Thursday, November 24, 2005

Mining Opportunities May Abound in the New Kosovo

By Stephen Clayson
24 Nov 2005 at 02:48 PM EST

LONDON ( -- 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.


arianit said...

Wonderful article, editor!

Let me also add to the list that environmental regulations are almost nonexistent - a heaven for for mining.

I have a recommendation for UNMIK.
UNMIK cannot assure the investments because it is a temporary body and only backed by UN. If EU and US feel comfortable about the prospects, legal and otherwise, of Kosova, shouldn't they legally assure their investors instead of the "It will be fine" from UNMIK. This way Kosova's SOEs can command prices slightly higher than the present ridiculous bargains?!!
Just a thought...

Visit Prishtina said...

Last Friday, Ferronikeli was officially sold to IMR/Alferon yet no one wrote any comments about that. I personally think that with the exception of the final legal status of Kosova, the economy is by far more important than any other political issue. Thus, I would like to see more debates on topics like the sale of Ferronikeli.

It is my personal belief that the price for buying Ferronikeli, or for that matter, any other Special Spin-Off (I would like to emphasise here that I am only talking about Special Spin-Off, not regular Spin-Off) company is not that relevant. Yes, 20 per cent of that money goes to the workers who with their sweat and commitment built these companies and made them what they are today, but isn't it more important to bring the much needed foreign capital to Kosova.

A business is like drugs, once you get involved with it you get drowned. So, 30.5m Euros or so is way too little for owning Ferronikeli, however, when a foreign company pays that sort of money they will do anything to make it a success, and also will have more money to invest on it compared to a small(er) local/regional company.

We can carry on bickering like PDK people are doing, however in the next 12 months or so 1000 families will be obtaining their bread from a company that was in ruins since 1991 (more or less).

In Drenas, a serious amount of money will be injected into infrastructure (roads and railways) and this can only be good news.

Furthermore, another 100 small/medium businesses will be opened to supply Ferronikeli with water, food, uniforms, paper, pens, etc. A conservative estimate would be that at least another 250 people will be "employed" indirectly by Ferronikeli.

1000 workers is not a small number of people, so somehow these people will need to get to Drenas and back on a daily basis, so there will be more buses, maybe more train services, more taxis (or kombis) and so on.

Kosova Railways finally will start with serious cargo transport, and the Kosovar trade deficit will start going down (a bit!).

The most important point however is that when you get foreign companies entering Kosovar market, suddenly the countries where these companies are located will start protecting the interests of Kosova. For example, Britain will not want to see their company IMR/Alferon fail or be threatened by Serbia, so they will start pushing for Serbs to stay as far as possible from Ferronikeli.

The best way to build alliances is through trade, so if we can bring in some serious German, British, American, maybe French too, then when Serbia threatens Kosova it is also threatening these countries because they have their companies in Kosova.

This is why I personally believe that the second mobile phone operator in Kosova should go to an American company (IPKO + Cable & Wireless), or a company from a major country, and not a Slovenian company (Mobikos + Mobitel) because C&W can influence the American administration whereas Mobitel can not.

Anyways, I hope to see some Kosovars in the senior management of Ferronikeli, and let's hope this business venture becomes a major success!

Dardania 2006 said...

I fully agree with what you said.

As for the mobile operator, in that too you are right. A US mobile operator, German too would be nice (or even Japanese!!) but certainly I don't see any advantages to having a Slovenian or for that matter French operator.

Konaction said...

In the end, I believe something like Vodafone or t-mobile will buy whatever operator is in Kosova.

Alcatel sucks, so will mobikos.

Kosovar2006 said...

Yeah that means the call charges will drop too. Us living in diaspora spent more time talking to our love once.
Can i remind people living in Kosova what they are missing. WAP.GPRS.MMS,3G Call waiting, cheap call (16cent per minute give me a break)and loads more.
And that voice Vala 900 puts on Oh my god drives me mental.

Please T-mobile Vodafone, O2 and any of you big guys invest in Kosova business will be good believe you me