A separate agreement will specify how the Reconstruction Fund under the mineral deal works, Ukraine’s Deputy Minister of Economy Oleksii Sobolev told reporters on Thursday.
Ukraine’s Agency on Support [of] Public-Private Partnership and the US International Development Finance Corporation (DFC) will establish the upcoming agreement.
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On Wednesday, the US and Ukraine signed the long-awaited mineral deal that outlines the scope of the investments, with the Reconstruction Fund being the body that will manage investments in Ukraine’s critical minerals.
The profits will be split 50/50 between the two nations.
The signed document establishes the existence of the fund that will be managed by a government agency on each side. The fund will also communicate with private investors on both sides.
“It’s a government-to-government document. It’s the starting point on establishing the fund. The other parts of the deal will be about the routine parts of the fund [work],” Ukraine’s Trade Representative and Deputy Economy Minister Taras Kachka said in reply to Kyiv Post’s question during a press briefing.
Stakeholders will receive and reinvest profits only from future operations and projects, not existing ones, according to the agreement.
“Ukraine will put 50% of the future rent profits from future licenses of future extractions into the fund,” Sobolev told reporters.
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‘Special vehicle’ to manage investments
The fund is created as a “special vehicle” to manage investments under the deal, Sobolev said.
Ukraine will issue licences to extract critical minerals listed in the deal and earn rent from the new companies extracting resources, then reinvest half of it into the fund.
The list of minerals available for investment and extraction includes:
aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium, cesium, chromium, cobalt, copper, dysprosium, erbium, europium, fluorine, fluorspar, gadolinium, gallium, germanium, gold, graphite, hafnium, holmium, indium, iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium, nickel, niobium, palladium, platinum, potassium, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, uranium, vanadium, ytterbium, yttrium, zinc, zirconium, oil, and natural gas.
If a private company receives a license in accordance with Ukrainian law, it can start developing the process needed for extraction.
If a company wants to raise capital for further development, the fund acts as a communication platform between all stakeholders. The company can do so via the fund and present its project using its platforms.
“If the fund decides ‘we want a 20% stake,’ and the parties agree, the company can gather capital. At the same time, the company is free to explore other options with other partners, on the conditions which are not materially worse than those presented to the fund,” Sobolev explained.
Thus, the fund will act like a portfolio manager.
Once the company raises capital via the fund, it can proceed with further development and pay the rent to Ukraine’s budget once the project is successful.
Ukraine will allocate 50% of these rents back to the fund, reinvesting into further development of the critical resources industry.
“This way, Ukraine can leverage the investments, creating a win-win situation for all sides,” Sobolev said.
On Wednesday, April 30, Ukraine and the US formalized a comprehensive agreement on mineral resources, granting investors access to dozens of critical raw materials while stipulating that future military aid will be counted towards the US contribution to the fund.
Kyiv Post explained all key parts of the deal in a separate article.
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