Turkey's Mining Industry - Invest in Turkey

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Turkey: The rising star of the mining industry in the next century ... Big potential with deep drilling. • In-depth ge
Turkey’s Mining Industry

Feb 2014

Disclaimer McKinsey Danışmanlık Hizmetleri Limited Şirketi supported Investment Support and Promotion Agency of Turkey (ISPAT) on the fact base and analysis for this document. The document was prepared within the scope of the Service Procurement Agreement for Strategic Sector Reports signed between ISPAT and McKinsey Danışmanlık Hizmetleri Limited Şirketi. ISPAT gives no assurances or guarantees about the information in the report. The report can not be used without the written permission of ISPAT. Investment Support and Promotion Agency of Turkey

1

1

Contents

Investment Support and Promotion Agency of Turkey



Mining overview



Selected Minerals information



Business opportunities



Legislation

2

GLOBAL OUTLOOK OF THE INDUSTRY

After years of stability, the mining industry has experienced fast growth in revenues and profit over the last 10 years and should manage a sustained growth and healthy profitability in the next decade Revenues

Revenues & EBITDA of the global mining industry

EBITDA

US$ billion

Series

2.200

3,6% p.a.

2.000 1.800 1.600 1.400 19,7% p.a.

1.200 1.000 800 600

EBITDA margins are expected to move to levels of ~40% in the Medium to long term versus 48% in 2011

-0,3% p.a.

400 200 0 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 192020 SOURCE: McKinsey Basic Materials Institute – Nov 2011 Investment Support and Promotion Agency of Turkey

3

GLOBAL OUTLOOK OF THE INDUSTRY

Over the next 10 years, the mining industry will accumulate up to US$ 3 trillion in cash after capex – creating FDI opportunities for countries such as Turkey 2012-2022 aggregated figures, US$ billions Royalties at current rates 15,400

700

8,200

600-1,000 Potential increase if royalties double/ triple

6,500

1,400

2,200 2,900

Revenues

Royalties

Operating expenses

EBITDA

Taxes

Capex

Net cash

SOURCE: McKinsey & Company Team analysis Investment Support and Promotion Agency of Turkey

4

MINING SECTOR IN TURKEY

Turkey: The rising star of the mining industry in the next century

Major untapped reserves potential

• Strong tectonic and magmatic history led to rich underground reserves • Tethyan-Eurasia Metallogenic belt covers Turkey – high proven potential • Mining wealth untapped: Entire Southeastern region which had no drilling since 80s, offers massive potential due to mineral wealth

• In the other regions, mining has been limited to surface excavations. Big potential with deep drilling

• In-depth geologic research and data for offered by General Directorate Established infrastructure

of Mineral Research & Exploration (MTA)

• Reliable power lines and available underground water resources • World-leading construction sector offers low cost and on-budget field projects

Investor friendly environment

• Favorable tax regime – corporate tax 4-20% • No nationalization threat – All mining companies treated against the law • Ownership (transfer) rights clearly defined and protected by law

• Sophisticated geology requires expertise and model development – Considerations

professional explorers have an edge

SOURCE: McKinsey & Company Team analysis Investment Support and Promotion Agency of Turkey

5

MINING SECTOR IN TURKEY

Important mineral belts of the world

High probability of reserves Mid probability of reserves

Investment Support and Promotion Agency of Turkey

6

MINING SECTOR IN TURKEY

Turkey stands as a very promising region for miners and explorers as the least explored portion of Tethyan Metallogenic Belt Tethyan belt is formed as a result of the collision of African, Arabian and Indian plates with Eurasia

Turkey is an important part of the Tethyan-Eurasia Metallogenic Belt within the Alpine-Himalayan orogenic system

• Tethyan belt is one spesific kind of ophiolite

• Underground deposits of Turkey are mainly

extending from the western Mediterranean via the Alps to southeastern Europe, through Turkey, the Lesser Caucasus, Iran, and the Himalayas to China

• •

result of Alphine-Himalayan orogenic system Due to the collision of 3 continents with different geologic and techtonic settings, Turkey presents a variety of mineral deposits Turkey has high likelihood of having porphyry gold and copper deposits such as Kışladağ and Çöpler

• So far, 6.5 kt gold, 80Mt copper reserves proven on Tethyan belt

SOURCE: Gentor resources; MTA General Directorate Of Mineral Research & Exploration; LIPS; Ozcan Yigit – Mineral Deposits of Turkey in Relation to Tethyan Metallogeny Investment Support and Promotion Agency of Turkey

7

MINING SECTOR IN TURKEY

In the last decade, mining in Turkey has grown significantly

Total mining production in Turkey USD Billion +11% p.a. 10.5

10.1

• 11.5 11.8 12.8



9.2

8.1

5.7

6.3

2005 06 07 08

09

10

Big untapped regions in Turkey started to attract miners increasingly Miners in Turkey do not go deep in the ground and miss the extreme potential created by Tethyan Belt (avg. depth of mines in Turkey is ~100-150m)

11 12 2013

SOURCE: MTA; Expert interview Investment Support and Promotion Agency of Turkey

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Contents

Investment Support and Promotion Agency of Turkey



Mining overview



Selected Minerals information



Business opportunities



Legislation

9

GOLD

Turkish gold market overview



Gold production is one of the few areas of the mining industry where Turkey is present at all steps of the value chain



Currently Turkish gold reserves are around 700 tons, which increased from 600 tons over the last 5 years, while MTA alone discovered 45 tons of reserves in 2009. As a result, production grew 40% YoY from 2005 to 2012 and reached 29 tons in 2012 (5 tons in 2005)



Based on a pure academic research, probable reserves estimated around 1,700-6,500 tons1 which make up for as high as 1/8th of globally proven reserves. Such claims should be confirmed with further exploration investments



Although exploration and production volumes keep growing, Turkey still has not captured its fair share out of global exploration investments

1 ODTU metallurgical engineer Ayhan Erler and MTA’s cooperative study concluded 1,700-6,500 tons of gold potential in 580 different locations in Turkey SOURCE: McKinsey & Company Team analysis; Gold potential in Turkey; Dr. Erler Ayhan (1997) Investment Support and Promotion Agency of Turkey

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GOLD

Trade deficit of unwrought gold has been decreasing due to price increase, yet further savings are possible by increasing production •

• Domestic production in Turkey Tons

Gold imports have been diminishing due to rising prices, curtailing trade deficit since 2008 High import volumes in 2005-2007 period allowed Turkey to increase exports to realize profits as prices were on the rise

30 24

+29%

5

8

10

11

15



17

• 2005

06

07

08

09

10

11

2012



Gold production in Turkey gained momentum following the legislation change that lifted tax exemption for exporting unrefined gold Domestic production is increasing yet it is still low compared to the volume of gold trade In the long run, increasing production further will cap Turkey’s import figures

SOURCE: Istanbul Gold Exchange; Gold miners association; ISPAT(Investment Support and Promotion Agency of Turkey); Expert interviews Investment Support and Promotion Agency of Turkey

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ALUMINIUM – PRIMARY PRODUCTION

Seydişehir is currently the only active reserve where production is far below the domestic demand Chromite mine

Aluminum production

Semi product production

Port

Power plant

Aluminum production across Turkey

• Oymapınar HES (540 MW)





Potentially can support production up to 200-300k Currently powering only 60k of production

Corlu Sakarya Kocaeli Seydişehir integrated plant

Mugla

Antalya Oymapınar

Seydişehir plant can and should feasibly increase primary production capacity: – Access to rich and high grade, bauxite reserves – Dedicated power supply and cheap energy (2-3 US¢/kwh) – Opportunity to enlarge capacity feasibility on top of existing infrastructure

SOURCE: Team analysis; Company websites; expert interviews Investment Support and Promotion Agency of Turkey

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ALUMINIUM – PRIMARY PRODUCTION

Bauxite reserves in Turkey concentrated in 5 major areas 3 Kokaksu

Seydişehir

5

2 Paya s

1

Among the 5 reserves, only the first one is actively operated

4

Bauxite deposits

1. Seydişehir-Akseki, 2. Silifke-Taşucu (S.Turkey), 3. Zonguldak (N.Turkey),

4. İslahiye-Payas and 5. Milas-Muğla

SOURCE: MTA Investment Support and Promotion Agency of Turkey

13

ALUMINIUM – SECONDARY PRODUCTION

In addition to primary opportunuties, Turkey presents an increasing potential in secondary aluminium production as a result of growing industrial activity HIGH LEVEL ANALYSIS Key facts

Aluminium scrap generation in Turkey

• Aluminum scrap generation •



in Turkey keeps increasing even in 2009. Majority aluminum scrap generation is coming from new aluminum scrap (Aluminum and/or aluminum alloys from collection and/or treatment of aluminum products before final usage). Old aluminum scrap (Aluminum and/or aluminum alloys from the collection and/or treatment of aluminum products after use) in Turkey has not yet taken of but is likely to increase over time

Total Al scrap

Al scrap production1 Thousand metric tons 700 650 600 550 500 450 400 350 300 250 200

+11% p.a.

+5% p.a.

0 200405 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

1 Al scrap generation w/o impact from import SOURCE: EAA(European Aluminum Association); Aluminum Manufacturers' Union of Turkey; McKinsey analysis Investment Support and Promotion Agency of Turkey

14

CHROMIUM

Turkey is a net exporter in Chromium, however a net importer in Stainless Steel which uses Chromium as core input Midstream

Upstream

Ferrochrome

Chromite(46-48%)

Market price U.S. $/ton Export 2013, U.S. $ millions

• • •



290

2,756

450

140

High FeCr grade is needed for high-quality ferrochrome 85% used for ferrochrome production Turkey is one of the largest global chromite producers with rich reserves Multiple midsized players

• •



Raw material and energy intensive 91% used for stainless steel production Turkey has a single producer, ETI Krom

SOURCE: McKinsey; Metal Bulletin Investment Support and Promotion Agency of Turkey

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CHROMIUM

Turkey can be attractive in ferrochrome production by building integrated FerroChrome facilities where there are high grade reserves



Attract investment for an integrated facility by bundling chromite and lignite fields – Access to raw material – Provision of cheap energy source

Lignite Chromite

Potential areas for integrated ferrochrome facilities

SOURCE: MTA; Team analysis Investment Support and Promotion Agency of Turkey

16

MARBLE

Turkey is a net exporter of processed and unprocessed marble Upstream

Midstream

Raw Marble

Market price U.S. $/ton

Slab

800–1,100

250–350 1.141

1.083

Export 2013, U.S. $ billions

• Raw material intensive • Profitability largely •

depends on the quality of the ore Turkey has reserves and is a leading exporter of raw marble

• Raw material and capital •

intensive Turkey is a leading exporter of marble slabs

SOURCE: McKinsey; Interviews; USGS(U.S Geological Survey),IMMIB(Istanbul Minerals and Metals Exporters Association) Investment Support and Promotion Agency of Turkey

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MARBLE

Turkey has important natural stone and marble deposits in all of the provinces

Most important marble types found in Turkey are

• • • • • •

Supreme Salome Elazığ cherry Milas wine-red Akşehir black Manyas white Bursa wine-red

SOURCE: MTA Investment Support and Promotion Agency of Turkey

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MARBLE

Turkey is the fastest growing export country to China driven by marble quality and rich supplies Raw marble exports to China Thousand tons

647

950

1,360

39%

1,669 1,821

Egypt

557

813

1,048 1,219 1,264

1,688

25%

15% 420

526

497

436

730

Spain

295

399

557

556

435

233

277

302

332

“Chinese customers want something new and fresh, not Marfil. Marfil is like the white shirt in your wardrobe – it is classic and if you cannot decide what to wear, you go for it”– Medium scale processor

18%

“Turkish marble has reasonable pricing, good quality and good political environment (unlike Iran and Egypt) that allows easy trade relationship – Iran’s political/ trading environment is challenging (e.g. requires cash, no letter of credit) ”– Medium scale processor

25%

“Turkish is very popular and will stay like that. Turkey has variety, Italian supply is very small””– Medium scale processor

679

Italy

166

“There are 3 main weaknesses of marble from Egypt and Iran: a) Late-comer in market, b) Weak transportation capacity, c) Poorer quality of stone. This results in 10-20% price difference vs. Turkish marble” – Real estate developer

“Turkey is top exporter to China and Shine is the #1 among all Turkish exporters. Levantina can match Shine’s scale, but they are facing succession issues and their quarry is old”– Customer

Iran

367

CAGR ‘05-’10

“5 years ago, we were buying most of marble from Spain and Italy; today, we buy from Turkey”– Real estate developer

3,394 Turkey

X%

502

2005 2006 2007 2008 2009 2010

“Our marble has became very popular in last 4-5 years”– Customer

SOURCE: UN Comtrade Investment Support and Promotion Agency of Turkey

19

MARBLE

Turkish marble is well positioned to capture a large share out of the growing global market Turkish

Spanish

High

Mid

Low

0 Color

Chinese

Egyptian

• Relative importance of key buying

Brand rankings for marble

Price

Italian

CHINESE MARKET

Homogeneity Strength/ durability

Supply volume

factors vary depending on the project type and required volume – “If small quantity, then color and texture come before price; if large quantity, then price comes first” – Real estate developer – “Turkey has the biggest reserves so it can guarantee supply stability because some projects are really big in China and need large amount of supply. Moreover, Chinese developers like unified look so tend to use same marble across their projects” – Customer – “ Italian marble scores better than other marbles in all quality-related criteria (e.g. color, texture, strength) Turkish product is similar in looks and finish to Italian marble hence can be substituted in place of Italian at a cheaper price” Customer

SOURCE: Interviews Investment Support and Promotion Agency of Turkey

20

BORON

Boron has identified uses in almost 500 industries… Special characteristics of Boron

• • • •

Identified as areas of use

Strengthener Isolation/insulation Inflammability Energy content (H2 production)

Glass manufacturing Glass fiber

Ceramics manufacturing Added to give thermal shock resistance

Electronics and conductors Semiconductors

Communication technology Satellites

Construction/cement Strengthener

Metallurgy Rare earth magnets

Chemicals Water clarifier

Cleaning/whitening Detergents

Agriculture Fertilizers

Paper/pulp Strengthener

Energy/Nuclear Shielding

Automotive industry Anti-corrosion systems

Textiles Fiber

Pharmaceutical/cosmetics Neutron therapy for Cancer

SOURCE: ETİ Maden; team analysis Investment Support and Promotion Agency of Turkey

21

BORON

… however current consumption is concentrated in a few industries Share of consumption Percent Glass manufacturing and construction

Product

Benefits of Boron

Outlook







Isolating glass fiber

34

Improve strength and chemical resistance of fiberglass products

• •

21

Textiles

19

Ceramics

Agriculture

Cleaning/ whitening

Other

7

5





Borosilicate glass

Ceramic glass





Optical properties, increase resistance to chemical attack and thermal shock



Increase strength, scratch resistance and chemical resistance







Push for energy efficiency through insulation will drive growth Continued growth from corrosion-resistant fabrics, composites reinforcement, and sound absorption Potential substitution by phosphates Growth driven by shift from single to double or insulated glazing for energy efficiency Potential substitution by phosphates GDP-level growth through home re-modeling with wall/floor tiles and household fixtures Potential substitution by phosphates

• •

Fertilizer Pesticides



Essential micronutrient for growth and development of healthy plants



Growth in humid countries such as India and Indonesia will grow demand

• •

Detergent Toothbrush



Makes detergents more resistant to humidity and high temperatures



Demand in humid and high temperature countries such as Middle East, India and Indonesia will grow

14

SOURCE: US geological survey; Eti Maden; analyst reports; team analysis Investment Support and Promotion Agency of Turkey

22

INDUSTRIAL MINERALS

Feldspar

Yearly production, Global Million tons

General overview Reserves (million tons): • World total: Large • Turkey: 372 Turkey is world’s one of the leading feldspar producer

Yearly production, Turkey Million tons

-1%

+2%

21,5 22,7 19,6 20,6 21,0

“Feldspar is used in glassmaking, ceramics, and to some extend as a filler and extender in paint, plastics and rubber. In glassmaking, alumina from feldspar improves product hardness, durability, and resistance to chemical corrosion. In ceramics, the alkalis in feldspar act as flux, lowering the melting temperature of a mixture” USGS Fledspar is mainly used in glass industry and pottery production

2007

08

09

2010 2011

6,5

6,8

2007

08

4,2

09

6,3

7,1

2010 2011

Prices USD/t +1%

Top producers Million ton

Top exporters Million U.S.D $

Italy

4,7

Turkey

4,5

China

2,0

France

0,7

Korea

0,6

Thailand

0,6

Turkey

62

65

61

62

2007

08

09

2010

2011

104,0

India

25,4

China

16,3

France

16,0

Germany

14,0

Total

Total

60

Important feldspar reserves in Turkey

260,0

1 Based on US consumption SOURCE: MIGEM(General Directorate of Mining Affairs), USGS, MTA, IMIB,Uncomtrade Investment Support and Promotion Agency of Turkey

23

INDUSTRIAL MINERALS

Barite

Yearly production, Global Million tons

General overview Reserves (million tons): • World total: 170 • Turkey: 34.2

8,0

8,7

0,5

8,4

8,1

6,7

Yearly production, Turkey Million tons

0,2

0,2 “The leading application of barite is as weighting agent in natural gas and oil field drilling muds. The density of barite helps in down-hole flow and bit lubrication. An additional benefit of barite is that it does not interfere with magnetic measurements taken in the borehole.” USGS

Top producers Million ton China India United States

Morocco

3,6

China

1,0

Morocco

0,5 0,2

Mexico

0,1

174,6

India

0,7

Turkey

Total

Top exporters Million U.S.D $

6,9

76,3

07

08

09

2010 2011

07

08

09

0,3

0,2

2010 2011

Prices USD/t

115,0

102,5

101,0

104,0

07

08

2009

2010

143,0

2011

Important barite reserves in Turkey

51,7

Netherlands

25,0

USA

24,2

Turkey

19,4

1 Based on US consumption SOURCE: MIGEM, USGS, MTA, IMIB, UNcomtrade Investment Support and Promotion Agency of Turkey

24

INDUSTRIAL MINERALS

Phosphate General overview

Global production Million tons

Phosphate value chain

+6% Fertilizer use • Phosphoric acid • Ammonium phosphate

Phosphata rock

• •

• •

Reserves (million tons): – Global: 65,000 – Turkey: 71 “Phosphorus is an essential element for plant and animal nutrition and is consumed primarily as a principal component of nitrogenphosphorus-potassium (NPK) fertilizers. Phosphate rock minerals are the only significant global resources of phosphorus” USGS Phosphoric acid: Besides nutrition use, phosphoric acid can also be used in acidic beverages Ammonium phosphate: Mainly used as a fertilizer ingredient due to high nitrogen content



20.4

China

7.4

USA

Tunisia

166

181

198

210

2007

08

09

10

11

2012

Global Trade1 2010, U.S. $ billions

Phosphate rock Top importers

0.5

Fertilizers2 Top exporters Morocco

Top importers

1.1

3.0

India

Lithuania

0.2

Jordan

0.1

Brazil

USA

0.2

China

0.1

Thailand

Belgium

0.2

Egypt

0.1

France

Top exporters

1.1 0.9 0.6

3.0

USA

2.7

Russia China

Israel

2.5 1.5

Important poshphate reserves in Turkey

8.5

Morocco2 Russia

161

Turkey’s phosphate rock production is extremely low around 1,000 tons per annum

India Top producers Million tons

156

4.0 2.2 56.2

Other

1 Phosphate rock

2 Western Sahara

3 Fertilizers include other input as well

SOURCE: USGS, MTA, MIGEM Investment Support and Promotion Agency of Turkey

25

INDUSTRIAL MINERALS

Bentonite

Yearly production, Global Million tons

General overview



Total market size is estimated to be USD 700 million in 2011



Total global demand is estimated around 22 million tons indicating a shortage



12.0 12.3

Bentonite and clay (kaolin) are readily hydratable aluminium silicates. Bentonite is used to assist in the clarification of juices, beverages, and other food products, as a binding agent for the preparation of pelleted animal feeds, and as an ingredient of coatings and adhesives for food packaging materials

9.3

Yearly production, Turkey Million tons

1.7

10.6 10.3

1.6 0.9

0.8 0.5

2007

08

09

10

2011

2007

08

09

10

2011

Prices USD/t

Top producers, 2010 Million tons

68

4.6

US

57

52

49

2007

08

51

3.4

China Greece Turkey

0.8 0.9 09

10

2011

SOURCE: VSGS, MIQM, Indian Bureau of Mines, US FDA Investment Support and Promotion Agency of Turkey

26

INDUSTRIAL MINERALS

Pumice

Yearly production, Global Million tons

General overview



Pumice is a froth of felsic volcanic glass. It is rock foam with so much air in its structure that it often floats on water



Mainly used in manufacturing of lightweight concrete or insulative low-density cinder blocks



Total market is estimated to be around USD 400 million

Share of global production, 2010

18.3 19.3 17.1 17.0 18.0 17.0

2007 08

09

10

11 2012

Yearly production, Turkey Million tons 5.8 4.0

3.5

2007 08

N/A

4.3

4.2

09

10 2011 2012

Prices USD/t

Percent

30.3

Turkey

20.1

30.0

20.0

22.9

24.0

10

2011

2012

25

2007

08

09

Important pumice reserves in Turkey Others 62 18 Italy

9 5

Chile

6

Iran

Saudi Arabia

SOURCE: USGS, MIGEM, University of Pittsburgh DGPS, team analysis Investment Support and Promotion Agency of Turkey

27

INDUSTRIAL MINERALS

Perlite

Yearly production, Global Thousand tons

General overview

• •

Mainly used in construction materails, hurticaltural materials, fillers and filters US and China are the main consumers of perlite

1,760

1,780 1,650 1,660 1,770

2007 08 Key players Percent

Yearly production, Turkey1 Thousand tons

09

10

270 270 230 230 250

11

2007 08

09

10 2011

Prices USD/t

Others

17 28

46

49

50

52

55

2007

08

09

10

2011

Greece Important perlite reserves in Turkey

Turkey 14

17 Japan

24 US

1 Crude ore SOURCE: USGS Investment Support and Promotion Agency of Turkey

28

INDUSTRIAL MINERALS

Soda Ash

Yearly production1, Global Million tons

General overview



Used in manifacturing of glass, making of soaps and detergents, manifacturing of paper and pulp, water treatment and drugs



Turkey is an important producer with Eti Soda and Şişecam Soda being the biggest players

11.7

11.1

12.8

13.0

1.7

1.6

1.6

1.7

09

10

2011

N/A

2007 Use of soda ash

12.1

Yearly production1, Turkey Million tons

08

09

10

2011

2007

08

Prices2 USD/t US EXAMPLE

Water Misc Pulp&Paper 3 3 Detergents 3 6 40

Glass

286.6

286.6

286.6

08

09

10

303.1

170.9

Chemical 20

25

2007

Export 1 Natural production only

2011

2 Estimates

SOURCE: USGS; MIGEM, General Chemical Industrial Products Investment Support and Promotion Agency of Turkey

29

INDUSTRIAL MINERALS

Diatomite

Yearly production, Global Thousand tons

General overview

• •

Filtration (including the purification of beer, liquors, and wine, and the cleansing of greases and oils) is the largest end use for diatomite

1,910

Yearly production, Turkey Thousand tons

2,090 1,790 1,840

67

1,060

Transportation costs will continue to determine the maximum economic distance 2007

08

09

10

77 45

33

2011

2007

18 08

09

10

2011

Prices USD/t

Key players Percent

137 Others

2007

24 39 US

224

255

299

269

08

09

10

2011

Important diatomite reserves in Turkey

Japan 5

Denmark

11 21 China

SOURCE: USGS Investment Support and Promotion Agency of Turkey

30

Contents

Investment Support and Promotion Agency of Turkey



Mining overview



Minerals information



Business opportunities



Legislation

31

INVESTOR FRIENDLY ENVIRONMENT

With the recent regulatory improvement, Turkey has become more attractive for mining investments

Historic Current Adjusted

PPI rating of Turkey in Fraser report PPI index score out of 100

67

67



Turkey has increased its ratings in most important aspects becoming more attractive



Turkey also increased the number of mining engineering department by 33% since 2005 enriching the talent pool



By the successful policies of government, especially in economics, the risk of instability does not exist anymore



As the corporate tax rates and royalties show explicitly, Turkey is actually in a superior spot in taxation regime now than shown in the report

50 41 37

35

2011

12

Turkey 13 Brazil 13

Chile 13

Turkey 13 Adjusted1

1 Adjustment is done on 3 metrics by taking the scores of the countries with similar attributes in regarding areas SOURCE: Fraser Report; team analysis Investment Support and Promotion Agency of Turkey

32

INVESTOR FRIENDLY ENVIRONMENT

Turkey also has the lowest corporate tax rates as well as low mining royalties Country

Corporate tax rate Percent

4 Turkey Chile Madagascar Sweden Egypt Ghana Mongolia Zimbabwe Canada Burkina Faso South Africa Australia Morocco Niger India Brazil Mali Zambia DRC USA

16 20 21 22 25 25 25 26 26 28 28 30 30 30 32 34 35 35 40 40

Gold Percent

XX

Royalties Percent

Copper Percent

4

2

0-14 NA 0 NA 5 1-5 7 2-16 3-5 1-5 0-3 3 6 2 1 3 6 3

0-14 NA 0 NA 5 22-30 2 2-16 3 1-7 3-4 3 NA 4 2 3 6 2

3

3



Turkey charges the minimum corporate tax rate with 4% among the leading mining countries for mining companies



Turkey stands at the lower end of loyalty fees which is encouraging for investment

1 Actual corporate tax for mining companies is 4% due to 80% tax incentive SOURCE: PWC; KPMG Corporate Tax Tables; Deloitte Corporate Tax Table; Ministry websites Investment Support and Promotion Agency of Turkey

33

INVESTOR FRIENDLY ENVIRONMENT

Mining investments are supported by the measures of Region V regardless of the location as mining is among spesific priority investments

Mining incentives

Regional investment incentive scheme Incentives

I

II

Tax deduction in regional incentives III

IV

V

VI

Regions



VAT Exemption















Custom Duty Exemption















Investment Contribution Rate (%)





Out of OIZ

15

20

25

30

40

50



Within OIZ

20

25

30

40

50

55

Out of OIZ

2 years

3 years

5 years

6 years

7 years

10 years



Within OIZ

3 years

5 years

6 years

7 years

10 years

12 years













II

III

IV

V

VI

Investment contribution rate (%)

15

20

25

30

40

50



Tax deduction (%)

50

55

60

70

80

90



Investment contribution to be applied during investment / operational period (%)

Payment for Employer’s Share of Social Security Premium (Support Period)



I





Investme nt period

0

10

20

30

50

80



Operation al period

100

90

80

70

50

20

With 80% tax deduction, corporate tax in Turkey becomes 4%



Land Allocation



Interest Support

N/A

N/A











Income Withholding Tax

N/A

N/A

N/A

N/A

N/A

10 years





Employees’ Share for Social Security Premium Payment (Support Period)

N/A

N/A

N/A

N/A

N/A

10 years



Mining investments are considered to be in the scope incentives only if they are at the development stage and exploration projects are left out of the scope There is support1 on funding as well in form of – 5 points for TL loans – 2 points for foreign currencies

1 Max amount is TL 700k SOURCE: ISPAT; team analysis Investment Support and Promotion Agency of Turkey

34

INVESTOR FRIENDLY ENVIRONMENT

Furthermore, there are 4 activity spesific additional incentives



If the mining operators create additional added-value by processing minerals in the country, they pay 50% less royalty



If the production takes place underground, the mine operator pays 50% less royalty



The Value Added Tax (VAT) is collected on all minerals except gold, silver, and platinum exploration expenditures



In addition, there are certain incentives for mining investments, commonly defined by the Cabinet Decree

SOURCE: MIGEM Investment Support and Promotion Agency of Turkey

35

INVESTOR FRIENDLY ENVIRONMENT

AS a result, Turkey is attracting an increasing amount of FDI during the recovery from the global financial crisis US$ millions

350



300 250 200 150 100



50 0 2005

06

07

08

09

10

11

12

Decreasing production due to the global economic crisis and decreasing appetite on new projects affected mining FDI in Turkey negatively Since then, FDI has been rising

2013

SOURCE: Ministry of Economy Investment Support and Promotion Agency of Turkey

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Contents

Investment Support and Promotion Agency of Turkey



Mining overview



Minerals information



Business opportunities



Legislation

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LEGISLATORY ENVIRONMENT

Once established in Turkey, Turkish and foreign companies have exactly the same rights •

6th clause of mining law states that

– Mining rights are given to • Turkish citizens eligible to

use the civil rights • Companies having legal personality established in accordance with the laws of Turkish Republic that are made on the status of mining companies • Institutions of state-owned enterprises which are authorized in this regard, its subsidiaries and affiliates and other governmental agencies and administrations



Furthermore, there is no discrimination towards foreign companies in any of the laws

SOURCE: Turkish mining law; expert interview Investment Support and Promotion Agency of Turkey

38

LICENCING PROCESS

Metallic minerals are considered under the group IV mines Group I

Group II

Group III

Group IV

Group V

Group VI



Sand, gravel, brick clay, cement clay, marl etc.



Marble, decorative stones, limestone, basalt etc.



Salts, CO2, gas



Lignite, coal, gold, silver, copper, zinc, chromium, ,ron, cobalt, nickel, alumininum, trona, sulfur etc.



Diamond, saphirre, opal, amazonite etc.



Radioactive minerals

1 For the full list of minerals please refer to Turkish Mining Law - 5995 SOURCE: MIGEM Investment Support and Promotion Agency of Turkey

39

LICENCING PROCESS

Licence timelines

Operating year

License period , (year) License groups

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Exploratrion year

License area (hectare)

Group I

10

• a Group1 • b Group1

50

Group II

100

• a group1 • b group

100

Group III Group IV Group V

Group VI In sea, III, IV, and VI groups

500 2,000 1,000 5,000 50,000

1 operating license is granted directly SOURCE: ISPAT; MIGEM Investment Support and Promotion Agency of Turkey

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ISPAT Worldwide CANADA Murat ÖZDEMİR [email protected]

RUSSIA Eduard ZUBAIROV [email protected]

CHINA Hui ZHAO [email protected]

SOUTH KOREA Veyis TOPRAK [email protected]

FRANCE Utku BAYRAMOĞLU [email protected] Selçuk ÖNDER [email protected]

SPAIN Yasemen KORUKÇU [email protected]

GERMANY Kemal KAFADAR [email protected] Ole Von BEUST Rezzo SCHLAUCH Wolf Ruthart BORN

INDIA Sanjeev KATHPALIA [email protected] Fariha ANSARİ [email protected]

SAUDI ARABIA Mustafa GÖKSU [email protected] UK Ahmet İPLİKÇİ [email protected] Muhammed AKDAĞ [email protected] USA Öner AYAN [email protected] Olivia CURRAN [email protected]

JAPAN Hitoshi SEKI [email protected] Saya ASHIBE [email protected]

For comments on the report and additional information please contact:

[email protected] www.invest.gov.tr Head Office

Office

Address: Kavaklıdere Mahallesi Akay Caddesi No:5 Çankaya/ANKARA 06640

Address: Dünya Ticaret Merkezi A1 Blok Kat:8 No:296 Yeşilköy/İSTANBUL 34149

Phone: (+90 312) 413 89 00

Phone: (+90 212) 468 69 00

Investment Support and Promotion Agency of Turkey

41