Mining For Opportunities In South East Asia
BMI View: Underpinned by an abundance of untapped mineral resources and the increasing attractiveness of frontier mining, we believe South East Asia will slowly emerge to become one of the main growth drivers in Asia' s mining sector. While Cambodia, Vietnam and Myanmar are poised to experience healthy growth over the coming years, mining investment into Laos and Thailand are likely to remain lacklustre as a number of challenges continue to stall progress in the sector.
We believe frontier mining is set to be an increasing trend over the coming years as depleting reserves and rising cash costs in traditional mining regions encourage more companies to cast their sights on overseas markets. Although softening base metal prices have prompted mining companies across the board to reassess their project pipelines and allocate their capital more judiciously, we believe the drive towards self-sufficiency and the still elevated pr ices of commodities will continue to underpin the long term growth story of frontier countries. While we have previously highlighted that South East Asia will emerge as one of the main growth drivers in Asia's mining sector (see our online service, ' South East Asia - A Rising Star In Asia Mining ' October 30, 2012) several countries in the region will nevertheless, continue to experience lacklustre growth due to a number of challenges. We expect Cambodia , Vietn am and Myanmar to be the up-and-comers and highlight Laos and Thailand to remain the mining laggards .
|Potential Waiting To Be Unleashed|
|Global - Bauxite Reserves By Country (bnt)|
Cambodia: Mining Sector Poised For Takeoff
We believe Cambodia's mining sector is on track to experience blistering growth over the coming years, encouraged by the government's efforts to open the country for international investment. Cambodia has witnessed a steady stream of foreign investors into the resource extractive industry since 2003 and this has led to the discovery of oil and natural gas deposits beneath the country's territorial waters in 2005. While production of these deposits, slated to start in 2013, will significantly allow the rapidly growing economy to amass more fortunes, we hold high expectations for Cambodia's mining industry and expect the sector to become an important economic growth engine going forward. The vast majority of Cambodia remains largely unexplored and we believe the abundance of untapped mineral wealth will continue to attract growing interests from foreign investors. Angkor Gold discovery's of a significant gold deposit in the northeast Ratanakiri Province has provided a considerable boost to the mining profile of this largely unexplored nation. Indeed, two Chinese groups have recently inked a US$9.6bn deal for the construction of a steel plant and seaport to be linked by a new 250-mile railroad tracks.
Furthermore, Cambodia has forged several bilateral cooperation agreements with a number of neighbouring countries in an attempt to spur participation of foreign investors in the mining sector. The agreements, which have since translated into various multimillion-dollar mining investment, involved investors from Australia, Japan, Thailand, the US and Vietnam. Apart from the passage of anti-corruption laws in 2011, the government has been undertaking serious efforts to improve the overall investing climate in Cambodia and has committed itself to establishing good working relationships with private businesses. The pervasiveness of widespread corruption and deficiencies in infrastructure support in Cambodia will remain real threats for investors to grapple with.
Vietnam: Short-Term Challenges, But Long-Term Potential
Vietnam is gradually realizing its potential to become a major player in the world aluminium raw material market with the operation of the US$460mn Tan Rai alumina refinery in December 2012. The Tan Rai plant, situated in Lam Dong Province, is the first alumina production plant in the country with a production capacity of 600ktpa. Other notable projects include the five alumina production plants in Dak Nong, by state-owned Vinacomin , with a combined production capacity of 4.5mntpa (million tonnes per annum).
While Vietnam's total bauxite production in 2011 came in at less than 1% of global output, we believe the country has the potential to become a major global bauxite producer. The US Geological Survey (USGS) estimates Vietnam's deposits at 2.1bnt (billion tonnes), below Guinea at 7.4bnt, Australia's 5.4bnt, and Brazil's 3.4bnt. In a bid to develop the country's nascent mining sector, the Vietnamese government has been actively embarking on reforms to further encourage and stimulate foreign direct investment. Although the mining industry in Vietnam is heavily regulated and largely state-led, we believe the country will witness a significant increase in private sector involvement over the coming years. This is especially given the enactment of a new mining law on July 2011. For one, the law not only took a tougher stance on illegal mining, but also provides for longer exploration licenses and a subsequent priority right in mining licenses.
|Mining Sector To Gain Prominence|
|Myanmar - Key Industries, As % Of GDP (2011)|
Myanmar: Poised For Takeoff
With an abundance of resources on offer, we are sanguine over the long term prospects of Myanmar's mining sector and expect the country to enjoy forthcoming investment over the coming years. Underpinned by our expectation that frontier mining will become an increasingly attractive play in the global mining industry, we believe Myanmar has the potential to become among the hottest mining regions in the world. For one, the abundance of untapped mineral resources such as coal and copper will prove to be an attractive play for miners operating in traditional markets. The escalation in cash costs, declining ore grades and depleting mineral reserves in countries such as Australia has prompted more companies to rein in their expansion plans and exercise greater scrutiny to their capital allocation decisions.
Furthermore, we note that the eventual passing of a new mining law, scheduled to be completed in early 2013, will be a boon to the country's mining sector. Under the draft law's provisions, foreign companies would be able to own 100% of mining assets, take leases of up to 50 years and enjoy tax holidays during the first five years of operation. While an existing law which prohibits the exports of raw minerals is likely to remain unchanged, we do not expect it to be a significant deterrent to investment. We believe more governments will seek to have their minerals beneficiated in-country prior to export in a bid to move up the value chain and boost export revenue. We expect state-owned miners from China to dominate the majority of mining investment in Myanmar given the huge financial backing from the Chinese government. This is especially when the construction of smelting and refining facilities are known to be a time-consuming and capital-intensive process, costing approximately US$800mn to US$1bn.
Laos: Little Growth Potential As Government Halts New Investment
W e believe growth in Laos' mining sector will remain relativel y subdued over the coming years as the government has recently imposed a ban on all new mining investment until 2015, in a bid to address rising concerns over the environmental impact of mining activities . Ranked as one of the most resource-rich countries in Asia, Laos is home to more than 570 mineral deposits including gold, copper, zinc and lead. The country has witnessed a surge in foreign direct investment since 2004, as an influx of foreign mining companies began to increase production in the mining sector while capitalising on the elevated prices of minerals. According to the World Bank, mining accounted for approximately 50% of Laos' exports and contributed more than 15% to the government's revenue in 2011.
While an abundance of mineral resources has previously attracted a wave of foreign interests into the nascent mining sector, we forecast a continued trend of dwindling investment given that proposals for new investment will no longer be accepted by the government. Although companies that have been given the green light to conduct economic feasibility studies for mining projects can continue to operate as planned, we highlight that growing environmental concerns, coupled with the implementation of tighter regulations by the government, will coalesce to present a modest growth picture at best.
|Green Shoots Of Optimism|
|Laos - Real GDP Growth (%)|
We believe the government will stay rooted in its decision and do not expect a moderation in policy stance happening anytime soon. For one, the proposal to rein in the industry was partly motivated by the government's plans to diversify its economy and encourage the flow of capital towards other non-resource sectors. Indeed, the economic focus on developing the hydropower and mining industry in recent years has starved other sectors of the economy of much needed investment and economic resources. We believe that the government's intentions to diversify the economy away from resources and towards other sectors are likely to lead to a more sustainable model of growth in the longer-term. Overall, we forecast Laos' real GDP growth to average a strong 6.4% between 2013 and 2017.
Thailand: Hopes For A Resource Bonanza To Be Dashed
We remain generally optimistic over the long - term prospects of Thailand's mining sector as a growing number of foreign players are sensing the potential for growth and making their presence felt in the mining space, filling a vacuum left by decades of underdevelopment. Australia-based PanAust Ltd has embarked on a joint venture wit h Padaeng Industry Public Co. Ltd of Thailand to operate the Puthep copper project located at Loei in northern Thailand. The Puthep mine is home to the largest copper deposit in the country, with an estimated production capacity of between 25ktpa (thousand tonnes per annum) and 30ktpa.
|At The Lower End|
|Asian Countries - Infrastructure Risk/Reward Ratings, Scores Out Of 100|
That said, we retain our view that the country's emergence into the international mining scene is unlikely to happen anytime soon. Our country risk team believes that Thailand's political landscape will continue to be marked by occasional unrest over the coming years and reconciliation efforts by the government in recent years have largely failed to produce any significant progress in resolving the deeply-divided population. Although infrastructure spending has been on the rise and this should serve as a major boon to the domestic mining industry, we remain doubtful as to whether these projects will come to fruition in view of Thailand's poor operating environment. The Thai construction industry is hampered by outdated technology and an opaque regulatory environment, while political instability continue to hinder long-term policy continuity and has also led to the delay of large-scale infrastructure projects. Our infrastructure desk award s Thailand a n infrastructure risk and reward rating of 54, which remains one of the lowest in Asia.
|na = not available/applicable. Source: BMI, Company Announcements|
|Country||Company||Commodity||Location of Main Facilities||Details|
|Cambodia||Renaissance Minerals||Gold||Okvau Workings deposits||Inferred resources of 729koz of gold|
|Cambodia||Angkor Gold||Gold, Silver, Copper, Lead||Northeast Ratanakiri Province||na|
|Laos||Minerals and Metals Group Lane Xiang Minerals||Copper||Savannakhet Province||88ktpa|
|Laos||Minerals and Metals Group Lane Xiang Minerals||Gold||Savannakhet Province||8ktpa|
|Laos||Viengphoukha Coal Mine Co. Ltd.||Coal||Luangnamtha Province||66ktpa|
|Myanmar||Union of Myanmar||Copper||Sabetaung||Estimated reserve at 2bnt|
|Myanmar||North China Industries Corp||Copper||Monywa||Estimated reserve at 5.4bnt|
|Thailand||Electricity Generating Authority of Thailand (EGAT)||Coal||Mae Moh, Lampang Province||20mntpa|
|Thailand||Thai Copper Industries Public Co. Ltd||Copper||Rayong Industrial Park||182ktpa|
|Thailand||Kingsgate Consolidated Ltd||Gold||Chatree, Phichit Province||5.5mntpa|
|Vietnam||Viet Minerals||Bauxite||Kon Ha Nung||1.5mntpa|