Focus: Mining

At the Baseline

At the Baseline

May. 14, 2013

In the last Iranian year, which ended on March 21, 2012, investment in the mining sector grew by 70% compared to the previous year, according to the Ministry of Industry, Mine and Trade. According to the ISNA News Agency, IR8.6 trillion, or approximately $8.12 billion, was invested in mining projects over the 12-month period as Iran continues to reap the benefits of its rich mineral reserves, which equal 2% of the world's total.

There are approximately 5,000 mines in operation in Iran, with 12 metals and 36 non-metal ores currently being exploited. In the last Iranian year, a total of 340 million tons of minerals were extracted, making Iran one of the leading mineral producers in the Middle East. Indeed, as one of the 15 most mineral-rich countries in the world, Iran enjoys export links with 159 countries, including Iraq, China, the UAE, India, and Afghanistan. Mining products represent over 30% of the country's non-oil exports, and the sector also employs 100,000 people directly and up to half a million indirectly.

Although 90% of the country's mines and related large industries are in state hands, the government has stated its intention to further develop the sector through private and foreign investment. Minerals targeted for investment include aluminum, copper, and iron ore. By the end of the current Five-Year Development Plan (FYDP), which began in 2010, the government expects to boost the mining sector's contribution to GDP to 1.2% as well as boost total mineral production to 500 million tons. With 12% of the Persian Gulf region's aluminum reserves, the implementation of development projects could boost production to 1.5 million tons by 2025 and turn Iran into one of the top 10 producers in the world. The private sector is also being mobilized to get the mining sector to work with modern equipment. As part of the FYDP, HEPCO is set to provide $800 million worth of machinery to the sector. “We are interested in providing this kind of machinery, and the government is solidly supporting the private sector to be able to achieve the stated targets," L. Saeedi, Member of the Board and Managing Director at HEPCO Group, told TBY.

IRON & STEEL

Iran is one of the top 10 global producers of iron ore, with output of over 35 million tons per year. Chadormalou in Yazd province and Gol Gohar in Kerman province are the two largest mines, with production of 5 million and 8 million tons of iron ore, respectively. Recent developments also saw the government reach an agreement with iron ore producers on excavation tariffs in June 2012. According to the deal, iron ore companies will now pay 2% of the price of a ton of steel billet for every ton of iron ore they sell. They will then be allowed to sell a percentage of their products at global prices. Prior to the agreement, a price cap for domestic sales was enforced at almost half the rate of global prices. On the back of the deal, $77.3 million worth of iron ore was exported during 2Q2012 and 3Q2012.

Steel has also felt the positive effects of investment, with the Iranian Mines and Mining Industries Development and Renovation Organization (IMIDRO), a major state-owned holding company, announcing that it had saved $750 million over the past five years through the implementation of indigenous technology projects in the steel, copper, and aluminum industries. A total of 228 projects have also been implemented in the steel industry and over 5,500 jobs created. The IMIDRO report also shows a growth in steel exports of 14% during the last Iranian year, with a value of $307 million.

BASE METALS

Developments in the country's base metals segment, including copper, aluminum, zinc, and lead, also continued over the last 12 months. Iran has the world's biggest zinc reserves, second largest copper reserves, and ninth largest iron reserves. The sector has, however, witnessed unstable activity on the Iranian Mercantile Exchange (IME) in recent months. At the end of 1H2012, dramatic drops in the global prices of base metals resulted in reduced demand for Iranian producers' products, and a drop in the domestic price of steel, copper, and aluminum. However, a weakening of the rial stirred concerns that a currency recovery could see prices skyrocket. In turn, the IME was engulfed in a flurry of activity that saw 30,000 tons of aluminum traded in June, which totals 10% of the country's entire yearly consumption of the base metal. The activity also resulted in the prices of copper, steel, and aluminum increasing by 5%, 3%, and 0.8%, respectively, according to Turquoise Partners. Hesitation remains, with the sector index dropping by 11.3% in the same month, yet the sector maintains its attractiveness to foreign investors from a profitability standpoint.

Approximately $188 million worth of aluminum products were exported in the first six months of the Iranian year, with the sector also benefiting from the savings wrought by the IMIDRO. The copper industry also shows steady growth, with over 200,000 tons produced annually. The largest copper producer is National Iranian Copper Industries Co. It is the third most traded company by value on the Tehran Stock Exchange (TSE) at $49 million in turnover, or 6% of the total, and has the second largest market cap at $5.6 billion. Moving forward, and as planned investments come online, copper production is anticipated to reach close to 450,000 tons.

Iran is also rich in zinc and lead, with over 220 million tons of proven reserves. Production remains below 200,000 tons for zinc and lead, with just under half exported.

GOLD

Iran boasts 320 tons of gold deposits and contributes 3% to the world's total production rate. The country now aims to reach five tons of gold production per year by the end of the current FYDP. This target looked more likely to become a reality in 2012 with the discovery of 16 tons of gold reserves in the eastern Kurdistan province. The mines were also poised to be transferred to the private sector in November 2012, in a move set to get the ball moving on production rates that currently stand at 2.5 million tons per year. Gold mines are currently operated in Sistan and Baluchestan, Khorasan Razavi, East Azerbaijan, West Azerbaijan, the Kurdistan region, Isfahan, and Markazi province.

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