CONSIDERING THE FACTORS

Turkey 2013 | ENERGY & MINING | INTERVIEW

TBY talks to Han İlhan, Country Manager of Alamos Gold, on the country's most important mines, the favorable investment outlook for Turkey, and the company's corporate social responsibility plans.

Han İlhan
BIOGRAPHY
As Country Manager, Han İlhan is based in Ankara to oversee the development of Alamos Gold’s mining investments in Turkey. Prior to joining Alamos Gold, he had been with URS for 28 years, leading the global mining practice in the area of engineering, environment, and construction. He has been providing strategic and tactical planning for investments in various parts of the world for mining, as well as business risk assessment, management, and mitigation strategies. He has project experience in many countries around the world including the US, Peru, Venezuela, Brazil, Suriname, French Guyana, Chile, Honduras, Mexico, Switzerland, the UK, Turkey, India, Australia, New Zealand, South Africa, and Libya.

What is the significance of Turkey for Alamos Gold?

Our expansion into Turkey in 2010 has been a significant step toward becoming a 500,000-ounce gold producer. Alamos Gold, through our wholly owned subsidiary of Kuzey Biga Madencilik in Turkey, is currently planning the construction and operation of two mines in the Çanakkale region. One of the planned mines referred to as the Kirazlı Gold Mine is located near the village of Kirazlı, and our second mine is Ağı Dağı, located near the village of Kızılelma. The nearest town is Can, about 20 kilometers from Ağı Dağı Gold Mine. The Kirazlı and Ağı Dağı Gold Mines will be located about 35 kilometers and 55 kilometers from Canakkale-Center, respectively. Based on the prefeasibility studies completed in June 2012, Alamos Gold has decided to proceed with the investment plans associated with the Kirazlı and Ağı Dağı Gold Mines, which are estimated to contain 1.5 million ounces of gold and about 5 million ounces of silver. The associated initial investment (CAPEX) is estimated to be approximately $424 million. We plan to maintain our brand name as one of the leading low cost producers throughout the currently planned mine life of about 10 years. With the addition of further reserves from our third property next to Ağı Dağı referred to as Camyurt, as well as the on-going drilling activities at Kirazlı and Ağı Dağı properties, a mine life of 15 years with higher gold and silver reserves will not be surprising.

How would you characterize the opportunities for foreign investors entering Turkey?

Turkey offers significant differentiators in the global and competitive investment environment. The top five positive differentiators are: a very stable political environment, vast human capital, a stable economy, a mature construction industry, and a solid banking system. Furthermore, the Turkish government in 2012 has established investment incentives that extend to foreign investors as well as to Turkish investors. The recent changes in the trade laws and regulations provide for the same benefits for foreign investors and Turkish firms. Within the sensitive geopolitical region, Turkey has demonstrated a very stable political report card during the last decade. This is an important factor for any foreign investor from a political risk point of view. In contrast to regions where human capital is lacking and/or not well developed, Turkey offers a very dynamic and young population where 50% are below the age of 30. The value of this human capital is further advanced with training and education through many local universities. Controlling capital cost escalations during the construction phase of the investment is one of the major concerns of the mining industry. Turkey's very mature construction industry, which is second to China, marginalizes one of the key risks for a mining investor. A stable economy is also a prerequisite in the search for risk-averse regions by an investor. Turkey's economy has weathered the global economic crisis with a “battle-tested," solid banking system. It is no wonder that there is great deal of excitement in the Turkish business environment associated with the goal of becoming the 10th largest economy by 2023. In order to assist in achieving this economic goal, the investment incentives that have been established in 2012 deserve a deeper analysis to recognize Turkey's positive place in the global competitive environment. I would also encourage potential foreign investors to look beyond the borders of Turkey to fully recognize the unique geopolitical potential of the country in the region, which encompasses the Middle East, Africa, and the Turkic republics.

What should Turkey do to promote itself more aggressively to international investors?

Turkey has significant differentiators within the global competitive investment environment. However, it is essential that these positive factors are more than regularly communicated to the investment communities, as well as target industry sectors such as mining. The government ministries and special agencies, such as the Investment Support and Promotion Agency (İSPAT) are doing a fantastic job in promoting Turkey in the international markets. I would suggest one of the target groups to be the financial communities associated with mining as well. It is important for the financial analysts that follow and invest in mining companies to be fully informed about the positive investment factors associated with Turkey, so that the perceived investment risks are be more aligned with reality. I also believe that foreign companies that have already invested in Turkey should spread the word as well. However, in addition to active promotion of Turkey in the financial markets, it is also essential to demonstrate success. Do not forget; success attracts success.

What challenge does resource nationalism present for international mining companies in Turkey?

Resource nationalism is a significant deterrent for foreign investors in the natural resource sector. However, Turkey is also showing a positive differentiator in this area by actively promoting FDI in the natural resource sectors such as mining, oil, and conventional and unconventional gas. Particularly mining is a risky investment, and it also is capital intensive. As the Istanbul Stock Exchange is expanded as planned, Turkey could become an alternate center for raising capital and investment in the natural resource sector. It is important to recognize that the national benefit from extractive industries is through royalties and taxes. Along the path to attract FDI, countries find themselves in the global competitive environment where these two financial factors play a key role in investment decisions. Therefore, in order to gain an advantage in this competitive investment environment, Turkey has developed investment incentives.

How does Turkey rank among other mining investment destinations around the world?

The Fraser Institute interviews close to 2,000 mining executives about their investments around the world, and then based on that questionnaire they ranked countries from an investment point of view. Turkey continuously climbs the ladder. In 2011–2012, we were 60th among 93 countries. Currently, we are 53rd among 96 jurisdictions, so our position has gone up slightly. What is more important to me is that Turkey is ranked as a more favorable investment location compared to the BRIC countries of, Brazil, Russia, India, and China. Overall, I believe that Turkey's position in 2012 is a remarkable achievement, which will increase as the industry becomes more familiar with Turkey's differentiators.

How does Kuzey Biga Madencilik incorporate social responsibility into its mining projects in Turkey?

Obtaining a Social License to Operate (SLO) has always been an extremely important component of our investment plans. We strongly believe that our principles must align with the values of the local communities. In order to achieve this alignment, we have conducted a comprehensive analysis of the 30 villages in the vicinity of our planned mines to fully understand their needs, challenges, fears of today, and dreams for the future. Developing social responsibility projects prior to an in-depth understanding of the communities needs for today and tomorrow could be off target. Additionally, our facility design will use advanced and proven technologies to protect the environment that is important for the livelihood of the communities. Furthermore, we will be constructing a reservoir that will provide clean drinking water to 30 villages as a part of our planned projects.