THE NEED TO DIG

Turkey 2013 | ENERGY & MINING | REVIEW: MINING

Despite not having pulled in global mining giants, a new commercial law is going a long way to attract foreign firms into a sector that is beginning to flourish.

The mining sector represents 1.49% of GDP, and grew 10.3% in 2012 on the back of 21.5% growth in 2011. Exports also display a similar growth trend, rising 8% in 2012 with goods worth $4.3 billion shipped abroad. Growth continued in 1Q2013, reaching $1.17 billion in value, up 40.23% on the same period in the previous year, according to the Istanbul Minerals and Metals Exporters' Associations (IMMIB). However, over 2Q2013, Turkish Statistics Institute (TurkStat) recorded a 6% drop in mining activity in year-on-year terms, which may have a knock-on effect for the full-year figure. As part of Turkey's Vision 2023, the government hopes to increase exports to $15 billion a year.

The Directorate General of Mineral Research and Exploration (MTA) currently values Turkey's total known mineral resources at around $2.5 trillion, with 50 types of mineral currently being exploited, including boron, gold, feldspar, marble, barite, celestite, emery, limestone, magnesite, perlite, and pumice. If Turkey's potential is to be reached, however, the need for foreign investment is clear. “The lack of technical experience will necessitate the cooperation of Turkish and foreign firms," said Baran Umut Baycan, the Founding Senior Partner of Baycan Law Office, a law firm that specializes in assisting foreign investors in the mining sector in Turkey. In that regard, amendments to the Mining Law and the introduction of the new Commercial Code in 2012 have gone a long way to improving the landscape. The mining regime is regulated by the General Directorate of Mining Affairs (MIGEM), an arm of the Ministry of Energy and Natural Resources. The sector is governed by the Mining Law of 1985, which has undergone several amendments. The latest amendment, in 2010, was purely made to improve the foreign investor, environmental, and health and safety framework, bringing the law more in line with international standards. In terms of resources, Turkey is estimated to contain 6,500 tons of recoverable gold, a sector that has attracted much foreign interest.

The country has displayed an impressive growth curve over the last several years, reflected in data from the TA that suggests coal production increased from 51.6 million tons in 2003 to 85 million tons in 2011. The production of cement and raw construction materials also rose from 69.9 million tons in 2003 to 397.3 million tons in 2011, triggered by a boom in the Turkish construction industry. In terms of metals, the amount produced increased from 3.5 million tons in 2003 to 25.7 million tons in 2011, while industrial raw materials production shot up from 28.9 million tons in 2003 to 83.1 million tons in 2011.

In terms of exports, results from 1Q2013 are a strong reflection of prevailing trends. China was the recipient of the majority of Turkey's mining exports, increasing 100% over the last year. Over the quarter, the US, Belgium, Iraq, and Italy ranked after China as the top importers of Turkish minerals among the 160 countries that Turkish mining firms export to. Natural stone exports also went up 23% in 1Q2013 compared to the same period in the previous year, reaching $418 million. The main importers of Turkey's natural stone products are China, the US, Iraq, Saudi Arabia, and France, according to a report by IMMIB. The same report also notes an increase in the sale of copper ore, which was up 77% to $185.5 million in 1Q2013 compared to 1Q2012.

GOLD

The Turkish gold mining industry was slow off the starting blocks, only getting going in 2001. The country is already, however, Europe's largest producer of gold and one of the world's top 30 producers, producing almost 30 tons a year. Within the next three years, Turkey is hoping to place itself in the top 15. While interest at first was focused on exploration, there are now “eight operating gold mines in Turkey… [and] some 5,000 people are directly employed by the gold mining sector now," said M. Ümit Akdur, Chairman of Turkish Gold Miners Association (AMD).

In 2006, gold production was a humble eight tons a year. By 2009, that statistic had nearky doubled to 15 tons, with a new record of 29.5 tons posted in 2012. Gold produced since 2001 totals 136 tons. However, the country has far more potential and is currently exploiting just 15% of its gold reserves. Based on certain predictions, the country has 6,500 tons of recoverable gold, with expectations that production levels will continue to grow. “With the introduction of new mines and expansions in the existing mines we are hoping that this figure will increase to 35 tons," added AMD's Akdur. In order to prove the existence of 6,500 tons, however, further costly exploration will be needed, according to İsmet Sivrioğlu, General Manager of Koza Gold. “In my estimation, at least $8 billion to $10 billion is needed for this exploration work. Time is also important," he commented.

Despite slowing global gold prices, the sector is also currently experiencing an export boom based on Iranian imports, a strategy some of Turkey's eastern neighbors are using to bypass sanctions. In the first five months of 2012 alone, $4.02 billion worth of gold was exported, with $3.08 billion of that sum headed to Iran, according to TurkStat. Low gold prices will also not deter investors, according to Baycan. “Today, market prices for gold might seem negative for the gold sector; however, if you examine gold prices over the last 30 years, it is possible that will increase at any time," he added.

Steady growth is the name of the game for Turkey's mining sector, while tweaks to the regulation framework will continue to pique the interest of foreign investors. In the long term, the country's large pool of mineral resources are likely to be a significant revenue earner for the state.