CAMBODIA'S EMERGING MINING SECTOR: FOREIGN

UNCLAS SECTION 01 OF 04 PHNOM PENH 000398

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, OES--COVINGTON, EEB/ESC/IEC/ENR
BANGKOK FOR REO--WALLER, FCS--BACHER, USAID/RDMA--PASCH AND
BOWMAN

E.O. 12958: N/A
TAGS: EMIN PGOV SENV SOCI PHUM CB AS
SUBJECT: CAMBODIA'S EMERGING MINING SECTOR: FOREIGN
INVESTMENT AND ANCIENT CULTURE CLASH

REF: A. PHNOM PENH 113


B. 07 PHNOM PENH 1189

C. 07 PHNOM PENH 1193


1. (SBU) Summary: International interest in northeastern
Cambodia's mining potential has increased sharply in recent
years with a number of large, well-respected international
firms joining smaller domestic and international companies in
the search for gold and bauxite. While no major discoveries
have yet been reported and some companies are downplaying
expectations, both government officials and some other
companies have predicted that discoveries are just around the
corner and that the sector could potentially spawn "billions
of dollars" in investment. Unregulated mining is opposed by
some environmental groups, who worry about the effects of
toxic chemicals and potential exploitation in some of
Cambodia's extensive protected areas. Many representatives
of the region's ethnic minority communities, which make up a
majority of the population in the region, are fervently
opposed, citing both conventional fears such as land disputes
and environmental worries alongside culturally rooted
concerns such as angering ancestors and inducing lightning
strikes, fissures in the earth, or volcanic activity. In one
case, residents seized drilling equipment and threatened to
use violence if necessary to prevent further drilling. End
Summary.

Mondulkiri Province: Isolated and Pre-Modern
--------------


2. (U) Mondulkiri--the epicenter of Cambodia's nascent
mining industry--is the country's largest but most sparsely
populated province, with just 40,000 people in 14,000 square
kilometers. Eighty percent of residents are ethnic
minorities, with the majority being members of the Phnong
ethnic group. With poor road networks, limited
communication, and abundant natural resources, these
communities lived largely independent of the rest of
Cambodian society for decades. Ethnic minority members often
have little formal education, many are illiterate and
unfamiliar with a market economy, a scientific worldview, or
political processes. Many do not speak Khmer, although
increasing numbers of young people are learning the national
language. Protection and veneration of spirit forests,
burial grounds, and ancestors figures prominently in their
animist beliefs.

Mining Interest Surges
--------------


3. (U) Small-scale mining began to take off in Mondulkiri
and other parts of northeastern Cambodia in the early 1980s
as local families attempted to supplement their incomes with
minerals (mostly gold) recovered using hand tools and basic
methods such as panning. According to a provincial Ministry
of Industry, Mines, and Energy (MIME) official in Mondulkiri,
mining firms--particularly domestic companies and foreign
firms from China, South Korea, and Vietnam--began small
commercial operations in the area in 1989.


4. (SBU) Major international mining companies have begun
exploring in Cambodia in the last two years. Oxiana, an
Australian mining firm which runs the huge Sepon copper and
gold mine in Laos, began exploring for gold in Mondulkiri in

2006. BHP Billiton, another Australian company, began
explorations nearly a year ago on a 100,000 hectare
concession in Mondulkiri. Representatives from both firms
dismissed rumors and Cambodian government suggestions that
they have found major, easily extractable deposits, instead
insisting that they are seeing interesting results which
warrant continued exploration, but no major discoveries yet.
Two other Australian firms--Southern Gold and Indochine--are
also exploring for mineral reserves in northeastern Cambodia,
though these firms are much less well known and are perceived
as secretive by many civil society observers. Southern Gold
has made repeated predictions of a major discovery.

Is Mining A Big Environmental Worry?
--------------


5. (SBU) Environmentalists are split over the relative
danger of Cambodia's nascent mining sector. A 2004 study
from Oxfam America and MIME warns that, if not properly
conducted, gold mining can cause cyanide and mercury to leach

PHNOM PENH 00000398 002 OF 004


into the environment, severely damaging human and
environmental health. In addition, the creation of mining
settlements in remote and forested areas contributes to
deforestation and reduced wildlife as miners harvest trees to
build shelters and support mine shafts, clear land for
settlements, and hunt animals. Both Oxiana and BHP Billiton
have taken pains to emphasize their social responsibility and
commitment to environmental protection, but many
environmental groups say that these companies' records in
Cambodia are still unproven, and that other mining firms have
not acted in environmentally responsible ways. In contrast,
some environmental leaders argue that environmental activism
in Cambodia is better spent on economic land concessions and
other pressing issues, given that no major deposits have yet
been found and mere exploration has little environmental
impact.


6. (SBU) Environmental groups have also raised questions
about mineral exploration and exploitation in some zones of
protected areas. (Note: The Ministry of Environment
reversed a 12-year-old ban in August 2006, and the December
2007 Protected Areas Law permits mining and other commercial
activities in two of the four classification zones to be used
in protected areas. See ref A. End Note.) Oxiana's
concession includes a large swath of Phnom Prich Wildlife
Sanctuary and BHP Billiton's territory includes Seima
Biodiversity Conservation Area. Indochine's Memorandum of
Understanding gives them the right to explore more than half
of Virachey National Park, the site of a USD 5 million World
Bank environmental project, as well as extensive additional
area outside the park.


7. (SBU) However, prohibiting development in all of
Cambodia's protected lands may not be realistic or desirable.
A 1992 review by the UN's World Conservation Monitoring
Center, found that Cambodia had a very high percentage of its
territory designated as protected--26% of Cambodian territory
compared to 16% in Thailand, 11% in the U.S., 10% in
Indonesia, and 5% in Australia. And, much of Cambodia's
"protected" land is severely degraded and not worth
preserving. Seima Biodiversity Conservation Area in
Mondulkiri is an example. According to Wildlife Conservation
Society staffer Tom Evans, the government created the
boundaries of the conservation area by simply following the
boundaries of a failed logging concession. As a result, the
concession includes large areas of little environmental
value.

Land Disputes, Lightning, Earthquakes and Angry Spirits are
Top Community Concerns
-------------- --------------


8. (SBU) The sharp increase in mining interest and
exploration has raised significant concerns among Mondulkiri
residents. Affected communities and civil society members
are concerned by the non-transparent manner in which mining
concessions are awarded and their potential environmental and
social effects. Far from being included in the licensing
process, communities often don't know that concessions have
been awarded until exploration or actual mining starts.


9. (SBU) The main interest of many minority residents of
Mondulkiri is preserving their traditional way of life. A
traditionally nomadic people practicing swidden (slash and
burn) agriculture in the province's poor soils, they are
ignorant of or frustrated by laws that limit their ability to
farm where they choose. As a result, ethnic minority
communities are experiencing increasing conflicts with local
authorities over farming on state-owned, protected, or
privately held land. Many ethnic minorities feel that
government policy is unfair, restricting their rights to farm
where they wish while offering insufficient protections
against economic development by outsiders. As one ethnic
Phnong NGO leader poignantly stated, "If local people do
farming (on protected land),it's illegal. But when
companies come to do mining (on protected land),it's
development." To other observers, it seems as if the ethnic
minorities want to have their cake and eat it, too--flouting
the laws when it suits them, but asking for enforcement when
the mining companies begin operations.


10. (SBU) In a visit by Econoff to Dak Dam village within
the BHP Billiton exploration area, residents described their
fear, distrust, and powerlessness in the face of mining.

PHNOM PENH 00000398 003 OF 004


Already traumatized by past dealings with the notorious
Wuzhishan logging concession, villagers told Econoff that
they are completely opposed to mining--even exploratory
drilling in non-sacred areas of their community. They fear
being forced off their land if bauxite is discovered and that
the mining could damage the environment or the health of
villagers. They also believe that drilling will anger their
ancestors whose spirits reside in the area, and may lead to
earthquakes, lightning strikes, fissures in the earth, and
volcanoes. In fact, the villagers blame one death on BHP
Billiton--a local man who was killed by a lightning strike,
which the community believes was caused by angry spirits.


11. (U) In a separate, well publicized example, in May 2007
residents of Bou Sra village in Mondulkiri hauled two heavy
drilling machines away from a new granite mine. These Phnong
villagers were angry about the unannounced mining of a sacred
mountain they consider to be the birthplace of the Phnong
people. They warned that if the miners came back, they would
use violence to protect the area. Civil society leaders
report that mining operations have not resumed since the
drilling machines were seized one year ago. The government
has not yet responded to their requests to cancel the mining
concession.

Local Government Has Little Role
--------------


12. (SBU) Sadly, the natural arbiter between the interests
of the mining companies and the interests of the
communities--local and provincial government--appears to be
completely absent from mining regulation. National
government officials issue mining licenses without consulting
at the provincial or local level. BHP Billiton
representative Dave McCracken reports that his company deals
only with national authorities, often the Prime Minister
himself. A team of four officials from the national MIME
office--but no one at the provincial level--have been
assigned to work full-time with BHP.


13. (SBU) Provincial and local leaders we met in Mondulkiri
had little input into or information about the mining
occurring in their province. Local NGO and government
officials could not tell us how to contact area mines to
secure permission for a visit. When we brought a commune
councilor with us on an unannounced visit to a Vietnamese
gold mine, we were turned away by a self-described Royal
Cambodian Armed Forces soldier armed with an AK-47. (Note:
The 2004 Oxfam/MIME study reports that military personnel
frequently guard mining locations. End Note.) The commune
councilor said that, although the mine was in his commune, he
had never visited it, and did not know the name or
nationality of the company running the mine, what they were
mining for, or whether the mine was active. The provincial
director of MIME said that environmental impact assessments
(EIA) were conducted by an interministerial delegation from
Phnom Penh, with provincial officials rarely invited along.
The director was unclear about when an EIA was required and
whether or not it was available to the public, and said that
he had never seen one.

Comment
--------------


14. (SBU) At this point, increasing interest in Cambodia's
mining potential is more an indicator of underlying problems
in society and government than an issue in itself. As is the
case in hydropower development (ref B) and economic land
concessions (ref C),the procedures and effective government
representation that should allow communities to have a
meaningful voice in development decisions that affect them
directly are simply not present. Moreover, safeguards like
environmental and social impact statements that should serve
as a bulwark against inappropriate development are also
missing. With a history of isolation, little understanding
of political processes or a modern economy, and concerns
ranging from those likely to generate some sympathy from
mining companies and the government (i.e. the potential for
land disputes and environmental damage) to those alien to a
scientific worldview (i.e. increased lightning strikes and
volcanic development),it is hard to imagine a community less
equipped to be active participants in decisions about mining
than Mondulkiri's ethnic minorities. If significant and
extractable mineral deposits are discovered, and absent

PHNOM PENH 00000398 004 OF 004


significant good governance reform, some Mondulkiri
communities may become embroiled in localized and
occasionally violent conflicts similar to land disputes
taking place elsewhere in Cambodia.
MUSSOMELI