Dr Alper Interviews Michael Phin, Head of Finance Valentis Resources Expert Mining Services in Myanmar

By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC
on 5/1/2016
Valentis Resources is a Myanmar based private mining services company. Valentis specialises in advising companies undertaking exploration and mining activities in Myanmar.Valentis provides project management services for all stages of exploration activity from grassroots to advanced stage feasibility studies.Valentis Resources assists both Myanmar and International companies seeking opportunities in Myanmar's mining sector. According to Michael Phin, Head of Finance and Director of Valentis Resources, Valentis is uniquely placed in the Myanmar mine sector due to the limitted number of service providers and limitted availability of international standard mining and drilling services in Myanmar.

Australian exploration drilling services are now in Myanmar

Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News, talking with Michael Phin, Head of Finance Valentis Resources, could you tell me what's happening with Valentis Resources - what your services are and how you help mining companies and other companies?

Michael Phin: Valentis is a mining extraction services company. We're based in Myanmar and fully focused on servicing the Myanmar market. We have two divisions. Valentis Resources is a geological services arm, and we have about ten Myanmar geologists and international geologists that fly in, fly out. The second division is an exploration drilling arm, that's a joint venture between Valentis and Titeline Drilling International. Titeline is an Australian company based out of Ballarat in Melbourne.

We assist clients to find either greenfield or brownfield projects; a typical engagement would involve local team led by our international geologists to visit a target area based on a client’s commodity interest. We collect data which is difficult to obtain in Myanmar, meet with local miners, and then put forward a recommendation to either apply for concession area in that area or to approach a local company to joint venture.

Because the mineral sector in Myanmar is so underdeveloped, there's a real demand for our expertise. It's not like other markets where you can readily obtain information electronically or find records of historical work that's been done. The mineral prospectivity of Myanmar is well known and as you might know, some of the world's largest mines prior to World War II were actually in Myanmar. The Myanmar market for minerals is early stage exploration, and that's what our core service offering is.

As projects progress into exploration drilling, we have our joint venture with Titeline Valentis can assist clients. We are also heavily involved in the commercial side of negotiating joint ventures with a local company, obtaining government approvals for a concession application and other stakeholder management.

We've been set up in Myanmar for around three years, and it's still very early days for the sector because the mining amendments only got recently passed and commodities globally is very tough. There still is activity in sections, and certainly an appetite for early movers to find projects here, be it greenfield and brownfield.

Dr. Allen Alper: Could you give me some examples of some of the projects you're working on and some of the services? Also, why Myanmar is of interest to miners, why they should go there, why they should explore.

Project Snow

Michael Phin: One of the main projects we're working on at the moment is a copper project in the northern region of Myanmar that our foreign client is investing in. It is north of the Monywa copper mine which is probably one of Myanmar’s largest and well known mines. We’ve identified that region as having high prospectivity. The project is held by a local company that has done a few drill holes, some surface mining, but as with a lot of the projects we've seen and there was no quality data or records. Over the course of the last nine months, we've undertaken an exploration over the concession area. The team completed a first pass sampling program and towards the end of last year we did a ground geo physics program. The results were positive, so now we've progressed to soil sampling program and another round of electromagnetic survey. We hope to progress to drilling in probably third or fourth quarter this year. In parallel to all that technical work we've also been negotiating the joint venture agreement with that company. That will be quite interesting because we're not aware of many precedent transactions in the sector where sophisticated foreign investors have farmed into local mining company's projects. We expect one of the challenges will be to educate the Ministry of Mines in this process and obtain their approvals. The reason why our client is interested in this project is because they have some projects in their home country, but they wanted to find a new story off shore.

Myanmar is really is untouched. There's a lot of virgin exploration to be done. In the nineties there were a few large explorers such as Ivanhoe from Canada, but a lot of records and a lot of data has been lost. In addition to having a data poor environment, access to many areas has been challenging due to the areas being controlled by ethnic groups. Since the country has moved forward in becoming more stable and peace agreements are signed, areas have opened up and investors are identifying the opportunities to explore these new areas. Dr. Allen Alper: Could you tell me a little bit about how it is operating in Myanmar now with the changes - political changes going on and mining law changes?

Michael Phin: The mining law has been under debate for a long time. One of the key challenges in the mining law was the production sharing arrangement. Projects here are subject to a production share in addition to royalties and corporate taxes. Given the economic profile of mining projects, this has made a lot of projects unviable and it's led to an aversion in investor interest. There's under reporting to the government and in some areas, reported illegal sale of minerals over the border to China and Thailand. With that in mind, one of the key amendments to the mining law passed in December 2015 was the introduction of the concept of production profit and equity sharing. There hasn't been detail on what that means in terms of what the parameters or rates for these models, but we'd hope to see that data on the regulations, which are currently being drafted.

Once the law amendments were passed in December 2015 the Ministry of Mines, has ninety days to draft the regulations, but we suspect that's going to take longer because the new government's has recently come to power and we understand the Ministry would like to wait for a new government setup before the new regulations are put through. State participation in terms of equity or profit sharing is one of the key changes. Another key change has been the amalgamation of the Ministry of Mines and the Ministry of Forestry into one Ministry, being the Ministry of Resources. There are a number of Ministries that were combined as part of the new government policy. The culmination of mines and forestry theoretically should make mining approvals and concession applications a lot smoother.

In our experience, one of the key roadblocks to getting a concession approved is obtaining the forestry approvals. Because that's done external to the Ministry of Mines, it's been tough to get clear guidance on exactly what approvals are required. The overall environment operating here in the mining sector is still very challenging because it's data poor. Local Myanmar companies lack knowledge of what best practice process is, for example basic exploration programs, farming in and earn in arrangements. But they are starting to become more sophisticated very slowly and at the regulatory level there are positive changes in terms of the law and in terms of the regulation implementation there's movement as well with the new restructure of the Ministry.

Dr. Allen Alper: Well, that sounds like those changes will be favorable and encourage exploration mining. Is that how you feel?

Michael Phin: Certainly we would hope that the changes are generally seen by the market as positive. From talking to our clients and people interested in the market, that certainly seems the case. We think Myanmar needs to be conscious that it needs to be globally competitive. Given that exploration budget's globally are limited we have had investors provide feedback, "Look, it's just too tough. We want to wait for the laws and regulations to be finalized." There's been other successful companies that have been granted exploration grants recently and they have managed to negotiate workable arrangements with the government. The two main large concessions that have occurred recently have been to PanAust and to AP Mining

Dr. Allen Alper: Could you tell me a little bit about your team and yourself?

Michael Phin: Yes. The management team of Valentis is made up of myself, another Australian Lachlan Foy, who I worked with in Australia for about eight years in corporate restructuring and advisory. Our third partner is La Min Win, and he's a Myanmar National that grew up in Myanmar but spent six years in Australia. Collectively we started the Australian Myanmar Chamber of Commerce in 2013 and then were considering various opportunities in Myanmar and saw how embryonic the mineral mining sector was. That's why we established Valentis Resources. La Min had some previous links into the mining industry. We have been running Valentis since late 2013, early 2014 and our strategy, at least for the mining sector is to be able to add value at each stage of a mining project's life.

We started with Valentis Resources with basic exploration services. After six months we started to consider exploration drilling because we identified the limited capability in Myanmar. We spoke to a number of potential drilling partners and ended up tying up with Titeline. That's quite an exciting joint venture because just two weeks ago the Titeline-Valentis business actually got granted a Myanmar Investment Commission permit, or an MIC permit. The MIC permits are special investor licenses granted by the Myanmar government which provide a company with tax benefits, so import customs and commercial tax exemption, then a tax free holiday.

They're ordinarily only granted to manufacturing projects or company development projects, so we're probably one of the first service companies to be granted a permit in that style. I think that's a recognition of the government as a whole of just how important that business is to developing the mining sector of Myanmar. Our strategy is to be able to add value at each stage of the mining chain. We've got that strategic partnership and we're certainly considering a couple others in the next six to twelve months that would complement what we already can provide in market.

Dr. Allen Alper: Now, well it sounds like you're being well-recognized and supported by the government and the community.

Michael Phin: We've been quite fortunate but it's important for us to keep engaged with the government because that's one of the primary things we do for our clients is engage with the Ministry of Mines at a federal level on concession applications. We've seen investors come to Myanmar and make concession applications at a federal level, but then not make the effort to engage at the state and local levels. That's something that's absolutely critical to obtain a mining permit. We spend meeting with all levels of government, educating them about what exploration actually is. There's often a misunderstanding, and one of the practical examples is the reluctance to grant large areas of concessions to exploration. Generally we haven't seen concessions of more than two hundred square kilometers being granted. That's really coming down to a misunderstanding around early stage exploration and the fact that if it is done properly it is low impact, it's non-invasive. Certainly the government still has much to learn, but they are willing to work with us and from our perspective it's a cautious, steady approach that they're taking.

Dr. Allen Alper: Now, is your company a private company or what kind of structure?

Michael Phin: It's private, so Valentis is owned by the three, by myself, Lachlan, and La Min.

Dr. Allen Alper: Okay. I thought so. Is there anything else you'd like to add that I didn't ask you about?

Michael Phin: Valentis is uniquely placed in the Myanmar mine sector because there aren't many service providers here and we may be the only international standard mining services and drilling company in Myanmar.

We're at the front of seeing what the activity and investment interest is in Myanmar and we certainly think it's challenging, but there are plenty of early mover opportunities still. In terms of the key risks that people identify with Myanmar, there is a lot of progress being made in a short space of time. We hope to see more investor interest over the next few years because we certainly think there is that payoff there.

http://www.valentisresources.com/

Valentis Resources Company Limited
C 4, Thazin (1) St, Hlaing Yadanar Housing
Hlaing, Yangon, Myanmar

P: +95 (0) 1 230 5383
E: myanmar@valentisresources.com