In the snow-covered fields of central Ukraine, a small team of ecological consultants is busy conducting environmental surveys on one of the country's largest lithium deposits. This environmental assessment, commissioned by UkrLithiumMining, a Ukrainian mining company, marks a significant step ahead of potential mining operations slated for the future. The survey highlights the extensive groundwork needed before a proposed minerals deal between Ukraine and the United States could yield substantial revenue for both parties.
Recently, U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskiy met in Washington to discuss the minerals deal, but the encounter ended in a heated exchange that left the agreement unsigned. Trump suggested that the deal could serve as a means for the U.S. to recuperate some of the financial aid and military support provided to Ukraine amid its conflict with Russia. However, the tense atmosphere during their meeting has cast uncertainty over the future of the agreement.
According to Denys Alyoshin, the chief strategy officer of UkrLithiumMining, the agreement is essential for bolstering U.S. support, which could reduce Ukraine's vulnerability to Russian aggression in the long run. Nevertheless, Alyoshin emphasized that developing the Polokhivske lithium deposit, one of the largest in Europe, would be challenging without a form of Western security guarantee. The deposit is located just 240 km (149 miles) from the ongoing conflict with Russia, making it a risky investment for potential stakeholders.
Before the war, Alyoshin engaged in numerous commercial negotiations with interested investors. However, the onset of conflict has deterred many from investing in a war-torn country. "A rational CEO would not go to a country where there is a war; they would look to invest in more stable regions like Zimbabwe or Canada," he stated.
Despite repeated appeals from Zelenskiy, the Trump administration has yet to offer Ukraine any security guarantee, leading to skepticism about the commercial viability of developing the country’s rare mineral resources. Even if a ceasefire is reached, the risks associated with a potential return to conflict could deter investors. A draft of the minerals deal reveals reassuring language but lacks concrete security guarantees, focusing instead on establishing a joint U.S.-Ukraine managed Reconstruction Investment Fund.
UkrLithiumMining needs to secure around $350 million for development and will require at least 1.5 years to complete a feasibility study before construction of a mine and enrichment plant can commence. Alyoshin predicts that steady production might only begin by 2029. However, industry analysts believe this timeline may be overly optimistic, as exploration periods typically extend up to four years, with an additional year needed for feasibility studies.
Federico Gay, an analyst at Benchmark Mineral Intelligence, notes that the majority of Ukraine's lithium deposits were identified during the Soviet era, and there has been a lack of recent exploration. According to Gay, developing the Polokhivske deposit could take a minimum of eight years, with an estimated cost of $800 million for mine construction and additional investments required for lithium compound production.
The demand for lithium, essential for electric vehicle batteries, is on the rise. However, transitioning Ukraine's rich deposits of lithium and rare earth minerals into operational mines and processing facilities presents a significant challenge. Ukraine's economy ministry and the prime minister's office did not immediately respond to inquiries regarding the current state of the mineral deposits.
While Ukraine has not been a producer of rare earths, it is believed to have substantial deposits of minerals like lanthanum, cerium, neodymium, and yttrium, though detailed data about these reserves remains classified. Investors may hesitate to engage in deals that involve the U.S. receiving mined minerals in exchange for security assurances.
The U.S. faces stiff competition in the lithium market, particularly from China, which is already the world’s third-largest lithium producer and dominates rare earth element production. The U.S. Geological Survey estimates that while the U.S. produced 45,000 metric tons of rare earth concentrates last year, China mined a staggering 270,000 metric tons, accounting for 69% of global production.
Dominic Raab, head of global affairs at Appian Capital Advisory, considers the U.S.-Ukraine minerals deal a positive development for funding Ukraine's reconstruction. He indicates that further negotiations and due diligence are required to clarify the specifics of the agreement. Appian Capital would be interested in investing in Ukraine's mineral projects if more geological information becomes available.
Ukraine has significant deposits of 22 minerals classified as critical by the U.S. government, including lithium, graphite, and titanium. However, experts caution that robust electricity infrastructure is needed for mining operations, which poses a challenge given the current state of Ukraine's infrastructure following ongoing conflicts.
In conclusion, while Ukraine's mineral wealth presents a promising opportunity for economic development and investment, the path forward is fraught with logistical, political, and security challenges that must be addressed for successful mining operations to commence.
