January 2019 Site Visit to Bawdwin:
All the below is of course in my opinion but that opinionis formed through research over 12 months, collaboration with others includingtechnical professions and the recent site visit.
The boxes that need ticking to warrant a substantial investment and to give confidence that this is a major deposit that will see production in the near future, include:
· Theresource (value);
· Management(experience and temperament);
· Accessto affordable funding;
· Managementof relationships critical to project success;
· Infrastructureavailability; and
· Therisk profile.
Please keep in mind that the magnitude of information and observation picked up in a week long visit is impossible to adequately convey in a written report.
The Resource:
Currently declared 82 million tonnes at a combined (Pb, Zn, Ag) mineral grade in excess of 7%. There will be an updated resource assessment in February 2019 that will see this total rise, likely in both grade and tonnage. It will not include recent discoveries such as Yegon Ridge which will be added later. I would suggest we should be getting towards 90-100 million tonnes with this upgrade given earlier discoveries and there will be further upgrades as 2019 progresses. In addition, there will be a reserves statement approximately end of Q1 2019 along with the PFS which will narrow down production techniques and costs.
To call the district prospective doesn’t do it justice. When walking the site there are many as yet unexplored opportunities for further discoveries. There are mineral traces at surface that we saw that have not yet been investigated. Once up and running these opportunities will no doubt be investigated further. MYL hold a large land parcel and are at this time only exploring a few of the opportunities close to the open pit. I suspect this will turn out to be a project that makes continuous discoveries over many years, perhaps even decades. This is typical of this style of deposit (VMS) which usually occur in repeat “pods”.
The production cost numbers are expected to be in the first quartile for costs and hence able to be a profitable operation, even at the bottom of any pricing cycles. Because the resource is of such grade and quantity, I expect we will see the larger commodity traders scrambling for contact with the company in order to pursue off-take agreements or take overs.
Management:
The experience of management shines through in all areas. Not only have several directors had direct in-country experience, over many decades, but of course they also have the track record of having run some of the best polymetallic production plants previously eg Rosebery and Century. Check the Myanmar Metals website for further detail.
The Bawdwin Joint Venture partnership includes MYL at 51%, NIHC and EAP at 24.5% each. The choice of in-country partners is superb. I attended a presentation from NIHC (WMM parent) and EAP Global Mining at the Yangon head office of the Bawdwin Joint venture (BJV). The decades long experience and success in infrastructure building, transportation and mining will be of enormous assistance in both planning and building this project. The confidence displayed in the project by the partners when taking questions from the journalists, fund managers and analysts present was plain to see. There are always a multitude of issues involved in the planning of a project and the ‘unstated’ is often more important than the overt dialogue at these presentations. I was left in no doubt that the in-country partners have full confidence that this is an easily managed process that will maintain its schedule of development activities.
The attitude of MYL management and BJV partners in being willing to share their success, looking for the win-win, will stand all parties, including the local villagers, in good stead. NIHC is a very large company with national distributionships or partnerships with Shell, Wilmar, CNPC and Sany amongst other interests. Their pursuits include road, bridge and major infrastructure building, power plant construction and operation, major machinery distribution, logistics and real estate development ….the list goes on. When MYL describe their partners as ‘leading’ Myanmar operations they are entirely accurate. I’d suggest anyone interested check their website at https://www.national-infra.com/ to dig deeper but be assured they are a major player in the Myanmar economy with deep relationships in most areas including by necessity into government. I’m sure these relationships have been and will continue to benefit the BJV as the story unfolds.
The second partner, EAP Global Mining and its parent company, owns and operates mines within Myanmar including the Lashio Zinc refinery which I visited. The MYL ASX release of 28th March 2018 gives a good backgrounder on EAP:
“EAP owns and operates a manganese mineand a coal mine in Myanmar and also manages the operations of the Longh Kenghigh grade zinc mine and Lashio zinc refinery on behalf of CornerstoneResources Myanmar Limited; shareholders of which include Mark Creasy’s YandalInvestments. Its mining expertise is significant.”from http://www.asiaminer.com/news/regional-news/9328-myl-and-wmm-secure-major-investor-for-the-bawdwin-project.html#.XEu3U1wzaUk
They also operate an in-country partnership with Unilever and have a workforce of 6,000 people across multiple industries.
This selection of local partners provides both experience and a resource for the BJV and is indicative of the strategic thinking that has gone into the planning and development of the project. The structure is one that allows a win/win for MYL shareholders as well as appropriately supporting the development of a local mining industry based on the clean processes and clear governance which can be expected from an Australian listed entity. The alternatives for Myanmar are on display up on the border with China where the environment and the community is often being destroyed due to ‘fly by night’ operations that leave a trail of destruction and human misery.
Funding:
The BJV own what is already one of the top poly-metallic mines in the world. It would be rated amongst top 10 (or close) in each of lead, silver and zinc independently. As a combined resource, the size is staggering, and of course as modern exploration techniques are brought to bear the resource is likely to grow significantly. It would not surprise me to see new resources discovered that rival or exceed the historical discoveries and these may appear sooner rather than later. Keep in mind that this is amining district, not a single mine site, and that BJV hold a very large, secure portfolio of tenements covering highly prospective ground. MYL have on the register Perilya, who have signed an MOU to provide a sizable funding package. It is easy to claim that an MOU is NOT a contract and while that is true I would draw people’s attention to the size of this resource. It willnot be left in the ground. Funding will be found and there are multiple possible paths to procure that funding. For example, a silver streaming deal could provide a large percentage of funding while leaving the cash flow from lead, zinc, copper, nickel and cobalt unattached.
A note on Perilya: Perilya Limited is a foreign-owned public unlisted company, deriving revenue from the mining and exploration of base and precious metals. The company operates in Australia (Broken Hill), the Dominican Republic, Malaysia and Canada, and is administered by its head office in Perth.
Perilya’s ultimate parent is Shenzhen Zhongjin Lingnan Nonfemet Co Ltd, a China-based lead, zinc, and other non-ferrous metals mining and processing company. The firm was established in Shenzhen, Guangdong province in 1984, as a subsidiary of state-owned enterprise China National Nonferrous Metals Industry Corporation. They hold 20% of MYL and have signeda 2 year standstill agreement restricting Perilya from making a takeover offeror buying further stock until mid-year 2020.
I believe that the resource MYL is developing is already of world scale and quality. However, it will continue to grow over the next 18 months and MYL will likely become a takeover target during this period, largely because the quality and scale of the project is likely to attract the attention of a number of major companies. Perhaps this has already commenced. As the regulatory process proceeds and MYL uncover further resources the interest from external parties will grow. Keeping in mind that activities like geo tech drilling are discovering new mineral loads and there are further known deposits that have yet to have modern exploration techniques applied, I’m very confident that this resource will be considerably larger by mid 2020. The current Yegon Ridge program and upcoming programs on ER valley have enormous potential and I will be watching for results with high expectations of further success.
I’d rather see the project in MYL’s ownership all the way through to decades of production and on-going discoveries and dividends, but I doubt we will get that choice. However, if it is going to be taken over I look forward to the prospects of an auction and believe there is an abundance of experience on the board to manage the situation. There may also be an opportunity for like-minded shareholders to collaborate with management and each other to ensure that if there is any takeover offer, we can collectively work to maximise the value of it.
Given the size of the resource I expect that the large commodity traders will be all over the prospective metals flow as well as miners. If you look at the MO of these traders it is the securing of the production, either through off-take agreements or if necessary, via takeover, that fuels their business model.
Risk Profile:
There is a perception, gained via the western media, that Myanmar is a troubled land with grave problems and an economy about to be destroyed by blanket sanctions. My experience in country was far from that. The reality I experienced was a beautiful country, friendly and peaceful people who were always keen to help and a culture largely untouched by many of the problems of the developed world. While they have all the convenience of modern telecommunications, five-star hotels and the usual consumer accompaniments, it was like visiting many of the countries of Asia 20 to 30 years ago. Clean air, friendly people and a culture still focussed on more wholesome pursuits. I know there are areas where the country is under greater stress but I did not experience this even in the depths of northern Shan state where the mine is located. I was told by multiple sources that where there are areas of contention in Myanmar it is usually regions pursuing their own interests in competition with the interests of the central government. Even if those interests are illegal. Keep in mind that the country is a union of many ethnic and cultural groups and was part of the former Golden Triangle. It takes time to make wholesale change in any community.
Given the geo politics of the area I would be surprised to see the re-introduction of large scale sanctions against Myanmar. I doubt that the powers want to force Myanmar back in to the arms exclusively of China and I doubt Myanmar itself wants that. I believe that most want to see western influence and processes added to the available suite of options. In the specific case of the BJV it is clear that an Australian listed entity was the preferred operator of the mine. The governance procedures, respect for the environment and the people that a good Aussie mining company will bring to the table were obviously highly valued. MYL gets to set the agenda and create the structure under which the BJV will proceed, even if the company is taken over at a later date. While there is always the risk of an ‘unknown’ issue biting, my observations of the language and behaviour of the joint venture partners leads me to the conclusion that for them at least (from their extensive business experience in Myanmar) the processes are known and they expect a successful and timely execution.
People:
The Bawdwin mine has spawned a sprawling village that extends both north and south of the mining offices and operations. Houses and schools exist within only a few hundred metres of the Marmion access shaft. The attachment that the local population have for the mine and their desire to see the mine operating again is very strong. The 100 year old Marmion shaft winches are still in full operating order and geologists were down the shafts the day we arrived. The rail is still operational and transports locals and supplies to and from the Tiger Camp area down to Namtu periodically. Down at Namtu there are working steam trains that are one hundred years old. It is like walking into a time warp to see some of this equipment looking like new and operating. The devotion that the locals have shown towards their task in maintaining the equipment is remarkable. I spoke to a number of locals who overtly expressed their enthusiasm for the resumption of mining operations and the resultant jobs and economic benefits that will flow to villagers. I do not believe we would ever see any local objections to this project. In fact I believe the opposite is the case. Both locals and government want faster progress, jobs and revenue flowing. This is very valuable support to have as an investor in the project.
Infrastructure:
Easements-
Important assets that this project holds include the collection of freight corridors from Bawdwin to the Lashio side of Namtu via existing rail lines, the hydroelectric power generation station, infrastructure, large flat areas at Tiger Camp, the historical refinery in Namtu and the loading and staging areas in Namtu. They are valuable for a variety of reasons but primarily because by already having possession of these assets the BJV does not have to negotiate access with land holders or government for logistics access etc. This will avoid substantial cost and time delays and the potential problems that could be associated if new regulatory approvals were required for such basic infrastructure. Whilst the existing infrastructure will need to be refurbished or replaced, the timeline for development will still be considerable shorter than if these infrastructure items had to be approved from “scratch”.
Also worth noting that the tailings facility will be a dry tailings facility and not involve a water impoundment and the risk of breaches ala Vale.
