MAC/20: Mines and Communities

The state of Burma's mining

Published by MAC on 2012-08-21
Source: WA Today, Myanmar Times

As we mentioned recently, US and UK investment agencies have been quick to re-enter Burma - far too quick in the light of recent events. See: Burmese regime allegedly persecuting Muslim minorities

Now, according to WA Today, Australian mining companies are also "eyeing" similar opportunities, while adopting a "wait and see" attitude

In a separate article for the Myanmar Times, the campaigns director of the UK's Global Witness asks: "What can now be done to manage Myanmar's natural resources better in the new era of openness and reform in the country?"

Among the three reforms he proposes are "broad popular consultation and buy-in from citizens, political parties, local authorities and investors" (sic) and that "Communities should be informed and consulted in a meaningful manner..."

Burma comes in from the cold, gold and all - Victoria Bruce

WA Today (Australia)

11 August 2012

AS post-sanction Burma opens for business, Australian companies are eyeing investment opportunities in the country's unexploited mineral reserves.

The sector is receiving a gold rush of interest from Australian miners wanting to unlock the country's rich mineral wealth.

While the impoverished south-east Asian nation of Burma, also known as Myanmar, has a long history of gemstone mining, its rich reserves of precious and base metals have remained virtually untouched, due to the lack of capital, data, technology and essential infrastructure required to transform these virgin mineral resources into functional operations.

Enter Australia's junior exploration companies.

''Australian entrepreneurial junior companies are often the first movers going into remote areas,'' said Stephen Everett, chairman of Global Resources Corporation, one of many Australian miners that recently attended the Myanmar Mining Summit, held in the economic capital of Rangoon.

Decades of economic mismanagement and restrictive international sanctions during its years of military rule have crippled Burma's economy.

But since its transition to a quasi-civilian government and the easing of various sanctions, the country has been seeing a flood of interest from Western investors. Nicholas Powrie, general manager (legal regulatory) of Mineral Commodities, a project of mining entrepreneur Mark Caruso, former chairman of Allied Gold, which recently merged with St Barbara to create the largest mid-tier gold producer in Australia, said his company was ready to take the plunge.

''We've looked at the geology of the region and we're very excited about it,'' he said. ''We think it's the right time to come here, and the sooner the better.''

Mining veteran Owen Hegarty, of former Rio Tinto and Oxiana stock, said his company, Tigers Realm Group, was already looking at potential copper and gold deposits.

''Tigers is taking a preliminary look at opportunities in Myanmar,'' he said. ''We know the region well, we've had a look at some properties and prospects previously and we think the prospectivity for copper and gold is attractive.''

The current lack of large multinational mining companies also makes it an ideal playground for small mining companies to flourish.

Gold is just what many juniors are looking for in Burma. One Canadian company is hoping to lead the way once it is granted an exploration permit.

''There have been no big gold discoveries in this country, ever,'' said Jon North, chief executive and president of Canadian mining exploration company Northquest.

He pointed out that the country lacked any form of geophysical data, and the last geological surveys were completed about 50 years ago.

But while Burma at first glance may seem like the land of golden opportunities, new investors will have to negotiate a restrictive regulatory framework, an untested judicial system and layers of bureaucratic red tape.

''Many investors are surprised by how difficult it is to do business in Myanmar, and limited infrastructure and restrictive legal and economic conditions are the main hindrances to international investment,'' said Jared Bissinger, a PhD candidate at Macquarie University studying Burma's economy.

He said that despite rapid reforms, Transparency International ranked the country as one of the world's most corrupt.

The biggest barrier to investment in the mining industry was an inhibitive production sharing contract, with a 30-70 per cent profit-sharing ratio between the mining company and the Burma government, investors said. The government did not act as an equity partner, but took a hefty percentage of the total resource extracted, on top of royalties and tax.

''That means you risk all the money, you risk all the development, then you give the government a share of the production free of charge, on top of royalty,'' Mr Everett said. ''People will not invest on that basis - not large-scale, anyway.''

Burma also has an export ban on raw ores, and certain commodities such as gold and coal, and the country's lucrative gemstone sector, famous for its ruby, sapphire and jade production, is closed to foreign investment.

These barriers, combined with a lack of legal and physical infrastructure, means many interested companies will be adopting a wait-and-see approach.

Managing Myanmar's resource wealth - Gavin Hayman

Myanmar Times

13 August 2012

MYANMAR is a country blessed with abundant natural resources. Wrapped in magnificent forests, it has a fabulous climate for growing food and significant reserves of oil and gas, as well as other precious commodities like hardwood timber, jade and rubies. Yet this abundance has not yet translated into wealth and benefits for the ordinary citizen.

In many countries, the business of managing natural resources often happens in frontier areas and is characterised by secret deals and off-budget revenues.

At Global Witness, we have documented around the world how unaccountable resource management can drive discontent, poverty and conflict.

Our best received work to date within Myanmar was our effort to improve understanding of illegal timber extraction in its northern regions, and the negative impact that this had on the environment, local livelihoods and peacebuilding. The issue attracted widespread attention among decision-makers in Myanmar and China, as well as civil society and local communities, which ultimately led to a significant slowdown in exploitative timber exports.

What can now be done to manage Myanmar's natural resources better in the new era of openness and reform in the country? We would like to suggest that three key reforms are necessary.

First, the government needs an over-arching plan on how to manage its land and all its natural resources in the public interest.

That plan needs broad popular consultation and buy-in from citizens, political parties, local authorities and investors. If the state's efforts to attract foreign investment are not matched by efforts to safeguard local people's rights and the environment, Myanmar risks escalating social and political tensions.

Communities should be informed and consulted in a meaningful manner when proposed projects may affect the lands and resources they depend on. The first time that an ordinary citizen finds out about a deal should not be when they are evicted to make way for a land or resource concession

Requiring decision-making and contracting of investments to be open would not only benefit local communities but also enable the government to make more informed decisions and negotiate more equitable deals when allocating commercial rights to Myanmar's resources. Investors would also benefit from operating in a level playing field, as well as reduced risks of corruption, contract insecurity and damaging conflicts with communities.

Reforms are also necessary at the crucial project licensing stage, which determines how and to whom contracts for resource exploitation are allocated. The licensing process must be open, with pre-qualified companies, the terms of the bids and the eventual winner fully disclosed once the auction has been completed.

Regulators should make their rationale for choosing particular firms clear and transparent, and enforce laws requiring companies to disclose their real (beneficial) owners. Contracts and concession agreements need to be made public and project implementation based on the free, prior and informed consent of local communities.

Second, ordinary citizens need to be able to follow the money from natural resource extraction. The basic rules of the resource business need to favour disclosure of information rather than secrecy at every point along the chain.

This allows for the public to scrutinise resource deals, hold the state to account over how income from resource extraction is spent and reduces the risk of corruption, which has plagued extractive industries across the world.

President U Thein Sein's confirmation that Myanmar is preparing to become a signatory to an international initiative promoting the tracking of revenues from oil and mining is a welcome first step in this direction. "The most important thing," the president said, "is to have completely transparent financial accounting to ensure everyone knows where the revenues from these extractive industries are going."

The Extractive Industry Transparency Initiative (EITI) works by bringing together government, businesses and civil society to track the money flowing from the natural resource business. EITI compares what companies have paid to the government to what the government said it has received. Any discrepancies can then be investigated. The EITI is an acknowledged global standard and is being implemented in 35 countries around the world, from Norway to Peru. In total some 900 companies have disclosed about US$600 billion of revenues under the scheme and some $20 billion of discrepancies have been investigated and resolved.

It is not just civil society that strongly supports EITI. Perhaps the most convincing testimony comes from implementing governments, such as East Timor or Mongolia, which clearly attest to its importance in promoting reform efforts in their country. International investors managing some $13 trillion of assets also see EITI as an important tool to mitigate risk for the companies and countries that they invest in.

Major companies in Myanmar that support EITI include Chevron of the United States and Total of France. It is worth emphasising that EITI has grown to also involve Chinese companies, such as Chinese National Petroleum Corporation, which is active in Myanmar.

Transparency and disclosure in the natural resource sector is not just about citizen accountability. It is also a risk management strategy for companies wanting to invest in the country and the government.

In a country like Myanmar, where public debate on the management of these resources has been limited until recently, and where reform programs are gathering pace, EITI membership can be a catalyst for civil society to develop and grow by using EITI data to begin to hold decision-makers to account.

The initiative has been most successful when it is clearly included in domestic legislation and when it requires detailed reporting on an individual project basis, which provides details that enable local citizens to track the resources from their area.

The government also needs a joined-up approach to its implementation. New offshore energy blocks are due to be tendered while Myanmar is just starting discussions on implementing EITI. Any new contracts need to reflect this new approach to transparency.

Crucial to the success of the initiative is giving civil society both the space and the support to participate in the initiative. A sustained effort will be needed to not only ensure that civil participation is protected but also that local civil society has the required capacity and expertise on this issue.

Our third and final recommendation: the resource business needs to be embedded in wider reforms to improve the rule of law, freedom of information and proper government financial management.

One simple example: disclosures from the resource business need to map over to a transparent public budget process with clear rules on how the government intends to spend and save citizens' money in accordance with national development priorities. There also needs to be a clear process to review how that money was spent. Major investment or infrastructure projects also need to be properly governed and transparently managed, of course, as does spending on critical sectors such as defence, education and health. Politicians need to file asset declarations.

There's a famous Buddhist proverb: "Three things cannot be long hidden: the sun, the moon, and the truth." The truth about the management of Myanmar's natural resources now needs to come to fore. President U Thein Sein and his government's commitment to revenue transparency through the EITI is the right place to start but they should not stop here if they are truly committed to tackling Myanmar's resource curse.

(Gavin Hayman is director of campaigns at Global Witness, an international non-government organisation.)


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