Cambodian mining digs itself out of a hole

[geovalin]

ALICE CUDDY, Contributing writer

PHNOM PENH -- Cambodia's long-dormant mining sector could finally be seeing some movement after years of aborted foreign-backed projects, as the government introduces wide-ranging reforms in an effort to turn around the country's economic fortunes.

Crucial new mining legislation proposed by the government of Prime Minister Hun Sen is aimed at bringing the fledgling industry in line with international practices in order to attract investment and compete with other regional economies.

The draft law, expected to be approved by the end of the year, sets out reforms to tackle key issues that have long plagued the sector, such as illegal mining. The government is already forcibly closing illegal mines if they fail to meet deadlines to shut down operations voluntarily.

While the potential of the largely undeveloped industry remains uncertain, research has suggested "good prospects in gold and copper," said Meng Saktheara, a secretary of state at Cambodia's Ministry of Mines and Energy, which is spearheading the reforms. If such predictions prove accurate, mining could become a "priority sector" from 2018, when a new government is scheduled to take office.

One of the early success stories lies in Cambodia's northeast, where Indian mining company Mesco Gold is on track to operate the country's first commercial gold mine.

Saktheara said "free, prior and informed consent" helped win support for the project from the area's initially hostile indigenous population. A deal was struck in March amid hopes that "significant extraction" by Mesco would begin by 2017.

Angkor Gold, which holds the exploration license for the 12-square-kilometer plot, believes that "as the first commercial operating mines are producing in Cambodia, it will launch the country to an entirely new level of development."

Cambodian artisanal miner manually operates a machine. (Photo by Kimberley McCosker)

"Here is an amazing country with strong mineralization, a young labor force that is very keen to learn, although untrained on advanced exploration and development, and a government that is putting infrastructure in place throughout the country," said Delayne Weeks, vice president of social development at Angkor Gold.

Looming regulations

Apart from cracking down on illegal mining operations, the upcoming legislation will also deal with idle licensees occupying potentially valuable land in the hope that prices will rise. Richard Stanger, president of the Cambodian Association for Mining and Exploration Companies, said the "use it or lose it" condition for exploration licenses was a positive step that would "stimulate investment in the industry."

Although the mining law is likely to see the tax on mineral resources profits remain at 30%, revenues outside of the tax law, including royalties and administration fees, have increased dramatically due largely to "very crucial reforms in revenue collection," said Saktheara.

For the sector as a whole, such revenue amounted to a total of $4.7 million in 2014, according to government data, and is expected to increase to about $7 million this year.

"The royalties collection mechanism in the past was based on an inter-ministerial committee visiting the mining site and doing estimates on how much royalties should be paid by the licensees," Saktheara explained. Now "the licensees have to first declare their royalties and the government will then inspect."

With the government profiting from the reforms, it wants local communities also to benefit by forcing mining companies to be more socially and environmentally responsible. "Corporate social and environmental responsibility helps us attract more quality foreign investment, not just any investment," Saktheara said.

Officials and existing investors largely express optimism that the reforms so far are working, but are divided on whether controversial efforts to legalize the activities of small-scale miners could help or hamper progress.

"We have taken a new, multi-stakeholder approach," said Saktheara. "There is a great expectation that this [approach] will lead to a new source of foreign investment flowing into the country."

In a landmark initiative, the government awarded a "community license" to previously illegal artisanal miners operating in Mondulkiri, a province near the Vietnamese border. Under the license, more than 30 previously independent mining sites have been combined to form a single community with an elected leader. A second community license is expected to be granted within October to more than 50 mining sites in Battambang province.

Having operated outside the law for decades, these miners are now required to pay taxes and royalties and file quarterly production plans. The government hopes that licensed companies nearby will work with the miners, helping them to improve their production and safety standards in hopes that they can achieve commercial scale.

Divergent views

Foreign investors are split on the benefits of awarding the community licenses.

"There is no doubt that foreign companies should be strongly encouraged to employ and train the local communities in which they operate and demonstrate that their operation is providing significant socio-economic benefits to those communities and the country. However, issuing potentially competing titles can result in issues and disputes," said Justin Tremain, managing director of Australian-listed Renaissance Minerals Ltd.

"If the small scale licenses are issued over land that is outside of licenses already held by companies then the issues that would need to be managed are environmental management and safety of the small scale miners," he added.

"If the area isn't on someone else's license then issuing licenses to artisanal miners is an OK thing. However, generally speaking, they're causing a lot of environment damage and they also, of course, are quite dangerous," said Stanger.

At the Mondulkiri community earlier this year -- known in Cambodia as the "forest of gold" -- miners who had travelled from across the country to work there admitted they knew little about the technical and safety procedures required in a commercial operation.

Workers crush rocks at a gold mining site in Mondulkiri. They are not required to wear protective clothing. (Photo by Kimberley McCosker)

At one site, groups of men descended into 12-meter-deep pits in plastic barrels hoisted up and down on pieces of wire. Some had swapped the standard helmets in favor of baseball caps. At another site, a wooden ladder was the only means of access for unharnessed miners. A group of women hammered at pieces of stone with archaic tools, their faces and bodies unprotected.

Un Cheang Lim, head of the Mondulkiri community, agreed that standards badly need upgrading but noted: "So far we haven't been able to [make significant changes] since we still lack the human resources and budget to run it that way."

Angkor Gold welcomed the community licenses, but said the initiative "becomes more attractive" if companies are "included in developing the platform for artisanal miners".

"Industry, government, locals and civil society need to work very closely to lay out the parameters. And it is in everyone's best interest to move towards some health, safety, and environment standards that Cambodia and the communities can be proud to illustrate. Doing that successfully produces healthy communities because everyone wins," added Weeks.

source: http://asia.nikkei.com/Politics-Economy/Policy-Politics/Cambodian-mining-digs-itself-out-of-a-hole