17:52 21.11.2023


Can Ukraine become a sweet spot on the global mining market?

7 min read
Can Ukraine become a sweet spot on the global mining market?

Andrii Gorokhov, CEO of private equity umgi


The extraction of minerals in Ukrainian deposits has always been perhaps the most profitable sector of the domestic economy. And even now, in the conditions of war, Ukraine’s mining industry is actively developing thanks to the support of businesses and communities. On the other hand, the strategy of protection and steady growth of the industry at the legislative level is in development. So it is quite natural that international investors show interest in this sector even today.

umgi has been investing in the sector for over 17 years. Comparing our practical experience of developing mining companies in 5 countries of the world, I would like to highlight the main advantages of setting up a mining business in Ukraine.


On the importance of communication

To begin with, Ukraine has considerable potential in the extraction and processing of strategic and critical minerals, but achieving success would require our country to become more visible on the global market. The largest players of the international market are indeed guided by reputable analytical sources in their decision-making. For example, these include an annual survey of mining companies by the Fraser Institute, a Canadian think tank. The research presents a general index of the attractiveness of a country, which is based on the assessment of mineral potential and the perception of state or local policies by companies in the extractive sector. The downside, however, is that Ukraine is not included in this study at all. That is, we realise that one of the primary tasks for the promotion of Ukraine on the world stage is spreading the word about the high potential of our industry. International investors should see why it is profitable for them to invest in the Ukrainian mining industry instead of choosing some other country.

In general, according to McKinsey & Company, the above annual survey tracks 15 drivers of the extractive industry, which can be roughly divided into 4 priority groups:

  1. Access to geological resources/data (data quality, openness, maps, etc.);
  2. Comparison of business expenses for capital investments and operational activities;
  3. State policies (taxation and tariffs);
  4. Access to experts in the mining sector (availability of skilled workforce).

There is a sweet spot determined based on the best combination of these drivers, i.e. the so-called group of countries with a high level of mineral resources and government policies favourable to the development of the industry. The countries of this group include the US, Canada, Chile, Australia, Finland, and Morocco. And there are no obstacles for Ukraine to be on this list soon: we have more than enough objective advantages.

So, why Ukraine?

Given that our company researches mineral investment markets in all corners of the world every year, I can confidently say that Ukraine has great indicators in many of the above parameters. Firstly, we have high-quality mining resources. Secondly, favourable economic factors play a prominent part, including the resource location (i.e. transport costs, ease of export) and price forecast for target minerals and technologies (mineral extraction challenges). Taxes are only one indicator, and perhaps a less important one given the location-specific nature of mining investment. Comparatively, for example, the relatively low cost of land (one of the largest investment costs) and labour (one of the most important operating costs) are of key importance in making investment decisions.

I will dwell in more detail on these and other competitive advantages of Ukraine.

Let me stress that almost all geological information is digitised and public. This means that industry experts are constantly updating the details of research into areas rich in mineral deposits. However, data related to critical minerals that are labelled “For official use” are still restricted. For our part, we support the disclosure of this information to all investors.


The next advantage is that, unlike many other countries, Ukraine keeps inventory records. Therefore, during mining processes, information is available about the extent to which the deposits are depleted. We also have maps of ownership of land plots and ecological zones. And this is really a very effective toolkit for further work to analyse investment projects.

Among the economic factors, we should highlight the cost of labour, which is lower in Ukrainian mining compared to the countries of Central and Eastern Europe by 55–65%. The level of taxes in Ukraine also plays an important role in making investment decisions. If we compare the cost of energy resources, they are also cheaper in Ukraine than in some other neighbouring European countries, and this also gives us an advantage. This is primarily due to excise taxes, as they are lower for energy resources compared to other countries. Here we can also add the cost of land — here, too, Ukraine is highly competitive among other countries for international investors. For instance, in Ukraine, the average cost of land where you can extract minerals is about $3,000. At the same time, the average cost of land in Poland is up to $40,000. Paradoxically, in India, this indicator reaches $60,000. Naturally, there are some cases where certain owners want to get much more. This is normal, because it is a market and every owner is entitled to their own expectations.

One of the criteria used to evaluate the prospects of mining projects in a particular country is the availability of land. And here Ukraine also has an indisputable advantage because of its mechanism for the forced redemption of land plots for public needs. This allows to somewhat align the demands and individual expectations of the owners. It is possible to get a fair price in court because there is a regulatory assessment procedure. The so-called availability of land opens up opportunities for the extraction of any and all minerals, whereas in most other countries, the list of such minerals is limited and clearly defined, or the forced redemption of land plots is prohibited altogether.

What will help Ukraine join the sweet spot group?

According to McKinsey & Company, in order to be desirable for investments in the extractive industry, countries can use various incentives to attract exploration companies. The primary incentives include:

- Money or subsidies (direct financing);

- Foregone revenue: indirect state aid where the state neither allocates funding nor assigns certain taxes;

- Favourable permit and supervision procedures, availability of high-quality public data.

Another rather interesting and relevant issue, which is closely scrutinised today due to its importance for investors, is the possibility of establishing the rule of law. This is what Argentina did years ago: they established a legal framework to allow investors to sue businesses, local authorities and even the state in other jurisdictions.

Obviously, we realise that there are considerable risks associated with the subsoil use, and therefore investments in mining, in Ukraine. This is not only about financing, taking into account military risks. There are also geopolitical, regulatory and workforce (availability and level of expertise) considerations; fluctuations in market prices, etc. However, a considerable list of risks does not mean that doing business here is inadvisable. It just highlights what we have to work with. Some things can be mitigated, others cannot be helped, and certain tasks require the support of the state. Furthermore, now our Government and the Parliament are implementing many positive changes that should make life easier for subsoil users.

Thus, as we can see in general, Ukraine has very good indicators from the perspective of the investment climate across many parameters. Even when it comes to critical materials, investors see profitable prospects even today. Because any development begins with a new demand. And then comes the strategy together with the vision, followed by large investments and great competition on the world stage.