EXPLORATION ’94 — Contacts count when exploring Asian mining

Expectations are that Asia will be the next mineral exploration “hot spot.”

Huge local markets (the total population is more than 2.5 billion), the potential to supply this market and the opening up to the West will fuel this boom.

Both senior and junior companies will be involved, but juniors, with their greater flexibility, may have better success.

The Asian challenges are not technical; rather, they are cultural, political, bureaucratic and legislative.

Culturally, it is not what you know but whom you know. Business is only done with trusted associates. Trust is earned through socializing, time and commitment. A good watchword is “contacts not contracts.”

Politically, regimes vary from “centralized former communist,” through “constitutional monarchies” and “Western democracies,” to repressive “military juntas.”

Asia generally has complex, uncoordinated and internally competitive bureaucracies. Circumventing them requires developing personal pipelines into them.

Most countries have some form of mining legislation, but all are out of date. Most are being revised to provide a framework competitive enough to attract international mining investment.

Laos is isolated, poorly known and the best opportunity in the region. Copper, gold and gem deposits are the targets. Regulations are few. The bureaucracy is small. Large exploration tracts (up to 5,000 sq. km) can be obtained. Partners are not mandatory.

Vietnam is just emerging from the American business embargo. Gold and base metal deposits have been exploited by the French, providing more than 400 deposits with proven reserves. The centralized government is now market driven.

To obtain land tenure and permits, a local partner (most likely related to the military) is a must. This partner will want a significant monetary reward. Mining legislation is coming, but the best deals will be cut prior to it. Infrastructure, communication and money are scarce, requiring larger investments.

Thailand has three major mines other than tin (underground gold, lead and open-pit zinc) and extensive artisanal gold, gem and industrial mineral operations.

The mineralized trends of Burma, Laos and Vietnam extend into Thailand, indicating a larger potential.

Mineral development is a government priority and $50 million has been spent to foster this. The bureaucracy works at cross purposes and is blocking many projects. Exploration rights do not automatically generate mining permission. Only local influence can overcome these obstacles.

Its size gives China an extensive inventory of deposit types. It has a desperate need for mineral production to satisfy internal consumption. China has begun opening up to the West and trying out a version of a “market economy.”

Deals must be made in both the provinces and in Beijing, which takes a long time (and, therefore, costs money). However, the terms of the deal can be flexible. Chinese help (often from outside) is necessary with the Western approach only just appearing. Several juniors have made excellent deals, while senior companies have often failed.

Malaysia is a loosely knit federation of states. Mining laws, procedures, royalties, etc. differ between the states. Efforts are under way for federalization but this will take a long time and may not totally succeed. Gold and porphyry copper potential is high. A strong mining tradition exists (Malaysia is the world’s largest tin miner), and local mining partners can be found. Preference is for ethnic Malay majority ownership but, with difficulty, this can be circumvented. Success will come from versatile and aggressive junior companies.

The Philippines is the most “Western” country in Asia. Epithermal gold and porphyry copper deposits abound and more are being discovered. Mining legislation exists, but it frequently fails as land tenure rests with historical owners and not the state. The government is only relatively stable and portions of the country are in rebel control.

Indonesia is “elephant country.” The Grasberg porphyry copper deposit of Freeport-McMoRan Copper & Gold (NYSE), for example, contains reserves of 357 million tonnes grading 1.53% copper and 1.97 grams gold and 3.24 grams silver per tonne. More such deposits are being found.

A local partner, who benefits financially, is mandatory. Capital costs are high because of remote locations and poor infrastructure. Exploration activity is extensive but mostly by senior companies.

Myanmar and Kamuchea currently offer no opportunities.

The ingredients of making projects work in Asia are different. Local partners are a must and they will work with you only when they trust you. Trust is earned by close personal relationships and a commitment of time, money and technical expertise. One has to be prepared to commit to the country/region and not high-grade specific deposits.

There is a local perception that junior companies have neither sufficient financial nor technical strength. However, a junior’s flexibility (if coupled with providing a competent team during a 3-to-5 year period) can disprove this.

Recently, a speaker on Indonesia said that “the goal posts are set in concrete.” This author would contend that Asian cement has likely been made with quicksand and only the flexibility to trust one’s local partner can stabilize it.

— The writer is with GeoThai Services of Bangkok, Thailand.