH 237 (app. EUR 22) per 1000

cubic meters of gas for wells that are less than 5km deep;

and at UAH 792.54 (app. EUR 74) and UAH 118.5 (app.

EUR 11) for oil and gas respectively for wells that are more

than 5km deep.

Environmental tax

Environmental tax is levied on pollution of air and water

and relates specifically to a number of environmental

problems caused by shale gas and oil extraction technol-

ogy. The environmental tax is a complex and subjective

area of taxation that is linked to the type of pollution, stor-

age and waste. The tax depends largely on the method

of extraction and permit held by the PSA/Joint Venture

Agreements and is paid by legal entities engaged in shale

gas and oil extraction.

1) Billet production cost // Ukr Prom Zovnish Expertyza

2) Yearbook // State Statistics Service of Ukraine , Kyiv 2010 - ukrstat.gov.ua3) Global ranking // ISSB, - http://www.issb.co.uk

4) Statistics // The World Steel Association, - worldsteel.org

5) Market Statistics // OECD, - oecd.org

6) Market Statistics // UPE Co


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Industry overview


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Metals and Mining in Ukraine

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