VZCZCXRO1315
RR RUEHCHI RUEHDT RUEHHM
DE RUEHVN #0632/01 1880301
ZNR UUUUU ZZH
R 070301Z JUL 06
FM AMEMBASSY VIENTIANE
TO RUEHC/SECSTATE WASHDC 0105
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBJ/AMEMBASSY BEIJING 1989
RUEHBY/AMEMBASSY CANBERRA 0889
RUEHCHI/AMCONSUL CHIANG MAI 0426
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 VIENTIANE 000632 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MLS AND EB/ESC/IEC 
PASS TO USTR FOR D. BISBEE 
 
E.O. 12958: N/A 
TAGS: ECON EMIN ENRG ETRD LA
SUBJECT: MOVING LAOS INTO CHINA, TRUCK BY TRUCK 
 
REF: 05 VIENTIANE 1298 
 
VIENTIANE 00000632  001.2 OF 003 
 
 
¶1. (SBU) Summary: Laos has mineral resources and China wants 
them. A regional mining conference in Vientiane shows the 
deep penetration of the Chinese into the mining sector, and 
the GoL's preferential treatment of its Chinese investors. 
Anxious to attract the investment, the Lao have little 
capacity or commitment for insisting on mining companies' 
respecting environmental standards. Left to its own devices, 
the mining industry, spearheaded by myriad Chinese companies, 
may wreak havoc on Laos' environment and provide very little 
in exchange. End Summary. 
 
Hot rocks 
----------- 
¶2. (U) The June 16 Greater Mekong Subregion Mining 
Conference, organized by the newly-formed Ministry of Energy 
and Mines, aimed at attracting investor attention to this 
booming sector of the economy. Laos is comparatively 
mineral-rich, sharing a common geology with the 
mineral-producing region of southern China. However, only 
about 30 percent of the country has been mapped (mostly by 
the Soviet Union during the late 1970s), and less than 10 
percent has been extensively explored. Gold and silver are 
both present in commercially viable amounts, and gold, along 
with copper, are currently big-ticket export items. There are 
also substantial deposits of zinc, lead, tin, antimony and 
bismuth. Of metallic minerals there are scattered but 
substantial deposits of cobalt, manganese, and tungsten, and 
probably substantial amounts of iron. Precious and 
semi-precious stones are found in several parts of the 
country. Anthracite coal is found in the northern provinces. 
 
¶3. (U) Mining is clearly set to become one of the mainstays 
of the Lao economy, perhaps eventually its largest earner of 
revenues, and the GoL is accordingly keen to develop the 
sector. Oxiana, the Australian gold and copper mining firm 
operating in Salawan Province, is emblematic of how this will 
happen. Another Australian firm, Phu Bia mining, is running a 
smaller gold and copper mining operation in northern 
Vientiane Province. Gold and copper exports, non-existent 
before 2003, by 2005 were valued at $53 and $64 million 
respectively. Those figures will climb significantly over the 
next several years, especially when Phu Bia begins production 
on a larger scale. 
 
¶4. (U) In 2006 the Oxiana operation is expected to produce 
170,000 oz. of gold and 60,000 tons of copper. Oxiana paid $7 
million in royalties to the GoL in 2005 (their first full 
year of production).  For 2006 that figure is expected to 
exceed $16 million. The company paid taxes of an additional 
$7 million, up to more than $30 million for 2006. These are 
very considerable revenues in a tiny economy with a total GDP 
of $2.5 billion, and unlike the case of hydropower from the 
Nam Theun II Project, there are no safeguards or guidelines 
for how these revenues are to be used or accounted for within 
the GoL. 
 
The investment climate gives China another edge 
--------------------------------------------- -- 
¶5. (SBU) Dreadful infrastructure and worse government have 
made the kinds of investment needed to exploit these mineral 
riches hard to come by. The Australians, accustomed to 
working in bad neighborhoods, have been the exception. These 
days, such large and lucrative investments are generally safe 
from GoL interference or harassment (though Oxiana did have 
to agree to an un-scheduled re-negotiation the amounts they 
remit to the GoL as the world market prices of Gold and 
Copper rose). But lack of rule of law has resulted in some 
expropriation and claim-jumping of smaller foreign-owned 
operations over the years, sometimes by Chinese interests and 
with official GoL connivance. 
 
An environmental and political price 
------------------------------------ 
¶6. (SBU) Reading between the lines of the mining conference, 
the mining sector is set to become another environmental 
disaster, if the customary Chinese disregard for pollution 
and ecological degradation pertains. A representative of the 
Yunan Bureau of Mineral Resources gave a lengthy paper on ore 
prospecting and extraction methods. He made no mention at all 
of the environment or methods to mitigate negative 
externalities. In fact, among the investors only the 
Australians mentioned environmental concerns. After he spoke, 
two American academics in the environmental field gave a 
 
VIENTIANE 00000632  002.2 OF 003 
 
 
brave but hopeless soliloquy on mistakes made and lessons 
learned during mining in the Philippines. 
 
¶7. (SBU) In fact, the Lao Mining Law of 1997 provides, albeit 
in very general terms, for mitigation of environmental 
damage. There is even a provision for restoration of the 
topography to its original configuration, as well as for 
resettlement and compensation for villagers affected by 
mining operations - articles no one believes will ever be 
fully enforced. The law also identifies all the mineral 
wealth in the country as the property of the State, and 
subject to centralized management by the GoL, so there is 
little question of the mining sector becoming a spur to Lao 
private enterprise.  However, some Chinese and Vietnamese 
outfits pursue exploration and extraction without GoL input. 
 
Dig that coal, and get the lead out 
----------------------------------- 
¶8. (U) Coal and lead are growing in importance as exports to 
China (Lao anthracite finds a ready market in Yunan), with 
Chinese exploitation hampered only by poor infrastructure. 
Coal deposits in Vientiane Province alone are estimated at 
about 11 million extractable tons, requiring the removal of 
at least 25 million cubic meters of overburden in open pit 
operations. Plans are well under way for Chinese-Lao joint 
ventures to begin mining at three locations in the province, 
and coal exploration is on-going in Luang Prabang and 
Phongsali Provinces, as well. 
 
¶9. (U) A Lao lead mining company, financed with Chinese 
loans, is extracting lead and zinc at several points (Pha 
Deng and Pha Sot) in northern Vientiane Province. All this is 
for the Chinese market, hauled by trucks up torturous Route 
13, to the border with China.  Estimates for 2006 production 
levels are 20,000 tons of zinc and 10,000 tons of lead. Iron 
is mined in at least five locations in several northern 
provinces, with estimated reserves at those five places in 
excess of 4.4 million tons. Although there have been some 
Thai buyers in the past, all the iron is now being sold to 
Chinese. 
 
Obeisance to the Middle Kingdom 
------------------------------- 
¶10. (SBU) Laos has a new Ministry of Energy and Mines (MEM), 
intended to be a counterpart to other such ministries among 
the ASEANs.  As the new MEM Minister Bosaykham Vongdara 
presided over the opening of the GMS meeting on mining 
opportunities, it became immediately apparent that the 
meeting was a showcase for Yunan Chinese mining interests. 
 
¶11. (SBU) The representative of Australia's Oxiana Co. 
(currently the largest single mining operation in Laos, and 
having an interest in the Chinese market) praised the Chinese 
for their bold exploitation of minerals around the world and 
elicited some raised brows among the diplomats present by 
referring to China as East Asia,s natural hegemon, now at 
last returning to its historically rightful place at the head 
of the World Order. The proper economic role of the GMS 
countries in this order of things is that of supplier of raw 
materials to the Chinese economy. He bemoaned the slow pace 
at which raw materials are currently making their way 
northward from Laos and the other ASEANS.  In Laos, 
inefficient regulatory structures and poor infrastructure 
were the cause. 
 
Get on the stick, little comrades 
--------------------------------- 
¶12. (SBU) The President of the Yunan Chamber of Commerce then 
took the floor to describe the mineral-rich geology of Yunan 
Province and to boast of the number of international joint 
ventures under way there. He expressed interest in Lao coal, 
copper, and gold, and mentioned some 20 Yunan Chinese 
mining-related interests in Laos, including a new aluminum 
oxide operation. As he finished he snapped everyone to 
attention by forthrightly identifying the low level of 
efficiency among GoL officials as a main impediment to 
commerce. He encouraged Laos, and all the GMS countries, to 
do away with regulatory prohibitions, to develop 
infrastructure and transportation, to simplify customs 
procedures, and to offer more tax incentives for foreign 
mining companies. 
 
Comment: The Chinese are trying to corner the market 
--------------------------------------------- ------- 
¶13. (SBU) Marginally on the scene in Lao mining since the 
 
VIENTIANE 00000632  003.2 OF 003 
 
 
Soviets left, the Chinese are now moving in fast, with as 
many as 30 mining operations officially in the country, and 
probably quite a few others working underground. Their 
insatiable appetite for raw materials and the strategic 
proximity of Laos to their southern border make it inevitable 
that this undeveloped country will fall into the China,s 
orbit - indeed into its maw. The GoL does not have the 
finances or the expertise to exploit their own mineral 
wealth, and evidently has no intention of reforming their 
economy sufficiently to attract more socially or 
environmentally conscious investors. 
 
¶14. (SBU) The Chinese connection makes these things 
unnecessary. The prospect of large revenues untrammeled by 
outside scrutiny or interference regarding their use make 
this growing dependence upon China more congenial to the GoL 
than it would have been formerly, even to the cost of their 
erstwhile patrons, the Vietnamese (who also run a handful of 
mining and quarrying operations in the south-central part of 
the country). The North Koreans have mined for tin 
(allegedly) in Khammuan Province, but evidently have stalled. 
With their exploration teams looking for bauxite in the 
south, and with the whole survey and exploration concession 
for the north already sewn up, the Chinese have a clear field 
before them. They are already prospecting for gems, zinc, 
lead and tin in several provinces north-central provinces. To 
hear the Australians tell it, the Chinese have a corner on 
future concessions for extraction of precious minerals. 
 
HASLACH