Economy, Business And Markets

Mining Capitalization to Replace Oil Revenues

Mining Capitalization to Replace Oil RevenuesMining Capitalization to Replace Oil Revenues

It has been echoed many times by government officials that the country needs to move away from a single-product economy that relies solely on oil revenues. Oil price fluctuations have sent shockwaves through the economy more than a few times, and the repercussions along with the necessity to find an alternative are well felt.

The Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei, during his recent meeting with President Hassan Rouhani and Cabinet members on August 26, also emphasized this necessity.

“The oil market, in which prices drop from $100 to $40 in a blink of an eye, is not reliable at all. We have to consider finding a suitable alternative,” said the Leader.

The best possible alternative, according to him, is to focus on the untapped potential of the mining sector.

Iran’s mineral reserves, according to statistics, are truly a force to be reckoned with. Iran is among the world’s top 10 mineral-rich countries with more than 4% of the world’s total mineral reserves and ranks first in the Middle East. It holds 70 types of minerals and about 40 billion tons of proven reserves worth $770 billion.

Furthermore, 12 of the world’s largest mines are in Iran, holding 8% of the world’s zinc and 3% of its lead reserves. Iran is also located on a mineral belt of iron, marble, copper and gold and has enough reserves to continue mineral exploitations for the next 100 years.

However, in reality, the mining sector is not living up to its potential. According to the CEO of Chadormalu Mining and Industrial Company, Mohammad Nourian, the mining sector’s share in the country’s GDP is less than 1%.

“With 390 million tons of minerals extracted annually, Iran is exploiting less than 0.04% of its reserves, while the global standard is 1% of total reserves per year. We are simply not using the mining sector’s significant potential,” Donya-e-Eqtesad quoted Nourian as saying.

The main issue holding back the mining sector, according to Noruian, is the low amount of mineral extraction.

“In order to meet the target of 55 million tons of annual steel production as envisioned in the national 20-year Vision Plan (2005-25), we need to extract about 135 million tons of iron ore per year, and produce 77.2 million tons of iron ore concentrates and 72 millions of iron pellets from this amount. This is while the country’s current maximum iron ore extraction capacity is 40 million tons, from which 24 million tons of iron ore concentrates, 22 million tons of iron pellets and 18 million tons of sponge iron are produced. Furthermore, about 2 million tons of iron pellets were imported during the previous Iranian year (ended March 20, 2015),” Nourian said.

He emphasized the need for increasing mineral extractions and explorations to gain access to new reserves, adding that mineral explorations attempted so far have only covered less than 8% of the country’s geographical area.

“We do not need any more steel production facilities. We only need to provide the already operational ones with proper amount of raw material. Only then can we truly implement the concept of Resistance Economy and consider the mining sector’s revenues as an alternative to oil,” he added.

Furthermore, secretary of the House of Industries, Mines and Trade, Mohammad Reza Mortazavi, believes that raw material export is a pivotal issue hindering the mining sector’s expansion, noting that Iran has exported unprocessed minerals for years, while the purchasing countries process them and create high-value added products.

“If we improve the mining infrastructure and focus on creating high-value added products out of minerals, not only will more employment opportunities be created, but also exports can be ramped up and mineral sector’s revenues will increase significantly,” he said.

Mortazavi noted that mining-specific taxes, coupled with issuing mining and mineral exploration licenses can be considerable sources of revenue for the government.