Economy, Business And Markets

Gold Production: Iran and the World

Gold Production: Iran and the WorldGold Production: Iran and the World

Sanctions have given gold a lot of headline space in Iran, mostly in relation to the gold trade with Turkey. However, gold production is another field in which Iran has invested much domestic capital, and if given the opportunity to open up, might attract considerable foreign investment.

In the post-Bretton Woods global economic system, gold plays a very particular role as the ultimate holder of value. Exchange in and hoarding of gold increases when other major reserve currencies are seen as volatile or unsafe.

For developing and frontier economies, like Iran, gold fulfills another important function, namely as a safeguard for the value of the local currency. Developing countries which are vulnerable to trade deficits have in particular tried to build up their gold reserves in recent years, with countries such as Indonesia, India, Brazil and Turkey at the forefront. The fear that the US would end quantitative easing and raise interest rates in late 2013 caused a significant drop in the value of these states’ currencies. Gold and dollar reserves were seen as the most important tools to counter capital outflows.

However, Iran’s relationship with gold is more unique. In 2012, the President of the United States passed several Executive Orders in which the sale of precious materials to Iran was forbidden. In the same year, the European Union adopted Regulation No.267, which, in addition to strict limitations on trade or investment in Iran’s petroleum industry, also forbade its member states to trade gold with Tehran. As oil exports have slumped and imports have been more expensive, Iran has amassed significant reserves to counter domestic inflation and current account deficits


 Part of Resistance Economy

The philosophy behind the resistance economy is practical and aims to limit Iran’s dependency on global markets and increase its domestic economic security.

Against these decisions stands the bitter reality that gold production in Iran, like in the rest of the Middle East, has not hit world headlines. However, that does not imply there is no potential in Iranian gold production. In fact, recent discoveries, as well as the global trend show that Iran might still have a lot in store.

Over the past 50 years, global gold trade has experienced a revolutionary shift from monopoly to dynamic global competition. South Africa was the world’s prime gold producer and in 1970 reached its record share of 79 percent of global production. However, it has gradually lost share over the 1980s and 1990s to new entrants as new technologies, such as heap leaching, were introduced and gold discovery reached new areas.  

Diversification continues and other top producers, such as Canada, the US and Australia have lost market share. In 2000, the top 5 producers just accounted for over 50 percent of global production. In 2011, Kazakhstan, geographically not too far from Iran, entered the list of top 20 producers, while Iran’s neighbor Uzbekistan already occupied rank 11, according to Thomson Reuters.

Firstly, gold exploration and excavation is a technology-intensive field where Iran has been lagging behind other countries which have easier access to global capital markets. Iran remains a sanction-afflicted country where the latest technology is difficult to come by.

 Zarshouran Mine

Nevertheless, Iran has made an impressive move over the last few years in expanding output. According to the latest US Geological Survey, Iran produced 1 ton of gold in 2008. This figure doubled by 2009, and reached 2.5 ton in 2012. This figure looks set to double again in 2015 as new mines have opened. Most importantly, in November 2014 the Zarshouran mine was officially opened, albeit with delay. The mine would constitute the largest of its sort in the entire Middle East, with an output of 3 ton gold and 2.5 ton silver annually. Mehdi Karbasian, deputy minister of industry, mines and trade stated that the project required a total of 1.7 trillion rials ($49.2 million) in government investment.

Notable about this mine, and about future projects in Iran, is that its potential was understated. According to Karbasian, initial projections put its reserves at 55 tons of gold but the latest investigations show that it could contain as much as 110 tons, which is enough for 40 years. According to the Persian daily Donya-e Eqtesad, this mine would help bring Iran’s total production to 6 tons annually soon. Iran thus follows the global trend: new discoveries have the potential of shaking up the status quo and allocating more market share to smaller competitors.    

Fars news agency reported in November that the share of mining in total GDP was less than one percent, which is surprising given Iran’s huge potential and reserves. However, the mining sector has also been growing at a much faster pace than other sectors. According to the Central Bank of Iran, growth in the mining industry reached 10.5[WU6] percent in the first half of the current Iranian year, more than 2.5 times the rate of GDP growth. However, sanctions keep even this growth rate far below potential.

Mining in Iran thus has huge potential, and gold production in particular could play an outstanding part. Being able to open up the gold industry to foreign investors would be a huge strategic asset for Iran as it could form one of the essential components of a viable resistance economy.