Myanmar’s Mining Industry

Via STRATFOR (subscription required), analysis of Myanmar’s extractive mining industry:

Myanmar: A Risky Mineral Extraction Market
Myanmar villagers pan for copper near the Sabal hill mine in Monywa in 2012.


A new bill submitted by Myanmar’s Ministry of Mines could make the Southeast Asian nation more attractive to those looking to invest in its mineral extraction sector. Limited surveys conducted by foreign geologists show that Myanmar possesses tin, lead, nickel, gold, manganese and substantial copper and coal reserves. Mineral extraction is the country’s third-largest destination for foreign direct investment, but regulatory barriers have kept it from being a significant contributor to gross domestic product.

If the bill becomes law, it would take effect in May 2014, and it would help enrich the regime and its favored private companies. However, some of the most promising reserves are located in Myanmar’s restive ethnic regions, and extracting resources from those areas would be difficult. While the government could share profits with insular communities to incentivize cease-fires, many businesses and individuals therein may feel threatened by commercial encroachment. A challenging political environment and unmapped reserves will relegate Myanmar to being a frontier market, but it is a market in which minor foreign players could capitalize on an erstwhile-untapped resource base.


Myanmar occupies a vital position between regional powers China and India and among Southeast Asian manufacturing powers, such as Thailand, Malaysia, Singapore and Indonesia. In 2010, the military regime opened the country up, writing a new constitution and implementing several comprehensive economic reforms. As a result, Myanmar has seen an influx in foreign investment, primarily in natural gas extraction but also its burgeoning domestic power generation sector and manufacturing base, which is poised to take on low-end industries from China and elsewhere in Southeast Asia.

Although the country’s mineral resources have not undergone a “modern” survey since 1934, geologists have since conducted less exhaustive surveys, which show Myanmar has several valuable resources, including tin, lead, nickel, gold, manganese, copper and coal. But Myanmar’s mineral sector remains underdeveloped, and most extraction operations — 1,165 of 1,299 — are small-scale. Myanmar companies simply do not have the capital or expertise to fully explore or exploit the resources without foreign participation.

And yet few foreign companies operate in Myanmar. Of the 1,763 licenses to mine in the country in 2012, only 11 were in the hands of foreign companies. And of those 11 licenses, seven are held by firms from China and Hong Kong, which account for 81 percent ($1.88 billion) of foreign mineral investment in 2013. These companies were willing to operate in Myanmar, which was long considered a pariah state, to negotiate informal deals for minerals vital to China’s growing manufacturing economy, such as copper and nickel. Two more deals were signed between the two in 2013.

Tempered Expectations

But Myanmar has an imperative to diversify away from Chinese patronage. The gradual removal of most Western sanctions presents a major opportunity for Myanmar to generate revenue for itself and for smaller regional and international mining companies to gain a foothold there at relatively little cost. But Myanmar’s restrictive 1994 Mining Law, the product of a half-hearted economic opening in the 1990s, contains onerous provisions that have discouraged outside investment: a limitation of extraction to 20 years, a 35 percent production-sharing agreement with the government and limitations on ownership stakes with local companies.

To remedy this, Myanmar’s Ministry of Mines on Oct. 1 submitted a long-delayed draft revision to its 1994 Mining Law, which will be edited by the upper house of parliament before being submitted for approval to the lower house. Additional revisions will be made to the law governing gems, an even more lucrative commodity, according to the ministry.

Although the new draft is not publicly available, details released in 2012 indicate that the law would create more flexible production-sharing provisions with the government ministry, allow for negotiations of joint ventures with Myanmar companies and extend extraction rights to 50 years. There would also be options for renewal each decade and statutory guarantees against nationalization, a perennial fear in emerging markets. To make sure it keeps some of the profits, the government will most likely maintain its corporate tax rate of 25 percent and a value-added tax on extraction. However, the law would provide a five-year tax holiday and would lower government royalties from 3-5 percent to an unspecified percent.

There will be one particular point that the parliament will have to deliberate: resources bans. Naypyidaw has said that it will retain bans on raw ore export and the export of gold and coal, meaning these resources would need to be processed or sold in-country. Resource nationalism has the potential to affect the provisions in the final form of the bill, which will be voted on before the end of 2013.

Since 2012, delays have tempered expectations of a mineral bonanza, but the prospect of an opening has nonetheless piqued international interest. No one has yet to bid on anything, and while no majors have expressed much interest, several smaller players have, including some from Australia, the United States, Malaysia, China, Indonesia, Singapore and Canada.


Nevertheless, there are still several barriers to investment. The government has only recently embraced the path to reform, and it remains military-dominated, opaque and inefficient. Moreover, its policies are not always implemented in areas where business and military interests sometimes trump those of the government. Added to this is the low technical capacity of Myanmar’s own ministries. It also faces infrastructure and power grid limitations, especially in the hinterland, which raise the start-up costs of ventures, though existing roads and rail should be sufficient for most commodities besides coal and copper.

But the most important consideration for mineral extraction companies is the size of the reserves. If the reserves are large and potentially lucrative enough to entice foreign investment initially, they can in turn attract even more investment as reserves are mapped and discovered.

 Even if Naypyidaw can convince investors to consider Myanmar’s reserves, the presence of ethnic insurgents in mineral-rich regions would complicate exploration and extraction efforts. Myanmar is roughly divided into two distinct geological areas, with the most promising reserves in areas controlled by insurgents, including those from the powerful Wa, Shan, Karen, and Kachin ethnic groups. Any resource extraction will depend on cooperation with these groups or neutralization of their ability to disrupt production. Currently the government is going through major cease-fire talks with a variety of groups. In fact, talks are ongoing with the Karen National Union and Kachin Independence Army, and Naypyidaw hopes to complete a nationwide cease-fire pact by the end of this year. The talks are progressing, but a firm agreement seems unlikely.

Neutralizing the ethnic threat to mineral projects has proved difficult. The military can mostly control Myanmar’s economic interests in minority areas — indeed, it has done so in key border crossings — but this control often comes at the expense of human rights, an issue that could deter some foreign investors.

Instead, Naypyidaw will need to co-opt these insurgent groups as it did under previous cease-fire negotiations, during which it granted some resource extraction rights to the Wa and offered the same to the Karen. Already there are signs that these kinds of deals may be taking place. On Oct. 18, a news report suggested that a Chinese company had negotiated a $100 million joint venture with the Kokang, an ethnic militant group aligned with the government under Chinese patronage. This could serve as a model for future cease-fire agreements.

But these militant groups face their own internal challenges in opening up to mineral investment. They will encounter protests from local villagers opposed to commercial intrusion and the damaging effects of mineral extraction. Appeals to ethnic nationalism on behalf of militants will help curb these protests, but militants still risk losing legitimacy if they are perceived to be aligned with outside interests bent on exploitation. More important, insurgents risk hurting their own interests among businesses that already are extracting minerals on a small scale.

Ultimately, a new law and a subsequent resource deal with militant groups could flood ethnic areas with investment, but the main beneficiaries of this investment would be government-aligned companies. Local interests would lose out, and in their loss they may turn to insurgent elements interested in derailing cease-fires. Already allegations have emerged that several small bombings in mid-October were orchestrated by an ethnic Karen businessman with connections to the Karen National Union insurgency who was fearful of losing control of his concessions after reform.

The winners in the opening look to be Myanmar’s favored companies, specifically Asia World and Htoo Trading. The military’s own company, Union of Myanmar Economic Holdings Ltd. is also heavily involved in mineral extraction and will benefit accordingly. This will serve to further bolster the military, its loyalty to the state and its financial position.

In Myanmar, any reform means a realignment of the system of power and privilege, but as mineral investment enters the country, militant groups will face increasing pressure to push forward on peace deals and secure concessions on mineral extraction. Investors can still anticipate strong resistance as they move into these areas even as insurgencies anticipate internal disagreement. While Myanmar’s reputation for instability and its unmapped reserves will continue to cause hesitation, it has the potential to emerge as an alluring frontier market for investors willing to take the risk.

This entry was posted on Thursday, October 24th, 2013 at 4:43 pm and is filed under Burma.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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