Economy, Business And Markets

Challenges Ahead for Mining Sector

Challenges Ahead for Mining SectorChallenges Ahead for Mining Sector

The global decline in the prices of minerals, such as iron ore, along with high costs of production have caused serious concern for Iranian miners, especially owners of small private mines who are struggling with dwindling profit margins and rapidly losing their competitive edge in the global markets.

Market analysts believe that in light of uncertainties surrounding the mining sector, many small and medium scale mineral units in Iran will soon have no option but to close down since they are unable to compete in the global market.

Professor and expert in the mining industry, Ahmad Meshkani believes certain factors have disturbed the balance between production and cost in Iran’s mineral market, leading to less profitability. He cites “high fuel and transportation costs” as an important parameter affecting the price of finished products.

“The transportation cost of mineral materials has increased at least twofold in recent years, causing sharp drops in profitability for miners,” said Meshkani, in a report published by the Persian daily Ta’adol newspaper.

 Dependence on Dollar, Transportation Prices

“Producers and exporters have gained considerable profits thanks to the sharp rise in the value of the dollar, which has to some extent restored economic viability in terms of production activities, but also hampered efforts to reduce production costs,” he said.

Noting that restoring the balance in the mining sector requires less dependence on the price of the dollar as well as transportation for gaining profitability, the expert said hard currency rates must be stabilized to help restore the natural balance between demand and production.

“Iranian miners are expected to compete in the global markets, even with the global decline in mineral prices, while the price of finished products in Iran is not even comparable with those in rival markets due mostly to soaring inflations, high interest rates on loans provided by banks and other unexpected parameters that lead to high production costs in the country,” Meshkani added.

 Mining Districts

Predicting a further drop in domestic market demand for mining products in light of global slump in oil prices leading to allocation of less government funds for infrastructure projects, the expert suggested establishing mining districts in areas of high mineral potential to integrate and empower the small and medium-scale mines.

To establish the mining districts, areas with high mineral resources should be identified and equipped with suitable transportation facilities. Such initiatives could be carried out in cooperation between the private and the public sectors, with the private sector carrying out the mining and extraction activities and the government responsible for the construction of mineral processing plants and developing downstream industries, he explained.

 More Production, More Royalties

Member of the parliament’s Industry & Mining Committee, Allahverdi Dehqani believes the government could increase its revenues from mine royalties by paying more attention to development of downstream industries in the mining sector.

“The government should fund the downstream mining industries to help them boost production and profit, which will in turn generate more revenues for the government through royalties.”

The lawmaker’s remarks regarding royalties comes as some mining experts believe too much government pressure on small and medium mines will push them further to close down due to low profitability.

Shahnaz Navaee, a member of Iran Mine House, believes that currently the government lacks sufficient staff and a well-defined evaluation system to supervise and determine the mines’ actual yields before imposing tax and royalties.

In light of the global decline in demand and prices of mineral products and high production costs in Iran, the expert believes the high royalties imposed by the government will only add to the burden of miners and lead to more recession in the struggling sector.

As the Rouhani government is turning to new sources of revenues to replace oil revenues in light of the global slump in oil prices, miners are hoping that the government will do more than just eyeing higher mine royalties and introduce development plans in the mining industry to revive this sector.