Gözde Esen Sakar of Bener Law Office in Istanbul answers the key questions for investors looking to enter the Turkish mining sector
What is the nature and importance of the mining industry in Turkey?
Recently there has been an increase in mining activity and local investors and foreign investors are active. There are approximately 60 different types of mines within the country. Turkey is 10th in the world in terms of mineral variety and 28th for its production of underground resources. 60 types of minerals are said to have been produced in Turkey. Raw minerals, for use within construction, cosmetics and agricultural sectors are the most important but the problem is we need, here in Turkey, more qualified expertise and technology to extract.
Mining exports account for a significant amount of the country’s GDP. Copper, chrome, coal, marble and boron are the key minerals in the market. Turkey owns 75% of the world’s boron reserves. Turkey’s large and diverse mineral resource base includes coal, gold, iron and lead, mercury, silver, tin, other precious metals and coal.
What are the target minerals and which regions are most active?
The West of the country is generally rich in lignite (brown coal) and the West Black Sea of the country is rich in coal. Several districts of Turkey are rich in Iron. The East is less developed but rich in minerals. Eastern Turkey is more involved in the energy sector. In terms of mining, some foreign investors are not eager to invest there because of the geo-political situation but some of the culturally aware locals continue to develop the mining sector.
What are the principal laws, regulations and regulatory bodies that govern the mining industry?
The main regulator is the General Directorate of Mining Affairs (MIGEM) a division of the Turkish Ministry of Energy and Natural Resources, and is the authorised body which regulates mining activities and issues mining licences. The latest substantial amendments to the mining law were in February 2015 and the implementation of the new mining law is under discussion by the regulation makers and we expect that the Communique for the Implementation of the Mining Law will be entered into force and published soon.
The Ministry of Environment and Forestry, Municipalities or Special Provincial Administration, Public Waterworks Administrations, Ministry of Public Works and Settlement, Ministry of Culture and Tourism are the other main governmental authorities when it comes to mining activities.
How well are the regulators able to react to changes in the market?
This is a good question given the upcoming elections in June. I think that this will extend the amount of time required for the amendment of the communique because the government is busy dealing with the electoral matters. During this time I believe the mining authority (MIGEM) is trying to help us to make the implementation without any violation.
Explain the state’s control over mining rights in Turkey.
According to our mining law the mines are under the domination and disposition of the State but the mining rights are granted to Turkish citizens and/or private entities. Private entities must be established in accordance with Turkish Law but private shareholders can be shareholders of such an entity. There are no restrictions for the shareholders under mining legislation as long as there is a locally established mining company, however the information regarding the shareholders are provided to MIGEM and the shareholders in a locally established company should comply with the rules of Turkish Commercial Code. Authorities grant exploration, production and operation rights and permits depending on the size and the project.
The mining licensing process is generally OK if you submit your project to the requirements of the authorities technically and legally and then other permits and licences with other authorities. I don’t want to give a specific time period but it takes a minimum of 5-6 months.
In regards to State royalties, there is a calculation methodology depending on the types of the mineral, for example gold, or chrome.
You generally deal with the ministry centrally but, for example, opening an operation work permit you have to apply to the provincial administration for the city and in that aspect it is regional. For the environmental licence you deal with the ministry but for other parts of these environmental licences you also have to work with the local authorities.
What are the principal finance structures used by private sponsors and project companies?
On the financing side they are generally financed by themselves – foreign companies do not use any bank finance infrastructure. In Turkey there are public or private banks used by the hydropower sector, for example, but for the mining sector it has not matured yet. Generally, banks, and Turkish banks especially, are reluctant to get involved in project financing mining projects. The banks’ risk analysers cannot see the production and cannot make any project finance but they can see credit arrangements. Big Turkish companies have subsidiaries affiliated in the mining sector and use credit arrangements in the financing of their mining operations. Again for medium and small sized companies we don’t see any bank financing support as negotiating agreements, risk analysis for the board of the bank, negotiation agreement on the credit and securities agreements are all detailed economic procedures and medium sized companies often cannot afford these things. Even if they can afford it they do not choose this route.
Explain the principal sources of financing available to these parties, including the role of the domestic public securities market.
Large companies (for example mining companies like Eti, Eregli Demir Çelik) are usually formed from privatisations. These companies have an active role in the securities markets as they are issuing shares to the public and occasionally issuing bonds.
The medium sized and small companies do not have any role in the domestic public securities market either by issuing corporate bonds or in relation to the stock exchange.
Do you see this continuing or do you see any change?
We need time for this. In the near future I don’t see major change because for the hydropower clients, for example the Turkish banks, after several years, are very positive about project financing within this sector. In the mining sector we need time.
What do you see as the trends in global commodity prices?
Gold has been our traditional investment in Turkey and in the last two to three years gold value has decreased because of the fluctuations of the US Dollar and the international market.
Do you see that for other minerals and metals?
The appreciation of the US Dollar against the Turkish Lira in recent times has really affected the whole mining sector.
Looking forward what do you see as the major developments in the sector within Turkey?
We expect major developments in Nuclear energy. Uranium resources which are required for nuclear energy centrals are recently explored in Turkey which is a good development. Construction is underway at one site on the Mediterranean side of the country called the Akkuyu Nuclear Power Plant and finance has been secured at the initial stage for a further project in Northern Turkey called the Sinop Nuclear Power Plant.
Also the production of thourium (toryum) is more developed under the new mining law and it has been identified recently that Turkey is very rich in thourium reserves and both can be used for renewable energy but it is a very important material in regard to Nuclear energy. Amendments have also been made taking into account all future projections in nuclear energy. Without any processing, the approximate value of the thourium reserves is around $120 billion.
Generally, there are a lot of foreign parties in the mining sector in Turkey and the foreign investors are entrusted in the future. The amendments to the mining law has been seen as good news for the investors and I expect to see more developments after the elections in June.
Gözde Esen Sakar
Bener Law Office
Istanbul
About the author
Gözde Esen Sakar is a partner at Bener Law Office with 14 years’ experience. She heads the energy practice of the firm (including oil, gas, hydropower, wind, solar and mining), but she also has extensive expertise in mergers and acquisitions, capital markets and finance transactions. She graduated from Ankara University Law Faculty. Ms Sakar has advised numerous multinational companies working and investing in Turkey in different areas of the economy. She has advised major and medium sized mining companies on mining legal due diligence, acquisitions, joint ventures, corporate, regulatory, environmental matters, royalty agreements, mining concessions and earn-in structures. She has written several articles and notes in specialised mining publications. She has been recognised as a leading expert in the hydropower, wind acquisition, financing projects by representing multiple foreign and local companies in Turkish market. She has been nominated as one of the world’s leading practitioners in the mining field in Turkey and announced by Who’s Who Legal: Mining 2015.