JUser: :_load: Unable to load user with ID: 444

Metalsnews: The Iranian mining sector was surrounded by much fanfare following the lifting of nuclear sanctions on the Islamic Republic in 2016.

Government officials and economists, expecting an influx of foreign investment, deemed mining revenues as a reliable way out of an oil-dependent economy.

Fast forward to date, the sector has staged an underwhelming performance and accounts for only 5-7% of the Iran’s GDP. This is while mineral trade volume and value have been continuously on the rise for the past two years, accounting for close to 30% of Iran’s total non-oil trade.

Exports in the last fiscal year (March 2016-17) amounted to 57.68 million tons worth $7 billion, up 38% and 17% year-on-year. They have also grown 5.5% and 3.1% YOY in the seven months of the current Iranian year (March 21-Oct. 22) to 39.1 million tons valued at $5.41 billion.

Mining companies account for 15-20% of the total 4.1-quadrillion-rial ($102.54 billion) value of Iran’s stock market, according to the Persian daily Donya-e-Eqtesad.

Their market cap is poised to increase further, following the past few months of global price growth. In fact, mining firms, and especially base metal producers were the primary drivers of Tehran Stock Exchange’s growth in the second quarter of the year. The sector is also highly attractive in terms of reserves.

Iran is home to 68 types of minerals with more than 37 billion tons of proven reserves and 57 billion tons of potential reserves.

According to the US Geological Survey, Iran holds the world's largest zinc, ninth largest copper, 10th largest iron ore, fifth largest gypsum and barite and 10th largest uranium reserves. Overall, Iran is home to more than 7% of global mineral reserves.

Yet, the sector’s revenues are still dwarfed by energy exports. Tehran reportedly earned about $25 billion from crude oil exports in the last fiscal year and is forecast to earn up to $41 billion from oil and gas condensate shipments by the end of this year, according to Oil Minister Bijan Namdar Zanganeh.

It would be unreasonable to expect mining revenues to catch up with the main driver of the Iranian economy in just two years. The growth recorded so far, however, is still far from the expected post-sanction windfall.

It can be argued that the sanctions, despite all the damage they inflicted on the economy, were not the main cause of industry's slow motion. It was in fact an ever-fluctuating business environment that impeded any sustained, considerable growth in the sector.

Increasing Risks on Lack of Consistent Policymaking

It’s common for the government and the private sector to clash over their interests. One pushes with legislative measures and the other through lobbying to have things their way; one side eventually prevails and sets a new status quo, and everyone eventually adapts.

In Iran, though, things are usually up in the air. No policy is final, even in the short run; political developments bring about sudden tectonic shifts, new administrations and ministers tend to overwrite their predecessors’ decisions and expert opinions are either unheard or unutilized. In the end, this causes unforeseeable, unavoidable costs for businesses and leads to underperformance.

For instance, the government has been waging a war on the sale of unprocessed materials by miners for the past two years. Officials insist that miners should move toward production of higher value-added goods and refrain from exporting base products such as granular ores, while miners argue that subdued local demand and their cash-strapped condition leave them with no other choice but to focus on shipments abroad.

The dispute has not been resolved, but it cooled down when the new Minister of Industries, Mining and Trade Mohammad Shariatmadari came into office. The ministry under the leadership of his predecessor Mohammad Reza Nematzadeh was planning to implement a 10% export duty on iron ore and sponge iron this fiscal year.

It never happened though, much as the threat is still looming. And that risk, among many others, simply prevents new investments going into the sector. Why operate an iron mine when the main source of revenues in an escalating boom period might suddenly get blocked?

Examples go back even further. Three years ago, the government and two major iron ore mines locked horns over the issue of mining royalties and usufruct fees.

The parliament passed a law in 2014 based on which two miners Golgohar and Chadormalu, known as "twins", had to pay 25% of their mining revenues  as usufruct fees to the Iranian Mines and Mining Industries Development and Renovation Organization, Iran’s major state-owned mining holding.

The problem was that the 25% was to be paid on top of the 2% in royalties and 10% in state rights.

The issue’s escalation came when IMIDRO, the holder of mining usufruct rights, refused to extend the exploitation concessions for the two mines and set its own fees. This is while miners argued that by being listed on the stock exchange, they had practically conveyed to their investors that they owned the rights. The Supreme Council of Bourse was also on their side, arguing that no authority is allowed to transfer the assets, including intangible ones, such as the exploitation concessions, of the companies listed on Tehran Stock Exchange.

The dispute, combined with IMIDRO’s move to withdraw the exploitation concessions, caused the two companies’ shares to dramatically lose their value. The big losers were, therefore, shareholders who invested in the two mines with confidence.

According to IMIDRO Chairman Mehdi Karbasian, the organization still holds the concessions and the twins have to pay.

The 15-trillion-rial figure has just shrunk after various meetings and agreements, plus currency devaluation and a rise in the twins’ export revenues.

 Things Remain Hazy for Foreign Firms

Foreign mining companies have also had a taste of Iran’s hazy investment atmosphere.

In 2006, the Australian-British Rio Tinto was in Iran undertaking exploration operations in Sari Gunay Gold Mine in Kurdestan Province.

According to Reza Zarinfar, a former member of Rio Tinto’s exploration team, the company had discovered 66 tons of gold deposits through digging for about 76,000 meters. The operation, however, came to a halt as the government only conceded to excavating 16 tons of the deposit.

Rio Tinto simply gave up on the project as its net asset value, the primary mining valuation metric, turned negative. It sold its 75% stake in the mine to “Parsian Eurasia”, an Iranian-Kazakh joint mining firm, according to the then head of Kurdestan’s Industries and Mining Organization, Sirous Shahgheybi. He added that the total investment on the project amounted to $500 million, Madan24 reported.

There is also the case of the American Anaconda Copper Mining Company in the early 70’s. The firm was approached by the state-owned Sarcheshmeh Copper Mines Corporation to utilize Anaconda’s expertise in copper mining.

Sarcheshmeh Copper Mine, located in Kerman Province, is the world's second largest and the Middle East's largest open-pit copper mine. The mine possesses over 826 million tons of proven and 1.2 billion tons of estimated copper reserves.

The Sarcheshmeh-Anaconda partnership led to the establishment of the copper complex and production started, up until the advent of the Islamic Revolution in 1978, which brought about the nationalization of both SCMC and Anaconda’s assets, and the establishment of National Iranian Copper Mines Company, currently Iran’s largest copper producer.

Risks Vs. Gains

The final question: Will rewards outweigh risks for investing in Iran’s mining sector?

There is no definitive answer to that. For smaller foreign companies that can fly under the radar, such as trading firms or mining machinery producers, rewards seem to outweigh the risks. However, global heavyweights shy away because of the risks, while acknowledging the potential gains.

Iranian lawmakers can do more to streamline the business environment by choosing between a total state-controlled economy and a free market system, as the shuffling between the two is scaring away local and foreign investors and lacks the enforced central planning a government-dominated economy offers.


Source: Financial Tribune

  • Latest News
  • Most Popular



Hot events

  • Iran Alloy Steel Company; the Pioneer of Production

    Iran Alloy Steel Company is the first producer of alloy steel in Iran. This company posse one of the most equipped and modern plants in alloy steel production business and is capable of exporting its products to many developed countries such as Europe. Mohammad Ebrahim Ghadirian, CEO of the company…
  • Foulad Nab Tabriz; Pioneer of Iran’s Steel Industry

    Foulad Nab Tabriz Company as a pioneer of the steel industry in the private sector was established in 2003 by Iranian-Turkish joint venture in the city of Tabriz in order to benefit from economic and industrial potentials of both countries. Preparation and foundation operations started in the beginning of 2004…
  • Automobile with Iranian Galvanized Roll

    Galvanized roll has a lot of usage in different industries due to unique properties and also high resistance against corrosion. One of the largest consumers of this roll is automotive industry. In this regard, a factory for production of galvanized roll for coachbuilding has been built in Sefid Dasht region,…
  • Iran Alumina Company Plan for 40 Years Activity

    Iran Alumina Company as the first producer of three strategic products "metal grade alumina", "aluminum hydroxide" and "alpha alumina" in the Middle East is active in Jajarm region in North Khorasan province activities and with the goal to complete the value chain in the region, have implemented the plan for…
  • Foulad Nab Tabriz, a Pattern for Iranian-Turkish Joint Investments

    Foulad Nab Tabtiz has been establish by Iranian and Turkish partners and has an excellent track record in supplying Iranian domestic market demand for steel profiles in its ten years of successful production. Çetin Kaya the head of iron and steel division of NAB Holding, the Turkish partner, believes that…

Featured photos and videos

Metalsnews: Tehran Stock Exchange’s main index
Metalsnews: HRC 2 mm thickness was USD 632/mt on
Metalsnews: Debar price was downward in Iran last
Metalsnews: Billet was downward during last week
Metalsnews: HRC 2 mm thickness was offered at USD
Metalsnews: Debar diameter 14-25 mm were offered
Metalsnews: Billet price started first week of
Metalsnews: Iranian steelmakers produced 30
Template Settings


For each color, the params below will give default values
Black Blue Brow Green Cyan


Background Color
Text Color
Layout Style
Select menu
Google Font
Body Font-size
Body Font-family