Mining Sector Poised For Takeoff Despite Headwinds
BMI View: Despite the persistence of several headwinds to project developments, we are sanguine over the long-term prospects of Myanmar's mining sector due to the abundance of mineral resources on offer. Moreover, plans to implement a new mining law will pave the way for forthcoming investment as frontier mining continues to gain precedence over the coming years.
With an abundance of res ources 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. While the development of the Monywa copper mine has continued to face fierce resistance by the local community, and highlights the salient risk to miners operating in the region, we do not expect this to significantly dampen investment flows into the mining space. In line with a trend evident in many frontier markets, the mining project rose to infamy following a government-led crackdown on protesters in November 2012 . L ocal villagers have recently resumed their demonstrations and are demanding a complete halt to the project due to concerns over irrepar able damage to the surrounding environment. The Monywa mine, a joint -venture between the military-owned Union of Myanmar Economic Holdings Ltd (UMEH) and Chinese Wanbao Mining , has an annual production capacity of 200ktpa (thousand tonnes per annum) of copper and would be one of the largest mines in Asia if fully developed.
|Mining Sector To Gain Prominence|
|Myanmar - Key Industries, As % Of GDP (2011)|
Frontier Mining A Growing Trend
Beyond the stellar portfolio of copper reserves, we note that Myanmar hosts an enormous amount of mineral deposits including cement, zinc, lead, natural gas, coal and petroleum. Underpinned by our expectation that frontier mining is set to become an increasingly common theme in the global mining industry, we believe Myanmar has the potential to become among the hottest new 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. To highlight , a recent study by the Australian Coal Association revealed that Australia, with cash cost at US$176/tonne, is currently the most costly coal producer in the world. This is in stark contrast to an estimated US$106/tonne for miners operating in other countries.
|Source: BMI, Company Reports|
|Copper||Union of Myanmar||Sabetaung||Estimated reserve at 2bnt|
|Copper||China Wanbao Mining, Union of Myanmar Economic Holdings||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|
New Mining Law A Boon
Although our below consensus view on the Chinese economy will see that demand growth from the world's largest consumer of base metals will weaken over the long term, our expectation for metal prices to stay elevated by historical standards will nevertheless, justify the economics of undertaking mining projects. Furthermore, we note that the eventual passing of a new mining law, scheduled to be completed in early 2013, will set the stage for considerable investment over the coming years. 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. W e 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.
Miners To Tread With Caution
Nevertheless, we caution tha t companies investing into Myanmar's mini ng space remain vulnerable to several headwinds that will continue to pose pertinent risks to the development of mining projects. Apart from the prevalence of infrastructure bottlenecks and widespread corruption, we note that most of Myanmar's resources are located in volatile border regions plagued by decades of civil war with ethnic minority rebels fighting for greater autonomy. Indeed, the Myanmar army's recent attacks in Kachin state serve as a reminder of the uncertain nature of the government's control over both the semi-autonomous regions held by rebel groups, as well as its own military forces.
|Source: BMI, WBMS|
|% change y-o-y||1.5||14.0||8.5||-43.5||-22.6||-54.3||42.0||21.4||0.8|