Archive for June, 2015

Watch Turkey for world’s next top gold projects –mining law, people, and infrastructure are improving: Han Ilhan, Aldridge Minerals

Thursday, June 18th, 2015

Village-and-core-shed-near-Yenipazar-deposit-Turkey.image www.www-globalcommodities.com

To make new discoveries, companies often look in “fringe” areas – countries in Africa, Southeast Asia, or South America for instance.

These areas may contain more un-discovered deposits than other well-trodden mining regions.

But in the last few years, investors have recoiled towards “safe” places like the US, Canada, and Australia.

“Fringe” jurisdictions come with additional risks and costs.

Mining laws can change rapidly. In one example, Ecuador has nearly killed investment in its mining sector with new tax demands.

Miners and explorers also lack services, equipment, skilled labor, and infrastructure in these locations.

It could be years before investors begin to return to “fringe” mining jurisdictions, despite their potential.

But there’s one country that could be back in favor much sooner – Turkey.

Turkey is partially located on a geological structure that may yield gold discoveries (Steve Todoruk, at Sprott Global Resource Investments, recently brought one project to our attention).

And over the last 15 years, the country has remained relatively stable and welcoming of gold mining.

I spoke with Han Ilhan, CEO of Aldridge Minerals, about the prospects for mining in Turkey, and whether the country would break out of “fringe” status. He’s currently working to bring the Yenipazar deposit into production.

Henry Bonner: Many investors view Turkey as a fringe jurisdiction.

Han Ilhan: Yes, yes.

We’ve seen some projects get held up in Turkey…

Yeah, OK.

turkey-city-lush-setting-and-floral-flag-image www.www-globalcommodities.com

Many investors still have concerns about the country and my question is, “What has changed?”

OK. Look, I think you need to look at the bigger picture. So let me present it to you.

Year 2000 — Turkey produces no gold. Year 2015 — Turkey is now the number one gold producer in Europe, in just 15 years.

It produced around 31 tonnes of gold in 20141 (and projects 50 tonnes of production in 2015, according to the Turkish Gold Miners Association).

Over the past 15 years, just in the gold sector, seven mines have been built, all by Turkish construction companies.

There are foreign mining companies, as well as Turkish mining companies. Some foreign companies are in partnership with a Turkish mining company. Some are not, such as Eldorado Gold.

Compared to other jurisdictions, that report card speaks for itself — seven mines built in the last 15 years, and going from no gold production to becoming the number one in Europe.2

On the other hand, Turkey’s mining industry, particularly the gold mining industry, is still in its infancy. 15 years is nothing.

What Turkey has accomplished in 15 years is remarkable but still, the mining law was revised in 2010. It has become extremely foreign-friendly. A foreign company in Turkey has the same rights as a Turkish mining company, with no differences.

But Turkey is still in its infancy in mining. And of course, like any other country, Turkey is looking at ways to increase State income from natural resources.

The economy has been extremely stable over the past crises that we have had globally, particularly in Europe, but it has a soft spot, which is the current account deficit. The current account deficit is fairly large and in order to balance that deficit, Turkey focuses on foreign direct investment (FDI).

FDI is key to the Turkish economy. In order to attract that FDI, which happens in a global competitive environment, Turkey has to put forth investment incentives. In our mining business, corporate taxes have gone from 20 percent to 6 percent because of those incentives.

So in order to attract more foreign investment, they are offering special tax advantages for mining?

Well, this is not just for mining. This is for any type of investment.

They have separated the country into different regions. Certain regions have additional advantages, but mining is considered a strategic investment and therefore mining investment is provided the most incentives, regardless of the region.

That means you will be able to deduct part of your CAPEX (the upfront costs of developing a project before revenues can be generated) from your future revenues up to a certain amount. That’s a great advantage.

If you look at the royalty regime in Turkey, Turkey just passed a law that has royalties adjusted with respect to the commodity prices (meaning the percentage may rise or fall with metals prices).

Based on the commodity prices that we have today, the royalty on gold is about 2%. The royalty on base metals is about 1% (for comparison, the government of Quebec charges companies a 1% royalty on the metals produced from a mine, a figure which jumps to 4% above C$80 million in production3).

Well, that’s an attractive element in the global competitive environment.

Are there other advantages that are specific to Turkey?

Turkey is also a manufacturing country. It’s not going to be able to manufacture everything for us but most of the things that we need can be manufactured in Turkey.

The US put tariffs on Turkish steel not too long ago. Well that Turkish steel is still available to capital projects in Turkey.

Half of the population in Turkey is below age 30. Every city in Turkey has a university, so you have a group of individuals that are highly energetic, young and educated. In fact Turkey is one of those countries in the world that has the highest number of mining-related graduates in the world.

So from a “people” perspective, it’s the right place.

So the project, the place, and the people — those are the ingredients to be able to build a project successfully and to build a company in Turkey.

Does the government help you acquire and hold onto mining property?

If you look at the history of Turkey in the last particularly 12 to 15 years, the country has been going through a major rebuild and the construction industry is a key driver in that rebuild, building a lot of roads, highways, ports, railroads, airports. This is referred to as “mega construction.”

We’re constructing a third bridge over the Bosphorus, which is going to be the widest suspension bridge in the world. The airport that is under construction is going to be the largest airport in the world.

So these are mega projects that are driven by the construction industry. You have State land but you also have private land, and there’s a compulsory land acquisition process that the State is using to assist projects that are key to the country.

We will go through that process and we’re confident that we will finish that by the first quarter of 2016. It’s a compulsory process.

So the government will compel someone to sell their land if it’s needed for a large infrastructure or mining project?

Yes. When the state determines that the project is economically beneficial to the public at the national, as well as the local, level then that becomes the basis for a compulsory land acquisition.

The only part left to determine is the price. In our case, we’re offering the landowners three to four times their current value.

That current value is determined objectively. There are certain formulas that you apply depending on the character of the land and what it’s used for and its proximity to highways as well as local communities, because the social license to operate is quite important to us.

In fact, social license to operate in Turkey is I think one of the key elements of a mine development that one needs to focus on. Turkey is a pretty densely populated country and it’s not very uncommon to have multiple villages surrounding a development area. In fact I know some villages where there will be, say, five houses. Another one will have 200 houses and is one kilometer away.

You would wonder: “why would there be two villages?” Well there are reasons for that. There are differences. There are alliances that have formed two separate entities. Now imagine there are not two but thirty villages.

So a social license to operate in Turkey is one of the key areas where any capital project needs to focus, and particularly mining.

It is complex. You need to understand the cultures. You need to understand the people. You need to understand their way of living, what they’re comfortable with, and then present them with an alternative that they need to embrace. When you do that, you have a social license and you have to maintain it for the life of the mine.

To be able to do that, it is very important to understand the place. Formulas that have worked elsewhere likely are not going to fit Turkey.

Where are the investments coming from to develop mines in Turkey? Are they mostly from foreign investors?

Most of them come from foreign investors, particularly with a foreign company. There are Turkish companies that have invested in mining using their own capital too.

The business culture in Turkey is very similar to India, if you’re familiar with that. There are large holding companies.

They start with one business. Often times, it’s construction. Sometimes it’s textiles. And then they gradually expand into other industries like energy, like communications, port management, airport management, and mining.

As they expand into those areas, they often invest their own money into these new capital projects.

The Istanbul stock exchange is still in its infancy. One of the key requirements of the Istanbul exchange is to show three years of revenue, if not profit, in order to be listed on the stock exchange.

That doesn’t allow investors to invest in ideas or upside potential or risky investments.

The Turkish business culture is also a family-oriented culture where they have built businesses with their own hands and fingers and have grown them into multi-billion dollar businesses. They don’t want to lose control of that business by listing all or most of it on a stock exchange.

They sometimes list 30 or 40 percent of it. So that kind of limits us to how much money we can generate from the stock exchange in Turkey. But at the same time the desire (to fund public companies) is not really there. The Turkish business culture is basically: “if you have the money, you invest it out of your own pocket.”

Obviously, the foreign business culture is a bit different. There are the mechanisms of the stock market and the capital markets, where capital is available to you. Foreign companies, when they come to Turkey, come with that foreign capital.

I know that you go back and forth a lot between Canada and Turkey. Why do you need to be in both places to advance your project?

Well, one of the key requirements for my employment on my side was that I would be located in Turkey.

My background is Turkish-American. I spent 30 years of my life in the US, leading the global mining business of a large engineering and construction company with operationsall around the world.

I understand the Turkish business culture and I obviously know Turkey. With a start-up company, particularly in the mining business where you have no margin of error, you have to do it right the first time. These types of things cannot be controlled remotely. You have to be on-location. So that was important for me.

A key thing in Turkey is that the differentiators that I mentioned (mature construction and manufacturing industries, presence of infrastructure, contract miners, tax incentives, and a labor force) have to be leveraged and that’s what I’m assisting with – again, you have to be in the place to do that.

But at the same time, I have to have a foot in the North American and European markets for the purposes of raising capital and promoting the company in the capital markets.

We find ourselves in a very pleasing position to have five term sheets from major Europeans banks, as a well as a North American bank. They’re willing to provide capital to us for the construction. In these markets, particularly in North America, that speaks loudly to the value of our project.

But also it requires marketing the company. I found that the Aldridge story was not as well-known as others and what was known was outdated. A lot has happened in the last two years, even before I came onboard, and projects with these financial metrics (relatively low upfront capital expenditures and potentially attractive returns) are unique. So we continuously and persistently convey our story.

We do that in the North American and in European markets.

Thank you Mr. Ilhan and I look forward to speaking with you again about what’s happening in Turkey.

OK. Thanks for your time.

P.S.: Our in-house exploration geologist, Andy Jackson, keeps on eye on projects in these unproven or new jurisdictions, like Turkey. In fact, we’ve recently had boots on the ground there. Andy’s most recent visit was to Burkina Faso, a jurisdiction that is rich in gold deposits, but is under-developed. See his site visit photos here.

This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.

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By Henry Bonner

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Henry Sapiecha

Chile about to be China’s next competitor in the rare earths mineral market

Tuesday, June 9th, 2015

chile-may-be-chinas-next-competitor-in-the-rare-earths-market map image www.ww-globalcommodities.com

The rare earths industry is about to experience a clean-versus-dirty battle until now only seen among fuel producers, as a Chilean company is stepping up efforts to grab some of that market in a much greener way than China, the world’s top producer of such elements.

Mineria Activa’s project aims to develop the market for rare earths in the copper producing country, based on a recent survey that showed there are major concentrations of elements such as neodymium and dysprosium, south of capital Santiago. What’s even better: those deposits are quite similar to the ones found in southern China.

The firm’s project, named Biolantánidos, will dig out the clay, put it through a tank-leaching process with biodegradable chemicals and return it cleaned to the ground, replanting pine and eucalyptus trees. In China, operators pump ammonium sulfate into the ground and wait for the chemical to seep out with the minerals.

“It may be laborious,” Arturo Albornoz, who heads the project told Bloomberg, but he believes that soon firms such as ThyssenKrupp AG, Apple Inc. and Tomahawk cruise missile maker Raytheon Co. will choose to pay a bit more for supplies extracted in a way that doesn’t destroy the planet. “It’s our big bet on green mining,” he added.

rare-earth-graph image www.www-globalcommodities.com

Currently China continues to dominate the rare earth market, producing about 90% of the elements that are vital in the creation of a big variety of electronic technologies including lithium car batteries, solar panels, wind turbines, flat-screen television, compact fluorescent light bulbs, petroleum-to-gasoline catalytic cracking, and military defence components such as missile guidance systems.

Crumbling monopoly

The Asian giant did not always enjoy a virtual monopoly on REE production. The majority of the 17 rare earth elements were sourced from placer deposits in India and Brazil in the late 1940s.

During the 1950s, South Africa mined the majority of the world’s REEs from large veins of rare earth-bearing monazite.

From the 1960s to 1980s, rare earths were supplied mainly from the US, mostly from the massive Mountain Pass mine in California, which was eventually mothballed in 2002.

China then took over the industry completely, producing more than 95% of the world’s REEs centred in Inner Mongolia and also becoming the top consumer ahead of Japan and South Korea.

Worries about Beijing’s monopoly of production sent prices for all rare earths into the stratosphere from 2008 onwards with some REEs going up in price twenty-fold or more.

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China applied export quotas and raised export tariffs on rare earths in 2010 to protect natural resources, ending the export restrictions in 2015 and scrapping the tariffs from May 1, in line with a ruling from the WTO.

Despite the quotas and tariffs removal, rare earth companies, especially smaller ones, will continue suffering this year, analysts agree, as prices for some of the elements have dropped significantly in recent years.

The challenging environment doesn’t seem to bother the Chilean firm, which expects that its project, still in a pilot stage, will start producing rare earths by the end of 2016.

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Henry Sapiecha

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