Canadian Mining Firm May Have Breached Sanctions, Rights Group Says

By Seamus Martov 20 February 2015

For many years, Canada’s since-rebranded Ivanhoe Mines was one of the very few Western mining companies involved in Burma through its stake in one of the country’s largest mines, located near Monywa. Recently disclosed documents reveal that during the period between April 2003 and January 2004, Ivanhoe’s local Burmese joint venture may have violated a number of Western sanctions by selling copper to internationally blacklisted military-affiliated entities.

An exhaustive report by Amnesty International titled, “Open for Business? Corporate Crime and Abuses at Myanmar Copper Mine,” released in early February, details recorded sales between the firm’s local Burmese joint venture, Myanmar Ivanhoe Copper Company Ltd (MICCL) and several military connected entities, despite Ivanhoe’s stated claim that copper mined and processed on site was exclusively sold to Japan’s Marubeni.

Based on internal documents obtained by Amnesty, the report said that MICCL’s list of buyers “reads like a who’s who of the Myanmar [Burma] security forces and its establishments.” The internationally renowned rights group said the fact that copper was sold to blacklisted entities “raises issues around breaches of sanctions” at the time the sales took place.

Ivanhoe, which is now known as Turquoise Hill Resources, entered into a joint venture with Burma’s state-owned Mining Enterprise No. 1 in April 1996, taking a 50 percent stake in MICCL. When mining at Monywa began, access to the site and surrounding areas was severely restricted by the then-ruling military regime. The project has long been associated with land disputes, and in 2012 made international headlines after a violent crackdown on protesters at the now-notorious Letpadaung deposit, which was undeveloped at the time of Ivanhoe’s involvement.

Documents cited by Amnesty offer several revelations about Ivanhoe’s mysterious years in Burma. A collection of US Embassy cables indicate that the firm continued to be involved in the Monywa mine for several years after February 2007 when its 50 percent stake in MICCL was transferred into what the company said was an “independent third party trust”. The cables also indicate that a notorious blacklisted crony was involved in the eventual sale of Ivanhoe’s Burmese assets. Amnesty further claimed that internal sales documents, never before disclosed, show that Ivanhoe lied publicly about who was buying MICCL’s copper.

Amnesty’s dossier—comprising leaked cables and internal sales records—collectively raises questions about whether MICCL’s copper sales and the subsequent transfer of Ivanhoe’s stake in MICCL potentially ran afoul of three sanctions regimes: Canada, the United States and the United Kingdom. The report called for investigations in all relevant jurisdictions.

According to the documents, during a 10-month period up to and including January 2004, MICCL sold 100 tonnes of copper to an entity known as the Office of Defense Service Industry, which the group said “seems to refer to the Directorate or a unit of the Directorate of Defense Industries [DDI],” known in Burmese as Ka Pa Sa, the arms and munitions manufacturing division of the Ministry of Defense.

The documents also show that 3 tonnes of copper were sold to No. 11, Light Infantry Division, a unit later identified by Human Rights Watch as being involved in the brutal suppression of monk-led protests that took place in Rangoon in September 2007. They further reveal that MICCL sold copper to an entity listed as No. 1, Defense Service Intelligence. Amnesty said this appeared to be a reference to a unit that at the time of the sales was under direction of the Directorate of Defense Service Intelligence (DDSI), which was headed at the time by the powerful Military Intelligence Chief Khin Nyunt.

Large amounts of copper also appear to have been sold to an entity listed as Special Branch, another section of Burma’s security apparatus, and more still to the Thaton branch of the Union Solidarity and Development Association (USDA), a regime-backed organization linked to numerous violent acts carried out against opponents of the regime. The group was largely believed to have been behind the 2003 Depayin massacre, involving an attack on Aung San Suu Kyi’s convoy which killed dozens of her fellow National League for Democracy (NLD) members.

According to the documents, 50 tons of copper were also sold to an entity listed as the Shan State National Army (SSNA), formed in 1995 by a group of disgruntled members of opium warlord Khun Sa’s Shan Mon Tai Army.

Amnesty said that the sale of the copper to army-controlled entities contradicted statements from Ivanhoe Mines indicating that copper produced by MICCL was only being sold to the Japanese firm Marubeni for export. The report cites numerous Ivanhoe company filings made between 2000 and 2004 stating that “[t]hroughout the term of the copper sales agreement, Marubeni has the exclusive right to market copper produced from the Monywa Copper Project throughout the world.”

According to Amnesty, the sales documents prove that “Ivanhoe Mines lied publicly about the copper sales in its filings with the US and Canadian regulatory authorities.”

In addition to being inconsistent with claims made by Ivanhoe over the years, the copper sales may also have violated sanctions placed on Burma, Amnesty said. Ivanhoe’s stake in MICCL was—at the time the sales took place—held by a British Virgin Islands-based subsidiary. As an overseas possession, the British Virgin Islands were subject to certain EU and British restrictions barring dealings with Burma’s military and therefore, according to Amnesty, “may have committed an offence under UK law” depending on whether the copper ended up being used for military purposes such as the manufacturing of weapons or vehicles. Amnesty urged all relevant authorities to fully investigate the sales and the use of the product to determine whether sanctions had been breached.

Ivanhoe’s 2007 Divestment from Monywa Called into Question

In February 2007, Ivanhoe Mines placed the 50 percent stake it owned in MICCL into what it described as an “independent third party trust” in accordance with what it claimed was its divestment from the country. The trust was—according to Ivanhoe—tasked with selling its 50 percent stake in the mine, something that Ivanhoe did not report taking place until 2011.

Prior to Ivanhoe’s announcement that its stake had been sold, the company claimed that it had nothing to do with day-to-day operations of the mine after its 50 percent stake in MICCL was transferred to the trust. US diplomatic cables disclosed by WikiLeaks in September 2011, however, suggest that claim wasn’t true.

A US cable dated January 2009 suggested that MICCL’s acting General Manager Glenn Ford was still acting under the orders of Ivanhoe’s head office in Vancouver, which contradicted Ivanhoe’s claim that it had no role in MICCL after its stake was transferred to the trust.

“According to Ford, Ivanhoe Headquarters instructed him to produce a small amount of copper every six months,” the cable read. The document shows that the order was meant to prevent a contract clause from kicking in that would give the state-owned entity that jointly held the mine, Mining Enterprise No 1, the right to completely take over the mine should it remain inactive for a year.

Another US cable dated September 2008 portrays Ford telling US Embassy officials that Burmese billionaire Tay Za facilitated negotiations between Ivanhoe and several Chinese companies, which could be a violation of both US and Canadian sanctions. Although headquartered in Vancouver, Ivanhoe was listed on both the Toronto Stock Exchange and New York-based Nasdaq, which meant that the firm was subject to American rules as well those north of the border.

“For the past year, Ivanhoe has been negotiating through regime crony Tay Za with a consortium of three Chinese companies—WanBo [sic] Copper, Norinco Copper, and Aluminum Corporation of China (Chalco)—that want to purchase its contract… He [Ford] opined that the consortium’s connections to Tay Za play a pivotal role in the negotiations with the GOB,” the cable read. A later cable said that the Chinese buyers paid Tay Za $50 million for his assistance.

Both Wanbao Copper and its Burmese subsidiary Myanmar Wanbao Mining Copper Ltd. are owned by China North Industries Corp., also known as NORINCO, a weapons firm. Wanbao is now heading the development of the lucrative Letpadaung deposit, which was part of the Monywa mining project but had not yet been developed during the time Ivanhoe was involved.

In a letter to Amnesty, a former Ivanhoe employee in Burma, Oxford-trained geologist Dr. Andrew Mitchell, who served on the board of MICCL from 2007 to 2011, indicated that what had been Ivanhoe’s stake in the mine—which was later divested into an overseas trust—did end up being sold to Chinese firms.

Mitchell argued, however, that Amnesty’s conclusion that Ivanhoe remained involved after divesting was erroneous, claiming Ford was referring to the trust when speaking to embassy officials about Ivanhoe.

“It was customary in the early days of the Trust to refer to the Trust as Ivanhoe in private conversations,” he wrote, because the government and former partners still used the old name. Amnesty countered that it was “difficult to reconcile” Mitchell’s explanation with Ford’s specific reference to “Ivanhoe Headquarters” telling him to do something.

After extensive searches in corporate registries in numerous offshore tax havens where various trust related entities were based, Amnesty was able to conclude that the trust “was not an independent entity, and that Ivanhoe Mines had set up a protector company in Barbados that had oversight of the Trust.”

Amnesty’s report flagged as problematic the opaque manner in which Ivanhoe transferred its stake in MICCL to the trust, which was overseen by a protector company, Sentinel Holding Company. While the cables suggest that Tay Za could have facilitated the eventual sale to Chinese firms, Ivanhoe never publicly disclosed who bought its stake.

Ivanhoe did announce in August 2011 that the trust had sold its 50 percent stake in MICCL for $103 million. In June 2010—more than a year before Ivanhoe announced that the sale had been made—NORINCO signed a production sharing contract with the military-controlled Union of Myanmar Economic Holdings Ltd. for the Monywa copper mining project, which, according to Amnesty, “raises serious questions about how NORINCO and UMEHL were able to enter into an agreement for the Monywa project when MICCL still held these rights.”

Amnesty ultimately recommended that Canadian authorities investigate the sale of Ivanhoe’s Burmese assets and the operation of the trust to determine whether sanctions had been violated. The current government in Ottawa—which last year hosted a high level trade delegation from Burma that included the controversial Burmese billionaire Stephen Law (also known as Tun Myint Naing or Lo Ping Zhong), son of the late drug lord Lo Hsing Han—has as yet given no indication that such an investigation is imminent.

Ivanhoe Chairman Unhappy with Amnesty

Prior to the report’s publication, Amnesty wrote to the man who headed Ivanhoe Mines throughout its entire stint in Burma, Robert Freidland. The billionaire mining mogul was asked about the Monywa mine project with regard to the London-based organization’s stated human rights concerns. His response was printed in full at the end of the report.

“It is far from clear to me how this narrative and the questions presented in your letter have any relevance to such an investigation. I perceive a fishing expedition, the purpose of which, at least as it relates to me, would appear to involve adding two parts innuendo to two parts insinuation and suggesting that the answer is five,” said Friedland in his letter.

Friedland was particularly irked by Amnesty’s questioning of the Monywa Trust’s structure. “I also take issue with Amnesty’s characterization of the Monywa Trust structure, which implies that it was devised solely as a means to obfuscate the ownership of the Myanmar Assets and create the false impression that the Company had divested itself of the Myanmar Assets while nonetheless secretly maintaining control. If this is your theory, then it is simply wrong,” Friedland’s letter to Amnesty states.

This is not the only mine-related controversy Friedland has been involved in. Following a lengthy court battle Friedland paidUS $20 million to US authorities after a mine operated by the subsidiary of a previous company he headed—Galactic Resources—spilled thousands of liters of toxic mining waste water from the Summitville gold mine into Colorado’s Alamosa River in the late 1980s and early 1990s. The Summitville mine fiasco is considered by many to be one of the biggest environmental disasters in the history of the United States, earning Friedland the nickname “Toxic Bob”. Since taking over the Summitville site from the bankrupt Galactic in 1992, the US Environmental Protection Agency has spent more than $200 million on clean-up efforts at the mine site and its vicinity.

Confusingly, Friedland is once again heading a mining firm known as Ivanhoe Mines, an entity wholly distinct from the Ivanhoe Mines examined by Amnesty. In 2013, shortly after his departure from the firm previously known as Ivanhoe Mines, another firm Friedland headed—Ivanplats Limited—was renamed Ivanhoe Mines.

The new Ivanhoe Mines has recently come under criticism in South Africa for allegedly aggressive tactics used to secure mining rights from small scale landholders. As Toronto’s Globe and Mail newspaper reported in January, company staff allegedly threatened an 82-year-old illiterate villager with the loss of her meager pension unless she agreed to allow drilling in her corn field. In April 2006, Friedland was burned in effigy by Mongolian protesters in the landlocked country’s capital who were opposed to an Ivanhoe-backed megaproject.

A Familiar Tone

Friedland’s troubles in other parts of the globe sound a familiar tone given his company’s history in Burma. The Monywa mining project has long been plagued by land rights disputes and other community grievances. Amnesty’s report further implicates Ivanhoe in a series of land confiscations that took place in around the Monywa mine site during the 1990’s. In May of 1996 shortly after Ivanhoe entered into the joint venture with state owned ME1 and then again in November 1997, government authorities, according to Amnesty’s research, confiscated 5,411 acres of land from local farmers without compensation.

Dozens of families were evicted from their land to make way for the development of the Sabetaung and Kyisintaung deposits. According to Amnesty, Ivanhoe “benefitted from the forced evictions as they were carried out for its joint venture with ME1.” After conducting extensive interviews with local farmers Amnesty concluded that Ivanhoe “did not take any corrective measures once the forced evictions were carried out by the government although the company could not have been unaware of the impact on affected people.”

The reported land grabs that took place in the 1990’s mirror the ongoing dispute between local farmers and the mines new Chinese operators and their Burmese partners that has been ongoing at the mine since 2012. Much of the controversy involves land grabbing in around the Letpadaung deposit which remained undeveloped at the time of Ivanhoe’s involvement in the project. A November 2012 incident that took place near the mine site during which police fired white phosphorus munitions directly at a group of unarmed protesting farmers and monks made headlines around the world.