Gold rush crawls to a standstill

Gold rush crawls to a standstill

The industry faces an uncertain future as policy limbo and bribery allegations put expansion and profits in doubt.

It was a billion-baht aerial survey of potential mineral deposits that sparked an enthusiastic start to gold mining in Thailand 32 years ago. Foreign investors were wooed and local communities were excited about the idea of new roads leading into their villages.

Digging deep: Akara has invested billions of baht in its gold mining operations, including this mine which covers vast areas in Phichit’s Thap Khlo district and Phetchabun’s Wang Pong district.

Nobody would have thought the industry would hit rock bottom only three decades later in a tug-of-war between businesses and communities: no gold prospecting licences have been approved in the past eight years.

By 2012, Akara Resources Plc was the country’s sole gold producer, and over the years has been involved in several court cases with locals over health and environmental issues.

Several of the company’s executives resigned in a corporate restructure following the recent rejection of its initial public offering application, and in its latest hurdle, Akara is now under investigation by the National Anti-Corruption Commission after allegations of bribery.

With more than 100 gold prospecting licences waiting to be approved, the future remains bleak for Thailand’s mining industry. The bulk of those licence applications belong to Akara and its subsidiaries, and will not be decided until the investigation is complete. Investors have also been looking forward to a much-awaited gold exploration and mining policy from the Industry Ministry, one which has been completed but has not been released pending the investigation.

Experts fear, however, that even with the government’s green light, investment in gold mining might no longer be worth it.

“We have determined that Thailand does not have a high potential in gold,” said Chat Hongtiamchant, director-general of the Department of Primary Industries and Mines (DPIM).

FAULT LINES

The eight-year deadlock emerged after the government of Gen Surayud Chulanont ordered a review of the nation’s gold mining policy. Before then, the industry operated under the 1987 policy, a two-page document outlining basic requirements for gold mining and development, one which did not include environmental protection or area restoration.

Poor prospects: Chat Hongtiamchant says gold potential is relatively low.

More than one million rai had previously been surveyed by the government and the state auctioned 11 parcels of land. Tungkum was the first company to be granted an exploration permit, known as a special prospecting licence, in Loei province under the government’s initiative to promote the country’s mining sector.

Since 2000, the DPIM has issued 19 mining permits for Tungkum and Akara, each lasting 20-25 years. The four most recent permits were issued in 2008 for Akara in Phetchabun province.

The rise in gold prices in early 2000 brought about increased interest from Thai and foreign investors, in turn leading to the Industry Ministry’s decision in 2007 to revise the country’s gold mining policy. Its aim was to generate maximum economic benefits for the state. The Office of the National Economic and Social Development Board began a study of gold exploration and mining policy, and in March 2009, the cabinet ordered the Industry Ministry to develop a new gold policy taking the report’s recommendations into consideration.

The government has not approved any exploration permits since, and 121 applications from some 10 companies are now on hold. Of the total, 107 are from Akara and its subsidiaries, which since 2012 has been the country’s only active gold producer.

Tungkum ceased its operations in Loei province, partly as a result of complaints lodged by residents who say they suffered from ill health since mining began.

As a subsidiary of Australia-based Kingsgate Consolidated Ltd, the prevention of Akara’s expansion would be a topic for discussion in all meetings between the industry minister and Australian ambassadors since William Paterson, with the latest one in October with the current ambassador Paul Robilliard.

It wasn’t until 2011 that the Industry Ministry came up with a final draft, which was signed by the then minister Chaiwut Bunnawat. But it was never submitted to the cabinet for approval.

A NEW OBSTACLE

A third draft was finalised in the beginning of this year, with input from related state agencies and the private sector.

The new policy seeks to increase benefits for the state and local administrations, as well as contribute to several community funds. Mining projects will no longer enjoy tax privileges, and gold is required to be refined locally within a year of the project starting.

Royalty fees will remain unchanged, based on a progressive scale linked to the price in baht per gramme of gold. The maximum rate is 20% of the gold price, making Thailand’s royalty fees among the highest in the world.

Plans to hold two public hearings in September in Phichit and Lop Buri provinces were cancelled as authorities believed a large number of opponents would turn up.

As a result, the DPIM set up a fact-finding committee surrounding the “conflict zone” in Phichit and Phetchabun provinces, the site of Akara’s Chatree mining complex.

The committee, with Central Institute of Forensic Science director Khunying Porntip Rojanasunan serving as adviser, will determine whether there is evidence of cyanide contamination or heavy metal exposure. The committee will also determine the cause of the reported health problems.

“The outcome of the two parts will determine how and if the gold policy will continue,” Mr Chat told Spectrum.

“The problem we have now is that there are two separate facts — villagers are blaming Akara for the harmful substances, while the company is claiming otherwise.”

Acting Akara CEO Greg Foulis said the company had fully complied with regulatory standards and that the allegations of contamination are “completely false and ill-informed”.

“Our frustration is that we’ve operated responsibly for 14 years. These allegations are recent and we believe that they have been used as a lever against us by minority interests who in no way represent the community,” Mr Foulis said. “They are minority interests with their economic agendas and self-interest.”

UNDER INVESTIGATION

Chatree is the largest source of income for Australia-based Kingsgate, which owns 48% of Akara. Listed on the Australian Stock Exchange, its 2015 financial year ending June saw a third consecutive year of net losses, shedding A$147.09 million (3.85 billion baht).

‘Completely false’: Acting Akara CEO Greg Foulis rejects accusations of contamination.

In January this year, the Chatree operation was asked by the DPIM to cease operations for 44 days due to complaints by villagers about health and environmental impacts.

Its domestic operations have been struggling to secure funds, and its latest attempt to launch an initial public offering was recently rejected by the Thai Securities and Exchange Commission “since the company is not yet able to show that it has the qualifications required by the SEC”.

In October, the National Anti-Corruption Commission announced an inquiry into alleged corruption in Akara’s gold mining concessions, after the anti-graft body received information from the SEC.

According to an NACC statement, the Australian Securities and Investment Commission (Asic) previously told the SEC of claims that a company operating gold mines in the provinces of Phichit, Phitsanulok and Phetchabun had bribed Thai public officials to secure the concessions and authorisation needed. The statement said large sums of money had been transferred from Australia to Thailand, possibly for paying bribes.

Mr Foulis, who is also the CEO of Kingsgate, said Asic concluded an investigation regarding transfers of money to consultants and advisers to its Thai operations in the middle of last year.

“No further follow-up was made by Asic, and we consider this matter to be closed,” he said. “We’re not aware of the substance of any of these allegations we’ve seen in the media and we’ve had a long history of operating within the regulatory framework and laws of Thailand.”

Matthew Abbott, senior executive leader of corporate affairs at Asic, declined to comment on the issue, saying it is Asic policy not to comment on operational matters.

Asic declined Spectrum’s request for documents related to the allegations, saying they were exempt for release under Australia’s Freedom of Information Act.

The DPIM, meanwhile, has gathered documents related to the issuing of all licences to Akara to present as evidence to the NACC.

“We consider that the whole process is in line with the law,” said Mr Chat of the DPIM.

DIGGING IN

The deadlock represents the largest obstacle for Akara as it seeks the opportunity to expand its gold mining operations. Its current reserves at the Chatree site, which produces four tonnes of gold a year, will only last for the next six years. The company has submitted applications for a mining permit for 80 rai of land located next to its current site, as well as the renewal of its quartz and gold lease.

It is also awaiting the approval of 107 gold exploration permits.

While the outlook remains shaky for the company, Kingsgate has already invested 35 billion baht in its Thai operations over the past 14 years, and the group does not intend to back out in the near future.

“We’ve had a very significant investment, and the opportunity going forward is not for Thailand to have one Chatree, but many Chatree-type operations,” Mr Foulis said. “What we are looking for is Thailand to be open for business again.”

To date, Akara has been the largest company that has invested in Thailand’s gold mining sector — an industry characterised as capital intensive and high risk — with its last expansion at Chatree worth more than 3.8 billion baht.

“What is lacking in Thailand is risk-takers prepared to spend capital on exploration,” Mr Foulis said. “Akara came to Thailand 20 years ago, and we certainly believe the opportunity is there.”

FUTURE IN DOUBT

But experts say there is no future for large-scale gold mining in Thailand, mainly due to the difficulty in gathering large amounts of land, leading to high operational costs.

“I’ve had foreign investors asking me how much an environmental impact assessment costs for a gold mine, but I tell them to think about land purchases first,” said a source from the Mining Council of Thailand. “With costs soaring to the billion baht range, at this price, no one is willing to make the investment.”

Since communities are depending less on mines for development, the source said the longer the policy process is stalled, the more likely Thailand’s gold mining industry will come to an end. “There is no need for gold mines any more. Villages already have roads, and money contributed by companies goes into the hands of local administrations,” said the source, who asked not to be named for fear of retribution.

According to an annual report by the Mineral Resources Department, as of 2013 Thailand has 144 tonnes of potential gold deposits, which at the 2014 average gold price of 1,342.4 baht per gramme would be valued at 193.69 billion baht.

In terms of export value, gold is the second-largest mineral behind tin, with exports in 2012 totalling 4.418 tonnes worth 6.11 billion baht.

Mr Chat of the DPIM, however, admitted that Thailand’s gold potential is lower than the Philippines, Indonesia and Laos.

‘PLAYING TRICKS’

For activists like Lertsak Kumkongsak, an environmentalist who has been working on mining issues for more than a decade, abandoning the gold industry altogether would be well worth it to protect the ecosystem and people’s health.

More than 200 sick villagers living near the Chatree mine have high levels of heavy metal in their blood, said Mr Lertsak, but he acknowledged the source of contamination was unknown.

“And since Thailand has very little gold to begin with, I question whether the industry should continue to exist,” he said, adding that government agencies are also partly to blame for inflating the figures of potential gold deposits.

A case in point was seven years ago when the Mineral Resources Department announced that a survey showed that Thailand had 700 tonnes of potential gold deposits worth 900 billion baht in 31 provinces.

“Government agencies are playing tricks with numbers to make it seem like their organisations are playing a role in stimulating the economy,” Mr Lertsak said. “The DPIM’s purpose is only to cause a gold rush, without even knowing if any gold exists. They want revenue from the licences.

“Meanwhile, the new gold policy has a sole purpose — to serve the demands of only one company.”

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