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Mining + Metals E1:R2

Mining + Metals E1:R2

Key Developments

◢ Copper production is beating expectations, and NICICO should expect to see healthy profits this year

◢ State mining conglomerate IMIDRO is set to receive a USD 3 billion loan from the National Development Fund to support further exploration


 

NICIC Performance Improves

National Iranian Copper Industries Company (NICICO) saw copper production increase by 6% y-o-y in the first quarter of the Persian calendar year of 1395 (began March 2016). The total volume of copper produced hit 98,880 tons. This accounts for 37% of the annual target of 265,268 tons. 

Additionally, the production of copper concentrates increased by 5% y-o-y in the first quarter of the present year. Production of copper concentrate stood at 94,733 tons as of July 21, exceeding the projection of 89,765. These production figures suggest that NICICO will top last year's (1394) profit of IRR 108 per share, which was 23% below protections. 

However, strength in NICICO reported figures reflects strong performance in domestic sales. Exports have actually lagged behind estimates by 21%. Another point to consider is that NICICO has realized IRR 118 billion from net non-operating expenses, far less than the IRR 440 billion that was expected in the same period. The fall in revenues from non-operating expenses results from devaluation of NICICO’s current assets.

But performance seems to be improving. In the quarter ending on June 20, NICICO achieved profits equal to IRR 86 per share, with the net interest coverage being 53%. A 5% adjustment of the net profit was projected for the Persian year of 1395. And, reasons for proper coverage include 35% coverage of the sales price, and 30% coverage of the cost price which have led to an improved gross profit margin.

Challenges in the Iron Ore Sector

Global devaluation of iron ore and a domestic dispute over exportation of processed or raw material has hampered the iron ore sector, leading to 6,000 lost jobs. 

Major state-owned enterprises have passed blame on to the private sector, trying to suggest that a a lack of reinvestment led to falling productivity. But in reality the private sector mining firms have been on the leading edge, developing small and medium sized mines with generally newer and more efficient machinery and processing equipment. The private sector firms accounted for more than 14 million tons of ore production in Persian calendar year of 1392 (ended in March 2013). However, new tariffs, intimidation, and more recently the removal of tax exempt exports for mineral products forced some mining firms out of the sector. 

The importance of iron ore mining is also tied to its ability to bring economic development to the far corners of Iran. But faltering performance in the industry had led to job losses. Across the value chain there have been issues. For example, growth in the steel industry has been inconsistent. Mining firms had predicted a much stronger level of growth in the domestic consumption of steel and many mining firms reinvested revenues from exports to explore, develop, equip, and establish concentrate and pelletizing processing lines. However, the soft demand downstream among steel producers in particular has hurt the mining sector. In some cases, mines have had to downsize to cover the financial burden of the earlier reinvestment programs. 

USD 3 Billion for IMIDRO

The  Iranian Mines and Mining Industries Development and Renovation, IMIDRO, is Iran's state-owned mining and metals conglomerate. The heavy presence of state enterprise in the sector means that large scale foreign investment is probably not deliverable in the near term. As a stop-gap, Iran's National Development Fund is mulling a USD 3 billion loan for IMIDRO to enable to company to invest in exploration and modernization of production. IMIDRO has over 250,000 square kilometers of its agenda for further exploration, and the Sixth Five-Year Development Plan includes provisions for the government to support further development on the mining sector. 

Lead and Zinc Industry

There are currently 85 zinc production plants in the country with the capacity to produce 450,000 tons of zinc ingots and 420,000 tons of lead ingots. This makes Iran the fourth biggest producer of lead and zinc in Asia, following China, Kazakhstan, and India. However, the country has the world's second largest reserves of these metals, accounting for 3% of total of the world's reserves, primarily concentrated in the Angouran and Mehdiabad mines. 

But supply chain challenges mean that smelters still struggle to get their hands on adequate raw materials for ingot production. Production plants therefore operate at just 30% of their capacity. The key point is that the mining firms must become more active in exploration, extraction, and processing and thus better meet demand. 

The lead and zinc ingots are exported to China, India, Turkey, South Korea, UAE, Taiwan, Pakistan and European countries. But if the export potential is to be reached, industry consolidation will be necessary to drive down the cost price of ingot production, thereby increasing competitiveness of the Iranian product in global markets.  

 

 

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