Weighing the Risks: Investing in Myanmar's Mining Sector

Following the end of decades of military rule in 2011, the subsequent easing of sanctions, and the hosting of largely democratic elections in 2015, Myanmar has captured the attention of foreign investors. While abundant mineral wealth has made Myanmar’s mining sector attractive, mining companies have not rushed to operate in the country due to several security risks and regulatory challenges. These have included armed conflicts between the government and several ethnic minorities, protests over land and environmental concerns, and a complex permit and licencing process. 

An ongoing conflict since the 1950s between government forces and ethnic minorities has made many areas, especially north-eastern Myanmar, exceptionally challenging for investment. Mineral belts of gold, lead, zinc, copper, nickel, and precious stones, located in the ethnic-controlled areas along the Thai and Chinese borders, in Myanmar’s Kachin and Shan states, remain largely unexplored. While the country has taken strides towards a national ceasefire agreement, announcing a peace deal with eight ethnic armies in October 2015, regular occurrences of armed conflict between government forces and ethnic rebels continue. Due to the potential damages associated with operating in conflict regions, investors are wary of entering Myanmar’s mining sector. In addition to endangering the lives of employees, collateral damage to infrastructure and equipment has resulted in the disruption of operations in the past, bringing production to a standstill and resulting in significant revenue loss. For example, from 31 May 2012 to 31 August 2014, Myanmar’s mining authorities suspended all jade mining operations by private companies in Lonekhin, Hpakhant, Mawlu, Mawhan and Khandi townships, in northern Kachin State, amid security concerns stemming from intense fighting between government forces and the Kachin Independence Army (KIA), an ethnic rebel army. Although the loss of revenue incurred from the suspension has not been reported in the public domain, it is likely to have reached millions of kyat. 

Protests against mining companies present a second security risk. In recent years, alleged illegal land seizures and environmental damage from mining activities have driven locals to stage sporadic protests against mining firms. Although these actions have led to mining sites temporarily shutting down, there are very few reports of protests damaging mining assets and endangering employees’ lives. The most notable case involved a joint venture copper mine between the government and a Chinese company, located in Sagaing state. Since November 2012, disagreements over land ownership, and environmental and health concerns have led villagers to stage several protests outside the mine. Due to protests turning violent, the mine has been temporarily shutdown at least twice: once in November 2012 when security personnel violently suppressed protesters, injuring more than 100 people, and again, in December 2014, when a protester was fatally shot by security forces. Moreover, in May 2014, three workers, two Chinese and a Myanmarese colleague, were allegedly kidnapped by activists opposed to the mine’s expansion; they were held captive for a day but did not sustain any injuries. 

A lack of a clear regulatory framework in the extractives industry has also held back investors. While proposed changes to the 1994 Myanmar Mines Law – such as capped royalties fixed between two and five percent, an extended licensing period from five to 15 years, and joint venture opportunities with state-owned mining companies – are intended to make the mining sector more attractive to foreign investment, investors have criticised the process for being too slow. In this regard, the application process for mining permits and licences, is a complex endeavour that requires consultations with various local and national government departments. Furthermore, it reportedly takes several months before investors can obtain the required exploration and production licences. 

In light of these security and regulatory risks, coupled with a global commodities downturn, the growth of Myanmar’s extractives sector is likely to face significant setbacks this year. In the short term, intermittent conflict between the government and ethnic rebel groups in the Shan and Kachin states is likely to continue. In addition, there is a high likelihood of protests against mining firms as anger over alleged illegal land seizures and concerns over the environmental and health risks associated with mining activities remain. Although investor friendly amendments to the 1994 Myanmar Mining Law are anticipated to be passed by March 2016, a murky regulatory environment will continue to hinder investment.