Stretching from the Himalayas in the north to the Andaman Sea in the south, Myanmar’s diverse terrain offers a wealth of untapped mineral resources. Following the easing of international sanctions and major legal reforms, the authorities now have the opportunity to rehabilitate some of the mines that were neglected during the socialist period.
Given the diverse range of mineral assets across the country, the mining industry has the potential to fuel economic expansion. However, reoccurring insurgent activity, a lack of hard infrastructure and challenging natural conditions continue to hamper output. A lack of geological information is another issue, with much of Myanmar yet to be mapped to modern standards.
The mining industry is a shadow of its former self, producing relatively small amounts of copper, gold, lead, nickel, tungsten and zinc. While the country is still a leading source of valuable jade and gemstones, the sector is dominated by subsistence miners who lack access to finance and modern equipment. As a result, the depth of mineral occurrence is unclear, with much existing data based on antiquated techniques. Nonetheless, and despite a slump in commodity prices, prospectors continue to keep an eye on Myanmar’s lucrative natural resources.
Lay of the Land
As a mining destination, Myanmar is attractive for its diverse collection of minerals, and its precious and semi-precious gemstones, including its famous jade and Mogok rubies.
The mining sector is divided into two subsectors: minerals and precious stones. The minerals segment is governed by the 2015 Mines Law, with jade and gemstone mining regulated by the Gemstone Law of 1995, although the government suspended jade and gemstone licensing in June 2016 until a new law is passed by Parliament. An amended Gemstone Law has been passed by the upper house of the legislature, but is awaiting approval from the House of Representatives (see analysis). According to local reports, members of the advisory committee said that the law will require amendments to protect the interests of local communities. In addition, the government has temporarily suspended the extension of permits for operators whose authorisation is due to expire until the new law is enacted.
Myanmar has five mines with reserves of international significance: Bawdwin (lead-zinc-silver), Monywa (copper), Mawchi (tin-tungsten), Man Maw (tin) and Letpadaung (copper). “Most of Myanmar’s historic mines languished due to underinvestment and lack of technology transfer over the past five decades,” Andrew Mooney, CEO of Asia Pacific Mining, told OBG. “Despite its proven mineral reserves, Myanmar remains nearly completely unexplored by modern geological and geophysical methods.”
According to the Department of Geological Survey and Mineral Exploration (DGSE), a department of the Ministry of Natural Resources and Environmental Conservation (MNREC), there are eight distinct mineral belts running north to south, containing more than 2000 occurrences of 60 different mineral commodities, making Myanmar home to one of the most diverse collections of natural resources in South-east Asia.
Mineral occurrences can be divided into four main groups: metallic ore; industrial minerals and non-metallic raw materials; precious and semi-precious gemstones; and fuel minerals. Myanmar is considered highly rich in jade, ruby, sapphire and limestone deposits; rich in copper, lead, zinc, tin, tungsten, gold, coal and barite; and fairly rich in antimony, silver, nickel, gypsum, iron and manganese. It also has small or poor deposits of industrial minerals such as chromite and bauxite, according to a report by the DGSE and the Ministry of Mines.
The mining industry is centrally controlled by the government, although policymakers have identified the decentralisation of resource management as a top priority in the pursuit of national reconciliation. While there is little doubt about Myanmar’s mineral potential, its policy environment has hindered investment in the past. However, measures have been taken recently to address investors’ concerns, such as the passage of the 2015 Mines Law.
In addition to new legislation, the mining sector has enjoyed greater bargaining power since the economy began opening up in 2011 following economic and political reforms. However, it still faces some complex challenges that restrict the progress of mineral exploration. Outbreaks of ethnic violence, weak land policy, low-quality infrastructure and a lack of skilled labour are often cited as problems for the industry. The upside is that major mines still offer the potential of substantial reserves and are attractive propositions for restoration.
One area in need of major restructuring and investment is downstream processing. Income generated from minerals is limited because of the inability of the local mining industry to add value to the resources it extracts.
For instance, gem miners in Myanmar only receive around 10% of the final sale price, according to estimates, whereas downstream companies in neighbouring countries with established value chains, such as Thailand, earn approximately 90% of the final sale price after adding value.
The introduction of a new mining law at the end of 2015 has generated confidence among potential investors. The decision of the former regime, led by U Thein Sein, to update the 1994 Mines Law was a clear indication of its intent to modernise the sector after decades of stagnation.
The Mining Rules for the law were issued on February 13, 2018. U Khin Latt Kyi, director-general of MNREC’s conservation office, told local press that these introduced three key changes: the authorisation of state and regional governments to manage smaller mines, allocation of responsibility to different ministries to oversee and regulate mining activities, and stipulation that mine operators must submit a mine rehabilitation plan.
Drawn up by Parliament with assistance from the Australia-Myanmar Chamber of Commerce and the Natural Resources Governance Institute, the 2015 Mines Law features several pro-business reforms. A notable amendment is the option for mining companies to enter into a form of profit- or equity-participation agreement with the government, removing the requirement for production-sharing contracts through which the state could be entitled to up to 30% of the profits from production.
Variable royalty rates have been replaced by fixed percentages, with the rate for gold, platinum and uranium set at 5%; silver, copper, tin, nickel and titanium at 4%; and lead and iron ore at 3%. Meanwhile, the rate on gemstones has been reduced from 5-7% to a fixed rate of 2%. Other changes include allowing foreign investors greater flexibility in determining their local partner, helping remove conflicts of interest. According to Section 4 (f) of the 2015 Mines Law, foreign investors may form joint ventures with small and medium-sized enterprises (SMEs), whereas previously they could only partner with large-scale operations. The validity of mining permits has also been extended, with large-, medium- and small-scale permits now issued for up to 50, 15 and 10 years, respectively.
In the past some potential investors were deterred by the lack of conjunctive tenure. These concerns were addressed by Section 11(a) of the 2015 Mines Law, which entitles a company to a production permit for a specific area so long as the necessary prospecting, exploration and feasibility studies have been conducted in advance. While permit extensions and fixed royalty rates are a welcome change, performance bank guarantees and signature bonuses remain costly and prohibitive to SMEs, with guarantees ranging from $100,000-200,000 and signature bonuses from $50,000-100,000.
Notwithstanding the improved transparency and enhancements in investor protection that have come about via the adoption of new legislation by the previous regime, the current government of the National League for Democracy (NLD) has inherited several obstacles that still need to be mitigated.
One of the more complex issues that state counsellor Daw Aung San Suu Kyi, Myanmar’s de facto leader, is determined to address is the decentralisation of natural resource revenues. Much of Myanmar’s long-standing ethnic and religious conflict occurs in mineral-rich regions. The government has therefore identified resource allocation as key to achieving its primary goal of national reconciliation. While foreign investors still require approval from central government, Section 6 of the 2015 Mines Law grants greater decision-making powers to the regions on mining permits for prospecting, exploration, production, processing and trading.
Despite efforts to improve the investment environment, mining was excluded from the NLD’s list of nine promoted sectors in 2017 (see Economy chapter). “The rationale for not making mining a promoted sector is relatively simple. The government does not want Myanmar to become a resource-dependent economy. The idea is to diversify into new economic areas,” U Htun Lynn Shein, chairman of Myanmar Precious Resources Group, told OBG.
On top of legal reforms, governing bodies have also been restructured to improve monitoring capacity. In March 2016 the Ministry of Mines was combined with the Ministry of Environmental Conservation and Forestry to form the MNREC, which now regulates the mining industry.
There are three departments within the new ministry: the Minister’s Office, the DGSE and the Department of Mines (DoM). The DGSE is responsible for geological surveys and mineral exploration, while the DoM is in charge of mineral policy and royalty collection. In addition, there are four enterprises focused on specific areas of mining: No. 1 Mining Enterprise is responsible for lead, zinc, silver, copper, iron, nickel, chromite and antimony; No. 2 Mining Enterprise is responsible for gold, tin, tungsten, rare earth, titanium and platinum; Myanmar Gems Enterprise, a division of the MNREC, oversees the gems and jade industry; and Myanmar Pearl Enterprise monitors the pearl industry.
While Myanmar is open to investment from any country following the easing of international sanctions, Chinese-backed projects still account for the lion’s share of mineral output, with sizeable investments in copper, nickel, tin and zinc. Despite a number of large-scale investments, artisanal and small-scale mining remains a central source of revenue for many local communities, though these lack technical expertise and funding. As a result, official mining output accounts for under 2% of GDP, though this does not include unofficial trade figures, with the trade of jade alone estimated to be worth half the country’s GDP.
Over $2.9bn in foreign direct investment (FDI) was approved for the mining sector between FY 1988/89 and FY 2016/17, according to the Directorate of Investment and Company Administration. Of this, $2.35bn has been invested across 10 projects since the socialist era ended in 1988. As a result, existing foreign investment in the mining sector accounts for 3.84% of overall FDI since 1988, with the highest amount ($1.4bn) collected in FY 2010/11. A total of $28.9m in FDI was committed in FY 2015/16. However, the sector failed to attract any new investments in FY 2016/17. Investment for FY 2017/18 stood at $1.31m as of November, 30 2017.
Riding the Wave
On the international front, Bloomberg’s Commodity Total Return Index was down -2.63% year-to-date in September 2017 as a result of sluggish demand from China, with a yearly return of -0.23%. Consequently, mining returns are a long way off the peaks of previous cycles, although commodity prices have recovered somewhat from recent lows. Gold was up 4.14% over the six months leading up to September 2017, but fell to $1252 per oz in early December, its lowest rate since July.
Copper and nickel went up 27% and 13%, respectively, in the calendar year of 2016, while iron ore prices doubled over that same period, reaching a high of $80 a tonne. This trend continued up to the first quarter of 2017, with the price hitting a 30-month high of $89 per tonne in February. By September, however, it had fallen below $70 after major rises in China’s port stocks. Prices recovered slightly to $73 in early December 2017, largely as a result of an uptick in demand following environmental measures taken by the Chinese government to seek cleaner, higher-quality alternatives in response to the pollution caused by high steel output.
The mining sector in Myanmar employs approximately 900,000 people, with each worker generating an annual value of $10,590. While the sector shows much promise, it still has a long way to go to be on par with the mining industries in other countries across the region. According to the Fraser Institute’s “Annual Survey of Mining Companies 2016”, Myanmar ranked 91st out of 104 countries and jurisdictions on the Investment Attractiveness Index with a score of 44.47, ahead of Malaysia (93rd) but behind Indonesia (78th) and the Philippines (66th), the only other ASEAN countries included. Myanmar was positioned 94th on the Policy Perception Index with a score of 36.16, and was ranked 81st on the Best Practices Mineral Potential Index, with a score of 50.
Situated in a volcanic area in northern Shan State, Bawdwin is arguably the nation’s best-known mine that had never undergone systematic exploration, at least until recently. The mine was once the world’s largest source of lead and a major producer of silver, with annual production measured at 0.5 megatonnes (Mt) of high-grade silver, lead, and zinc-rich ore. Prior to the mine’s destruction in the Second World War, total reserves were estimated at 10.8m tonnes, comprising 14% zinc, 23% lead, 1% copper and 670 grams per tonne of silver.
By 1951 the mine was reopened, only to be nationalised in 1963. Production declined quickly thereafter as investment in development and exploration dried up. During the 1970s an open pit was developed to unearth lower-grade minerals. However, due to technical limitations, the mine never managed to recover to the level of output before nationalisation.
After several largely unsuccessful state-led exploration efforts between 1962 and 1987, the mine ceased operations and production in 2010, having never been fully developed to modern standards. However, after results from an exploration programme were released in 2017, it is set for revival.
According to a drilling and sampling channel programme carried out by Valentis Services on behalf of Win Myint Mo Industries (WMM), Bawdwin has great potential to be redeveloped as a large-scale mine. An official report showed that 11 channels were drilled, with one estimating reserves of 8 Mt at 5.1% lead, 12.1% zinc and 129 grams per tonne of silver. Meanwhile, another channel indicated reserves of 25.3 Mt at 9.5% lead, 2.5% zinc and 189 grams per tonne of silver. These estimates were revised in December 2017 to 75.9 Mt at 4.6% lead, 2.3% zinc and 119 grams per tonne of silver.
WMM holds a 38-sq-km concession in the Bawdwin Mine area. In late 2017 Myanmar Metals (MYL), formally Top End Minerals, an Australian-listed company, was in the midst of performing commercial and legal due diligence to action an 85% option deal to invest and develop the project.
While the redevelopment is still at the negotiation phase, the future project is expected to bolster a segment that has significant growth potential. “This is a landmark point in the industry,” Michael Phin, director of Valentis Services, told OBG. “Bawdwin is a world-class deposit with extensive history.”
According to the DGSE, there are 291 known concentrated lead-zinc deposits in the north-eastern part of the country, with an estimated potential of 44m tonnes. While the Bawdwin area is gearing up for redevelopment, Long Keng Zinc Mine and Lashio Zinc Refinery continue to produce impressive output, with Lashio producing 10,000 tonnes of 99% refined zinc in 2016. According to local reports, MYL’s option to participate in Myanmar’s only modern zinc mine and refinery expired in August 2017.
The future ownership of Long Keng and Lashio was uncertain at the time of press. MYL’s option to acquire a 60% stake in Cornerstone Resources, the owner of both, expired in August 2017, with the board of MYL noting that the proposed acquisition cost of $43m was prohibitive, given the limited amount of guaranteed feedstock for the refinery.
Tin & Tungsten
The potential of Myanmar’s underexplored mineral base is illustrated by the rapid rise in tin production. After a significant discovery was made at Man Maw Mine in Wa State, Myanmar became the world’s third-largest producer of tin behind China and Indonesia. This discovery saw Chinese smelters import virtually all tin ore and concentrate from Myanmar, which sent global tin prices tumbling more than $10,000 per tonne in June 2015. Not long after the discovery Myanmar accounted for around 10% of the global tin market, producing some 45 tonnes of contained tin in 2015, up from just 1 tonne in 2009.
Historically, tin deposits have been mined in the south of the country, whereas the large-scale discovery in Wa State is located in the north-east. While the mine has generated investor interest in the area, production has since fallen and global tin prices have recovered. Although some industry reports have indicated that reserves are nearing exhaustion, discussions with industry insiders revealed less certainty about the mine’s potential life cycle, given the limited geological data available at present.
Regardless, Wa State government officials confirmed to Reuters in late 2016 that several large open pits had been depleted. In addition, exploration costs are gradually increasing as the mine goes deeper underground. Officials also revealed that the quality of the ore has dropped to 2-3% tin per weight, down from an unusual high of 10% in 2014.
In October 2017 Chinese imports of Myanmar tin ores and concentrate fell 38% from the previous month to 12,919 tonnes, with an estimated tin content of 3100 tonnes. This represented a steeper year-on-year (y-o-y) decrease of 44%.
In the first nine months of 2017 the metal content of Chinese tin ore and concentrate imports from Myanmar reached 48,600 tonnes, an 8% y-o-y increase. The gross weight of imports of tin ore to China from other sources was 384 tonnes in October, with Myanmar accounting for 97% of that month’s total of 13,303 tonnes. According to the International Tin Research Institute’s October 2017 statistics, tin exports totalled 400 tonnes, while the export of refined tin and alloys totalled 258 tonnes.
According to the Department of Earth Sciences at the University of Oxford, Myanmar’s Dawei, in the south, has more than 50 historical tin and tungsten mines. DGSE data indicates that there are more than 480 known deposits of tin-tungsten along the 1200-km granite belt that passes through Tanintharyi Region and the states of Kayin, Mon, Kayah and Shan, as well as east of Pyinmana in Naypyitaw. Tin-tungsten is also widespread at Mong Hsat and Mongton in eastern Shan State.
While the University of Oxford research team still has much ground to cover before it gains a thorough understanding of Myanmar’s tectonic history, researchers concluded after initial studies that there is “huge potential for careful redevelopment of tin and tungsten mines”. One such deposit is found at Mawchi Mine in the Bawlakhe district of Kayah State, which was the world’s largest source of tungsten until the Second World War.
However, efforts to develop the area have been sluggish, resulting in Australian mining company Eumeralla Resources announcing in early 2017 that it would be divesting from the project, after waiting for permission from the national government to develop the area, three years after receiving state government approval. The firm holds a 70% stake in Mawsaki Mining, while local company Myanmar Energy Resources Group has the remaining share.
Gold, Copper & Nickel
According to the DGSE, there are 341 occurrences of gold and more than 50 proven occurrences of copper mineralisation across the porphyry copper belt and the gold-copper belt in Sagaing Region. Foreign investment in gold has historically been restricted. However, since the adoption of the 2015 Mines Law, foreign entities can now trade and process gold. As a result, a number of Australian and Hong Kong-based firms have shown interest in the sector. In the copper segment the largest mine is the Monywa copper project, including the Sabetaung and Kyisintaung mines, as well as the controversial Letpadaung copper mines.
There are two principal deposits of nickel, at Mwetaung Mine in the Chin Hills and Tagaung Taung Mine near Mandalay. The latter is under the management of CNMC Nickel Company and is estimated to contain 40m tonnes of high-quality nickel (Ni 2.06%).
Despite the risks, grey areas and bottlenecks, Myanmar’s mining sector holds significant investment potential. Given growing global demand for base metals, Myanmar has the chance to build on recent momentum in tin, tungsten and associated metal exploration. An uptick in exploration for these minerals will instigate broader economic growth and social development, provided the projects adopt best international practices and avoid the environmental mistakes of previous mining operations.
With foreign investors now permitted to partner with small to medium-sized mining operations, there is a growing sense of optimism that the sector will attract more FDI, which will bring modern equipment and international best practices. Contributing to this positive outlook was the issuance of the long-awaited Mining Rules in February 2018. A quickening of the approval/rejection process for mining licences by the MNREC would also help stimulate sector growth: given the uncertainty in the global commodities market, investors require guarantees that they can act quickly on potential projects.
From a national perspective, reconciliation and an end to ethnic tensions would help to catalyse new exploration projects. However, the ability of an already overstretched NLD to effectively distribute natural resource revenues to subnational authorities remains to be seen. If the goal of national reconciliation is to be achieved, policymakers will need to find a solution to the complex issue of resource sharing.
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