By Stephen Clayson
24 Nov 2005 at 02:48 PM EST
LONDON (ResourceInvestor.com) -- The uncertain political status of the Serbian province of Kosovo has left a variety of possibly interesting mineral assets in a state of suspension. Now however, the powers that be in Kosovo are organising the sale of these assets, and concurrently offering assurances on the long-term political stability of the province.
Following the NATO lead occupation of Kosovo in 1999, the province was established as a UN protectorate whilst technically remaining part of Serbia. Although no long term political settlement has yet been established between Serbia, Kosovo and the UN, the interim UN administration, the UN Mission in Kosovo (UNMIK), feels that a sound enough political basis has been established for province’s war ravaged economy to return to some sort of normality.
Part of the way in which UNMIK intends to engineer this is by privatising some of the province’s mineral resources, which are fairly extensive and range in stages of development from the pure green field to the developed but requiring restoration. The resources include bauxite, lead-zinc, nickel laterites, and a highly significant proportion of Europe’s lignite coal deposits. The latter might provide an opportunity for the construction of an associated power station with a ready market for its output.
The privatisation of mineral assets has already begun; last week saw a deal signed between UNMIK and a company called International Mineral Resources for the purchase by the latter of Ferronikeli, a complex in Kosovo of nickel mining, processing and smelting facilities. International Mineral Resources is a subsidiary of Eurasian Mineral Resources, a sizable private mining and metals firm. The Ferronikeli assets are expected to be sold for 30.5 million euros, which given the strength of today’s nickel market could prove a bargain if they can be expeditiously and economically returned to production by their new owners.
The mineral assets intended for privatisation in Kosovo have been deemed socially owned and are held by in trusteeship UNMIK, thus giving it authority to privatise them. Privatisations may be special or regular, the difference being that special assets may have conditions or obligations attached to their sale. According to Dr Joachim Ruecker, Deputy Special Representative of the Secretary-General United Nations in Kosovo, some mining assets are likely to be classed as special privatisations. However, the conditions imposed by UNMIK are not intended to be too onerous, and may be limited to stipulations such as undertaking a certain amount of mineral processing work within Kosovo or employing a certain number of local staff.
A key issue for those considering the purchase of assets being privatised in Kosovo has to be future security of title. On this issue Ruecker offers the assurances of UNMIK that there are likely to be few instances of ongoing title disputes, and that even if this were to be the case, physical restitution to plaintiffs would not be a legal option.
A further pivotal question for investors will be that of when an ostensibly permanent political settlement can be reached, both to resolve Kosovo’s international status and the ethnic tensions within the province. This will probably be in large part determined by the UN Security Council, and could happen as early as 2007. Whatever settlement is reached however, foreign troops are likely to remain in the province to maintain order for some time afterwards.
Kosovo has a number of points somewhat in its favour as a new mining location. It is located on the edge of Europe - entail logistical benefits for exports and imports. The official currency of the province is and is likely to remain the euro, lessening the currency risk to any operation. Labour costs in the province are low, being estimated on average at around 200 euros per month, while levels of education remain fairly high and labour relations are reportedly generally cordial. Most crucially, Kosovo’s new economy is being conceived as free market in its orientation.
Kosovo’s physical infrastructure undoubtedly requires repair and improvement, but this is being undertaken by the administration, and standards in any case remain higher than in many comparable extra-European mining locations. Access to sea cargo facilities in neighbouring Albania and Montenegro is practicable, and a railway running south from Kosovo to Thessaloníki in Greece could feasibly be employed if the necessary line improvements can be made within the province.
In the final analysis, although political risks remain somewhat high in the longer term for mining investors in Kosovo, the acquisition of assets in the province now might represent good value when global market conditions and local economic and geological factors are taken into account.