As nickel prices recover, a mine in western Turkey has attracted attention as the world’s first commercial laterite heap leach operation. The Çaldağ project, near the port city of Izmir, is operated by UK-based European Nickel (ENK). According to the company, a new heap leaching technology developed there has potential to provide a more cost-effective and environmentally beneficial extraction process than conventional HPAL methods.

However, Çaldağ will be assessed not only for its use of a new technology, but also for its role in highlighting issues concerning Turkey’s mining sector. Earlier this month, the ENK board took the painful decision of putting the Çaldağ project on care and maintenance, following the failure of the Turkish authorities to grant a critical forestry permit despite continual assurances, which rendered continued development impossible. This has forced ENK to move the new technology, together with its operational staff, to its Acoje mine in the Philippines. Commenting on the announcement, Rob Gregory, managing director of ENK, said:  “We cannot tread water indefinitely at Çaldağ until the permit is re-issued and the board believes our efforts and resources are better deployed at Acoje in the meantime.”

The move will douse recent optimism among miners and investors with regards to Turkey. In late June, new amendments to the mining law were passed that were supposed to reverse a policy that inhibited new mining sites from being opened and that posed challenges to overall mining activity. “With the new legal amendments, the industry has regained its working guarantee,” said Engin Yalcin, mining expert for the Istanbul Mineral Exporter’s Association. “In the forthcoming period, positive developments are expected in gold, nickel and natural stone production, and in the finding of new sites.”

Gold exploration in Turkey has been proving particularly attractive. According to data from the General Directorate of Mining Affairs, there are 26 companies, both national and foreign, looking for gold in Turkey as of October 2010. Before the amendments of June 2010, there were only nine companies doing so.

Between 2002 and 2008, Turkey’s mining exports increased from $700 million to $3.2 billion. Turkey’s Ministry of Energy and Natural Resources intends to double that number again by 2014.

Turkey is the world’s largest producer of boron, containing more than 70% of total known reserves, and also leads the world in the export of marble. Turkey is also Europe’s largest producer of gold, production of which is rising fast.

“There is good infrastructure such as roads and electricity supply and Turkey is situated close to many mining equipment manufacturers based in Europe,” said Iain Anderson, who is responsible for implementing Inmet Mining Corp.’s strategy in Turkey and is the director of the underground copper and zinc mine Inmet operates there.

As a result of its desire for EU ascendancy, the Turkish regulatory system has also been brought more in line with the West. Yet, as evidenced by the case of ENK, room for improvement remains.

Costly to Miners
The kind of obstruction ENK is experiencing costs miners dearly. Çaldağ is an open-pit operation with a set goal of 20,000mt/year of nickel and mine life estimated at 14 years. JORC proven reserves stand at 33.2 million mt at 1.13% Ni. So far, 80% of the mine’s construction has been completed and more than $70 million invested in obtaining long lead items. The mine’s development cost stands at $428 million.

Finding appropriate financing has proven a challenge for European Nickel and work on the Çaldağ project has been marred with delays, despite original production start dates set for 2007.  

With financing eventually taken care of, the company faced one last obstacle to revving up production at the site: a forestry permit would allow it to cut down 100,000 pine trees to develop the mine. ENK initially was given the permit, but it was later rescinded by actions of Turkey’s Constitutional Court. With the passing of the new amendments to the mining law in June, the Turkish Constitutional problem finally seemed to be fixed. This now appears not to be the case. Simon Purkiss, deputy executive at ENK said: “Turkish laws are being changed to bring them into line with the European laws and we have been unfortunate to go through our permit process during this period.”

The past few years have been challenging for companies, both domestic  and foreign, operating in Turkey. The problems faced by ENK are not isolated incidents and other companies, such as Inmet, ran into more severe problems when their mining rights to one of their projects in Turkey were cancelled despite the company complying with all laws. “Certainty of tenure of mining concessions and the ability to operate through a stable regime that governs permitting are essential in order for mining companies to invest in Turkey as opposed to other countries. If uncertainties exist, then it becomes very difficult to make the investment commitment,” Anderson said.

The government’s June amendments and the recent flurry of activity in the Turkish mining sector might prove to be a false dawn unless the Turkish authorities can reassure investors that they are able to support business. If they cannot do so then their ambitions targets for the sector will surely not be achieved.