MAC: Mines and Communities

The road for Rio leads through some distinctly murky waters

Published by MAC on 2010-07-04
Source: Mizzima

London Calling examines dirty deals between China and Burma

This week, Rio Tinto announced that it had now acquired an almost 30% stake in Canada's Ivanhoe Mines - making it by far the company's biggest backer.

To date, Rio Tinto has invested over 1.7 billion dollars in Ivanhoe, in order to promote "development" of one of the world's biggest copper-gold deposits, at Oyu Tolgoi in Mongolia.

The project has provoked strong opposition from some Mongolian NGOs. See:

However, it's still not widely recognised that, as a key condition of forging its joint venture with Ivanhoe in 2007, the UK company insisted the Canadians withdraw from its Monywa copper project in Burma, then operated with the assistance, and to the advantage of, the country's bloody ruling junta.

There was little question that the London-based Rio Tinto board would be sorely embarrassed by any suggestion of its underwriting such a destructive and illegal enterprise, in one of the world's most oppressive states.

As we revealed on this site a year ago, Ivanhoe, and indirectly Rio Tinto, continue to benefit from profits made by this mine, despite sanctions imposed by the United States. See:

A purportedly independent third party trust was set up under the 2007 agreement between Rio Tinto and Ivanhoe, envisaging a quick sale of the 50% equity held by the latter in its Burmese enterprise.

Until recently, neither of the two companies has said whether that sale has yet taken place - and if so, to whom. However, an Ivanhoe spokesman last week told Mizzima News that it had not yet taken place. If true, this in itself serves as a censure of Rio Tinto's failure to extricate itself from complicity with the regime.

Arms for copper

Now Canadian Friends of Burma (CFoB) has published evidence suggesting that the stake was indeed sold - and to "Burmese cronies" of the generals.

Moreover, according to CFoB, a major Chinese arms manufacturer, Norinco, has sealed a deal specifically with the Monywa mine, to receive copper in exchange for supplying howitzers to the Burmese military.

Allegations of complicity between China and Burma don't stop here. Another recent report suggests that Norinco is closely associated with China's biggest aluminium company, Chinalco.

Chinalco is not only the biggest shareholder in Rio Tinto itself; it is also rumoured to be in the bidding for a stake in, if not control over, both the Monywa mine and the Oyu Tolgoi project in Mongolia.

As so often with such speculation, it's tempting to see conspiracies where none may in fact exist.

Nonetheless, it stretches credibility to believe that there have been no exchanges at all between the Chinese and Rio Tinto on these inter-related issues.

The British giant is all too keen to mend its relationship with the government, damaged by the imprisonment last year of four of its senior staff on charges of accepting bribes. See:

At the very least, Britain's biggest mining company must immediately reveal if the Monywa stake, held by its now well-healed Canadian partner, has or has not been sold.

And if not, then why not?

[London Calling is published by Nostromo Research. Comment made in this column are not necessarily shared by any other party, including the editors of the MAC website. Reproduction is welcome, provided full acknowledgment is given to Nostromo Research and any sources quoted.]

Canada urged to probe Ivanhoe over 'arms-for-copper' deal

By Thomas Maung Shwe


30 June 2010

Chiang Mai - The Canadian Friends of Burma has called on the government of Canada to investigate reports first made by Mizzima that Vancouver-based Ivanhoe Mines violated Canadian sanctions by allowing its 50 per cent stake in Burma's largest mine, the Myanmar Ivanhoe Copper Company Limited (MICCL), to be sold to junta cronies closely connected with Chinese business interests late last year.

CFOB executive director Tin Maung Htoo told Mizzima his organisation was also calling on the Canadian government to probe Ivanhoe's role in what CFOB called the "arms-for-copper" howitzer (artillery guns) deal. The deal was first reported by the Democratic Voice of Burma (DVB), in which the Burmese regime was alleged to have exchanged copper from Monywa for howitzers built by Chinese weapon's manufacturer China North Industries Corporation (Norinco).

Norinco, revealed on its web site last week that early this month its chairman, Zhang Guoqing, had signed the "Monywa Copper Mine Project Co-operation Contract" with Major-General Win Than of the Union of Myanmar Economic Holdings, which Burma analysts document is a profit vehicle that provides secondary incomes for ruling military junta personnel and their families.

While the Norinco release omitted details of the Monywa agreement, DVB reported yesterday that it had learned from sources that several weeks prior to the official signing ceremony senior members of the Burmese regime visited China to "check on the shipments" of SH-1 155mm self-propelled howitzer cannons made by Norinco. The howitzer vehicles were then sent to Burma.

Jane's Defence Weekly reported online that the SH-1 is a self-contained six-wheeled truck bearing the 155mm howitzer and a 12.7mm machine gun. It has a top road speed of 90km/h and the artillery piece has a maximum range of 33 miles (53 kilometres).

Analysts contacted by DVB speculated that the howitzers were exchanged for copper from Monywa. CFOB's Tin Maung Htoo said these latest allegations were extremely disturbing but very credible, pointing out that senior executives from Daewoo were convicted in a Korean court for helping the Burmese regime build a weapons factory as part of a deal to pave the way for Daewoo's access to Burma's offshore gas.

"The Norinco arms-for-copper deal is a win-win for both China and Burma; the weapons manufacturer gets cheap copper and the Burmese regime gets howitzers to use against its own people," Tin Maung Htoo said. "Sadly, more innocent civilians will die because of this; we can thank Ivanhoe Mines and its chairman Robert Friedland for building one of ‘the lowest-cost copper mines in the world' for the Burmese regime."

Tin Maung Htoo told CFOB that his organisation was preparing an official letter to be sent to the sanctions division at the Canadian Department of Foreign Affairs and International Trade. He added that it would also send a letter to Marketa Evans, the department's recently appointed extractive sector corporate social responsibility counsellor. Evans' office is mandated to investigate whether Canadian firms comply with a set of voluntary corporate social responsibility guidelines.

The exact status of the Monywa mine has remained unclear since February 2007 when Ivanhoe announced it had "sold" its 50 per cent stake in MICCL, the operator of Burma's largest mine, to an "independent third-party trust" in return for a guarantee that when the trust sold the stake, Ivanhoe would then be paid.

As part of the trust deal Ivanhoe continued to receive money from the mine and by way of the trust remained owners of half of MICCL. Ivanhoe Mines spokesperson Bob Williamson told Mizzima last week that the secretive "independent trust" had not sold Ivanhoe's 50 per cent stake in the mine. Mizzima learned however from a source close to Burmese commercial affairs that the "independent trust" had concluded a deal at the end of last year to sell its stake in MICCL to Burmese cronies of the military regime who have strong connections to Chinese business interests.

If indeed Ivanhoe's stake in the lucrative Monywa joint venture was sold to junta cronies this would contradict Ivanhoe's claim that the "independent trust" would not sell the stake to Burmese or American citizens. More importantly, such a sale would also violate US and Canadian sanctions.

In light of the apparent violation of Canadian sanctions Tin Maung Htoo also believes Canadian authorities must confront Ivanhoe and force the firm to publicly disclose everything it knows about Monywa and seriously examine whether any violation of Canadian sanctions has occurred. He added: "Ivanhoe can't hide behind their secret trust forever; Canadian civil society and the Canadian public won't allow it."

Ivanhoe chairman 'Toxic Bob'

Before he went into business with the Burmese regime, Ivanhoe chairman Robert Friedland was chief executive of Galactic Resources, a Canadian firm that operated the Summitville gold mine in Colorado during the late 1980s and early 1990s. Under his management, tens of thousands of gallons of toxic mining waste containing heavy metals and acid seeped from the mine's ponds into creeks and the Alamosa River causing havoc with the area's delicate ecosystem. The run-off from the mine killed all fish in the river for at least 17 miles (27 kilometres), thus earning Friedland the name "Toxic Bob".

Friedland's lawyers fought American officials for nearly 10 years before he agreed in December 2000 to personally pay US$27.5 million for his role in the disaster. The payment however represented a fraction of the mine's total clean-up cost and the profits his company had made. The US and Colorado governments have so far spent a combined total of more than US$200 million on remediation at Summitville. It is often referred to as the most expensive environmental disaster in American mining.

Before it was closed, the mine had extracted at today's prices, US$366 million in gold and about US$5.9 million in silver.

Friedland versus the Mongolian people

Ivanhoe is presently constructing a massive mine at its new project in Oyu Tolgoi, Mongolia. Because of the enormous ecological footprint the joint venture with Rio Tinto and the Mongolian government will create, many Mongolians are strongly opposed to it.

Friedland also earned the ire of Mongolians when the local media reported that while promoting Oyu Tolgoi at an international mining conference in Florida, he had boasted that Mongolia was a great location for a mine because it was devoid of people. According to Friedland: "The nice thing about this, there's no people around ... There's no NGOs ... You've got lots of room for waste dumps without disrupting the population."

Unsurprisingly, he was later burned in effigy at an anti-Ivanhoe protest in the Mongolian capital in April 2006, one of the largest mass gatherings in the nation's history.

Chinese arms maker's copper mine deal raises queries over Canadian stake

By Thomas Maung Shwe


27 June 2010

Chiang Mai - One of China's biggest arms makers signed a contract with a Burmese junta-controlled entity this month involving "co-operation" in a Monywa copper mine, raising serious questions over the status of Canadian miner Ivanhoe's holdings in the town northwest of Mandalay and whether Burma sanctions have been violated.

Defence contractor China North Industries Corporation (Norinco), one of the Chinese military's biggest suppliers, disclosed in a press release that in the first week of this month its chairman, Zhang Guoqing, had signed the "Monywa Copper Mine Project Co-operation Contract" with Major-General Win Than of the Union of Myanmar Economic Holdings Limited, a major revenue generator for the Burmese military regime.

While Norinco kept from view any financial details, it did say the agreement was signed in the presence of Chinese Premier Wen Jiabao and Burmese Prime Minister Thein Sein during the former's two-day tour of Burma. The firm makes a wide range of weapons and has long been the subject of intense western scrutiny for its activities.

The Bush administration alleged that Norinco exported missile technology to Iran and took steps to penalise the firm in 2003 and 2005.

Norinco's Burmese copper play was strongly criticised by pro-democracy rights group Canadian Friends of Burma (CFOB), who termed the deal the "arms-for-copper" affair. The Ottawa-based advocacy group on Thursday called for Canadian authorities to launch an independent investigation to assess the present ownership status of the Monywa mine's operator, Myanmar Ivanhoe Copper Capital Company Limited (MICCL).

MICCL was created as a 50/50 joint venture between Canada's Ivanhoe Mines and a Burmese state-controlled firm, Mining Enterprise No. 1. MICCL has operated Monywa, Burma's largest mine, since production began in 1999.

In a move critics said was a blatant attempt to hide the firm's Burmese operations, Ivanhoe Mines reported in February 2007 that it had "sold" its 50 per cent stake in MICCL to an "independent third-party trust" in exchange for a guarantee that Ivanhoe would receive payment when the trust sold its stake.

Following the September 2007 "saffron revolution", in which scores of protesting monks and citizens were killed by junta soldiers in Rangoon, Ivanhoe and the Monywa mine made headlines when Andy Hoffman of Canadian national newspaper, The Globe and Mail, reported that despite Ivanhoe's claims it had pulled out of Burma its financial filings showed it was still receiving profits from its 50 per cent stake in MICCL, held by the allegedly "independent trust".

Ivanhoe claimed in October 2007 that it had determined it was "prudent to record a $134.3 million write-down" in the value of their 50 per cent stake, thereby reducing its value to nothing, in what the Canadian Friends of Burma said was a clever ploy to avoid revealing any details about the Monywa mine in its regulatory filings.

State-controlled The Myanmar Times quoted MICCL's general manager Glenn Ford as saying last year that Monywa was in fact "one of the lowest-cost production mines in the world", despite Ivanhoe's claim that the mine was worth nothing.

Ivanhoe denies ‘trust' has sold stake in Monywa

When asked to comment on the current status of the Monywa mine, Ivanhoe spokesman Bob Williamson told Mizzima on Wednesday that the "independent trust" had not sold the 50 per cent stake to anyone. Since the trust's creation, Ivanhoe has refused to reveal any of the individuals or firms who oversee the entity, offering only that they were not employees of Ivanhoe Mines.

Ivanhoe had said when the trust was created that the stake in MICCL would not be sold by the trust to anyone it termed "excluded persons" - employees or directors of both Ivanhoe Mines and Rio Tinto, the British-Australian firm that controls a sizable minority stake in Ivanhoe. It also said "residents or entities controlled by citizens or residents of Myanmar (Burma) or the United States" would also be barred from buying the stake.

Source tells Mizzima sale of Ivanhoe's stake completed last year

Contrary to that claim, however, a source in Burma's business community told Mizzima that the "independent trust" completed the sale of its 50 per cent stake late last year to cronies of the Burmese junta who have ties to Chinese business interests.

The alleged secret sale came as no surprise to CFOB executive director Tin Maung Htoo, who believed "from the very beginning Ivanhoe has been totally dishonest about its operations in Burma and this so-called ‘independent trust' charade gives Ivanhoe chairman Robert Friedland ample opportunity to keep the mine for himself or sell to it the regime's cronies or do whatever he wants".

Were Ivanhoe's stake in MICCL to have been bought by cronies of the Burmese regime, this would violate US and EU sanctions. In January last year, MICCL was added to the US Treasury Department's Office of Foreign Assets Control (OFAC) list of banned entities, an action that Ivanhoe failed to mention in any of its subsequent statements or filings that discuss the "independent trust". Ivanhoe also failed to tell its shareholders that the European Union had added MICCL to its Burma sanctions list in November 2007.

Ivanhoe's Burmese venture refuses comment

When Mizzima called MICCL's Rangoon office yesterday and asked who now owned Ivanhoe's 50 per cent stake in the joint venture, an staff member refused to answer. Requests to speak to the company's Monywa general manger Glenn Ford or even learn his nationality was also declined.

While Glenn Ford was unavailable for comment, a Google search for his name and "Ivanhoe" revealed an interesting posting in March last year by a "Glenn Ford" on Australian business news commentary website, Business Spectator. It said Norinco had teamed up with China's massive Chinalco to aim for Ivanhoe's Burmese holdings. The posting made in reference to the proposed purchase of Rio Tinto by Chinalco stated "Now Chinalco, in partnership with Chinese state-owned arms dealer Norinco, is buying the whole copper deposit of Ivanhoe and the Myanmar government." Glenn Ford of MICCL could not be reached to confirm if this had been his posting.

Tin Maung Htoo believed the MICCL general manager had indeed posted the statement. "How many people named Glenn Ford are there around posting intimate details of Norinco's Burmese operations; Norinco's own statement about their Monywa copper deal would suggest that this post was genuine."

Concerns that Chinalco had purchased the stake were also raised last year by CFOB. Citing SEC filings from February 2008 by China Resources Limited, a small start-up firm whose chief financial officer Gerald Nugewela was a former MICCL employee, CFOB alleged Chinalco had bought the stake in possible violation of US sanctions directed against MICCL. In a widely distributed press release, CFOB quoted the following text from Nugawela's career summary, included in at least seven separate SEC filings:

"From 2005 to January 2007, Mr. Nugawela was employed by Ivanhoe Mines as Commercial Manager of Myanmar Ivanhoe Copper Co. Ltd. At Ivanhoe, Mr. Nugawela was responsible for managing treasury operations, accounting, supply and contracts administration, output agreements, business analysis and planning. Mr. Nugawela was instrumental in arranging the sale of the company to Chinese Aluminum Company [Aluminum Corporation of China or Chinalco]. He prepared the valuation model and met with prospective purchasers in their due-diligence investigation of the company."

In a tersely worded "open letter" addressed to CFOB that accused the NGO of running a disinformation campaign, Ivanhoe chief executive John Macken, while acknowledging that Nugawela had indeed worked at MICCL, denied that he had been employed by Ivanhoe Mines as Nugawela had stated. He also denied that Nugawela had brokered the sale, claiming that "neither Ivanhoe Mines nor MICCL has been sold, or ever offered for sale, to anybody".

Several lines later, Macken, in an apparent contradiction of his earlier claim, stated the independent trust was indeed trying to sell the MICCL stake, writing that the trust was "endeavouring to negotiate its sale to potential buyers".

Local villagers report pollution, high security around mine site

For many years reports from villagers living in the vicinity of the mine are that neighbouring farmland has become too acidic to grow crops because of chemicals used in the mining process, driving many farmers into extreme poverty. Villagers also say that the Burmese regime has long maintained a heavy security presence in the area. The Irrawaddy magazine reported on Thursday that since Ivanhoe's apparent departure "Chinese workers and engineers" have been busy working in the area.

Extreme poverty means they cannot meet the basic needs for food, water, shelter, sanitation and health care. The World Bank defines extreme poverty as living on less than US$1.25 per day.

Ivanhoe to receive $292.1m for Oyu Tolgoi development

Rio Tinto exercised certain share warrants in the Canadian company four months ahead of expiry. The proceeds will be used for funding development of the mine


30 June 2010

Ivanhoe Mines said it would receive $393.1 million for developing Oyu Tolgoi project in Mongolia, after its partner Rio Tinto (RIO.AX: Quote) (RIO.L: Quote) exercised certain share warrants in the Canadian company.

The company said the Series A warrants acquired by Rio Tinto in October 2006, were converted four months ahead of expiry. The warrants entitled the Australian company to acquire 46.03 million of Ivanhoe's shares at $8.54 apiece.

With this transaction, Rio Tinto now has invested about $1.73 billion in Ivanhoe Mines, and increased its ownership to about 29.6 percent, the company said in a statement.

The proceeds would be used for funding the development and construction of the Oyu Tolgoi copper-gold mining complex in Mongolia, in which Ivanhoe has about 66 percent interest.

The $4.6 billion project will be one of the world's largest mines and a key driver of the Mongolian economy when it opens in 2013.

Shares of Ivanhoe closed at C$13.99 Tuesday on the Toronto Stock Exchange.

(Reporting by Ashutosh Joshi in Bangalore; Editing by Vyas Mohan)


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