Ivanhoe Facing Tough Times in MyanmarPublished by MAC on 2006-04-03
Ivanhoe Facing Tough Times in Myanmar
Vancouver: Courier Information Services
3rd April 2006
Ivanhoe Mines reports that the S & K Mine near Monywa in Myanmar, in which the Ivanhoe shares 50-50 stakes with a mining company owned by the country's military government, has temporarily closed down operations. In its Annual Report to Shareholders issued today, Ivanhoe says the shutdown has resulted from a shortage of fuel to operate mining equipment and chemicals needed for the heap leaching extraction process at the copper mine. Operations ceased at the beginning of March and have yet to resume.
The shutdown has occurred while world copper prices along with other base metals are a record levels and production continues to fall behind demand.
The report also says that plans to increase production at the Kyisingtaung pit and to expand the operations to the nearby Letpadaung copper deposit have had to be put on hold because the joint venture company has been unable to obtain a licence to import much needed additional mining equipment. "Without a substantial increase in mining capacity, these two deposits cannot be economically developed," the company says.
Moreover, the report says, the military government has neither approved nor denied plans to expand the operation to the Letpadaung area. As a result, mine production this year may sink "as low as 16,000 tonnes of copper cathode, down from approximately 34,500 tonnes in 2005".
Ivanhoe reports that it is also facing a new commercial tax on its share of production at the S & K mine which will result in an additional 8% net smelter charge on sales, What is worse, the company says, is that the new tax will be retroactive to the beginning of 2003. The report does not say whether Ivanhoe's J-V partner will have to pay the additional tax. The company is seeking a written legal opinion from the Attorney General of Myanmar on the applicability of the tax.
Economic sanctions imposed against Myanmar by the United States are also seriously impacting the ability of the Monywa mine to function in a normal way. At the end of 2005, Ivanhoe says, the mine's insurance broker and its off-shore banking institution terminated their relationship with the mine because of the sanctions. However, the management of the joint venture company has since set up a new banking relationship with an off-shore institution, according to Ivanhoe.
The report says that the Monywa mine, once the crown jewel of Ivanhoe's mining empire and presently its only source of mining revenue, has now become a "non-core asset" which the company is seeking to dispose of through outright or partial sale. In 2005, the company says, it signed an MoU with an "established large Korean corporation with the interest to sell a significant portion of the company's interest in the S & K Mine".
The interested partner is believed to be Daewoo International, which has been in talks with Myanmar's Mines Ministry. Daewoo already has a large stake in an offshore gas exploration venture along Myanmar's Arakan coast, as well as substantial interests in several industrial enterprises in the country.