UMCC: "Titanic" struggle for future

As the flagship of the titanium industry, United Mining and Chemical Company (UMCC) is preparing for sale and a new life - this time transparent and efficient

The United Mining and Chemical Company (UMCC) is one of the world's largest producers of titanium raw materials. The company was formed in 2014 by combining the facilities of Vilnohirsk Mining and Metallurgical Plant in Dnipropetrovs'k region and Irshansk Mining and Processing Plant in Zhytomyr region. These plants were previously leased by entities from Dmitry Firtash's orbit. Then the state regained control of the enterprise and has been trying to privatize it since 2019, but so far without success.

Due to the lawsuits against Firtash, high-profile scandals surrounding management decisions, accusations of corruption and industrial ties with the aggressor state, investors are in no hurry to participate in the tender. However, they are interested in a promising asset. Today, the company has a new management team that promises to find a new effective owner under the close supervision of the state.

An Ukrinform correspondent studied how the search for investors continues and how the center of Ukraine's titanium industry operates in wartime during a trip to the Vilnohirsk Mining and Metallurgical Plant in Dnipropetrovs'k region.

"GOLDEN" UKRAINIAN SANDS THAT THE WHOLE WORLD NEEDS

Ukraine is one of the leaders in the extraction of titanium raw materials. The company's production capacity is more than half a million tonnes of raw materials per year. Before the full-scale war, United Mining and Chemical Company JSC sold its products to more than 30 countries and was one of the world's largest producers of titanium raw materials, holding 4% of the global market in terms of titanium ore production.

The company's open-pit mining sites, the ore sand quarries in Vilnohirsk and Irshava, are impressive in their scale.

The main minerals mined at the deposit, in particular in Vilnohirsk, are zircon, rutile, ilmenite, and associated minerals such as disten-silimanite and staurolite.

The plant's products are used in various fields. For example, rutile concentrate is used in the production of welding electrodes, zircon concentrate is used to produce refractories for the metallurgical, glass and foundry industries, glass and ceramics, and ilmenite concentrate is used to produce synthetic rutile, pigmented titanium dioxide, welding electrodes, sponge titanium, and metal titanium, which are in turn used in high-tech machine and aircraft construction.

The traditional consumers of the products of JSC United Mining and Chemical Company are refractory, foundry, ceramic, pigment, metallurgical and glass industries around the world.

All these products were mined, enriched and sold all over the world until the war broke out. After February 24, 2023, the plants in Vilnohirsk and Irshava had to cut production and save energy. According to the branch's employees, a power plant near the enrichment plant in Vilnohirsk was damaged, which caused VGMK to be disconnected from the power supply for a long time. As a result, the company did not operate for almost three months, and losses are estimated at hundreds of millions of UAH.

Today, the situation is radically different, as the branch is fully operational without any technological limitations. Work is ongoing at the quarry, and the composition of finished products speaks for itself. Two unique technological complexes with rotary excavators ERShR-1600 and KU-800, which carry out stripping operations on the ground, are particularly impressive.

According to Sergei Dukhanin, Chief Power Engineer of the Vilnohirsk branch, this winter in December and February, the plant was severely limited in power supply. "At the same time, the operation of critical infrastructure was ensured. At the end of January, the power supply improved, so the company applied to the relevant authorities to raise the energy consumption limit, to start production and output. The company is now operating at full capacity," he said.

At the same time, Andriy Kolesnyk, Chief Engineer of UMCC, said that the company's raw material processing capacity is currently about 5.5 million cubic meters per year.

According to Deputy Chairman of the Board Dimitri Kalandadze, despite the war, the company has every chance to be one of the best companies in the industry and oust Russia from the global titanium market. He is confident that the company will be ready for privatization in a year.

"The future of titanium in Ukraine is to move along the value chain in the production of pigment, slag and sponge, not just the production of raw materials. And the resource base of UMCC, which needs to be increased now, as well as strategic investments, plays a major role in this development," says Dimitri Kalandadze.

He is also supported by Yegor Perelygin, a member of the UMCC Board. "If we want to completely neutralize Russia's influence on the global critical materials market, we need to offer something more than just concentrates," he emphasized during a tour of the plant.

The management believes that it is the company's move beyond the raw materials business that will ensure the future for years to come, new jobs and economic stability.

"Not everything is perfect and we have certain logistical obstacles that cause delays in payments for products, but we have a clear goal - to build a solid foundation for the development of the titanium industry. We are confident that with the joint efforts of the State Property Fund of Ukraine (SPFU), MPs, international partners and business, we will be able to achieve this," Kalandadze summarized. (In February 2023, the SPFU planned to appoint him as the head of UMCC, but during the war, only Ukrainian citizens can head state-owned companies. Therefore, Kalandadze, who is a citizen of Georgia, has been serving as deputy chairman of the board since February 7. The foundation has not yet appointed a head of the company.)

FIRTASH, COURTS, CORRUPTION - WHAT HINDERS THE DEVELOPMENT OF THE UKRAINIAN "TITAN"

The negative factors that the company has to overcome on the way to its ambitious plans today are not so much the war as the consequences of oligarch Dmitry Firtash's Group DF business and the corruption that has tightly encircled its operations until recently.

For ten years since 2004, Firtash's structures have been leasing the property of the company's plants, selling their products to Crimean Titan (occupied since 2014) and Sumykhimprom. In 2014, the State Property Fund terminated the lease agreements with Group DF due to unacceptable payment levels by the tenant. The tenant paid less than UAH 100 million to the state with the company's revenue of UAH 1 billion. But getting rid of the destructive oligarchic and corrupt influence is not so easy.

For several years now, the state and Group DF have been in litigation over a special permit for the development of the Selyshchansky titanium ore deposit. It was expected to become the basis for the company's new production facilities and long-term uninterrupted operation. In 2021, the State Service of Geology and Subsoil revoked Group DF's special permit for the use of subsoil in this area and transferred it to the UMCC. However, Firtash believes that the revocation was illegal and is appealing the decision in court.

The state management of the company has not been particularly effective recently either. In early 2023, the State Property Fund scandalously dismissed the acting chairman of the board of the UMCC, Vladyslav Itkin. According to the SPFU, under Itkin's leadership, there were allegedly losses of products worth millions of dollars and questionable contracts with intermediaries. In particular, Nadra.info reported that in 2022, UMCC's receivables increased by more than UAH 200 million to almost UAH 1.7 billion. According to Forbes Ukraine, the company's financial performance deteriorated sharply in 2022: profits fell 30 times, and receivables increased by about 14%. NABU is currently conducting a criminal case against one of the former heads of UMCC, Artur Somov.

"A whole corrupt empire was centered around our company - around supplies and commercial activities. This has caused significant losses to the state as a whole and to our company. We are still feeling the consequences of this today," admits Yaroslava Maksymenko, First Deputy Chairman of the Board of the UMCC. She claims that an important success and victory of the new management is that corruption has been overcome.

"So now we are consciously, confidently and without fear of anyone saying: there is no corruption in our company. Corruption was hiding our value. Now, of course, we are in a difficult situation, like most Ukrainian companies, but we are on the way to development," Maksymenko said.

Indeed, journalists and the NABU have repeatedly exposed dubious schemes of selling titanium raw materials through shell companies and other abuses around the company's activities. At the same time, the State Property Fund has already unsuccessfully tried to sell the UMCC at a privatization auction three times. Although in July 2022, acting head of the SPFU Olga Batova stated that the UMCC remained the only attractive large object for sale even during martial law.

But what are the company's prospects today and will investors want to buy a ticket to war in the courts?

NEW AUCTION - NOW IN THE ELECTRONIC SYSTEM

This time, the State Property Fund is preparing to put UMCC up for auction through the electronic auction system Prozorro.Sale.

"I hope there will be an announcement about this auction next quarter. Preparations are underway to determine the starting price, which is determined by the privatization adviser, as well as to update the data of audit checks," said Vladyslav Danylishyn, director of the SPFU's Privatization Department.

UMCC is still discussing with the State Property Fund how to increase the resource base for the company, which it will have for at least another 40-50 years, in order to attract Western capital to the tender.

"We need investors to see the future and the company. In general, Ukraine needs to get rid of its reputation as a raw material state, we need to produce products with high added value, because we have the knowledge and production capabilities to do so," says Danylishyn.

However, a lot of money is needed to realize ambitious plans.

"A serious investor will not come just like that," emphasizes Andriy Brodsky, founder of the Association of Titanium Industry of Ukraine. According to him, we need incentives and guarantees to make international capital choose Ukraine. According to him, we can produce anything from titanium raw materials. "Everything rests on finance and time," Brodsky said in an interview with FreeDom.

So what can the Ukrainian titanium industry offer the world if it receives appropriate investments?

UMCC executives assure that the first step is to revive the production of titanium sponge. This will take tens of millions of dollars and several months. The next stage is the creation of new enterprises that will produce titanium metal based on the latest technologies that Ukraine is already developing, although this will take years and hundreds of millions of dollars. In the meantime, UMCC is negotiating the sale of products from the Irshansk Mining and Processing Plant to Western partners and plans to bring it to pre-war production levels by the end of 2023.

Halyna Tybin, Kyiv-Vilnohirsk-Kyiv

Photo by the author and from the UMCC archive