Financial and Operational Performance Analysis of ME "Volynpryrodresurs" (VPR) for the First Half of 2023

Financial and Economic Performance Indicators of ME "Volynpryrodresurs"

The Municipal Enterprise "Volynpryrodresurs" of the Volyn Regional Council operates to contribute to the Volyn Regional Budget and pays taxes to the state budget. ME "Volynpryrodresurs" is expanding its capacities.

The successful start to 2023 reflects the favorable conditions created for the enterprise's development through collaboration with local authorities and communities, as well as systematic efforts within the "government–business–public" triangle.

^{Comparison of Revenue and Profit: Indicators for the First Half of 2022 and the First Half of 2023}

^{Comparison of Financial and Economic Performance Indicators}

In 2023, ME "Volynpryrodresurs" continued its successful extraction of amber and peat. Accordingly, the financial and economic performance indicators are provided below, including those related to the implementation of the joint activity agreement with LLC "Mineral Extraction" and the agreement with the State Enterprise "Volyntorff."

^{The following data compares the performance for the first half of 2023, the first half of 2022, and the full year of 2022 under the joint activity agreement with LLC "Mineral Extraction" and the agreement with the State Enterprise "Volyntorff"}

Based on the results described above, which highlight increases in key indicators, the efficiency of utilizing every hryvnia invested in core production processes is evident.

Amber Extraction and Revenue from Sales

ME "Volynpryrodresurs" holds four special permits (Nos. 6172, 6173, 6174, and 6175) for subsoil use for the purpose of amber extraction. Modernization, the implementation of initiatives to enhance efficiency, and the search for high-quality solutions to challenges are ongoing daily and hourly processes that yield positive results. Under the joint activity agreement with LLC "Nadrovidobuvannya," the Municipal Enterprise "Volynpryrodresurs" extracted 7,677.713 kg of amber of various fractions and quality groups in the first half of 2023, selling 8,410.627 kg for a total of 60.187 million UAH.

Amber sales are conducted based on prices approved by the classifier of the State Gemological Center of the Ministry of Finance of Ukraine. According to gemologists' assessments, Volyn amber is of high quality.

Comparing the indicators and results for the first half of 2022 with the corresponding period in 2023 reveals significant growth. When examining the full-year results for 2022 alongside the first half of 2023, a positive dynamic is apparent, indicating the enterprise's active development, the application of new technologies in extraction processes, and the establishment of methods for recovering fine-fraction amber, which requires the use of fine sieves during extraction and a complex sorting system for the fine fraction. Together, these measures have enabled an increase in overall extraction volumes.

^{Peat Costs for the First Half of 2023 and Peat Extraction}

While the enterprise operates successfully, supplying Volyn residents—particularly territorial communities—with peat briquettes, stable and fair wages, and social guarantees, the leadership of the Soshychne Territorial Community regularly ignores all requests from ME "Volynpryrodresurs" to approve the allocation of a land plot under the deposit for permanent use. This allocation could provide a raw material base for producing a larger quantity of peat briquettes, which are critically needed in Ukraine as an alternative fuel to ensure energy independence and create additional jobs for residents.

The 2.865 million tonnes of peat reserves that could benefit the Volyn region and the community budget cannot currently be extracted. The "Stobykhivske" peat deposit, located far from settlements and holding the largest reserves, is situated on lands of the Soshychne Territorial Community and is not being exploited. Moreover, in violation of the Land Code, land plots under the deposit—allocated to ME "Volynpryrodresurs" based on special permit No. 6179 for subsoil use for peat extraction—are being subdivided and leased through auctions, despite the law stipulating that lands containing deposits must be used exclusively for subsoil activities, with license boundaries marked as restrictions on cadastral maps. According to Part 2 of Article 134 of the Land Code of Ukraine, state or communal land plots intended for subsoil use or special water use under obtained permits are not subject to sale or competitive allocation (land auctions).

Peat Extraction and Revenue from Sales

Given the shortage of energy resources resulting from the occupation of significant parts of the country where coal reserves are concentrated, the feasibility of peat extraction is evident. As of 2023, Ukraine has maintained a ban on the export of gas and energy coal to safeguard national interests, highlighting the need to increase peat production.

The peat resources of Volyn lands represent a step toward energy independence, potentially breaking Ukraine's dependence on the "gas needle" imposed by russia.

ME "Volynpryrodresurs" holds four special permits (Nos. 6176, 6177, 6178, and 6179) for subsoil use for the extraction of peat suitable for briquette production and compost preparation.

In particular, the enterprise can extract peat from the following deposits: "Stobykhivske" in the Kamian-Kashyrskyi District (total area 1,769.9 hectares), "Velyke Boloto" in the Kamian-Kashyrskyi District (total area 3,154 hectares), "Velyke Bahno" in the Lutsk District (total area 885.4 hectares), and "Koza-Berezyna" in the Kamian-Kashyrskyi District (total area 554.7 hectares).

Peat extraction, which began in 2022 and continued in 2023 at the "Koza-Berezyna" deposit located on lands of the Prylisne Territorial Community, serves as the raw material base for the peat briquette plant of the State Enterprise "Volyntorff" in Soyne. In 2023, extraction also continued at the "Velyke Bahno" deposit in the Kolky community, with peat supplied for processing to the Manevychi peat briquette plant, a branch of the State Enterprise "Volyntorff."

Extraction of Complex Copper Ores

ME "Volynpryrodresurs" holds special permit No. 6189 for subsoil use for the extraction of complex copper ores, but this activity is not currently underway. Metallic minerals in the region are represented by a deposit of complex copper ores, and the enterprise has a special permit for the industrial development of the copper ore occurrence at the "Zhyrychi" site, located in the Ratne Territorial Community of the Kovel District, covering a total area of 31.4 km².

Currently, the "Zhyrychi" deposit, situated 5 km from the Ukrainian-Belarusian border demarcation line, has been fortified with defensive structures and fully mined, making any preparatory or extraction activities impossible. Demining of border territories, additionally conducted due to military aggression and the introduction of martial law per decisions of the National Security and Defense Council and the Cabinet of Ministers of Ukraine, will not commence until at least two years after the end of martial law. Consequently, the development of the "Zhyrychi" deposit is delayed and postponed to the future.

Therefore, territories with the theoretical potential for extracting ore essential to Ukraine cannot currently be used for peaceful purposes. Deposit development requires substantial investments and partner recruitment, which is not feasible during martial law.

Mining-Technical and Biological Reclamation

Prior to extraction, ME "Volynpryrodresurs" conducts comprehensive geological exploration: geological-economic assessment of the site, preparation of detailed geological-resource maps, and evaluation of amber and peat reserves.

Mining-technical and biological reclamation are essential for worked-out territories. Upon completion of extraction, ME "Volynpryrodresurs" restores the site to its natural state: the quarry area is backfilled with overburden and the fertile layer is returned, into which seedlings are planted.

The first legal amber extraction in Volyn was carried out by ME "Volynpryrodresurs." The site developed by the enterprise is located in the Vovchetske Forestry, where illegal extraction had previously destroyed part of the forest and disturbed the topsoil layers by "black" amber miners. Despite potential unprofitability, the enterprise demonstrated how to extract the "sun stone" properly and without environmental harm. 1.7 tonnes of amber were extracted from the lower layer, which illegal miners had not reached.

fter mining-technical reclamation and transfer of the site for biological reclamation (planting forest seedlings and one year of subsequent forest care) to the Manevychi Forestry—with which the enterprise has a contract—110,894.74 UAH was paid according to the forestry's estimates. The first reclaimed site was transferred to the Manevychi State Forestry Enterprise in 2020.

A memorandum and agreement have been signed with the Department of Ecology and Environmental Protection at Lesya Ukrainka Volyn National University to conduct monitoring within the scope of special permits for subsoil use.

Environmental monitoring encompasses the organization of joint initiatives and fosters collaboration in practical, scientific, and educational projects. This includes conducting monitoring activities to assess amber and peat deposit sites, evaluating the impact of extraction on flora and fauna, reviewing scientific publications on the biodiversity of the surveyed areas, and identifying plant and animal species and habitats listed in Ukraine’s Red Book or protected under the Bern Convention.

Dividends Paid to the Volyn Regional Council

For the first half of 2023, based on quarterly financial and economic performance, 2,319,659.00 UAH was paid to the general fund of the Volyn Regional Budget from a 15% share of net profit. In comparison, for the first half of 2022, 624,297.00 UAH was paid from a 15% share of net profit, indicating significantly higher extraction performance at the start of 2023.

Development Plans for ME "Volynpryrodresurs" in 2024

Due to the ongoing military aggression of the Russian Federation against Ukraine, the imposition of martial law, and the inability to predict expected revenues for the second half of 2023—owing to factors such as fuel costs and availability, uninterrupted operation of the power grid amidst attacks, the availability of forest-cleared areas for operations, the ability to export extracted raw materials, and other variables—the Municipal Enterprise "Volynpryrodresurs" provides projections for 2024 revenue at the level of the first half of 2023.

In the first half of 2023, ME "Volynpryrodresurs" exceeded its plan for the year and improved its financial performance indicators.

Long-Term Development Plans for ME "Volynpryrodresurs"

The long-term plans of ME "Volynpryrodresurs" focus on adopting cutting-edge technologies in extraction to enhance process intensity and achieve high productivity levels.

Following the cessation of martial law, the enterprise intends to resume efforts to attract potential investors for the development of the "Zhyrychi" copper ore deposit. This would enable the use of advanced technologies for mine construction, ore enrichment, and extraction, as well as securing significant financial resources. A priority for the enterprise is to proceed with its transformation into a joint-stock company, as this management structure is more attractive to investors, in line with the Volyn Regional Council’s Resolution No. 11/3 dated December 24, 2021, "On Certain Issues of ME ‘Volynpryrodresurs’ Activities." This process is currently on hold. The transformation will facilitate the attraction of additional funds for production needs and deposit development while maintaining 100% ownership by the Volyn Regional Council.