Policy reforms and infrastructure upgrades promise growth in Myanmar mining

Myanmar is well known for the untapped potential of its extensive mineral portfolio. Home to the world’s largest deposits of jade and some of the most sought-after rubies, it also has substantial deposits of lucrative metals as well as industrial minerals. Despite significant deposits, foreign investment across Myanmar’s mining sector has lagged behind other key industries due to misadministration, legal uncertainty and ongoing conflict. As such, the diverse landscape of Myanmar remains largely underexplored. However, with previous legal uncertainties addressed in recently amended mining laws and rules, a multitude of prospectors are waiting in the wings, ready to extract valuable resources.

Structure & Oversight

In broad terms, the mining industry is centrally controlled by the government, although policymakers have identified the decentralisation of resource management as a top priority in order to achieve national reconciliation. The Ministry of Natural Resources and Environmental Conservation (MNREC) was established under the government of the National League for Democracy in March 2016, when the Ministry of Mines was merged with the Ministry of Environmental Conservation and Forestry.

With a total of seven departments, MNREC acts as the ministry in charge of mining activity. Its departments include the Minister’s Office, the Department of Mines (DoM), Department of Geological Survey and Mineral Exploration (DGSE), No. 1 Mining Enterprise, No. 2 Mining Enterprise, Myanmar Gems Enterprise (MGE) and Myanmar Pearl Enterprise (MPE).

In terms of oversight, the DoM is in charge of mineral policy and royalties collection, while the DGSE, which is the successor organisation to the Burma Geological Department, is responsible for geological surveys and mineral exploration. No. 1 Mining Enterprise oversees lead, zinc, silver, copper, iron, nickel, chromite and antimony activities, while No. 2 Mining Enterprise is responsible for gold, tin, tungsten, rare earth elements, titanium and platinum. MGE oversees the gems and jade industry, while the country’s pearl industry falls under the remit of the MPE.

Mining Policy & Legistation 

While there is little doubt about the nation’s mineral potential, its policy environment has hindered investment in the past. However, the former regime’s decision to pass an amended Mines Law at the end of President U Thein Sein’s tenure in 2015, followed by the launch of the first Extractive Industries Transparency Initiative (EITI) report in 2016 and adoption of amended Mining Rules in February 2018, demonstrates the intent of successive governments to improve regulation and capitalise on Myanmar’s lucrative mineral resources base.

Broadly speaking, reforms under the previous regime of President U Thein Sein focused primarily on economic growth. As such, the former government of the Union Solidarity and Development Party was able to promote transparency and encourage investment across a number of key industries. Despite these gains, the overarching policy of the mining sector continued to be influenced by parties with vested interests. As such, foreign participation in the sector has lagged behind other strategic industries. However, after several years of debate, the aforementioned amended Mines Law was finally passed by the Parliament in 2015, followed by the passing of amended Mining Rules in early 2018.

The 2015 Mines Law, which replaced the 1994 Mines Law, serves as the main piece of mining legislation. It covers the mining licensing framework; the respective roles and responsibilities of the central, regional and state governments; the fiscal regime and royalty rates for minerals; as well as the objectives of mine inspections and penalties for non-compliance. The amended Mines Law establishes a legal framework for all minerals, including precious and heavy metals, and industrial minerals, except for gemstones, which are covered by the Gemstone Law. The 2018 Mining Rules provide clarification on how to apply for a permit and the duties of permit holders. They also clarify rules related to mine closures, as well as safety, labour, accident and inspection requirements. In an effort to boost mineral exploration, the new Mining Rules addressed a number of investor concerns and made key modifications to the fiscal regime, licensing arrangements and environmental conservation requirements (see analysis).

“The new rules are overall quite positive. There is a substantial reduction in the dead rent and an extension of mining leases up to 50 years,” Andrew Mooney, CEO of Asia Pacific Mining, told OBG. “It is also positive to see international companies showing an interest, with PanAust recently granted three new licences.”

Transparency

While the framework governing the mining of precious stones in Myanmar has long been opaque, reform efforts include a new overarching policy promise to enhance transparency. As one of Myanmar’s most lucrative industries, jade mining has come under international criticism over the years partly for poor safety standards and labour abuses, in addition to its role in funding internal conflict. For years, a significant portion of proceeds from jade mining has been pocketed by military-linked families and smugglers between China and conflict areas in Kachin State, in north-eastern Myanmar. The EITI report suggested that between 60% and 80% of gemstones in Myanmar are undeclared and traded outside the formal system.

With the help of the private sector and foreign institutions, the government plans to implement the country’s first jade and gemstone policy, with the end goal of establishing consistent practices and guidelines for the industry. As of the fourth quarter of 2018 the government was busy with the third draft of a new jade and gemstone policy. The policy is also set to complement amended laws and by-laws for the precious stone industry, which MNREC submitted to the Parliament in 2017. To ensure that all stakeholders benefit from the new policy, teams from civil society organisations, Myanmar Alliance for Transparency and Accountability, and the Natural Resource Governance Institute were deployed to the mining zones of Myitkyina, Mogok, Mandalay and Monywa to investigate the concerns of miners, jewellers and civilian group representatives.

The new legislation governing the jade and gemstone industry had yet to be passed by the Parliament as of late 2018. According to local reports, the new policy and amended laws are set to clarify the approval of licences, testing and production criteria, the collection of tax, as well as initiatives for wider market penetration for value-added products, the preservation of the environment and the social well-being of local communities.

Other reforms include an effort to deter the illegal trade of gold at the borders. As of the second quarter of 2018 policymakers were in the process of officially removing a regulation that prevented traders from exporting the precious metal. Discussions were still ongoing as of end-2018. Myanmar’s untapped gold reserves are estimated at 1.3bn tonnes. Marcus Loke, senior consultant at Myanmar Gold Development, a commercial arm of Myanmar Gold Entrepreneurs Association, predicted that gold exports could reach 10-20 tonnes in 2019, if the trade restrictions are lifted.

Growth

Mining continues to be an important source of national revenue. According to data from the Ministry of Commerce, mineral products accounted for around 12% of exports in FY 2017/18 with a value of $1.78bn, up from $1.01bn in FY 2016/17. Mining exports accounted for $44.3m in the first two weeks of October 2018, up from around $40m in the same period the previous year. During 10 days of trade in June 2018 the 55th Myanmar Gems Emporium sold $495m worth of jade lots; 341 pearl lots valued at $3m; and $1.6m worth of 69 gems lots. In terms of tin, a key mineral deposit for Myanmar, from January to October 2018 shipments to China were estimated by the International Tin Association at 46,000 tonnes, down 5% year-on-year. According to The National, Chinese imports of tin concentrates from Myanmar fell by 26% to 184,000 tonnes bulk weight in the first 10 months of 2018.

Government estimates in the 2018/19 national budget – from October 1 to September 30 – show that the contribution of the mining industry to GDP is expected to grow by 7.5%, while the broader economy has a growth forecast of 7.6%, higher than the IMF’s prediction of 6.4%, published in the “World Economic Outlook” October 2018 report. The country’s GDP figure is set to continue to rise over the next several years, rebounding to 6.8% growth in 2019; 7% in 2020 and 2021; and 7.1% in 2022, before reaching 7.2% in 2023.

According to statistics from the Directorate of Investment and Company Administration, the total approved foreign direct investment (FDI) from 1988 to October 2018 amounted to $77.8bn, of which $2.9bn was approved for mining ventures, or 3.7% of total FDI. Breaking this down, approximately $1.4bn of FDI was approved in mining in FY 2010/11, more than the combined total for the sector from 2012 to 2018. This spike coincided with initial output from the Tagaung Taung Mine in Sagaing Region, in which CNMC Nickel Company invested $855m. As of November 2017 approved FDI in the mining sector for FY 2017/18 amounted to $1.31m. A year later, as of October 2018 approved investment had reached $6m for FY 2018/19.

Hungry Dragon

While there has been an uptick in Western participation, China remains the largest international investor in Myanmar’s mining industry with sizeable interests in copper, nickel, tin and zinc. These include the controversial $1bn expansion of the Letpadaung copper mines project by Wanbao Mining, a subsidiary of Norinco, which displaced local communities, and CNMC Nickel Company’s aforementioned investment. A number of Western mining companies have also entered the market in recent years, following the exit of Canada’s Ivanhoe Mines in 2007, which sold its stake in the Monywa copper project for $103m.

Australian group PanAust now has six concessions in the gold and copper region of Sagaing after it was granted an additional three licences in 2018. PanAust holds an 80% stake in Wuntho Resources, a joint venture with local firm Myanmar Energy Resources Group, which holds the remaining 20%. The licences were the first awarded under the new mining regulations (2015 Mines Law and 2018 Mining Rules), and comprise the Ton Kyaung, Taung Kon and Naugphat blocks in the highly prospective Wuntho Massif region. The 2016 exploration licences lie within the Sagaing and cover three tenement blocks: Hel Chain, Pin Hin Hka and Nam Awl. In addition to FDI, 900 applications by local investors were under review as of the fourth quarter of 2018.

Deposits

Myanmar’s tectonic setting, which includes the junction of the Alpine-Himalayan Orogenic Belt and the Indonesian Island Arc System, is home to the most diverse collection of natural resources in South-east Asia. To date, statistics from Myanmar’s DGSE show that 62 commodities are present along eight distinct mineral belts. Commodities consist of four main groups, namely metallic ore, industrial minerals and non-metallic raw materials, precious and semi-precious gemstones, and carbonaceous fuel minerals. In terms of mineral value, the country is rich in jade, ruby, sapphire and limestone deposits, and also holds sizeable deposits of copper, lead, zinc, tin, tungsten, gold, coal and barite. Myanmar also has fairly large deposits of antimony, silver, nickel, gypsum, iron and manganese, in addition to small or poor deposits of industrial minerals, such as chromite and bauxite, according to the DGSE.

While mapping data from the DGSE has yet to be updated with modern survey estimates, existing figures suggest a promising outlook. Statistics from the DGSE indicate there are 291 known lead-zinc deposits with a combined potential of 44m tonnes. There are more than 480 known deposits of tin-tungsten along the 1200-km granite belt that passes through Tanintharyi Region, and the states of Kayin, Mon, Kayah and Shan, as well as east of Pyinmana in Naypyidaw. Tin-tungsten deposits are also widespread in Mong Hsat and Mongton in eastern Shan State. There are approximately 341 occurrences of gold and more than 50 proven occurrences of copper mineralisation across the porphyry copper belt and the gold-copper belt in Sagaing. Meanwhile, Mogok Region is home to the world’s most concentrated gemstone mines, and resource-rich Kachin State is responsible for an estimated 90% of the world’s jade production.

Major Mines

Despite being underexplored by modern geological and geophysical methods, Myanmar’s diverse terrain is home to five mines of international significance: Bawdwin (lead-zinc-silver); Monywa ( copper), which includes the Letpadaung project; Mawchi (tin-tungsten); and Man Maw (tin).

An uptick in investment and technology transfer bodes well for the country’s major mines. Bawdwin Mine in the northern Shan State is an example of the benefits foreign expertise and capital can bring. It was once the world’s largest source of lead and a major production centre for silver, with annual output measured at 500,000 tonnes of high-grade silver, lead and zinc-rich ore. During the height of production, prior to the Second World War, reserves were estimated to be 10.8m tonnes at 14% zinc, 23% lead, 1% copper and 670 grams per tonne (g/t) of silver. However, the mine has never managed to reach the output figures achieved prior to the Second World War. After decades of low investment and limited technical expertise, the mine eventually ceased operations and production in 2010, following a series of poor recovery efforts. However, still regarded as a highly attractive mineral deposit, the Bawdwin area is set for major redevelopment, and is well positioned for access to some of the world’s largest smelters in its important sectoral trade partner, China.

New Estimates

Following a scoping study undertaken by Australia-based mining consultants CSA Global in 2017, Myanmar Metals (MYL) announced it was seeking to develop a long-life, low-cost, open-pit and underground mining operation on an accelerated schedule. This statement came after MYL agreed to pay local mineral exploration company Win Myint Mo Industries (WMM) a $1.5m non-refundable deposit to secure an option to acquire an 85% interest in the Bawdwin lease valued at $20m. Myanmar-based Australian company Valentis Services carried out a resource estimate in 2016 on behalf of WMM. Following further drilling, a revised, indicated and inferred resource estimate was undertaken by CSA in 2018. The updated study shows that Bawdwin resource predictions are even higher than the 2016 estimate of 41.4m tonnes. An official release by MYL states that there is a mineral resource estimate of 82m tonnes at 4.8% lead, 119 g/t of silver, 2.4% zinc and 0.2% copper (0.5% lead cut-off above 750-metre reduced level, 2% lead below 750-metre reduced level). In addition to zinc deposits within Bawdwin Mine, Long Keng Zinc Mine and Lashio Zinc Refinery continue to post significant output figures.

The largest copper mine is the Monywa copper project, including the Sabetaung and Kyisintaung mines, as well as the Letpadaung copper mines. There are also two significant deposits of nickel: Mwe Taung Mine in the Chin Hills and Tagaung Taung Mine near Mandalay. The latter is under the management of CNMC Nickel Company and is estimated to contain around 40m tonnes of high-quality nickel (2.06%). To date, CNMC’s investment of $855m is the largest single investment within Myanmar’s mining sector.

By most measures, Myanmar has significant potential for careful redevelopment of tin and tungsten mines. Mawchi Mine, in Bawlake district of Kayah State, was the world’s largest source of tungsten up until nationalisation in 1962. Production of tin from Man Maw Mine in Wa State, where Chinese interests are heavily represented, saw Myanmar emerge as the third-largest producer of tin behind China and Indonesia in 2015. Not long after the discovery, Myanmar accounted for 10% of the international tin market, producing 45 tonnes of contained tin in 2015, up from 1 tonne in 2009. In recent years output from the mine has fallen, and some analysts have suggested that the mine is near depletion. However, due to the lack of geo-exploration activity across Wa State and limited access due to ethnic tensions, the exact depths of deposits are uncertain, at least to those outside the Wa State mining community.

Obstacles

While Myanmar’s mineral wealth holds significant potential to broaden economic avenues, a lack of modern refining technology and fragmented value chains mean the country continues to export raw and unfinished products to neighbouring countries at a fraction of the final sale price. In addition to its undeveloped value chains, Myanmar has long been plagued by corruption, which has fostered a number of illegal trade routes, resulting in significant losses of tax revenue for the government.

On top of these shortfalls, the country’s mosaic of ethnic groups and long-running civil disputes continue to hinder modern exploration. As such, resolving the complex issue of resource allocation has been highlighted in national reconciliation efforts as perhaps the most challenging task facing the sector at present.

“Myanmar’s mining sector remains underexplored and underdeveloped, but there are encouraging developments for investors,” Michael Phin, director of Valentis Services, told OBG. “The regulatory changes, opening of concession applications and redevelopment of the Bawdwin Mine by a Myanmar-Australian joint venture are all signs of major progress in the industry.”

Outlook

A new wave of growth is on the horizon for the sector, as it mirrors the economy in general. In the near to medium term the adoption of new legislation, the reduction in dead rent and the extension of permit periods will continue to support the government’s efforts to attract more FDI. Given the lack of geological mapping and modern mining techniques, a range of investment opportunities exist in exploration, extraction and the development of minerals, as well as the supply of skilled human resources and modern equipment and technology. The long-term success of the industry also depends to some extent on its capacity to create positive economic multiplier effects in areas such as basic infrastructure, skills growth and research and development.

The mining industry is well positioned to foster national growth, albeit with some major caveats. Over the mid to long term, investments in advanced technology are required to build new and efficient refineries, strengthening the value chains that will enable the country to produce finished products and increase export revenue. Given that most mining and extractive projects are still in the feasibility stage, the return on new investment will be realised some years from now.