Small-Scale Gold Miners Publicly Called Out for Govt Debt

By San Yamin Aung 7 November 2013

RANGOON — A public notice accusing dozens of mining companies of failing to pay a required portion of the gold they produce to government coffers has shed light on what critics say is a burdensome requirement that is taxing Burma’s gold miners out of business.

The Ministry of Mines published the notice in state-run newspapers on Monday, accusing 35 small-scale gold mining operators of having signed production-sharing contracts with the ministry and then failing to give the agreed-to gold share to the government over a five-year period from 2007 to 2012. The noticed ordered the accused gold miners to contact the ministry by Nov. 11 in order to address the shortfall or face “action in accordance with the law.”

Under production-sharing contracts (PSC), private companies in the extractive industries sign a deal with the Ministry of Mines in which the former agrees to pay the latter a percentage of its total output.

“We have been using that production-sharing system in gold mining since the former [military] government. Present gold debts and problems between the Ministry of Mines and private mining companies are all because of that system,” Kyaw Win, senior vice president of the Myanmar Gold Development Public Company and owner of U Htone Goldsmith Shop, said on Wednesday.

He said some mining companies had failed to produce the amount of gold that they expected to from their fields and, with predetermined PSCs and factoring in production costs, were facing losses.

“I want to say that rather than a production-sharing system, a profit sharing system would be better because private mining companies can face losses under the production-sharing system,” Kyaw Win said.

He added that the local gold market was fueled largely by gold already in circulation, with traders like himself recycling refined products and adding little to the supply from mining operations.

“We buy back from customers,” Kyaw Win explained. “So, even though gold production is down, the domestic gold market isn’t really affected because we can get gold back from resellers.”

Almost half of all small- and medium-scale gold miners have been unable to continue their mining operations this year because they can’t pay their gold debt to the government, Khin Maung Han, vice president of the Myanmar Mineral Entrepreneurs Association, said in July.

The smallest-scale gold miners, those whose mining plots are 20 acres or less, have to pay about 24 ticals (one tical, a local unit of measurement, equals 0.576 ounce) a year. Those operating on plots larger than 20 acres pay based on individually negotiated PSCs, with the terms generally based on the size of the plot.

“There were about 1,366 gold fields before 2010, but this year, there are only about 779,” Khin Maung Han said.

He said another hindrance for industry players was the inclusion of provisions in PSCs for some larger companies requiring payment of gold to the ministry in advance, an up-front expense that could make operations financially unfeasible.

Zaw Aung, owner of Rangoon’s Tate Sein Gold Shop, said the boom-or-bust nature of the gold mining business made it easy to accumulate debts to the Ministry of Mines under the PSC system.

“Most debts are from the past. Now, the government takes gold in advance,” he said.

Through the first six months of the 2012-13 fiscal year, the Ministry of Mines contributed about 320 million kyats and more than 821 viss (about 1,341 kilograms) of gold to the government, said lawmaker Phone Myint Aung, a member of the Union Parliament’s public accounts committee. The parliamentarian was citing a report on state revenues and expenditures from April to September 2012, which his committee submitted to Parliament on Tuesday.

Phone Myint Aung said in cases where multiple gold miners were competing for a permit on the same plot of land, it was common for the ministry to select the operator who offered the PSC deal that was most generous to government coffers.

“Under the current production-sharing system, there is no consideration for gold miners’ production costs and other conditions,” such as operators who were unable to mine because their gold plots were located in areas of Burma where ethnic conflict raged.

He added that a new draft mining law was submitted to Parliament last week to address some of these concerns.

The local gold price on Thursday stood at 686,300 kyats per tical—equivalent to about US$1,228 per ounce—and the international gold price was $1,316 an ounce.

In Burma, gold is mined commercially in Kachin, Karen and Mon states, and in the divisions of Mandalay, Tenasserim, Pegu, Sagaing and Magwe, with most output coming from Sagaing and Mandalay.