By Eric Onstad
LONDON (Reuters) - Iran's rich deposits of zinc, copper, gold and other minerals are tempting international investors after the lifting of Western sanctions, but development of the sector will take time and problems will have to be overcome.
A slump in metals prices and uncertainty about working with the Tehran government, which controls virtually all the country's mines, means that many foreign mining firms are not scrambling to sign deals.
Nevertheless, some agreements have already been struck and other foreign firms have been looking at Iran's mining and metals sector in the weeks following the scrapping of sanctions as part of a nuclear deal, which went into force last month.
Iran, which boasts one of the world's largest undeveloped zinc projects and myriad other mines, has been trying to lure investors since it became clear that sanctions would be lifted under last year's deal signed by Tehran and six world powers.
Iran's state-owned mines and metal holding company IMIDRO told an Australian mining conference in November that its mining sector needed $20 billion of investment by 2025.
"Iran absolutely has world class mining assets, which have hitherto been shrouded from investors, but we're in the depths of one of the darkest, worst downturns in mining for some time," said Neil Passmore, chief executive of Hannam & Partners boutique merchant bank in London.
The slump in commodity prices has hit international mining firms, forcing them to sell assets, cut dividends and slash capital spending to preserve cash, but some deals with Iran are still being done.
"During the six to 12 months that it's looked likely sanctions would be lifted, people have been starting to do some work and now that things have opened up, they're increasing the pace," Passmore added.
In India, national aluminium company NALCO (NS:NALU) said last month it planned to send a team to Iran to explore setting up a smelter worth about $2 billion and state-run KIOCL is considering building an iron ore pellet complex.
Other companies from Italy and China to South Korea have either signed deals or are looking into possibilities.
FACTBOX-Iran's mineral wealth spans gold to zinc
UNCERTAINTY
But highlighting the uncertainty among potential investors, NALCO said it was also looking at Oman and Qatar as possible sites for its aluminium smelter.
A spokesman for global miner Rio Tinto (L:RIO) (AX:RIO), which was previously involved in the Sara Gunay gold project in Iran, said there was no work being done by their exploration team regarding the country.
Chief Executive Mark Bristow of Randgold Resources (L:RRS), which has experience of mining in risky areas of Africa, told Reuters the firm was not interested in Iran.
Dealing with Iran, which is beset by political infighting between pragmatic and hardline factions, can be complex and time consuming. Foreign energy executives hoping to invest in oil and gas fields there complain Tehran has still not revealed contract terms, abruptly cancelling a conference due to be held this month when they had expected it to do so.
Although minerals development may take years, Iran's bounty and low energy costs will eventually build it into a substantial player in the global metals industry, analysts say.
Iran's Mehdiabad project is one of the world's largest zinc deposits, which was previously due to be developed by Australian's Union Resources, with annual output of 300,000 tonnes a year.
Iran says it has 68 types of minerals, including iron ore, coal, gold and copper with total reserves of 43 billion tonnes.
Besides growing as a producer, the country of 80 million people is also set to help boost global demand for metals since it is the biggest economy to rejoin the global trading system since Russia, following the breakup of the Soviet Union over two decades ago.
"As they get more oil revenue, there's no reason why they shouldn't look to diversify the economy and drive metals exports," said Robin Bhar, head of metals research at Societe Generale (PA:SOGN) in London.
"It plays both ways, as they're welcomed back into the international fold, hopefully they'll also contribute to the demand side of the ledger, as they've got a young and rising population."