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The launch of the gold mining industry in Ukraine: an investor’s point of view

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Global Mining Review,

Today in Ukraine, there is only one active gold-polymetallic deposit. It is located in the western Transcarpathian region near the border with Hungary. According to experts, there are 55 tonnes of gold and 1 million tonnes of zinc and lead in the Muzhievo deposit. The deposit is currently being developed by Avellana Gold, founded by U.S. citizen Brian Savage. Savage has worked in the mining industry since the early 1980s. He started working in mines during university, and after earning his master’s degree, financed gold mines in the western United States and later developed projects in Kazakhstan, Russia, and Africa. Brian has shared his experience working in Ukraine, the challenges the company faces, and the investment climate in the country.

Country choice for international investing

It is a mistake to assume that an investor chooses to invest in a country based solely on its geologic potential. There are a number of factors including the business and political climate, tax regime, license requirements, availability of information, and the geologic potential. All these factors combined give an understanding of where to invest.

One of the advantages of investing in Ukraine, especially in mining, is the novelty of the sector. Avellana Gold is among the first. Its Muzhievo mine is located in the Transcarpathian trend, a well-known geological area. The trend is very big and there are many deposits yet to be discovered. The Muzhievo mine, where the company has been working since 2016, is a historic one. Germans, Turks, and Hungarians all tried to recover precious metals there. There is a lot of information on the Muzhievo mine, including a few feasibility studies.

Ukraine is not a typical mining investment target. Major mining and other companies are watching what Avellana Gold are doing in order to understand the risks the company is facing and how it is working through difficult situations. It is in a good time in the mining cycle, prices are up. Gold is historically a safe haven investment prone to acting positively in times of uncertainty and market volatility. Metal prices are high so people are very interested in investing in the mining sector, especially gold. It is a good time to invest in the metal.

There are a lot of prospects in Ukraine. The company\s strategy has always been to get Muzhievo up and running and then look for other opportunities, be they other gold deposits, titanium, lithium, or other minerals.

The experience of working in Ukraine

People usually bypass a country where they perceive a lot of risk. Ukraine has a reputation of being corrupt, and as a result, is perceived as a country with a high degree of investment risk. The biggest risk in Ukraine is the courts, where there is still a lot of corruption, mostly at the local level.

Regardless, in the company’s opinion, it is a perfect time to be in Ukraine and to launch the polymetallic mining industry. It has very little competition and the location of the deposit in western Ukraine is favourable because it is far from the conflict in the East.

In 2019, the company finished the construction of a new gravity plant at the site and were attacked by corporate raiders. This type of risk was not expected, which was made possible by corrupt lower courts. Rather than acquiesce, the company fought them in the higher courts.

Albeit slowly, the situation in Ukraine is changing for the better. The company’s experience of fighting the corporate raiders is a proof that the process works. Avellana Gold worked with the Ukrainian government’s investment promotion office, UkraineInvest, the European Business Association, the US-Ukraine business council, the British-Ukrainian Chamber of Commerce and others. The company made it to the higher level of government officials to show them what the issue was; most of them recognised the issue and provided every possible assistance. Following this, the company worked its way up to the high court and won the case, using all the legal methods of solving this situation. This demonstrated that the country’s governing and judicial system is working.

The other issue has an ecological aspect. In the areas where the company started its activity, there were serious questions about the environmental damage caused by the previous companies that worked on the deposit before. They left several hundred thousand tonnes of ore and waste dumps containing metals with potential to pollute the ground water of the area. To overcome the historical environmental issue, Avellana Gold built a gravity plant at the Muzhievo deposit to process the dumps, cleaning them of heavy metals, and transforming them into clean clay and sand, which can be sold as construction materials.

Short-term and long-term plans

The company is currently reprocessing the historical drilling data, completed a 3D resource model, and is developing a life of mine plan that targets 1 million t of underground mining.

The first stage of the main project is the ecological sub-project. The company intends to clean the waste dumps left by the predecessors on the site as well as implement a reclamation area. The gravity plant has the capacity of processing 200 000 – 300 000 tpy of ore. The company’s processing plant will be used for the disposal of existing dumps as well as processing ore that will be extracted during the exploration and construction of new underground infrastructure.

After the ecological part is finished, the company will concentrate on restoring the Muzhievo mine and its underground workings. The processing plant will also be upgraded or replaced by a higher output plant.

Avellana Gold owns the mining license at the Muzhievo deposit and exploration licenses at the adjacent Beregovo deposit and the nearby Kvasovo prospect. Muzhievo is the most studied of the three, but the other two also have mining prospects, which will be explored in parallel.

The Muzhievo deposit is at the stage of initial production and has economic potential for processing 500 000 tpy of ore and producing lead and zinc concentrates. Over the next 3 – 5 years, the company want sto prove the resource base of the other deposits and increase production capacity up to 1 million tpy.

Ukrainian polymetals: prospects of mining industry

Ukraine is not known as a mining destination. Many countries have a longer history of mining, so they have a deeper pool of qualified technical people. There is no depth of technical expertise in Ukraine. Nevertheless, the extraction of minerals in Ukraine is supported at many levels of government.

Still, the country’s legislation contains many ambiguities and will need discussion. The lead and zinc concentrates the company plans to produce will have a certain gold content. There are no restrictions on the sale of the concentrates, but there are certain requirements for gold. The company must offer the gold to the National Bank of Ukraine at the market price, and the Bank decides whether it wants to buy and accumulate gold or not.

Despite these difficulties, Ukrainian deposits are of interest to other world players. The company witnessed the improvements in the investment climate. The court system is getting better. The influence of people of power does not seem as strong as it was in the past, which is good because that means that institutions and the government are becoming stronger. The courts are getting more independent and rule of law becomes more respected. Hopefully, the pressure to reform the courts is going to remain a priority and Ukraine will gain a fair judicial system. Investors will not invest where anyone can buy a court’s decision and take away their asset.

The country needs to attract smaller, so-called junior companies, who are willing to take the risk to explore and develop projects and pave the way for larger players. Ultimately, it is all about keeping up with reforms and becoming a mining friendly jurisdiction. A transparent business environment is the only condition needed for Ukraine to become one of the strongest European mining countries, as the great deposits are already there.

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