New Mining Rules revive investor interest in Myanmar mining

With the adoption of well-structured and pertinent legislation, Myanmar’s mining sector is taking the necessary steps to encourage much-needed foreign investment. Following the passing of amended mining legislation in 2015 and the publication of new Mining Rules in February 2018, policymakers have strengthened the sector’s legal structure, addressed investor concerns and eliminated inconsistencies surrounding environmental conservation.

New Chapter

The initial target was to pass the new enabling rules within 90 days of the 2015 Mines Law being enacted; in reality, it took more than two years. The election of a new government in 2016 led to a shift in state priorities, from economic development to national reconciliation. There was a shift in the mining agenda, at least at the state level. After winning the national election, the government led by Daw Aung San Suu Kyi identified mineral resource allocation as a key piece in the national reconciliation puzzle. As such, hundreds of consultations were held by the Ministry of Natural Resources and Environmental Conservation (MNREC) before the new Mining Rules were passed.

While the 2015 Mines Law lacked clarity in some areas, it introduced a number of important modifications, such as Section 4 (f), which allows foreign investors to assist local mining companies in upgrading through a joint venture for small- and mid-tier projects. Previously, foreign firms could only partner with large-scale mine operators. Specifically, the 2015 law allowed ventures to expand small mines into large-scale extraction operations. Another key modification was the option for mining companies to enter into a form of profit- or equity-participation agreement with the government, removing the previous requirement for production-sharing contracts. This has allowed for the costs of mining, including dead rents and royalties, to be shared by the state and the mining company.

“The 2015 Mines Law amendments and new regulations that were issued in early 2018 were positive steps forward for international investors,” Michael Phin, director of Valentis Services, told OBG. “The legal amendments have increased maximum mine life, introduced alternative state participation mechanisms, and provided greater clarity in transitioning from exploration to production licences.”

The Rules

The implementation of the new Mining Rules, under Notification No. 13/2018 dated February 13, 2018, has made several important modifications to the fiscal regime, licensing arrangements and environmental management obligations. Operating under a first come, first served basis, the 1996 rules on the licence allocation process were unclear and created investor uncertainty. The new rules have rectified this by explicitly stating that priority is given to the application first received for greenfield areas.

The new regulations contain 225 sections, in comparison to just 124 in the 1996 version. A key change from the former rules is the granting of authority to the state and regional governments to speed up the permit and licence process for small- and medium-scale mines. Some market analysts have identified the lack of coordination between the central government and state and regional allocation boards as potentially leading to overlapping applications. To mitigate this risk, the Department of Geological Survey and Mineral Exploration has proposed specific areas for small-scale mining operations, which should reduce the risk of the duplication of applications.

Smarter Procedures

While progressive legislative amendments show the intent of the government to foster growth, there are concerns about bureaucratic capacity at the state and regional level. Nonetheless, decentralisation efforts and investment in digital systems are expected to speed up mandatory bureaucratic procedures and assist with national peace efforts in some parts of the country. Another key change introduced by the new laws is the allocation of more responsibility to respective levels of government in the monitoring of mining operations, which is expected to bolster environmental protection initiatives. The enactment of the new rules requires operators to submit a mine rehabilitation plan to MNREC, minimising the chance of neglected sites, a major issue during the socialist period (see overview).

As far as the transfer of rights are concerned, the 1996 Mining Rules allowed the holder of a licence to transfer the licence upon approval from the Department of Mines (DoM). The previous rules, however, provided little guidance on the basis upon which the transfer was to be approved or rejected. The new provision under the 2018 rules has put a clear procedure in place, which focuses on ensuring the transferee complies with the conditions of the licence. According to an assessment by Valentis Services, the new provision covers non-controlling changes in equity and board positions. To avoid complications for foreign companies, Valentis Services anticipates that the ministry is likely to apply this provision to onshore entities. The 2018 Mining Rules also reduce dead rents by more than 65%, a significant incentive for mining companies.

“The fixed royalty rates for copper and gold in the new Mining Rules remove the uncertainty risk factor and allow investors to plan in advance,” Fred Hess, managing director of Australian group PanAust, told OBG. “The new mining permit durations also allow investors to carry out diligent exploration work.”

Clarification

In response to calls from mining companies, new rules have put clear guidelines in place for the application of prospecting, exploration, feasibility and mining licences. While a lack of conjunctive tenure was previously viewed as one of the biggest obstacles to foreign investment, certainty of tenure is now guaranteed by inclusion of an automatic right for investors to move from one licence type to another, provided the mining company has complied with existing laws and rules. Initially enacted under Section 11 (a) of the 2015 Mines Law, any company that undertakes prospecting or exploration, and conducts a feasibility study, is entitled to receive a production permit for that area.

Under the 1996 Mining Rules, prospecting was granted for an initial period of one year and could be renewed once for an additional year, over a land area of 4200 sq km. Exploration permits were granted for a maximum period of five years (3+1+1) over a total land area of 3150 sq km. Feasibility studies, meanwhile, were allowed for two years, while a nine-year licence was granted for pre-production and a 25-year licence for production. Under the new 2018 Mining Rules, a maximum land area of 2100 sq km is allowed for prospecting, exploration and feasibility for a period of two years, five years and two years, respectively, while pre-production licences remain unchanged at nine years. Production licences have an initial tenure of 15 years for large-scale production permits but can now be renewed for a maximum of five years at a time for a total of 50 years, subject to DoM approval.

Impact

The 2018 rules establish the comprehensive obligations for mining firms and solidify the sector’s legal foundations. Given the scale of geological reserves and the passing of long-awaited legal amendments, most of which are geared towards injecting foreign capital, mineral exploration is likely to increase. In addition to strengthening the legal foundations, MNREC also lifted a moratorium on new concession applications in mid-2018, with almost 1000 applications received by the fourth quarter of 2018. Although a number of lingering issues remain, the adoption of new legislation is already facilitating injections of capital.

In July 2018 the DoM at MNREC began accepting applications from local and international companies to undertake projects. Under the new Mining Rules, foreign companies are permitted to invest in large sites of more than 202,000 ha as well as sites of up to 100 ha.

Three licences were granted to PanAust in Myanmar’s Sagaing Region. The three blocks cover an area of 562-sq-km and are thought to hold significant deposits of copper and gold. The leases add to PanAust’s other three licences in Sagaing Region, which were awarded in 2016 and cover an area spanning 213 sq km. PanAust holds an 80% stake in local extraction firm Wuntho Resources, while Myanmar Energy Resources Group holds the remainder. The DoM told local press in July 2018 that another seven companies from countries including Japan, South Korea, China and Australia were seeking permits to conduct initial surveys.

Streamline

To keep pace with the changing legal landscape, the Myanmar Investment Commission (MIC) – the main body responsible for foreign investment approvals and licences – announced in mid-2018 that it would be adopting a faster application review process. Going forward, the MIC has committed to streamlining its assessment procedures and hold meetings to review investment applications every two weeks rather than monthly, which is set to expedite the incorporation phase for mining companies. According to an official statement by the MIC, applications will be vetted within 30 days, compared to 60 days previously, with final decisions to be announced no more than 10 days thereafter.