Industry Forecast - Turkey: Government Support Key To Growth - MAR 2018

BMI View: Turkey's mining sector will expand at a steady pace through our forecast period to 2026. Nevertheless, increased incidence of civil and environmental protests will pose challenges, while an increasingly favourable investment climate encourages new entrants into the industry.

Latest Developments And Forecasts

  • Turkey's mining industry will see steady growth over the coming years, as government support for the sector, rising copper and gold prices and key projects boost output. The coal sector will remain a major source of growth despite declining global thermal coal prices, as the government looks to reduce reliance on imported power sources. We forecast Turkey's coal production to increase from 74.8mnt in 2018 to 96.8mnt by 2027.
  • Government support will remain an important driver of growth across mineral sectors. In February, Centerra Gold reported its Turkish subsidiary developing the Oksut gold project received an Investment Incentive Certificate from the Turkish Ministry of Economy, including a decrease of corporate income tax rate from 20% to 2%, VAT and customs duty exemptions and government support for social security premiums and interest payments on loans.
  • In November 2017, Alamos Gold provided an update on the Kirazli gold project, expecting initial production in H219.
  • In November 2017, the Turkish Energy Ministry reportedly suspended 1,780 mines since August 2017, of which 258 were coal mines, on the grounds of dangerous working environments or illegal operations. During this time, the ministry inspected 5,467 mines and 6,000 more are scheduled for inspection before end-2017. The ministry will inspect at least 7,000 more mines in 2018.
Turkey Ore Production Forecasts (2016-2027)
Indicator 2016e 2017e 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f
e/f = BMI estimate/forecast. Source: USGS, BMI
Bauxite Mine Production, mn tonnes 1.14 1.16 1.18 1.21 1.23 1.25 1.27 1.29 1.31 1.33 1.35 1.37
Bauxite Mine Production Volumes, % y-o-y 2.00 2.00 2.00 2.00 2.00 2.00 1.50 1.50 1.50 1.50 1.50 1.50
Coal Mine Production, mn tonnes 69.56 71.98 74.84 77.83 80.56 82.99 85.50 87.67 89.89 92.14 94.45 96.82
Coal Mine Production Volumes, % y-o-y 3.30 3.48 3.97 3.99 3.51 3.02 3.03 2.54 2.53 2.51 2.51 2.51
Copper Mine Production, '000 tonnes 104.30 114.73 122.76 132.58 143.19 150.35 157.86 165.76 172.39 179.28 182.87 186.52
Copper Mine Production Volumes, % y-o-y 3.00 10.00 7.00 8.00 8.00 5.00 5.00 5.00 4.00 4.00 2.00 2.00
Gold Mine Production, moz 0.81 0.75 0.79 0.84 0.89 0.94 0.99 1.04 1.09 1.14 1.19 1.23
Gold Mine Production Volumes, % y-o-y -15.00 -7.00 5.00 6.00 6.00 6.00 5.00 5.00 5.00 5.00 4.00 4.00
Structural Trends

Regulation Providing Platform For Growth

An improving regulatory backdrop should allow Turkey to begin leveraging its extensive mineral resources as miners, both foreign and domestic, are provided with an incentive to pursue new investment opportunities. A new mining code, which was amended in 2010, has been crucial in turning around the mining sector's story from one of stagnation to one of substantial growth. The code's amendments focus on making exploration projects more effective and reducing bureaucracy and red tape in the sector. These reforms have facilitated sector entry, streamlined licensing procedures and discouraged licence holding for trading purposes, thus solely allowing the tenure of licences by companies with serious exploration plans.

Coal Mining To Expand

Coal mining should be a key area of growth over the next few years, given our outlook for substantial coal demand growth for electricity generation in the country. Booming domestic demand for electricity, strong growth in steel production and domestic government support will make the Turkish coal mining sector more robust than other European players in the face of cheap US coal imports.

While possessing significant coal deposits, particularly in the east of the country, there has traditionally been little attempt to tap these reserves as security risks and a lack of adequate infrastructure pose substantial threats to investment. However, this situation is changing as Turkey steps up mining of domestic lignite, largely due to worries about dependence on Russian and Iranian gas imports.

Coal Production To Ramp Up To Meet Power Demand
Turkey - Coal Mine Production (mnt) & Coal Power Generation (% y-o-y)
e/f = BMI estimate/forecast. Source: USGS, National Sources, BMI

Recovering Gold Prices To Cement Growth

We expect Turkey's gold sector to receive the largest share of mining industry investment as several companies bring their projects into production. According to the Turkish Gold Miners Association (TGMA), the country hosts some of the world's largest gold deposits with reserves of 800 tonnes and predicted resources of 5,700 tonnes. However, lower grades and permitting difficulties have hindered some expansions and new projects. A World Gold Council report, published in early 2015, about the role of gold in Turkey cited the country as the world's fourth-largest consumer of gold, accounting for around 6% of global consumer demand. This serves to demonstrate just how important Turkey's role is in the global supply/demand/hoarding equation. In Q117, ahead of the constitutional referendum to transform the country from its current parliamentary system to an executive presidency, Turkey imported 56.1 tonnes of gold, with just March 2017 imports amounting to 28.2 tonnes, a 17-fold increase from March 2016. Turkish imports of gold surged by 688% y-o-y in December 2016, accounting for more than one-third of the country's annual gold imports that year, following President Erdogan's message to residents to turn foreign currencies they have stocked up into gold and lira. The political dissent in Turkey and the accompanying government clampdown on accused dissidents, coupled with the country's active participation in the civil war in neighbouring Syria and the raised terrorist threat and action drove the rush to hold gold.

Robust Prices To Support Growth
Turkey Gold Mine Production (moz) & Global Gold Prices (USD/oz)
e/f = BMI estimate/forecast. Source: Bloomberg, USGS, BMI

Solid Base Metal Growth

We expect steady growth in base metal mine production as output of copper and lead gradually grinds higher. Nickel production is more at risk of stagnation due to a lack of investment over the past few years on the back of weak prices.

Nevertheless, a bullish domestic consumption outlook for base metals has led to a situation in which the Turkish government is keen to reduce reliance on costly imports and to boost employment opportunities by supporting the domestic mining of base metals. The major headwind for this segment of the mining industry will be the lack of refining capacity available domestically. For example, copper production covers just 20% of domestic copper demand. This deficit is exacerbated by the fact there is only one copper smelter in the country. Consequently, more smelters will have to be built over the medium term in order to deal with the volume of base metal mine production we forecast for the coming years.

On the positive side, we highlight the substantial investment flowing into nickel, zinc and lead projects in the south-east of the country, which has traditionally been viewed as off-limits because of violent clashes and the elevated security risk in the region. If companies can overcome these obstacles, sizeable untapped reserves will become available for commercial production.

Turkey - Key Mining Projects
Source: BMI Mines Database
Commodities Mine Company Capex (USDmn) Notes
Gold Agi Dagi Alamos Gold 313 February 2017 - Alamos Gold has completed the feasibility study at the mine; Estimated Production: 177.6koz/yr; Reserves: 1.2Moz; Mine Life: 6 years
Gold, zinc, copper Gediktepe Alacer Gold (50%) Lidya Madencilik (50%) 266.7 2017 - DFS study has been commenced on the project; Proved Reserves: 0.4Moz gold; Mine Life: 12 years
Copper, gold Hot Maden Lidya Madencilik (70%) Sandstorm Gold Ltd (30%) 261 June 2017 - Mariana Resources has announced results of diamond drill program at the project; Indicated Resources: 7.1mnt copper, 2.8moz gold; Mine Life: 9 years
Gold Oksut Centerra Gold Inc 261 January 2018 - Centerra Gold has received approval of its pastureland permit for the project; Reserves: 1.2Moz; Expected Production: 112koz/yr; Mine Life: 8 years
Gold Kirazli Alamos Gold 180 February 2017 - Alamos Gold has completed the feasibility study at the mine; Estimated Production: 104koz/yr; Reserves: 0.7Moz; Mine Life: 5 years
Gold Camyurt Alamos Gold 26 February 2017 - PEA study has been completed at the mine; Measured & Indicated Resources: 0.5Moz; Mine Life: 4 years; Estimated Production: 93.2koz/yr
Gold Copler Alacer Gold (80%) Lidya Madencilik (20%) - July 2016 - Amec Foster Wheeler has been awarded a reimbursable EPCM contract by Anagold Madencilik for the Copler Sulfide Expansion Project to expand and extend the life of the mine; Reserves: 4Moz; Production Guidance 2017: 180koz
Gold Salinbas Ariana Resources - December 2017 - Ariana Resources has reported the results of an exploration programme at the mine; Resources: 0.6Moz; Mine Life: 10 years; Estimated Production: 50koz/yr

Social Unrest Presents Downside Risk

Turkey's recent history of social unrest and a failed coup will be a factor in investors' minds. With the country's political situation looking increasingly unstable from both a domestic and foreign policy perspective, the mining industry is becoming a growing target for protesters. Dissatisfaction among workers in Turkey's coal mining sector is rampant, with coal mine workers in the Kilimli district by the Black Sea going on hunger strike for two weeks in May 2016 over unpaid wages. In the Zonguldak province in July 2016, angry miners protested against privatisation of the state-owned Turkish Hard Coal Agency (TKK). Violent clashes with the government also occurred in 2014 when a coal mine accident in Soma took about 300 lives. In 2013, 300 workers barricaded themselves in an underground coal mine located in Zonguldak province, where a gas leak killed eight workers. The TKK authority continues to demand improved working and safety conditions.

Meanwhile, there has been growing environmental opposition to high-profile mining venture in the country, with police resorting to teargas to control local protesters trying to prevent a gold mine from being built in the Artvin region on the Black Sea in February 2016. The government has since filed a lawsuit against the protesters, illustrating just how fractious the relationship between the government and the general populace has become.