MAC: Mines and Communities

Outrage at Ivanhoe-Rio Tinto's dirty Burma deal

Published by MAC on 2011-08-08
Source: Mizzima (2011-08-05)

In 1994, the Canadian company Ivanhoe Mines, ruled by "Toxic Bob" Friedland, sealed one of the most notorious mining agreements of the decade.

The company joined with Burma's military - on a 50/50 basis - to exploit the lucrative Monywa copper deposit in that beleaguered country.

Thirteen years later, following an investment arrangement with UK-Australia-listed Rio Tinto, Ivanhoe ostensibly withdrew from Burma by selling its Monywa assets to an eponymous independent trust registered in Canada.

The Trust was duty-bound to sell these assets to a third party that had no association with Ivanhoe or Rio Tinto.

That much is publicly known. So is the fact that, as a result of this transfer of ownership, money was still owing to one of Ivanhoe's subsidiaries in the shape of a "promissory note", encashable when the Trust finally disposed of its 50% interest in the mine.

However, in October 2007, Ivanhoe claimed it had written-down some US$134 million of this amount - in effect valuing its stake at zero.

Whether intentionally or not, the move served to acquit Ivanhoe (and Rio Tinto which, by then, had an initial 10% stake in the Canadian firm) of directly benefitting from profits made at the expense of Burmese human rights.

A "real scandal"

Then, just over a week ago, the company revealed it had, after all, received US$ 103 million from the Trust, following sale of the stake to a Chinese arms dealer - one already found guility of Burmese sanctions-busting.

There is compelling evidence that this transaction occurred as long ago as late 2009 or early last year. See: Further Dirty Mining Deals alleged in Burma

In response to Ivanhoe's announcement on 3 August 2011, Canadian Friends of Burma (CFOB)'s executive director, Tin Maung Htoo declared:

"It's quite outrageous for Ivanhoe artificially to determine that their stake [in the Monywa copper company] was worth nothing, when they had been previously saying that Monywa was one of the most profitable copper mines in the world.

"It was pretty clear that Ivanhoe did this so they would no longer have to include details about their Burmese assets in their financial filings ... This is a real scandal."

Just as scandalous - as we have pointed out on several occasions - is that Ivanhoe's partner and chief shareholder Rio Tinto, with a 46.5% share of Ivanhoe itself, has been complicit in this obfuscation and benefited materially from the deceit.

Rio's reprehensible role

Worse, the world's second richest mining company has flagrantly broken its undertaking to forgo profit-taking from Burma while its citizens suffer under the steel whip of the military.

Moreover, Rio Tinto has willfully concealed this vital information from its own shareholders.

As well as demanding that Ivanhoe-Rio Tinto now be investigated for the "suspicious transfer of Burmese assets", CFOB asserts that the company is also responsible for repairing extensive damage, caused by Monywa's operations to farmland in the area surrounding the mine (See photo below).

It's difficult to conjure up any other mine of recent years that has had such a deplorable impact on local people, while also reaping substantial profits for a private foreign enterprise and pouring cash into the coffers of one of the most vicious dictatorships on our planet.

However, one other project does come to mind: Freeport's Grasberg copper-gold operations in Indonesian-ruled West Papua (Papua).

Which world-class mining company, brimming with "ethical" policies, joined up in Papua with Freeport in 1985 when the brutally corrupt president Suharto was still in power?

And which, still today holds a critical 40% stake in a joint venture with the US company?

No prize for guessing.

[Commentary by Nostromo Research, 7 August 2011]

Ivanhoe Mines receives $103 million from Monywa Mine sale

By Thomas Maung Shwe

Mizzima

5 August 2011

Chiang Mai (Mizzima) - Burma activists in Canada are demanding a full probe of Canadian mining giant Ivanhoe Mines that they claim has underhandedly broken sanctions against the Burmese government.

Villagers sifting through toxic mining waste at Ivanhoe's Monywa mine
Villagers sifting through toxic mining waste at Ivanhoe's Monywa
mine. Source: Mizzima

The Burma activists are demanding an investigation of the Vancouver-based company's withdrawal from Burma, after the firm acknowledged in a statement released on Wednesday that it received a US$ 103 million payment from the "independent, third-party" Monywa trust which Ivanhoe created to dispose of its 50 per cent stake in the joint venture that runs Burma's largest copper mine.

The statement also acknowledged that Ivanhoe's stake in the Monywa copper project was sold by the trust, something that critics of Ivanhoe have claimed already occurred last year or late 2009. The statement claimed, "Ivanhoe Mines had no involvement in discussions between the Monywa Trust and its service provider with potential purchasers or with the ultimate sale of the interest."

Ivanhoe's statement follows recent reports in Burmese state-controlled media that Norinco (China North Industries Corporation), a Chinese weapons firm, has acquired production rights to mine the Monywa copper deposits.

Responding to the disclosure, the Canadian Friends of Burma (CFOB) called for both Canadian and US financial regulatory agencies to investigate what they claim is clear proof that Ivanhoe's 50 per cent operating interest in the joint venture firm that runs the Monywa mine, Myanmar Ivanhoe Copper Company Limited (MICCL), was transferred in a manner that violated both Canadian and US sanctions.

MICCL, which was created as a joint venture between Ivanhoe and a Burmese state-owned firm, has been on the US Burma sanctions list since January 2009.

The New Light of Myanmar reported on April 5 that the previous day Norinco concluded a "Production Sharing Contract" with the quasi state-owned Union of Myanmar Economic Holdings Ltd (UMEH) for the rights to three of the Monywa mine's deposits: Sabetaung, Sabetaung South and Kyisintaung. UMEH is also on the US Burma sanctions list run by the Office of Foreign Assets Control (OFAC).

Norinco, one of the Chinese military's biggest suppliers, has long been the subject of intense Western scrutiny for its activities. The former US administration of George W. Bush alleged that Norinco exported missile technology to Iran and sanctioned the firm for doing so.

The Sabetaung and Kyisintaung deposits are next to each other and were developed jointly as the S&K project by MICCL. Under an agreement previously reached between Ivanhoe and the Burmese regime, Ivanhoe's joint venture MICCL received for each deposit a lease of "twenty years from the date of commercial production" which began at S&K on November 2 1998, giving MICCL the rights to mine the deposits for at least seven more years.

On May 17, the Chinese embassy in Rangoon sent out a press release confirming that a production-sharing agreement for Monywa was signed the previous month during the visit to Burma of Jia Qinglin, the chairman of the 11th National Committee of the Chinese People's Political Consultative Conference (CPPCC).

Both the Chinese embassy's press release and the report in the New Light of Myanmar detailing Norinco's obtaining production rights to the S&K site supports information first reported by Mizzima last year that Ivanhoe's 50 per cent stake in MICCL had already been transferred to a group of businessman closely connected with Burma's military regime.

CFOB's executive director Tin Maung Htoo said that the report in the New Light of Myanmar about a production sharing deal between Norinco and UMEH, an entity that is 60 per cent owned by a group of regime cronies, suggests Ivanhoe violated Western sanctions. Tin Maung Htoo told Mizzima: "It appears that Ivanhoe's stake in MICCL went from the so- called blind trust to UMEH and then to the Chinese weapons firm Norinco.

The fact UMEH is a junta-controlled entity targeted by both US and Canadian sanctions raises serious questions as to whether sanctions were violated by the Monywa Trust and Ivanhoe Mines." Tin Maung Htoo added that the US $103 million payment Ivanhoe received from the blind trust for its stake in MICCL should also be probed because of what he termed, "Ivanhoe's practice of employing questionable accounting practices for its Burmese assets."

In October 2007, some six months after putting its MICCL stake in the blind trust, Ivanhoe claimed that it had determined it was "prudent to record a US $134.3 million write down" in the value of their 50 per cent stake, thereby reducing its value to nothing.

In the firm's regulatory filings dated March 2008, Ivanhoe justified the write down in value by saying "it was determined that IVN's non-involvement in the Monywa Copper Project operations since it was transferred to the Monywa Trust, the lack of knowledge of the project's current activities and the fact that no sale had been achieved in almost a year since the asset was transferred to the Monywa Trust, indicated that the carrying value of the investment is impaired."

Tin Maung Htoo disagreed, telling Mizzima: "It's quite outrageous for Ivanhoe artificially to determine that their stake in MICCL was worth nothing, when they had been previously saying that Monywa was one of the most profitable copper mines in the world. It was pretty clear that Ivanhoe did this so they would no longer have to include details about their Burmese assets in their financial filings. Now four years later Ivanhoe says they got US $103 million for their supposedly worthless stake in MICCL. This is a real scandal."

The exiled Burma opposition activist said he would write to financial regulators in both Canada and the US where Ivanhoe's shares are also traded to demand a full investigation of Ivanhoe's alleged "accounting trickery." Tin Maung Htoo added: "Ivanhoe has some very serious questions to answer. First, they must explain why their stake in a mine they previously claimed was worthless was bought for more than $100 million, then they must explain how this sale transpired and who acted as the middleman."

Previous reports of Norinco's involvement in Monywa denied by Ivanhoe

News of Norinco's involvement in Monywa was first disclosed last year on the Norinco web site. According to a press release in June 2010, Norinco's chairman Zhang Guoqing signed the "Monywa Copper Mine Project Co-operation Contract" with Major General Win Than of UMEH. The Norinco press release stated the deal was concluded in the presence of then-junta prime minister and current President Thein Sein while he was visiting China with a trade delegation.

Ivanhoe Mine responded to news reports about Norinco's involvement in Monywa by denying that the Monywa Trust had sold the stake. According to a statement released by Ivanhoe Mines on June 30, 2010, the firm had been "assured by the Monywa Trust that at this time the independent, third-party trustee has not reached any agreement for the sale of the Trust's 50 per cent interest in the Monywa Copper Project in Myanmar."

Two months after Ivanhoe's denial, The Myanmar Times, Burma's state-backed English-language business weekly, reported on August 16, 2010, that Norinco would spend US $997 million to develop Monywa's Letpadaung deposit. The largely undeveloped cache is about four miles (seven kilometers) southeast of the three other deposits that make up the S&K mine.

A March 2003 press release from Ivanhoe quoted then deputy chairman Ed Flood as that "Letpadaung is widely recognized as one of the best undeveloped copper projects in the world."

According to Ivanhoe, the "total measured and indicated resources at Letpadaung are 946 million tonnes grading 0.43 per cent copper, using a cut-off grade of 0.15 per cent copper."

Under the agreement signed between Ivanhoe and the Burmese regime, MICCL would have the rights to Letpadaung for 20 years from the beginning of commercial production. Although Letpadaung was left largely undeveloped, Ivanhoe's Quarterly Technical Report filed September 2003 revealed that operations began at the Letpadaung deposit in July 2003 on a small scale.

According to the filing, a mini-pit that went into operation at the time was designed to produce 10,000 tons per of high-grade ore per day. This would give MICCL the rights to operate the Letpadaung deposit until 2023.

Critics claim Ivanhoe responsible for Monywa pollution

In addition to demanding that Ivanhoe be investigated for the suspicious transfer of Burmese assets, Tin Maung Htoo and the Canadian Friends of Burma said that Ivanhoe is responsible for damage to farmland in the area surrounding the Monywa mine.

Since MICCL first began full-scale commercial operations at the S&K mine in 1998, farmers living in the mine's vicinity complained that run off from the mine has increased the acidity in their fields and prevented their crops from growing.

Tin Maung Htoo and CFOB charged that Ivanhoe, as a long-time owner of a 50 per cent stake in MICCL Ivanhoe, bears responsibility for what the opposition activists said are serious environmental problems in the vicinity of the mine. The question of Ivanhoe's direct involvement in the day-to-day operations at MICCL remains controversial. A Burma fact file on the Ivanhoe Web site is phrased in such a way as to suggest Ivanhoe didn't run the mine, something Tin Maung Htoo calls "extremely misleading."

Tin Maung Htoo noted Ivanhoe's regulatory filings from 1996 when the firm, then-named Indochina Goldfields, disclosed that it had a 50 per cent operating interest in MICCL. While owning an operating interest would suggest that Ivanhoe had some responsibility in running the mine, Ivanhoe ceased using the term "operating interest" after 1996 to describe its involvement in Monywa.

Tin Maung Htoo said in practice, however, Ivanhoe was running day-to-day operations at the mine until 2007. At least half of the board members of MICCL were Ivanhoe Mine's staff and at least two consecutive MICCL general managers were described in corporate filings as direct employees of Ivanhoe Mines.

The extent of the pollution is disputed as well. While Ivanhoe has always maintained that the mine was operated in a professional manner, a study by the international human rights and environmental NGO Earth Rights published in 2007 quoted local farmers who said that acid levels in the fields were so bad that could not grow any food on their land and were forced to make a living sifting left over mining waste created by the S&K mine's operations.

Subsequent anecdotal reports indicate that the pollution in the area has only become worse since the Earth Rights study was conducted four years ago.

Ivanhoe Mines has responded to the pollution charges by suggestion that problems affecting the farmers are not a result of MICCL's activities but were caused by previous operations conducted at the Monywa mine site. From 1983 until the mid-1990s, the Burmese regime ran what a senior Ivanhoe geologist termed a "small commercial-scale plant" at the mine site processing ore extracted from a small open pit at Sabetaung. The plant run by Burma's state- owned Mining Enterprise No. 1 was built in the early 1980s by the RTB-Bor Copper Institute of Yugoslavia.

CFOB, while acknowledging the existence of pollution created by the Yugoslav-Burmese copper project, told Mizzima that at the time the mine did not use acid, the generating heap leach process introduced by Ivanhoe. According to Tin Maung Htoo: "It is clear from photos and previously published studies when Monywa was run using the Yugoslav-Burmese built plant, the mine was far smaller and produced far less copper on a daily basis. While obviously pollution was created during this time, it wasn't until Ivanhoe came on the scene that the mine vastly grew in size and began to severely affect local farmers."

A 1996 prospectus for Ivanhoe (then called Indochina Goldfields) noted that while there had been a small commercial operation at Sabetaung there "has been no commercial production to date from Kyisintaung." The prospectus goes on to paint a similar picture for Letpadaung which was the subject of a failed commercial venture in the 1930s and was the site of test drilling performed by teams from the United Nations Development Fund and the Japanese government until Ivanhoe became involved.

To support CFOB's claims about Ivanhoe's culpability in the pollution, Tin Maung Htoo cited several studies produced by a team from Australia's national science agency's Land and Water division who were hired by Ivanhoe to study the Monywa mine's three large-scale heap leach pads. In an article published in 2007, the Australians called the leach pads at Monywa some of the most acidic in the world; they described the chemistry of the pad's heap solution as "extremely acidic, with a solution pH of usually less than 1.5 and in some cases less than 1.0."

According to a 2008 paper published by two of the same researchers, unlike the Monywa mine, "Most heap bioleaching operations treating low-grade ore operate with a solution pH between 1.5 and 2.5".

The researchers concluded that the pyrite content of the ore found at Monywa is the cause of the unusually high acid levels found in the leach pad solution, something that Tin Maung Htoo said Ivanhoe should have been aware of when they started the project.

A 1997 paper written by other consultants hired by MICCL to assist in the building and operating of a pilot plant at the Monywa site noted the area "is very acid refractory which has the potential to present special processing challenges with respect to acid generation in the leaching system."

The acid at the leach pads is alleged to have had a severe impact on workers at the mine site. One worker told Earth Rights: "The acid used at MICC is very strong and hurts my eyes, especially near the acid pond. Many of my friends work at the acid ponds, and they told me how hard it is. They try to take care of the acid but it's not easy."

Another miner described the mine as creating a moon-like landscape. "The forest and trees are gone from the area where MICCL is located. Trees are unable to grow in this area any more. I think it is because there is a lot of acid in the soil surrounding the mine site."

Key Ivanhoe investor Rio Tinto: mum on Ivanhoe's Burma deal

In late 2006, Rio Tinto Anglo-Australian mining giant announced it would partner with Ivanhoe Mines to develop the massive US $6 billion Oyu Tolgoi copper, gold and silver project in Mongolia. In an agreement reached between Ivanhoe and Rio Tinto, Ivanhoe promised it would dispose of its Burmese assets. Rio has been steadily increasing its shares in Ivanhoe ever since and is widely expected to buy a majority stake in the firm in the near future. Rio Tinto currently owns 46.5 per cent of Ivanhoe's shares.

During Rio Tinto's annual shareholders' meeting earlier this year, the firm's CEO Tom Albanese declined to answer any questions about Ivanhoe's Monywa Trust or the controversy surrounding reports of Nornico's takeover of the mine. According to an observer at the meeting, Albanese "claimed that, since the Trust was administered under Canadian law, what it did was none of Rio Tinto's concern."

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