In a effort to usher in a new wave of investment into natural resource development, the previous ruling party passed the 2015 Mining Law during the final stretch of U Thein Sein’s presidential term. The initial injection of foreign capital was stunted by a sluggish permit process and a glut in commodities, but reforms continue to improve the business climate.
Recent Trends
From a global perspective, the performance of commodities varied throughout 2016. According to World Bank figures, the mining industry’s most sought after commodities dropped by 1.6% in total value in September 2016. While according to Bloomberg statistics, the commodity total return index climbed 8.5% in April 2016, the largest monthly increase in value since December 2010. As a whole, however, mineral prices remain weak due to sluggish demand from China. On the local front, data from the Directorate of Investment and Company Administration (DICA) suggest the mining sector received $28.9m in foreign direct investment (FDI) for FY 2015/16, representing a fraction of the $9.48bn in FDI received overall. However, despite commodity price fluctuations investors continue to keep a watchful eye over Myanmar’s lucrative natural resources.
The first foreign firm to be granted a permit after the passing of the amended laws was Australian PanAust Group, which was awarded three concessions in the gold and copper region of Sagaing. PanAust formed a joint venture with Myanmar Energy Resources Group International to form Wuntho Resource, with PanAust holding 80% in the venture.
According to Andrew Mooney, CEO of Asia Pacific Mining, investor appetite is alive and well. “The process is slow and bureaucratic, but the mineral prospects are hard to deny,” he told OBG. “From an exploration perspective, Myanmar is among the most, if not the most, intriguing in the world. The new law is a step in the right direction in terms of attracting investment. However, Investors are still awaiting the rules and regulations to accompany the law. If rates go up it will be a disincentive to investment.”
Investments
According to the department of mines, only five of the 15 foreign investments in mining are in the production stage. Total FDI in the sector stood at $2.9bn as of the end of May 2015, according to the Myanmar Investment Commission. In recent years, the largest investments have come from China, such as the controversial $1bn expansion of the Letpadaung copper mine project by Wanbao Mining (subsidiary of Norinco), and CNMC Nickel company’s $855m investment in the Tagaung Taung Nickel Mine in the Sagaing region. Only a small collection of Western mining companies have entered since the exit of Ivanhoe in 2007, which sold its stake in the Monywa copper project for a reported $103m.
While a decline in commodity prices is partly to blame for limiting activity, Myanmar’s mining FDI numbers can also be attributed to insecurity, as European firms are awaiting an Investment Protection Agreement between Myanmar and the EU. This is amplified by clashes between government troops and armed groups that continue to erupt sporadically.
Partnership Plans
Despite the limited volume of FDI, deals continue to be struck. Top End Minerals from Australia acquired an option to purchase a 60% interest in the Longh Keng zinc mine and Lashio zinc refinery, the only modern zinc refinery within Myanmar, for a reported $43m from Cornerstone Resources. The exploration upside is that the mine is in close vicinity to the Bawdwin mine and Namtu smelter complex. The deal would mean Top End Minerals would become a zinc producer, with the 8-sq-km area host to two high-grade zinc outcrops, collectively containing 171,194 tonnes of grading 36.84% zinc. Even though the resource in has not been certified by the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, the refinery produces 10,000 tonnes of 99% refined zinc annually, with plans under way to increase production to 18,000 tonnes a year.
In a first of its kind, the Australian listed Metro through it’s subsidiary Metro Myanmar has signed a joint venture agreement to acquire 80% of the Mahar San copper project located in the Sagaing Region of northern Myanmar. The mine lies within the Mesozoic to Tertiary Central Volcanic Magmatic Arc that is prospective for various styles of copper, gold and base metal mineralisation. The agreement covers exploration and mining of Yar Taung Mine project, comprising 1853.5 acres consisting of three small concessions for copper (16 to 20 ha each) and one large copper exploration concession covering 7.5 sq km. Once the company is established, Metro will loan at least $100,000 per year to the project to undertake drilling, resource definition, feasibility studies and other evaluations. According to a report released by Metro, high grades of copper, gold, silver, lead and zinc were returned from rock-chip and channel sampling of sulphide mounds within the Mahaga open pit, with the best result being a channel sample of 4 metres at 6.7 grams per tonne of gold, 261 grams per tonne of silver, 1.35% copper, 2.63% lead and 11.6% zinc.
In general, foreign investment is slowly ticking along, though some prospectors have exited the country due to a lengthy and uncertain licensing process. For instance, Aurasian Mineral left after announcing on the London Stock Exchange in September 2015 that it had withdrawn their application to explore copper, gold and silver, despite having been given exclusivity over its three licence applications. Once granted, the status of the application was marked “pending” and the firm’s withdrawal was widely anticipated.
Application Process
As it stands, the process to acquire prospecting, exploration, feasibility studies and production permits is cumbersome and lengthy. Though, with a new government in place and mining rules to follow, moves to streamline the application process could ease the flow of funds to the sector. As set out in the existing investment guidelines, any foreign company that wishes to investigate mineral potential in Myanmar first needs to arrange a courtesy call with the Union Minister or responsible personnel at the Department of Mines under the Ministry of Natural Resources and Environmental Conservation (MNREC). A courtesy letter will be sent from the Myanmar Embassy in the corresponding country that the mining company is based. Then, during a meeting with the authorities, the investor can discuss the minerals of interest and the area to be investigated. After this discussion, a field visit will take place, providing that the following documents are filed: a proposal letter, a field schedule, a recommendation letter from the embassy of the concerned country and a passport copy of each individual attending the field visit.
Documentation
If, after the field visit, the investor decides to proceed, the next step is to submit a letter of proposal to the MNREC with a copy to Department of Geological Survey and Mineral Exploration (DGSE). It must include, among other things, the mineral of interest, the intended prospecting area, the amount of capital or estimated cost of the project, and any technology that will be used. This process is more or less the same for prospecting, exploration, feasibility studies and production permits. The letter should be accompanied by the company registration, profile, bank statement and list of the board of directors.
Should the proposal be approved by the ministry, the investor then needs to negotiate terms of the agreement with the DGSE. The DGSE will then submit the agreement draft to a scrutinising committee. At this stage the company will need to acquire recommendation letters from the state or regional government, as well as the respective township’s Administrative Department, Forestry Department, and Land Record Department. When these have been acquired, the investor is then required to submit the draft agreement to the Cabinet for approval. This is followed by a proposal to the Myanmar Investment Commission. Then the firm is required to execute and establish a local joint venture entity to hold the asset and operate the project. Currently, the application process is complicated by being entirely paper-based. Fortunately, efforts are under way to go electronic, with the creation of an online mineral licence registry and mining cadastre funded by the World Bank.
Moving Forward
Another area needing careful consideration is that of fiscal arrangements. Royalties are currently set in a range of 2-5%, while dead rents run on average $250 per sq km. Both of these are high in comparison to international standards and limit the rehabilitation of mines and new exploration.
Streamlining the application process will ease the burden for investors and the mining department. “While it is early to evaluate the progress of the new government, they are headed in the right direction,” U Htun Lynn Shein, chairman of Myanmar Precious Resources Group, told OBG. “There is less red tape and bureaucracy, which will promote investment.”
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