With Mining Law Changes, Are Foreign Firms Set to Dig In?
By Seamus Martov 8 February 2016
Long-anticipated revisions to Burma’s Mining Law, which were passed by the outgoing Parliament at the end of last year, could spur foreign investment in a sector that is still vulnerable to frontier market perils.
The new law, which was finalized after being stalled in Parliament for more than two years, is significantly more favorable to foreign firms than the legislation previously in effect, which dated back to the days of the former junta in the 1990s. The updated rules officially aim to “promote the development of investment in respect of mineral resources” and are expected by many in the industry to usher in a new wave of foreign investment in Burma’s mining sector.
The amended legislation was signed into law by President Thein Sein on Dec. 24, just weeks before he is set to hand over power to a new administration led by the National League for Democracy (NLD).
According to a summary of the regulatory changes released by Valentis Resources, a Rangoon-based exploration and mining services company, the new rules pave the way for foreign firms to buy their way into already existing small- and medium-scale mining projects in joint ventures with local Burmese firms and then expand those projects. The expanded role this will potentially afford foreign companies stands in contrast to the 1994 Mining Law, which in effect only made partnerships between foreign firms and large local companies feasible.
Another key change included in the new regulatory framework concerns production-sharing, which under the previous rules stipulated that some share of what was produced at a mine be given to the government, in addition to paying royalties. Under the new rules, firms can instead enter into a form of profit-sharing with the government or an equity participation that would allow for the government to buy a stake and invest in a given project.
The new regulations were drafted with the input of the chairman of the Upper House Mining and Resources Committee, Nay Win Tun, an ethnic Pa-O businessman affiliated with the Pa-O National Organization (PNO) militia who has a number of investments in Burma’s mining sector, including in Kachin State’s lucrative jade mines by way of his firm Ruby Dragon. Nay Win Tun’s involvement in the drafting of amendments to the law was flagged as problematic by the London-based NGO Global Witness, which last year produced a lengthy exposé on Burma’s jade trade. “Effectively, this means that a prominent industry player is involved in setting the rules which will regulate his own business,” said the watchdog group’s report
The revised rules were also drafted with the advice of the Australian Agency for International Development (AusAID) and other international experts. In a 2013 interview with Australia’s ABC Radio, Burma’s Minister for Mines Myint Aung explained that the changes were being drawn up with the aim of meeting international expectations.
“With regards to the Mining Law, we are still in the revising and reviewing stage and working very much closely with the AusAID to become that law [sic] an internationally recognized and accepted standard,” said Myint Aung at the time. Like Thein Sein, Myint Aung is set to leave office next month.
Although party chairwoman Aung San Suu Kyi and other senior figures in the incoming NLD government have given few details about how they will deal with the mining industry, it is expected that whomever becomes the next mining minister will follow the course set by the Thein Sein administration’s handling of the Ministry of Mines and continue with changes deemed necessary by foreign investors.
That view is shaped in part by the Nobel laureate’s handling of the chairwomanship of a parliamentary inquiry into a violent crackdown against land-rights activists at the Letpadaung copper mine site near Monywa in November 2012. The inquiry ultimately concluded that the despite the heavy-handed way government authorities dealt with farmers and monks protesting the seizure of land, the mega mine project involving a partnership between a Chinese state-owned company and Burmese military-controlled firm should continue.
The Ministry of Mines has declared its intention to sell state-owned mining assets. “Privatization of the tin and tungsten mines and mines and industrial mines is also being planned and will be put into effect in the very near future,” reads the ministry’s website, something that will likely please potential foreign investors, should the incoming NLD government carry out this pledge.
The amended rules are set to be implemented within 90 days of their being signed into law and the Ministry of Mines is tasked with drawing up attendant regulations that comply with the new legislation, including those covering the size of exploration permits and the creation of regionally and state-based permit granting boards.
No Mining Paradise
Despite the rules changes, Burma will remain a challenging place for mining firms to operate and it is likely that ongoing disputes between small-scale landholders and mining firms, which have taken place across much of the country in recent years, will only intensify as mining firms look to expand their activities across rural Burma.
An Investment Climate Assessment released by the World Bank last year painted a bleak picture of industry risks. “When it comes to mining, Myanmar [Burma] currently lacks the necessary laws and enforcement mechanisms to protect its environment and vulnerable populations against the impacts of mining. Over the past two decades, this has led to conflict and severe environmental degradation in the wake of a rapid increase in large-scale mining,” the report’s author concludes.
Whether Burma’s new mining rules, which were clearly drafted to encourage more foreign investment in the sector, will actually lessen these problems remains to be seen.
While Norinco, the giant Chinese state-owned weapons firm and its subsidiary, Myanmar Wanbao Mining Copper, have invested heavily in the controversial multibillion-dollar expansion of the Letpadaung mine, most Western mining firms currently operating in the country are only at the preliminary stages of exploration. For the most part, Western firms are relatively small outfits commonly referred to in the mining industry as “juniors.”
Although international interest in Burma’s mining sector remains strong, large Western mining firms largely are staying on the sidelines despite the lifting of sanctions in 2012. The Mining Law’s protracted revision has been blamed in part, as has firms’ decision to wait for the adoption of other business-friendly developments like the forthcoming adoption of an Investment Protection Agreement between Burma and the European Union, before fully committing themselves to a country still in flux. That has left the juniors, some of whom are clearly fly-by-night operations, to scour Burma looking for deals in a country whose geology has yet to be fully explored.
Recent regulatory filings from various junior mining firms listed on their respective stock markets suggest that Burma’s mining sector has proved to be less promising than they had originally anticipated when they entered the country after political reforms began more than four years ago. This has been compounded by a global glut in mineral prices caused by slowing demand in China.
A case in point is the firm that inked a deal with the chairman of the parliamentary mining committee. In June 2013, Australia’s Intercept Minerals Ltd. signed an Memorandum of Understanding (MOU) with Ruby Dragon and its chairman and principle shareholder Nay Win Tun, whom the firm referred to as a “prominent Myanmar businessman,” while failing to mention his prominent position on the mining committee or his previous inclusion on the EU sanctions list. The MOU, which in Intercept’s words was geared toward the “evaluation of existing mining and exploration opportunities in Myanmar, initially covering tin, tungsten and gold,” ultimately failed to pan out.
Some 13 months after signing the deal with Nay Win Tun, Intercept metamorphosed into an internet TV broadcaster following a reverse takeover of a Silicon Valley startup. The firm now called XTV Networks Ltd. no longer has any involvement in mining.
Another Australian junior mining firm, Avenue Resources, similarly entered Burma in 2013 after merging with Lotus Mining Limited, an unlisted company focused on tin. The tie up was supposed to lead Avenue to a number of “exciting acquisition opportunities” in Burma. But one year later the firm, which by this time had changed its name to Triumph Tin, chose to give up on Burma entirely. “Whilst Triumph Tin maintains that the geological aspects of the exploration potential of Myanmar are exciting, the Company has concluded that the business case of moving forward in Myanmar, at this time, is not as compelling as the business case available in other jurisdictions,” the firm said in a report to its shareholders.
Last year the London-listed firm Aurasian Minerals, which is partially owned by US mining giant Newmont Mining Corporation, chose to withdraw the permits it had submitted to the government some 10 months earlier to explore for gold, silver and copper in a jade-rich corner of Kachin State beset by conflict.
But other juniors like the Australian firm Eumeralla Resources Ltd. have opted to stay on in Burma. According to Eumeralla’s latest regulatory filings, it continues to wait for government authorities to process the exploration permits its Burmese subsidiary submitted in 2014 to search for tin and tungsten in Karenni State. The application has raised concerns that the firm’s activities could re-ignite a long-running conflict in the state.
Another firm, Hong Kong-based Asia Pacific Mining Ltd. (APML), which describes itself as the “first Western-led mining company” to be granted a large-scale exploration license in Burma, is focused on exploring a 649-square-kilometer concession in Burma’s far north. The firm, headed by an Australian mining veteran, had its permits to explore for lead, zinc and silver in northern Shan State approved in October 2014. Just three days later, heavy fighting broke out near the area.
Clashes between government troops and ethnic armed groups in northern Shan State have continued, which will complicate any effort to fully study the region’s potentially lucrative geology.