DECLINE IN BURMESE MINING EXPORTS

C O N F I D E N T I A L SECTION 01 OF 04 RANGOON 000895 SIPDIS STATE FOR EAP/MLS, INR/EAP, EEB, OES DEPT PASS TO USAID PACOM FOR FPA TREASURY FOR OASIA, BANGKOK FOR REO OFFICE E.O. 12958: DECL: 11/19/2018 TAGS: ECON SENV EMIN PGOV ETRD BM SUBJECT: DECLINE IN BURMESE MINING EXPORTS REF: A. RANGOON 765 ¶B. RANGOON 763 RANGOON 00000895 001.2 OF 004 Classified By: Economic Officer SaQtha A. Carl-Yoder for Reasons 1.4 (b and d). Q Summary -------------- ¶1. (SBU) The value of Burmese mining exports fell by 26 percent in 2007, due to falling mineral prices and lower production. Mining industry experts predict that 2008 exports will drop further, because Myanmar IvanhQopper Co. Ltd. (MICCL),Burma's top mineral exporter, suspended its operations in April 2008. According to a Burmese private consulting firm, Thailand and Indonesia were the two largest export markets for Burmese minerals in 2006 and 2007 but have been overtaken this year by China. Planned PRC foreign investment in Burma's mining sector is also up sharply; once operational, these projects will solidify China's position as the top consumer of Burmese minerals. End Summary. Key Mining Products -------------- ¶2. (C) Burma has an abundance of natural resources, particularly oil and gas, gems and jade, other minerals, and timber. Burma's state-owned enterprises (SOEs) dominate the extractive industries sector, earning profits for the regime (Ref A). Unlike the timber and gems/jade industries, Burma's mineral mining activities remain relatively underdeveloped. The Ministry of Mines has three SOEs that manage the production and export of minerals: Mining Enterprise-1 (ME-1) controls the copper industry; Mining Enterprise-2 (ME-2) controls the production of tin and gold; and Mining Enterprise-3 (ME-3) is responsible for the development of the nickel, steel, iron, and coal industries. Under Burmese law, only SOEs and private Burmese companies may extract, sell, and export minerals. Foreign companies which want to invest in this sector must sign either a joint venture or a production-sharing contract with one of the three mining SOEs, according to Myanmar Ivanhoe Copper Co. Ltd. (MICCL) Acting Managing Director Glenn Ford. ¶3. (C) While Burma has a variety of mineral deposits throughout the country, the GOB has given preference to the development of specific mines. Burma's copper industry is the most developed. According to MICCL's Ford, Burma has one of the largest natural copper deposits in Asia, most of which has yet to be mined. Currently, MICCL, a joint venture between Canadian-owned Ivanhoe Mines Co. and ME-1, operates mines in Sagaing Division, north of Mandalay. Production at these mines has fallen in the past two years due not to a lack of copper deposits, but rather to an ongoing financial dispute between MICCL and ME-1 (Ref B). (Note: MICCL suspended mine operations in April 2008, although it produced a small amount of copper cathodes in September under pressure from ME-1.) ¶4. (C) In addition to copper, the GOB has also placed a high priority on the extraction of gold and tin by ME-2, and nickel by ME-3. During the next few years, ME-3, working with several Chinese companies, including Norinco and China Non-Ferrous Metal Mining & Construction Co. Ltd. (CNMC),will develop several nickel mines in Mandalay Division, Myanmar Tractor General Manager Heinz Ludi told us. Once these mines become operational, the Chinese companies will be able to RANGOON 00000895 002.2 OF 004 import nickel at low prices, per their production-sharing contracts with ME-3, Ludi stated. We currently do not know the production potential of the proposed nickel mines. Mining Exports Fall -------------- ¶4. (SBU) According to Burmese private consultant Business Investment Group, Burmese mineral exports -- copper cathodes, tin ore, antimony ore, and lead -- fell by 26 percent in 2007, from a value of USD 126.5 million in 2006 to USD 94 million in 2007. Exports of mine products accounted for only 1.6 percent of overall exports in 2007, down from 3 percent in 2006. In 2007, copper cathodes accounted for approximately 95 percent of minerals exported, followed by tin and antimony ore. -------------- -------------- Burmese Mining Exports 2006-2008* Value in USD -------------- -------------- Product 2006 2007 2008 -------------- -------------- Copper Cathodes 120,608,379 80,647,792 11,321,528 Tin Ore/Conc. 3,845,922 7,633,578 1,967,914 Mawchi Ore 637,557 -- -- Antimony Ore 321,621 2,800,883 6,258,876 Lead 287,043 905,967 1,056,203 Zinc Concentrate 254,000 574,000 137,938 Zinc Dross 150,000 624,000 -- Structures 129,853 104,334 75,458 Copper Matte 107,758 -- 483 Slag 96,319 172,845 -- Bronze Ware 82,251 36,083 28,448 Brass 18,721 -- -- Steel 7,712 -- -- Iron and Other 26,242 -- 6,892 Silver -- 579,627 -- Nickel 5,760 -- Total 126,573,378 94,084,869 20,853,744 -------------- -------------- Source: Business Investment Group, October 2008. *Through July 2008 ¶5. (C) Exports through July 2008 are far lower than expected, given Burma's resource availability. As long as MICCL's operations remain shut down, overall 2008 exports will total less than USD 50 million, Ford predicted. He noted that the world value of copper, tin, and other minerals continues to drop, accounting for the decrease in exports by both quantity and value in both 2007 and 2008. Although Burma is somewhat sheltered from the global financial crisis since Burmese banks have few linkages to the international banking community, the financial crisis and the reduction in commodity prices will still hurt Burma's export sector, Ford surmised. Who is Exporting? -------------- ¶6. (C) According to Burmese customs data, MICCL is Burma's largest minerals exporter, accounting for 85 percent of exports in 2007 and 55 percent of exports in 2008. In 2007, ME-3 and ME-1 were the second and third largest exporters, shipping out USD 5.5 million and USD 2.5 million respectively. Burmese companies, such as May Flower Mining, Tha Byu Mining Co. Ltd., Myanmar Apex, and Myanmar Pongpipat RANGOON 00000895 003.2 OF 004 Co. Ltd., are the largest private exporters, although most private firms export less than USD 1 million annually. Exports to Asia -------------- ¶7. (C) In 2006 and 2007, approximately 75 percent of Burma's minerals, primarily copper and antimony ore, went to Thailand and Indonesia. Through July 2008, however, China has been the main consumer, purchasing almost 75 percent of Burma's total mineral exports. According to Ford, China recently has increased its purchases of copper, and several Chinese companies have formed a consortium to purchase Ivanhoe's shares in MICCL (Ref B). -------------- -------------- Burmese Minerals Exports by Country 2006-2008* In US Dollars -------------- -------------- Country 2006 2007 2008* -------------- -------------- Thailand 71,136,652 34,569,179 2,188,407 Indonesia 37,571,243 29,097,843 -- Vietnam 13,052,848 5,807,200 -- China 2,811,623 8,555,023 15,591,109 Malaysia 1,828,622 5,618,026 2,244,095 Hong Kong 48,267 2,575 1,340 Singapore 24,777 1,900,102 795,280 Japan 21,552 7,760,221 13,946 Brunei 20,494 -- -- Australia 18,461 1,687 225 Sri Lanka 13,624 -- -- India 12,000 -- -- Africa 6,577 -- -- USA 2,956 1,692 328 Spain 1,258 2,094 -- South Korea -- 744,699 -- Germany -- 13,744 14,437 Russia -- 2,575 -- France -- 1,706 913 Saudi Arabia -- -- 1,092 Other 2,423 4,344 2,573 -------------- -------------- Total 126,573,378 94,084,869 20,853,744 -------------- -------------- Source: Business Investment Group, October 2008. *Through July 2008 ¶8. (C) While Ford noted that some minerals may be sold to China and Thailand through illegal border trade, MICCL's exports (which account for the largest percentage of exports) are exported officially via the Rangoon port, which may explain in part its prominent role in GOB statistics. Post is seeking to gather data on the border trade in minerals and its magnitude, though such information is not easily accessible. Comment -------------- ¶9. (C) If 2008 mineral export figures are any indication, China, not Thailand or Indonesia, will be the primary destination for Burma's minerals. China continues to strengthen its economic position in Burma, signing new production sharing contracts and joint venture deals with the Ministry of Mines. Should the Chinese consortium purchase RANGOON 00000895 004.2 OF 004 MICCL, it will likely include a provision enabling China to buy copper cathodes at a competitive rate. As with oil and gas, China's foray into Burma's mining industry enables it obtain necessary resources at the lowest cost possible. We expect the Chinese to continue to make business deals with the GOB, providing economic support for the regime while at the same time acquiring necessary resources at advantageous prices. VAJDA