Analysis: Australian Miner Eyes Opportunity Amid Conflict in Shan State

A recent announcement from Myanmar Metals, a mining firm listed on the Australian Stock Exchange, has described northern Shan State’s Bawdwin mining site as “one of the largest underdeveloped” zinc, lead, silver and copper deposits in the world.

The company—which was, until August, known as Top End Minerals—is currently in the process of acquiring mining rights for the locale.

It remains to be seen if the firm’s lofty predictions will be realized. Even if detailed, ongoing studies of the area do indeed prove that the Bawdwin mine is as lucrative as Myanmar Metals hopes, developing and then running a mine in northern Shan State will be accompanied by significant challenges.

A presentation released by the Perth-based Myanmar Metals describes Shan State as “awash with opportunity,” yet much of Myanmar’s largest state continues to be awash with drug and arms trade, as well as ongoing conflict.

Clashes between the military and several ethnic armed groups have persisted in recent years across a wide stretch of countryside in northern Shan State. Namtu Township, where the Bawdwin mine is located, has seen repeated clashes between the Ta’ang National Liberation Army (TNLA) and Myanmar’s military, as recently as mid-September. There has also been fighting between the TNLA and the Restoration Council of Shan State (RCSS), an armed group presently in a ceasefire with the central government. The TNLA continues to maintain a strong presence on the ground in the region despite military efforts to drive them out.

While Myanmar Metals touts the mineral potential of Shan State and the Bawdwin site, there does not appear to be any mention on the firm’s website or in its filings with stock market regulators in Australia of the ongoing conflict and continued displacement of thousands of refugees in the region. This arguably leaves potential investors with an incomplete understanding of the situation on the ground in Namtu Township.

Other foreign mining firms who have sought to do business in northern Shan State have come up against a range of difficulties. In October 2014, the Hong Kong-based Asia Pacific Mineral Limited (APML) was granted an exploration permit for minerals in the region, a concession that included areas adjacent to the Bawdwin mine site. Reuters reported that just three days after APML was granted the permit, clashes between the army and the TNLA broke out near their concession.

Rights and Ownership

According to Myanmar Metals, the company’s main priority with Bawdwin is “to obtain, assess and validate the historical geology, drilling, underground sampling, and mining data” that provided the basis for estimates, according to figures originally obtained by another Australian firm, Mandalay Mining Co. NL (MMC). In the late 1990s, Mandalay Mining had an exploration permit for the area around Bawdwin and conducted feasibility work there, but the firm’s activities on the site were eventually suspended.

Whether the struggles Mandalay Mining faced when trying to move the project forward some 20 years ago will affect Myanmar Metals today remains to be seen. Should the firm go ahead with developing Bawdwin, it is likely that Myanmar Metals will face a series of regulatory hurdles in addition to the logistical issues involved with operating in a state that has been home to some form of civil war since the 1950s.

Myanmar Metals recently reached a deal with the local entity that currently controls the rights for Bawdwin, which enabled the Australian firm to “secure the option to acquire an 85% interest” in the mine. As part of the deal, Myanmar Metals paid what it described as a non-refundable deposit of US$1.5 million to Win Myint Mo Industries Co. (WMM). WMM have a mining and production sharing agreement for Bawdwin with Mining Enterprise No. 1, a state owned entity held by the Ministry of Mines. Myanmar Metals in turn borrowed the funds for this payment from Yandal Investments, a privately held firm that is controlled by mining entrepreneur Mark Creasy, dubbed a “superstar prospector” in his native Australia.

Information disclosed by Myanmar’s first ever Extraction Industries Transparency Initiative (EITI) report, released in November 2015, indicates that WMM is 60 percent owned by someone named Hla Myint Myanmar, with the remaining 40 percent owned by Aye Aye Aung. While the pair are officially the owners on paper, WMM has been described by local media covering Shan State as being a subsidiary of Asia World, the conglomerate founded by Lo Hsing Han, a Kokang Chinese entrepreneur dubbed the “Godfather of Heroin” by US officials in the 1970s. When The Irrawaddy visited Bawdwin back in 2015, Asia World was maintaining a skeleton crew at the mine site, which appeared to be barely functioning.

Lo Hsing Han’s son Steven Law, who inherited control of Asia World from his late father, achieved a significant victory last year when both he and the company were removed from the US sanctions list. However, the US treasury department has yet to retract its claim describing the origins of Law’s career: “Steven Law joined his father’s drug empire in the 1990s and has since become one of the wealthiest individuals in Burma,” read the announcement about Law’s inclusion on the US sanctions list, which is still accessible on the US government’s website.

A deal similar to the one put forward by Myanmar Metals saw Asia World make a payment of $500,000 last November to acquire an option to buy a 60 percent stake in Cornerstone Resources (Myanmar) Ltd (CRML). CMRL is an entity owned by Australian and Chinese investors and that operates a zinc refinery in Lashio—a major town in northern Shan State—as well as a zinc mine at Long Keng. The window for Myanmar Metals to move forward with this buy expired in August.

Following in Herbert Hoover’s Footsteps

Bawdwin has been the site of mining operations for centuries. Before embarking on a political career, young Herbert Hoover—President of the United States from 1929 until 1933—initially traveled the world working as a mining engineer, and first arrived at Bawdwin in 1907, where both he and his wife contracted malaria. According to his memoirs, he and his colleagues saw tiger tracks in one of the mineshafts during a field visit. “To fight a Bengal tiger with a miner’s candlestick made no appeal whatever to either of us. With no delay and with steadily increasing panic, we made for the entrance. The tiger, fortunately, was not of an inquiring turn of mind and did not come to greet us,” wrote Hoover about his time in what became known as “the tiger tunnel.”

Hoover’s involvement with and expansion of the Burma Mine Corporation at Bawdwin earned him much of his fortune, according to his biographer; during the colonial period, Bawdwin was considered one of the most lucrative mines in the world.

The Second World War saw much of the infrastructure at the mine severely damaged by fighting. Though operations began again after the war, the mine’s nationalization in 1965 by General Ne Win’s newly installed regime led to a significant drop in production at Bawdwin. New Zealand academic Peter John Perry chalked this up to mismanagement in his book “Myanmar (Burma) Since 1962: The Failure of Development.”

The site was also attacked during the Ne Win years by various armed groups at war with the government. In 1974, Ne Win’s regime was forced to withdraw all foreign advisers from the area, after a German mining technician working at Bawdwin was kidnapped by an ethnic armed group and held for ransom, which the West German government was compelled to pay.

The Bawdwin mine remained state-owned until it was sold off during the rapid wave of privatization that took place at the end of Snr-Gen Than Shwe’s regime. Reports from the area indicate that years of mining operations at Bawdwin have significantly polluted the surrounding landscape, with toxic runoff from the site flowing into local waterways. The result of decades of mining operations, has, in the words of one report from 2000, left a “deleterious impact on the health of workers and local residents,” a legacy to be considered as the rights to the site may shift once again to new prospectors.

Source : The Irrawaddy