Some thoughts on sovereign risk

There seem to be two kinds of people in this MYL forum - those who are interested in objective information to inform their investment decisions, and those who are looking for good news to confirm their earlier decisions to invest or to support the share price. This post is aimed at the former. But the latter will probably also be pleased with it.

There are two main considerations when looking at MYL -- the geology/mining part and the sovereign risk part. I know nothing about the former, but having talked to people who do, it seems that MYL is being heavily discounted due to perceived sovereign risk. That's understandable for a country like Myanmar. However, my personal view is that the sovereign risk is low -- not negligible, definitely not to be ignored, but low. Let's dig into that a bit.

1. Myanmar is a generally positive FDI environment. It continues to prioritise FDI and there is an excellent team of government officials working on this (they wrote the CERP that Kalenn has talked about). That's good. Not so good is that the different line ministries don't take instructions from that team and these ministries are a mixed bag. Tenders are generally not well run (recent power projects being a case in point) and there is a fair bit of red tape. Officials often don't understand the private sector and sometimes suggest unrealistic terms for PSAs. But things are negotiable and it usually works out in the end. And I'm pretty sure it will for MYL, with timing being the only real question mark. This news article from today gives the general vibe at the moment -- openness to FDI, projects being approved, reasonable tax incentives: http://www.xinhuanet.com/english/2020-06/15/c_139140200.htm .

2. Political stability and predictability? This is positive on both counts. That's very good. There will be elections in early November, but they will not produce a change in government. That means that while there may be some personnel changes, there won't be any big shift in policy or direction. That will take us through to early 2026, a decent horizon.

3. Armed conflict. This is a bit of a worry, to be sure, but I'm not overly concerned. Myanmar has had 70+ years of conflict. It goes up and down, but it's something that the state is capable of managing, and it doesn't generally tip over into chaos and crisis. After a fair bit of fighting in that part of Myanmar in recent years, conflict is trending way down. I think that trend is likely to continue, with the odd blip. It's very unlikely to affect the preparations or operation of the mine in my view. That corridor from Mandalay to China -- the transport route for the mine -- is of increasing importance to China and Myanmar, and China will likely use its considerable influence to keep any major instability in check; it's shown in the past it can and will do this.

As usual, do your own research and form your own opinion.