Ukraine Mining Report 2013 - New Report Available

Ukraine's mining industry continues to muddle through a protracted process of restructuring, which in 2012 led it to simultaneously sign major deals with China on revamping coal mines and cooperate with the EU on shutting down its non-productive mines. Although the lack of political resolve and consensus continues to hamper privatisation plans for the country's state-owned mines, progress is being made on the sell-off. In contrast to a steady economic growth outlook in Ukraine over the coming years, we forecast on a moderate average growth rate of 1.2% in the value of the mining industry, reaching US$9.4bn in 2017, from US$8.9bn in 2012.

We hold a moderately bullish outlook on Ukraine's mining industry, and expect coal growth to be the main driver of the mining industry. Despite the government's plans to privatise all state-run mines will be privatised by the end of 2012, such an undertaking has not yet been completed. The EU-backed Coal Sector Policy Support Programme concluded that Ukraine should shut down 29 of its non-productive coal mines by 2016. In any case, the mine closures - expected to take 15-24 months for an individual mine - will carry a direct cost of around UAH4bn (US$495.07mn).

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Meanwhile, we believe that a coal agreement signed between Ukraine and China in 2012 will not have a significant impact on Ukrainian coal production in the short term. Looking ahead, however, we believe the agreement could go some way in enabling Ukraine to become completely self-sufficient in coal and bring an end to the country's dependence on imports to satisfy most of its petroleum and natural gas demand.

Collaboration between Ukraine and China on the renovation and modernisation of coal mines kicked off in 2011, when the US$1bn programme's first project began. Ukraine's Lysychanskvuhillya signed an agreement with research and engineering firm Tyandi for the upgrade of the Melnikov coal mine as a pilot project of the programme. The US$1bn in investment from China is also partly expected to be used for the construction of new mines in Ukraine.

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