Myanmar Awakens: Unearthing Asia's Hidden Gem

BMI View: From international pariah to frontier investment, Myanmar ' s mining sector has ignited much buzz among a myriad of foreign investors keen on establishing a foothold in what is Asia's last business frontier. With the passage of the new Foreign Investment Law (FIL) finally in the rear-view mirror, Myanmar's mining sector is poised to experience blistering growth going forward and could potentially become one of the country's most important economic growth engines.

Among the last frontier markets remaining in Asia, Myanmar possesses colossal potential to become one of the hottest mining regions in the world. The country boasts an enormous amount of mineral deposits including cement, zinc, lead, natural gas and petroleum, along with substantial high grade reserves of copper and coal . W ith the passage of Myanmar ' s new Foreign Investment Law (FIL) finally in the rear-view mirror, the country has reached a significant milestone that will likely set the stage for considerable foreign direct investment (FDI) inflows over the coming years. W e believe Myanmar's mining s ector is poised to experience blistering growth going fo rward and could potentially be come one of the country ' s most im portant economic growth engines.

Mining Sector To Gain Prominence
Myanmar - Key Industries (2011)

The Government Plays All Its Cards

From international pariah to frontier investment, the turnaround in Myanmar's business environment has been as widespread as it has been sudden. For the first time in recent history, Myanmar has opened up investment into the mining sector with the passage of its much-anticipated FIL on November 2 nd , reversing more than half a century of self-imposed segregation . While the bill will require an additional 90 days to be officially implemented, its passage represents a key milestone for the still fledgling government in its unprecedented bid to open up the economy to global investors. For one, the new law include s the removal of set foreign ownership restrictions in so-called 'restricted' sectors including manufacturing, mining, services, fisheries and livestock.

Table: Myanmar - Key Mining Projects
na = not available. Source: BMI, Bloomberg
Commodity Company Location/Mine Update
Copper Union of Myanmar Sabetaung Estimated reserve at 2bnt
Copper North China Industries Corp Monywa Estimated reserve at 5.4bnt
Lead, Zinc Union of Myanmar Bawdwin Estimated reserve of 3.6mnt
Nickel China Nonferrous Metal Mining Dagongshan Estimated reserve of 50mnt
Tin Union of Myanmar Mawchi na
Tin Union of Myanmar Tanintharyi na

Plenty Of Riches On Offer

Although undeveloped, Myanmar's mining sector has ignited much buzz among a myriad of foreign investors keen on establishing a foothold in what is Asia's last business frontier . We believe Myanmar has tremendous promise to become a truly significant player in the global mining arena. Against the backdrop of macro reform, we expect to see a surge in mining activities in Myanmar as investors are allured by the country's abundance of untapped mineral wealth. This is best exemplified by the Monywa copper mine, which if fully developed, would have an annual production capacity of 200kt (thousand tonnes) of copper, making it one of the largest in Asia. Apart from its spectacular resource endowment, the country also benefits from its close proximity to countries such as China and India, providing a ready market for Myanmar's mined minerals. While the period of sky-high commodity prices may be over, our expectation for metal prices to stay elevated by historical standards will continue to incentivise production and encourage miners to expand capacity. Indeed, prices will be supported by continued loose monetary policy in developed markets and a weak dollar.

The Awakening
Myanmar - Mining Industry Value & Growth

Ready For Takeoff

In view of the series of positive reforms that the government has embarked on lately, we are convinced that Myanmar's mining sector is all geared up for growth and would be on the radar of many foreign investors in the years to come. The mining sector's contribution to Myanmar's GDP has increased from MMK3.2bn in 1995 to MMK367bn in 2010, marking a stellar average growth rate of 37.8% per annum. In 2011, China undertook approximately US$20bn of energy and infrastructure development projects in Myanmar, surpassing Thailand to become the largest foreign investor in the country, at 34% of total capital inflow.

Hitched To China Wagon
Myanmar - Foreign Investment By Country (2011)

More Positive Reforms Underway

In line with our expectations, the new democratic government has adopted several national initiatives to spur growth and development in the country's mining space. Plans to implement a global anti-corruption drive by joining the Extractive Industries Transparency Initiative (EITI) is currently underway, as the country seeks to greatly improve transparency in its endemically corrupt natural resource sector. We believe there is sufficient scope for the pace of positive reforms to be sustained in the coming years, as the country becomes increasingly concerned by its growing over-reliance on China and seeks to pursue a more diversified external economic base with the US, EU and India. With countries such as the US and Europe looking to ease their long-held sanctions on Myanmar, we believe an influx of capital inflows over the coming years will help to balance China's growing power over the nation.

At Risk Of Dutch Disease
Myanmar - Exports By Sector (%)

All That Glitters Isn ' t Gold

That said, if investors dig beneath the surface, there remain a multitude of challenges that ought to give them some pause. Among the challenges associated with investing in Myanmar's mining sector include the pervasiveness of corruption and an antiquated infrastructure system. The country ranked a lowly 180 th out of 182 globally in Transparency International's Corruptions Perception Index. The lack of infrastructure support is also a major hurdle for investors, particularly for small miners without the financial capability to construct the necessary infrastructure facilities. Compared with its regional peers, Myanmar's road network significantly lacks coverage - about 50% of all freight in Myanmar is transported by river barges that are heavily affected by seasonal changes in water levels. In addition, the emphasis on commodity related activity could well see Myanmar suffering from the Dutch disease, wherein high demand for a country's natural resources drives its currency higher, thereby making the country's other sectors less competitive.

This article is tagged to:
Sector: Mining
Geography: China, Myanmar, China, Myanmar, Myanmar

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