Ukraine hikes royalty rate for iron ore mining, keeps payment base unchanged

Ukraine’s parliament voted on Jan. 16 to raise the
rate for the mineral resource royalty for iron ore mining to 11-12% from 8%,
according to a draft bill dated Jan. 13 to update Ukraine’s tax code.

The 11% rate will apply if the monthly average of the
IODEX 58% Fe CFR China index is below USD 70/t. Otherwise, the 12% rate will
apply.

Importantly, in the final available version of the
bill the proposals from the earlier versions to change the base for the royalty
payment from raw (before enrichment) ore to the price of final products
(concentrate, pellets, sinter) was removed.

Dmytro Khoroshun: The previously planned change in the payment base
would have increased royalty payments much more than the royalty rate hike.
Therefore, the main positive outcome of the vote is that the risk of payment
base change is now eliminated.

We estimate that royalty payments for Metinvest and
Ferrexpo will increase from the current USD 2.5-3/t to USD 3.5-4.5/t.
Additional royalty payments will amount to USD 12-16 mln per year for Ferrexpo
and USD 25-35 mln per year for Metinvest (excluding Southern Iron Ore).

We maintain our neutral view on METINV bonds.