Turkey—a nation at the crossroads of Europe and Asia measuring about 1,600 km long and 800 km wide—is punching above its weight as an emerging mining jurisdiction with operating mines owned by Inmet Mining (IMN-T), Eldorado Gold (ELD-T, EGO-N) and Alacer Gold (ASR-T).
Inmet is producing copper and zinc at its Cayelli mine, Eldorado is churning out gold from two producing mines—Kisladag and Efemcukuru—while Alacer is turning out the yellow metal from its Copler mine, and Aldridge Minerals (AGM-V) aims to join the club with its Yenipazar gold and polymetallic VMS deposit, 220 km southeast of Ankara in central Turkey.
A positive feasibility study released today brings the Toronto-based junior one step closer to making that happen. The study envisions a conventional open-pit mine that over the course of its 12-year lifespan will produce a doré, a copper/gold concentrate, a lead/silver concentrate and a zinc concentrate, which would yield an after-tax internal rate of return (IRR) of 22.5% and an after-tax net present value (NPV) at a 7% discount rate of US$323 million.
Both the post-tax IRR and NPV calculations include a 1.6% net profit royalty (revenues less operating expenses) payable to the government of Turkey and a 6% net profit interest (revenues less operational expenses) payable to Alacer Gold until revenues of US$165 million are generated, following which the NPI will increase to 10%.
Pre-production capital expenditure is expected to come in at about US$382 million with another US$58 million required in sustaining capital, nearly half of which will go to buying additional mining equipment in subsequent years.
Key assumptions of the feasibility study were based on metal prices of US$1,450 per oz. gold; US$28 per oz. silver; US$3.00 per lb. copper; US$0.95 per lb. lead; and US$0.90 per lb. zinc.
Because of the shallow nature of the deposit and the relatively flat terrain, as well as good surrounding infrastructure that includes paved roads, a railroad, and easy access to the national power-grid, life-of-mine operating costs are estimated at US$29.15 per tonne of ore.
The concentrates will be trucked 75 km on an existing four-lane divided highway within a few minutes of the project to a railhead in Himmetdede, from where they will be transported 500 km south to the port of Iskenderun on the Mediterranean Sea. (Turkey is encircled by the Mediterranean to the south, the Aegean Sea to the west and the Black Sea to the north.)
Power won’t be an issue, either, because the project can be connected to the national grid with the construction of a 17-km power line.
“Essentially all the capex is going to build the project, not develop infrastructure,” Mario Caron, the company’s president and chief executive, noted in a telephone interview following a morning conference call to analysts and investors.
The feasibility study outlined a strip ratio of 4.3:1 and a nominal mill throughput of 2.5 million tonnes. The process plant is based on conventional crushing and grinding, followed by a gravity circuit where most of the gold and silver will be recovered. The sequential flotation of copper, lead and zinc will follow the gravity circuit.
Over its lifetime Yenipazar is expected to produce 696,482 oz. gold, 21.2 million oz. silver, 120.1 million lbs copper, 368 million lbs lead and 563.8 million lbs zinc. Revenues by metal are divided between: gold (35%); silver (21%); zinc (19%); copper (13%) and lead (12%).
The deposit hosts three different types of mineralization: oxide (11%), copper-enriched (9%) and sulphide (80%). The oxide zone will yield three payable metals: gold, silver and lead, and the copper-enriched and sulphide zones will produce five payable metals: gold, silver, copper, lead and zinc.
Metallurgical test-work has demonstrated total recoveries of 88% for gold, 84% for silver, 72% for copper, 72% for lead and 56% for zinc.
Caron notes that the Turkish government has introduced a number of investment incentives that include reduced corporate income taxes, exemptions from VAT and customs duties; and support for interest payments that make the country attractive for mining companies.
Under the incentive program, Aldridge expects to receive income tax savings equal to 40% of the depreciable capital cost required to build Yenipazar and management estimates about 90% of the total capital costs are depreciable. The income tax savings are anticipated to come from a corporate income tax rate reduction from 20% to 4%. By Aldridge’s calculations, for example, for every $100 million of allowable capital cost, the corporate income tax savings would be $40 million.
“This has a significant impact on the after-tax value of the project,” he explained to investors and analysts on the conference call. “We have been here since 2004 and couldn’t be more pleased with Turkey as a jurisdiction to do business.”
Turkey enhanced its incentive program for strategic projects, which include mining, in June 2012 and have been promoting it more aggressively this year, Caron explained in a telephone interview following the conference call.
Exemptions from VAT and customs duties also have a positive affect on cash flow, the company’s chief financial officer, Jim O’Neill, explained. “Instead of paying your VAT on equipment, at 18%, for example, and then you get it back three months into the following year, you get the exemption right upfront, so you don’t have to pay it during the construction process.”
“The street doesn’t fully appreciate this, [these exemptions and incentives] unfortunately,” Caron added.
As for the country itself, Caron continued, Turkey weathered the financial crisis well and is a very vibrant country and economy. “It’s the sixteenth-largest economy in the world and they want to become the tenth-largest economy by 2023,” he contends. “They’ve targeted the resource sector as an area to help them reach that goal.”
At the same time, Turkish authorities are trying to address the depopulation of more remote parts of the country and reverse some of the migration flow from rural to urban centres, and the incentive scheme is part of that strategy, he explains. “The closer you are to Istanbul and Ankara, the less incentives offered, and the further away you are, the more incentives,” he explains. “The idea is to help create good employment opportunities and stop the rural-urban migration.”
Caron also points out that there is a lot of contracting and engineering expertise available for mining companies in Turkey. “You can develop a project essentially with a mainly local contracting capability and people,” he says. “The need for expats will be limited and of short duration.
Aldridge expects to submit its Environmental Impact Assessment to Turkish authorities early in the third quarter of this year and expects to receive approval quickly—“definitely before the end of 2013…probably some time in the end of Q3 or the beginning of Q4.” Construction permits will also be required, as well as a mining permit. Caron and his team expect to receive approval of the EIA some time in August or September, and construction and mining permits roughly three months later.
“Clearly we have a lot of work ahead of us, but we’re on the right track,” he said.
Aldridge is exploring financing options, he added, including debt, equity, metal streaming and concentrate off-take agreements and will make a decision before the end of this year. The company is also undertaking trade-off studies on the virtues of leasing mining equipment as opposed to buying it and hiring contractors versus owner-operated mining.
In terms of land acquisition (the c
ompany expects it will have to purchase about 600 different plots of land from as many as 1,000 different landowners), Caron said it should not pose a problem.
“We’re fairly optimistic—we’ve been in the area for over 10 years and we have good relationships with land owners and neighboring properties and we would have not been able to drill over 600 holes on this property if we didn’t have an excellent relationship with the stakeholders.”
As for whether management thinks it might bring in a joint-venture partner to help develop the project, Caron told analysts and investors on the conference call that he isn’t considering that as an option at the moment.
The company has zero debt and $15 million in cash and has set aside $1.5 million for exploration in 2013 around Yenipazar that should cover between 10,000 and 11,000 metres of drilling.
At presstime in Toronto, Aldridge was trading at 43¢ per share within a 52-week range of 40.5¢-71¢.
Good article! Also thank you for the details!
However, I am puzzled: the very first sentence states that
“Turkey—a small nation at the crossroads of Europe and Asia measuring about 1,600 km long and 800 km wide”
I am curious, why does the author think that Turkey is a small nation?
Yes, the land size (little larger than the state of Texas) is much smaller than Canada and US but it larger than any European county. It has 75 million people! And it is the 16th largest economy (15th by some mesures) in the world! What makes Turkey a “small nation”?