Sole Western gold miner seeks clarity in Vietnam

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Molten gold is poured into a gold ingot cast

Vietnam's willingness to work with the only Western miner producing in the nation may determine whether the country can attract larger companies to its "highly prospective" resource industry, the company's chairman said.

Canada's Besra Gold Inc. has overcome obstacles ranging from power shortages to changes in tax laws to increase output every year since it started operations in 2005. The government must provide more clarity on royalties and taxes to attract more resource investment, said David Seton, chairman of the company, previously known as Olympus Pacific Minerals Inc.

Almost three decades after Vietnam first opened its economy to foreign investment, the Southeast Asian nation doesn't appear on any rankings of global gold producers. In that time, China has grown to become the world's biggest gold-producing nation, Indonesia is in the top 10, and foreign companies are operating mines in Laos, Thailand and the Philippines.

"We've proven ourselves and now we're in a position where we can either hold it steady, or we can really move on in Vietnam, and it's really up to the government to set the scene," Seton said in an interview in Ho Chi Minh City. "Vietnam's got the right geological structural setting. It's highly prospective."

Toronto-based Besra's gold production will probably reach 65,000 ounces this year and 75,000 ounces in 2013, the company estimates. By comparison, in Thailand, Australia's Kingsgate Consolidated Ltd. said in August it is targeting fiscal 2013 production of 120,000 to 130,000 ounces from the Chatree gold mine.

Investment delays

Besra in 2010 said it delayed plans to invest US$100 million in Vietnam because of the implementation of a tax on unrefined gold. While the company has now invested some of that money, Seton said by telephone Monday that more clarity is needed before committing to additional investment of as much as $50 million in the next two to three years.

"Besra is already producing substantial enough amounts of gold," said Heiko Ihle, a Westport, Connecticut-based senior research analyst at Euro Pacific Capital. "There is meaningful institutional interest."

Besra said it's the only Western miner extracting minerals in Vietnam, and has the first two foreign owned gold mines to be operated in the country since the 1940s.

Funds controlled by Ho Chi Minh City-based fund manager Dragon Capital in 2010 sold control of a project to mine a tungsten and fluorspar deposit in northern Vietnam, after delays in development.

"Increased taxes and royalty requirements for natural resources projects in Vietnam have the potential to undermine the economic fundamentals of private and foreign investments," the Dragon-managed Vietnam Resource Investments (Holdings) Ltd. fund told shareholders in 2010.

"If there were other operators there, the Vietnam story would get more credibility," said Peter Arden, managing director of Melbourne-based resource research company Groundwork Pty. "There's a herd mentality in mining, so when no one else is in an area, it's tough to get others interested."

"˜State of flux'

In 2006, Besra's first full year of production, the company targeted output of 20,000 ounces of gold. It produced 4,757 ounces as problems including power interruptions hampered operations. In 2009, Besra said mining laws in Vietnam were "in a state of flux" and subject to continuous reviews.

"They are the only ones who have hung in there and had any tangible success," said Arden. "The market will give credit to someone like Besra as Vietnam comes more into focus, but because of the risk profile for Vietnam, they've got to show they can operate at least one other mine."

The company's Australian-listed shares have fallen 44 percent to 16 Australian cents this year, valuing Besra at AUD$61 million ($63 million).

Besra sees the Sepon copper-gold mine in Laos, operated by Hong Kong-based MMG Ltd., a unit of China's largest metals trader, as an example of what Vietnam could achieve if the government provided encouraging licensing and financial terms.

Sepon "is on the same fracture as us," said Seton. "We've already drilled the structure. It goes for kilometers."

Discouraging expansion

Besra cites the 15 percent royalty that it is paying at Phuoc Son, one of its two properties in central Vietnam's Quang Nam Province, as an example of terms that discourage expansion. Production from its Bong Mieu site in Vietnam faces a royalty of 3 percent.

Bong Mieu had production of 13,142 ounces of gold last year, on which Besra paid $524,000 in royalties, while Phuoc Son's output was 29,726 ounces, resulting in $6.39 million in royalty payments, according to Besra's annual report.

Besra needs "a longer-term view on the certainty of the royalty and the tax regime" to commit to expanding in the country, which in turn would "absolutely" attract larger Western miners, Seton said.

"It's all down to how they treat us, because we're the company that everyone looks at in Vietnam in the mining sector," he said.

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