THE REPUBLIC OF TURKEY PRIME MINISTRY

Investment Support and Promotion Agency of Turkey (ISPAT)

The Investment Climate and the Mining Sector in Turkey

M. İlker Aycı, President of ISPAT

March 4, 2013 PDAC, Canada

ANKARA ISTANBUL

The Republic of Turkey Prime Ministry Investment Support and Promotion Agency

• Attached to the Prime Ministry and • Reports directly to the Prime Minister

• 2 offices (Ankara – Istanbul)

• Established in 2007

• Private sector approach

• Multi-lingual, professional and

dedicated project directors, International representatives network worldwide

• Guidance on: Laws, Regulations, Site Selection, Sectoral Reports, Local Market Players, Potential Partners

• Confidential, Free of Charge

2

The International Network

ISPAT

3

Dynamic, Stable & Attractive Economy

Strong Domestic Market

International Hub to Access Multiple Markets

Investment Friendly Business Environment

Why invest in Turkey?

4

Source: IMF World Economic Outlook, April 2012;

5,2

4,8 4,7 4,6 4,5

3,9 3,8 3,7 3,6 3,5

3,4

2,3

1,5

1

2

3

4

5

6

Average Annual Real GDP Growth (%) 2002-2011

5

774

514

448

408

279 248 239

215 190

165 140

96

54

0

100

200

300

400

500

600

700

800

2011 GDP (Current Prices, $Billion)

Booming economy reaching $774 billion in 2011 up from $230 billion in 2002

Why invest in Turkey?

Source: IMF World Economic Outlook, April 2012

Fastest growing economy in Europe

6

9,2

7,5

6,3 6,2

5,5

4,3 4,2 3,9

2,7

1,3

0,4

8,5

2,7

3,6

6,5

4,0 4,3

3,3

4,4

1,7 1,7 1,7

0

1

2

3

4

5

6

7

8

9

10

Tu

rkey

Brazil

Ko

rea

In

don

es

ia

Mexic

o

Ru

ssia

Slo

vakia

Po

lan

d

Czech

Rep

.

Hu

ng

ary

Bu

lgaria

2010 2011

Annual Real GDP Growth (%)

Why invest in Turkey?

Source: OECD Economic Outlook No.91, June 2012

5,2

4,8

3,6 3,6 3,5 3,4 3,3 3,3

2,9 2,8 2,8 2,8 2,7 2,6 2,6 2,5 2,5 2,4 2,3 2,3 2,2 2,2 2,1 2,1 2,1 2,0 1,9 1,9 1,8 1,8 1,7 1,7 1,6 1,4

1,2

0,0

1,0

2,0

3,0

4,0

5,0

6,0

Turk

ey

Chile

Austr

alia

Norw

ay

Mexic

o

Kore

a

Slo

vak R

ep.

Esto

nia

Icela

nd

Luxem

bourg

Pola

nd

Isra

el

US

Irela

nd

Sw

eden

Czech R

ep.

Austr

ia

OECD

Spain

New

Zeala

nd

Hungary

Canada

Fin

land

Sw

itzerland

Denm

ark

Neth

erlands

UK

Italy

Belg

ium

Fra

nce

Gre

ece

Slo

venia

Germ

any

Port

ugal

Japan

7

Average Annual Real GDP Growth (%) Forecast in the OECD Countries 2012-2017

Turkey will be the fastest growing economy among the OECD countries in the near future

Why invest in Turkey?

4h

Strong Domestic Market and an International Hub

Why invest in Turkey?

National Treatment

=

Guarantee of Transfers

Access to Real Estate

International Arbitration Employment of

Expatriates Freedom to Invest

Protection Against Expropriation

The New Commercial Code

Corporate Income Tax

9

Investment Friendly Business Environment with Structural Reforms

Why invest in Turkey?

Global Competitiveness Index

Year Number of Countries

Turkey’s Rank

Turkey’s Rank

(Percentile)

2004 104 66 63,5

2005 117 66 56,4

2006 125 59 47,2

2007 131 54 41,2

2008 134 63 47,0

2009 133 61 45,9

2010 139 61 43,9

2011 142 59 41,5

2012 144 43 29,8

Source: WEF

Structural Reforms: Yielding Results & Increasing Competitiveness

Why invest in Turkey?

Turkish Mining Industry

11 SOURCE: General Directorate of Mineral Research and Exploration

Boron Salts

Marble

Na-Feldspar

Bentonite

Pumice

Perlite

Diatomite

Barite

Chromium

Silver

Gold

Phosphate

Copper

Iron

72,00%

40,00%

19,14%

13,40%

9,74%

8,70%

4,81%

4,73%

1,44%

1,06%

0,67%

0,57%

0,29%

0,03%

Turkey is one of the richest

countries in the world in terms

of minerals.

It possesses the largest

reserves of several minerals.

Mining reserves in Turkey (as a percentage of world reserves)

12 SOURCE: Ministry of Energy, USGS

Turkish Mining Industry

Turkey’s share of world production

Turkish Mining Industry

Foreign trade of major commodities (2011)

Turkey is strong in

exports of

▪ Gold jewelry

▪ Natural stones and cement

Major trade

imbalances in

▪ Coal

▪ Copper

▪ Aluminum

PPI is a composite index that

measures the effects of

government policies on the

investment attractiveness.

SOURCE: Fraser Institute

Turkish Mining Industry

Policy potential index for mining (score out of 100 in 2012)

Turkey is an investment friendly destination for mining companies

0

10

20

30

40

50

60

70

Canada Australia Turkey Brazil South

Africa

Russia Kazakhtan India Zimbabwe

70 65

50

38 35

28 23 21

13

▪ Low sea freight rates in Turkey supported due to availability of excess container capacity on the Turkey – China route

▪ Overall processing cost increase in SA driven by power tariffs

2010 cost comparison USD per metric tonne (real 2011)

2020 cost comparison USD per metric tonne (real 2011)

59 64

25

47

31

21

Mining costs

Processing costs

Royalties

Inland transport

Sea freight

Other

158

4

34

3

194

6

55

2

* Underground mines with ~1 million metric tonne

75 70

36

52

34

18

Mining costs

Processing costs

Royalties

Inland transport

Sea freight

Other

172

5

41

4

241

10

66

2

Turkish Mining Industry

Comparison of Turkish and South African CIF China cost base for comparable mines*

SOURCE: Nithia Capital Resources

2004 2005 2006 2007 2008 2009 2010 2011 2012

138 188

236

318

409

478 537

627 687

Source: Ministry of Economy

Turkey wants to see more companies investing in exploration, exploitation, and refining facilities

Turkish Mining Industry

Number of Companies with Foreign Capital in Mining

NEW INCENTIVE SYSTEM

1. General Incentives 2. Regional Incentives

3. Incentives for large-scale Investments

4. Incentives for Strategic Investments

VAT Exemption

Custom Duty Exemption

VAT Exemption

Custom Duty Exemption

Tax Deduction

Employer’s share for

insurance premium

payment

Land provision

VAT Exemption

Custom Duty Exemption

Tax Deduction

Employer’s share for

insurance premium

payment

Land provision

Interest Support (except

1st and 2nd regions)

VAT Exemption

Custom Duty Exemption

Tax Deduction

Employer’s share for

insurance premium

payment

Land provision

Interest Support

VAT Refund

In the 6th Region: income withholding tax and employee’s share for insurance premium payment

The New Incentive Scheme

17

• V.A.T. Exemption (for the imported and domestically provided Machinery and Equipment)

• Customs Duty Exemption (for the imported Machinery and Equipment)

• Reduced Corporate Income Tax (C.I.T. between %2 - %10)

• Social Security Premium Support (Both Employer’s and Employee’s Share, for 2 – 12 years)

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• Land Allocation • Interest Support • Income Tax Withholding Allowance • VAT Refund for Construction Expenses • Rates of instruments determined in a

descending rate in 6 regions scaled from the most developed to the least developed regions

The New Incentive Scheme

“Specific Priority Investments” Incentives for Mining Investments in the mining sector can enjoy special privileges, and will be supported by the more attractive instruments of Region V regardless of their location. Strategic Incentives Mining investments can also benefit from stronger supports than other incentives under the “Strategic Incentives” scheme, regardless of the region, provided that they meet the below criteria: • to be made for the production of intermediate and finished

goods with high import dependency and of these goods more than 50% are supplied by imports

• to have a minimum investment amount of TRY 50 million • to create a minimum added-value of 40% • to possess an import value of at least USD 50 million during the

past one year, for goods to be produced

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The New Incentive Scheme

ON

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