The US, Ukraine's mines, and Turkey: The situation here is much more dire...

Last Wednesday evening, on the Anında Manşet program prepared and hosted by my dear friend Tuncay Mollaveisoğlu on Tele 1, when the issue of operating mines between the US and Ukraine came up, I compared the operating conditions of mines in Turkey with the operating conditions Trump proposed to Ukraine. Very interesting results emerged. The relevant part of the program was later watched by many on Tele1's YouTube channel. At the end of the program, my dear friend Emin Şirin, who was also a guest, made a suggestion: "Words fly away, writing remains. Why don't you write down this mining assessment..."

According to Trump's proposal to end the Ukraine-Russia war, the US would take over the operation of mines in Ukraine; in return, 50 percent of the revenue generated would be transferred to a fund to be established for Ukraine, while the US would recover the cost of the aid (expenditures) it provided to Ukraine during the war.

According to reports, the US had also reached an agreement in principle with Russia. According to Trump's thinking, Russia would not dare to attack a country in which the US has invested, and this was sufficient for Ukraine's security. The Ukrainian Parliament authorized Zelensky for this agreement. Everyone was expecting this agreement to be signed at the White House last Friday. However, whatever happened, first US Vice President JD Vance, and then President Trump, began to scold Zelensky. They practically attacked him. The agreement has not been signed for now. But if the US has set its sights on Ukraine's mines, it will try other ways to obtain them somehow.

Many people described this proposal and the acceptance (though not yet signed) by Ukraine as "Ukraine's Public Debt Administration" (Duyun-u Umumiye) and exploitation. I agree with the assessment that this is a grab for Ukraine's mines. However, this occasion brought other questions to my mind.

The fact that 50 percent of the revenue in the proposal would be left to the Ukraine Fund and the proposal for the reconstruction of Ukraine with this fund suddenly led me to make a comparison with Turkey. As far as I recall, the "State Royalty Share" taken from mines in Turkey was between 1 percent and 4 percent of the pit-head sales price depending on the type of mine, and 15 percent for gold mines...

I do not know the details of the unsigned agreement. I think the revenue referred to as 50 percent is defined as the profit obtained after all operating expenses are deducted. However, the "State Royalty on Mines" we talk about is 1 to 4 percent of the total value obtained at the pit-head... Therefore, if we are talking about turnover in one and profit in the other, we cannot make a comparison.

I tried to estimate what percentage of revenue a 4 percent turnover corresponds to. We must know this more or less so that we can compare the 50 percent revenue offer with our "state mining royalty."

Undoubtedly, there will be different costs for every mine, every region, and every mine site. I do not have the opportunity to analyze the balance sheets of individual companies. The Istanbul Chamber of Industry (İSO) 500 Largest Companies list was an important source for me. Of course, if more detailed data comes from the Chamber of Mining Engineers or associations of companies engaged in mining activities, I will evaluate them in future articles.

Let's not get into details like 1 percent. Let's proceed with the highest rate, which is the 4 percent the state receives based on the pit-head price. The state takes 4 liras of a 100-lira product. How much of the remaining 96 liras is cost, and how much is profit? This is what we are looking for.

I took a look at the profitability ratios of private firms in the mining sector in the İSO 500. 2022 was a year when profits exploded. Therefore, I looked at both 2022 and 2023. (I think the 2024 results will be announced in May.)

For private firms operating in the mining sector;

In 2022, return on equity was 58.8 percent, return on sales was 52.7 percent, and return on assets was 37.6 percent...

In 2023, return on equity was 26.4 percent, return on sales was 37.6 percent, and return on assets was 20.7 percent.

If the state royalty is taken over the pit-head sales price, we will try to estimate more or less how much the state royalty is over the return on sales.

In 2022, the return on sales was 52.7 percent.

53 liras of 100 units of sales is profit. The remaining 47 liras are expenses. Operating expenses, interest expenses, rents paid to the state, etc...

53 liras is the miner's profit, and 4 liras is the profit the state receives. Total profit is 57 liras... 4 liras of the 57-lira revenue belongs to the state. When we look at it as a ratio, 4/57 = 0.07... 7 percent of the profit is the state's, and 93 percent is the private company's. They will say, "We also pay taxes on this 93 percent." Of course, you will pay taxes. You would pay taxes even if you did another job.

2022 was the year profits exploded. Let's look at 2023.

Return on sales is 37.6 percent... Let's round it. 38 liras out of one hundred... There is also 4 liras of revenue obtained by the state. Total revenue is 42 liras... 4 liras of the 42 liras belongs to the state. 4/42 = 0.095... 9.5 percent of the return on sales belongs to the state.

What did we say? Trump will exploit Ukraine by offering 50 percent for Ukraine's mines...

We look at Turkey. The share the state receives over the return on sales is not even 10 percent, let alone 50 percent. It only goes up to 15 percent with rent and license fees. The data is a thousand times worse than the US exploitation of Ukraine...

The situation is different for gold. The state royalty for gold is 15 percent. We take 15 percent per ounce. If we accept the ounce price of gold as 2900 dollars, (2900x0.15) it is 435 dollars. According to S&P data for 2024, the cost of extracting one ounce of gold is 1517 dollars. (It was 1300 dollars in 2022) The revenue obtained from gold is approximately 1400 dollars per ounce. When we look at it over the 1400-dollar revenue, the state royalty on gold is (435/1400 = 0.31) 31 percent...

The proposition that emerges from this is, of course, not "it would be better if Americans operated the mines, not our local cronies." My proposition is, based on the example of MTA and Etibank established in 1935 as in the era of Gazi Mustafa Kemal Atatürk, the nationalization of all mines, and the transfer of exploration activities to MTA and operation and processing activities to Etibank.

MINING AND THE ENVIRONMENT

This is also a fact... There is no country in the world that has become rich and developed by exporting mines as raw materials. (Let's keep oil wealth separate) If that were the case, the richest countries in the world would be African countries. The export of mines as raw materials needs to be banned. It is also a fact that there is a technology gap in mine operation and processing. For example, we sell a ton of boron as raw material. With the revenue we get, we can only buy an average of 150 grams of processed boron product. Like 7000 liras for one lira... What needs to be done is to create autonomous, accountable State Economic Enterprises (KİT) and, when necessary, ensure that these KİTs establish transparent partnerships with domestic and foreign capital that have high technology and will operate in our country.

And of course, one of the most important issues is that the recklessness towards the environment in mining activities, especially in gold mining, must be ended. Environmental impact assessments should be carried out by prioritizing criteria that protect nature.

COAL AND OLIVES

Let's give small examples for olive oil and coal. Data I quoted from the Olive Oil and Table Olive Product Report 2022 published on the Ministry of Agriculture and Forestry website.

World average olive oil prices are 5150 Euros per ton in Italy and 4260 Euros in Spain. Let's convert the lower Spanish price to dollars at a 1.05 parity. The export price of 1 ton of olive oil is 4473 dollars. However, Turkey can only export bulk olive oil, not branded. Therefore, our prices remain lower. (One of the traps of the Customs Union with the EU) According to the data in the Product Report, Turkey's olive oil export price per ton is 3628 dollars.

Now let's go to the MTA website and look at mineral import prices. Our hard coal import per ton is 142 dollars...

Turkey is cutting down both forests and villagers' olive trees for the Yeniköy and Kemerköy thermal power plants in Akbelen, Muğla. What is the logic of slaughtering forests and olive trees that live for over a thousand years and provide olive oil worth 3628 dollars per ton for 142-dollar hard coal that has a reserve of at most 30 years and ruins nature, forests, and olive groves? I have no information about the cost of the coal extracted by the companies operating the thermal power plant by destroying forests and olive groves in exchange for 142-dollar imports. It must be cheaper than 142 dollars that they cut down olive trees that provide products worth 3628 dollars and destroy the forest habitat.

Is the profit of the companies operating the thermal power plants more important, or the welfare of the local people and the total economic benefit? Furthermore, let's put all economic benefits aside; what can you measure the value of the natural wealth you destroy in forests and olive groves with?