Bulgaria Mining Report 2009

In February 2009, the Chamber of Mining and Geology expected a decline in production within the Bulgarian mining sector of 30-50% as the financial crisis makes itself more apparent in the second half of the year. Following production cuts, job losses are likely to follow. Currently, 30,000 people are employed in the mining industry with a value of BGN2.5bn (US$1.8bn), or 5% of Bulgaria's GDP, placed on their production. The fall in prices of metals and the rapid increase in Bulgarian wages had a huge impact on revenue generated from ore extraction, which was halved. In April 2009, a more optimistic forecast was issued by the Bulgarian Industrial Capital Association with the hope that mining companies might start to have a more positive and prominent effect on the country's economy by the end of the second quarter.

There are a limited number of indigenous fossil fuels in Bulgaria and ensuring that these resources can be used to meet the country's energy requirements depends on utilising limited reserves, such as coal, efficiently. In 2007, coal and lignite production accounted for 38% of the country's power generation and 13,600 people were employed in the coal industry, up 7% from the previous year. Production output also rose in 2007, up 11% to approximately 28.4mn tonnes.

Throughout 2008 many mining companies experienced record levels of production of both hard coal and lignite coal. Maritsa Mines expected production to increase in 2008 to 24.5mn tonnes, which would be an 800,000 tonne increase year-on-year (y-o-y). Record production and extraction levels were also reported by Maritza Iztok and from the Bobov Dol mine. Maritza Iztok had produced 107% of planned quantities of lignite coal in the period of January-September 2008. The power plant and coal mine at the Maritza Iztok complex are interdependent, with the sole supply and demand for coal coming from each other.

Located in south east Europe, Bulgaria produces several metallic mineral resources, including copper, iron, lead, zinc, manganese and coal. Coal is the key mineral fuel in Bulgaria, with 38% of the nation's power generation dependent on coal. The nation also has large manganese reserves. However, the mining industry in Bulgaria is small by global standards.

Concern about labour wages outrunning production levels was expressed in November 2008 after a survey by the Bulgarian Industrial Association was released. In the past three years, Bulgarian wages have increased by 40%; quadruple the acceleration rate of elsewhere in the EU. In the mining industry alone, salaries overshot production by 20%, making the economy vulnerable as increased consumption contributes towards inflation and widens the current account gap.

In March 2009, Reuters reported that production of copper concentrates in Bulgaria had dropped by 8% in 2008 to 473,033 tonnes from the previous year. A fall in average copper prices of approximately 70% had attributed to this result, according to the Bulgarian Chamber of Mining and Geology.

The government is aware of the effects from the global economic downturn after seeing many companies cut production and suffer from job losses. As of February 2009, it was announced that several anti-crisis measures would be introduced to ease the pressures within the mining industry, including an exemption from paying the respective part of exemption fees to the state and the guarantees for their concession to the bank. This exemption would cover all mining companies over a two-year period.

Industry Forecast The government's initiatives to transform the economy from a state-controlled system to a market-based system would increase private participation and help in driving the growth of the domestic mining industry. BMI forecasts an average growth rate of 5.7 % for the Bulgarian mining industry over the period 2008-2012. We expect that the value of the mining industry in Bulgaria will reach an estimated US$0.9bn by 2012.