Production, potential and geopolitics in an important new minerals search space
Myanmar (Burma) has recently appeared on the radar following the media coverage of its crucial November 2015 elections. This unprecedented democratic process resulted in a stunning victory for Nobel Laureate Aung San Suu Kyi’s National League of Democracy (NLD) party, and led to The Economist naming Myanmar as its ‘most favoured nation’ for 2016 (‘Most Favoured Nation’, 2015).
One of the largest countries in South-East Asia, Myanmar is by most measures also one of the poorest, a result of an oppressive military regime that pursued a policy of political and economic isolation over much of the last 50 years. However, in the early 20th century, Myanmar was one of the wealthiest countries in the region. It boasted a significant minerals industry, and was a major producer and exporter of tin, tungsten, lead, zinc, copper, nickel and silver. However, since the early 1960s the minerals industry in Myanmar – mirroring much else about the country – has suffered significant decline.
Today, Myanmar’s mining sector is effectively an artisanal industry, accounting for less than 0.1 per cent of Myanmar’s GDP; however, significant potential remains for its redevelopment. The upside of the long-term decline is that many of the country’s major mines have not been mined out, and are candidates for rehabilitation. Further, much of the country has not been explored with contemporary techniques and remains a new search space for a range of commodities. Figure 1 shows a map of Myanmar with primary metal showings, and major mines (Gardiner et al, 2014).
The potential for Myanmar to act as a ‘game changer’ in the global mining industry was demonstrated in 2014, when Myanmar emerged as the world’s third biggest tin producer, apparently experiencing a 5-year-on-year growth of over 4000 per cent by ITRI figures (Figure 2; Gardiner et al, 2015). The impact of this is still being felt within the tin markets. Although there remains considerable uncertainty about the medium-term trajectory of its indigenous tin industry, allied with concerns over the validity of the production data, the story nevertheless exemplifies how Myanmar has the potential to make a global impact within the metals sector.
So, given the recent election result, it is timely to ask: what does the rise of the NLD and the prospect of a democratic step-change mean for Myanmar, and how might that be reflected in the potential for minerals exploration and production within the country?
An antiquated mining industry
Myanmar’s contemporary mining industry is modest, producing small amounts of copper, gold, lead, nickel, tin, tungsten and zinc (Fong-Sam, 2014). The industry still relies on antiquated geological data, much of which dates back to the colonial era. Resource estimations and grades are imprecise, and often use archaic units. Much of the country still requires geological mapping. Mining and production practices are in general obsolete. Over the past 40 years, several international missions have attempted to improve the regional and local geological knowledge of the country, including the United Nations (1960s and 1970s), the German BGR (1970s), and Australian-led efforts in the 1980s.
Environmental and social concerns remain (Moody, 1999). Many operations are artisanally mined by local people, often in brutal conditions. Processing plants are often antiquated with insufficient environmental precautions; mine closure may just amount to locking up and leaving. Mining practice is thus still precarious. Only recently (November 2015) two major landslides within the Jade Mines area in Kachin State reportedly killed in excess of 100 people. The highest-profile Western company recently operating in Myanmar was Ivanhoe Holdings, which co-owned the Monywa copper mine in partnership with the domestic Union of Myanmar Economic Holdings – a company with links to the military government. Ivanhoe divested Monywa in 2011, selling on to China North Industries, which is currently developing the adjacent Letpadaung deposit. This expansion operation forced the expulsion of local villagers from their land, leading to protests that culminated in 2013 with a police crackdown on civilian protestors, injuring nine and killing one. This led to a major government inquiry, and the case has served to highlight the issue of human rights abuses associated with mining operations in the country, not least to a newly-aware domestic audience.
The burden of history
Myanmar’s present problems stem from its troubled history in the mid- to late-20th century. The then Burma achieved independence from Britain in 1948 but the fledgling democracy suffered a military coup in 1962. The new military ruler, General Ne Win, who remained in control until 1988, enacted the ‘Burmese Way to Socialism’ in 1964, leading to the wholesale nationalisation of swathes of Burmese industry, including mining. This marked the start of a severe economic decline.
The 2010 elections were boycotted by the NLD, although that year Aung San Suu Kyi was released from house arrest. In 2011 new military ruler General Thein Sein, a relative moderate, began to free up the economy and political order, leading to economic sanctions being temporarily lifted by the USA, Japan, Europe, Canada and Australia in 2012.
The recent November 2015 elections were apparently contested fairly, handing the NLD a substantial victory. This mandate gives them the promise of a sufficient majority to overrule the military, although creating unity within the country is likely to be the biggest challenge facing Aung San Suu Kyi and the NLD. The goal is thus to manage economic and political transition to a functioning democracy whilst keeping various regional and ethnic parties onside, and noises suggest some desire for a political solution involving a united Myanmar. From the perspective of the mining sector, uniting an ethnically divided Myanmar is one key factor that may encourage more foreign investment. Access to many parts of the country, some rich in mineral potential, remains restricted in many cases due to issues of ethnic tension and national security.
As it starts to open up, Myanmar faces a significant geopolitical tussle between a recent link with China – which has a reasonably porous border with the country, and influence within the military – and a desire to look towards the rest of the world: principally South-East Asia (it is a member country of ASEAN), and the West. Myanmar lies at a key crossroads between China, India, South-East Asia and the Indian Ocean.
A difficult place to operate
Myanmar remains a challenge for any potential foreign investors, regardless of industrial sector. The country rated poorly in the 2015 World Economic Forum (WEF) Global Competitiveness report, ranking 131 out 140, between Madagascar and Venezuela (Schwab and Sala-i-Martin, 2015). In the World Bank’s 2016 Doing Business report it ranked 167 out of 189, between Sao Tome and Principe and Mauritania (World Bank, 2015). Access to financing, a poorly educated workforce, political instability, tax complexity, weak bureaucracy and inadequate infrastructure were all highlighted as problems by the WEF. The World Bank highlighted issues with contract law, minority shareholder protection, access to credit, insolvency protection, and difficulties in starting a business, all as impediments to doing business in Myanmar. Corruption is a major problem; the 2014 Transparency International Corruption Perceptions Index ranks Myanmar 156 out of 174, between Cambodia and Zimbabwe (Transparency International, 2013).
A number of challenges specifically face the mining sector. Much of the mining industry is still centrally controlled by the government and military subsidiaries. This may present potential problems with cronyism and the necessity of dealing with military-linked individuals, some of which may be on the US government blacklist. Myanmar actually performs modestly well in the latest Fraser Institute ‘Annual Survey of Mining Companies’ 2014 ranking 46 out of 122 jurisdictions (Wilson et al, 2014), just above Ghana, although much of this is due to the country’s high ranking (24) in mineral potential. Its minerals policy environment is seen less favourably, ranking 64, and it is amongst the top ten jurisdictions with room for improvement in minerals policy. Regulatory uncertainty, bureaucracy, weak land claims and taxation complexity, in addition to poor infrastructure, political instability and a lack of skilled labour, are highlighted as problems for the mining sector.
The road to progress
Since Myanmar began its political and economic opening up in 2012, there have been some positive reforms that encourage general business and mining investors. In 2012 the Myanmar Kyat (MMK) was floated. Myanmar became a candidate country in 2014 of the Extractive Industries Transparency Initiative (EITI), with the requirement to publish its first EITI report in 2016 to become accepted as a full member. Successful completion of this will go some way towards providing foreign investors with reassurance and a process pathway for investment. Local non-governmental organisations (NGOs), such as the Myanmar Centre for Responsible Business (MCRB), are also preparing advisory documents for foreign investors interested in the country’s mineral sector.
But the most recent positive note for the mining sector is the passage of a new mining act signed in December 2015. This has been under revision for over two years and was a significant source of uncertainty for foreign minerals investors. The new Act provides some alternatives to the existing Production Sharing Contract (PSC) model , a discouraging factor for foreign investors. The PSC requires production licence holders to share up to 32 per cent of the minerals produced (or cash equivalent) on a free-carried basis, and on top of government royalties. The net result was to render many projects uneconomic. The new mining act appears to offer two alternatives, either profit-sharing with the government, or equity-participation (possibly with co-funding) in addition to royalties of 2 to 5 per cent.
Other mining law amendments are to offer foreign investors the ability to joint-venture with small- to medium-sized mine operators in the country by converting existing domestic small-scale production licences to larger-scale, and flexibility in the extension of production licences up to 50 years. It also reportedly contains some clauses on environmental and social concerns, including the introduction of the requirement to post an environmental bond to provide for post-closure mine rehabilitation. Though details have yet to be confirmed, and it is premature to assess its impact on external investment, the signing of the new mining law should be seen as a positive step for foreign investors. It will however be in the details and practical implementation of the act that will determine whether it is an aid to foreign investors. Draft regulations for the law containing specific details on tenure size and fees, the nature of the government participation, the structure of the various local administrative bodies, and social and environmental requirements should be published in 2016.
The sudden rise of Myanmar’s tin industry
The potential of Myanmar’s mining industry has been emphatically emphasised by the sudden growth of tin production. Tin mine production increased by some 4900 per cent over the last five years (Gardiner et al, 2015), and seems likely to have risen again in 2015 pending full-year data. At this level Myanmar is the third largest global tin producer, after China and Indonesia, producing over ten per cent of the world’s mined tin. This dramatic rise in production surprised analysts and is perhaps one of the contributing factors to the depression of tin prices since 2014.
Myanmar is known to have great potential for tin mining, principally within the traditional tin producing region of Myanmar’s deep south. However, the new tin production increase comes from the Wa State in the north of the Shan States, an ethically Chinese, autonomous state bordering Yunnan province. Wa is not recognised, nor controlled, by the central Myanmar government, and fighting frequently breaks out between local and national Burmese forces; the most recent incident was July 2015.
The Burmese mining industry remains hugely diminished, but its lack of recent development means that as well as a whole new exploration space for a range of commodities, known existing deposits are still viable for rehabilitation. Myanmar’s mining sector, and mining professionals, would benefit hugely from foreign investment and know-how, and improved technology. The rehabilitation of Myanmar’s minerals industry could be hugely beneficial to a country that is starting to re-emerge on the world stage, and which needs to grow and rebuild its economy. In common with many emerging jurisdictions, a lack of knowledge of both its domestic potential, and of international law and foreign relations, may hamper Myanmar’s ability to properly harness its natural resources. This is compounded by a lack of skills, knowledge and poor infrastructure. Although uncertainty over the political process and trajectory means that outside investors will still consider it a high-risk jurisdiction, some juniors feel first-mover advantage is worth the risk as they seek to re-explore this beautiful land.
‘An Unfinished Peace’, 2015. The Economist, 16 Nov. http://www.economist.com/blogs/graphicdetail/2015/11/myanmar-graphics [Accessed: 27 Jan 2016]
Fong-Sam Y, 2014, 2012. Minerals Yearbook: Burma, United States Geological Survey (USGS), [online], http://minerals.usgs.gov/minerals/pubs/country/2012/myb3-2012-bm.pdf
Gardiner NJ, Robb LJ and Searle MP, 2014. The metallogenic provinces of Myanmar, Applied Earth Science (Trans. Inst. Min. Metall. B), vol 123, no 1, pp. 25-38, http://dx.doi.org/10.1179/1743275814Y.0000000049
Gardiner NJ, Sykes JP, Trench A and Robb LJ, 2015. Tin mining in Myanmar: Production and potential. Resources Policy, vol 46, pp. 219-233. http://linkinghub.elsevier.com/retrieve/pii/S0301420715000938
Moody R, 1999. Grave Diggers: A Report on Mining in Burma. Canadian Asia Pacific Resource Network, Vancouver.
‘Most Favoured Nation’, 2015. The Economist, 19 Dec. [online] http://www.economist.com/news/leaders/21684157-which-country-improved-most-2015-most-favoured-nation [Accessed: 27 Jan 2016]
Transparency International 2013. Corruption Perceptions Index, Berlin, Germany. [online] http://www.transparency.org/cpi2013/ [Accessed: 4 Jun 2015]
Schwab K and Sala-i-Martin X, 2015. The Global Competitiveness Report 2015 – 2016, Full Data Edition. World Economic Forum [online] http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf [Accessed: 27 Jan 2016]
Wilson A, Cervantes M and Green KP, 2014. Annual Survey of Mining Companies 2013, Fraser Institute, Vancouver, Canada. [online] http://www.fraserinstitute.org/research-news/display.aspx?id=20902 [Accessed: 4 Jun 2015]
World Bank, 2015. Doing Business 2016: Measuring Regulatory Quality and Efficiency. [online] http://www.doingbusiness.org/reports/global-reports/doing-business-2016 [Accessed: 27 Jan 2016]