A new wave of mining exploration is getting under way in Myanmar, and it has been a long time coming. With a few exceptions, Myanmar has been generally cut off from developments in the international mining industry since the days of the British Empire.
After the Second World War, the newly independent Burma was too politically unstable to attract much new exploration or development before all mines and underground resources were nationalised in the 1960s. Myanmar briefly opened up in the 1990s by privatising mines and inviting foreign firms to explore and invest, but the effort soon unravelled as the US, Canada, Europe and Australia imposed economic sanctions. From then until recently, Chinese firms were the only major foreign players on the Myanmar mining scene, and they mainly focused on already well-known deposits. There has not been extensive exploration using the latest technologies in most areas since the 1930s or earlier, and in some areas, not ever.
The lifting of most sanctions in 2012 did not quickly change that picture, as exploration licensing procedures remained difficult and slow, rights to discoveries were not well protected, profit-sharing terms were onerous and unpredictable, licence durations were short, and foreign investors continued to be barred from small projects and all precious stone mines.
Two crucial reforms are now expected to clear away most of those obstacles and open the gates to international exploration. The first, adopted in August 2014, allowed foreign investors to own up to 100% of mining licences, including smaller projects, but retained the ban on foreign involvement in precious stone mines. Mines were previously required to be at least 20% locally owned which, combined with the 20-30% government profit share, meant that foreign investors could expect to keep a maximum of 64% of a project’s profits. Miners also typically pay a single-digit tax on their sales, which vary by product.
The second reform, which was still being debated in parliament as of November 2014, is a thorough rewrite of the Mining Law, which promises to better protect discoveries, lengthen licence durations and make determination of the state’s profit share more rule-based and predictable. For example, the maximum duration of large-scale mining licences was expected to be extended from 25 years to 50 years.
The government also wants the revised law to help build consensus for mining investments by modernising environmental, labour and community relations standards. U Win Htein, director-general of the Ministry of Mines (MoM) Department of Mines, which issues mining licences, told OBG, “The Mining Law was adopted in 1994 and is out of date. Among the things we would like to add are environmental protections and corporate social responsibility standards.”
Many foreign companies have already applied for exploration licences. U Zay Htet, managing director of Georesources Group, a local provider of mining services, said there were about 200 exploration licence applications with MoM for review, including domestic firms and companies from Australia, Canada, Japan, Korea, the US, China, Thailand, Indonesia and European countries. He said about half of recent exploration licence applications from foreign companies have been to search for copper and gold and about a quarter to search for tin and tungsten. By contrast, among local companies there is a surge in applications to explore for coal, he said. “There will be a boom in exploration in the very near future. Once the new law is passed, the process of approving licences will speed up dramatically,” he told OBG.
U Zay Htet said the ministry has been quick in giving preliminary approval to exploration licence applications, as these take just a few weeks, but applicants have been bogged down when getting permission from local authorities, as their attitudes towards and knowledge of mining vary, and the 1994 law did not set clear procedures and standards for them to follow. In less explored regions, local officials lack knowledge of how the mining industry works. For example, U Zay Htet cited a case where local authorities were alarmed at the amount of territory an applicant was seeking to explore and demanded it be reduced to 100 acres. “That could be a reasonable size for a mining site, but for exploration it is too small to be worthwhile and unnecessarily so, since exploration is not destructive. They simply did not know the real conditions of the mining industry,” he told OBG.
Politics As Usual
Local authorities have been especially cautious and demanding, since protests erupted against the Monywa copper project after China’s Wanbao Mining took it over in 2011. Those protests are seen by mining executives as specific to that project and fuelled by perceptions that China has taken advantage of Myanmar’s weakened position while it was under international sanctions. Nonetheless, central and regional authorities have since been requiring that mining licence applicants demonstrate high levels of community support.
U Htun Lynn Shein, chairman of leading local mining, oil and gas company Myanmar Precious Resources Group (MPRG), told OBG, “The protests at Monywa did slow things down, though not intentionally. The government is being more careful and trying to make sure local authorities and any other affected ministries such as agriculture can have their say. However, it adds a lot of red tape. All these public bodies do not always know how to assess mining projects and it takes a lot of time to coordinate them all.”
In remote areas where rebel armies are active, they will typically request a share of profits in return for security. However, that does not equate to support from the local population and local official authorities are another party. Military firms have an advantage in this area. For example, at the Mawchi tin mine in the eastern Kayah State, where Karen rebels have been active, the military enterprise Union of Myanmar Economic Holdings Limited (UMEHL) has a stake in the mine and the army provides security. UMEHL also has a stake in the Monywa copper project and the army has been involved in crackdowns on protests against the mine. Mining experts and executives were hopeful the Mining Law would be passed imminently but some admitted that as time passed the chances were shrinking that parliament would act before national elections due in fall 2015. U So Lin, executive director of Tun Thwin Mining, told OBG, “They are already getting busy preparing for the elections, so finding compromises is getting harder.”
U So Lin told OBG that one of the issues being debated in parliament was how to make the determination of profit shares more predictable and accordingly less open to haggling. He said the MoM has traditionally negotiated profit shares, telling OBG, “The mining company proposes a number, the ministry comes back with a higher number, and then they go back and forth until they settle for somewhere in between.” Therefore, his understanding was that the latest draft would establish guidelines, but vie the MoM flexibility to negotiate.
Among the few foreign companies that have received an exploration licence since the lifting of sanctions is Korea’s Daewoo International, already a major player in Myanmar’s offshore gas sector. Daewoo’s joint venture partner is MPRG, and they began exploring the Shangalon copper and gold prospect, north of Mandalay in the Sagaing region, in 2014.
The prospect is one of the few in the country that has seen relatively modern exploration work, by Canada’s Ivanhoe Mining in the 1990s. Daewoo has brought in a Korean 700-metre diamond drill – a standard piece of equipment for the international mining industry but a technological leap forward for Myanmar.
U Htun Lynn Shein told OBG, “When mining was privatised in the 1990s, initially we had only hand-worked mines and no exploration. Today the domestic mining industry is much bigger and more advanced, and we’re ready to take the next step.” Also recently licensed is Asia Pacific Mining Limited (APML), a new Hong Kong-based mining company founded in 2012 by former Ivanhoe executives specifically to explore in Myanmar. In October 2014 APML became the first 100% foreign-owned company to receive an exploration license, which it first applied for in 2012. The licence covers a tract surrounding an old lead and zinc mine, Namtu-Bawdwin in the eastern Shan State, which has been producing for a century. APML also has made three additional applications for copper and gold prospects in the Sagaing region near the Monywa copper project, originally developed by Ivanhoe.
Another exploration project is the Mway Taung ferronickel prospect, led by China’s Zijin Mining, with Wanbao Mining as a minority partner. Exploration begun in 2012 indicated more than 500,000 tonnes of nickel content, according to the firm. As of November 2014 the partners had completed a feasibility study, but the project had not yet been licensed for production. The Australian firm Asia Mining was also recently licensed to explore for heavy sands and five Chinese and Russian firms have licences to prospect for tin, tungsten, copper, gold, iron, and antimony.
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