Akfen Strategy Journal: What can you say about the place of Turkey’s mining industry in the world?
Dr. Nejat Tamzok: Turkey which is among the richest countries in the world in terms of mineral diversity produces over 70 minerals. The most outstanding mineral resource of the country is boron. Turkey has about 60 percent of the world boron reserves and realizes approximately 80 percent of global production.
According to US Geological Survey data, the largest perlite and graphite reserves in the world are in our country. Our barite reserves are ranked second, trona reserves are third, magnesite and chromium reserves are ranked fourth in the world. Apart from these reserves; diatomite, feldspar, mica, molybdenum, marble and natural stone, pumice, feldspar, bentonite, thorium, vermiculite, zeolite and sepiolite reserves are among the world’s largest reserves.
According to the same source, in 2016 Turkey ranked second in chrome, perlite and bentonite production, fourth in graphite, sand-gravel and gypsum production, fifth in zeolite and mica production, sixth in kaolin production and seventh in antimony and barite production. Our production of clay, molybdenum, salt, marble and lignite is also in the world scale.
Despite all these production levels, it is hard to say Turkey is a developed country regarding the mining industry. The vast majority of approximately 6,000 functional mines are operated by small-scale companies. These companies have often weak capital structures with low levels of institutionalization, low mining experience, low engineering qualities, limited project experience and capabilities. These companies often regard the investments in exploration, research and development, human resources, occupational safety and environmental protection as unnecessary cost-enhancing factors.
It is beyond doubt that there are qualified public or private organizations operating in the sector. However, the presence of these organizations, whose numbers are too small to be shown, is not enough to change the overall picture of the industry.
In the resultant structure, private capital abstains from mining explorations awaiting new resources substantially from the public. The production is far from the scale economics and efficiency level required by the engineering economy. There exists vulnerability regarding the production of higher added value by converting the produced minerals to end products. Extremely valuable ores are exported raw, and the same ores return to our country at much higher prices after they are converted into finished or semi-finished goods. Besides, the use of advanced technology in the sector is limited.
The mining sector in Turkey has become an area where the public sector has been operating up to 90 percent until the end of the 1990s. However, especially in the new century and in a period of time which can be considered as quite short, this time the sector has turned into a structure where the private sector operates at about 90 percent. Today, the public is pulled out from all other mines except for boron mines and to some extent coal mines. However, the transformation mentioned above did not lead to a significant change in the table presented above, and the contribution of the sector to our economy did not show any improvement when compared to pre-transformation.
The contribution of the mining sector to gross domestic product has remained around 1 percent for many years. As from 2015, its contribution to GDP has been 0.8 percent with a value of 19.3 billion TL. Growth rates of the sector have been following an unstable trend for years. This is due to the fact that sectoral growth is based on the external factors such as price levels or foreign countries’ demand rather than internal dynamics such as productivity and advanced technology use.
One of the principal reasons why the contribution of mining to economy could not be increased is that the minerals are generally exported whenever they are extracted from mines or after subjected to a limited valuation process. According to the data from the General Directorate of Mineral Research and Exploration (MTA), 2016 mineral export of Turkey is realized at a level of 3.6 billion dollar. This amount corresponds to %2.5 of our total import. On the other hand, mineral import realized in the same year is at a level of 4.2 billion dollar.
Approximately half of our mineral export is raw or processed marble or travertine. The export of metallic ores, primarily chromium, copper, zinc and lead corresponds to approximately 25% of our total mineral export. Our industrial raw material export, of course primarily borates and its concentrates have a share of 20%. Nearly 70% of our mineral import is hard coal import.
Akfen Strategy Journal: Turkey took critical actions in mining and energy sectors in the recent period. How do you evaluate Turkey’s “National Energy and Mining Policy” as a new act in this period?
Dr. Nejat Tamzok: I have not yet reached an official document on the “National Energy and Mining Policy” shared with the public in April. For this reason, I can only make an assessment from the news in the press.
“National Energy and Mining Policy”, in which the energy aspect is emphasized, but mining sector is understood to be kept in theoretical grounds stands on the three cornerstones: supply security, domestication of the resources and technology, and becoming a predictable market. Within the policy, domestic production of the mining technologies, restructuring the organizations and empowering the mineral markets are highlighted and the objectives of utilizing the enriched minerals and improving the sector via public-private joint ventures are underlined.
In general terms, this policy can be regarded beneficial for the mining sector. Sustaining the supply of the raw material needs of the country through national mineral resources and maintaining the supply security should undoubtedly be a high priority. The objective to domesticate the resources is crucial to maintain supply security. In this manner, I regard, taking all kinds of measures to increase the mining production will be constructive.
Besides, the mining productions should be primarily driven by the demand of the national industry rather than the exports. Mainly, the importance of the mining sector in terms of the national development lays in supplying the high quality materials with low costs for the domestic industries in the long-term, instead of producing more than the local demand and then export the surplus to the other countries. Integrating the national industry sectors is highly crucial in order to create high value products by enriching the minerals and organizing the national industry concurrently.
Likewise, domesticating the technology is also very accurate. Utilization of the new technologies in the mining industry to improve the resource integration and production as well as producing new materials will increase the sector’s contribution to the development of the national economy. Therefore, R&D initiatives in developing and utilizing higher technologies should be prioritized in the industry. Besides developing an industry which can produce new mining machinery, tools and technologies, recruiting the workforce that is able to adapt and use these technologies will also have a direct impact on the overall efficiency in the mining sector.
One of the major bottlenecks of the mining industry in our country is inefficient organizational structures in both the public and private sector corporations. Improvements of these structures are important for the development of the mining sector. In this context, Mining Operations General Management (MİGEM) and MTA should be primarily treated and modern corporations that are concurrent with the new era should be established.
Akfen Strategy Journal: In Turkey, two major acts took place in the mining sector recently. First one is the establishment of Turkey Geological and Drilling Data Bank and second one is the National Mineral Resource and Reserve Reporting Commission established by law under the General Directorate of the Mineral Research and Exploration (MTA). How do you evaluate the impacts of these acts for the sector?
Dr. Nejat Tamzok: Although the legislation refers to the drilling data bank as “new”, there was already a long-functional data bank in MTA. This unit has been storing the data gathered by the MTA’s exploration projects and creating new on-demand information out of these data as well. Following the legislative regulation, the data of the mineral explorations and/or productions by either the private sector or the public sector other than MTA will also be stored in this data bank. Those who will explore minerals anywhere will also be able to use these data. Thus, not only the mineral explorations will be coordinated more efficiently countrywide, but also the exploration costs will be lower.
Therefore, the mentioned structure is not only essential for Turkey, but also for any other country that desire to be competent in the mining industry. Almost in all of the advanced mining countries, similar structures have been operating for many years. Thus, though it is too late, the legislation has been a very accurate act.
However, it would be much more rational to establish such a structure which can fill an important gap in our country, not under the name of “Data Bank”, but within a structure identified within the public administrative system and by determining its staff by the law.
In order to meet the expectations, the first and the foremost objective to be accomplished by the new structure is to establish a corporate reputation and sustain it in the sector in the long-term. Because, the issue here is the utilization of the exploration gathered in return of huge costs, by the public and private sector corporations. Hence, unless the reliable data security is not established, rather than contributing to the explorations, this structure could even become a barrier for the potential investors in the mining sector.
The other organization established by the same legislation is the National Mineral Resource and Reserve Reporting Commission (UMREK). Another major problem of the mining sector in our country is intended to be solved through this organization. This problem is the identification of the mineral resources and reserves in our country.
Mineral explorations are conducted in our country but these operations are usually not reported by the competent and qualified experts within the internationally accepted standards. Thus, the reported figures on the resources and reserves have been frequently a matter of debate. Many companies allocating their investments according to this information in the reports may have been facing quite different results from what is reported, and suffering significant financial losses.
Mining projects are always full of difficulties and bear risks at every stage. In order not to encounter any problems, the investor must give the utmost importance to the work from the beginning of the project and complete a detailed and comprehensive work with the support from specialized persons or organizations before deciding to engage in mining activities.
The most important data that should be known at the beginning of the project is the amount of the mineral resource or reserve. The precise determination of the reserve and taking the decision of investment will be possible by technical and economic analyzes to be carried out for an entire project life considering all the risks of the project. Technical and economic parameters are not sufficient. Today, apart from these, political, environmental, social and legal and many other similar factors are taken into consideration in determining the reserve which can be produced. It is inevitable that in case of omitting these, the investments undertaken by relying on the reserve figures in the casually prepared reports will lead serious losses regarding both the private firms and mining sector in our country.
Therefore, the resource and reserve reports to be formed as the result of mining explorations must be prepared according to the internationally accepted standards and by the competent/qualified persons. In this context, to determine the reporting standards and criteria, and define the competency or qualification in this area and thus, to solve this problem in the mining sector in our country will be appropriate and contribution will also be provided for the solution of financing problems in the mining sector of our country.
At least, the commission is expected to establish a dynamic system to identify how much of the mines in our country are in the category of resources or reserves. Nevertheless, the mentioned systems can only be established with the allocation of competent and professional personnel who will take part in the existing structure- even in the case of getting outsourced services. It is quite a challenge to accomplish this in the commission type structures.
As it is in the Geological and Drilling Data Bank, it is critical to provide enterprise reliability in this structure. At this point, another important issue is the determination of competent/qualified persons. I hope the commission does not misunderstand that this determination can be made with a certificate to be given at the end of a short training course. When it is the case, it should not be forgotten that a great injustice will be done to the professionals who had spent many years specializing in this field.
According to the legislation, coordination in the Geological and Drilling Data Bank and secretarial services including financial affairs in UMREK will be carried out by MIGEM. Therefore, MIGEM is in a critical position for the efficient operation of these two structures. However, the ability of MIGEM to fulfill these new tasks in addition to many other tasks will be possible only if the structure of MIGEM is redesigned and organized according to the current needs of the sector.
Akfen Strategy Journal: Just like anywhere else in the world, the mining sector is one of the most typical industries that essentially require collaboration between the private sector and public investment. How do you evaluate Turkey in these terms?
Dr. Nejat Tamzok: As I mentioned earlier, the mining sector has now become a structure where almost entirely the private sector makes the production. Public investment does not exist in the mining operations except the coal and boron extractions. In boron and coal extraction, it is possible to see public-private partnerships. But, most of these collaborations mainly consists of royalty tenders or similar models in which the private sector companies act as the service providers. In these models, the government utilizes the subcontractor’s technical, financial and know-how capital, but adverse outcomes, such as the work safety issues to be the first, can be faced from time to time.
Public-private joint-ventures are not common in Turkish mining sector. However, the public-private joint ventures could be a solution for the structural problems mentioned earlier in the mining sector in our country. At this point, the public-private collaboration model in which the strategic objectives are accurately identified such as processing the extracted minerals into high-value products; establishing a developed mining machinery and equipment industry; institutionalizing the R&D activities; establishing organizations with strong capitals that are internationally competent in the mining sector; developing the engineering and project capabilities would be highly beneficial for the industry.
Our country will be avoided to keep off from these developments with the right cooperation models while the world mining industry is heading towards a much different view than the old days with the winds of the developments in a world of innovation of the fourth industrial revolution and while the concept of “intelligent mining” is spreading throughout the industry.
Akfen Strategy Journal: What does the sector promise for the foreign investors? Are there foreign investors in this field? How do you anticipate this issue for the upcoming period?
Dr. Nejat Tamzok: When we examine the Central Bank data, we see that the level of direct foreign investment in the mining sector in Turkey is very low and fell below the 40 USD million level in the last 4 years. In contrast, the Turkish mining investments in the foreign countries are consistently increasing in the recent years.
In the previous years, some of the direct foreign investments in the mining industry had significant contributions to the mining in our country, particularly, in terms of technology use, environmental awareness and work safety. Therefore, the foreign investments, besides their employment potentials, should also be emphasized in terms of technologies and know-how transfers to our country for the improvement of mining in our country.
Ankara, August 2017