World Bank Document

ReportNo. 1351-BA Burma Appraisalof the Tin and TungstenExpansion Project Public Disclosure Authorized

February8, 1977 Industrial ProjectsDepartment

FOR OFFICIAL USEONLY Public Disclosure Authorized Public Disclosure Authorized

Public Disclosure Authorized Document of the World Bank

Thisdocument hasa restricteddistribution and may be usedby recipients only in the performanceof their officialduties. Its contents may not otherwise be disclosedwithout World Bankauthorization. CURRENCYEQUIVALENTS

Except where otherwise indicated, all figures are quoted in Kyats (K) and US Dollars (US$).

K 1.00 = US$0.15 K 6.65 = US$1.00

ABBRIVIATIONSAND ACRONYMS

CIDA Canadian InternationalDevelopment Association DGSE Directorateof Geological Survey and Mineral Exploration Government Government of the SocialistRepublic of the Union of Burma KfW Kreditanstaltfur Wiederaufbau ITC InternationalTin Council LMB London Metal Bulletin LME London Metal Exchange LTPY Long tons per year MC2, the Corporation No. 2 Mining Corporation (formerlyMyanma Tin Tungsten Corporation - MTTC) MDC Mineral Development Corporation MEB Myanma Economic Bank IMEIC Myanma Export Import Corporation MMDC Myanma Mineral Development Corporation HOC Myanma Oil Corporation 1'PY Metric tons per year PTA Primary Tungsten Association UBB Union Bank of Burma UGCF Union Government ConsolidatedFund UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Program USBM US Bureau of Mines WBMS World Bureau of Metal Statistics

WEIGHTSAND MEASURES

1 Hectare = 2.47 acres 1 Kilometer (km) = 0.62 miles 1 Long Ton (LT) = 2,240 pounds 1 Long Ton Unit (LTU) = 1% of a long ton or 22.4 pounds 1 Meter (m) = 39.3 inches 1 Metric Ton (MT) = 2,205 pounds 1 Metric Ton Unit (MTU)= 1% of a metric ton, or 22.05 pounds 1 Picul (Pikul) = 133.33 pounds

FISCAL YEAR

April 1 - March 31

Industrial Projects Department February 1977 FOR OFFICIAL USE ONLY BURMA

APPRAISAL OF THE TIN AND TUNGSTEN EXPANSION PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ...... i-iii

I. INTRODUCTION ...... 1

II. THE MINERAL SECTOR .. * * * * * * * ...... 1

A. Present Position and Recent Trends ...... 1 B. Impact on the Economy ...... oe.... o...... 2 C. Structure .. .. *...... o ...... 3 D. Legislation and Operational Guidelines for the Sector ...... 3 E. Mineral Potential and Exploration a... 4...... 4 F. Planned Sector Investment and Needs ...... 4

III. THE MARKET ...... o.o...... 6

A. The International Tin Market ...... 6

1. International Demand and Supply ...... 0 ...... 6 2. International Tin Agreements ...... 7 3. Price Structure and Projections 8...... 8 4. Marketing Arrangements ...... 8

B. The International Tungsten Market ...... 9

1. International Demand and Supply ...... 9 2. Price Structure and Projections ...... 10 3. Marketing Arrangements ......

IV. THE CORPORATION ...... 1

A. Operations ...... o .o. 11

1. Mining Facilities and Output ...... 11 2. Production Costs ...... 12

B. Past Performance and Financial Condition ...... 12 C. Organization and Management ...... *.... 15 D. Accounts and Audit ...... 16 E. Ore Reserves ...... 16

This report was prepared by Messrs. H.E. Wackman, R. Rodger, and S. Greig of the Industrial Projects Department and Mr. A. Freyman (Consultant).

This document has a restricted distribution andmay be usedby recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -2-

Page No.

V. THE PROJECT ...... **...... **...... 16

A. Technical Description ...... 17

1. Heinze Basin Dredging Project and Concentrator. 17 2. Central Concentrator at Tavoy ...... 18 3. Gravel Pump Mining Project ...... 19 4. Technical Assistance ...... *...... 19 5. Other Expansion Plans.. 20 6. Sector Study ...... 20

B. Environmental Aspects ...... 20 C. Capital Costs...... 20 D. Financing Plan . ... 22

VI. PROJECT IMPLEMENTATION... .o...... 23

A. Project Organization and Management 23 B. Project Schedule ...... 23 C. Procurement ...... o ...... 23 D. Allocation and Disbursement of IDA Credit ...... 24

VII. FINANCIAL ANALYSIS ...... 24

A. Project Operating Costs and Revenues .24 B. Financial Rate of Return 24 C. Break-Even Point ...... 25 D. Overall Profitability ...... 25 E. Financial Position and Covenants ...... 26 F. Major Risks ...... 28

VIII. ECONOMIC JUSTIFICATION ...... 28

A. Economic Rate of Return ...... 28 B. Foreign Exchange and Other Benefits .... o ...... 29

IX. AGREEMENTS...... 29

ANNEXES

1 Glossary of Technical Terms

2 The Burmese Mineral Sector

3-1 The Tin Market 3-2 The Tungsten Market - 3-

4-1 Description of Operations 4-2 HistoricalFinancial Statements 4-3 Organizationand Management

5-1 Description of the Project 5-2 Capital Costs

6-1 Project Organizationand Management 6-2 Terms of Reference for Consultants 6-3 Project Schedule 6-4 Allocationof IDA Credit 6-5 DisbursementSchedule

7-1 Detailed Operating Costs 7-2 Breakeven Point 7-3 FinancialRate of Return and SensitivityAnalysis 7-4 AssumptionsUsed in Financial Projections 7-5 Projected Income Statements 7-6 Projected Sales 7-7 Projected ProductionCosts 7-8 ProjectedOutput by Mine 7-9 Projected Balance Sheets 7-10 Projected Sources and Applications of Funds 7-11 Capital Cost Estimates 7-12 Working Capital Requirements 7-13 DepreciationSchedule 7-14 Debt Repayment Schedule

8-1 Economic Rate of Return and SensitivityAnalysis 8-2 Estimated Foreign Exchange Savings

MAPS

IBRD 12322 - Main Mining Centers and Deposits IBRD 12524 - Tenasserim Division

BURMA

APPRAISAL OF THE TIN ANDTUNGSTEN EXPANSION PROJECT

SUMMARYAND CONCLUSIONS i. The Government of Burma and the No. 2 Mining Corporation (formerly the Myanma Tin Tungsten Corporation)have requested a US$16 million credit for a project to reintroducedredging to the tin mining industry of Burma. The project would include a dredge and associated beneficiationand infrastructural facilities,gravel pump mining equipment, and a central concentrating plant designed to upgrade tin and tungsten ores from various mines. The project is located about 300 km south east of Rangoon in the Tenasserim Division of Burma. Output of tin concentrates (about 75% tin) would be expanded by about 800 long tons per year (LTPY) and the improved upgrading facilitieswould produce better quality, higher grade tin and tungsten concentrates than are presently produced, thus making them more marketable and able to bring higher prices. Also included in the project is a study of the future developmentof the mineral sector, with a view to the identifica- tion of further projects. Financing requirementsfor the project are estimated at about US$28 million. ii. Burma's mineral sector has considerablepotential for expansion, but it has experienceda long period of decline due to war damaged facilities, nationalizationof private mining interests,a lack of technical expertise and investment capital, and the smuggling of mineral products, an activity made attractive by the distorted exchange rate for the Burmese kyat. Nearly all of the sector's output is exported, and although foreign exchange revenue for minerals presently constitutesonly about 7% of total export earnings, it has significantpotential for expansion,particularly in tin, tungsten, copper, lead, zinc, gems, jade and antimony. iii. At present, no foreign investment is allowed in mining. There has, however, been increased sector activity in recent years, particularly with technicalassistance from Germany, Japan and the UNDP. Numerous studies have been done but few projects have as yet entered the execution stage. The best prospects include the proposed tin and tungsten expansion, and developmentof the existing Bawdwin lead/zinc/silvermine, which is the country's largest mining operation,but which has serious operating and financial difficulties. Large projects are difficult to put together due to the lack of project preparationexperience in the country, the problem of obtaining sufficient funds given the shortage of domestic resources, and the reluctance of the Government to come to firm agreements on project priorities, financing sources, and the extent and nature of foreign participation. Otler problems affecting investment in the sector are insurgency activities in certain parts of the country, the above-noted distorted exchange rate for the kyat, and the high tax levels which have recently been introduced on imported equipment and production. Projects which may have very attractive returns to the economy tend to be somewhat marginal financially,a situation which could act against stimulatingthe interest of prospective - ii -

financing institutions,and which could lead to a misallocationof resources in the economy.

iv. There are five mining corporations;they are all Government owned and operate under a system of highly centralizedfinancial and managerial control, with all policy decisions being made at the level of the Minister of Mines or the Economic Committee of the Council of Ministers. There have been some recent measures to extend more autonomy and responsibilityto the corporationsbut steps to put these intentions into practice will likely be slow and cautious, since both the Government and the corporationsare so accustomed to close control that it will likely be some time before much autonomous behavior results. v. The No. 2 Mining Corporationis the best prospect for IDA participation in the mining sector at this time. Its senior staff are technically competent and experienced in tin mining. The Corporationhas adequate proven reserves for further expansion and it is in a financiallysound position. Furthermore,its operating costs are in the lower range of international tin and tungsten mining costs and should continue to be at a competitive level even after some capital intensivemechanization, which is a pre- requisite for obtaining a higher value product. The technology being used in the project represents a degree of modernizationappropriate to the Burmese situation, and will be introduced in conjunctionwith a reasonable level of outside technical assistance. With the start-up during 1977 of a KfW- financed expansion of one of its major tin mines, the Corporationis expected to be in a strong position to continue its expansion with the IDA-financed project. vi. It is expected that tin demand will show modest growth, supply/ demand will be in reasonablebalance, and that there will be continuance of a modest long term upward trend in real tin prices. InternationalTin Council buffer stock operations should also, in the future, moderate international price fluctuations,especially on the downside. Demand for tungsten is expected to continue strong and the price outlook is good. Prices may well be more stable in the future, with some prospects for producer cooperation on stabilizing prices. Even with the proposed expansion, Burma will still be a very minor supplier to the internationalmarkets for both tin and tungsten. With the improved product quality that will result from the project, the country should be able to market its concentratesreadily. vii. The project is not overly complex, and is based on feasibility studies which incorporateMalaysian experience under very similar operating conditionsand with very similar ores. Although the Corporationis inexperienced in dredging and the operation of more modern facilities,the involvementof experienced consultantsthroughout the project, and operational supervision for a minimum of two years after start-up should minimize the technical risk. Also included in the project will be overseas training of the key Burmese technicians. Ore reserve estimates are conservative, and operating assumptionsmake due allowance for Burmese conditions. - iii -

The project execution time is fairly short (about 3 years with the gravel pump mining componentsperhaps coming on-stream sooner), and all facilitiesare expected to be in operationby early 1980. viii. The project will be financed by the proposed IDA credit (US$16.0 million), the Corporation'sinternal cash generation (US$5.8million), and Government funds (US$6.0million) to be provided either in the form of equity or debt. The credit will finance the c.i.f. value of imported equipment and machinery and the foreign exchange costs of the consultancyassistance, but no local expenditures,which will all be covered by Government/Corporation resources. All imported goods will be subjected to internationalcompeti- tive bidding, except for some small items of highly specializedequipment, estimated to total about US$1.0 million, for which internationalshopping will be used.

ix. The financial situation of the Corporation is projected to be sound both during and after project execution,although the financial rate of return is expected to be only 10% after the commodity tax on production value (13.7%before the tax). These low returns are due to the very high tax burden, the distorted exchange rate, and lower grade reserves which will be encounteredby the dredge in the later years of operation. Nevertheless,the economic rate of return is estimatedat 21%. Net foreign exchange benefits to the economy are projected to average US$4.6 annually (in real terms) over the project life and substantial additional revenues will accrue to the Government through import and production taxes and from interest on the on-lending of the credit proceeds. Wider economic benefits will result through some increased employment, the technical training involved, and the inclusion of infrastructural facilities in the project. Overall, the project will represent a substantial forward step in the rehabilitationof Burma's tin industry,and make a valuable contribution towards reversing the long downward trend in the sector, which has the potential for a greatly expanded contributionto Burma's economic development.

x. The risks of this project are basically threefoldand acceptable. First, the Corporation is inexperiencedin dredging and the more modern concentratingoperations to be introducedand certain weaknesses exist in project implementationmanagement; these are intended to be overcome by the provision of experiencedassistance in these areas. Secondly, tin and tungsten prices could be lower than projected. Offsetting this risk is the influence of the InternationalTin Council, the prospects of increasedcooperation among tungsten producers, and the important fact that the Corporationis a producer of both tin and tungsten whose prices do not necessarilyfollow identical trends and have good long term prospects. Thirdly, potential insurgency activities present some risk, but these have been kept under control in the area and the nearby KfW project has not been affected adversely.

xi. Based on the agreements summarized in Chapter IX of this report, the project is suitable for an IDA credit to the Governmentof Burma of US$16 million equivalent,with onlending to the No. 2 Mining Corporationof US$15.8 million equivalentfor a period of 15 years, including 5 years grace, at 10% interest per annum, and US$0.2 million equivalentused by the Governmentto finance the mineral sector study.

I. INTRODUCTION

1.01 The Government of Burma and No. 2 Mining Corporation (MC2), the Government-ownedtin and tungsten mining company, have asked IDA for a credit of US$16 million equivalent,US$15.8 million equivalentof which would finance the foreign exchange costs of a project to expand production of tin concentrates by 800 long tons per year (LTPY). The remaining US$0.2 million is for a study of the future developmentof the mineral sector. The tin/tungsten project, which is estimated to require financing of US$27.6 million equivalent, is located in the TenasserimDivision of Burma (Map IBRD 12322) about 300 km. south east of Rangoon.

1.02 The project was appraised in Burma in March and August 1976 by missions consisting respectivelyof Messrs. H.E. Wackman (Chief)and R. Rodger of the Industrial Projects Department and Mr. A. Freyman (Con- sultant),and Messrs. Wackman and Greig (IndustrialProjects). A glossary of technicalterms is contained in Annex 1.

II. THE MINERAL SECTOR

A. Present Position and Recent Trends

2.01 Based on official statistics (below and Annex 2), Burma's mineral production is presently less than one-tenth of pre-World War II levels. While inclusion of smugglingactivities in the figures would increase reported production in recent years by perhaps as much as 40%, the long-term sectoral decline is obvious.

Production of Major Minerals in Burma

(000's long tons)

FY 1939 FY 1962 FY 1971 FY 1975 FY 1976

Tin Concentrates 5.4 0.9 0.5 0.5 0.6 Tungsten Concentrates N/A /a 1.5 0.3 0.6 0.5 Tin/TungstenMixed Concentrates 5.6 N/A /a 0.4 0.4 0.4 Silver (millionounces) 6.2 1.4 0.8 0.4 0.2 Refined Lead 77.0 16.6 8.7 4.9 2.4 Zinc Concentrates 61.7 14.2 7.0 5.1 4.4

/a Not available.

2.02 Burma holds a very minor position in the world productionand trade of mineral products although nearly all of its non-fuel mineral output is exported. It currently accounts for less than 1% of world tin production, about 1.5% of world tungsten production, and under 0.2% for zinc, lead and silver. -2-

2.03 Despite considerablepotential for development,much of the mineral sector remains in the decimated state which resulted from the War. No significant new mines have been opened for 40 years, reflecting the progressive Government take-over of private activities (especiallyduring the 1950's and 60's), which are now limited to illegal mining and tribute mining 1/ of tin and tungsten by small groups of individuals. Overall, the Government has emphasized investment in other sectors which, combined with the shortage of foreign exchange, has left the mining sector with poor and outmoded plant and spare parts shortageswhich hamper operations. Other factors contributing to the decline of mining in Burma include: the lack of experience in project preparation and execution; extensive insurgency activities in large areas of the country where minerals can be produced; labor shortages at some mines due to low wages and more attractive alternativesincluding illegal mining and trade; and a distorted exchange rate for the kyat which is partly responsible for the financialweakness of mining corporations,results in marginal financial returns for most new projects, and encourages diversion of a significant proportion of sector output into illegal trading. The Bank is discussingwith the Burmese authoritiessteps, including price adjustment,by which the illegal flow of tin and tungsten can be directed to official purchasers.

2.04 Government policy does not allow direct foreign or private participation in developmentof the sector -- an exceptionhas been the recent advent of joint ventures in petroleum exploration involving foreign oil companies. In the non-petroleummining sector, however, foreign participationhas been limited to bilateral and multilateraltechnical assistance and financialaid. This has picked up in recent years and should result in a reversal of mining's long-term downtrend. Agencies which have been particularlyactive are: KfW of Germany, Metals Mining Agency of Japan, UNDP, Canadian InternationalDe- velopment Association (CIDA) and, with the proposed project, IDA. While a reasonabledegree of technical competenceexists at various levels in the sector's institutions,management abilities are limited by a lack of innovation and initiative. Substantialprojects in the sector could not be adequately prepared and implementedwithout extensive outside technicalassistance in addition to the essential outside financialresources.

B. Impact on the Economy

2.05 While the mineral sector in Burma contributesslightly over 1% of GDP and less than 1% of official employment,mineral exports average about 7% of total export value. Domestic consumptionof the metallic minerals produced is negligible. There are no substantialsmelting, refining or other value-adding facilitiesother than an antiquated lead/zincsmelter. Despite the relatively low level of employment (about 28,000 workers), the sector provides employment opportunitiesin areas of the country where these are often limited. Although there is little scope to increase the relative impact of the sector on employment,the opportunityfor increased foreign exchange earnings from expanded sector output is substantial(para 2.15).

1/ Tribute miners are independentindividuals who work tin/tungstendeposits under the loose supervisionof MC2's staff, and sell their production to the Corporation. Part of their output is undoubtedlysmuggled out, however. -3-

C. Structure

2.06 A small number of government corporations,which are essentially part of the Ministry of Mines, are responsible for all official production of minerals. These include: the Myanma Bawdwin Corporation (now No. 1 Mining Corporationor MCI) responsiblefor lead, zinc and silver production,with .50%-60%of sector output; the Myanma Tin Tungsten Corporation (No. 2 Mining Corporation),responsible for tin and tungsten production with 30%-40% of sector output; the Myanma Mineral Development Corporation (No. 3 Mining Corporation),responsible for production of antimony and coal and the development of copper deposits; the Industrial Minerals Corporation (No. 4 Mining Corporation),responsible for production of limestone, gypsum and other non-metallicproducts; and the Gem and Jade Corporation,responsible for production and marketing of jade, rubies, pearls and other gems.

2.07 There are two main supporting entities within the Ministry: The Department of Geological Survey and Mineral Exploration (DGSE),responsible for explorationand geological studies; and the Department of Planning and Works Inspection,responsible for mine inspection,safety, planning and statistics. The Myanma Oil Corporation (MOC) is charged with oil and gas exploration and production. The Myanma Export Import Corporation (MEIC),a part of the Ministry of Trade, was responsiblefor all export sales of metallic products until late 1976, but this function has now been vested in a Minerals Marketing Committee which is jointly administeredby the three metal producing corporations;i.e. Mining CorporationsNos. 1, 2, and 3.

2.08 Although called corporations,their status as separate legal entities is vague and they have extremely limited autonomous power. There are no shares or similar instruments,ownership is by the people, and effectively control is vested in the State. In the past, all revenues have gone to the Union Government ConsolidatedFund (UGCF),with operating and capital expenditures being drawn from the Fund under extremely rigid budgets approved by the Government. Overall, the corporationshave had little effective control over their financial resourcesand the UGCF has been the sole source of finance other than a few bilateral credits on-lent through the Union Bank of Burma. The responsibilitiesand powers of the mining corporationshave been purely operational and all policy decisions have been taken by the Minister of Mines or the Economic Committee of the Council of Ministers. Some liberalizationof this highly centralizedmanagement and financial control is envisaged under new guidelines described below.

D. Legislation and OperationalGuidelines for the Sector

2.09 When the agency formerly responsiblefor all mining activities in Burma (the Mineral Development Corporation)was subdividedin 1972, legislation was approved for each new corporation,outlining its powers and responsibilities. In MC2's case (the entity responsiblefor executingthe proposed project), this was contained in the Myanma Tin Tungsten CorporationAct of 1974. In May 1975, "StandardGuidelines for the Operationof State Economic Enterprisest' were issued by the Ministry of Planning and Finance. Under these guidelines,more autonomy and financialresponsibility is intended to rest with the corporationsand new fiscal and financialmeasures are being -4-

introduced. While the system of annual budgets is to be maintained, the UGCF fund has been discontinued. Corporations now have their own bank accounts and will meet operating expenditures out of their own receipts.

2.10 Part of net cash generation can now remain with the corporations to offset a portion of fixed and working capital needs. Capital expenditures will no longer be met through interest-free budgetary allocations; necessary funds must be borrowed from the newly-formed Myanma Economic Bank. Each enterprise is set an annual operating ratio target (defined as the ratio of operating expenditures to revenues) to be used as one of the bases for the new employees' bonus system. Producing corporations also now have more influence over their own marketing (para 4.15). There will also supposedly be more recognition of foreign exchange earners in the allocation of the country's scarce foreign exchange resources. The changes are being introduced cautiously. Although implementation commenced in April 1976, the Government and the Corporations are so accustomed to close control that it will likely be some time before much autonomous behavior results.

E. Mineral Potential and Exploration

2.11 Burma has a highly varied and favorable mineral endowment which justifies a strong effort in mapping and exploration. There have been numerous foreign technical assistance missions in this respect adding to the resources assessment from the pre-War Geological Survey of India work and post-War work by the DGSE and forerunner organizations.

2.12 Due to insurgency problems, however, large tracts of the countuy have not been geologically mapped or prospected in any detail, and geological missions are assigned only "secure" areas for exploration. A systematic inventory of mineral reserves which would certainly aid sector development strategy thus has not been developed. The priorities for exploration are tin/tungsten, lead/zinc, copper and nickel, a ranking consistent with the exploitable potential of Burma's known mineralization. Known reserves alone have an estimated potential export value of some US$1.5 billion at present mineral prices.

F. Planned Sector Investment and Needs

2.13 Given mining's potential for augmenting Burma's foreign exchange earnings, the Government has given high priority to the sector and recent policy has opened the way for external technical assistance and finance. Significant contributions have come from the Federal Republic of Germany (Heinda Tin Mine Expansion, exploration and geological work in tin and lead/ zinc, and appraisal of a project at the Bawdwin mine); Japan (appraisal of a copper mining and concentrator project at Monywa); and the UNDP (a number of projects in exploration, feasibility studies and training). A number of other countries have also provided technical assistance, but apart from the Heinda expansion, no significant new development has resulted so far.

2.14 The Government's near-term development strategy is to: rehabili- tate old tin tungsten mines and the Bawdwin lead/zinc/silver mine; exploit -5- the Monywa copper deposit; commence tin dredging at Heinze Basin (the project here considered) and carry out a number of smaller projects in antimony, gemstones and tin/tungsten. These priorities are sound but realization is likely to be slow due to shortcomingsin project preparation and execution abilities, the limited foreign exchange resources that can be attracted, and the limited local funds available. The distorted exchange rate for the kyat compounds the above difficulties. For example, following a recent appraisal, a bilateral institutiondecided to scale down drasticallyits financing of a limited modernizationproject at Bawdwin, partly for security reasons, but also due to its poor financial return. In addition, both Monywa and Heinze Basin are financiallymarginal projects even though reasonable shadow-pricing of foreign exchange costs and benefits produces very attractive economic returns. For significantredevelopment of the sector to take place some means of augmenting the foreign exchange revenues of export-orientedprojects and institutionsmay have to be found.

2.15 Despite the above-mentioneddifficulties, the sector has the potential t6 approach an export level of US$35 million (1976 prices) by FY 1981, from US$19 million in FY1974, assuming the envisaged expansion and product quality improvementin tin/tungsten,tighter security over gem production, improved gem marketing procedures,and some expansion in antimony. By the mid-80's, exports could approach US$100 million annually assuming two major projects like Monywa or Bawdwin are executed, or one of these is done in parallel with minor improvementsin, for example, tin/tungsten,gem stones, jade, or antimony. Growth of this latter magnitude is not conditionalon new mineral discoveriesbut would require sector investment of at least US$200 million (1976 prices) over the next 5-10 years combined with technical assistancefor project preparation,execution and early operation. Potentialwould be substantiallygreater if illegal exports could be brought into the official sector and more active foreign participationwere allowed.

2.16 While the development impact of larger sized projects is greater, execution could overtax Burma's limited financial, technicaland managerial resourcesand require a level of outside technical participationwhich would be unacceptableto the Government. The Government intends to push for implementation of a number of projects, both large and small, but the limitations outlined may force it to be very selective in those chosen for advancement. Also, despite the expressed interest of certain bilateral financing sources, the Government has been slow in pushing potential projects to the execution stage.

2.17 The Bank's role in sectoral development could be threefold. First priority should be in financing specific projects such as the proposed tin/ tungsten expansion, thereby establishinga record of successful experience in the sector. Second, the Bank can, through consultants,help to identify and select developmentpriorities from the longer term alternatives. Part (US$200,000equivalent) of the proposed credit will be used for this purpose (para. 5.16). Third, the Bank could act as a catalyst for other sources of finance to enable larger projects to be undertaken, quite possibly under joint/parallelfinancing arrangements. The newly-formedAid Group for Burma is expected to serve as a useful coordinatingmechanism in this respect. -6-

III. THE MARKFT

3.01 The internationalmarkets -or tin and tungsten, including mineral reserves, uses, and past and future trends in production, consumption and prices are described in detail in AunL-xes3-1 and 3-2 respectively.

A. The InternationalTin Market

1. InternationalDemand and Supply

3.02 Demand: Tin is a malleable and ductile white metal primarily used in improving the properties of other materials. About 95% of tin consumed is in metallic form, with developed countries accounting for 75Z of world consumption. Tinplate and solders are the most important outlets for tin metals, accounting for about 47% and 23% of all tin consumed in industrializedcountries. Between 1955 and 1972-74, consumption of tin grew at 1.7% per annum. This low rate of growth reflects, in part, the substitution of tinplate in cans by tin-free steel and aluminum. Also, technical innovationshave reduced the amount of tin contained in tinplate. Of the other important end-uses, solder expanded quite slowly in the post-war period, while the use of tin in bronze and brass declined sharply.

3.03 Future demand will continue to depend to a large extent on tinplate for containers. In developed countries, it is expected that the container industry will continue to grow steadily, but technologicalsubstitution will allow only a modest growth in tin use. In developing and centrally planned economies, the substitutioneffect will be more moderate and tin demand growth should be proportionatelygreater. Overall, world demand is projected to increase at only 1.5% per annum between 1972-74 and 1985, and will likely be below this trend rate until the late 1970's. There- after, the effect of lower real prices (para 3.06) should stimulatedemand growth.

3.04 Supply: Tin is mainly found in placer or alluvial deposits, derived from the weathering and erosion of primary tin ores. Over 90% of global reserves are concentratedin developing countries, which account for about 75% of world production. Malaysia has remained the dominant producer, with 37% of world mine production of 173,000 tons in 1975 (excludingcentrally planned economies). Bolivia, Indonesia and Thailand are the other major producers, with 17%, 14% and 10% of mine production respectivelyin 1975. South-East Asian production is almost entirely from alluvial mines, employing dredging, gravel pump mining and other hydraulic mining methods, but Bolivian production is mostly from high-cost hard rock undergroundmines. In the past, tin supply has been affected by sales from the U.S. Government stockpile,which is presently equivalent to about one year's world consumption. In addition, scrap representsa significantportion of supply, especiallyin the U.S. where old scrap accounts for 15% of tin supply.

3.05 As Malaysian reserves are gradually being depleted, that country's output is expected to decline as a proportion of world production,with Thailand, Indonesia, Australia and Brazil increasingtheir share accord- ingly. As for Burma, even with the planned increase in official output -7- over the next five years, it will still account for only 1% of world supply. Moreover, the output associatedwith the project will amount to only 1/4 of 1% of world supply and 10% of the annual incrementalworld' consumption at the time the project comes on stream.

3.06 Historically,tin production has followed (with a certain lag) movements in real prices. Based on the relatively high prices of the past three years, tin production is forecast to increase at an annual rate of 2.0% from the 1972-74 base through 1980. This, combined with slow demand growth, could result in a supply surplus in the late 1970's and a consequent decline in real prices at that time. Beyond 1980, demand growth is expected to outstrip supply (which can be assumed to decline slightly in response to the decline in real prices) with possible tin shortages developingby the mid-1980's, as shown below.

World /a Production and Consumptionof Tin Metal

Average Actual Projected Growth Rates 1960-62 1972-74 1981 to to to 1960-62 1972-74 1980 1985 1972-74 1980 1985

(000'smetric tons) (% per annum)

Production 186.9 226.5 260.0 254.0 1.7 2.0 -0.5 Consumption 201.3 232.5 250.0 280.0 1.2 1.0 2.3 Surplus (Deficit) (14.4) (6.0) 10.0 (26.0)

/a Including estimates for Centrally Planned Economies.

2. InternationalTin Agreements

3.07 The Fifth InternationalTin Agreement came into force July 1, 1976, under the auspices of the InternationalTin Council, seated in London. This event was particularlysignificant as the U.S. is included for the first time, thereby increasing the proportion of world consumptionrepresented by consuming members to over 90%--it had only been 66% during the Fourth Agree- ment (1971-76). Tin producing members produce 90% of world tin output. For the time being, Burma has elected not to become a member of the ITC. Since the country represents such a small proportion of world output, non- membership has not had in the past and is not expected in future to have a material impact on its ability to sell its production,even in periods of over-supply. The Bank has informed ITC of its considerationof the project.

3.08 Through the ITC buffer stock, and with the cooperationof the producing countries in the control of exports, the amplitude of potentially violent price fluctuationsin the world tin price is reduced. The present buffer stock ceiling price is about US$3.93 per lb. and the floor price about US$3.19 per lb. The Buffer Stock Manager must always sell tin when the market price reaches the ceiling and always buy when it reaches the floor. These activitiesprobably had an effect in lessening the impact of the recent world economic decline on internationaltin prices. For the future, it is expected -8- that ITC buffer stock and export control operations will continue to have a moderating influence on tin price fluctuations, and, particularly in down markets, in defending floor prices.

3. Price Structure and Projections

3.09 Tin is traded in variously processed forms on the Penang or Straits Market (Malaysia), the London Metal Exchange (LME), and the New York Commodity Exchange (COMEX). Concentrate prices are based on the traded prices for contained metal, less adjustments for smelting charges, shipping, impurities, and assay costs.

3.10 The tin price has generally trended upwards in real terms over the past 15 years, with extreme upward fluctuations occurring during the Malaysia- Indonesia confrontation (1964-65) and the surge in energy prices and world inflation (1973-74). The LME tin price averaged an all-time high in 1974 but, since then, prices have eased somewhat both in real and current terms. For the future, prices are expected to increase moderately in real terms from 1976 to 1978, as world demand recovers from the 1974-75 slump. On account of the small excess supply expected for the late 1970's (para 3.06), real tin prices could decline briefly. During 1980-85, prices should again move upward in real terms, reflecting the lagged response of mine production to the downward price movement in the late 1970's. Past and projected prices are given below:

Historical and Projected Average Tin Prices (US$ per pound: LME)

…------…Actual------Projected---- 1961 1965 1970 1974 1975 1976 1978 1980 1985

Current Price 1.13 1.77 1.67 3.72 3.11 3.44 4.14 4.60 7.37 Constant Price (1976 terms) 2.70 4.12 3.42 4.54 3.31 3.44 3.53 3.42 3.90

4. Marketing Arrangements

3.11 Malaysia, Indonesia and Thailand all have sufficient tin smelting capacity to handle their own mine output of concentrates. Of the major producers, only Bolivia is an exporter of concentrates, although it is presently expanding its smelting capacity. In the past, tin mining countries have added smelting capacity to treat their own concentrate output, with the result that there is considerable excess tin smelting capacity in the world. This, combined with reasons of economies of scale, makes it more economical for smaller producers of concentrate, such as Burma, to export tin in concentrate form. The most advantageous marketing method is generally to arrange smelter contracts for a year's or more concentrate production, but the ability to do this successfully depends partly on the reliability of supply and the level and reliability of the concentrate grade and quality. The proposed project would enable Burma to meet these requirements and thus market its tin concentrates to greater benefit than in the past. -9

B. The InternationalTunRsten Market

1. InternationalDemand and Supply

3.12 Demand: Tungsten is a heavy, hard, heat and corrosion resistant metal, with the highest melting point and tensile strength of all metals. It also has good electrical and thermal conductivityand a low thermal expansion coefficient. Tungsten's major uses are in carbide form (e.g. 45% of U.S. consumption)for machine tool cutting edges, dies, rock bits, ball point pen tips, gas turbine blades, and tire studs. In steel alloy form (25% of U.S. consumption),it is used primarily in metal working (drillingand cutting), grader blades, rock crusher jaws, and teeth for excavators. Other applicationsinclude: tungsten alloys for incandescentlamp filaments and electrical contact points, and tungsten chemicals for textile dyes, paints and pigments, and glass manufacture.

3.13 Demand is closely linked to levels of activity in the steel and machine tool industries. The U.S., Japan, and Western Europe account for 80% to 90% of tungsten consumption outside the centrally-plannedeconomies. Despite wide fluctuations(e.g. a 23% decline in 1975 consumption)with changes in economic activity, world consumptionhas grown at about 4% per annum from 1966 to 1974. Demand is expected to recover over the next couple of years, with the 4% growth rate to resume, given the low substi- tutability of the metal in its major applications,even at higher prices.

3.14 SupPly: Tungsten mainly occurs in nature as wolframite or scheelite, and is commonly found in associationwith other metals such as tin, molybdenum,copper, and bismuth. Most of it is mined in hard rock underground mines, but some is also obtained by alluvial methods in conjunction with tin mining, as is the case in Burma.

3.15 The centrally-plannedeconomies account for about half of world tungsten production of 38,000 tons and hold about 70% of known reserves. The People's Republic of China accounts for about half of world reserves and produces about 25% of world supply. Among the non-centrallyplanned economies, the leading producers are the U.S., South Korea, Bolivia, Thailand, Portugal, Canada and Australia.

3.16 Production in market-economy countries, together with imports from China, has not been sufficient to meet demand in recent years. The shortfallhas largely been met by sales from the U.S. Government stockpile, where disposals over the past ten years, though fluctuatingwidely, have averaged 12% of annual world productionwith a peak of 53% in 1969. Under these circumstances,fluctuations in supply from China can and have had a major impact on price. Recently, price levels have stabilized at fairly high levels, partly due to some attempts at increased cooperationbetween producers, with China's support. Expansion of mine production should result. New or expanded mines are being developed in the U.S., Australia and Turkey, and there are possibilitiesin other countries, including Bolivia, Canada, and in the longer term, in Burma. While data is incomplete, old scrap probably accounts for 15% of annual tungsten supply.

3.17 Producers' Association: In recent years, an ad hoc committee on tungsten under the United Nations Conference on Trade and Development - 10 -

(UNCTAD)has become more active, with some movement toward an international agreement aimed at stabilizing prices. To this end, the Primary Tungsten Association (PTA) was formed in 1975, involving producing companies from Peru, Portugal, Australia, France and Bolivia. Significantly,China was a participant in multilateral government meetings on tungsten held in Bolivia in 1975 and is participatingon the UNCTAD tungsten committee, which last met in Geneva in November, 1976. The UNCTAD commitee members hold disparate views on the approach to stabilizationmeasures. Obstacles to some form of final agreement revolve around the fact that tungsten is traded in several forms, as well as the need to achieve consensus between market and centrally-planned economies.

2. Price Structure and Projections

3.18 International trade is often on the basis of prices quoted in the London Metal Bulletin (LMB). The LMB publishes a tungsten ore-users index which is a weighted average of the prices of all purchases made by a group of European tungsten carbide manufacturers. The LMB quotations are given for wolfram and scheelite (65% W03 and 70% W03 respectively). It also publishes price ranges based on surveys of representativesales usually through metal trading companies. This is widely used as a basis for spot sales or longer-term contracts. Production is commonly sold in pounds sterling per metric ton unit (MTU) or U.S. dollars per short ton unit (STU) of 65% W03 content. The approximatevalue of a ton of ore or concentrate is obtained by multiplying the price per ton unit by the percent W03 content (or grade). A ton unit is one hundredth of a ton.

3.19 Prices historicallyhave shown erratic movements with fluctuations of 100% or more in a year not uncommon. Overall, however, the trend in real prices has been upwards reaching a peak in 1970 (see below). With high prices and poor economic conditions in the latter part of 1974, consumers of tungsten reduced their inventory levels. In response, China cut back exports sharply thereby maintaining prices. Even at present levels, real prices are well below those reached in 1970 and equivalent to those prevailing in 1967-69.

3.20 With recovery in world economic activity in 1976, tungsten demand has been increasing during the year. As a result, prices can be expected to maintain their level of the last two years, or increase slightly. Over the longer term, the prospects of increased Chinese cooperationwith other producers look favorable, and would serve to attenuate the violent price fluctuations of the past. This assumes that sales from U.S. Government stockpiles will roughly reflect market requirements. The long term price trend is thus projected to be slightly upward in real terms as illustratedbelow:

Historical and Projected Average Tungsten Prices (US$ per MTU: LMB)

Actual Projected 1961 1965 1967 1970 1972 1975 1976 1978 1980 1985

Current Price 16.9 28.8 49.6 74.3 35.9 91.3 102.0 121.0 146.3 213.2 Constant Price (1976 terms) 40.3 67.0 112.0 151.9 63.5 97.2 102.0 103.3 108.6 112.9 - 11 -

3. Marketing Arrangements

3.21 The volume of trade in tungsten is small, and there is no universally acknowledgedmarketing system as there is for many other metals. Fur- thermore, there is no real trade in tungsten metal itself but rather in various forms such as concentratesor carbides. Concentratesare mainly bought and sold through brokers or metal trading firms, and small suppliers such as Burma generally market their concentrateson a negotiated basis for each sale to metal trading companies. Even Chinese sales and purchasesby major consumersare done substantiallythrough traders. However, provided that reliable supply, quality and grade can be maintained, there is some scope for longer-term contract sales of tungsten concentrate,as for tin.

IV. THE CORPORATION

A. Operations

1. Mining Facilities and Output

4.01 No. 2 Mining Corporation (MC2) conducts mining operations in two separate parts of the country -- the Tenasserim Division in extreme south- eastern Burma (major mines: Heinda, Hermyingyi, and Kanbauk), and the Mawchi area northeast of Rangoon (MawchiMine). Overall, MC2 operates 7 mines with a number of scattered smaller sites being worked exclusivelyby tribute miners. Primitive concentratingfacilities exist at 6 mines and additional upgrading plants are located at Rangoon and Tavoy (Annex 4-1). Over 75% of the concentratesproduced by MC2 are purchased from tributers. These concentrates generally contain a minimum 65% tin-ore/wolframand are further upgraded by MC2 before sale.

4.02 Production is well below what it was many years ago and has been declining further in recent years. The causes have been the same as for the rest of the mineral sector (para 2.03), i.e. war damage, ousting of private operations,deterioration of plant and infrastructure,shortage of spares and capital, and increased leakage of tributor output through smuggling. The table below illustrates the trend in recent years:

MC2: Historical Production of Concentrates (Long Tons)

FY 1972 FY 1973 FY 1974/- FY 1975 FY 1976

Tin Concentrates 643 514 230 529 608 Tungsten Concentrates 815 817 335 603 492 Mixed Concentrates 652 635 168 387 402 Total 2,110 1,966 733 1,519 1,502

Of which tribute production 1,668 1,633 578 1,258 1,136

/a Six months, due to change in year-end from September30 to March 31. - 12 -

4.03 Mining methods vary from location to location and comprise gravel pumping, underground,and ground sluicing operations. Most of the mines are in alluvial-typedeposits, the main exceptionsbeing the hard rock underground operationsat Mawchi and Hermyingyi,which are the principal sources of the tungsten ores. Concentratingfacilities are generally primitive and in poor running order, both at the mine sites and at two small upgrading plants in Tavoy and Rangoon. As a result, most of MC2's concentratesare low grade, and contain high levels of impurities, thus reducing their sales value. Mixed tin/tungstenores, such as those from Mawchi, are not separated and recoveriesare poor. Outmoded facilitiesalso contribute to MC2's high product inventories. Products often flow from mines to concentratorsin Tavoy and back to utilize available wet and dry upgrading facilities and thus bring the products to a more marketable state.

4.04 Mines in the TenasserimDivision are connected to Tavoy by road. In the wet season, sectionsbecome impassable for days due to flooding, and even during favorableweather, delays arise due to the necessity of organizing military escorts for security reasons. Concentratesare shipped from Tavoy to Rangoon by boat and then exported. Mawchi and Rangoon, on the other hand, are connected by both rail and road but because of the security situation, the most direct route cannot be taken.

4.05 Infrastructuralfacilities, such as power and water supply at the mines, are generallypoor and unreliable. Water shortages in the dry season and frequent power shut-downs hamper production,with generating and pumping facilitiesboth suffering from shortages of spare parts and maintenance materials.

2. Production Costs

4.06 Production costs for tin and tungsten concentratevary by mine, but are generally somewhat below levels in other countries, reflecting the highly labor intensivelow-wage aspects of Burmese mining, with depreciationand financial charges well below those of more modern or mechanized operations elsewhere. Moderately more capital intensive productionmethods are warran- ted, even if total costs per ton mined are increased, in order to ensure that output can be more closely controlled,and to prevent deposits from being inefficientlyand harmfully exploited by the haphazard high-gradingoperations of the tributeminers.

B. Past Performanceand Financial Condition

4.07 MC2's income statements for 1972-1976are summarized below from Annex 4-2: - 13 -

MC2: Summary Income Statements (Kyats Millions) /a FY 1972 FY 1973 FY 1974/- FY 1975 FY 1976

Concentrate Sales (000s tons) 2,110 1,996 733 1,519 1,571

Net Revenues 24.1 33.4 15.1 37.5 42.6 Gross Profit 4.8 11.7 7.6 10.7 14.3 Pre-tax Profit 2.3 8.9 5.9 6.6 10.4 Net Profit 2.3 0.7 2.9 3.3 5.2

Net Revenue per ton (K 000) 11.4 17.0 20.7 24.7 27.1 Cost of Sales per ton (K 000) 9.2 11.0 10.2 17.7 18.0 Pre-tax return on: Average operating assets 7.6% 15.2% 8.2% 8.8% 13.5% Average equity 3.4% 9.4% 5.2% 5.4% 8.1%

/a Six months, due to change of year-end from September 30 to March 31.

4.08 Despite production declines and unfavorable operating conditions, MC2 has shown a reasonable level of profits over the period under review. Revenues per ton of concentrate have increased 138% since FY72 with the Corporation benefitting from substantial increases in international tin and tungsten prices and 1975's 30% devaluation of the kyat. Also, the charging of up to 15% in bank commissions on sales were discontinued in FY75, contributing to a further gain in net revenues.

4.09 Operating costs per ton have risen 96% since 1972, with most of this rise occurring in FY75. A large part of the 1975 increase was due to a 70% increase in the average price paid to tributors for ore purchased by MC2 (60% of MC2's mining costs). The increase in the tribute price was intended to act as an incentive to stimulate sales to the Corporation. However, since the new price was still well below that prevailing in the black market, the actual impact on ore receipts from tributors was marginal. Among other costs, freight, fuel and materials have increased, particularly in the last two years. Wages, on the other hand, have remained virtually unchanged in Burma since 1948. As a result, labor costs account for only 20% of MC2's own mining costs and 8% of total production costs including purchased ores.

4.10 Balance Sheets are given in Annex 4-2 and summarized below: - 14 -

MC2: Summary Balance Sheets (Kyats Millions)

FY 1972 FY 1973 FY 1974 FY 1975 FY 1976

Receivables 2.5 13.3 12.2 9.1 14.3 Minerals Inventory 27.0 32.2 38.6 31.1 33.0 Other Current Assets 8.3 10.6 12.8 21.2 21.8 Net Fixed Assets 11.2 11.9 26.4 42.0 52.0 Deferred Expenses and Goodwill 43.0 46.5 48.1 52.8 55.0

Total Assets 92.0 114.5 138.1 156.2 176.1

Current Liabilities 5.8 5.7 5.2 10.9 12.8 Other Liabilities 2.2 2.2 2.2 2.2 2.2 Long-term Debt - - 11.7 20.2 25.1 Equity 84.0 106.6 119.0 122.9 136.0

Total Liabilities 92.0 114.5 138.1 156.2 176.1

Current Ratio 6.5 9.8 12.2 5.7 5.4 Debt/Equity Ratio 0:100 0:100 9:91 14:86 16:84

4.11 MC2's financial position is characterized by a strong working capital ratio and a low level of debt relative to equity. On the negative side, at March 31, 1976 inventories amounted to almost one year's production and receivables to about four months sales. Excessive inventories and receivables arise partly due to marketing practices (para. 4.15) but also because of poor quality concentrates which often have to be set aside awaiting upgrading or mixing with higher grade ores before sale. The situation should improve somewhat with control of MC2's marketing now passed from MEIC to the newly-formed Marketing Committee. The Government has agreed that MC2 will prepare a satisfactory plan, to be submitted to IDA by August 31, 1977, for reducing its inventories and receivables to an appropriate level. The project, which will provide MC2 with better quality concentrates and allow the Corpora- tion to enter into smelter contracts, will result in further reductions in inventories and receivables.

4.12 About 40% of MC2's equity base is represented by intangible assets. These include: deferred expenditures (costs of keeping the Mawchi mine open during the period of insurgency activities), and goodwill (which arose when MC2 acquired liabilities in excess of assets from the MDC in 1972). It is questionable whether these amounts should be carried forward in the Balance Sheet, and the Government has agreed that MC2 will take the necessary measures by March 31, 1978 to correct this situation to reflect sound accounting practices. Writing off the intangible assets would increase MC2's present debt/equity ratio from 16:84 to 24:76. - 15 -

C. Organization and Management

4.13 Like other state organizations in Burma, all policy decisions and many managerial functions have been outside MC2's immediate control. Decisions on production plans, marketing, investment, employment, wages, and financing are decided mainly at the level of the Minister or the Economic Committee of the Council of Ministers. The Managing Director of MC2 is appointed by the Government to carry out plans set by the Ministry of Mines and to supervise the day-to-day operations of the Corporation. Reporting to him are four Directors (Administration, Production, Planning and Projecting, and Engineering) and a Chief Accounts Officer (Annex 4-3). It is the Gov- ernment's intention to transfer more managerial and financial autonomy to the various state economic enterprises through newly-formed Management Committees. This, however, will be a gradual, cautious process. In MC2's case, the Committee includes: the Managing Director, the Director of Produc- tion, the Chief Accounts Officer and two members representing the workers, one of whom is the Director of Administration. All are competent people, with good technical qualifications and many years experience in the industry, but with little management experience other than in a highly centralized decision-making environment.

4.14 MC2 employs about 2,700 persons, including 73 officers. Wage levels are low, being equivalent to US$15 per month for laborers, US$70-150 per month for engineers and geologists, and US$200 per month for top management. In some cases, inadequate wages have resulted in high rates of turnover and absenteeism at MC2's mine sites, especially where other opportunities such as tribute mining or illegal trade exist. A recently-established bonus system and a cost-of-living allowance may help to relieve growing dissatis- faction in the face of rising prices. Overstaffing exists at some locations, largely due to output declines not being fully reflected in a reduction or relocation of manpower, e.g. at Mawchi mine. The Government has agreed that MC2 will prepare a manpower plan, with the assistance of the project consultants, which will include steps to establish employee levels consistent with changes in output and profitability at its various operating locations. Also included in the plan, to be submitted to IDA by December 31, 1977, will be a system of bonuses, incentive schemes and special allowances to augment wages where appropriate.

4.15 As noted above, MC2's activities are presently limited to production; exploration, geological work, and, until recently, marketing, being carried out by other agencies within the Ministry of Mines. MC2 has now gained closer control over marketing operations with this function transferred from the MEIC to the Minerals Marketing Committee in late 1976. The Committee is jointly administered by representatives from the three metal producing corporations. Also, with respect to tin/tungsten, MEIC's Sales Manager for these metals (a highly competent individual) has assumed a key role in the management of the Committee. Principal advantages of the new arrangements are: elimination of the excessive 2-1/2% MEIC sales commission; and scope to reduce MC2's high inventories and receivables, which have been partly caused by inefficient MEIC practices and the problems of inter-Ministry communi- cations. The marketing policies of the Committee have yet to be finalized, but the Government has agreed that the Committee will be granted authority to take appropriate measures to improve marketing efficiency, including entering - 16 - into long-termsmelter contractswhere appropriate. This should be facilitated by the proposed project, with production expanded and quality and quantity of supply more reliable.

D. Accounts and Audit

4.16 MC2's accountingrecords are well maintained and contain reasonable detail on the Corporation'scosts, revenues, production,inventories, and other financialand operationaldata. Apart from the annual accounts and monthly statements of production, cash receipts and expenditures,however, management does not receive adequate informationfor effective operational or financial control. The terms of reference for the consultants retained for the project (para. 5.14) will include assistance in improving the Corporation'smanagement informationsystems and its financial planning capabilities.

4.17 The State Audit Office is the only official audit service available in Burma, and has been used satisfactorilyin other IDA projects in the country. In MC2's case (like that of many other state corporationsin Burma), audits have been several years behind, but at the request of IDA, MC2 has submitted audited financial statements for FY76. The Government has agreed that MC2 will submit audited accounts to IDA within five months of the close of each fiscal year, and quarterly financial statementswithin 60 days.

E. Ore Reserves

4.18 Sufficient ore reserves exist in the present areas of operation to produce at least 67,000 tons of tin concentratesand 30,000 tons of tungsten concentrates. Of these 97,000 tons, only about 22,000 have been proved -- sufficient for 15 years' production at present mining rates. These totals are understated,however, as they do not reflect recent real price increases, particularlyfor tungsten. For those mining sites scheduledfor development as part of the proposed project (HeinzeBasin, Kanbauk and various gravel pump reserves), there are sufficient proved reserves for at least 15 years operation at the expanded rates of production. Proven reserves at the Heinda mine, where increasedoutput will commence during 1977 following completion of the KfW-financedproject, are only sufficient for 11 years. Conversion of probable and possible reserves to proved status, for these and other tin! tungsten deposits in Burma, is expected to be easily accomplished with modest amounts of further explorationand expenditures.

V. THE PROJECT

5.01 The project consists of the following components: (a) dredging and related concentratingand infrastructuralfacilities (includinga township with housing and community facilities)at Heinze Basin (300 km S.E. of Rangoon) to produce about 650 LTPY of tin concentrateby FY81 (Map IBRD 12524), and improvementsto gravel pump operations at Kanbauk close to the Heinze Basin, increasing tin concentrateproduction by about 100 LTPY by FY81; (b) a new tin/tungstenconcentrating and upgrading plant at Tavoy, 80 km south of Heinze - 17 -

Bas., to separate mixed concentratesand improve the grade and quality of tin and tungsten concentratesproduced by the Corporation; (c) equipment for new gravel pump mining operationsnear Tavoy to produce about 150 LTPY of tin concentratesby FY81; and (d) technical assistance for training of key technicians, engineering,projectmanagement, procurement, start-up, and the initial operation of the project, plus assistance in improving the Corporation's operating and financial controls,preparing a manpower plan (para. 4.14) and preparing a study of exporting concentratesdirectly from Tavoy. In particular, the provision of consultantsexperienced in dredging and concentrationof tin/ tungsten ores is to compensate for MC2's unfamiliarityin these areas. A more detailed descriptionof the tin/tungstenproject is given in Annex 5-1. In addition, US$200,000 equivalentof the proposd credit will be used for a study of the future developmentof the mineral sector (para. 5.16).

A. Technical Description

1. Heinze Basin Dredging Project and Concentrator

5.02 The dredging would take place in a 25 km long southern section of the Heinze Basin, access to which is by sea or by surfaced road from Tavoy or Ye (both within 60 km of the project area). Sea access is limited during the monsoon season, and road access is also somewhat limited due to 5-ton load limits on bridges and 13 km of unsurfaced road between the Basin and Tavoy. The project can be planned around these restrictionsand the Government has agreed that the unsurfaced road will be improved to an all- weather condition no later than December 31, 1979, i.e., before project start-up.

5.03 A portion of the Basin was dredged prior to World War II and inter- mittent dredging was carried out west of the Basin up to 1952. A UNDP-financed program (1972-75)undertook extensiveborings in the Basin and a feasibilitystudy was completed by the Malaysian consulting firm, Osborne and Chappel, in mid-1975. Recoverableconcentrate is conservativelyesti- mated at 6,640 tons, sufficient for 19 years at the proposed rate of mining. In the initial years, production will average 550 tons of concentrateper annum, and after the tenth year will decline to about 250 tons per annum, as lower grade ores are worked.

5.04 Careful study was done by the consultants to determine the optimum dredge size based on both operationaland economic factors. The dredge selected will be a conventionalbucket ladder dredge with a jig treatment plant on board. The dredge would be capable of digging to a depth of 16 m. during the first 8 years of operation. Its pontoon and ladder would then be extended to increase digging depth to 27 m. The dredging sequence has been selected to maximize the present value of the cash flow. Annual production is estimated at 1.4 million cu. m. of ore in the early years (reflectingoperator inexperienceand dredging conditions),increasing to 2.0 million cu. m. after the tenth year. These production estimatesare 51% and 74% of theoreticaldredge capacity, respectively.

5.05 The dredge's jig plant would produce a concentrategrading 20-40% tin which would then be transportedby barge to the nearby shore-basedmill. After upgrading there, concentrategrading 65% tin would be transportedby road or sea to Tavoy for further processing. - 18 -

5.06 The flowsheet for the Heinze Basin mill would include screening, magnetic scalping, classifying, and Wilfey table treatment. The concentrate would pass through a fresh water wash and, after drying, be treated on high-intensity magnetic separators to separate refractory minerals. The mill flowsheet has been thoroughly tested by the consultants. The ore type is quite common in south-east Asia, the flowsheet is conventional, and the equipment proposed is standard and widely used in alluvial tin concentrators.

5.07 Due to the remote location of the Heinze Basin and the lack of existing infrastructure, the project will require extensive support facilities including: water craft (tugboat, work boat, personnel boats, barges); power (diesel generators for the dredge and shore complex); wells for water supply; and workshops, offices, and a warehouse. Social infrastructure would include: a 237-home townsite, school, community hall/cinema, hospital, market, playfield, and electrical, water, and sanitary facilities.

5.08 Production of tin concentrates at the nearby Kanbauk gravel pump mines is expected to increase by about 100 LTPY (from the current 200 LTPY) as a result of better maintenance and operational supervision associated with the Heinze dredging and concentrating complex and improved power and water supply. Only a very small amount of additional direct investment at Kanbauk would be involved. Concentrates from Kanbauk would be further upgraded at the Heinze Basin mill and the Tavoy concentrator. Recoverable ore reserves at Kanbauk are estimated at 3,400 tons, sufficient for 10 years operation at the projected rate of output.

2. Central Concentrator at Tavoy

5.09 As a result of antiquated and inefficient concentrating facilities (Annex 4-1), much of MC2's output is of a low and unreliable grade (averaging about 69% for tin concentrates and 64% for tungsten), high in impurities and sells at a substantial discount below standard prices. Based on a proposal by the Corporation, IDA commissioned a study of various alternative new concentrating facilities to determine the best location and a preliminary flow sheet for the selected alternative. This was carried out by Osborne and Chappel of Malaysia and their final report was produced in July 1976.

5.10 The selection of a large centralized concentrator located in Tavoy is based on its favorable economic return, and the ability of a Tavoy location to provide the focus for improved operational control of the Corpora- tion's mines in the Tenasserim Division. As the concentrator would treat a variety of ores, including mixed concentrates from Mawchi, the flowsheet involves a number of circuits including: crushing, screening, electrostatic precipitation, wet gravity separation on tables, cleaning in Willoughby boxes, drying and high intensity magnetic separation. In addition to producing high quality wolfram and tin concentrates, the concentrator would produce a number of byproducts, but incremental revenues from these will be small. Testing done by the consultants was sufficient to determine the basic flowsheet but further metallurgical testing will be required to finalize concentrator design. A preliminary study has been conducted by the Corporation to identify specific possible sites for the concentrator. The final site will be chosen with the assistance of the project consultants and the site acquired as a condition of credit effectiveness. - 19 -

5.11 Overall, the concentratorwill produce 3,000 - 4,000 LTPY of concentrates (grading 75% for tin concentratesand 67% for tungsten) on a single- shift basis, with ample flexibilityfor increasing its capacity and modifying its flowsheet as other mines are developed in the area. Infrastructural facilities for the concentratorinclude: water supply from nearby wells or the Tavoy river, electric power (two 345 kw diesel generators),and transport (five six-ton trucks - concentratesfrom various mines in the area are presently delivered to Tavoy by local buses).

5.12 The Government has agreed that the terms of reference of the project consultantswill include assistance to MC2 in the improvementof the export of concentrates.This will include study of the feasibilityand desirabilityof direct export of the Corporation'sproducts from Tavoy to smelters in Malaysia or Thailand, without the inefficientand time-consumingprocess of shipment to Rangoon as presently practised. The expanded output of concentratesin the area should provide sufficient incentive for vessels to stop at Tavoy, and, since concentrateswould be trans-shippedfrom lighter vessels, minimal infrastructurewould be required.

3. Gravel Pump Mining Project

5.13 Although knowledge of reserves is patchy, there are a number of tin and tungsten-richdeposits in the Tenasserim Division which are ideal for gravel pump operations. This process consists of monitors (water jets) to wash down sand and gravel to a sump. From the sump, the slurry of liquified material is pumped to a palong (sluicebox) for treatment. Equipment would be acquired to establish gravel pump operations at one or two locations. Since major productionpreparation, such as extensive stripping,would not be necessary, this component of the project could be implementedrelatively quickly. Equipment needed (drills,hydraulic monitors, pumps, diesel generator, and jig plants) is highly mobile and expensive infrastructuralfacilities are not required. In addition to yielding about 150 LTPY of tin concentrates,the project, under consultant supervision, will provide valuable training.

4. Technical Assistance

5.14 MC2's inexperience in the operation of other than simple mining and concentrating activities necessitates fairly extensive outside technical assistance by consultants experienced in the design and operation of dredging, mining, and concentrating facilities. The Government has agreed that the Corporation will retain consultants, to be financed from the proposed credit, and on terms of reference satisfactory to IDA, to assist with project engineering, project management, overseas training of key technicians, procurement, and to supervise and assist during the start-up of the facilities and during at least the first two years of their operation (with IDA to be consulted before the termination or reduction of this operational assistance). The consultants will also assist in the development of physical, cost, and financial control systems to improve MC2's overall operational effectiveness, assist with export improvements (para. 5.12), and help prepare a manpower plan (para. 4.14). Draft terms of reference (Annex 6-2) have been discussed with the Corporation. Osborne and Chappel, the Malaysian consulting firm which did the project feasibility studies, has been selected for this assistance. The employment of the consultants is a condition of credit effectiveness. The - 20 -

estimated cost for engineering services and other consulting assistance is US$1.9 million, of which about US$0.5 million would be technical assistance, spread over a five-year period. The average cost per man-year is estimated to be US$84,000 including all travel, overhead, and associated expenses.

5. Other Expansion Plans

5.15 Significant future expansion of production is envisaged by MC2 and three major mine rehabilitation programs, in addition to the project, are in the pipeline. The Heinda mine is being expanded with the help of KfW financing through a new open-pit system and a new concentrating mill which should increase annual production by 800 LTPY of tin concentrates, with production scheduled to start during 1977. At Hermyingyi, exploration work assisted by German technical aid is being carried out with a view to proving adequate reserves on which to base a project. This could add another 500 LTPY of tin/tungsten concentrates by the early to mid-eighties. At Mawchi, a USSR-financed rehabiltation program to increase output by 1,000 LTPY of tin was suspended in 1973. This could be resumed if insurgency problems were brought under control and new financing found. The timing of this is uncertain, but there have been recent indications that the security situation may be inproving. In order to ensure sufficient managerial attention is given to the proposed IDA project, the Government has agreed that the Corporation will not embark on any major new investments (over US$1 million equivalent per year) without prior IDA approval.

6. Sector Study

5.16 The Government has agreed that it will employ consultants acceptable to the Association with satisfactory terms of reference, to assist in carrying out a study of the future development of the mineral sector. This would help the Government to establish sector priorities and to identify suitable development projects. The scope of the study should be agreed by June 30, 1977. The Government has agreed to employ the consultants by December 31, 1977, and to commence the study within three months. The study's recommendations will be reviewed with IDA and implementation steps agreed. Part of the credit (US$200,000 equivalent) will be used to finance the work, with the Ministry of Mines as executing agency.

B. Environmental Aspects

5.17 As the project operations involve physical, rather than chemical processes, no harmful pollutants will result. Dredge tailings will be deposi- ted back into the Basin, but in the same form as the naturally occurring materials. Concentrator tailings will be disposed of on land and shou'ld not raise any environmental problems. Dredging operations will create some minor disruption of fishing activities in the Basin, but these are not economically significant to the local population. Moreover, the area affected at any one time will be confined to a small part of the Basin.

C. Capital Costs

5.18 Project cost, excluding interest during construction and incremental working capital, is estimated at US$26.0 million equivalent, of which US$18.9 - 21 - million would be for the dredging, concentratingand related facilitiesat Heinze Basin (includingKanbauk); US$3.7 million for the central concentrator at Tavoy, US$2.7 million for the gravel pump mining pilot project, US$0.5 million for technical assistanceadditional to the engineeringand project managementincluded in other project components,and US$0.2 million for the sector study. Total financing requirementsare estimated at US$27.8 million; these costs are detailed in Annex 5-2 and summarizedbelow:

Summary of Capital Costs

Local Foreign Total Local Foreign Total % ---- Kyats Millions ------US$ Millions-----

Equipment /a 28.8 60.8 89.6 4.4 9.1 13.5 52 Construction and Civil Works /a 12.6 3.4 16.0 1.9 0.5 2.4 9 Engineeringand Project Management 0.8 11.6 12.4 0.1 1.8 1.9 7 Training - 1.9 1.9 - 0.3 0.3 1 Administrationand Pre-Production 2.3 - 2.3 0.3 - 0.3 1 Sector Study - 1.3 1.3 - 0.2 0.2 1

Total Base Cost 44.5 79.0 123.5 6.7 11.9 18.6 71 Physical Contingencies 4.0 5.7 9.7 0.6 0.9 1.5 6 Price Contingencies 18.0 21.7 39.7 2.7 3.2 5.9 23

Project Cost 66.5 106.4 172.9 10.0 16.0 26.0 100 IncrementalWork- ing Capital /b ------Interest During Construction 12.1 - 12.1 1.8 - 1.8 Total Financ- ing Required 78.6 106.4 185.0 11.8 16.0 27.8 Taxes and Duties in Project Costs (39.8) (-) (39.8) (6.0) () (6.0) (23)

/a Includes freight, insurance,duties and commodity taxes. Spares for equipment are included in equipment costs. /b No incrementalworking capital needs are shown for the project since improvementsin product quality and marketing efficiencywill permit a reduction in receivablesand inventoriessufficient to offset the additional requirementsthat would otherwise result from increased output.

5.19 All base costs reflect March 31, 1976 prices. Estimates have been prepared in great detail by the consultants,based on their extensive experience in Malaysia, and supplementedby budget quotations from suppliers. Estimates for civil constructionand infrastructureare based on quotations from the ConstructionCorporation of the Burmese Ministry of Works, and were found by the consultants to be reasonably in line with their Malaysian experience. Duties and taxes amount to 23% of capital costs. In addition to normal - 22 - import duties averaging 15%, they include a newly-instituted30% commodity tax on the C.I.F. value of imported machinery and equipment. Physical contingencies reflect varying firmness in design and engineering,and range from 5% to 20% of the base estimate categories,and average about 10%. Price escalationwas applied to project cost componentsas follows: local and foreign equipment costs - 9% in 1976, 8% in 1977-79, 7% thereafter;local civil works 20% per annum (reflectingrecent cost trends in major locally- supplied constructionmaterials such as cement and timber of at least 20% annually, which trends are expected to continue into the project construction period); engineering,training and administrationcosts - 7% per annum for both local and foreign costs. Overall, the capital cost estimates,and provisions for physical and price contingencies,are felt to be realistic. The consultantshave re-checkedmajor project items in late 1976, including consultationwith a leading tin dredge design firm, and have found both the base estimates and the 1976 escalationallowance to be adequate.

D. Financing Plan

5.20 The proposed financing of the estimated requirementsof US$27.8 million equivalentfor the project is shown below (Annex 5-3):

Financing Plan

US$ Millions Equivalent

Foreign Exchange Sources: IDA Credit 16.0

Local Currency Sources: Cash Generation 5.8 Debt and Share Capital 6.0

Total Financing 27.8

The IDA credit will be made to the Government of Burma to cover all estimated direct foreign exchange expenditures,with US$15.8 million equivalent to be onlent to the Corporationover 15 years, including 5 years grace, at 10% per annum, and other conditions satisfactoryto IDA. The foreign exchange risk of the credit will be borne by the Corporation. The executionof the subsidiary loan agreement between the Governmentand MC2 is a conditionof credit effectiveness.

5.21 Local costs include constructionand civil works and duties. The Governmenthas agreed to allow the Corporationto retain its entire cash generation to finance a portion of the local costs of the project (US$5.8 million) and, at the same time, maintain an adequate liquidityfor its existing operations. The Government has also agreed to the timely provision of funds, on terms and conditionssatisfactory to IDA, to meet the estimatedUS$6.0 million local currency requirements,and also to meet any shortfallin the Corporation's cash generationand any project cost overruns. Sufficientfunds will be in the form of equity so as to prevent MC2's long term debt to equity ratio from exceeding 60:40, and its projected long-termdebt service coverage from being less than two times. - 23 -

VI. PROJECT IMPLEMENTATION

A. Project Organizationand Management

6.01 Project management will be based on: (a) recent MC2 experience in executing the Heinda mine expansion and (b) engineeringand project management support from outside consultants (para 5.14). In some respects,the project should face fewer problems than the Heinda expansion,where lack of reliable water transportand the logistics of moving heavy equipment to the site presented numerous problems and delays. The project will include its own water transport facilities,and the only heavy equipment item (the dredge) will be constructedoutside the country and floated to the Heinze Basin site.

6.02 The project organization (Annex 6-1) will be headed by a Project Manager (the Director of Planning of MC2, who was responsiblefor the Heinda project). He will be responsible to MC2's Management Committee. The consultants' terms of reference (Annex 6-2) will include assistance in detailed planning and scheduling,procurement, supervision of constructionand start-up of the facilitiesand their operation for a minimum of two years after project completion. In addition to the managerial and technical assistanceresulting from the consultants'involvement, some 34 personnel will receive a total of about 65 man-years of overseas training,probably in Malaysia, under supervision of the consultants,in the operation of facilities virtually the same as those of the project. The costs of this are included in the project (Annex 5-2).

B. Project Schedule

6.03 The consultantsare expected to start work by the end of the first quarter of 1977, so that the first specificationsand tender documentscan be issued during the second quarter, and first orders placed following international competitivebidding within the last quarter (Annex 6-3). Certain items procured by internationalshopping (para. 6.04) may be ordered even earlier. The dredge is scheduled for delivery in the last quarter of 1-979,by which time the on-shore project facilities should also be complete,with production commencing from all project componentsby the end of 1979.

C. Procurement

6.04 The packages of equipment and supplies for the project will be prepared and specifiedby the consultantsand be subjected to international competitivebidding with the exception of some small items of highly specialized equipment for which there are very few eligible suppliers;for these internationalshopping procedureswill be used. These small items would each be under US$75,000 equivalent in value and total about US$1 million. The only goods expected to be procured locallywill be certain constructionsupplies, e.g., cement, timber. Under Burmese regulations,all local constructionwill be done by the Government ConstructionCorporation. This work is relatively small-scaleand will be under the general supervisionof the project consultants. - 24 -

6.05 Contract awards may have to be approved on an interministerial basis. The Governmenthas agreed to take any steps necessary to ensure prompt review of and decisions on all project procurementmatters.

D. Allocation and Disbursementof IDA Credit

6.06 The allocationof the proceeds of the credit is shown in Annex 6-4. Disbursementswould be made against 100% of foreign expendituresfor (i) directly imported materials, equipment and machinery, and (ii) consultants' services, technical assistance and training. There would be no local currency financing from the credit. The disbursementschedule (Annex 6-5) is based on estimates of order placements, payment schedules, and expected construction and equipment delivery times in line with the constructionschedule (Annex 6-3). The credit is expected to be fully disbursedby the end of 1981. Any uncommittedfunds remainingwould be used to finance other project components, if found justified, or otherwise would be cancelled.

VII. FINANCIAL ANALYSIS

7.01 Assumptionsused in the financial analysis, forecast income statements, balance sheets, statements of sources and application of funds, together with supportingdata, are contained in Annexes 7-1 through 7-14.

A. Project Operating Costs and Revenues

7.02 Operating costs for the project (Annex 7-1) are based on the consultants'knowledge of Malaysian conditions,with adjustment to allow for the limited operating experience in Burma. Production costs for dredging and concentrating,including depreciationand interest charges, will be about US$1.80 per lb. of concentrate (1976 prices) for the first eight years of operation. This is in the lower range of dredging costs in other countries and lower than typical costs for gravel pump and undergroundtin mining. As the grade of ore mined declines in the later years (para. 5.03), costs per ton of concentrate will rise such that, even with the loan repaid and no financial charges, they will be on the high side for dredging, and comparable with typical present-day gravel pump mining costs.

7.03 Project revenues arise both from incremental production and the achievement of a higher grade on existing production, thereby reducing dis- counts and penalty charges (Annex 7-6).

B. FinancialRate of Return

7.04 The after-tax financial rate of return for the project is 10.0% and 13.7% if the commodity tax or production value is excluded (Annex 7-3). These relatively low returns are due to: high import taxes and duties which raise capital and operating costs for the project, and the distorted exchange rate for the kyat. It is questionablehow meaningful the financialreturn is in a - 25 - centrallyplanned economv like Burma's. A more useful indicatoris given by the economic rate of return, which is markedly higher (para. 8.01).

7.05 The sersizivityof the project's return to changes in revenues is aggravatedby the commodity tax on productionwhich representsa fixed burslenon MC2, independentof revenues or profit levels. Commodity taxes are levied on both productionvalue and on imported goods and equipment. A summary of sensitivity tests performed is given below:

MC2: SensitivityTests on Financial Rate of Return

Capital Operating After-Tax Case Costs Costs Revenues Return Pre-Tax Return i. Base Case 100 100 100 10.0% 13.7% 2. 120 100 100 8.3% 11.8% 3. 100 120 100 6.9% 10.2% 4. 100 100 80 1.3% 6.2% 5. 120 120 100 3.0% 7.6% S. 100 120 120 13.4% 17.5% 7. One year project delay 8.5% 11.5%

C. Break-Even Point

7.06 It is estimated that profit break-even for MC2 followingproject start-up will occur at a sales level of 2,470 LTPY, and cash break-even at 2,140 LTPY. These figures represent about 78% and 68% respectivelyof MC2's projected normal annual output (about 3,200 tons). The relativelyhigh breakeven points are the result of the commodity tax which is tied to costs (most of which are fixed) rather than to profits. This could put a substantial burden on the Corporation in the event of declining metal prices. For example, in FY82, a revenue decline of 14% would produce a loss, and a decline of 21% would reduce cash generation,after debt service, to zero. These negative effects will be cushionedby the planned introductionof an "Export EqualizationScheme," whereby losses incurred by corporationsin the export sector will be made up by cash contributionsfrom the Government. On the other hand, after-tax profits above an allowed "target" level due to upward fluctuation of metal prices above pre-determinedceilings will be transferredto the Government. The effect of such transfershas not been incorporatedinto the financial projectionswhich are detailed in the following sections, as they will depend on the ceiling prices established,which in turn will be based on budgetted operating costs plus an allowable profit margin. If the Corporation can improve on its profit margin by reducing costs below budget, it can retain these savings

D. Overall Profitability

7.07 A summary of the forecast income statementsfor MC2 are shown below (Annex 7-5). - 26 -

MC2: Summary of Prolected Income Statements (Kyats Millions)

FY 1976 FY 1977 FY 1978 FY 1979 FY 1980 FY 1981 FY 1986 (Actual) Concentrate Sales (tons) Total Sales 1,571 1,880 1,990 2,820 2,745 3,775 3,280 Project-Related Sales - - - - 115 1,140 645

Net Revenues 42.6 63.5 72.7 107.7 114.3 196.1 261.0 Gross Profit 14.3 20.1 28.4 44.8 40.5 91.2 135.7 Pre-tax Profit 10.4 12.8 16.7 32.4 25.8 66.3 95.1 Net Profit 5.2 3.9 6.7 19.0 10.1 43.8 66.3

Cash Generation 6.8 8.2 14.3 26.6 19.4 65.5 90.1 Net Revenue per ton (K 000) 27.1 33.8 36.6 38.2 41.6 52.0 79.6 Cost of Sales per ton (K 000) 18.0 24.0 24.0 23.1 24.3 25.8 38.2

7.08 After project start-up in FY80-81, sales volume is projected to increase 140% from FY76 levels. In addition to some gains in output at existing mines, the bulk of the increase in sales volume arises from the project (900 LTPY) and expansion of the Heinda mine (800 LTPY). Also in FY81, with the start-up of the Tavoy concentrator,the sale of MC2's output through smelter contractswill allow a reduction in inventory levels (para 4.11), giving sales a one-time boost. Productionand sales volumes decline somewhat in later years as the Heinze Basin dredge encounterslower grade ores and the effect of the one-time inventory reduction is absorbed.

7.09 Revenues increase at an even faster rate than sales volume (up 360% in current terms from FY76 to FY81). This reflects higher tin and tungsten prices forecast over the period, together with the realizationof better prices for MC2's output once the Tavoy concentratorcomes on stream.

7.10 Costs per ton jump considerablyin FY77 reflectingwage increases, implementationof bonus and social security schemes, and the institution of the commodity tax on imported materials (averaging30%). Beyond 1977, costs per ton remain relativelysteady as output gains offset total cost increasesand as lower cost facilities (Heinda and Heinze Basin) begin production.

7.11 Pre-tax profits increase strongly over the forecast period - up 465% by FY81. Net profits follow a somewhat different trend. Declines from FY76 levels occur in FY77 and 78 as a result of replacementof the income tax by the commodity tax on productionand overhead costs (15% on costs plus a 12% nominal profit - equivalentto 16.8% on costs). Once sales volumes and margins pick up in FY79 and beyond, the burden of the commodity tax becomes progressivelyless and net profits show a sharp recovery.

E. Financial Position and Covenants

7.12 Forecast balance sheets for MC2 are summarizedbelow (Annex 7-9): - 27 -

MC2: Prolected Balance Sheets (Kyats Millions)

FY 1976 FY 1977 FY 1978 FY 1979 FY 1980 FY 1981 FY 1986 (Actual)

Current Assets 69 61 72 75 77 84 106 Cash Surplus - - - - - 55 314 Net Fixed Assets 52 79 82 171 241 223 135 Deferred Expenses and Goodwill 55 55 55 - - - -

Total Assets 176 195 209 246 318 362 555

Current Liabilities 13 2 3 3 5 6 18 Other Liabilities 2 2 2 2 2 2 2 Long-term Debt 25 49 55 113 150 150 100 Equity 136 142 149 128 161 204 435

Total Liabilities 176 195 209 246 318 362 555

Current Ratio 5.4 35.1 28.8 25.0 14.3 13.1 5.8 Debt/Equity7Ratio 16:84 26:74 27:73 47:53 48:52 42:58 19:81 Debt Serv. Cov. (times) 18.6 10.9 12.9 23.3 17.2 5.7 4.9

7.13 MC2's financial position remains sound over the project implementation period and beyond. Large cash surplusesbuild up once the project comes on stream. Part of these may be appropriatedby the State under the Export EqualizationScheme (para. 7.06) but the Corporation should be able to prepare further expansionprojects (para. 5.15) to absorb these funds. The long-term debt-equity ratio reaches a maximum of 48:52 in FY80 and declines to 19:81 by FY86, assuming that the deferred expenses and goodwill are written off in FY79 (para 4.12). Debt service coverage throughoutthe forecast period remains favorable, and at no time falls below 3.7 times.

7.14 In addition to covenantsrelated to project financing and operations during the implementationperiod (para 5.21), the Governmenthas agreed to the following to ensure the maintenanceof a sound financialposition for the Corporation after project implementation: (a) the Governmentwill provide funds to ensure the maintenanceof a current ratio of not less than 2.0; (b) additional funds (whether in local currency or foreign exchange)will be provided to the Corporationwhere needed to meet normal maintenanceand subsequent capital expendituresassociated with the project; (c) the Corpora- tion will not incur new debt if to do so would cause its debt/equityratio to exceed 60:40 or its projected debt service coverage to fall below two times. - 28 -

F. Major Risks

7.15 Major risks associated with the project are threefold. First, management is inexperiencedin dredging and in more modern concentrating operationsand present managerial and financial control over the Corporation's activitiesneeds improvement. This problem should be alleviated by the proposed overseas training of key techniciansand the provision of extensive technical assistance and supervisionby consultantsduring project implementation and for two years following startup. The consultantswill also assist in implementinga more effectivemanagement control system for the Corporation. In addition, the current expansion of the Heinda mine has added to MC2's expertise in the supervisionof expansion projects.

7.16 Second, there have been some insurgency activities in the project area in the past, and recurrenceof these could adversely affect project implementation. On the other hand, no security problems arose with the KFW- financed project at nearby Heinda, and the general area appears to be under reasonable control.

7.17 A third risk relates to the possibility of prices for tin and tungsten being lower than projected. Offsetting this, the influence of the Inter- national Tin Council in moderating downward price pressures through its buffer stock operations,and the prospect of increased cooperationamong tungsten producers should act to lessen the downside risk of future price fluctuations. Also, if the Government'snew Export EqualizationScheme can work effectively, the financialrisk to the Corporationdue to metal price fluctuationswill be minimized. Most importantly,the Corporation is expected to remain a low cost producer of tin/tungstenwhile the project will help to improve product quality and therefore its saleability.

VIII. ECONOMIC JUSTIFICATION

A. Economic Rate of Return

8.01 The economic rate of return for the project is estimated at 21.0% at the official rate of exchange for the kyat (Annex 8-1). The difference between the economic and financial rates of return is due to import duties and commodity taxes, which affect both capital and operating costs significantly. Using a shadow-priced rate of US$1 = K 13, versus the 6.65 official rate, the economic rate of return becomes 28.5%. The official exchange rate is maintained by very stringent exchange and trade restrictions. Black market rates are at least 18 to 20 Kyats per US dollar, but the 13.0 shadow rate was calculated as the rate that would prevail with free trade, reflecting the opportunity cost of a marginal unit of foreign exchange. Sensitivity tests show that the project's contribution to the economy will remain favorable even under adverse conditions. For example, with a 20% drop in revenues, the project's economic rate of return remains above 20% on a fully shadow-priced basis. - 29 -

B. Foreign Exchange and Other Benefits

8.02 The Burmese Government gives high priority to expansion of the mineral sector. By strengtheninglocal management and operationalexper- tise, the project will provide a foundation from which further projects can be developedand successfullyimplemented. More directly, the project components will create employment for about 300 persons in remote areas of the country where existing opportunitiesare limited. In addition, social services will be provided in the form of a townsite,hospital, school, water and sanitationfacilities associated with the project.

8.03 Export earnings over the 19-year project life are expected to average the equivalent of US$6.0 million annually in 1976 terms (Annex 8-2). This represents about 3% of the value of Burma's average 1973-75 exports and almost one third of those presently generatedby the mineral sector. Net foreign exchange benefits (after outflows for capital, operating and debt service costs) are forecast at US$4.6 million annually (1976 terms). These gains will have a positive impact on the country's foreign exchange situation, which must be improved if Burma is to start to realize its full development potential.

IX. AGREEMENTS

9.01 The following commitmentshave been agreed to by the Government:

(i) A study on MC2's inventoryand receivablespolicy and a plan for reducing these to an appropriate level will be submitted to IDA by August 31, 1977 (para. 4.11).

(ii) Measures reflecting sound accountingpractices will be taken regardingMC2's intangible assets by March 31, 1978 (para 4.12).

(iii) MC2 will prepare a manpower plan with consulting assistance,including the establishmentof staffing levels and appropriate bonus systems, to submit to IDA by December 31, 1977 (para. 4.14).

(iv) The Minerals Marketing Committeewill be given the authority to take appropriatemeasures to improve marketing efficiency (para. 4.15).

(v) Audited financial statementswill be presented to IDA within five months of the close of each fiscal year and quarterly financial statementswithin 60 days (para. 4.17).

(vi) The unsurfaced road between Tavoy and Heinze Basin will be upgraded before December 31, 1979 (para. 5.02).

(vii) The project consultantswill assist MC2 in improvementof the export of concentrates (para. 5.12). - 30 -

(viii) MC2 will retain suitable consultants to assist with engineering, project execution, general management and early operation of the project (para. 5.14).

(ix) The Corporationwill not embark on any major new investments (over US$1 million equivalent per year) without prior IDA approval (para. 5.15).

(x) The Government will employ consultants to assist with a study of the future development of the mineral sector (para. 5.16).

(xi) The Corporationwill be permited to retain its entire cash generation during project implementation,and the Government will provide US$6.0 million equivalent in local currency on terms satisfactoryto IDA, plus additional funds to meet any shortfall, to meet any cost overruns and to maintain the Corporation'sdebt-to-equity ratio below 60:40 (para. 5.21).

(xii) The Government will take steps to ensure prompt review of and decisions on all procurementmatters (para. 6.05).

(xiii) The Government and the Corporationwill meet certain financial covenants (para. 7.14).

9.02 Conditions of credit effectivenessare as follows:

(i) A suitable site for the Tavoy concentratorwill be acquired (para. 5.10).

(ii) The project consultantswill be employed (para. 5.14).

(iii) An onlending agreement, satisfactoryto IDA, will be concluded between the Government and the Corporation (para. 5.20).

9.03 Subject to the foregoing conditions and commitments,the project provides a sound basis for an IDA credit to the Government of Burma of US$16 million equivalent,with onlending of US$15.8 million equivalent to the No. 2 Mining Corporationfor a period of 15 years, including5 years of grace, at 10% interest per annum.

IndustrialProjects Department February 1977 ANNEX1

BURMA

APPRAISAL OF TIN/TUNGSTENEXPANSION PROJECT

GLOSSARYOF TECHNICALTERMS

Alluvial/Placer Deposit Earth, sand, gravel or other rock or mineral materials transported by and laid down by flowing water. Alluvial deposits generally take the form of surface deposits, river deposits, or shore deposits.

Amang The heavy mineral fraction remaining after removal of the cassiteritecomponent from ore. This fraction usually includes, inter alia, ilmenite, zircon and monazite.

Banka Drill A portable, manually operated system comprising 4-inch pipes in 5-foot lengths, a platform sand- pump, chisels, augers, etc., worked by rods inside the pipes. Used in prospecting alluvial deposits to depthsof 50 feet or more.

Bucket-LadderDredge A dredgewhose diggingmechanism consists of a ladder-like truss on the periphery of which is attachedan endlesschain which rides on sprocket wheelsand on which bucketsare attached.

Cassiterite Sn02 (tin oxide),usually black in color. When pure, contains78.6% tin but is usuallyadulterated by othermetals.

Comminution The breaking,crushing or grindingof coal, ore, or rock.

Concentration Separation and accumulation of economic minerals from gangue.

Dredging The removal of soils from under water, using the water as a means of transportationto conveythe soils to final positions. The act of using a dredge. Dredgescan be hydraulicor mechanical, the latter having wide use in tin mining. Gangue Undesiredminerals associated with ore, mostly non-metallic.The non-metalliferousor non-valuable metalliferousminerals in the ore. The fractionof ore rejectedas tailingsin a separatingprocess. It is usuallythe valuelessportion but may have some secondarycommercial use. ANNEX1 Page 2

Gravel Pump Mining This method of alluvial mining consists of (1) excavating and breaking up the gravel bank, usually by using monitors; (2) washing the dis- integrated material into a sump, excavated in the bedrock; (3) elevating the mixture from the sump to an elevated line of sluices by means of a gravel pump; and (4) sluicing the gravel for the recovery of its mineral content.

Gravity Separation Treatment of mineral particles which exploits dif- ferences between their specific gravities, their sizes and shapes also playing a minor part in separation, performed by means of jigs, classifiers, hydrocyclones,dense media, shaking tables, Humphrey's spirals, sluices, vanners, buddles.

Ground Sluicing Moving earth, sand, gravel, or other rock or mineral materials by flowing water.

High-tension Separation In mineral processing, the use of high-voltage direct current at between 18,000 and 80,000 volts to charge small particles of dry ore as they fall through its field (emanatingas a spray or a point discharge). These are then sorted into relatively charge-retainingand charge-losingminerals in accordancewith their conducting power, e.g., separation of cassiterite and heavy minerals such as ilmenite, xenotime. Also called electrostatic separation.

Ilmenite An iron-black mineral, FeO-TiO2; sometimeswith some replacement of iron by magnesium or manganese. Used in making ceramic products.

Jig A machine in which the feed is stratified in water by means of a pulsating motion and from which the stratifiedproducts, e.g. cassiterite,gangue, are separately removed, the pulsating motion being usually obtained by alternateupward and downward currents of the water. Also called washbox.

Lanchute A coffin-shapedsluice box, about 5 meters in length, used for the manual second-stageconcentra- tion of tin-ore.

Lode Strictly, a rock fissure filled with mineral; usually applied to metalliferouslodes. In general miners' usage, a lode vein, or ledge is a deposit of valuable mineral between definite boundaries. The word should not be used for a flat or stratified ANNEX1 Page 3

mass. A lode consists of several veins spaced closely enough so that all of them, together with the intervening rock, can be mined as a unit.

Magnetic Separator A device in which medium solids are caused to adhere, by magnetic means, to a conveying belt or drum, while a current of water removes non-magnetic particles which contaminate the medium, e.g., the removal of gangue from cassiterite ore.

Magnetite, Magnetic Natural black oxide of iron, Fe3 04. As black sand, Iron Ore magnetite occurs in placer deposits and also as lenticular bands. Magnetite is used widely as a suspension solid in dense medium washing of coal and ores.

Middlings That part of the product of washery, concentration or preparation plant which is neither mineral nor reject (tailings). It consists of fragments of mineral and gangue. The material is often sent back for crushing and retreatment.

Mixed Concentrate Concentrate with various mineral components, more than one of which is present, in commercial quantities, e.g., values of tin and tungsten.

M4onazite A phosphate of the cerium metals and the principal ore of the rare earths and thorium. One of the chief sources of thorium, used in the manufacture of gas mantles.

Monitor Jet used to direct high-pressurewater on uncon- solidated gravels and sands in alluvial mining to break down, wash and transport them.

Palong A form of sluice box, usually between 60 and 100 meters in length and fitted with riffles, commonly used as the primary concentrating device in recovering alluvial tin-ore by hydraulic open-cast methods.

Panning Washing earth or crushed rock in a pan, by agita- tion with water, to obtain the particles of greatest specific gravity which it contains. Used only for high value minerals.

Refractory A material of very high melting point with properties that make it suitable for such uses as furnace linings and kiln construction. ANNEX1 Page 4

Sand Wash Bed of water-worn gravels, boulders and sand in alluvial deposits and containing concentrations of the metal or mineral sought.

Scalping The removal, by screen or grizzly, of undesirable fine material from broken ore, stone, or gravel. (Also,amilling term for the removing of a mineral during closed-circuit grinding of the ore.)

Scheelite Calcium tungstate, CaWO4; one of the major sources of tungsten. Typically,,scheelite concentratewould contain 70% Wi3 (tungsten tri-oxide).

Shaking Table Used in concentrationof finely crushed ores, e.g. tin, by gravity. A rectangular deck with longitudinal riffles, it is shaken rapidly in a compounded to-and-fro motion by a vibrator in such a way as to move the sands along while they are exposed to the sweeping action of a stream of water flowing across the deck, which is tilted about its long axis.

Tribute Mining System under which a syndicate of miners delivers ore at the pithead at an agreed price. It may also operate where ore deposits are too small and scattered for normal mining activities. The tributors work and deliver their ore to the owner and receive payment calculated upon agreed terms from its ascertained valuable content. Also, working on a sharing basis.

Trommel A revolving cylindrical screen used in grading coarsely crushed ore. The material to be screened is delivered inside the trommel at one end. The fine material drops through the holes; the coarse is delivered at the other end.

Wilfey Table Long-establishedand widely-used form of shaking table. Plane rectangle is mounted horizontally and can be sloped about its long axis. It has a hard cover, e.g., linoleum with longitudinal riffles diminishingat discharge end to a smooth cleaning area, triangularin upper corner. A oompound eccentric is used to create gentle and rapid throwing motion on table, longitudinally. Sands, usually classifiedfor size range, are fed continuouslyand worked along table with aid of feedwater and across riffles downslope by gravity tilt adjustment,and added washwater. ANNEX1 Page 5

Willoughby Box Washing box unit used for wet separation of cassiterite.

Wolframite A mineral series, (Fe, Mn) WO, ranging from FeWO4 (feberite) to MnWO4 (heubnerite). Occurs as brownish-black monoclinic crystals, columnar aggregates, or granular masses in association with tin ores. An important ore of tungsten. lenotime Anyttrium phosphate, YPO4, an important source for the rare elements, cerium, erbium, and thorium, which have uses in various alloys. Thorium could be used as a nuclear fuel.

Zircon A mineral, ZrSiO4, which has a number of industrial uses in retallurgical, electrical, nuclear energy and chemical fields.

Industrial Projects Department October 1976 ANNEX 2 Page 1

BURMA

APPRAISAL OF TIN/TUNGSTEN EXPANSION PROJECT

THE BURMESE MINERAL SECTOR

A. PRESENT POSITION AND RECENT TRENDS

1. Role in the Economy

1. The mineral industry in Burma contributed about 1.4% to the GDP in 1974 and this proportion has not changed significantly in recent years. The value of mineral exports in 1974 was K 89 million (US$18.5 million), 9.5% of the total value of exports 1/. This value has increased from K 39 million (US$8.2 million) in 1970 2/ (when minerals made up 7% of the total value of exports). However, the only significant development appears to be the increase in the export value of precious stones from K 7 million (US$1.5 million) in 1970 to K 42 million (US$8.7 million) in 1974. Other positive developments are the increase in the production of antimony (1970 - nil; 1974 - 1,050 tons) and an increase in the production of tin concentrates (1970 - 450 tons; 1974 - 719 tons). This additional output of antimony and tin is equivalent to an increase of about US$1 million in the net realized value of mineral exports.

2. Since domestic consumption of metallic minerals is negligible, the production figures are indicative of export volumes. By the official statistics, which of course do not include illegal production and trade, production of minerals for export is about 10% of pre-War levels (1938-39) and is basically static. No significant new mines have come into operation for nearly 40 years. There are no substantial smelting, refining or other value-adding facilities other than an antiquated lead/zinc smelter.

3. An unknown but not insignificant value of minerals is smuggled out of the country and constitutes an important barter good. Gemstones, tin/tungsten and jade are the principal commodities in this trade. Some estimates place such uncontrolled movement as high as about 60% of the gemstones and between 1,000 and 2,000 tons of tin and tungsten concentrates. If such estimates are correct then this illegal trade is worth about US$7 million, or somewhat in excess of one-third of the official value of mineral exports. Providing some evidence of this uncontrolled trade is the fact that about 3,000 illegal workers were recently driven off the gemstone workings by the army. Also, apparently

1/ Including base metals, silver and precious stones (IBRD Report No. 565a-BA, statistical appendix). The 1974 export figure is the mid-year forecast.

2/ 1970 US$1 = K 4.76; 1974 US$1 = K 4.81. ANNEX 2 Page 2 several gravel pump operations were recently discoveredwithin Burmese territory funded by Thai capital. Since patrolling of the Thai border is difficult it is likely that while some operationswere intercepted, others have started up. Furthermore,the price paid by the Government for tin concentratesfrom the tributors is much less than what they can obtain across the border in Thailand (largely due to the artificial Kyat exchange rate). As a result, it is very likely that official tributor sales are merely token sales to maintain good relations with the Govern- ment.

4. The mining industry provides employment for about 18,000 (excluding the Myanma Oil Corporation)or less than 1% of total employment measured by official figures. An estimated 8,000 work in mines only during the wet season when water conditions permit alluvial mining of tin. The largest employers are the Myanma Bawdwin Corporation,employing about 6,000, and the Myanma Tin Tugsten Corporation,employing about 3,000.

2. Government Policy and DevelopmentAssistance

5. With the implementationof the First Four-Year Plan (1971/72 - 1974/75),the Government identified the minerals sector as one of the developmentsectors. The sectoral policy pronounced in the First Plan was "To work all chemical and mineral enterprises,except those specifically permitted to be worked on cooperativebasis, as State-ownedenterprises."

6. The most tangible evidence of the Government'sserious intentions to develop the sector are the numerous technicalappraisal missions which have been invited to examine the sector and the several developmentand technical assistance contractswhich have been implemented. In general, Government implementationpolicy has been to identify potential projects and to assign them for development through bilateral and multilateral technical assistance programs and through bilateral credit agreements.

7. Since nearly all projects are still in initial stages of preparation, it is not clear to what extent Government intends to rely on foreign technical and managerial ability to ensure successful operations. It would appear that "turnkey" projects are favored, delivered with trained domestic teams and meeting guaranteed performance criteria. The Government is apparentlynot consideringoperating under any form of contract management or participatoryagreements.

8. The main thrust of the Government'sdevelopment policy for the sector is to invest in modernizationand reopening of mines which were operationalbefore the War and are now either operating at reduced capacity (e.g. Bawdwin lead-zincmine) or on a tribute basis (e.g., several tin placers) or have closed down (e.g., tin dredging operations in the Heinze basin). The only major departure from this pattern is the explorationwork conducted on the Monywa copper deposit. On a commodity ANNEX 2 Page 3 basis the exploration priorities are stated to be (i) Tin-Tungsten, (ii) Lead-Zinc, (iii) Copper. The 1975 report to the Pyithu Hluttaw states that in 1974-75, K 32.6 million was spent on mineral exploration and prospecting.

9. The principal recent project activities are as follows:

Table 1: Recent Mineral Project Activities

Source of Project Assistance Timing

1. Expansion of Heinda tin (KfW) Full operating mine Fed. Rep. of Germany capacity April 1977

2. Exploration and development work Fed. Rep. of Germany Project for expanded at Hermyingi tin-tungsten mine production may be prepared within 2 years.

3. Partial modernization and (KfW) Financing and project redevelopment Bawdwin lead- Fed. Rep. of Germany substantially reduced zinc-silver mine (June 1976)

4. New development of Monywa copper Japan (to date) Feasibility study, com- mine pleted October, 1976

5. Heinze tin dredge and related UNDP (Exploration and Start-up by 1980-81 facilities feasibility study) IDA

10. The Government's second Four-Year Plan (1973/74 - 1977/78), currently under revision, calls for average annual net production in the mining sector to increase by 2.4%, reaching a total value of US$56 million equivalent by 1978. The plan envisages the purchase of machinery and equipment necessary for expanding mineral production and converting the Mawchi, Heinda, Bawdwin, and Hermyingyi mines into modern mining centers. With the exception of the Heinda project, it appears that little progress will be made on the other projects before 1978.

11. The overall Government development strategy for this plan period at least, is to de-emphasize industrial development in favor of agricultural development. Within this overall strategy development progress in the mineral sector appears to be fairly directly related to the availability of soft credit terms for specific projects.

12. The major sources of assistance to the sector to date are outlined below: ANNEX 2 Page 4

FEderal Republic of Germany (FRG)

1:i. The FRG has played by far the most significant role in the m:neral sector within the scope of bilateral agreements. This assistance initially took the form of technical assistance on a grant basis. Technical assistance still continues and specific credit lines have been made available, of which the most significant is the DM 15 million for the Heinda mine project cturrentlyunder disbursement. A proposed DM 65 million credit for the Bawdwin mine has at least been deferred following KFW's conclusion that the project entvisagedwas not financiallyfeasible. DM 5 million of this credit is now earmarked for Bawdwin, with most of the remainder tentativelybeing considered for the Monywa copper project.

U_SR

1's. The USSR provided a credit line of 1.8 million rubles for the rehabilitationof the Mawchi tin mine. However, insurgency activity has prevented this project from being continued and only a part of the credit was taken up. The USSR has sold some equipment to the Industrial M:nerals Corporation.

Jiapan

1li. Japanese involvementhas been in the Monywa copper project, commencingwith technical assistance under the Colombo Plan and subsequently continuingunder a bilateral technical assistance agreement. This work involved explorationdrilling, establishinga pilot plant and testing, and a feasibilitystudy. Japan is interestedin a joint venture, but this is so far not acceptable to the Burmese.

Canada

16. The Canadian InternationalDevelopment Agency (CIDA)initiated a technical assistance program in 1971-72which focused on exploration drilling at the Yadanatheingi lead-zincprospect and the Bawdwin Mine, and which ended in early 1974. Currently CIDA is providing one driller and one mining engineer within a three year and US$1.25 million project directed at:the explorationfor barite in the Maymyo region.

01:herCountries

17. Several other countries have provided technicalassistance, parti- ciularlyin the form of short appraisal missions,and these include Poland, Yugoslavia, China, Austria, Czechoslovakiaand Australia.

UIDP

18. The UNDP continues to have a major input into the minerals sector. Its program currently includes the following projects: ANNEX 2 Page 5

Table 2: UNDP Projects

Government Project Timing UNDP Budget Contribution (US$ Million) (K Million)

1. Geological Survey & Oct. 74 to 1.95 5.1 Exploration (various June 1977 localities)

2. Strengthening Research Three years 0.63 3.0 & Development of the from May 1976 1AyanmaMineral Develop- ment Corporation

3. Post-Graduate Training Started July 1972; 1.68 in Mineral Exploration, extension under Univ. of Arts and negotiation Science, Rangoon

4. Offshore Exploration Three years 1.26 4.2 for Tin (Tenasserim from May, 1975 Coastal Area)

5. Pre-Investment Drilling Two years 0.72 1.1 and Training (Selected complete in 1976 Areas)

19. The broad thrust of government mineral development policy (para. 8) is sound and there are certainly enough potential targets and developmental opportunities on which to base positive action. Burma is attempting to develop the mineral sector but very much on its own terms. The environment is one where only countries with extraordinary perseverance and the willingness to "invest" large sums of technical assistance on a grant basis (such as the Federal Republic of Germany and Japan) have been able to gain a measure of acceptance in project activity. There are no signs in the mineral sector to-date of the Burmese being able to launch and adequately manage any significant revenue-generating projects on their own initiative and funding.

3. Financial, Management and Organizational Problems

20. The decline of the mineral sector began with the extensive World War II damage and the post-war withdrawal of the private foreign mining companies. The continuing debilitated state of the sector has resulted from a lack of inv=stment stemming from the withdrawal of the private interests arn overnment emphasis on investment in other sectors, the inability ;. che ½overament mineral corporations to use their own financial resources due to total Government control over their revenue and expenditures, a chronic shortage of foreign exchange, and the lack of experience in project preparation and execution in the country. Further restrictive factors have been the extensive insurgent activities in large ANNEX 2 Page 6 areas of the country where minerals can be produced and the Government policy of not allowing foreign or private participationin the development of the sector. A recent exception to this latter policy has been the advent of joint ventures in petroleum exploration involvingprivate oil companies but foreign participationin the non-petroleumsector has been limited to bi-lateral and multilateraltechnical assistance and financial aid, as outlined above.

21. The major problems confronting the sector are poor and outmoded plant, a lack of planning experience and commercial orientation,shortages of foreign exchange and the related shortage of spare parts, a fragmented organizationalstructure, a weak financial situation for most of the sector's corporations,over-employment and reluctance to rationalize,and the distorted exchange rate of the kyat, which contributessubstantially to the financial weakness of the mining corporationsand results in marginal financial returns for most substantialprojects and a diversion of a significantproportion of sector output into illegal trading.

22. There are some signs that the long term sectoral decline is coming to an end. Government policies over the last few years have resulted in increasedactivities by various agencies in the sector, as described in the previous section.

23. A reasonable degree of technical competence exists at various levels in the sector's institutionsbut management abilities are limited and there is a lack of innovationand initiative. In certain areas there are labor shortages (para. 32) but this has not been a major limiting factor. It is not likely that substantialprojects in the sector could be adequatelyprepared and implementedwithout fairly extensive outside technicalassistance in addition to the essential outside financial resources.

24. Although most of the sector institutionsare called corporations, their separate legal identity is vague and they have extremely limited autonomous power. There are no shares or similar instrumentsand ownership is by the people and vested in the State. All revenues have gone to the Union Government ConsolidatedFund (UGCF) and operating and capital expenditureshave been drawn from the Fund under rigid and restricted budgets approved by the Government. There has been some modificationof this financial system with the introductiona few years ago of limited "borrowing"at no interest under the Working Capital System but the corporationshave had little effective control over their financial resources and there have been no charges for funds drawn from the UGCF, which has been the sole source of finance other than a few bi-lateral credits on-lent through the central Bank.

25. The responsibilitiesand powers of the mining corporationshave been purely operationaland all policy decisions have been taken by the Minister of Mines or the Economic Committee of the Council of Ministers. Some liberalizationof this highly centralized control is envisagedunder new guidelines, describedunder the section on the structure of the sector. ANNEX 2 Page 7

26. The entire minerals sector in the country is equivalent to the output of a fairly small mining company elsewhere which could operate with a central office staff of about 50 professionals and support personnel, a geologicalstaff of about 20 and several district offices employing an additionalmanagerial and office staff of about 100 (down to the mine or plant superintendentlevel). In contrast,mining operationsin Burma are divided between four operating corporationsand supervisoryand support staff run into the hundreds. There is not one good managerial group but several fairly mediocre ones. The argument for this "decentralization"is that one single organizationwould be too unwieldy, given the size and operationalmethods of the bureaucraciesinvolved. The appraisal mission did not examine in detail the degree of duplicationof common services in such a system (such as accounting, stores, marketing, geology and planning) which generally benefit con- siderably through centralizationand computerizationof the more routine elements. The scope for improvementof management systems is substantial. There is some evidence that reorganizationand shuffling of units is a never- ending process in search of "efficiency". For example, the geological unit, which was with the Myanma Mineral Development Corporationfor a few years, is moving back to the Directorate of Geological Surveys and Exploration. It now appears that all geologicalexpertise will be in the latter unit and that geology will be split away from the operating units.

27. There has been little action to improve effectiveness. Thus, although shortcomingsare perceived, little is done to rectify them. The individualwho is tempted to introduce change balks at the enormity of the problem. An example of this is the lack of cost accountingand auditing systems. Accounting students are taught all the latest approaches,but as young and "inexperienced"juniors in an organization,they are virtually powerless to effect change.

28. Entrepreneurship,as it relates to business acumen and innovation, is probably largely confined in the mineral sector to those who can produce and sell illegally. Ideally, these entrepreneursshould somehow be incorporated into the system. In theory this would appear to be possible, since the operations could be termed cooperativesand thus meet socialistic goals. But practically speaking,the pricing and marketingsystem is not likely to be able to adjust sufficientlyto divert anything but a small proportion of such entrepreneurialactivities to the official trading channels. Despite the apparent shortcomingswithin the system as a whole, certain State enterprisesare profitable and a sincere attempt is being made to focus increasinglyon profitability.It is likely that great progress could be made if the Burmese were willing to purchase contract management for projects, as a bold step to the rapid acquisition of managerialskills. To some extent the consultingassistance for the proposed IDA project is a step in this direc- tion. But a very specific situation prevails at this time which is bound to have a bearing on project implementation. ANNEX 2 Page 8

4. Education

29. Higher education is currently affected by student unrest, particularlyin Rangoon, which is counteredby the authoritiesby closure of the University. Over the 18 months to March 1976, when it was closed again, the universityhad been open for only 3 1/2 months. The only advantage of such events is that it decreases the numbers of graduates pressing on limited job opportunities. For example, there are approximately 1,000 students studying geology with about 250 graduating each year. Since the State is the sole employer, it clearly is unrealistic to expect the various mineral organizationsto be able to absorb such numbers.

30. The quality of the graduates apparently leaves much to be desired and is far below "western" standards. Also, it is difficult for Burmese to receive permits to go abroad for studies and the UNDP has difficultiesin getting the fellowshippositions filled in its programs.

31. A quantum jump has to be taken in upgrading the standard of professionals in geology, mining, mineral dressing and extractivemetallurgy, through exchange lectureships,specialized courses (both in Burma and abroad) and study abroad. It would appear that the most useful strategy would be to attempt to upgrade the graduates of the existing system in the disciplines already taught and to send overseas candidates for training in disciplinesnot yet being taught in Burma. Attempting to reform the present structure of education for the sector should be a long-termobjective, but one which is likely to be particularlydifficult to effect.

5. Labor

32. Most of the mine labor before the War, both in surface and underground operations,was expatriate (Chinese,Malay, Ghurka, Indian, etc.) and reflected the feeling at that time that expatriateworkers were far more productive than nationals. Although this was probably an unduly biased attitude, it is still today difficult to attract Burmese labor to mining operations in some areas. It is particularlydifficult to obtain recruits for the undergroundoperations at Bawdwin. Labor turnover is such that about 600 new recruits are required annually (for the whole mine) and the underground operations are continuallyunderstaffed. At the YadanatheingiMine, all underground labor reportedlyconsists of convicts. Surface mining operations fare better but there is also considerableseasonal movement in and out from farming activity and some areas of the country where a sparse population results in scarce labor. There is much current discussionon incentiveschemes (para. 33) and how to make them sufficientlyattractive. At the Bawdwin operation one of the most attractive features for labor is the adequate availabilityof basic foodstuffsat somewhat subsidizedprices.

33. The naturally peaceful dispositionof the people coupledwith a centrallyplanned economy results in a remarkablytranquil labor force. Trade unions and strikes are illegal and apparently the mines have not been troubled by any spontaneouslabor disturbances. However, continued tranquility ANNEX 2 Page 9 of the industrial labor force in the future is likely to depend much on wage and price levels and the ability of individualsto exercise a choice to return to agricultureshould inflationarytrends (currentlyat least 20% per annum) and regulatedwage structures (public sector wages have remained essentiallyunchanged in Burma since 1948, with only minor cost of living adjustments in 1972 and 1976) erode any advantages of industrial employment. Steps are being taken under the new commercial guidelines (para. 46-49) to introduce bonus systems linked to performancewhich should offer scope for workers to improve their income levels.

6. Security and Insurgency

34. The problem of insurgencyis one of major importanceto the future developmentof the sector and officials are vague in their discussion of the matter. Basically, only about 30% of the country is completely free from any form of insurgencyactivity. The rest of the country can be divided into heavy insurgency activity and sporadic activity. It would appear that in the more intense areas the Government can not guarantee safe conduct or safe operations.

35. From the point of view of mineral development,it is therefore necessary to superimpose an "insurgency activity" map over a map of geological potential and potential projects, and to assess the degree of overlap. At this time, it would appear that operations such as Monywa, Heinda, and the Heinze Basin are areas where safe conduct can be assured with adequate military effort. The Mawchi operation is clearly a problem, and the issue is at what cost the area could be neutralized. Bank staff have not been allowed to visit the area. Also, the Bawdwin operation and vicinity is an example of a particularlydifficult situation clearly bordering on an intensive insurgency front, and the issue of insurgencybecomes critical to any rehabilitation plans for the mine. It is clear that, should mining activity become a specific target of the insurgents, the sector is particularly vulnerable and it would require a major effort by the Government to assure safe conduct. In some areas, illegal mining and smuggling operations are apparentlyrelated to insurgent activity.

B. STRUCTURE

1. Background

36. Prior to World War II, mineral productionwas entirely in the hands of the private sector, dominated by British owned companies.During the War, much of the mining plant was severely damaged and neglected. In the post- War period, there was considerable reluctance by the former companies to re- invest in rehabilitation and in new plants in the newly independent Burma. The smaller mines which were still in operation were gradually nationalized. In 1951, the Government took a 50% interest in the Bawdwin mine through ANNEX 2 Page 10

Burma Corporation (1951) Limited, and in 1965 the Burma Corporationwas nationalized. The only private legal activity in the mining sector at the present time is small scale mining, particularlyof tin and tungsten and antimony. The "official"part of this production is bought from the "tributors"by No. 2 Mining Corporation (tin and tungsten),and No. 3 Mining Corporation (antimony).

2. Major Institutions

37. A small number of government corporations,which are essentially part of the Ministry of Mines, are responsiblefor all official production of minerals. The producing corporations,with the exception of the Jade and Gem Corporation,have until recently been required to supply all of their output to the government-ownedMyanma Export Import Corporation (MEIC), a part of the Ministry of Trade, for export sales. There have been various organizational changes in the sector over the years, and since the sub-divisionof the Mineral DevelopmentCorporation in 1972 (para. 46) the main sector institutions have been as follows: The Myanma Bawdwin Corporation (now No. 1 Mining Corporation)responsible for lead, zinc and silver production,with 50%-60% of non-petroleumsector output and 40% of employment;the Myanma Tin Tungsten Corporation (now No. 2 Mining Corporation),responsible for tin/tungsten productionwith 30%-40% of sector output and 15% of employment;the Myanma Mineral DevelopmentCorporation (No. 3 Mining Corporation)responsible for production of antimony and coal and the developmentof copper production;the IndustrialMinerals Corporation (No. 4 Mining Corporation)responsible for production of limestone,gypsum, and other non-metallicproducts; the Gem and Jade Corporation,responsible for productionand marketing of jade, rubies and other gems and pearls; and two main supporting entities within the Ministry, the Directorateof Geological Survey and Mineral Exploration (DGSE),responsible for explorationand geologicalstudies, and the Department of Planning and Works Inspection,responsible for mine inspection, safety, planning and statistics. The Myanma Oil Corporation (MOC) is responsiblefor oil and gas explorationand production.

38. The Minister of Mines has three advisory committees,made up of advisors from other ministriesand the directors of the operating Corpora- tions. These committees are Technical,Projects and Executive (largelyadmin- istrative matters.) The developmentpriorities are set out by the Projects Committeewhich would appear to be the senior decision making body within the Ministry. ANNEX 2 Page 11

39. The major producing mines at the present time are as follows:

Table 3: Major Producing Mines

Main Corcporation Mines Annual Production Levels

No. 1 Mining Bawdwin 6,000 tons zinc concentrate Corporation 9,000 tons refined lead 500 ounces silver plus four other products

No. 2 Mining Hermyingyi 200 tons tin/tungsten concentrate Corporaton Mawchi 400 tons tin/tungsten concentrate Kanbauk 300 tons tin/tungsten concentrate Heinda 200 tons tin concentrate

No. 3 Mining Kalewa and 30,000 tons coal Corporation Nama

Gem and Jade Mogok Precious Stones Corporation

3. Mineral Marketing

40. Burma holds a very minor positon in the world production and export of mineral products even though it exports nearly all of its non-fuel mineral output. It currently provides less than 1% of world tin production, about 1.5% of world tungsten production, and under 0.2% for zinc, lead and silver.

41. Mineral marketing is a particularly weak aspect of State operations in the mineral sector. Export marketing has been handled by the MEIC with the exception of gemstones which are put up for auction by Trade Corporation No. 19. Under the decentralization policy, commercial enterprises falling under one Ministry will be able to handle their own commercialization if they so desire. The Mining Ministry has recently set up a new metals marketing organization in the form of a Minerals Marketing Committee. This Committee was formed in late 1976 and is managed by representatives from the three metal producing corporations. In addition, the former sales manager for metals with the MEIC (a well-regarded and competent individual) and the only person on the Committee who has any long-term experience with foreign buyers has been made Secretary of the Committee. Beyond this, however, it is not yet clear how broader expertize in marketing will be acquired.

42. Marketing is presently virtually divorced from the production function (although this should change with the above mentioned Marketing Committee). The role of the marketing agency has been basically to sell what is produced and apparently the only direct communication between production and marketing was a seminar held once a year. And so, whether in tin-tungsten or in zinc concentrates, there has been almost no liaison between marketing and production to better adapt the products to market requirements, thereby ANNEX 2 Page 12 rinimizing penalties and securing better prices. There is much scope for Iroduct up-grading, both at the mine and at suitably located central concentrating plants, for a wide range of mineral commodities.

13. The basic marketing techniques are one-year contacts or spot Eales of batches, both done on a tender basis with ore buyers. Even in tin, with three smelters relatively close at hand in Malaysia and Thailand, no tolling contracts are entered into. The reasons given are that ore supplies ere unreliable in quantity and quality and that the approach in mineral sales is similar to the way rice is sold and the "higher authorities" favor that approach. The Malaysian consulting firm, Osborne and Chappel, in examining tin marketing in Burma, found that domestic assays were unreliable and arbitra- tion often had to be resorted to. They recommended direct sales to a smelter. Tin and tungsten marketing is discussed further under the Annexes on the Market (Annexes 3-1 and 3-2) and the Corporation (Annex 4).

4X. It would appear that there is considerable scope for improving gem marketing strategy. The approach, as practiced for 12 years, is to aiction once a year mixed batches of gems which are cut domestically. The dDmestic cutting is poor and the once-a-year auction (with reserve prices) d3es not permit on-going contact with the market. A year-round marketing oitlet has recently been opened on a trial basis in Switzerland. It would a)pear that Burma, as the world's leading source of quality rubies, could d3velop a more sophisticated marketing strategy. For example, it could e3tablish offshore cutting and jewelry-making affiliates (in locations wiere such "know-how" exists) or attempt to import such "know-how" on a c)ntract basis. Thailand is a good example of a thriving gem cutting iidustry which developed on the basis of domestic production and which is iicreasingly attracting rough stones, many of them smuggled from Burma.

4i. The prevailing exchange rate and low mineral purchase prices vLrtually exclude the possibility of the Government purchasing minerals on ":he free market" from tributors. For example, the Government purchase p-ice is K 3 for one standard measure of tin concentrates (a condensed mLlk tin) but this can be sold in Thailand for 10 Baht which is traded f)r up to K 12 or a multiple of up to 4 times. This differential contains a more favourable purchase price for the tin, reflecting its value as a birter good, as well as a free market exchange rate for the Kyat. Similar d fferentials exist for all other mineral commodities which lend themselves ti? smuggling.

4 Legislation and Operational Guidelines for the Sector

41,. The legislative framework for the sector has evolved in stages o'-er the last 15 years. The Petroleum and Mineral Development Corporation A(t was superceded in 1965 by the Mineral Development Corporation and a new a(ministrative system introduced in 1972 when the Mineral Development Cor- p ration was re-organized. Separate legislation was approved for each c(rporation e.g. the Myanma Tin Tung3ten Corporation Act in 1974. In May, 1!75, the Standard Guidelines for the Operation cf State Economic Enter- plises were issued by the Ministry of Planning and Finance. These are iTtended to enable some departure from the extreme central control of tle Government. More autonomy and financial responsibility is intended to ANNEX 2 Page 13

rest with the corporations and new fiscal and financial measures (e.g. new taxes, a system of debt financing with accompanying financial charges) are being introduced. Implementation of this new system commenced in April 1976, and although this represents a fairly significant change in policy, the system and the people are so accustomed to close control that it will likely be some time before much innovative and autonomous behavior results. The rank and file manager is extremely reluctant within the system to take a major decision, or, for that matter, to commit himself to writing. Decision making will, in all likelihood, continue to be made slowly and by senior committee.

47. Interest charges on debt are to be introduced progressively. The producing corporations will be permitted to take over their own marketing (para. 41) and will have more freedom to retain their own cash generation. There will also supposedly be some recognition of foreign exchange earners in the allocation of the country's scarce foreign exchange resources. Auditing will still be done exclusively by the Government Audit Office and it is difficult to see how badly needed improvements in the accounting area can be made sufficiently quickly to enable accounting and auditing staff and systems to cope with the new demands which are inevitable if the new commerical orientation is to function effectively.

48. Wage policy will still be controlled centrally but under the commerical re-orientation, bonus systems are being introduced. These are to be related to the financial and production performance of the corporations and will be structured so that lower paid workers will receive proportionately higher rates of bonuses.

49. The changes are being introduced cautiously and the Government will certainly remain dominant in the sector. Indeed, if implemented ineffectively the new guidelines could act as yet another set of restrictive controls in addition to the system which already existed.

C. MINERAL POTENTIAL AND EXPLORATION

50. The country is comprised of three physiographic regions. The Western Hills in the West, the Central Belt, and the Shan Plateau in the East with a Southward continuation of the highland in the Tenasserim Strip. Geological features include a great variety of rock types, ages and structures and each physiographic region has its characteristic geological features. The main metallic mineral deposits of Burma are found in Eastern Burma, in the Shan Plateau area, the Tenasserim Strip, in northern Burma, or near the eastern edge of the Western Hills. Within these areas, specific types of deposits tend to be grouped in northerly-trending belts (commonly referred to as metallogenic provinces). The well known Burma tin-tungsten province contains numerous deposits of cassiterite and wolframite either separately or in combination and extends throughout the Tenasserim Strip and northerly to about latitude 21°15'. These deposits comprise both alluvial and lode occurences. Another province, characterized by deposits of lead, zinc and silver, known as the lead belt, lies immediately north of the tin-tungsten province and extends north-north-easterly for some 300 miles through the Southern and Northern Shan States. Barite deposits occur in the same province. Scattered antimony ANNEX 2 Page 14 deposits, a few of which have been mined on a small scale, overlap the north end of the tin-tungstenprovince and the south end of the lead belt, and thus extend northerly from near Moulmein into Southern Shan State. Rubies and sapphires have been mined from the 15th Century (or earlier) from an area of about 40 square miles near Mogok in Northern Shan State. Jade is mined to the north of this area. Near the eastern edge of the Western Hills, from the Arakan Yoma in the south to the Naga Hills in the extreme northwestBurma, are a series of ultrabasic intrusions and dacitic extrusivebodies as near Monywa, that may constitute a copper and nickel province.

51. Documentationon the mineral resource endowment is of three basic types: (i) The pre-War work of the Burma Division of the Geological Survey of India, most of which was published, (ii) The post-War work by the Direc- torate of Geological Survey and Exploration and its forerunner organizations-- most of this work is not published and is not readily available, (iii) The work done under bilateral and multilateraltechnical assistance agreements-- this work is largely the property of the Government. The status of geological knowledge may be summarizedas follows: of Burma's total area of 261,228 square miles, 184,260 square miles (about 70% of the country) has been mapped at only reconnaissancescale (1 inch to 4 miles) and only 78,320 square miles (about 30% of the country) has been covered by geologic maps of 1 inch to 1 mile scale. At the advent of World War II, most of the Central Basin and Tenasserimregion had been compiled only into schematic 1 inch to 32 mile maps which are quite inadequate by modern standards and which have not been updated since. Only a small part of the country has been prospected systematicallyby modern methods. It is due largely to problems of security that large tracts of the country have not been geologicallymapped or prospected in any detail, and geological missions are assigned only "secure" areas for exploration. Ironically,and unfortunately,geologically attractive provinces are generally in hilly terrain which is generally deemed to be "not secure". In summary, indicationsare that Burma has a highly varied and favourablemineral endowmentwhich justifies a strong effort in mapping and exploration.

D. PLANNED SECTOR INVESTMENT AND NEEDS

1. PotentialDevelopment Projects

52. The mineral sector has been given a high priority for investment by the Government (para. 5), given its potential for growth and the important contributionit can make to the country's foreign exchange earnings. On the other hand, realizationof objectives may be slow due to Burma's limited financial, technicaland managerial resources (para. 57). As mentioned earlier, the thrust of the Government's developmentstrategy is to rehabilitateold tin/tungstenmines and the Bawdwin lead/zinc/silvermine, to develop the Monywa copper deposit, to commence tin dredging at Heinze Basin and to carry out a number of smaller projects in antimony, gemstones and tin/tungsten. The salient features of the major projects are summarized below: ANNEX 2 Page 15

ProJect: Heinze Basin Tin Dredge and On-shore Facilities

Order of Magnitude of Capital InvestmentRequired (dredgingonly): US$15 million (1976 prices) Tonnage of RecoverableOre Reserves: 6,640 - 8,800 tons of tin concentrate Gross Value of RecoverableOre Reserves: US$39-52 million (1976 prices) Tonnage of Annual Production: up to 650 tons of tin concentrate,later declining to 220 tons Gross Value of Annual Production: US$2.1-2.7 million (1976 prices). Based en average annual productionof 350 to 450 tons. Status: Appraised by IDA during March-September,1976 Potential start of Production: 1980-81

Project: Other On-shore Tin-TungstenOutput

Order of Magnitude of Capital InvestmentRequired: US$5 million (1976 prices) Tonnage of RecoverableOre Reserves: Not yet established Tonnage of Annual Production: Potential for at least 500 tons of tin concentrate Gross Value of Annual Production: Potential for at least US$3.0 million (1976 prices) Status: Ore reserves being established Potential start of Production: early 1980's

Project: Heinda Tin Mine Expansion

Order of Magnitude of Capital InvestmentRequired: US$15 million (1976 prices) Tonnage of RecoverableOre Reserves: 11,600 tons of tin concentrate Gross Value of RecoverableOre Reserves: US$68 million (1976 prices) Tonnage of Annual Production: 800 tons of tin concentrate Gross Value of Annual Production: US$4.7 million (1976 prices) Status: Under construction;financed by KfW Potential start of Production: early 1977

Project: Bawdwin Lead-Zinc-SilverMine Modernizationand Expansion

Order of Magnitude of Capital InvestmentRequired: depends on scale of modernization;up to US$100 million or possibly more. Tonnage of RecoverableOre Reserves: 30 million tons Gross Value of RecoverableOre Reserves: US$1 billion (1976 prices) Tonnage of Potential Annual Production: up to 1.5 million tons of ore Gross Value of Annual Production: up to US$50 million Status: A minor scale rehabilitationprogram was planned by Klockner (F.R. of Germany) within a budget of DM 65 million, but financing by KfW has been reduced to DM 5 million. Potential start of new Production: early 1980's

ProJect: Monywa Copper Mine Development

Order of Magnitude of Capital InvestmentRequired: At least US$86 million Tonnage of RecoverableOre Reserves: 28.5 million tons proven of 1% copper Gross Value of RecoverableOre Reserves: US$350 million (1976 prices) ANNEX 2 Page 16

Tonnage of Potential Annual Production: 3 million (minimum) Gross Value of Annual Production: US$36 million Potential of area: 200 million tons at 0.7% recoverablecopper, say, at US$0.70 per pound = $2 billion Status: Japanese government completedfeasibilty study in late 1976 Potential start of new production: early 1980's

Project: Antimony, Gold, Gemstones

Order of Magnitude of Capital Investment Required: US$10-15 million Potential Gross Value of Annual Production (order of Magnitude) US$ 5 - 10 million Status: Government is in initial planning phases Potential start of new production: could be operationalby 1980

53. The three substantialpotential projects, excludingHeinda which is nearing completion,are Heinze Basin (the IDA project), Bawdwin and Monywa. The Heinze Basin project and its related componentsare discussed in detail in Annex 5-1.

54. The Monywa Copper project has the potential of being a valuable undertakingand may possibly expand to be a major copper venture. At this stage, and basing judgment on the Japanese findings, it appears difficult to consider anything but the export of concentrates, i.e., not establishinga smelter. The additionalbenefits which the project offers is an industrial undertakingin an underdevelopedregion and the opportunityfor upgrading railway track and adding new rolling stock. The project does not appear to present security problems and has an interested sponsor-theMitsui Mining Company of Japan.

55. The Bawdwin mining and smelting complex poses a particularly difficult developmentalchallenge from the point of view of technical complexity,infrastructural shortcomings, and insurgent activity. The mine and plant rehabilitationplan, as recently developed by Klockner and K.f.W., appeared to be of rather limited scale and only a partial solution, and was recently judged unsuitable for financingby KfW and the German government.

56. From the point of view of profitabilityand relative ease of implementation,there are a large number of projects which are likely to offer very interesting returns with a considerable "cushion" for poor management. Tin gravel pump mining, modernizationof gemstone production and marketing, and promotion of antimony production are examples of potentially highly attractiveprojects. The problem with these projects, from the point of view of Bank action, is that they are all relativelysmall and therefore difficult to handle as individualprojects. At the same time, they require considerableassistance in preparationand implementation. A start on improving tin output by gravel pump mining is being made a part of the IDA project. The antimony and gemstone projects have had very little preparationwork done as yet. ANNEX 2 Page 17

2. DevelopmentPotential and Problems and the Bank's Role

57. The priorities outlined above are sound but realizationof the developmentplans now under review are likely to be slow due to shortcomings in project preparation and execution abilities,the limited foreign exchange resources that can be attracted, and the limited local funds available. The distortedexchange rate for the kyat coupled with other inefficienciesin the sector corporationshave resulted in financiallyweak institutions with little scope for project financing through cash generation. Furthermore,the exchange rate situationmakes it difficult to achieve attractiverates of return in financial terms. Bawdwin, Monywa and the Heinze Basin dredging project are all examples of financiallymarginal but reasonablysubstantial projects in the sector. KfW decided not to finance the limited modernizationproject at Bawdwin partly due to its poor financial return and both Monywa and Heinze Basin are financiallymarginal projects even though shadow-pricingof taxes and foreign exchange costs and benefits produces very attractiveeconomic returns. For significant re-development of the sector to take place some means of augmenting the foreign exchange revenues of export-oriented projects and institutions may have to be found.

58. An examination of the medium term outlook presented in a 1973 mineral sector report 1/ highlights the hazard of making predictions in the uncertain Burmese environment. At that time, the mission forecast a potential increase of K 30 million (US$6.2 million) in the value of mineral exports by 1974/75 from tin and tin-tungsten projects underway or being planned. In actual fact, the real increase, in 1971/72 price terms, has been only about K 6 (US$1.2 million) million. The major reason for this difference is accounted for by the suspension of the Mawchi project and the delay in start-up of the Heinda project. Also a small used dredge was postulated as operational but such a development did not materialize.

59. Notwithstanding the abovementioned difficulties, the mineral sector has the potential to approach an export level of US$35 million (1976 prices) by 1980/81, assuming the envisaged expansion and product quality improvement in tin/tungsten, better control of gemstone production and marketing and some expansion in antimony. In the longer term, exports could approach US$100 million by the mid-80's assuming two major projects like Monywa or Bawdwin are executed, or one of these is done in parallel with minor improvements in, for example, tin/tungsten, gemstones and jade, and antimony. Growth of this order of magnitude is not conditional on new mineral discoveries but on adequate preparation and funding of projects

1/ Freyman and Associates; Burma: Development Prospects in the Mining and Non-Ferrous Metallurgy Sector; January 1973. ANNEX 2 Page 18 to develop known mineralization. Achieving such a level by the mid-80's would require sector investment of at least US$200 million (1976 prices) over the next 5-10 years and project preparation,execution and early operationwould need extensive outside technical assistance. Sector potential is substantiallygreater if illegal exports could be brought into the official sector and if government policy were to allow more active foreign participation.

60. A major strategic question for the developmentof Burmese mineral potential is the relative emphasis which should be placed on more modest projects in tin/tungsten,gemstones or antimony versus major capital intensive undertakingssuch as Bawdwin or Monywa. The impact of the latter type of project in contributingurgently needed foreign exchange would be much greater but execution could overtax Burma's limited financial, technical and managerial resources. Furthermore,it may be impossible to execute such large and complex projects effectivelywithout a level of outside technicalparticipation which might be unacceptableto the Government. The Government intends to push for implementationof a number of projects, both large and small, but the numerous limitationsalready outlined may force it to be very selective in those projects chosen for advancement.

61. The Bank's role in sectoral developmentcould be three-fold. First priority should be in financingspecific projects such as the proposed tin/tungstenexpansion, thereby establishingsome record of successful experience in the sector. Secondly, the Bank can, through consultants,helpto identify and select developmentpriorities from the longer term alternatives. Third the Bank could act as a catalyst for other sources of finance to enable larger projects to be undertaken.

Industrial Projects Department January, 1977 ANNEX 3-1 Page 1

BURMA

APPRAISAL OF TIN/TUNGSTEN EXPANSION PROJECT

THE TIN MARKET

A. INTRODUCTION

1. The value of tin sales represents some US$1.2 billion annually, and therefore plays a comparatively modest role in international trade. However it is one of the few metals where a large proportion of the production comes from the developing countries (about 75% of mine and refinery production). As such, tin has a significant role in the economy of a few developing countries - Bolivia, and Malaysia for example. Another distinct feature of the tin market has been the long history of producer and consumer cooperation.

2. The tin market has been characterized by low growth in consumption, and this is not expected to change in the future. On the other hand, the grade of proven reserves has shown a decline over the past couple of decades. In spite of improved mining and concentrating methods, costs of production and therefore prices, have shown a real increase over time.

B. PROPERTIES

3. Tin metal is white in color, has a brilliant lustre, and a high light reflectivity when polished. It is normally malleable and ductile. Tin metal is soft enough to be cut with a knife. However, above 2000C, it becomes quite brittle. Tin's malleability is utilized in collapsible tubes and foil - one of the few uses where tin is directly consumed. Sheets as thin as 0.0014 to 0.0002 cm. can be rolled. Chemically, the most outstanding property of tin is its ability to resist corrosion by air and many acidic liquids. Because of this property, tin in the form of tinplate, is used as a container for foods and beverages and in collapsible tubes for toothpaste and various other products. Tin-bearing solutions used in plating are more conductive than other plating solutions. As a result, the tin covering on iron or steel is more continuous, decreasing the possibility of corrosion of the coated material. Thinner coats can be applied with tin than other substances. Another important property of tin is its ability to impart desirable properties to other metals when used as an alloy. The best example of this is the use of tin to harden copper in bronze - first used in 3200 B.C. This was one of man's first metallurgical experiments and laid the foundation for the Bronze Age.

4. Although there are several tin minerals, cassiterite (a tin oxide - SnO ) is by far the most common. Cassiterite has a high specific gravity (6.A - 7.1), and is quite hard. Because of its hardness and greater resistance to weathering than other minerals, it is found in placer deposits quite free of impurities. Initial treatment by gravity separation yields a concentrate ANNEX 3-1 Page 2 which is relativelypure cassiterite- about 77% tin. Smelting and refining yields relatively pure tin metal. "Grade A" or "Straits"tin has a minimum tin content of 99.95%.

C. USES

5. Tin is generally used in improving the properties and character- istics of other materials. Although tin is essential to an industrial economy, society is not overly conscious of the role played by tin. The table below shows the major end uses of tin in selected industrialized countries.

Table 1: End Uses of Tin in Selected IndustrializedCountries (Percent)

United United France Germany Japan Kingdom States

Tinplate 45 41 41 39 34 Solder 20 14 37 7 26 Bearing Alloys 5 4 4 n.a. 10 Bronze and Brass 5 3 5 12 14 Tinning 6 4 2 8 4 Chemicals 3 6 n.a. 8 7 Other 16 28 11 26 5

Total 100 100 100 100 100

Sources: World Bureau of Metal Statistics (WBMS) InternationalTin Council (ITC), 1975 Data

6. Some 40% to 45% of world tin consumptionis as a coating in tinplate. The bulk of tinplate goes into the fabricationof metal containers for food, beverages,and other commodities. In the USA, tinplate represents less than 35% of tin consumption. Elsewhere in the world this use is somewhat more than 40% of total consumption. Only primary tin is utilized in tin plate.

7. The use of tin plate has trended downwards,mainly because of development of rust-free steel and aluminum in containers,particularly for those products with short shelf life such as beer and soft drinks. This trend is more pronounced in the USA than elsewhere in the world. In addition, thinner tin coats and differentialplating have also decreased the use of tin.

8. On the other hand, a techniqueintroduced in the manufactureof aluminum cans known as "drawn and wall-ironed"cans has been applied to tin cans. This techniquepermits the productionof two piece seamless cans. First manufacturedin 1971, these cans are in strong competition with aluminum cans. Tin cans offer a number of advantages including cost, strength,magnetic handling, and better consistencyin filling. ANNEX 3-1 Page 3

9. Other uses for tinplate include: bottle caps, closures, and kitchen utensils. These uses account for less than 10% of tinplate consumption.

10. Solder represents the second most important use of tin, where it is used in various alloys with antimony, silver, and lead. Solder accounts for some 25% of tin consumption. Most of the solder is used in joining electrical and electronic circuits, and joining in plumbing, and heat radiation and air conditioning equipment. A small amount is used in the sealing of tin cans.

11. The outlook for tin in these applications is closely tied to the future of copper. Heat exchanging equipment in automotiv'e applications is an important use. If the trend develops to smaller automobiles, a decrease in automobile production growth, or substitution of aluminum for copper in radiators, demand for tin could be affected.

12. In other areas, such as commercial and domestic air conditioning, and electrical and electronic circuits, the outlook seems favorable. Use of epoxy resins for joining, or a trend away from copper heat exchangers could materialize. However, the prospects for continued use of tin are good. In electrical and electronic applications, solder seems likely to remain a favored component.

13. Another important use of tin is in bearings. Babbitt alloys are the most common. These alloys range from 80 to 90% tin, together with antimony and copper. There are also lead base babbitt metals which contain I to 10% tin. These bearings enjoy wide use in most automobile and other engines, farm, construction, and other machinery. Use of plastic, air, low tin, or other bearings could lower demand.

14. Bronze and brass represent some 8% of tin consumption. Bronzes are copper base alloys which may or may not contain tin. The most important tin alloys are phosphor bronze containing 10 to 12% tin with small amounts of phosphorus and gun-metal-tin bronze casting alloys. An important use of tin bronzes is in plumbing fixtures. Other uses include bearings, fittings and castings.

15. The bulk of the tin used in tinning is as a coating on other metals. Its use as a coating on copper wire to prevent corrosion is the most common example. Many small machinery parts are tin coated.

16. The most promising use of tin is in the chemical field. Although demand is small, the potential for growth is large. Organotin compounds are used as stabilizers in polyvinyl chlorides (PVC), and fungicides and biocides. Inorganic tin chemicals are widely used as perfume and soap stabilizers, and as reducing agents in dye manufacture. The most visible use of tin chemicals is stanous fluoride in toothpastes. ANNEX 3-1 Page 4

17. Other uses of tin cover a wide range of applications. Examples include piping for distilledwater, and beer and other beverages, collapsible tubes for toothpasteand other medicinal uses, dental amalgam, pewter and jewelry. A recent developmentis the use of molten tin as a float both in the manufacutreof flat plate glass by the Pilkingtonprocess.

18. There is no direct substitute for tin in most of its applications as, for example, synthetic rubber for natural rubber. However, alternative materials such as aluminum or rust free steel to replace tinplate in packaging applicationshave had a significant effect on ti-flusage. In many of its uses, alternativematerials are available. As a result, tin consumptionhas not increased at a rate commensuratewith the growth in demand for the end products. The future outlook is for the low growth trend to continue.

C. WORLD TIN RESERVES

19. Tin is a relatively scarce element with an average content in the earth's crust of 1.7 parts per million (ppm). In contrast, copper is 37 times more abundant. Tin is mainly found in placer or alluvial deposits, derived from weathering and erosion of primary tin deposits. Cassiterite'sgreater resistance to weathering permits it to endure better than the minerals commonly associatedwith it. Primary or lode deposits occur in siliceous granitic rocks. They are usually vein-type deposits or disseminatedreplacement deposits.

20. In placer deposits, tin may be found in associationwith small but important amounts of columbium, tantalum and rare earth minerals. Generally, though, the placer deposits are relatively free of other metal impurities. Lode deposits, on the other hand, usually contain other minerals. These, commonly in the form of sulphides, include copper, antimony, lead, zinc, bismuth, and tungsten minerals. Publishedworld tin reserves are estimatedas shown below:

Table 2: World Tin Reserves

Country Reserves thousand metric tons of containedmetal %

Thailand 1,525 21 Malaysia 1,240 17 Bolivia 1,000 14 Indonesia 845 12 Brazil 610 8 Burma 510 7 Nigeria 280 4 United Kingdom 260 4 Zaire 200 3 Australia 190 3 Others 530 7

Total 7,190 100

Source: ITC, WBMS ANNEX 3-1 Page 5

21. Tin is the only metal where reserves are heavily concentratedin the developing countries, particularlySouth East Asia. Four countries in the region - Thailand, Malaysia, Indonesia and Burma have 57Z of world reserves. These reserves lie in the Bankga-Belitung- West Malaysia - Thailand tin belt which extends from the three Indonesian islands of Bangka, Belitung and Singkep northwards some 3,500 km through Malaysia, Thailand and Burma to Mandalay. Most of these reserves have been identified onshore but there is increasing explorationand mining activity in the offshore areas of the belt.

E. SUPPLY

22. Primary mine production, scrap, and U.S. Government stockpile disposals are the sources of supply for tin. The InternationalTin Agree- ments have had a significantinfluence on supply, and are discussed in Chapter F below.

1. Primary Production

23. As indicated by the distributionof reserves, the main tin concentrateproducing countries are in South East Asia. With the exception of Australia, all the important producers are in the developing world. In addition to those countries shown in Table 3, Brazil, United Kingdom, South Africa, Rwanda, Japan and Burma produce small quantities of tin.

Table 3: World-/Mine Production of Tin-In-Concentrates

By Major Producer (000 Metric Tons)

1956 1960 1965 1970 1975 Tons % Tons % Tons % Tons Z Tons %

Malaysia 62.3 37.5 52.8 38.0 64.7 41.7 73.8 39.9 64.4 37.4 Indonesia 30.0 18.1 23.0 16.0 14.9 9.6 19.1 10.3 24.4 14.1 Bolivia 27.0 16.3 20.5 14.8 23.4 15.1 30.1 16.3 28.8 16.7 Thailand 12.0 7.2 12.3 8.9 19.4 12.5 21.8 11.8 16.4 9.5 Australia 1.8 1.1 2.2 1.6 3.9 2.5 8.0 4.8 9.2 5.3 Nigeria 9.0 5.4 7.8 5.6 9.7 6.3 8.0 4.3 4.7 2.7 Zaire 13.0 7.8 9.4 6.8 6.3 4.1 6.4 3.5 4.2 2.4 Others 11.0 6.6 10.7 7.7 12.8 8.2 16.9 9.1 20.5 11.9

Total 166.1 100.0 138.7 100.0 155.1 100.0 184.9 100.0 172.6 100.0

Source: ITC

1/ Excludes centrally planned economies ANNEX 3-1 Page 6

24. Malaysia has remained the dominant producer, although its share of world output has declined over the past seven years. This trend is expected to continue, in spite of offshore discoveries and opening of formerly reserved lands, due to the gradual depletion of existing onshore reserves. Thailand, Indonesia, Australia, Brazil and Burma are expected to continue to increase their share of production. It is to be noted that statistics for 1975 show some discrepanciessince some tin concentratesmoved to smelters under forged certificatesof origin. Much of this tin probably originated in Thailand. As a result, the "others" category is inflated by some 4,000 tons.

25. Mine productionhas shown only gradual growth over the last couple of decades. The rate of growth from 1955 to 1974 was of the order of 1% per annum. Since 1972, production has actually declined in response to imposi- tion of export controls by the InternationalTin Council (ITC), lower grades of ore, and higher mining and smelting costs.

26. The pattern of tin trade has changed since the 1930's. At that time, most tin concentratesflowed to four smelters - in Malaysia, Indonesia, Holland, and the United Kingdom. During World War II, tin production from South-EastAsia was unavailable to the free world. Additional smelting capacity was constructedin the USA, Australia and Zaire. In addition, primary mine production expanded considerablyin such countries as Bolivia, Nigeria, and Zaire.

27. During the 1950's, the principal production centers shifted back to South-EastAsia. Additional smelting capacity was also added in South-East Asia, while some was lost in Holland and the United Kingdom in the 1960's. There are 38 primary tin smelters in the world, located in 22 countries, and ranging from 500 to 60,000 tons of annual capacity. Excluding the centrallyplanned economies, the largest 13 smelters (Table 4) account for about 87% of total estimated capacity of about 313,000 tons of refined tin. Despite the significantexcess of capacity, an expansion of the Mentok smelter in Indonesia was completed in 1975 and further expansion is under way in Bolivia. Indonesia now has the capability to smelt all of its mine output. The major smelters listed below are all in ITC member countries. ANNEX 3-1 Page 7

Table 4: Principal World-/Primary Tin Smelters

Country Ownership Location Capacity (tons of refined tin)

Malaysia Syarikat Eastern Smelting Bhd. Penang 60,000

Straits Trading Co. Butterworth 45,000

Indonesia Indonesian State Tin Enterprise Mentok, Bangka (P.N. Timah) Island 28,000

Thailand Thailand Smelting and Refinery Co. Ltd. Phuket 25,000 2/ (Thaisarco)

U.S.A. Gulf Chemical & Metallurgical Corporation Texas City 20,000

U.K. Capper Pass & Son Ltd. North Ferriby, Yorkshire 15,000

Nigeria Makeri Smelting Co. Ltd. Jos 12,000

Belgium Metallurgie Hoboken - Overpelt Hoboken, Antwerp 10,000

Bolivia Empresa Nacional de Fundiciones (ENAF) Vinto (Oruro) 7,500

Brazil Cia. Estanifera do Brasil Volto Redonda 6,800

Cia. Industrial Amazones Manaus 4,800

Australia Associated Tin Smelters Pty. Ltd. Alexandria, NSW 6,000

Zaire Geomines Cie. Manono 4,000

272,100

1/ Excluding CPE's

2/ This figure is conservatively estimated. Some estimates (e.g. US Bureau of Mines) put Thaisarco's capacity at 40,000 tons.

Source: ITC ANNEX 3-1 Page 8

28. From 1960 to 1974, the principal ITC producers increased their share of refined metal production from 58% to 74%. Their share of mine production declined slightly from 92% to 90%. The primary tin output by major producing country is shown in Table 5 below.

Table 5: World-/Primary Tin Production

1960 1965 1970 1972 1974 1975

ASIA

Indonesia 2.0 1.2 5.2 12.0 15.1 17.8 Japan 1.2 1.6 1.4 1.3 1.3 1.2 Malaysia 77.6 73.6 91.5 91.0 84.4 83.1 Thailand - 5.6 22.0 22.3 19.8 16.6

AFRICA

Nigeria - 9.5 8.1 6.8 5.6 4.7 South Africa 0.7 1.0 1.5 1.6 2.0 2.4 Zaire 2.5 1.8 1.4 1.4 0.6 0.6

AMERICAS

Bolivia 1.1 3.5 0.3 6.5 7.0 7.1 Brazil 1.3 1.4 3.1 3.6 4.9 5.4 U.S.A. 13.7 3.2 4.5 4.0 6.0 6.1

EUROPE

Belgium 8.4 4.3 4.3 3.9 3.4 4.7 Germany 0.8 1.5 1.2 0.9 1.4 1.3 Netherlands 6.5 18.4 5.9 - - - U.K. 26.8 16.8 22.0 21.3 12.1 11.6

OCEANIA

Australia 2.3 3.2 5.2 7.0 6.7 5.3

OTHERS 3.3 4.0 6.0 7.1 8.6 7.0

Total 148.2 150.6 183.6 190.7 178.9 174.9

1/ Excludes centrally-planned economies except for Bulgaria (after 1966) and Romania (after 1962)

Source: ITC ANNEX 3-1 Page 9

2. Scrap

29. Scrap represents a significant portion of tin supply. In the U.S., the country for which the most data is available, secondary metal represents some 25% of total consumption, of which 60% is old scrap. Old scrap therefore represents 15% of total consumption. Scrap recovery is less well developed elsewhere in the world. It probably represents some 20% of total world consumption.

30. Tin scrap is generally derived from the alloy uses of tin. It is usually reused as an alloy constitutent of solders, bearing metals, and brass and bronzes. Only one-tenth is recycled as tin metal. While recovery of tin from tinplate is technically feasible, it is presently uneconomic. High prices for scrap steel or emergency conditions would be required to warrant collection, transport and cleaning of used tin cans.

3. U.S. Government Stockpiles

31. Because of the minimal tin production in the U.S., tin has been designated a strategic material for stockpiling. As a result, substantial quantities of various grades of tin metal were purchased up to 1955, when the stockpile reached a peak of 354,000 metric tons. Other countries such as Canada, Italy and the United Kingdom also accumulated small stockpiles during this period.

32. Subsequently, part of the U.S. stockpile was declared surplus, and available for disposal. The General Services Administration (GSA), the U.S. Government agency responsible for the stockpile, has since 1962 disposed of about 143,900 tons (Table 6). These disposals have generally occurred during periods of tin shortages, and usually in consultation with the ITC. Disposal by commercial sales occurred from 1962 to 1968, and from mid-1973 onwards. The present U.S. stockpile is about 200,000 tons. U.S. disposals, plus the large stock still held, obviously have had and can continue to have, a damping effect on upward tin price movements. ANNEX 3-1 Page 10

Table 6: Disposals from U.S. Government Tin Stockpile (metric tons)

% of Annual World Year Amount Mine Production

1962 1,422 1.0 1963 10,797 7.5 1964 31,647 22.1 1965 22,081 14.7 1966 16,537 10.5 1967 6,245 3.5 1968 3,551 1.9 1969 2,081 1.1 1970 3,087 1.7 1971 1,764 0.9 1972 367 0.2 1973 20,269 11.0 1974 23,508 13.1 1975 584 0.3

Total 143,940

F. INTERNATIONAL TIN AGREEMENTS

33. Tin is unique, not only amongst metals but equally amongst all commodities in that the market is regulated by an international body of producers and consumers which operates a system designed to limit the highest and lowest prices reached on the market. Whilst commentators disagree on the extent to which the International Tin Agreement is successful, it is probable that the fall in prices for copper, lead, and zinc which accompanied the recent world economic decline were lessened, in the case of tin, by buffer stock manipulation. The results have been more marked than other, less cohesive, producer price support actions and the Fifth InternaLiunal riinAgreement seeks to improve the effectiveness of the Tin Council's monitoring activities.

34. The Fifth International Tin Agreement, which came into force on July 1, 1976 and is in the process of being ratified by its member governments, is the latest such market arrangement governing tin, with the history of producer/consumer agreements and producer restraints and agreements going back to 1930, following a drastic slide in the tin price in the late 1920's. A series of voluntary production restraints and producer agreements involving the major producer nations evolved during the 1930's. In the mid-thirties, the first buffer stock was set up, and in the late thirties, consumer participation commenced on the International Tin Committee. During and after World War II, there were no real controls operating, and the First Post-War Tin Agreement came into effect in 1956. ANNEX 3-1 Page 11

35. The objectives of the 1956 Agreement were:

i) to prevent or alleviate unemployment, and other serious difficulties resulting from imbalances between supply and demand;

ii) to prevent excessive price fluctuations, and to strive for stability which would yield long-term supply/demand equilibrium;

iii) to ensure adequate supplies at reasonable prices;

iv) to promote economic tin production and prevent uneconomic use of tin resources.

36. The provisions of the 1956 Agreement were:

i) creation of an International Tin Council composed of consuming and producing countries, both with equal votes;

ii) development of an export control system among the producing countries, with duration of controls and quantities of exports to be decided by the Council;

iii) creation of a buffer stock to stabilize prices by buying and selling tin within price ranges established by the Council;

iv) initiation of concerted action in the event of a tin shortage.

The First Tin Agreement contained many of the features tried in the earlier tin agreements, but also removed some of the weaknesses of these agreements. A buffer stock and export quotas were integral parts of the Agreement. Sub- sequent agreements were negotiated and ratified covering the periods 1961 - 1966, 1966 - 1971, 1971 - 1976. While certain refinements were incorporated into these agreements, the basic provisions and objectives have remained unchanged. An example of the refinements was the giving of authority to the buffer stock manager.

37. With the Fifth Tin Agreement, covering the period 1976 - 1981, the United States has joined for the first time. Under the Fourth Interna- tional Tin Agreement (1971 - 1976) the Tin Council member-governments were as follows: ANNEX 3-1 Page 12

Producing Countries: Australia Malaysia Zaire Bolivia Nigeria Indonesia Thailand

ConsumingCountries: Austria Fed. Rep. Germany Poland Belgium/ Luxembourg Hungary Romania Bulgaria India Spain Canada Rep. Ireland Turkey Czechoslovakia Italy United Kingdom Denmark Japan U.S.S.R. France Rep. of Korea Yugoslavia Neterlands

Both groups have 1,000 votes on the Council distributed in proportion to the member country'svolume of production or consumptionrespectively.

38. By using its buffer stock, which is contributedon a compulsory basis by producers,and on a voluntary basis by consumers,and, with the cooperation of the producing countries' governments controllingexports, the world tin price can be influencedin relation to the floor and ceiling prices set by the Council. The Tin Council does not aim to control the market but rather to reduce the amplitude of potentiallyviolent price fluctuations.

39. The ceiling price agreed in May, 1976 was M$1,200 per picul and the floor price M$1,000 per picul. Buffer stock operating rules oblige the Buffer Stock Manager, who is elected by the Council, to always sell tin when the market price reaches the ceiling and always buy when it reaches the floor. Within these price limits are three price sectors: Between M$1,200 and 1,135 the Manager may buy or sell but must always remain a net seller, between M$1,065 and 1,135 may take no action, and between M$1,065 and 1,000 he may buy or sell but must always remain a net buyer.

40. Assessment of the success of the Tin Agreements depends on the criteria used in the evaluation. In terms of the stated objectives of the Agreement, it cannot be regarded as a total success. To the extent that export controls are imposed on the producing countries,their foreign exchange earnings are reduced at least for a time, since earnings are a function of both price and volume. Unemploymentalso tends to be created. On the other hand, while absolute price stabilityhas not been achieved, price fluctuationsare probably less than for many other metals. Figure 1 on page 16a shows past LME price movements in relation to the Penang floor and ceiling prices used to quide the buffer stock operations.

41. Some countries have, no doubt, benefited more than others. High- cost producers, such as Bolivia, have enjoyed greater stability than they otherwise might have had. Since the ITC has generally succeeded in protecting the floor price, more producers have been able to stay in operation. Drops in prices would have had a greater effect on high-cost producers and would also have ANNEX 3-1 Page 13

permitted fewer producers to stay in the market or return to it. It therefore seems probable that the high-cost producing countries' production would have become lower over time without the price support mechanisms.

42. It seems likely that a larger buffer stock capability would improve performance, enabling the Buffer Stock Manager to intervene in the market with larger quantities for more sustained periods. One aim of the Fifth Tin Agreement is to increase the buffer stock by 20,000 tons through voluntary contributions from consumers. The ITC has been reasonably successful in protecting the floor price because it can impose export quotas. It has no such measure at its disposal to protect the ceiling price. A larger buffer stock would permit a greater, more prolonged effort. For this reason, it would seem that the consuming nations have as much interest in a buffer stock as the producers.

G. DEMAND

43. Tin consumption is concentrated in the industrialized countries. The U.S. is the major consumer. Geographical distribution of consumption is show in Table 7.

Table 7: World -/Consumpton of Primary Tin Metal (000 metric tons)

U.S.A. JAPAN U.K. GERMANY FRANCE OTHERS TOTAL

1965 59,500 17,400 17,400 11,800 10,300 54,600 173,000 1966 61,200 18,900 18,700 10,900 10,500 55,600 175,700 1967 58,800 20,700 17,600 10,800 10,900 55,900 174,600 1968 59,800 22,600 17,700 11,300 9,500 58,700 179,600 1969 58,600 25,900 18,100 13,400 11,300 58,900 186,600 1970 43,800 24,700 16,900 14,100 10,500 53,900 184,500 1971 53,800 29,300 16,400 14,200 10,500 66,600 189,000 1972 54,400 32,300 14,600 14,400 11,000 64,400 191,500 1973 59,100 38,700 16,600 15,800 11,700 70,200 212,900 1974 52,400 33,800 14,500 14,500 11,700 70,400 198,700 1975 41,000 27,200 13,600 12,700 10,500 67,000 172,000

1/ Excluding CPE's

Source: ITC

44. As with most other metals, there is a correlation between the rate of growth of a country's tin consumption, and the state of industrializa- tion in the country. While declining in the U.K., tin consumption has been virtually level in the U.S. and France for many years. In Japan, the annual rate of growth averaged 7% through the 1960's, and, after a sharp rise in 1973, has moderated in a pattern similar to that exhibited in other developed countries. On the other hand, the growth rate of consumption in such countries as Brazil has been considerable. ANNEX 3-1 Page 14

45. Unlike most metals, the overall rate of growth in tin consumption has been low, of the order of 1.3% over the past twenty years. As an industrial metal, and as noted above, tin is seldom used in its pure state but is usually combined in various proportionswith other metals. The low growth has therefore come partly because of substitutionin products where tin is a constituent,and partly because of more efficient use of tin. This trend is expected to continue.

H. TIN PRICES

1. The Tin Market

46. Tin is traded on the Penang Market, the London Metal Exchange (LME), and the New York Commodity Exchange (COMEX). Although the LMEhas been regarded as the world market, the Penang Market has gained in importance in recent years. One of the reasons is that Penang is strictly a physical market. The price in Penang (quotedin Malaysian Dollars per picul) is determineddaily by balanc- ing the quantities of tin concentratesoffered to the smelters against the bids received for purchases of tin metal. Deliveries of purchased tin are made after the concentrateshave been smelted, usually within forty-five days of the sale. The price therefore, is based on actual physical supply and demand.

47. On the other hand, LME sales may be for immediate or future delivery. As a result, many transactionsare for the purpose of hedging. While hedging plays a useful role in permitting consumers to protect their positions in purchases of a commodity, speculationalso results. The LME does play a useful role in commoditiestrading since it reflects expectationsfor the particular commoditiesand the world economic situation in general. However, price fluctuationscan be exaggerated.

48. Some of the internationaltrade is at Penang prices, and some at the LME price (Pounds Sterling per metric ton). The LME price is usually slightly higher than the Penang price, reflectingtransportation costs, although the difference fluctuatesaccording to a number of factors, including exchange rate variations, with the annual average differential ranging from US$0.02 to US$0.16 per pound in recent years. LME price quoations are for Standard Tin (99.75%tin), although High-grade tin (99.85% tin) is also traded.

2. Historical InternationalSupply/Demand and Price Movements

49. The latter part of the 1950's was characterizedby the end of the U.S. purchasing program for stockpilingpurposes and by the existence of the First InternationalTin Agreement under which severe export controls were enforced for a relativelylong period (15th December, 1957 to 30th September, 1960). As a result of export controls,which imposed an initial export cutback of some 45%, world production dropped by about one-third, to some 120,000 tons in 1958 from about 175,000 tons in 1953 (the highest level for the decade). Also, during the late 1950's, and despite the slump in the demand for tin, the USSR sold substantialtonnages of tin in the Western market. This had a depressiveeffect on the tin price. ANNEX 3-1 Page 15

50. Although 1960 was still a year of export control (January to Sep- tember inclusive) tin production improved slightly from the low of 1958 due to the more cooperativeattitude of the USSR whose supplies of tin to the market were curtailed dramatically. It took, however, more than a year for production to regain the lost ground while the demand for tin was running ahead of production. At the time, a great proportion of the deficit of production was met by the substantial sales of tin metal from the U.S. strategic stockpile and, to a lesser extent, by sales from the ITC buffer stock and from the strategic stockpiles of Canada, Italy and the United Kingdom.

51. Tin production recovered in the second half of the 1960's. The exceptionallyhigh tin price which ruled during 1964 and 1965 stemmed largely from the Malaysia-Indonesiaconfrontation and stimulated investments in the tin industry. As a result, a comparativelyhigher production growth was experiencedin the years 1967 and 1968 when mine output of tin- in-concentratesrose from 174,200 tons to 184,100 tons (+ 5.7%). During the late 1960's, however, the demand for tin was unable to maintain the same rate of expansionas tin supplies, and a change occurred from a production deficit to a position of surplus. This had a depressive effect on prices and the ITC decided to enforce a mild form of export control for five successiveperiods from September 1968 to the end of December 1969, (initial cutback about 4%) which, together with purchases on buffer stock account again strengthenedthe tin price.

52. Export controls caused world production of tin-in-concentrates to fall slightly in 1969 but it recovered in 1970 and 1971 to marginally higher levels. In 1972 world output of tin-in-concentratesrose to 194,100 tons, which was the highest level for over a quarter of a century and showed an increase of 4.1% on the previous year. Again, this had a depressive effect on the price of tin and in 1973 the Council had to reintroduceexport control (althoughin a less severe form than on previous occasions), from January to September,with a consequent drop in mine production to approximately the same level of two years earlier. The last quarter of 1973 was free from export control and saw a series of events which later proved to have far-reachingeffects on the tin industry and particularlyon tin trading.

53. The Arab-Israeliwar in October 1973 ended with the oil crisis which caused steep rises in the prices of all raw materials including tin. In the same period, the liquidation of the Williams, Harvey smelter in the United Kingdom had serious implicationsfor the flow of tin; trade channels between Bolivia and Europe were affected and the search for new outlets for the Bolivian concentratesdisrupted the regular flow of tin metal into the market during a period in which the demand for tin was rising at an unprecedentedrate. Another important feature of this eventful period was the resumption of major GSA commercial sales in June 1973.

54. In 1973 consumptionof primary tin metal reached a record level of some 213,000 tons (21,400 tons, or 11% higher than consumptionin 1972). This was met by heavy sales from the ITC buffer stock (some 11,500 tons during ANNEX 3-1 Page 16

1973) and from the surplus to the USA stockpile (over 20,000 tons) from June to December 1973. The strong demand for tin in 1973 continued well into 1974 with consequenthigh Lin prices, particularlyin the first half of the year when tin values reached an all-time record of M$1,380/picul (US$3.72/lb.) despite the large amount of tin (almost 22,000 tons) sold by the GSA during January - June 1974.

55. With the general world economic decline, the tin price declined to average US$3.11 in 1975. During 1976, however, the price recovered substantially. The rise has been dramatic in Sterling terms, and reached an all-time high in that currency, although the rise in dollar terms has been less spectacular,reflecting the relative re-alignmentof the two currencies.

56. This increase in prices in the period 1973-74 represents in large measure exceptionalincreases in energy and other operating costs. In real terms, the price has shown a slight increase (approximately1.5% per annum) in the period 1960 - 1973. The rapid increases in productioncosts is also reflected in the rapid increase in the ITC floor price. It has increased from M$635 per picul in September 1973 to M$1,000 per picul in May 1976. The ITC price ranges have been expressed in Malaysian Dollars since July 4, 1972.

57. The increase in the LME price during 1976 can be partly attributed to the recovery in world economic conditions and the consequent demand for tin, and partly to hedging against the decliningvalue of the Pound Sterling. Export controls imposed on the producing countries in April 1975 by the ITC helped to prevent a build-up of excessive stocks of tin, and also helped to hold up the price. Annual average LME tin prices since 1961 are shown below.

Table 8: Average LME Tin Price

Year L per Ton US$ per lb.

1961 875 1.13 1962 882 1.12 1963 896 1.14 1964 1,219 1.55 1965 1,391 1.77 1966 1,276 1.62 1967 1,187 1.51 1968 1,302 1.42 1969 1,428 1.56 1970 1,530 1.67 1971 1,437 1.59 1972 1,506 1.71 1973 1,960 2.19 1974 3,499 3.72 1975 3,092 3.11 1976 4,245 3.44

Source: ITC 4800 £1 4800

46500 48t00 BURMA: TIN/TUNGSTEN EXPANSION PROJECT | 1961-1976 LME CASH TIN PRICE MOVEMENT, MONTHLY AVERAGE Ceiln rc SHOWING ITC FLOOR AND CEILING PRICES 41200 - 4200

3800 -3800 FloorP rice Note Penang Floor & Ceiling Prices in MSfPicul Floor Ceiling

3400 4 July 1972-21 Sept. 1973 583 718 3400 21 Sept 1973-30 May 1974 635 760 30 May 1974-31 Jan. 1975 850 1050 31 Jan 1975-12 Mar. 1976 900 1100 12 March 1976-7 May 1976 950 1100 Current, from 7 Mav 1976' 1000 1200 3000 3000 3000 onJne 372 te pound Mteins as t aten and consequent, theMalayntan Dollator' eteaat"wan atachna tore ntntt eg and retsowed rn US DDtat cleselyt 1tMeruesran Oct at<3 penceeluOcanto t picul = t 33331tbst.|

2600 - 2600

2200 2200

CeilingPrice

1800- - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1600

or Prim Penang Price Basis 1400 -v [ 1400_

/ ~~~~~~~~~~~~FloorPrice

1900 Ceiling Pr_ce 1000

600o Based on International Tin Counc,i chart 600 1961 | 1962 | 1P63 | 1964 | 1965 1966 | 1967 1968 1969 | 1970 1 t971 | 1972 | 1973 | 1974 | 1975 1 1976

Industria Projects Department October 1976 World Bank-16593 ANNEX 3-1 Page 17

I. DEMAND/SUPPLY/PRICEOUTLOOK

1. Demand

58. Statistical analysis shows that the income elasticity of demand for tin in developed countries is small -- of the order of 0.1 - 0.3 -- particularly if compared with that of other metals. Estimated price elastic- ities of demand for tin are also low - around 0.2. Given the many subsitutute materials for tin - aluminum, glass, paper, plastics, tin-free steel in cans and containers, aluminum and copper base alloys in bronze and other industrial uses - the statistical estimates are probably on the low side. However, technological factors appear to play an important role in the substitution process.

58. Consumption will continue to depend to a large extent on tinplate for containers. In developed countries the container industry is expected to continue growing steadily, but technological substitution in this industry will probably allow only a modest growth in tin use. It is less likely, however, that substitution will occur as rapidly in the developing and centrally planned economies as in the developed countries. Changes in demand for tin in bronze, brass, solder and other alloys are expected to be quite uniform worldwide, but a more rapid increase in domestic demand is possible in developing countries. Tin's greatest potential for growth is in chemicals, but, although the industry's forecasts of tin use in chemicals are very optimistic, chemical uses account for only a small proportion of total tin consumption, and thus the impact on world demand will only be slight.

60. World demand for tin is projected to increase at only 1.5% per annum between 1972-74 and 1985 (Table 9) and is expected to be below trend until the end of the 1970's. The sharp increase in tin prices during 1973 and 1974 has hurt tin consumption in developed countries, and full recovery is not expected until the late 1970's and early 1980's, when the gradual price adjustment to long-term trends will again stimulate demand growth.

2. Supply

61. World production of tin-in-concentrates is projected to grow at about 1.0% per annum between 1972-1974 and 1980 (Table 9). Over the period, however, growth is expected to be positive until the late 1970's in response to the relatively high prices of the past three years. A fall in world production of tin ore is projected in the mid-1980's in response to the fall in real prices projected for the early 1980's. These projections assume that overall production of tin ore will follow historical patterns in response to price changes: mine production is expected to continue to react with a certain lag to the movements in real prices.

3. Price Outlook

62. Price movements through 1985 should continue to reflect the cyclical adjustment of consumption and production to market influences, including the effect of ITC actions (Table 10). Table 9: World Production, Consumption and Trade of Tin

ACTUAL Projected GROWTH RATES 1955 1960 1967-69 1970 1971 1972 1973 1974 1975 1980 1985 1955 to 1960-62 to 1972-74 1980 to (estimate) 1972-1974 1972-74 to 1980 1985

.000...... metric tons) ...... (...... ( per annum).

Production (Concentrates) 194.0 186.9 211.3 217.3 228.6 236.1 226.3 217.2 206.4 260.0 254.0 0.9 1.7 2.0 -0.5

'/ Consumption (Metal) 171.3 201.3 212.0 216.9 221.2 224.2 244.2 229.1 206.2 250.0 280.0 1.7 1.2 1.0 2.3

Imports (Concentrates) 138.2 106.1 41.2 55.3 45.9 47.5 39.3 38.6 36.0 36.0 30.0 -7.1 -7.5 -2.1 -3.5

Exports (Metal) 141.2 118.4 149.8 160.2 163.9 169.2 159.2 160.4 145.0 180.0 200.0 6.8 2.7 1.4 2.1

1/ Primary metal only

Source: International Tin Council and Metallgesellshaft (actual data); Economic Analysis and Projections Department (projections) lb ANNEX 3-1 Page 18

Table 10: Tin Price Projections

(US$ per pounds; LME)

Straight-line Trend Projections Micro-Economic Model Projections Constant Current September 1976 Current Constant 1976 Year Dollars Dollars Dollars Dollars Deflator

1976 3.46 3.46 3.44 3.44 100.0 1977 3.72 3.43 3.70 3.41 108.4 1978 4.09 3.49 4.14 3.53 117.1 1979 4.47 3.55 4.39 3.49 125.8 1980 4.86 3.61 4.60 3.42 134.7 1981 5.36 3.67 1982 5.86 3.73 1983 6.36 3.79 1984 6.86 3.84 1985 7.37 3.90 7.37 3.90 188.9

63. In the short term, the real price of tin is expected to continue to be lower than its 1974 peak level. A modest increase is projected to take place in 1977 and 1978 as world demand recovers from the 1974-75 slump. An over-supply could develop in the late 1970's with the response of production to the price increase of 1973 and 1974, and tin prices - in constant 1976 dollars - could decline for a period, although the ITC's operations should minimize the effect. During the 1980-85 period, prices are expected to move upward in real terms, reflecting the lagged response of mine production to the downward price movement in the late 1970's.

4. Methodology

64. The projections of demand, supply and prices are based on an econo- metric model that relates: (a) mine production of tin to lagged prices and lagged production; (b) consumption to lagged tin prices, the price of aluminum and industrial production in OECD countries; and (c) tin prices to stocks and the general inflation level in OECD countries.

65. In making the forecasts, it was assumed that the United States' strategic stockpile, which was reduced by 23,000 tons in 1974, will remain unchanged thereafter. Some disposals from the U.S. stockpile, however, are likely in the early 1980's when real tin prices are expected to increase quite substantially. It is obviously impossible to speculate about future U.S. stockpile disposals. One can expect that with the more direct participation of the U.S. Government in the workings of the International Tin Council, a closer coordination between U.S. tin stockpile sales and ITC buffer stock operations will evolve.

Industrial Project Department January, 1977 ANNEX 3-2 Page 1

BURMA

TIN/TUNGSTEN EXPANSION PROJECT

THE TUNGSTEN MARKET

A. INTRODUCTION

1. The unique properties of tungsten - a heavy, hard, heat resistant metal, seem likely to ensure continued growth in its major applications. Substitution, even at increased prices, is not likely to modify tungsten usage significantly. However, uncertain supply tends to restrict expansion of tungsten use.

2. The tungsten market is quite small, with world consumption of the order of 40,000 tons per annum. Statistical data on such a market is often inaccurate, and invariably incomplete. Although available data must be treated with caution, it is possible to draw certain conclusions about the future prospects for tungsten and likely price developments.

B. PROPERTIES

3. Tungsten has the highest melting point of all metals: 3400 C, three times that of copper and twice that of steel. It is one of the heaviest elements, about equal to gold. Above 1,650 C, tungsten outranks all metals in tensile strength. In addition, tungsten has good corrosion resistance, electrical and thermal conductivity, and a low thermal expansion coefficient.

4. Tungsten (chemical symbol: W) occurs in nature as wolframite- (Fe. Mn) W04; Scheelite-CaWO4; and less commonly as Ferbeite-FeWO4; and Heubenite-MnWO4. Tungsten is used in the form of metal powder, carbide powder, ferrotungsten, and chemical compounds. A number of treatment processes are employed to obtain the desired use form from the natural mineral. The treatment processes vary with the source mineral. Initial treatment usually involves concentration by gravity because of the mineral's high density.

C. USES

5. Because of its desirable properties, tungsten is used in a number of rapidly expanding advanced technology industries. Detailed information on use patterns is available only for the U.S., but can be considered indicative of uses elsewhere, except for steel, which in other parts of the world, accounts for a somewhat larger part of the total consumption of tungsten. ANNEX 3-2 Page 2

6. The percent distribution of U.S. tungsten end use forms is as follows:

Table 1: Tungsten End Use Forms

Uses %

Carbides 45 Alloy Steels 25 Tungsten Base Alloys 18 Non Ferrous Alloys 11 Chemicals 1

100

Source: USBM

7. Carbides are usually in the form of cemented tungsten carbide and, to a lesser extent, cast tungsten carbide. Their largest uses are for cutting edges on numerically controlled machine tools, and metal shaping and forming dies in metal working machinery. The high heat and wear resistance of tungsten carbides makes it a preferred material in these applications. Substantial advantages are also realized in the mining and construction industries through use of tungsten carbide inserts in rock bits. Other uses of carbides include ball point pen tips and gas turbines. A market for tungsten carbides which developed quickly in the 1960's was steel jacketed tire studs with carbide centers. This market accounted for one third of the tungsten consumed in transportation equipment or 6% of the total tungsten consumption in the late 1960's. However the damage to road sur- faces prompted most jurisdictions to outlaw tire studs. Only a minute quantity of tungsten is consumed in studs today. Nonetheless, there are no satisfactory substitutes for tungsten carbides. Only titanium carbide and aluminum oxide have any comparable market acceptance.

8. The second important use of tungsten is in alloy steels. Hard- ness at elevated temperatures is the important property of tungsten high speed steels, and die and hot work steels. They are used primarily in the working of metals by high speed drilling, cutting and shaping of metal. Shock and wear resistant tungsten alloy steels are used in grader blades, in rock crusher jaws, and in teeth for bucket and wheel excavators. High temperature steels find application in rocket nozzles and other aerospace equipment. Lesser quantities are used in high strength applications in automotive and railroad equipment and ships. Molybdenum, to a large extent, is substituted for tungsten in tool steels. Molybdenum forms the same type of double carbide with iron and carbon as does tungsten. However, the molybdenum steels have a lower melting point, have 'Lessred-hardness, and have a tendency to decarburize. ANNEX 3-2 Page 3

9. The most visible use of tungsten metal is the filament in incan- descent electric lamps. Although this use is well known and important, it represents less than 6% of tungsten consumption. The filaments for more than 10 million lamps can be made from one ton of tungsten. Improved technology has reduced filament thickness over time, and tungsten accounts for less than 0.1% of the average price of a light bulb. Although there is no satisfactory substitute for tungsten in lamps, fluorescent lighting has reduced the importance of this use over time.

10. Tungsten metal, alone or in alloys with copper or silver, is used in the manufacture of electrical contact points in electrical circuits. Automotive electrical distributor points are small discs of pure tungsten rod because of the metal's high wear resistance and adequate electrical conductivity. An important application of the metal is in the manufacture of electrical tubes, such as X-ray, transmitter, receiver and cathode ray tubes. Tungsten wire is used to form cathodes for electron tubes. Tungsten rod is used to heat cathodes in transmitter tubes. Tungsten rod is also used for inert - arc welding of iron and steel, and other metals. The heavy weight of tungsten is utilized in counter-weights and balances in the horizontal and vertical stabilizers of aircraft.

11. Non ferrous tungsten alloys are used where the desirable charac- teristics of tungsten and another metal are required. For example, tungsten - copper - silver alloys find application where high electrical conductivity is needed. Contacts in telephones, business, electric clocks and remote control devices are typical uses. Copper infiltrated tungsten is used in power tubes.

12. Tungsten chemicals are used in textile dyes, paints, enamels and glass manufacture. Sodium tungstate is used for the manufacture of other tungsten compounds for pigments, chemical analyses, and fireproofing textiles. Tungsten trioxide, of bright yellow color, is used in oil and water colors. Other tungsten compounds are luminescent and are used in luminescent pigments in X-ray screens, television picture tubes and fluorescent lighting.

13. The uses of tungsten are quite diverse. In most applications, other materials perform less satisfactorily. The cost of tungsten is usually a minor item in these uses. As a result, substitution for tungsten is not likely to be a significant factor in consumption patterns in the foreseeable future.

D. WORLD TUNGSTEN RESERVES

14. Tungsten is commonly found in association with other metals, such as tin, molybdenum, copper and bismuth. Most tungsten minerals occur in quartz veins associated with siliceous granitic rocks. To a lesser extent, tungsten minerals are found in contact metamorphic deposits at or near the contact of limestone and granite intrusives. Other production has also come from replacement deposits and pegmatites, and from weathered surface deposits and placer deposits. The grade of tungsten in these deposits ranges from 0.6% to 2.0%. ANNEX 3-2 Page 4

15. The principal known reserves in the World, in terms of contained metal, are:

Table 2: Principal Tungsten Reserves

Country Reserves _ (metric tons of contained metal)

Centrally-planned economies 2,700,000 /1 68 Canada 540,000 14 U.S.A. 240,000 6 Republic of Korea 100,000 3 Bolivia 88,000 2 Brazil 92,000 2 Other 200,000 5

Total 4,000,000 100

/1 Of which about 2,000,000 is China and about 400,000 U.S.S.R.

Source: USBM (1976 Data).

16. These reserves were estimated at the price prevailing in 1976. The price has increased over the past few years in real terms, and therefore the amount of reserves has increased. The relative distribution of reserves has remained about the same.

17. Other countries with known reserves of tungsten include Mexico, Peru, and Argentina in the Americas; Australia, Thailand, Burma, Laos, and Vietnam in South East Asia and the Pacific; and Portugal, France and the United Kingdom in Western Europe. Centrally planned economies have about 70% of the world's known tungsten reserves.

E. SUPPLY-PAST AND FUTURE

18. Primary mine production, sales from U.S. Government stockpiles, and scrap are the sources of supply for tungsten.

1. Primary mine production

19. Mainland China, with its substantial reserves, is the world's largest producer and exporter. The dearth of statistics available to the world on production from China, and also North Korea make it difficult to assess the supply position. ANNEX 3-2 Page 5

20. Geographical distribution of mine production is shown in Table 3 below.

Table 3: World Mine Production (metric tons of contained metal)

1974 1975

U.S.A. 3,550 3,170 South Korea 2,330 2,400 Bolivia 2,030 2,040 Thailand 1,950 1,860 Portugal 1,490 1,500 Canada 1,270 1,310 Australia 1,090 1,130 Burma 500 400 Other 4,810 5,290 Centrally Planned Economies 18,340 18,820

Total 37,360 37,920

Source: USBM.

21. Mainland China's production is estimated to be of the order of 9,000 metric tons per year. North Korea's production is probably some 2,200 metric tons per year. The remaining Centrally planned eonomies have been net importers of concentrates in recent years although their production represents 20% of world supply. As described in paragraph 25 below, China has joined discussions with other producing countries as a participant in recent years. The result may be that increased information on Chinese production becomes available. More importantly, China's exports may be more closely controlled, as they have been in the past year, to help stabilize prices.

22. In any event, Western world primary mine production together with imports from China, have not been sufficient to meet demand in recent years. Demand includes net exports to the other centrally planned economies. The shortfall has, in large measure, been met by sales from the U.S. Government stockpile. In such an environment, any fluctuations in supply from China have a major impact on prices. Such fluctuations have commonly occurred in the past.

23. Primary mine production is expected to increase over the next few years. The current high level of prices can be expected to favorably influence development decisions for deposits in a number of countries. ANNEX 3-2 Page 6

2. Scrap

24. As with most metals, scrap supply is generated from new scrap in the fabrication process, and old scrap from end uses. Data on new scrap is virtually unavailable while it is incomplete on old scrap. In any event, tungsten obtained from old scrap is believed to be a significant part of supply; probably of the order of 15%.

25. In most cases, new scrap from alloy steels and tool steels is re-used directly without separation of the constituent elements. Tungsten metal is usually re-cycled to metal processing plants. Supply of new scrap is reasonably well organized and represents a consistent, accountable factor.

26. The more significant factor is the supply of old scrap, since the volume is price sensitive. Tungsten carbide collection from metal shaping, cutting tools and rock bits is well organized. However low prices render re-cycling from all but the larger consumers unprofitable. Conversely, high prices spur expedition of tungsten carbide to those plants set up to treat this material. Another source of old scrap is tungsten rod discards from inert-arc welding.

3. U.S. Government Stockpiles

27. Sales from U.S. Government stockpiles, however imperfectly, have served to give some measure of stability to the tungsten market since the early 1960's. This has been more true in recent years when the GSA has limited sales below world price levels.

28. With the formation of U.S. Government stockpiles in the early 1950's, tungsten was considered a strategic and critical material because of its use in tools of production, in nuclear and space equipment components, and military applications. The U.S. Government built up a large inventory of tungsten in various forms during that period. Subsequently, changes in U.S. Government policy led to disposal of these stockpiles since the late 1950's. The U.S. stockpiles as of the end of 1975 held some 50,000 tons of tungsten. Actual disposals from the U.S. Government stockpiles are presented in Table 4 below.

Table 4: Disposals from U.S. Government Stockpiles (Metric tons of contained metal)

Year Amount % of World Production

1966 3,670 13.4 1967 2,900 10.2 1968 1,450 4.7 1969 17,370 53.4 1970 6,850 21.1 1971 640 1.8 1972 - 0.0 1973 680 1.8 1974 2,770 7.4 1975 1,270 3.3 37,600 ANNEX 3-2 Page 7

29. Disposals from the U.S. Government stockpiles have helped, in large measure, to fill the supply gap in the Western World. Since 1970, there has been a negative net balance between production and consumption, even with GSA disposals. The disposals have not been without criticism from both consumers and producers, particularly in 1975. However, it would seem that the disposals have served a useful purpose in that they have helped to meet the supply gap which otherwise would have resulted.

F. PRODUCERS ASSOCIATION

30. In 1963, Bolivia and South Korea asked the United Nations to take measures in stabilizing tungsten prices after a sharp drop in prices had resulted when China released large quantities into the market. An ad hoc committee under the United Nations Conference on Trade and Development (UNCTAD) was formed as a result. The ad hoc committee and its working group, however, served principally as a forum for discussion.

31. In 1974, new pressures were exerted to catalyze action on price stabilization. The UNCTAD working group in its August 1974 meeting in Geneva, re-affirmed the need to improve the quality and volume of information on tungsten. Among other things, the group sought a comprehensive survey of the actual prices at which tungsten was traded. These proposals were submitted to the ad hoc committee at the November 1974 UNCTAD meeting on commodities. Peru and Bolivia led the developing nations in pressing for affirmative action on the proposals. China, for the first time, attended the meeting as a participant.

32. In April 1975, parallel meetings of major producing companies, and government representatives of producing countries were held in La Paz, Bolivia. The producing companies formed the Primary Tungsten Association (PTA). Founding members included Mineroperu, Beralt Tin and Wolfram of Portugal, Peko-Wallsend of Australia, the Societe Miniere d'Anglade of France, and Comibol and private sector companies of Bolivia. China was a participant in the government meetings convened by Bolivia.

33. Tentative agreement was reached by the PTA to set upper and lower limits of respectively E 45 and L 35 per metric ton unit of 65% minimum W03 tungsten concentrate, but this has had little or no effect. A headquarters for the PTA was also established in London.

34. The price limits were submitted to the Tungsten Committee of the UNCTAD on which 29 producing and consuming countries are represented. While tentative agreement was reportedly reached on establishment of price limits, a decision was made to postpone substantive discussions until 1976. This decision was made to give time to resolve the technical problems.

35. These problems revolve mainly around the fact that tungsten is not traded as a homogeneous product. For this reason the Committee concluded that a buffer stock would be impractical. It was also felt that there would have to be an agreed price relationship between all the forms in which ANNEX 3-2 Page 8

tungsten is traded; concentrates and ferrotungsten, for example. The price quotation to be used also raised difficulties. Further meetings took place in Geneva in November, 1976, but again disparate views were voiced and no agreement was reached. Whether progress can be made on these problems remains to be seen.

36. In general, many consumer nations seem to be moving away from resistance to commodity price stabilization agreements. Such an agreement, in the case of tungsten, could result in a rather unique combination of market economy and centrally planned economies. This would be essential to have an effective agreement.

G. CONSUMPTION AND DEMAND

37. Demand for tungsten is closely linked to levels of activity in the steel and machine tool industries, which are, in turn, linked closely to economic activity in the industrialized countries. The U.S. is the major consumer in the free world, while the USSR consumes only a slightly smaller amount. Table 5 shows the geographical distribution of consumption in market economy countries, including net exports to centrally planned economies.

Table 5: Tungsten Consumption in Market Economy Countries (metric tons of contained metal)

1966 1970 1974 1975

United States 8,210 8,710) 9,980 6,990

Japan 1,810 4,080 2,950 1,810

Western Europe 10,250 12,840 11,880 9,070

Other 680 3,580 4,170 4,310

Total 10,950 29,210 28,980 22,180

Sources: USBM, UNCTAD.

38. Consumption in market economy countries has grown at a rate of 4% per year from 1966 to 1974. A decline of 23% in 1975 resulted from the major economic recession in the Western World. The substantial variation in yearly consumption reflects the close correlation between tungsten demand and economic activity.

39. Demand is expected to recover over the next couple of years. After 1977, annual growth in demand is expected to be of the order of 4%.

H. PRICE

40. Primary tungsten concentrate production is commonly sold in pounds sterling per metric ton unit (mtu) of 65% W03 content. U.S. market prices ANNEX 3-2 Page 9

are quoted in U.S. dollars per short ton unit (stu) 65% W03 content. A ton unit is one hundredth of a ton. Therefore, the approximatevalue of a ton of ore or concentrateis obtained by multiplying the price by the percent W03 content (or grade).

41. Internationaltrade, including Burma's production, is often on the basis of prices quoted in the London Metal Bulletin (LMB). The LMB quotation is based on surveys of representativesales usually through metal trading companies. The LMB quotation is presented as a range, with the high and low prices usually US$2 to 5 apart.

42. There are no universally accepted or standard specificationsfor tungsten concentrates. The 65% W03 content does serve as a reference point. Particular sales or contractswill generally establish the price basis after negotiation. Desirable concentrates -- high grade and with low impurities -- will command a price at the high end of the range, or even at a premium over the high end of the LMB quotation. On the other hand, lower grade concen- trade with high impuritieswill only sell at a discount to the low end of the price range.

43. Prices historicallyhave shown erratic and rather violent movements. Fluctuationsof 100% or more in a year have not been uncommon. Past prices, stated in terms of averages of the midpoints of the LMB quotation, are shown in Table 6 below.

Table 6: Average Tungsten Prices

Year Price (US$ per mtu)

1967 49.60 1968 43.00 1969 47.40 1970 74.30 1971 50.70 1972 35.90 1973 41.80 1974 92.50 1975 91.30 1976 102.00

44. Although current prices increasedsubstantially in 1974, they started from a rather depressedbase. In real terms, the average price in 1974 was less than the price in 1970, and equivalent to or only slightly higher than prices in 1967 - 1969.

45. After reaching a high of US$118 in September 1974, prices (in current terms) declined to US$88 at the end of 1974. In the first six months of 1975, prices recovered somewhat and fluctuated from US$90 to US$100. However, they dropped to US$85 in July. After recovering somewhat in August, prices remained level at US$86 to 88 through the end of 1975. ANNEX 3-2 Page 10

46. With high prices and poor economic outlook in the latter part of 1974, tungsten concentrate consumers decreased their inventory levels. With this modest decrease in demand, China sharply reduced exports in early 1975, which resulted in an improvement in prices. However, demand continued to decline during this period and remained low throughout the year. rhe relatively stable prices in the latter part of 1975 can be attributed to a low level of supply, a high level of sales to Eastern Europe, and a low level of inventories.

H. OUTLOOK

47. With recovery in economic activity in 1976, tungsten demand recovered. As a result, prices averaged over US$100 per MTU during 1976, ranging up to about US$140 late in the year.

48. As noted above, from 1977 onward, growth in tungsten demand is expected to average 4% per annum. As indicated in the section on tungsten uses, the outlook is quite favorable and substitution is not expected to be a major factor. As in the past, supply is more likely to be an inhibition to growth than demand.

49. Price projections are shown in Table 7 below:

Table 7: Tungsten Price Projections (US$ per MTU) (Based on Users Index for Wolfram)

Constant 1976 Dollars Current Dollars Deflator

1976 102 102 100.0 1977 103 112 108.4 1978 103 121 117.1 1979 105 132 125.8 1980 109 146 134.7 1985 113 213 189.9

50. The prospects of increased Chinese cooperation with other producers look favorable, and have already serve to attenuate the violent price fluctuations of the past. Implicit in the above prices is the assumption that sales from U.S. Government stockpiles will reflect, at least to some extent, the market requirements. The price projections represent a trend line. Fluctua- tions around the trend line must be expected.

Industrial Projects Department January 1977 ANNEX 4-1 Page 1

BURMA

TIN/TUNGSTEN EXPANSION PROJECT

NO. 2 MINING CORPORATION: DESCRIPTION OF OPERATIONS

A. INTRODUCTION

1. The No. 2 Mining Corporation (MC2) presently produces approximately 1,500 LTPY of tin, tungsten and mixed tin/tungsten concentrates. Ore is mined in two principal regions of the country (Map IBRD 12322).

(a) Tenasserim Division

This area in the extreme south-eastern part of Burma produces around 1,000 LTPY of tin, tungsten and tin/tungsten concentrates. Operating units comprise a few small MC2 mines and a multitude of tribute operations.

(b) Mawchi and Pyinmana Area

Both Pyinmana and Mawchi are separate tin/tungsten centers lying north and north-east of Rangoon respectively. This area produces around 500 LTPY of tin/tungsten mixed concentrates, almost all of which come from tribute operations.

2. In both the Tenasserim and Mawchi/Pyinmana regions, the quantity and quality of the reserves remaining to be worked have, in most cases, not been thoroughly proved and prospecting records are incomplete. The assessment of ore sources conducted by the consultants, Osborne and Chappel, is therefore based partly on such historic information as is available and on verbal advice from MC2 officials. While this situation is not entirely satisfactory, the statements recorded are considered a realistic assessment, particularly in view of Burma's history as a major tin/tungsten producer and the multitude of operating units, both big and small, which are known to have existed in the past. In this respect, it should be noted that current production levels are only 10% of those recorded some 40 years ago.

3. A summary of estimated ore reserves and current production levels at MC2's various mining centers is given in Table 1 below. More detailed information on historical production is provided in Annex 4-2, page 3. ANNEX 4-1 Page 2

Table 1: Data on Tin/TungstenReserves and Annual Production (Long Tons)

FY 1976 ---- Estimated Reserves----- Production Proven Probable Possible

TenasserimDivision

Heinda Mine 210 11,600 - - HermyingyiMine 207 - 20,800 - Kanbauk Mine 171 3,300 - - KyaukmedaungMine 85 ------No figures available---- Nanthilar Mine 16 ------No figures available---- YadanabonMine 104 ------No figures available---- Heinze Basin (to be developed) 6,600 - - 793 21,500 20.800 - Tribute Mines in the TenasserimDivision 1/ 227 ------No figures available---- 1,020 21,500 20,800 -

Probable Reserves in the Tenasserim Division not specificallyattributed to the above mines 13,400 - MiscellaneousGravel Pump Reserves - 17,000 Offshore Areas ------No figures available----

Total Tenasserim - 1,020 21,500 34,200 17,000

Mawchi/PyinmanaArea

Mawchi Mine 402 - 15,700 2/ - Mawchi Major Rehabilitation -- - 8,200 Other Mines in the Pyinmana Area 80 ------No figures available---- Miscellaneous Gravel Pump Reserves ------No figures available----

Total Mawchi/Pyinmana - 482 - 15,700 8,200

GRAND TOTAL 1,502 21,500 49,900 25,200

1/ There are several mining localitieswhich for various reasons, are not directly operated by the MC2 but for which the Corporationacts as a central purchasingagency. Mining is performed by local tributors.

2/ Includes proven reserves. ANNEX 4-1 Page 3

4. Overall, MC2 operates 7 mines and 8 small concentrators, with associated facilities such as warehouses and workshops. However, over 75% of the concentrates produced are from ores purchased from independent tribute miners, who work individually or in small groups under the loose supervision of Corporation staff. The tributors upgrade their production on site to about 65% tin-ore/wolfram content by rudimentary means, with MC2's various mines acting as purchasing and storage depots for tributor production. A description of MC2's mining and concentrating operations is given in Sections B and C below.

B. MINING OPERATIONS

1. Heinda Mine

5. Background: Operations at this locality commenced in 1926 and have continued uninterrupted to the present day. In 1955, the original expatriate mining company joined with the Burmese Government to form the Anglo-Burma Company Limited. In 1963, the company was entirely bought out by the Govern- ment.

6. Mineral production is almost entirely tin at an average of 72% Sn. Mineralisation occurs in the form of an alluvial placer deposit, the average grade of the reserves having been assessed at 0.69 kg/cu.m. A West German team (Grundstoffberatung E.V.) carried out studies on the Heinda mine between August and October 1970. The statement of reserves shown in Table I is based on the German estimate updated to account for ground worked in the intervening period and adjusted for metallurgical recovery.

7. Existing Facilities: Currently, MC2 conducts mining operations utilising ground sluicing methods with the final recovery being achieved by hand cleaning in palongs. Pre-blasting of selected ground is undertaken prior to ground sluicing by monitors. Palong concentrates are upgraded in a separate treatment plant possessing a shaking table, screen, one magnetic separator and several lanchutes. Equipment is generally in fair to good operating condition. The grade of the final concentrate is in the order of 72% Sn and no further upgrading is carried out in Tavoy, the concentrate being shipped to Rangoon for sale.

8. Future Development: A new mining system is presently being implemented (with start-up scheduled for early 1977) based on a Federal Republic of Germany survey, utilizing open pit methods and earthmoving equipment. The foreign exchange costs of the project (US$8.9 million of total project cost of US$12.9 million) are being financed by a KfW credit and German technical aid. Pre-blasting will continue with the new system but hydraulic mining methods will be terminated. The open pit has been designed to utilize benches of 7.5 meters and the spoil will be hauled by eleven 18-ton dump trucks to the central mill; loading will be by front-end loaders. ANNEX 4-1 Page 4

9. A new concentratingmill is also being constructed,with Krupp of West Germany supervising the work. This new mill will treat run-of-mine ore using trommel washers and vibrating screens for disintegrationand sizing, hammer-millsfor reduction of oversize,jigs for primary concentrationand shaking tables for secondary clean-up. The final concentratewill be produced with limited secondary stage concentrationequipment after magnetic separation of the table concentrates. The designed capacity of the new mill is 600 tons/hour. Production from the new facilities is projected to be 1000 LTPY of tin concentrates,an increase of about 800 LTPY over present output.

10. Although Krupp claims the new mill will produce a final concentrate assaying 72% Sn minimum with a recovery of 90%, Osborne and Chappel feel that the attainment of a high grade for the final concentratewithout unaccep- table losses is likely to present problems with the proposed flowsheetand equipment currently being installed. Such problems would be overcome by the installationof additional equipment, or by final stage-upgradingat the Tavoy concentratorto be built in associationwith the proposed IDA project.

2. HermyingyiMine

11. Background: Operations,which included both undergroundand open pit working, were conductedby an expatriate mining company from 1913 to 1943. Between 1946 and 1962, only tribute operations took place because most of the original machinery was destroyed during the war. In 1966, the Mineral Develop- ment Corporation took over operational control of the mine which was fully nationalizedin 1971.

12. Mineralizationis associatedwith a primary deposit occuring as numerous veins in the rock togetherwith the occurrence of quartz veins. A survey of reserves was undertaken by Mineral DevelopmentCorporation geologists between 1966 and 1970. The results of the survey, however, were considered to be far too optimistic and, with Federal German aid, the work is currently being undertaken once more. The full results of this survey have yet to be published. What is conclusive,however, is that the rich reserves have been almost exhausted and only large tonnage methods of working the remaininglower grades will enable the mine to be viable. The figures quoted in Table 1 for Hermyingyi reserves are those contained in the preliminaryreport of the Germany study team.

13. Existing Facilities: Current working methods are conductedentirely by tributors, using adit methods and shallow pitting of surface deposits. Facilities comprise only a lanchute and drier. All tributors'production is sent to Tavoy for separation of wolfram-ore from tin-ore. The tributors themselves upgrade mine production to 65% wolfram-ore/tin-orecontent by panning and sluicing. Raw ore is crushed by sledge hammer and manual grinding is effected by rolling a cement filled steel pipe over a curved metal sheet. As no facilities exist in Tavoy for wet separation,various non-magnetic and middlings fractions from the magnetic separatorsare returned to Hermyingyi for fuirtherwashing. ANNEX 4-1 Page 5

14. Future Development: Following development work by both the MDC and the German consultants over the last three years, proposals are being compiled for a further study into exploiting the underground reserves on a large scale. Based on the preliminary exploration and survey of ore reserves, expansion potential has been assessed at 500 tons per annum each of tin and tungsten. Conceivably, a mine could be on-stream by the early to mid-1980's. This deposit would be worked directly by MC2 although current tribute operations would still continue simultaneously at their present level on a portion of the reserves. Ore from an expansion project at the mine could be easily upgraded at the proposed new Tavoy concentrator.

3. Kanbauk Mines

15. Background: Mining operations date back to 1911 when they were started by an expatriate mining company and continued as such until 1926. After this date, local companies participated in the mining venture until it was nationalized in 1971. In 1974, following the completion of a UNDP- assisted exploration program, a gravel pump mine was established at Kanbank with UNDP assistance and equipment. The UNDP facilities were handed over to MC2 in February 1975.

16. Tin, tungsten and a mixed ore concentrate comprise the minerals produced, which occur in alluvial placer deposits and as a primary mineralization in veins in the surrounding rock. Between 1967 and 1972, the MDC carried out a pitting and boring program over approximately 2,000 hectares in the vicinity of Kanbauk Mines. Based on this exploration work, reserves were calculated. A subjective assessment of the recoverable ore content remaining in these reserves was done by Osborne & Chappel in 1975 and is the basis for the figures in Table 1.

17. Existing Facilities: MC2 conducts hydraulic gravel pump operations in the alluvial deposits, while tribute operations are confined to the primary lode mineralization. Some primitive ground sluicing operations are conducted by tributors during the wet season.

18. There are two upgrading plants at Kanbauk Mines. One, which after trials has never been used, was constructed by the UNDP at the time they developed a third opencast mine on the Kanbauk reserves. The ex-UNDP plant has shaking tables for primary concentration with clean-up by lanchutes. Middlings containing refractory and magnetic minerals are to be separated in a dry section comprising magnetic and H.T. separators. All equipment is new, and had not as yet been used by MC2 due to a shortage of equipment for the water supply connection and some deterioration in supervisory control following the departure of UNDP personnel. The other plant treats primary palong concentrates from the three opencast pits, including the ex-UNDP mine, and also carries out, from time to time, some upgrading of the wolfram-ore produced by tributers in the Kanbauk area. Apart from magnetic separation, where equipment is in poor condition and very antiquated, concentration in this plant is by manual methods. All the primary concentrates from MC2's own operations are upgraded to selling grade in this plant. Tributors' production consisting mostly of wolfram-ore is usually upgraded at Tavoy before shipment .to Rangoon. ANNEX 4-1 Page 6

19. Future Development: Since the Kanbauk Mines are less than 10 kilometers from the proposed shore complex for the Heinze Basin dredging project, the most reliable method of improving these mining operations would be by complete integration of Kanbauk operations with those of the Heinze Basin project. This would result in immediate improvement in infrastructure, transportation, communication, workshop and mineral dressing facilities, and labor skills, together with supervision by trained management from a strong base. The concentrating facilities proposed for Heinze would be used to upgrade the rough concentrates from the palongs at Kanbauk mines. Integration of Kanbauk mines with the Heinze Basin complex is further discussed in Annex 5-1.

4. Kyaukmedaung Mine

20. Background: Intensive mining operations took place at this locality prior to the last war when three bucket ladder dredges were in operation. Dredging ceased in 1973 on apparent exhaustion of viable reserves. In February 1972, it was decided to attempt gravel pump methods of mining and these have continued since that date. Mineral production consists of tin-ore occurring as an alluvial deposit. No information is available on the extent or grade of remaining reserves.

21. Existing Facilities: Production is obtained from MC2 gravel pump operations and tributors. The MC2 mine consists of one pumping unit, ground cutting being effected by monitors. Tribute operations, such as ground sluicing, take place in the alluvial deposit as well as tunnels and adits in primary deposits occurring in the neighbouring hills. These operations produce tin and mixed tin/tungsten concentrates. Since no mechanized equipment is available, processing of MC2's gravel-pump mine palong concentrates and tributors' production consists solely of lanchute washing and drying. Final separation is carried out in Tavoy.

5. Nanthilar Mine

22. Background: Small scale operations have taken place at this locality for some years, and in 1970 the mine came under the jurisdiction of the Mineral Development Corporation. Mineral production consists entirely of tin occurring as a primary deposit associated with iron and copper sulphides. The deposit consists of widely irregular veins and lenses. One assessment of workable reserves was attempted when approximately 600 feet of exploration tunnels were driven. This survey, however, was inconclusive and MC2 proposes conducting an extensive review of reserves in the near future. Production will be temporarily halted while the deposit is being further investigated.

23. Existing Facilities: Current production is confined to one MC2- operated mine utilizing adits and drifts from the surface. The ore is roasted to remove pyrite. There are no records of equipment installed, and further processing is apparently entirely manual. ANNEX 4-1 Page 7

6. Yadanabon Mine

24. Background: The mine commenced operations in the early 195 0's and was eventually taken over by the Burmese Government in 1954. Mineralisation occurs as an alluvial placer deposit with wolfram, the main ore, being associated with bismuthinite, monazite and pyrite. Ore reserves are not known and have not yet been assessed.

25. Existing Facilities: There are three actual working sites utilizing conventional gravel pump methods, working in conjunction with palongs. Pre- blasting is resorted to in exceptionally hard ground which is then cut by monitors. The treatment plant contains a shaking table, magnetic separator and vibrating screen. Due to its remote location the plant was not visited by Osborne and Chappel and no comment can be made on the condition of its equipment.

7. Heinze Basin

26. A UNDP study team carried out a comprehensive boring program over the whole area between 1971 and 1974 and the reserves were valued in the subsequent feasibility study carried out by Osborne & Chappel in 1975. Detailed information on the proposed project for the Heinze Basin is given in Annex 5-1.

8. Mawchi Mine

27. Background: Production at this mine commenced in 1915, and in the pre-war period it was one of the world's largest primary lode producers of tungsten. In 1939, production reached over 3,000 LTPY of tin concentrates and over 2,700 LTPY of tungsten concentrates. The mine operated throughout the Japanese occupation, but production ceased altogether in 1949. In 1963, the Government established a joint venture company with the original owners and took over operational control. Administration eventually passed to the Mineral Development Corporation in 1962.

28. Mineralization is associated with black mica, tourmaline, calcite and quartz veins. Cassiterite, wolfram and scheelite are the chief ores produced. There are numerous mineral veins--70 separate veins have been identified. The reserves remaining in the Mawchi Mine were assessed by a team from the USSR between 1969 and 1974. The ore presently being worked by the tributors, from whom almost all current production is now derived, is recovered from the vicinity of the old Mawchi Mine. Such production is thus outside the stated reserves given in Table 1.

29. Existing Facilities: Current production is obtained largely from tribute operations. Conventional underground methods are utilised using shrinkage stopes in the extraction process. Because of the security situation, it was not possible for Osborne & Chappel or IDA staff to vist Mawchi, and no detailed comments are available on the concentrating facilities at the mine site or on the condition of installed plant. However, from discussion ANNEX 4-1 Page 8

with MC2 officials, it was ascertained that a large mill was built at the mine before World War II. This mill incorporated gravity and flotation circuits for the production of bulk mixed concentrates. Apparently, no magnetic or high tension separation facilities ever existed, and mixed concentrates of cassiterite, wolfram and scheelite components are sold without further treatment.

30. Future Development: A Soviet technical aid mission commenced investigations in 1969 to assess the feasibility of a full scale rehabilitation program and to recalculate ore reserves. Due to insurgency problems, this aid program was terminated in January 1974 and the program of rehabilitation temporarily suspended. The proposed rehabilitation program envisaged a total output of 1,000 tons per annum, 500 tons from the mine and 500 tons from tribute operations. It further envisaged the progressive replacement of some existing equipment such as crushers, hydrosizers, ventilation equipment, battery locomotives and mine cars and an immediate upgrading of the hydro- electric plant with the installation of new turbines, generators and trans- formers. Mlore experienced technicians were also called for and it was sugges- ted that the existing mill equipment needed immediate replacement. This program could be resumed if insurgency problems were brought under control and new financing found. While the timing of this is uncertain, the Corporation is hopeful, and there have been recent indications that the security situation may be improving.

9. Miscellaneous Gravel Pump Reserves

31. A multitude of small operations were carried out in the past, but only a few of these are currently in operation. From historic records, MC2 have tentatively identified about six separate accessible areas where mining could commence using vertical gravel pumps. It is believed that there are sufficient reserves for ten pumps to be installed and that these would give a total annual production of 500 tons of tin-ore and/or wolfram. The total reserves were assessed at 17,000 tons (Table 1). While Osborne & Chappel were unable to substantiate these figures, there is no reason to doubt that MC2's report fairly reflects the potential of these reserves. A limited start to recommencing gravel pump operations at one or two of these potential sites forms part of the proposed project (Annex 5-1).

10. Offshore Areas

32. An offshore exploration project is currently in progress in the Mergui Area. This has a good chance of success, as the prospecting area is a logical extension of tin-bearing areas worked in Thailand. Osborne & Chappel consider this project, which is UNDP financed, well-conceived and success would add a new source of ore and provide a logical extension to the Heinze Project, as the area of likely mineable deposits are at moderate depths in sheltered areas. It will probably be at least late 1977 before first indications of potential are known, although sonar soundings have identified promising areas. ANNEX 4-1 Page 9

C. CONCENTRATING FACILITIES

1. Facilities at the Mine Sites

33. As described in the previous section, existing tin/tungsten concentrating facilities at the mine sites are generally primitive with only a minimum of mechanization. Equipment is antiquated and often in poor running order. The only new equipment available is that installed under a UNDP project at Kanbauk (para. 18).

34. The equipment installed in existing plants consists of a variety of driers, vibrating screens, magnetic separators, shaking tables and various crushing machines. MC2 presently uses only three shaking tables throughout the Tenasserim Division and nearly all gravity separation is performed manually in palongs, lanchutes or by panning. No attempt is made to remove sulphide contaminants or refractory minerals from the concentrates, except possibly at Nanthilar, where the flowhseet indicates the presence of a roaster for sulphide removal. With regard to the Mawchi ores, no attempt is made to split the mixed concentrates into tin and tungsten, and only the more penal contaminants are removed.

35. The tributors upgrade their production on site to a minimum of 65% tin-ore/wolfram content by rudimentary means. MC2's various mine treatment plants act as purchasing and storage depots for tributors' production which is further upgraded at facilities at the mines or in Tavoy.

2. Other Concentrating Facilities

36. Tavoy Separation Plants: In addition to the concentrating facilities at the various mines, there are two up-grading plants in Tavoy which are used to separate wolfram from cassiterite in the bulk concentrates produced by various mines in both the Tavoy and Mergui areas. Both plants are only concerned with magnetic separation of wolfram-ore and other magnetic impurities from tin-ore. Feed to the separators is prepared using vibrating screens and roll crushers when required. No gravity separation facilities are available at either plant and all processing is carried out dry. Equipment at both plants is very old (1930's vintage) and in poor operating condition. Combined average throughput is 46 tons/month.

37. Rangoon Separation Plant: This plant treats Upper Burma concentrates and, occasionally, concentrates from Mergui. Equipment is in poor condition. Plant capacity is given as 25 tons/month, but it is used sporadically.

3. Future Developments

38. Due to antiquated and inefficient concentrating equipment, it is not possible for MC2 to realize the full value of the ores currently produced. No financially viable case can be made for improving existing concentrating facilities at the mine sites, or those at Tavoy and Rangoon. As a result, the ANNEX 4-1 Page 10 proposed IDA project includes a new centralized concentratorat Tavoy to treat all of MC2's production of tin, tungsten,and mixed concentrates. This is describedin detail in Annex 5-1.

D. TRANSPORTATIONFACILITIES

1. TenasserimDivision

39. Tavoy (population40,000) is one of the largest towns in the Tenas- serim Division and is considered the commercial center of the area. It is also the administrativecenter of the Division.

40. Both the Kanbauk/Heinzeand the Heinda/Kyaukmedaung/Hermyingyi areas are connected to Tavoy by road, part sealed and part dirt. The condition of these roads is poor in places and, in the wet season, sections become impassable for several days at a time due to flooding. Bridge loadings are generallyrestricted to 3 to 5 tons on roads in the Tavoy area with the exception of the bridges on the Tavoy to Heinda road where maximum permissible loads may reach 10 tons. Washed concentratesfrom the Kanbauk, Hermyingyi, Heinda, and Kyaukmedaungareas are delivered to Tavoy by local bus. Delays are frequent due to the necessity of organising a military escort for security reasons. From Tavoy, concentratesare delivered to Rangoon by boat.

41. Connectionsbetween Tenasserim/Yadanabonand Tavoy are by sea, or by sea to Mergui and then by tar-sealed road to Tavoy. MC2 utilizes its own schooner for collection of concentratesfrom Yadanabon. From here, concentratesare sent to either Tavoy or Rangoon for upgrading.

2. Mawchi/PyinmanaArea

42. Pyinmana lies on the main Rangoon-Mandalayrailroad in the Sittang River valley 350 kms north of Rangoon. The town is utilised as a local administrativecenter by MC2 for the collectionof tribute ores. To the south-east,at a distance of 160 kms, lies the mining center of Mawchi, a small town lying just to the west of the Salween River valley.

43. Pyinmana is well served by both rail and road communication,and lies astride the main north-south rail and road links between Rangoon and Upper Burma. There are little or no restrictionson the type of vehicles utilizing the road, the condition of which is generally good throughout the year. Rail connectionsare also excellent. Communicationsbetween Mawchi and Rangoon are difficult only because of the security situation. The area is well served by a tar-sealedroad. At present, the connection between Rangoon and Mawchi is accomplishedby a circuitous road/rail route, adding a further 500 kms to the journey.

Industrial Projects Department November, 1976 AiNN1X4-2 Page 1

BUSA

TIN/TUNG8TENEXPANSION PROJECT

MC2: HISTORICAL INCOMESTATEMT8

(Kyats 000's)

Year Ending Year Ending September 30 March 31 1972 1973 19741- 1975 1976

REVENUES Gross Sales 2/ 19,385 32,470 11,049 49,553 45,536 Increase (Decrea3,) in Inventories- 5,431 5,240 6,309 (7,471) Sales Deductions-' ( 670) (4.341) (2.216) (4,537) (2.985)

TOTALREVENUES 24,146 33,369 15,142 37,545 42,551

COST OF GOODSSOLD

Opening StockV' 31,101 Cost of Production 22,727 25,251 9,055 30,095 32,013 Closing Stock (33,037) Deferral of Production Costs5/ (3,402) (3.550) (1561) (3233) ( 1799)

COST OF GOODSSOLD 19,325 21,701 7,494 26,862 28,278

GROSS PROFIT 4,821 11,668 7,648 10,683 14,273

INDRECr EXPENSES

Interest on Long Term Debt 102 681 384 General and Administrative Expenses 1,425 1,433 967 1,970 1,910 Depreciation 1.084 1.323 681 1.454 1.552

INDIRECT EXPENSES 2.509 2.756 1.750 4.105 3.846

PROF1T BEFORETAX 2,312 8,912 5,898 6,578 10,427

Income Taxes-6/ 8184 2,949 3-289 5 213

NET PROFIT AFTERTAX 22312 728 2.949 3.289 5 214

RATIO ANALYSIS

Net Revenue per ton of Sales 11.4 17.0 20.7 24.7 28.0 Cost of Sales per ton 9.2 11.0 10.2 17.7 18.6

Profit before Tax as a % of: Net Revenues 9.6% 26.7% 39.07 17.5% 24.5% Average Equity 3.4% 9.47 5.27 5.4% 8.1% Average Operating Assets7/ 7.6% 15.2% 8.2% 8.8% 13.5%

1/ Six months.

2/ Up until 1975, MC2 accounted for sales on the basis of actual shipments adjusted for the net realizable value of changes in inventory during the year. Gross revenues thus represent the net realizable value of annual production. For 1976, gross revenues equal actual shipments with inventories being valued at cost of production.

3/ Sales deductions are made up of NEIC commission (2 1/2% of sales), treatment charges (normally 2% to 4% of sales depending on the quality of shipments), and freight charges (about 1% to 2% of sales). In 1973 end 1974, bank commissions were also charged (amounting up to 15% of sales). This practice has now been discontinued.

4/ Opening inventories for FT 1976 are valued at net realizable value. Closing inventories are valued at average cost of production during the year. The change in the inventory valuation method had only a small impact on 1976 profits since the net realizable value per ton used to value opening inventories was only marginally above the relevant production costs per ton for those inventories.

5/ Part of MC21s operating costs relating to the Mawchi Mine are deferred and capitalized. Because of insurgency activity and suspension of the rehabilitation program, 1SC2's present production from the Mawchi Mine is limited. Thus the cost of keeping the mine open for future development is deferred.

6/ MC2 first became liable for income taxes in 1973 when corporate tax rates were the same as those on personal income. The tax rate was reduced to 50% in 1974-76.

7/ Excludes intangible assets (deferred expenses end goodwill) and assets under construction.

Industrial Projects Department November 1976 AM=EX4-2 Page 2

BURMA

TINITUNGSTEN PANSION PROJECT

MC2: HISTORICAL SAIES BY PRODUCT

Year Ending Year Ending September 30 March 31 1972 1973 1974 1975 1976

TIN CONCENTRATES

Volume (tons) 597 356 169 346 616 Tin Price/Ton (TLE) (Kyats) 19,600 22,000 32,400 42,600 44,700 Revenue Factora! 52.6% 77.77% 85.5% 55.9% 62.07. Revenue/Ton Concentrate (Kyats) 10,300 17,100 27,700 23,800 27,700 Revenue (000 Kyats) 6,158 6,093 4,675 8,219 17,065

TUNGSTEN CONCENTRATES

Volume (tons) 2/ 553 1,057 245 853 497 W03 Price/LTU (LMB)(Kyats)- 186 215 275 368 613 Revenue Factorl/ 80.07% 73.0% 67.7% 87.0% 58.1% Revenue/Ton Concentrate (Kyats) 14,800 15,700 18,600 32,000 35,600 Revenue (000 Kyats) 8,200 16,625 4,559 27,319 17,714

MIED CONCENTRATES

Volume (tons) 525 647- 95 618 442 Revenue/Ton Concentrate (Kyats) 9,300 13,800 18,900 20,800 22,700 Revenue (000 Kyats) 4,874 8,923 1,793 12,850 10,021

TIN MTAL

volume (tons) 26 16 Tin Price/Ton (LME) Kyats 42,600 44,700 Revenue/Ton Metal (Kyats) 43,200 64,300 Revenue (000 Kyats) 1,124 1,029

OTHER SALES REVENUE (000 Kyats) 153 829 22 41 (293)

GROSS SALES

volume (tons) 1,675 2,060 509 1,843 1,571 Revenue (000 Kyats) 19,385 32,470 11,049 49,553 45,536

1/ Six months.

21 Tungsten price is the weighted average of prices of all purchases made by a group of European tungsten carbide manufacturers as reported in the London Metal Bulletin. LTU = one hundredth of a long ton or 22.4 lbs.

}/ Revenue factor is the ratio of revenues received by MC2 per ton of concentrate to the average tin (or tungsten) metal price prevailing in the year. This ratio has fluctuated fairly widely in the past mainly reflecting the timing of MC2's sales in relation to swings in metal prices above or below the yearly average.

Industrial Projects Department November 1976 BURMA

TIN/TUNGSTEN EXPANSION PROJECT

MC2: HISTORICAL PRODUCTIONAND PRODUCTIONCOSTS BY MINE

S E P T E M B E R 3 0 Y E A R E N D S M A R C H 3 1 Y E A R E N D s 1972 1973 1974 1975 1976

OWN-/ TRIBUTE2/ TOTAL OWN1 / TRIBUEE/ TOTAL OWH-/ TRIBUTE-/ TOTAL CMI/ 2 13BUTE3/ T2AL 0WNt- TalIVIE3 TOL. MAWCHI Outpuc - Toss 29 623 652 13 622 635 _ 168 168 25 362 387 106 296 402 CoGt/TBB - 0OKyOst 111.5 6.7 11.4 417.9 7.1 15.5 - 16.1 24.8 36.8 19.1 23.7 36.8 19.1 23.7 Cost - BO Kysts 3,234 4.168 7,402 5,432 4,440 9,872 1,103 1,232 2,335 3.745 5,834 9,579 3,895 5,643 9,538

Output - T.o. 207 62 269 165 60 225 82 11 93 99 47 146 141 69 210 Cost/Ton - 000 Kyst 7.2 8.3 7.5 9.8 7.6 9.2 9.1 10.8 9.3 17.1 19.1 17.8 20.7 18.5 20.0 Cost - 000 'ysts 1,498 513 2,011 1,608 456 2,064 746 119 865 1,694 899 2,593 2,915 1,277 4,192 YADANA&80N Output - T... 78 55 133 47 65 112 26 19 45 39 70 109 29 75 104 CBot/T05 - 000 Kysts 13.1 12.6 12.9 19.9 11.7 15.1 14.8 18.7 16.5 24.0 19.3 21.0 34.2 20.5 24.3 Co.t - 000 Kysts 1,021 693 1,714 937 758 1,695 386 355 741 938 1,351 2,289 991 1,557 2,368

rLPJ3EUSAU%G Output - T-nB 27 150 177 35 119 154 9 53 62 11 91 102 4 81 83 Cost/Ton 000 Kyats 25.0 7.0 9.8 22.6 8.2 11.5 41.2 8.0 12.8 71.5 14.4 20.3 190.3 15.0 23.3 Co,t - 000 Kysts 676 1,057 1,733 793 981 1,774 371 422 793 787 1,306 2,093 761 1,217 1,978

ERIIYINGYI Output - Too. - 170 170 - 173 173 - 100 100 - 206 206 - 207 207 Cost/Ton - 000 Kysts - 6.3 9.8 - 6.1 9.1 - 6.2 8.7 - 11.7 15.1 - 12.6 18.3 Cost - 000 Kysts 585 1,073 1,658 521 1,065 1,586 253 620 873 682 2,419 3,101 1,185 2,606 3,791

KAK8AUK output - To.s 61 194 255 56 265 321 31 120 151 77 229 306 70 101 171 Cost/Ton - 000 KySts 9.0 13.1 12.1 14.9 13.0 13.3 14.0 11.9 12.3 22,2 17.1 18.3 35.9 18.2 25.4 Cost - 000 Ky-ts 548 2,538 3,086 834 3,447 4,281 434 1,422 1,856 1,707 3,907 5,614 2,511 1,840 4,351

NAXlTglLAR Output - Tons 40 - 40 17 - 17 7 - 7 10 - 10 16 - 16 Cost/Too - DO 'ysts 12.2 12.2 13.2 _ 13.2 56.4 56.45 35.5 - 3535 22.3 - 22.3 Cost - 000 Kysts 488 488 224 - 224 395 - 395 355 - 355 357 - 357

OYR oMIsNE8 414 414 - 329 329 - 107 107 - 253 253 - 307 307 Cost/Too - 00 Kysts - 10.3 11.2 - 10.5 11.4 - 10.1 11.4 - 15.7 17.7 - 15.5 17.1 Cost - 000 Kysts 379 4,256 4,635 300 3,455 3,755 116 1,081 1,197 487 3,984 4,471 499 4,759 5,258

Output L - ons 442 1,668 2,110 333 1,633 1,966 155 578 733 261 1,258 1,519 366 1,136 1,502 Cost/To - 000 Kysts 19.1 8.6 10.8 32.0 8.9 12.8 24.5 9.1 12.4 39.8 15.7 19.8 35.8 16.6 21.3 Cost - OGO 'ysts8,429 14,298 22,727 10,649 14,602 25,251 3,804 5,251 9,055 10,395 19,700 30,095 13,114 18,899 32,013

TOTAL OOTPUTBY TYPE OF CONCENTRATE

Tf1 - To.s 311 332 643 256 258 514 130 100 230 197 332 529 228 380 608 Toog9tos - Tons 102 713 815 64 753 817 25 310 335 39 564 603 32 460 492 Mixed Ores - Toss 29 623 652 13 622 635 - 168 168 25 362 387 106 296 402

1/ Six months.

2/ Totol costs sod nost-psr too for I2tOs o-s produotion sre so-hst ov-rstatod. This nooditlon srises sinco part of M21 labor - sod overhead costs at eoh sioe site Oro rsquired for supervision of tributor op-rstioos.

3/ Total .osts sod .oot per too for tributs oros repressnt only the purch-so pri4o of o.ch ore. Costs of oupeovisiof tributors ors i*oluded in the costs of SC2's o- production.

Isoftrisl Projects De"rt-st Nov_bsr 1976 AMNEX4-2

BURMA Page 4

TIN/TUNGSTENEXPANSION PROJECT

M2: HISTORICAL BALANCESHEETS

(Kyats 000's)

Saptember 30 M a r c h 3 1 1972 1973 1974 1975 1976

ASSETS

CIIRRENTASSeTS

Cash and Bank 522 945 1,621 1,355 1,508 Receivables 2,541 13,282 12,205 9,066 14,318 Inventories Mineral Oresel' 27,023 32,263 38,572 31,101 33,037 Supplies 7,712 9,662 11,246 i4,010 15,012 Other ReceivablesaY __ 5.821 5.314 TOTAL CuRRENT ASSETS 37,798 56,152 63,644 61,353 69,189

FIXED ASSETS

Gross Fixed Assets-3 21,590 23,546 38,697 56,006 67,513 Accumulated Depreciation 10.340 11.663 12.344 13,976 15.519

NET FIXED ASSETS 11,250 11,883 26,353 42,030 51,994

OTHERASSETS

Deferred 1;xpenditures4' 8,736 12,286 13,847 18,580 20,759 GoodwillS 34,227 34.227 14.227 34.227 34.227

TOTAL OTHER ASSETS 42.963 46.513 48,074 52.807 54,98

TOTAL ASSETS 92,011 114,548 138,071 156.190 176,169

LIABILITIES & EQUITY

CURRENTLIABILITIES

Accounts Payable 5,829 5,743 5,190 915 1,112 Income Paxes Payable _ 9.927 11.667

TOTAL CURRENTLIABILITIES 5,829 5,743 5,190 10,842 12,779

OTHER LIABILITTIES61 2,214 2,243 2,243 2,243 2,243

LONG TERMDEBTZ/ 11,686 20,171 25,137

EQUIlTY

Retained Profits 7,062 7,790 10,739 14,028 19,242 State Funds (Equity Capital)8/ 76.906 98.772 108.213 108.906 116,768

TOTAL EQUITY 83,968 106,562 118.952 122,934 136,010

TOTAL LIABILITIES & EQUITY 92.011 114.548 138,071 156,190 176.169

RATIO ANALYSIS

Current Ratio 6.5 9.8 12.3 5.7 5.4 Debt/Equity Ratio 0:100 0:100 9:91 14:86 16:84

Average Turnover Receivables 11.8 3.6 1.4 4.2 3.6 Mineral Ores Inventory 1.6 1.1 0.9 1.1 1.0

1/ Inventories are valued at net realizable value 1972-75 and at average cost of production in 1976.

2/ Includes advances to employees and deposits with state agencies for telephone, insurance, customs duties, etc.

3/ Includes assets under construction; operating assets as of March 31, 1976 were about K25 million.

4/ Part of MC2's operating costs relating to the Mawchi Mine are deferred. Production at the mine is presently limited due to insurgency activities. Thus the cost of keeping the mine open for future development has been deferred.

5/ Goodwill represents the excess of liabilities over assets acquired by MC2 fro. MDC in 1972. i| Other liabilities represent asnunts owed by MC2 for nationalized mines (previously locally owned) taken over by GOB and transferred to the Corporation. It is unlikely this anount will ever be paid.

7/ Long term debt represents credits under the FRG loan for the Reinda Minie. Interest rate is 2½7. with principal repayable over 25 years cosmencing in 1980. The asount outstanding in Deutsche Marks has been converted to Kyats at the rate of 1DM - K 2.66

8/ As of March 31, 1976, MC2's balance with the UCF fund was converted to equity capital. This conversion has been shown retroactively 1972-76 in the above Balance Sheet.

Industrial Projects Department January 1977 BURMA

TIN/TUNGSTEN EXPANSION PROJECT

MC2: HISTORICAL STATEMENT OF SOURCES AND APPLICATION OF FUNDS

(Kyats 000's)

September 30 M a r c h 31 Year Ends Y e a r E n d s 1972 1973 19741/ 1975 1976

SOURCES:

From Operations: Net Profit After Tax 2,312 728 2,949 3,289 5,214 Depreciation 1,084 1,323 681 1,632 1,552

3,396 2,051 3,630 4,921 6,766

Increases in State Funds (Equity) 29,941 21,866 9,441 693 7,862 Increases in Long Term Debt - 29 11,686 8,485 4.966

TOTAL SOURCES 33,337 23,946 24,757 14,099 19,594

APPLICATIONS

Increases in Fixed Assets 5,059 1,956 15,151 17,309 11,516 Increases in Deferred Expenditures 3,402 3,550 1,561 4,733 2,179

SUB TOTAL 8,461 5,506 16,712 22,042 13,695

Increae (Decrease) in Working Capital 24,876 18,440 8,045 (7,943) 5,899

TOTAL APPLICATIONS 339337 23,946 24,757 14,099 19,596

_ S

Six months. -n

Industrial Projects Department January 1977 ANNEX 4-3 Page 1

BURMA

TIN/TUNGSTEN EXPANSION PROJECT

NO. 2 MINING CORPORATION ORGANIZATION AND MANAGEMENT

1. The organizational structure of the Corporation is shown on page 3. Overall, MC2 employs some 2,700 persons and is composed of the following main divisions:

------Employees------Head Office, Rangoon Officers Other Total

Administrative Division 6 53 59 Accounts Division 5 42 47 Production Division 10 57 67 Planning and Projecting Division 8 29 37 Engineering Division 7 114 121

Head Office Total 36 295 331

Mining Sites in the Districts

Heinda Mine 7 568 575 Hermyingyi Mine 2 112 114 Kanbauk Mine 3 192 195 Kyaukmedaung Mine 4 37 41 Nanthilar Mine 1 154 155 Yadanabon Mine 5 185 190 Mawchi Mine 14 689 703 Other Mines 1/ Project Pyinmana Region 1 43 44 Tavoy Region - 3 3 Mergui Region - 11 11 Gravel Pump Mines - 342 342

Mining Sites Total 37 2,336 2,373

Corporation Total 73 2,631 2,704

1/ Represents small mines worked by tributors who sell their ores to the Corporation. ANNEX 4-3 Page 2

The functions of the main divisions at Head Office, Rangoon are described below:

(a) Administrative Division is responsible for matters relating -o appointments, postings, transfers, training, pay and allowances, welfare, etc., of the Corporation's personnel.

(b) Accounts Division is responsible for preparing the Corpora- tion's annual budget estimates and submission of these to the Government; authorizing the cash requirements for the Projects and Head Office Divisions; exercising budgetary and financial control on the implementation of the projects; auditing and admitting claims for payments; auditing the accounts of the mine site branch offices annually; compiling the annual accounts and submitting these to the Administrative Ministry; and laying down the accounting procedures for the Mine Sites and Head Office Divisions of the Corporation.

(c) Production Division is concerned with mining, concentrating and smelting of tin and tungsten minerals; mine security; obtaining required materials and stores for operations; preparing progress reports and other reports which may be called for; and taking action on proposals for short-term and long-term projects in consultation with the Head of the Planning and Projecting Division.

(d) Planning and Projecting Division is responsible for studying and solving difficulties in connection with production of the existing mines; improving and modernizing the technical methods employed at the mines; organizing in-service technical training and training for new employees; and taking action on proposals for short-term and long-term projects in consultation with the Head of the Production Division.

(e) Engineering Division is responsible for the civil, mechanical and electrical works of the Corporation; and the purchase and supply of mining stores and machinery spares.

3. MC2 has been limited in its activities to production. Exploration, mine geologic work, research and marketing have been carried out by other Government corporations or departments. While close cooperation exists among the various bodies so that the required work usually gets done, activities are too diffused and responsibility is difficult to pinpoint. In future, MC2 will be allowed to have more influence over its marketing (text para. 4.15). With regard to exploration, MC2 will carry out work only in areas within its present mining areas, regional exploration remaining the responsibility of the Directorate of Geological Survey and Mineral Exploration. BURMA TIN/TUNGSTEN EXPANSION PROJECT No.2 MINING CORPORATION: Organization Chart

BOARD OF DIRECTORS

MANAGING DIRECTOR

DEPUTY DIRECTOR PLANNING AND DEPUTY DIRECTOR DEPUTY DIRECTOR CHIEF ACCOUNTS ADMINISTRATION I PROECTLONS PRODUCTOND ENGINEERING OFFICER

ASST. DIRECTOR ASSTFCHIEF A ~~~~~~~~~ASST.DIRECTOR ASST DIRECTOR MARKETING SUPEFRNTENDN MECHANICAL & DIETRACCOUNTS OFFICER ACOFFICE ACOFFICE DIRECTOR CHIEF GEOLOGIST METALLURGY MINING SECTION CIVIL ENGIN ELECTRICAL BUDGETING &I PROJECTIONS ENGINEERING ACUTN TNADTN

DEPUTY ASST DIRECTOR MINING

MINE MANAGERS

A |WCH KANBAUK HERMYINGYI KAUK YANAO | NANTHIAR| OTE NES EUM

I.dusm.lAlPrO;er%S DeP.rtM"-t World BWnk-16410 Outober1976

L.a ANNEX 5-1 Page 1

BURMA

TIN-TUNGSTENEXPANSION PROJECT

DESCRIPTIONOF THE PROJECT

A. INTRODUCTION

1. The project aims at expanding production of tin through development of a dredging operation in the Heinze Basin. In addition, the quality of existing products will be improved through constructionof a central concentrator in Tavoy to treat the output of all No. 2 Mining Corporation's (MC2) operations. Additional benefits are expected to be derived from improved control - production and financial, of the Corporation'soperations. Integrationof the adjacent Kanbauk mines in the Heinze Basin operation is an example of possible improvements. The proposed pilot gravel pump project will also serve to increase production substantiallyand yield high returns. A detailed description of these three elements of the project follows below.

2. MC2, as with the remainder of the mineral sector, has suffered from a lack of capital investment. This has, in large measure, been the key factor in the decline of mineral production in Burma over the past couple of decades. Another important factor has been the excessive governmentcontrol in all aspects of corporate operations. This has led to a bureaucraticlethargy in the Corporation;a pattern displayedby virtually all the government corporations.

3. The trend to "commercialization"within state owned corporations makes it an appropriatetime to attempt some improvementin operations in the mineral sector. The exact form of this trend is not yet known, and there are indicationsthat it may represent additionalcontrols on top of what are already excessive controls. IDA's involvementin the project will improve the possibility of influencingthe trend to commercializationfavor- ably. At worst, the project being considered stands on its own and should provide reasonablebenefits to the economy. With effective project implementation and start-up assistance,MC2 has the resources to ensure reasonable operation of the facilities. The terms of reference for this assistanceare contained in Annex 6-2.

B. HEINZE BASIN DREDGE

1. Background

4. The Heinze Basin is located some 300 km. south east of Rangoon, and 50 km. north of Tavoy, in the TenasserimDivision of Burma (see IBRD Map 12322). The Basin is a T-shaped estuary, with the southern section some 25 km. in length. The more favorable tin deposits lay at the extreme end of this southern section, and in the OnbinkwinChaung, off the main estuary. ANNEX 5-1 Page 2

5. Access to the Basin may be obtained by surfaced road from Tavoy, or Ye 60 km to the north. However load limits on the bridges is usually confined to 5 tons. Insurgent activity also discouragesfrequent use of these roads. The Basin is also accessibleby sea during the non-monsoon season. The limitationsof surface access will require transport of heavy and bulk materials for the project by sea.

6. The climate is tropical monsoon, with the monsoon lasting from May to October. Rainfall during the monsoon usually exceeds 500 cm, while rain is almost non-existentduring the dry season.

7. Vegetationin the area is tropical. Mangrove swamps and low for- ested hills border the Basin. Secondary scrubland forests occur on the low elevated hills near the coast. Some teak and other hardwoods are also found, together with numerous bamboo thickets.

8. A portion of the Heinze Basin was successfullydredged prior to World War II by a British owned company, Tavoy Tin Dredging Corp. In addition, intermittentdredging operations were also carried out by Heinze Burma Tin SyndicateLtd. west of the Basin near Onbinkwin. The latter operation was terminatedin 1952.

9. Subsequently,a UNDP financed,UN executed program undertook extensive borings in the Basin from 1972 to 1975. Following this, UNDP financed the execution of a feasibility study for mining of the deposits. This study was completedby Osborne and Chappel, a Malaysian consultingfirm in mid- 1975.

1. Geology and Ore Reserves

10. The deposit is almost entirely alluvial with some eluvial deposi- tion in the south-westernareas. The alluvium has probably been derived from the valleys south and west of the Heinze and Onbinkwin Chaungs. The alluvium consists of free sandy wash interspersedwith clays of varying tenacity.

11. Tin values occur in both the free wash and clays. Higher tin values are found to the south and west, the supposed sources of mineralization. However, the clays predominate in these areas, and become tougher in con- sistency. These clays adversely affect dredging throughputand recoveries. The tin mineralizationis quite coarse, about 50% of + 52 mesh.

12. The previous dredging was centered on the junction of the Heinze and Onbinkwin Chaungs. Boring by the U.N. identified certain limited areas which could be reworked. The economic values remain at a depth of about 10 meters. ANNEX 5-1 Page 3

13. Mineable ore reserves in the Heinze Basin have been estimated at 32.9 million cu.m. containing0.20 kg/cu.m. of 76% tin concentrate. The recoverableconcentrate would thereforebe 6,640 tons. The southern area contains 13.9 million cu.m. with a grade of 0.31 kg/cu.m. The northern area contains 19.0 million cu.m. at 0.12 kg/cu.m.

14. Rather than utilize conventionalarithmetic averaging methods in calculationof ore reserves, Osborne and Chappel used a "Horizon Method" which considersvolume recovery and value recovery. This type of approach has wide acceptance for evaluation of alluvial deposits.

15. A correctionfactor ranging from 100% to 0% was applied to the volume for bedrock configuration. Irregular bedrock, particularlywhere limestone is the bedrock, results in a tendency to overvalue the volume and value of tin-ore recovered. The correctionfactors are applied to successive horizons below which bedrock is likely to be encountered. Slope corrections may also be applied where dredging depth is greater than 30 meters by reducing the peripheralarea factors in successivehorizons.

16. Correction factors are also applied to tin values for each of the four categories of ground types. Ninety five percent recovery is estimated for tin values in free sandy wash; 75% in soft clays; 25% in medium clays; and 0% in tough clays. Incorporatedin these factors are allowances for losses in recovery of fine grained tin in the jig plant.

17. In addition, the correction factor for physical assays as compared to chemical assays was not applied. The effect would have been to increase tin-ore values by 8%. Losses in tin concentratorand other factors compensate for this correction,so that a net 2% increase might result. This net result was not consideredsignificant enough to apply.

18. A cut-off grade of 0.10 kg/cu.m. was used in the calculationof ore reserves. Anomalous values in the bore holes were corrected by weight averagingvalues in adjacent areas.

19. The resultant ore reserve figures must be consideredconservative. The correctionsapplied are appropriate for the type of deposits. The ore reserves are sufficient for 19 years at the proposed rate of mining.

20. In addition to these ore reserves, there are large areas in the Basin which are presently sub-economic. These reserves contain 40 million cu.m. with a grade of 0.05 kg/cu.m. While they are low grade their status should be kept under review during the life of the project.

3. Main Production Facilities

21. Mining: The proposal to use dredging as the mining method is a fairly obvious one. Nonetheless,thorough site investigationsand objective assessment of the technicaldata were undertakenin the selection of the mining method. ANNEX 5-1 Page 4

22. Dredging enables 40% of the current economic reserves in the Basin to be mined. Other methods, particularly in the deeper northern section, could not achieve this extraction. Even in the shallower southern portion, extensive earthworks would be required for open pit methods. These could not be justified economically.

23. Selection of dredge size was based on two main sets of factors, operational and economic. The operational factors were mainly conditions applicable to the locality. Stiff clays and mangrove swamps present in the Basin limit the minimum pontoon draught. Maneuverability of the dredge is also a limiting factor within the constraints of the deposits in the Basin. In addition, the lack of dredging experience in Burma was a factor since larger dredges require a high degree of skill in operation and maintenance. As a result of this assessment of operational factors, the maximum size dredge was considered to be with 0.43 cu.m. buckets and the minimum 0.17 cu.m. buckets.

24. Within these operational limits, an economic study was undertaken on four different dredge sizes. Combinations of two different sized dredges were also examined.

25. Such factors as reserves mined, capital costs, operating costs, and net cash flow were determined for each alternative. The smaller dredge could not mine at depth in excess of 12 m., reducing the reserves. The larger dredge could not negotiate the shallower ground, also reducing the reserves. As a result, the 0.35 cu.m. dredge was shown to be the optimum size.

26. The dredge selected would be a conventional bucket line dredge with 0.35 cu.m. buckets and a jig treatment plant. The dredge would have the capacity to dig to 16 m. during the first eight years operation in the shallower southern portion. In this area, a draught of 2.3 m. would be necessary, as well as wide pontoons and a low profile to ensure stability. The dredge would be modified in year nine to adapt it for operation in the deeper northern portion of the deposits. The main modifications would be extension of the pontoons and ladder to increase the digging depth to 27 m. At the same time, an overburden chute and scuttle wouldbe installed to facilitate overburden removal.

27. The dredging sequence has been carefully selected to maximize to the extent possible the present value of the cash flow. The higher grade southern portion is mined in the earlier years.

28. Annual production is estimated at 1.4 million cu.m. in the early years increasing to 2.0 million cu.m. after the tenth year of production, as shown in Table 1. These production estimates are 51% and 74% of theoret- ical capacity, respectively. The lower production in the first two years is due to operator inexperience and dredging conditions. From the third year of production through to the ninth year production varies from 1.6 to 1.8 million cu.m. depending on the dredging conditions. The production estimates reflect the operating conditions and other factors. They are considered to be realistic. BURMA TIN/TUNGSTEN EXPANSION PROJECT General Arrangement of Dredge

MAIN DRIVE :S"5 0C SES TLGS STACKER is GEN \<, LSPECIFICATION JIGSADDER / r;~>t>' INSTAL T I, X 6 K i j T H-GS EO R E T IC AL C A PA C ITY S d MC IC ET R

-- .2 7> lI/t# .1 MAITMOM DIGGING DEPTH - 1E MR B W~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ATERLNE WIT. LARDER AT SO' -Tr IT/ (I N C R E A S E D T O 2 M E S =TD E TE TAILINGS CYCLONE .6 T -ETENSION TO LSHERO PER MOONU ~~~~~~~~~~~~~~~ STONECOTE SAN TAILINGS CHULTE .<~~~~~~~~~~~~~~~~~>Y~~~~~~~~~~~~POWER -- DIESEL ELECTIC.

INSTALLED KILOWATTS - 170R .4 PORT Y~~~~~~~~~~~~~~~~~~~~~~~~T< I~~~~~~~~NSTALLEDPUMPIINO CAPACI ST - 1 1R,DRR

ROCKETS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PONTOON-LENT. ISR METRES lEATENOED01 METRES FOR INCREASED RIDGING DEPTO) BEAM 21 METRES Bn

LADDER - EN.RI. -7 METRES. IEATENCED TO 52 METRES I0 INCREASE DIGOIN.O DPTRI

ROCKETS a-..5 GORIG METRES OPERATING AT

A MA-IMOM RPEED OF D PER MNINTE

SCREEN 2.44METIRE DIA. SINGLE -HELL SELF- SOPP-1Y-d T- I~~~~~~~~~~~~~~~IGS- PRIMARY 32-3 CELL 4R-A I1l2iRM x 1.12MI CRO-SS FLOW. `x SEENOART 4-4 CELL IR- 4 44 0,~~~~~~~~~~~~~~(.19M R 1.W1162 -CRSS FOW. ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~TERTARY2-2 CELL 15' X IN

I031 M D310 ERSSCI ELOW.

OE1DSBE111711 114 14 161614 RBRk-l ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~WIdB.k161 ANNEX 5-1 Page 5

29. The jig plant would consist of a screening plant to remove the oversize (+ 6 mm), and a two-stage jig plant. The jig plant would have 32 primary 3 cell cross flow jigs 1,070 mm x 1,220 m. in 32 flow lines. The secondary circuit would have 4 flow lines of 4 cell jigs of the same design. The overflow from the secondary jigs would be sent to 2 tertiary 2 cell jigs. The tertiary concentrate would return to the secondary circuit.

30. The treatment plant would produce a heavy mineral concentrate grading between 20% and 40% tin, and is expected to average 28% tin. In view of the relative coarseness of the tin-ore and lack of deleterious materials, no problems should be encountered in the jig treatment plant.

Table 1: Annual Dredge Production

Year Volume Production (FY ending Mar. 31) (Million cu.m.) (Tons of 76% Sn conc.)

1981 1.4 650 1982 1.4 400 1983 1.8 580 1984 1.6 580 1985 1.8 510 1986 1.8 520 1987 1.6 490 1988 1.8 410 1989 0.7 120 1990 1.2 230 1991 2.0 290 1992 2.0 260 1993 2.0 260 1994 2.0 240 1995 2.0 230 1996 2.0 230 1997 2.0 240 1998 2.0 220 1999 1.8 180

31. Mill: The heavy mineral concentrate will be treated in a mill to be constructed as part of the nearby shore complex for the project. The mill would also treat the rough concentrates from the adjacent Kanbauk gravel pump mine (paras. 46-53). Feed to the mill would grade 20% to 40% tin, and contain minor amounts of zircon, xenotime and monazite, all saleable products; as well as other waste products. The mill would produce a bulk tin concentrate grading 65% tin, and a refractory minerals concentrate of zircon. Both these products would be sent to the Tavoy concentrator for further upgrading. BURMA TIN TUNGSTENEXPANSION PROJECT HEINZE BASINCONCENTRATOR IDEALIZED FLOWSHEET HEAVY MINERAL CONCENTRATE FROM DREDGE

STORAGE ~YBIN

2 SCREEN

MAGNETITE ITO TAILINGS) MGEI )S EPARATOR

XSCREEN

- w t ~~~~GRINDING

1 4M~~~~~~ILL

TABLES

_ _ _~~~~-0TAILINGS

WILLOUGHBY BOX DEWATERING CONE DEWATERING CONE DRYER

DRYER -0tELECTROSTATIC PRECIPITATOR

HI-TENSION - N ILMENITE MAGNETIC SEPAAATOR

TIN REFRACTORY CONCENTRATE MINERAL CONCENTRATE

World Bank-16415 Industrial Projects Department Octber 1976 ANNEX 5-1 Page 6

32. The flowsheet for the mill would consist of initial screening to remove the oversize (+10 mesh) waste. This wou:Ld be followed by a magnetic scalper to remove the small amount of magnetic minerals in the ore, mostly magnetite. The ore will then be classified and treated on Wilfey tables to produce a tin rich concentrate, a middling product, and sand waste. The tin concentrate, grading 65% Sn, would pass through a fresh water wash, and then would be dewatered, and dried.

33. Then it would be treated on high intensity magnetic separators. The non-conducive portion would be the refractory mineral concentrate, mostly zircon. The conducive portion would be treated on a twin disc magnetic separator to remove ilmenite. The non-magnetic portion would then be combined with the concentrate. Both the tin and the refractory concentrate would be sent to Tavoy for further upgrading.

34. The mill flowsheet has been thoroughly tested by the consultants, Osborne and Chappel. This type of ore is quite common in South East Asia, and the flowsheet is conventional for the ore. The equipment proposed is standard and widely used in alluvial tin concentrators.

4. Industrial and Social Infrastructure

35. The total lack of infrastructure in the Heinze Basin requires that extensive facilities be supplied for the project. The remote location also dictates a need for complete facilities, particularly in terms of maintenance and support facilities.

36. Dredge Support will be provided by several water craft. The major item is a 450 c.v. tugboat which will provide assistance during important moves of the dredge, movement of barges, and transshipment of oil and other materials. The tug will be sea-going and capable of emergency trips to Rangoon for spares. A 70 c.v. workboat will be responsible for movement of all barges in the Heinze Basin, particularly to and from the dredge. Three 30 c.v. personnel boats with a capacity of 25 people each will assure personnel movement. Also included will be 3 - 20 ton tin-ore barges for movement of concentrate from the dredge to the shore complex; four 55,000 litre capacity oil barges; and one 20 ton capacity material barge.

37. Power for the dredge will be supplied by five on-board diesel generator sets each rated at 345 KW. Four generators will meet normal power requirements of the dredge with the fifth set acting as a spare. The spare will be able to operate independently in case problems occur on the common electrical bus-bar or synchronising gear. Total installed power on the dredge will be 1,650 KW. The power requirements while operating on ore are estimated at 1,015 KW.

38. Electrical energy for the shore complex will be supplied by one 345 KW diesel generator, the same size units as will supply power on the dredge, plus an auxiliary 150 KW generator. Total estimated power load for the shore complex is 330 KW. Pag 6&

BURMA TIN/TUNGSTEN EXPANSION PROJECT PROPOSEDHEINZE BASIN SHORE COMPLEX Site Layout

From fresh water well at Ohndaw Village I600 metres)

LEGEND: 16 1. OFFICE 2. WORKSHOP & STORE 3. MILL 4. BY-PRODUCTS STORAGE 5. TANK FARM 6. LUBRICANT STORE 7. DREDGE CONCENTRATE SUMP S. WHARF 9. POWER GENERATORS 10. SALT WATER PUMPS 11. MILL WATER PIPELINE 12. BRIDGE 13. NEW RO0AD 14. MILL HEADER TANK & RESERVOIR "'.\ 15. FRESH WATER RESERVOIR \ 16. FRESH WATER PIPELINE 17. SCHOOL 4\/ 5 18. COMUNITY HALL/CINEMA 19. PLAYING FIELDS 20. HOSPITAL 21. MARKET & SHOPS 22. SENIOR STAFF QUARTERS A 23. JUNIOR STAFF QUARTERS A 24. ARTISANS' QUARTERS 4 25. LABOURERS' QUARTERS p,"'

FIELD AREAS -. DRAINAGE 4- ROAD 1\~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2

\\ ( !oi<, ApProximate edge of rnangroue--'

5 el ,d5V ------az C' -

I PYINGYI VILLAGE ------

t # SCALE IN METRES I 1+ 0 50 100 150 200

I 8 Contours shown in Metres o

Industrial Projects Department World Bank-16413 October 1976 ANNEX 5-1 Page 7

39. Direct driven diesel generators and pumps would be the power and water supply for Kanbauk. This would replace the antiquated hydro plant. The existing dam will be used as a water supply for the gravel pump operations. Since most of the mining equipment is diesel operated, power requirements for Kanbauk are quite low.

40. Water for the mill will be sea water from the Chaung. The mill requires the bulk of the water requirements. The final portion of the wet circuit in the mill will be a fresh water wash. Fresh water for the social infrastructure will be supplied from wells at Ohndaw 0.6 km. from the shore complex.

41. Industrial infrastructure will also include workshops, offices, and a warehouse. The workshops would be capable of performing all routine maintenance for the dredge, mill, and auxiliary shore plant. There will be five main sections in the shops:

(a) Automatic welding shop (b) Machine shop (c) Sheet metal working shop (d) Motor transport and diesel repair shop (e) Electrical maintenance shop

42. The automatic welding shop would be capable of extensive rehabilitation of the dredge heavy wear parts. Bucket bases, pins and tumblers, and ladder rollers would all be rebuilt in the shop.

43. The workshop would not carry out heavy engineering, or specialized electrical rewinds. These would have to be carried out in Rangoon, or elsewhere, if required.

44. A new town will be constructed close to the shore complex. This townsite would include 237 houses for all the employees. All houses will be provided with electric, water, and sanitary facilities, and built to standard Government designs.

45. The townsite will also include a school for 200 children, a community hall/cinema, a sixteen bed hospital, a market, and playing field.

5. Integration of Kanbauk Mine

46. The existing Kanbauk gravel pump mine is described in Annex 4-1. Operational performance results has been poor. Constraints on the operations include: lack of water for sluicing and for power generation; lack of effective maintenance on the hydro-electric station, water supply pipelines and flumes and other plant and equipment; and lack of investment in all phases of the operation. Labor supply has also been a problem owing to the seasonal nature of the operations. As a result, the mine has produced less than a third of the output of a comparable operation elsewhere, given the same conditions. ANNEX 5-1 Page 8

47. Integrationof the operationwith the Heinze Basin project should increase output substantiallywith a minimal investmentcost. The benefits, in effect, would be derived more from improved operationalcontrol. The infrastructure,workshops, mill, and particularlysupervision of the Heinze Basin project could all be effectivelyused for the Kanbauk mine.-

48. Recoverable ore reserves in the gravel pump mine are estimated at 3,400 tons of cassiterite. At the projected rate of output, these would be sufficientfor 17 years operation. The average grade of the reserves is of the order of 0.31 Kg./per cu.m.

49. A considerableamount of Banka drilling and test pitting was done over an area of some 2,000 hectares by the Mineral DevelopmentCorporation (MDC) from 1969 to 1972. This work proved the existence and extent of the deposit. However, additionalwork, including some check boring, will be required to determine more accurately those reserves which are recoverable. The Mineral DevelopmentCorporation did not attempt to separate the reserves into recoverableand non-recoverable. The recoverable reserves shown above were estimatedby Osborne and Chappel from MDC's work. The estimate is believed to be conservative.

50. Mining is presently carried out in three pits, including one which was developed under a UNDP financed UN executed project. This UN project was undertaken to demonstratemore modern mining techviquer. Pir:-.-tion,as a result, was expanded from 40 tons to 100 tons per year. More importantly, the gravel pump operations are equipped with sufficient,satisfactory machinery for the integration.

51. The UN project included a concentratorwith shaking tables, Wil- loughby boxes, vibrating screens, magnetic separators,and high tension separators. Although the UN turned the concentratorover to the Corpora- tion, the Corporationhas not operated it. The Corporation should utilize this concentratoruntil required for the project. The equipmentwould then be incorporatedinto the Heinze Basin mill. Any equipmentnot required for the Heinze Basin mill might be utilized in the Tavoy concentratoror elsewhere.

52. In order to improve the efficiencyof Kanbauk operations,a small amount of capital investment is required. The two key items would be improvement of the supplies of electric power and water. Additional diesel driven pumping and power capacity would be installed.

53. Improvementof the storage dam and pipeline would be required to provide make-up water for the gravel pump mining. Since water for the mining operationwould be stored and recycled,only small quantitiesare required for make-up. ANNEX 5-1 Page 9

B. CENTRAL CONCENTRATORAT TAVOY

1. Background

54. MC2's concentratingfacilities, as outlined in Annex 4-1, are antiquated and inefficient. As a result, most of the products the Corporation sells are sub-standard. These products sell at a substantialdiscount to prices for standard grade concentrates. This is particularlytrue for the mixed tin-tungstenconcentrates presently sold by the Corporation.

55. MC2 had prepared a proposal for constructionof a small central concentratorat Tavoy, to permit production of clean tin concentrates. On the basis of this proposal, the Bank undertook to finance a small study of various alternativesopen to the Corporation,and prepare a preliminaryflowsheet for the selected option. Osborne and Chappel Sdn. Berhad of Ipoh, Malaysia, the same firm which prepared the feasibilitystudy for the Heinze Basin project, was retained to undertake this study. The consultantscarried out their study from February to May 1976.

2. Alternative Studies

56. Concentratingfacilities at each of the Corporation'sexisting and future operationswere reviewed. For a number of reasons, it was not prac- tical to improve the Corporation'sexisting facilities. There are a large number of small operationswhich could not support modern concentrating installations. The existing facilities are too primitive to consider improvement. In addition, much of the Corporations ore comes from tribute operations, which are basically artisanal, or family operations.

57. As a first step in the study of possible alternatives,six possible combinationsof new plants were compared on a net present value basis of the required capital and operating cost expenditures. Since the increased revenue was the same for each of the combinations,such an approach is valid. As a result of this comparison, three of the combinationswere eliminated since the net present value was 30% higher than for the other alternatives.

58. Therefore, three alternativesremained which merited more thorough investigation. These alternativeswere:

(a) A large central concentratorat Tavoy to treat all the Corporation'soutput.

(b) Concentratoras in (a) but sited at Rangoon.

(c) A concentratorat Toungoo to treat the mixed tin-tungstenores from the Mawchi-Pyinmina area; together with a smaller central concentrator at Tavoy to treat all the production in the Tenasserim area of Southern Burma. ANNEX 5-1 Page 10

59. Discounted cash flows were prepared for each of the three alternatives. All three yielded high rates of return. In alternative (c), the Toungoo plant had a high return while the Tavoy plant had a return which was acceptable.

60. Justificationcould be made for selection of any one of the three alternatives. The economic rates of return were all within three percentage points. These central concentratorspermit production of concentratesof a consistent,high quality. A centralizedconcentrator would have a lower investment cost per unit of throughput than the alternativeof constructing new plants at each of the Corporation'smines and collection points. The operating costs per unit of throughput are also lower, and more than offset any increased transport costs. Better supervisionand control is also achieved in a central plant.

61. The large central concentratorat Tavoy is considered to provide significantunquantifiable benefits in addition to the high rate of return. The potential for increasing tin and tungsten production exists in the Tenasserim division, of which Tavoy is the centre. The existence of a modern concentratorcould provide impetus for this development. The concentrator could provide a strong base for coordinatingand managing activities in the area. The close contact which the concentratorwould have with the producing mines would permit a measure of operationalcontrol over these operations. While the concentratorwould be capable of treating all of the Corporation'soutput, sufficient flexibilityremains to constructconcentrat- ing facilities which might be required in developmentof new large mines.

62. A few disadvantagesof a plant in Tavoy are evident. The plant in Tavoy requires its own power generating equipment, increasingthe capital costs slightly. In addition, exports of concentratesare at present permitted only from Rangoon. However, output of the plant would be sufficient to justify direct exports from Tavoy. The advantages of the plant at Tavoy far outweigh the disadvantages;particularly if exports are permitted directly from Tavoy.

3. Descriptionof Concentrator

63. The primary concentratingfacilities availableat the Corporation's various mines are satisfactoryto upgrade production to 65% tin - wolfram content. The tribute miners also upgrade their production to a 65% content. Upgrading to this level presents no undue problems, since removal of light gangue minerals only is required. This practice would be continuedafter start-up of the central concentrator. Therefore, the feed to the Tavoy concentratorwould consist of a rough concentrategrading approximately 65% heavy minerals. ANNEX 5-1 Page 11

64. The multitude of types and sources of these concentratesrequire a fairly complex circuit in the concentratorto treat them effectively. In addition to a primary circuit for wolfram rich and mixed ores, a separate primary circuit is provided for wolfram-free tin concentrates. Each of these two primary circuits is also equipped to dry those ores which are received wet; and for crushing coarse ores to permit liberation of the valuable constituents.

65. In the wolfram circuit, following drying and crushing, the ore is treated by low intensity magnetic separators. The highly magnetic minerals are removed and discarded. The ore is then screened into three size fractions to permit separate treatment of these fractions. The oversize (+10 mesh or +2 mm) is returned to the crushers. The separate treatment of the three size fractions is necessary because the mineral constituentsof each fraction differ requiring different treatment processes.

66. Following screening, the ore is treated on high intensityelectro- static precipitatorsto split off the non-conductiveportion. The conductive portion is then treated on high intensity magnetic separators to split off the tin ore from wolfram. The tin ore which is the non-magneticproduct of the high intensity magnetic separators is recycled to various stages of the tin circuit for recovery.

67. The preliminarywolfram concentrateis then treated by wet gravity separation on tables and then Willoughby boxes for clean-up. Following drying, this product is further treated on high intensitymagnetic separators to yield the final wolfram concentrate.

68. The tin circuit is essentiallysimilar. Following drying, crushing and screening, the tin ore is also treated by high tension electro-static precipitators. The conductive portion passes directly to wet gravity separation on tables and then Willoughby boxes for clean-up. Followingdrying, this product is treated on high intensity magnetic separators to yield the final tin concentrate.

69. In addition to producing high quality wolfram concentratesand tin concentrates,the concentratorwill also produce sheelite concentrates; and recover xenotime, monazite and zircon as by-products. The exact quantities recovered of these by-productswill, of course, depend on the source of the tin ore. The average content of these products in the tin ore feed is approximately2.5%. These by-productswill provide a small but significant revenue for the Corporation. These revenues have not been included in the benefit streams for the concentrator.

70. The design of the flowsheet for the concentratorwas based on preliminarybench testing of ore samples collectedby Corporationofficials and the Consultants. Mineralogicalanalyses were undertaken to determine the mineral constituentsof the various ores. In addition, screen analyses were done on the samples to determine the distributionof tin, wolfram and other minerals in the different size fractions of the ores. The screen analyses indicate that most of the mineral constituentsare generally free, with what interlockingthat does occur being generally confined to the plus 10 mesh fraction. Page 1 a

BURMA TIN TUNGSTEN EXPANSION PROJECT TAVOY CONCENTRATOR IDEALIZED FLOWSHEET

MIXED ORES TIN ORES

* STORAGE STORAGE BIN B3IN

MAGNETITE TAILINGS) -- O MAGNETIC CQ-((TO SEPARATOR MAGNETIC SEPARATOR

MAGNETITE \X\ N MAGNETAILINGS _ \I) SCREENS \ SCREENS ITO TAILINGS)rr

b ELECTROSTATIC ELECTROSTATIC PRECIPITATOR PRECIPITATOR

HIGH INTENSITY MAGNETIC TABLES SEPARATOR

TO GRINDING

7 ~~~~~~~~~~~~~~~WILLOUGHBY_rCIUT

BOX BOX

i y~~ABLES > > TBE WILLOUGHBY WLOGB W A n n ~~~~~~~~~~~~~~TAILINGS

W x _ _ ~~~TO REGRIND ._WILLOUGHBY WI H L ~~CIRCUIT -BOX

BOX DEWATERING DEWATERING CONE CONE

DRYER DRYER

HIGH INTENSITY HIGH INTENSITY MAGNETIC MAGNETIC SEPARATOR SEPARATOR~~~~~~~~~~~~SPRAO

TUNGSTEN CONCENTRATE CONCENTRATE Industrial Projects Department World Bank-16416 October 1976 ANNEX 5-1 Page 12

71. As a result of these tests, the main treatment phases were identified. It is unlikely that any of the treatment phases will cause major difficulties. However, further metallurgical testing will be required during engineering design to confirm the ores' amenability to treatment by the processes proposed; and to verify that all identified treatment problems can be overcome. The testing would also ensure selection of the most suitable processing equipment where alternatives are available. This additional testing is estimated to require 20 man weeks of work and cost US$20,000.

72. While additional metallurgical testing will be required, it is not expected that the final concentrator flowsheet will differ appreciably from the flowsheet prepared by the Consultant, and outlined above. The ores are similar to ores found elsewhere in South East Asia. The treatment processes proposed are commonly used for treatment of these ores. The equipment proposed is standard and widely used in concentrators of this type.

4. Infrastructure

73. Selection of the specific site for the concentrator will be undertaken at the time of engineering design, with the assistance of the project engineering firm. The Corporation has conducted a preliminary site investigation to narrow the choice of sites to three. This preliminary selection considered, inter alia, the general specifications outlined below. A final site will be chosen with the consultants' assistance and acquired as a condition of credit effectiveness.

74. General specifications for the site require a land area of 0.5 hectares with a slight slope, ideally I in 5. In addition, 5 to 6 hectares of adjacent ground would be needed for tailings disposal, and water storage and recirculation. A source of fresh water is also necessary.

75. Water requirements for the concentrator are estimated at 12,000 litres per minute. The water should be fresh water, and it must be neutral. With a suitable site and retention dams, some 80% of the water required could be recirculated. The make-up water required would be 2,500 litres per minute.

76. Electrical energy requirements for the concentrator cannot be met by the Electric Power Corporation with existing facilities in Tavoy. The diesel generating plant, with a total capacity of 868 KW, does not meet existing needs. In view of this, independent power generating facilities have been included in the project. Two 345 KW diesel generators, the same type specified for the Heinze Basin, will provide power. Estimated requirements are 613 KW maximum, and 368 KW normal usage. The two generators would have the capacity to supply the plant on full load and would have sufficient spare capacity for possible additions or alterations to the plant. Two units are utilized rather than one since it permits stan- dardization with the Heinze basin, and enables the plant to operate, albeit at reduced capacity, if one unit breaks down. ANNEX 5-1 Page 13

77. Transport facilities (trucks)are required to carry the concentrates of the various mines to the central concentrator. These trucks would also take the clean concentratesto the shipping point. Since no adequate alternative seems to exist in Tavoy (loel buses are presently used), 5 six-ton trucks have been included in the project.

78. Export of the clean concentrateswould be on small schoonerswhich regularly serve Rangoon, if present practice is maintained. However, the volume of output from the plant at Tavoy would be sufficient for coastal vessels to call at the port of Tavoy. Establishmentof a monthly service to the tin smelters at Phuket in Thailand or Penang in Malaysia should be feasible.

C. PILOT GRAVEL PUMP PROJECT

1. Background

79. As indicated in Annex 2, the mineral sector in general and tin- tungsten mining in particular are operating considerablybelow their potential. Production in 1938/39 of over 10,000 tons of tin and tungsten has declined to only 1,500 tons in 1975/76. Whereas before the war, 6 dredges were operating, there are none now; and whereas there were 21 gravel pump operations, there is only I now.

80. While the Heinze basin project would provide a basis for restor- ing dredging in Burma, a pilot gravel pump could be the first stage of re- building production from those deposits suitable for gravel pumping. The modest scale recommendedfor this pilot project recognizes the constraints imposed by the available managerial and technicalknow-how, capital investment, and insurgency.

81. The Corporationprepared a preliminary study from historical records on gravel pump mining. Records are still available from some of the earlier operations,although in many cases they are incomplete. These records have served to indicate some seven separate areas with high potential. These areas would include the following locations: Wagon, Kalonta, and Phachaung - Khechaung in Tavoy District; and Manoron in Mergui District. A number of other areas are also considered to be attractive.

2. Description of Project

82. Geology and ore reserves: The deposits are alluvial, and are derived from erosion of nearly primary occurrences. During transportationof the erosion products, the heavier metal minerals may be concentrateddue to local conditions. These deposits commonly occur in sand and gravel although clay is commonly present. Cassiterite (a tin oxide - SnO2 ) is the ore mineral most commonly found. In the northern part of the Tenasserim division, wolframite (an iron tungstate - Fe, MnWX ) is also found. ANNEX 5-1 Page 14

83. The previous work has shown the presence of deposits. Additional work will be required to determine the extent and grade of the deposits as well as the recoverable content. Approximately 100 holes will be drilled in each of the seven areas identified. Two "Banka" drills will be procured for the project to undertake the drilling, as well as related geophysical equipment.

84. A significant factor in evaluation of the ore reserve situation is that gravel pump operations are highly mobile. Hence proving of ore reserves is not as vital as for underground or open pit mines. If an area is depleted, or is not as rich as anticipated, the operation may be moved elsewhere. Only losses from the moving time are incurred.

85. The "Banka" drilling should however provide sufficient information to justify moving the operation to specific areas. Once established, the drilling should serve to ensure that the economically recoverable reserves are extracted.

86. Mining: Gravel pump operations basically consist of monitors (water jets) to wash down the sand and gravel, and direct it to a sump. From the sump, the slurry, or liquified material, is pumped to a "palong," for treatment. The important requirement in gravel pumping is water under high pressure (100 psi). Storage ponds are usually used to recycle most of the water required.

87. Under the project, sufficient equipment will be procured to establish gravel pump operations in two areas. Start-up of a gravel pump operation does not require major pre-production expense, such as stripping. For this reason, the project could be implemented relatively quickly.

88. Concentrating: As noted above, the gravel pump would pump the slurry to a "palong", a long sloping sluice-box. The heavy minerals including the tin ore are trapped in the sluices while the lighter gangue material flows over the palong and is discarded. The concentrate obtained may be further upgraded in a portable jig plant. A concentrate containing approxiamtely 30% tin would be obtained from the jig plant.

89. Since the treatment is straight gravity separation, only the light gangue minerals are removed. However, some care must be exercised on the "palong" or losses can be high.

90. Equipment requirements: The major items of equipment required for the pilot gravel pump project are as follows:

Quantity Item

2 Banka Drills 8 Hydraulic Monitors 4 Pumps (Diesel Motor) 4 8" Gravel Pumps (Diesel motor) 2 150 KW Diesel-electric generators 2 Small jig plants ANNEX 5-1 Page 15

91. This would be sufficient for two operations. Other miscellaneous material such as piping and electric cable will also be required.

3. Technical Assistance

92. Technical assistance would be provided by the engineeringfirm for the pilot gravel pump project. The assistance would cover all phases. The drilling program would be laid out in consultationwith the firm; the actual drilling would be carried out with supervisionby the firm; as would calculationof recoverableore reserves.

93. Technical assistance would also be provided for the gravel pump operations. Selectionof the locationswould follow the early drilling results. Start-up and early operations of the mines would be under the supervisionof the engineeringfirm.

94. It is estimated that assistance would cover a minimum of two years.

IndustrialProjects Department January 1977 BURMA TIN/TUNGSTEN EXPANSION PROJECT Proposed Organization Structure for Heinze Basin Dredge and Mill on Completion of Project Implementation

MINE MANAGER

+ | ~~~~DREDGE-| |MECANICAL |E

SUPERVISPEVIOROR NRS

SHORE I | SHORE

I I

-ORE Ar.C PAYROLLS.R * | KEEPER CLERK Su R CLEFRK SUPERVISOR FJP7Thv II |L M ECH NICAL | | ELECTRICAL l l SHIFT l l SHIFT SHIFT SUPERVISOR SUPERVISOR SUPERVISOR SUPERVISOR SUPERVISOR Note: Mme Manager reports to DOepty Director Production World Sa-k-t1&411

Industrial Projects Depanment October 1 976 BURMA: TIN/TUNGSTEN EXPANSION PROJECT TAVOY CONCENTRATOR PROPOSED ORGANIZATIONAL STRUCTURE ON COMPLETION OF PROJECT IMPLEMEN- TATION

| Concentrator l | Superintendent |

[ | ~~~Administration| | Officer |

Mech. Eng. Elect. Chemist Security (Maintenaince)1<~~~~~~Eg (Maintenance) Frmn(Sampling)Plan Clerks2 Officer

Fitters Mechanics Chargemen Asst. Foremen rWatchmen B/Makers Welders

|Plant Operators|

Note: ConcentratorSuperintendent reports to Deputy Director Production.

Industrial Projects Department October 1976 World Bank-16592

_ v ANNEX 5-2 Page 1

BURMA

TIN TUNGSTEN EXPANSION PROJECT

CAPITAL COST ESTIMATES

A. Effective Date of Estimates

1. The original estimates for the Heinze Basin dredge and mill were prepared during March and April 1975 and reflected prices as at 31st March, 1975. The original estimates for the other project components and revised estimates for the Heinze Basin componentsreflect March 31, 1976 prices. The capital costs are detailed in full in two feasibility studies prepared by Osborne & Chappel Sdn. Bhd., tin mining consultants of Ipoh, Malaysia. The reports are as follows:

(1) ComprehensiveFeasibility Studies for Mining Placer Tin-Ore in the Heinze Basin; August 1975 (with updated costs contained in a further report: Final Revised Summaries of the Capital Cost Estimates for Implementationof the Heinze Basin Project; April 1976.

(2) Review of Existing and Projected Facilities for Tin/ Tungsten Concentrationin the TenasserimDivision and at Mawchi includingRecommendations for their Improve- ment; July, 1976.

The costs for the project are summarizedby component in Table 1.

B. Method of Estimation

2. The cost estimates were prepared based on the equipment specified and on the assumptionthat all new equipmentwould be used, and without the benefit of completeddesign engineering. The estimated cost of individual items were either prepared within the consultants'firm or obtained as informal or formal quotations from the various Burmese Government corporations concerned,e.g. ConstructionCorporation. The costs were estimated on the basis that equipmentwould be procured on a componentsbasis under international competitivebidding and assembled by other contractorsunder the supervisionof an engineering firm i.e. rather than turnkey contracts for complete items such as the dredge. ANNEX 5-2 Page 2

3. With regard to Osborne & Chappel's own estimates, four separate bases were employed:

- actual quotations obtained from suppliers against specificationssubmitted

- informal advice obtained from suppliers against specificationssubmitted.

- the updating and adjusting of prices of similar items recently purchased within Osborne & Chappel's own organization.

- the objective assessment of costs of fabricationand components,using quoted basic Malaysian prices, or, where applicable,the domestic rates quoted by the relevant Burmese Government Corporation.

4. To assess the reliabilityof prices quoted by the Government ConstructionCorporation, the consultants compared a number of the quotations received with their own estimation of the cost of similar work if executed in Malaysia. In most cases they found the Corporationquoted competitive rates.

C. Freight, Insurance and Related Charges

Calculation of Port Charges and Handling Charges to Transit Godown

Port Charges

5. Port charges have been calculated at 2% of CIF Rangoon costs.

Handling Charge

6. This varies depending on the item being handled but for budgetting purposes the charges have been calculatedas follows:

Steelwork,hardware and all materials US$1.50 per tonne (10 kyats) Machinery, equipment and parts thereof US$6.00 " " (40 kyats)

Calculation of Freight and InsuranceCharges

Foreign Freight

7. All foreign costs have been obtained on the basis of CIF Butterworth, Malaysia. The cost of shipping from Butterworthto Rangoon is about US$22 per tonne (M$55). ANNEX 5-2 Page 3

Local Freight

8. It has been assumed that all machinery, spares and parts will be transhipped at Rangoon and transportedby sea to the Heinze Basin. Local freight costs are based on landing craft charter which are about US$10 per tonne (69 kyats) from Rangoon to Heinze Basin.

Insurance During Carriage and Transit

9. This has been taken at 1% of the basic cost and is assessed in foreign currency. Insurance during towage of the dredge was estimated at 2% of constructioncosts.

D. Procurement and Project Management Assistance

10. The cost of consultants (excluding engineering,training, and technical assistance covered below) provides for 50 man-months for personnel in Burma, together with comprehensiveback-up services from the consultants'home office facilities and staff. The cost per man-year, including travel and other expenses associated with this assistance,has been estimated at about US$84,000 equivalent.

E. Design Engineering

11. The specificationsincluded in the report only form a basis for the subsequentengineering design required. Some of this design work can be competentlyexecuted by the ConstructionCorporation in Burma. Other work such as the design of the dredge, will have to be executed overseas.

12. The estimate for design engineeringwork has thereforebeen allocated between domestic and foreign currency in accordance with the local! foreign split of the equipmentand constructioncosts. The basis for the calculationsinvolved in estimating design expenses are given in the table below:

Percentage of Basic Capital Cost Item %

Dredge 7-1/2 Heinze Mill, Tavoy Concentrator 10 Auxiliary Equipment & Facilities 10 Workshops, Stores, Offices, Housing, etc. 10 ANNEX 5-2 Page 4

F. Training

13. The personnel to be trained and the total period to be spent overseas (probably Malaysia, Thailand and/or Indonesia) are given below:

Total Period of Training:

No of Persons (Man months)

1. Heinze Basin

Managerial

Mine Manager, Dredgemasters, Mineral Dressing Engineers, 8 144 Mechanical Engineers

Operators

Winchmen, Shift and Treat- ment Plant Supervisors 12 432

Mechanical

Maintenance Foremen 6 144

Sub-total 26 720

2. Tavoy Concentrator

Managerial 2 12

Foremen 2 12

Sub-total 4 24

3. Gravel. Pump Mining

Foremen 4 36

Total 34 780

Estimated average cost per man year: US$4,500 ANNEX 5-2 Page 5

G. Technical Assistance

14. For first two years' operational supervisionof the project and assistanceto the Corporationduring and after project execution for the developmentof improved financial and operationalcontrol systems: approximately 6 man-years over a five-yearperiod at US$84,000 per man-year (including travel, office, accommodationsand all back-up and overhead expenses).

H. Duties & Taxes

15. Custom duties for most machinery and equipment imported into Burma is 15% of the CIF value--thishas been used for all imported equipment and materials. In addition, the recently enacted (mid-1976)new system of taxes on Commoditiesand Services has resulted in an additional 30% on most imported items, which amount has also been added to all foreign costs (all duties and taxes in local currency).

I. PreproductionExpenses and Administration

16. These are the estimated costs of the No. 2 Mining Corporation's administrationto supervise the design, constructionand implementation of the project until it becomes operational. Based on discussionwith the Corporationon their normal accounting practices and the experiencewith the Heinda Mine expansion,a figure of 3.3% of the equipment and construction costs was adopted.

J. Contingencies

17. Physical contingencieswere taken as 10% of the basic before duty costs for all items except buildings and constructionat Tavoy, where a con- tingency of 20% was allowed, due to the fact that a final site has not been selected.

18. Price contingencieswere calculated using escalationrates as follows:

(1) Local and foreign equipment costs: 9% in 1976, 8% per annum in 1977-79, and 7% per annum thereafter (99.7% of total cost of equipment is in foreign currency).

(2) Local constructionand civil works costs: 20% per annum. This reflects recent trends in prices for locally supplied ANNEX 5-2 Page 6

constructionmaterials, particularlytimber and cement. These trends are expected to continue into the construction period.

(3) Engineering,training and administrationcosts: 7% per annum for both local and foreign costs.

K. Working Capital

19. Normal and insurance spares have been included under cost of equipment and spares respectively. Other working capital needs (inventory, receivables,etc.) are estimated as being negligible with respect to the project cost as improvementsin product quality and marketing efficiency resulting from the project will permit a reduction in receivables and inventoriessufficient to offset the additional requirementsthat would otherwise result from increased output.

L. Interest During Construction

20. This item is based on interest charged in local currency on the on-lent and outstandingportion of the proceeds of the credit during project execution at 10% per annum.

Industrial Projects Department November, 1976 bURMA,

TIN/TUNGSTEN EXPANSION PROJECT

Table 1. SUMHIARTOF CAPITAL COSTS BY PEOJECT CIENONENT

Reaite B-Si Dredge T-wy and Mill (inc1. Kanbasdol Concentrates Gravel Pu p Projact Technical Ansi-t Tatal1

Local Fon-ion Total Loeni Fe Total Lc..l Ferei"e Total Local Perele Total Locl Frpien Total

EqoipE-nt 26 5820 58461/ 1085 10852/ 852 8523/ 26 7757 7783

Spares - 732 732 122 122 - 288 288 - 1142 1142

Cet-nsetin & Civil Warks 1351 331 1682-/ 177 147 3242/ 104 12 1162/ - 3- 490 2122

Freight & Insorance 45 204 249 35 30 65 25 25 50 - - - 105 259 364

Eagteneretin,Project Managaeent & Ta=hnical Assist- 52 997 1049 14 259 273 7 133 140 19 352 371 92 1741 1833

Training - 257 257 - 12 12 - 24 24 - - - - 293 293

Ad snietratien & Pra-pr-d-ctien 300 - 300 23 - 23 40 - 40 - - - 363 - 363

Tlane & Datins 3250 - 3250 641 - 641 581 -81 1 - _ - 4472 - 4472

Tot.1 B.e. CSnt 5024 8341 13365 890 1655 2545 757 1334 2891 19 352 371 6690 11682 18372

Phyoieal Centin- 430 636 1066 105 141 246 68 90 158 - - - 603 867 1470

Price Contingencies 2134 2338 4472 387 509 896 184 290 474 6 122 128 _2711 3259 5970

Pr-jeet Bace Cent 7588 11315 18903 SI82 2305 3687 1009 1714 2723 25 474 499 10004 15808 25812

Cecreesennal

Woeking Capital ------

Int-reat during Cenetrustien 1301 - 1301 247 - 247 257 - 257 12 - 12 1817 _ 1817

Total Financing R.qsttnd 8889 11315 20804 1629 2305 3934 1266 1714 2980 37 474 511 11821 15808 27629

1/ Sea Tabla 2 fio details Isdsetrial Poajeatn Dept. / See Table 3 for d anils Nevbestr, 1976 3/ Sen Table 4 for details BIJRMb

TIN/TUNGSTEN EXPANSION PROJECT

Table 2. CAPITAL COSTSI/ OF EQUIPMENT AND CONSTRUCTION- HEINZE BASIN DREDGE & MILL (incl. Kanbauk Mines)

Equipment Local Foreign Total

Dredge - 3880 3880 Mill - 20-2 202 Tank Farm - 64 64 Wharf - 12 12 Power Supply - 162 162 Water Supply - 25 25 Auxiliary Facilities 7 45 52 Workshop & Store - 161 161 Office 4 28 32 Water Transport _ 575 575 Road Transport & 15 100 115 Earth Moving Equipment Kanbauk Mines - 566 566 (Power & Water Supply) Sub-total 26 5820 5846

Construction (Buildings & Installations)

Mill 58 52 110 Tank Farm 60 6 66 Wharf 44 4 48 Power Supply 22 23 45 Water Supply 81 86 167 Workshop & Store 41 43 84 Office 38 2 40 Rousing & facilities 965 95 1060 '4 Bridge 42 20 62 C. Sub-total 1351 331 1682 _~~~~~~'Y,

1/ Base cost estimates as of March, 1976; excluding freight, insurance, taxes & duties.

Industrial Projects Dept. November, 1976 BURMA

TIN/TUNGSTEN EXPANSION PROJECT Table 3. CAPITAL COSTS- OF EQUIPMENT AND CONSTRUCTION - TAVOY CONCENTRATOR US$ 000

Local Foreign Total Equipment

Concentrator - 723 723

Workshop - 35 35

Power supply/distribution - 241 241

Laboratory - 10 10

Vehicles - 76 76

Sub-total - 1085 1085

Construction

Buildings & installation 177 147 324

1/ Base cost estimates as at March 1976; excluding freight, insurance, taxes and duties.

Industrial Projects Department A November 1976 Jy BURMA

TIN/TUNGSTEN EXPANSION PROJECT

Table 4. CAPITAL COSTS-/ OF EQUIPMENT AND CONSTRUCTION - GRAVEL PUMP MINING PROJECT US$ 000

Local Foreign Total Equipment

Banka drill8 & ancillary - 50 50 equipment

Hydraulic monitors, - 150 150 piping, etc.

Diesel-driven pumping - 302 302 equipment

Diesel-electric generators - 150 150 and electrical accessories

Jig plants & accessories - 50 50

Vehicles & earth moving - 150 150 equipment

Sub-total _ _- 852 852

Construction

Buildings, palongs, 104 12 116 installation

t %n 1/ Base cost estimates as at March, 1976; excluding freight, insurance, taxes & duties

Industrial Projects Dept. November, 1976 BURMA TIN/TUNGSTEN EXPANSION PROJECT ProposedOrganization Structure During Implementation of Project

BOARD OF DIRECTORS No.2 MINING CORPORATION

PROJECT COMMITTEE TANN

I _n _-______- PROJECT GENERAL MANAGER CONSULTANTS

ASSISTANC

EX-SITE DEINPRONL SITE ENGINEER MANAGERSIENGER CONSTRUCTION DEINPRONL(TAVOY GRAVEL PUMP SITESTRAENGINEERMEN CONCENTRATOR) PROJECT (HEINZE/KANBAUK DIITAIO RCRMN

-+14=~~~~~~~~~~A AGE MINMAN MiN A A E

(TAVOY) (KANB~~~~~~ (HEINZE BASIN)|

MECHANICAL CIVIL ELECTRICAL PERSONNEL ADMINISTRATIONMIEA

4 2 World Bank-16 1 Industrial Projects Department October 1976 ANNEX 6-2 Page 1

BURMA

TIN/TUNGSTENEXPANSION PROJECT

TERMS OF REFERENCE FOR CONSULTANTS

The No. 2 Mining Corporationwill execute a project designed to increase its production of tin and tungsten concentrates.At the same time, the quality of its products will be improved. To finance this project, the Government of Burma has applied to the InternationalDevelopment Association (World Bank) for a credit. To assist the No. 2 Mining Corporation in execution of the project and early operation of the facilities,an engineeringconsulting firm experiencedin tin mining and concentratingwill be retained.

The Consultants shall provide the Corporationwith Technical Assis- tance for the implementationof the overall project which may be generally summarised as follows:-

(1) Developmentof a dredging operating in the Heinze Basin 50 km North of Tavoy in Southern Burma. The Project will entail procurement of a 0.35 cu.m. diesel electric bucket dredge, and constructionof a shore complex with a mill, workshop, townsite, and other related facilities.

(2) As part of the Heinze Basin Project, improvementsin operations of the Kanbauk gravel pump mine will be instituted. While additional output will be primarily derived from improved operational control of the mine, provision of a reliable source of electric power and water will also be included.

(3) Constructionof a central concentratorin Tavoy to treat all of the No. 2 Mining Corporation'sproduction of tin, tungsten and mixed concentrates. The concentrator will produce high quality tin and tungsten concentrates.

(4) A pilot gravel pump project will provide the basis for future development of gravel pump operations. Promising areas will be evaluated and two areas will be selected for development of mining operations.

The work of the Consultantswill include, but not be limited to, items of work relating to the detailed engineeringdesign, project planning, ANNEX 6-2 Page 2 site selection for the Tavoy concentrator and implementation of the project together with implementation of training programmes and improvement of information services within the No. 2 Mining Corporation. Inter alia, the Consul- tant shall complete the metallurgical testing for the Tavoy Concentrator in accordance with the recommendations outlined in the feasibility report of July 1976 prepared by Osborne & Chappel, Sdn. Berhad of Ipoh, Malaysia. The principal services will consist of:

Designs, Plans and Specifications

After a thorough study of all available information including the feasibility reports undertaken (Heinze Basin, Tavoy Central Concentrator and such other records as available), with the exception of housing and other general types of buildings, the Consultants shall draw up detailed working drawings for civil engineering construction, electrical and mechanical installations, and specifications, flowsheets and site layout plans for all equipment and facilities covered by the project together with any modifications to any existing plant as may be necessary to enable existing facilities to be integrated into those proposed.

Procurement and Supplies

The Consultants shall prepare for the Corporation the invitation of tenders for the plant and equipment required and shall prepare the tender documents based on general conditions of tender to be supplied by the Corpora- tion in accordance with the International Development Association's guidelines on Procurement. Conditions of tender shall include instructions to the tenderers to identify separately the foreign cost component of each tender.

After all tenders have been received by the Corporation, the Consul- tant shall analyse and report in detail on them, and forward them to the Corporation together with evaluations of all the tenders received.

The Consultants shall, if required by the Corporation, assist the Corporation in any negotiations which may be conducted by the Corporation with such tenderers.

After the acceptance of a tender or tenders by the Corporation, the Consultants shall assist and advise on the technical content of contract documents including the finalising of the contracts.

A general description of the goods and works to be procured and constructed is given below:

(1) Dredge (excluding power generator)

(2) Heinze Basin shore complex (excluding power generator)

(3) Tavoy central concentrator & Heinze concentrator (excluding power) ANNEX 6-2 Page 3

(4) Tugs and water craft

(5) Equipment for Gravel Pump Project

(6) Civil works and townsite

(7) Power generation equipment

(8) Motor transport& earthmovingequipment

Erection of Plant and Equipment

The Consultantsshall supervise the erection of the dredge and all other plant and all other equipment& civil works (infrastructure)in accordance with scheduledprogrammes of work to be prepared by the Consultantsand approved by the Corporationpursuant to this Agreement. The Consultantsshall prepare regular progress reports on the project and advise the Corporationas to any measures to be taken to complete the erection within the scheduled programmes of work. This work shall be carried out both in Burma and overseas.

Responsibilitieswith Regard to Performance and Quality

With specific reference to the Heinze dredge and the Tavoy central concentratorthe Consultants shall be responsible that each is so designed and constructed that they have capacity to meet the expected performance targets in so far as the material treated corresponds to that reported in the Feasibi- lity Reports and shall guarantee them in such a manner as is acceptable to the Corporation.

The Consultants shall ensure that all proprietoryequipment supplied is covered by satisfactorywarrantees conforming in detail to international practice and standards. The Consultants shall undertakeon behalf of the Corporationand at the Consultants'expense to pursue with all reasonable care any claim arising out of the equipment concerned which does not meet the minimum guaranteed performanceclaimed by the supplier of the equipment.

The Consultantsshall be responsible in all other cases that designs are skillful and effective to achieve the purpose specified and no foreseeable work is omitted.

Training

The Consultantsshall prepare for the Corporationa training programme to create skills in the following:-

- effectivemanagement and control of dredging, gravel pump mining and other auxiliary specialist operationssuch as mineral dressing. ANNEX 6-2 Page 4

operations of the dredge and mill.

maintenance of plant peculiar to a dredge.

The programme will be implemented by the Consultants both in Burma and in either Malaysia, Thailand or Indonesia, where many dredges operate.

The personnel who should be trained and the total period to be spent overseas are given below:

Total period No. of of training persons in man-months

Managerial 8 144 Operators 12 432 Mechanical 6 144

It will be necessary for inter-Government arrangements to be made to facilitate this training and the Consultants will use their best endeavours to see that this is implemented.

Besides the services indicated the Consultants shall advise the Corporation and make recommendations to the Corporation for-

- production and supervisory personnel required for the expanded operation.

- the setting up of a central workshop to meet the Corporation's requirements for the expanded plant;

- the setting up of a central control laboratory; and

- the development of repair and maintenance routines.

Operational Facilities

Commissioning of the Plant. Without prejudice to their responsibilities as referred to under performance and quality, the Consultants shall supervise the carrying out of test runs of each of the individual items of equipment, the dredge, and the concentrators and they shall be responsible for the evaluation of the test results, and shall act in the interest of the Corporation in all commissioning and performance guarantee tests. In the case of equipment which does not meet the minimum guaranteed performance claimed by the suppliers of equipment, the Consultants shall furnish a Certificate indicating the respects in which such equipment does not meet the necessary requirements. The Consultants shall furnish a Certificate of Acceptance for each item of equipment which does comply with the contract specifications. ANNEX 6-2 Page 5

OperationalSupervision

The Consultantsshall also provide technical assistance for the safe and efficient operation of all plant after it has been commissionedfor a period of not less than two years and shall report quarterly to the Corporation on the performanceof all plants concerned throughout the said period.

Gravel Pump Mining

The responsibilityof the Consultantswith regard to this section of the project shall include the examination and evaluation of all historic recoveries and the undertakingof field investigationsin order to classify the overall tin tungsten mining potential of target sites. The Consultants shall select two or more areas as suitable for development.

Thereaftertheir responsibilitiesshall be as previouslyoutlined with regard to engineering,design, procurement,training and commissioning etc.

Other Responsibilities

Besides those responsibilitiesoutlined in the previous section the Consultantsshall have the responsibilitiesof advising the Corporation on the improvementof the Corporation structure and reporting systems. They will recommend accounting and financial reporting requirementsand evaluate the division of responsibilitiesto fulfill the Corporation'sobjectives, including allocation of responsibilitieson a functional basis.

In addition, the Consultants shall be responsible for advising the Corporation on modern techniques for cost control, project evaluation and allied subjects.

The consultantsshall also assist the Corporation to prepare a manpower plan, including steps to establish employee levels consistentwith changes in output and profitabilityat its various operating locations. The plan will also include a system of bonuses, incentive schemes and special allowances to augment wages where appropriate.

Assistance will also be given to improve the physical export of concentrates, including study of the direct export of concentratesfrom Tavoy rather than via Rangoon as at present.

Consultants'Personnel

The Consultants shall provide for the performance of the service suitably qualified and experiencedpersonnel. Details of number of persons by professionalqualification and respective man-months of required work are to be provided by the Consultantswhen submitting the contract proposal.

Industrial Projects Department January, 1977 BURMA: TIN/TUNGSTEN EXPANSION PROJECT PROJECT IMPLEMENTATION SCHEULE

1977 1978 1979 1980

J-M A-J J-S O-D J-M A-J J-S O-D J-M A-J J-S O-D J-M A-J J-S O-D HEINZEBASIN DREDGE AND MILL DesignEngineering _ Tenders - - - Deliveryof Components _ - -_ - Construction& Installation - - -_ - OperationalTrials & Towing

TAVOYCONCENTRATOR Site Selection _, DesignEngineering (incl. Metallurgical testing) _1 Tenders _c Deliveryof Components - _- Construction& Installation _ _ _ I OperationalTrials _ i

KANBAUKMINE & GRAVELPUMP PROJECT 4I DesignEngineering Tenders Deliveryof Components . _ - P Construction& Installation OperationalTrials

Industrial Projects Department October 1976 World Bank-16594 193 BU1fA ANNEX6-3 Page 2 TIN/TUNGSTD EXPANSICQPROJECT

PROJECTIKPLEKENTATION SC}DIXLEs INITIAL STEPS

Tin/Tungsten ProJect Responsibility Feb. Marci April _ June July _ Sept. Oct. Nov. Dec.

1. Negotiation, Engineer- MC2/Cons. ing and Project Management Contract

2. Apnroval of Contract GOB/IDA

3. Signing of Contract MC2/Cons.

Is. Final Site Selecticn MC2/Cons. for Tavoy Concentrator

5. Site Acquisition 11C2/GOB

6. Execution of Subsidiary MC2/GOB Loan Agreement

7. Approval of Subsidiary GOB/IDA Loan Agreement

8. Metallurgical Testing Cons.

9. Prepare Schedule of Cons./CC Project Quantities

10. Pepare Detailed MC2/Cons. Projcot Schedule

11. Prenaration of Advertise- MC2/Cons. ments and Tender Documents

12. Engineering Cons.

13. Site Preparation KC2/CC/Cons. (Heinze Basir)

14. Tenders MC2/Cons.

15. Order Placement MC2/Cons.

Sector Study

16. Agree Scope of Work GOB/IDA and Prepare TOR

17, Select Consultants GOB

MC2 - No. 2 Mining Corporation GOB - Government of Burma (mainly Ministry of Mines) Cons. - Consultants CC - Construction Corporation

Industrial Projects Department February 1977 ANNEX 6-4

BURMA: TIN/TUNGSTEN EXPANSION PROJECT

ALLOCATION OF IDA CREDIT

Amount of the % of Credit Expenditures Allocated to be (US$ Million) Financed

1. Equipment and Supplies for and 6.0 100% Construction of Bucket Ladder Dredge-Heinze Basin (including spare parts and foreign freight)

2. Equipment and supplies for 1.5 100% of Tin/Tungsten Concentrating foreign Facilities - Heinze Basin & Tavoy expenditures (including spare parts and foreign freight)

3. Equipment and Supplies for Gravel 1.5 100% of Pump Tin Mining (including spare foreign parts and foreign freight) expenditures

4. Transport and Earthmoving Equipment 1.5 100% - Earthmovers, Tug, Barges, Boats and Vehicles (including spare parts and foreign freight)

5. Ancillary Equipment and Supplies for 2.0 100% of Offices, Laboratories, Workshops, foreign Power and Water Supply, Housing and expenditures Auxiliary Buildings (including spare parts and foreign freight)

6. Engineering, Project Management 1.5 100% of Assistance, Operational Supervision, foreign and Training expenditures

7. Sector Study 0.2 100 of foreign expenditures

8. Unallocated 1.8

16.0

Industrial Projects Department January, 1977 ANNE 6-5

BMR(

TIN/TUNGSTINEXPANSION HPOJECT

ESTIATED DISBURSEIENTSCHEDULE OF IDA CREDIT US$ Million

Toar Quaer Amount Disbursed Amount Outstanding Amount

-Undisbursed

1977 2nd 0.10 0.10 15.90 3rd 0.30 0.40 15.50

4th 0.40 0.80 15.20

1978 lit 1.50 2.30 13.70 2ad 2.00 4.30 11.70 3rd 2.50 6.80 9.20

4th 2.50 9.30 6.70

1979 1st 2.00 11.30 4.70 2nd 1.50 12.80 3.20

3rd 1.00 13.80 2.20 4th 1.00 14.80 1.20

98cig/ lot 0.50 15.30 0.70

2nd 0.40 15.70 0.30

3rd 0.05 15.75 0.25 4th 0.05 15.80 0.20

19812/ lot 0.05 15.85 0.15

2nd 0.05 15.90 0.10 3rd 0.05 15.95 0.05

4th 0.05 16.00 0.00 V Disbursementsduring 1980 and 1981 are initially for retention payxents on last items of equipment and then solely for operational assistance during first two years of project operation. Industrial Projects Department November, 1976 ANNEX 7-1 Page 1

BURMA

TIN/TUNGSTENEXPANSION PROJECT

OPERATING COSTS

A. General

1. The estimated annual operating costs for each of the project componentsare summarized in Table 1. the estimates are based on the feasibility studies prepared by the consultantsOsborne & Chappel, which were prepared with due considerationof the factors outlined below.

B. Labour

2. Labour costs are directly dependent upon the manpower requirements and wage rates applicable. The complementof labour required to operate the dredge and other project components is based on Osborne & Chappel's knowledge of the normal requirement for similar operationsin Malaysia and increased to compensatefor the lack of experiencedlabour in Burma (3 shifts per day for the dredge, one per day for other facilities).

3. The proposed manpower establishmentfor the major project components, Heinze Basin and the Tavoy concentrator,are given in Tables 2 and 3. The Government grades applicable to each classificationof employee is given together with the standard Governmentwage rate. No provision has been made for bonuses and other social benefits in these tables,but allowance have been made for these in the summarizedcosts in Table 1 (10% of wages for bonuses, 8% for welfare fund).

C. Price Estimation

4. The estimation of the cost of fuels and materials required has been based on currently quoted Burmese Government rates or, where items are not domesticallyavailable, on the quoted net prices in Malaysia. The latter have been used as Malaysia is the world's major market for dredging spares and a major producer of many items.

5. Replacementspares, maintenance materials and some freight and insurance charges are the only items which would be purchased in foreign currency. This amounts to 31% of the total operating costs for the project. ANNEX 7-1 Page 2

D. Materials Consumption

6. The following approach has been used in the estimationof consumption of materials, fuels and spare parts:

Fuel and Other Consumable Materials

7. The consumptionof these items is directly dependent on the charac- teristics of the machinery specified and/or its application. These items are not influencedby local conditions and thereforemay be accurately estimated by reference to historic records of similar operations.

MaintenanceMaterials IncludingMachinery Replacements

8. The consumptionof these items is influencedby working conditions appertainingto the locality where the dredge or other plant operates in addition to the normal operational factors such as wear and tear.

9. The estimate of usage of these items presents some problems as it requires the estimation of abnormal rates of wear due to abrasive ground or corrosion. In formulating estimates of replacementsrequired, subjective adjustmentsof Osborne & Chappel's own records have been made after a review of dredge operations in similar conditions.

E. Freight and Port Charges Including Insurance In Carriage

10. These have been estimated in the same manner as those for capital costs given in Annex 5-2.

F. Import Duties and Commodity Taxes

11. Import duty has been charged on imported materials at 15% and commodity tax at 30%.

G. Insurance

12. This has been calculatedat a quoted rate of 1-1/2% of the value of items being covered. This informationwas based on informal advice from the Savings and InsuranceDivision of the People's Bank of the Union of Burma and provides for all risks cover.

Industrial Projects Department November, 1976 BUMA

TIN/TUNGSTENEXPANSICI RPOJECT

TABLE 1: DETAILED OPERATINGOOSTS"/BY PROJECT CCNPORiNT

(uS$Ooo)

Heinze Basin Kanbauk Tavoy Gravel Cost Category Dredge & Mill mine / Concentrator Pump Mining Total Labor 131 52 33 78 294 Fuel 351 144 48 216 759 Materials (Spares, Lubricants, Chemicals, etc.) 331 80 144 120 575 Supervision 47 - 7 51 105 Freight 66 - 1 1 - Jv 79 Insurance 198 - 37 19 254 Import Duties 60 12 7 18 97 Comodity Taxes 119 24 14 36 193

Incremental Cost 1303 312 203 538 2356 Head Office Overhead 46 _ 10 - / 56 Total Operating Costs 1349 312 213 538 2412 mm== mm= mwm==wm w

1/ As at September 31, 1976. 2/ Incremental costs due to expansion by 100 LTPY. 3/ Transhipmnt of Mawhoiores Rangoon-Tavoy; costs of ore transport to the concentrator included in other costs. 4/ Included in other costs. §/ Included under supervision.

Induatrial Projects Department November 1976 Table 2 ?m1 BN0mWAIW NJC Tsy mus rac PIM TAME 2: lE UMxIM ANDKILL nmiJa O IADR 1R WI

O2Z t HNo. Graf Wase

1 m tLectrical Shift Ohargmn 3 SL 330 Relief 1 SL 330 MechaDiCal Supervisor 1 JhI 700 Had Sheet Metal Worker 1 AY 400 Head Fitter 1 AY 400 Eead Welder 1 AU 400 Head Kechanic 1 AP 400 Head BlackFith 1 AF 1400 Sheet Metal Workers 3 SL 330 Asistant Sheet Metal Workw} 3 SL 250 Fitters 3 SL 330 Assitant Fitters 2 SL 250 Welders 2 SL 330 Machinist. 2 SL 330 Blackmith 1 SL 330 Motor mech nica 1 SL 330 Carpenters 1 SL 300 Painters 3 SL 250

Crew

Shift supervisora 4 aM 700 Winchen 4 F 500 Oreaser 4 SL 250 Rngine Attendants 4 SL 330 Bucket Attudants 8 L 180 Intake Attendants 6 L 180 Screen AttendantB 3 L 180 Jig Attendants 15 L 180 Relief Workers 6 L 180

2. SHOlil. OUIL'Z & OPOUIID

Shore Supervisor 1 dMI 700 Drivers (tractors, lorries, land-rovers) 8 SL 250 Carpenters 4 SL 300 Cpoud Foreman 1 F 450 Crpomd labourers 8 L 150 Painters 2 SL 250 Grasa-cutters 3 SL 250 Outside gang 8 L 200 Outside Foren 1 F 450

3. WATERTRANSPORT - SLDINS PUMPS

Supervisor 1 JMI 700 Tug Pilots 3 AU 400 Psssenger apan & barge attendants 12 L 200 Fuel & stores handling 4 L 150 Store gang toreman 1 AP 350 Concentrate handling 4 L 150 Ore geng foresan 1 AF 350 Slimes pump attendants 8 L 180

4. SHoUa UoRxSHOP Supervisor (Mechanical) 1 JIU 700 Head Welder I AU h4 Head Blacksnith 1 Al 400 Head Sheet metal worker 1 Al 400 Head Mechanic 1 Al 400 Head Fitter 1 AI 400 Head ChargmAn I Al h400 Welders 1 SL 330 Asoistant Welders 4 SL 250 Machinists 2 SL 330 Blackmiths 1 SL 330 Motor sechnics 2 SL 330 Assistant echcanics 3 SL 250 Shoet me*tl worker. 2 In 330 Assistant Sheot worker. 2 SL 250 Superisor (ELectrical) 1 .INI 700 Charge_n I SS 330 Fitters 2 SL 330 Assistant Fitters SL 350

2/- CI-._ 2-

iao. Oradb

5. MILL Spervisor 1 au 700 H"d Fitter 1 AU I40 Sampler Y 400 Operators 5 L 300 R.l±f Workers 1 S 300

6. DSIUL 51M511! O&OlmlCUS

Seurity Officer 1 iN -- 700 Security guards dred4e 6 SL 330 shore 6 SL 330 relf 4 SL 330 Radio operators JI4I 500

7. Sll 51PICR SurrVeor 1 iNI 700 Assistants 2 .IN 500

8. CLEICAL

Miet Clerk 1 DilI 800 P=roll & Acoounts Clerks 2 JEll 500 Storekeeper 1 JIl 600 Store Assistants 2 SL 250 Typist 1 SL 250

9. DCAL-

Dresser/Nurse 1 JIUI 500 1

10. SIOR 9SALLaID TAFA

Kni rNer 1 K 1,I400 Dre_temaser 1 y 1,300 Kechanicl Engineer 1 S9 1,200 ILoctrical hgineer 1 SK 1,200 dnoeral Dredsing Igineer 1 DK 1,200 AAmnistrative Officer 1 8K 1,200 Doctor 1 Sl 1,200

SWIR

Categories No. Cost (lYats/IXaoth) Senlor Maagamenut 7 8,700 Jvnior Nae_gent I 13 9,200 Junior ma1agaenut II 10 5,100 Formu 6 2,900 Assistant Forem 18 7,100 Skilld Labourrs 98 28,810 Laborer 82 146&o Total I 7

Iote, IN - enior ammagerial J - Jnior _mg eriel (Or. I-n) J - forwan Al a asdistant formen 5L - eilledlabourer , - labour

Instrial i*oss Departmt November 196 A 7-i Table 3 BUllU

TIN/TCN0BU WAPJISIONPll RCT

TA4N 3: TATOr CWCNITRA!TCt DITAIL C LABOURIInIITS

Grade2' Wg No. Coat IMmonth

Plant Operators

Dry Section SL 300 2 Tables Si 300 2 Flotation SL 300 1 imp. SL 300 1 Fe"d SL 300 2 Baging SL 300 2 Cleaners L 150 2 Reliesa SL 300 3 Bagine Driver SL 330 1

16 h1,5j0 Supervisio & Cotrol

Foran F 500 1 Samlers/Assistant Foreman Al 40o 2 Laboratory Technician Ji n 500 1 Cle r. JN II 500 2

Maintenance 6 2,800

Mainatnance Foran F 500 1 Diosel Mechanica SL 330 2 Fitters SL 330 2 3cdleraker/Welder SL 330 1 Qhargm_n SL 330 2

8 2,810 Security

Head Watchman J II 5°0 1 Watebumn SL 300 6 Reliefa SL 300 2 9 2,900

Sub-total - Labour 39 13,040

Trananort

Drivers SL 250 7 Assistanta L 150 z

Sub-total - Transport 14 2,8o0

Senior Staff

Conaentrator SuperinteDdent SK 1200 1 Mechanical ingineer 3K 1000 1 Alectrical Bagineer ON 1000 1

8ub-total - Managerial 3 3,200

Total 56 19,040

/ Se Table 2 for grade cod e

Industrial ProJecta Department November 1976 ANNEX7- 2 Page 1- BURMA

TIN/TUNGSTENEXPANSION PROJECT

BREAK-EVENPOINT (1981-82)

1. The profit and cash break-even points have been calculated for the year 1981-82. At this point, MC2's output of 3,160 tons of concentrateis representativeof the average that may be expectedannually for the Corporationas a whole over the project life (19 years).

2. The followingbasic data were used to determinethe break-evenpoint for MC2's total operations:

A. COSTS K Y A T S (000's) FIXED VARIABLE TOTAL

TributeProduction-t - 35,657 35,657

Own Produ5 ion Labor - 7,846 - 7,846

Materials- 13,882 6,941 20,823

Overhead3 20.886 10.443 31,329

42.614 17.384 59.998

Cost of Production 42,614 53.041 95.655

General& Administration 5,798 - 5,798

Depreciation 21,880 - 21,880

FinancialCharges 11,604 - 11.604

IndirectExpenses 39.282 - 39,282

Total Costs Before Tax 81,896 53.041 134,937

CommodityTax 4/ 13,758 9,546 - 23,304

Total Cost Including CommodityTax 95.654 62.586 158.241

Percentage 60.4% 39.6% 100.0%

B, REVENUES 184.921 6/ C. DEBT REPAYMENT 9,000

D. BREAK-EVENPOINT

Profit Break-Even: 78.2% of normal output or 2,470 annual tons. Cash Break-Even : 67.7% of normal output or 2,140 annual tons.

The high break-evenpoints are partly a result of the commoditytax which is tied to costs rather than profits. If this tax were eliminated,the profit and cash break-evenpoints would be 62.1% and 52.3% respectively.

1/ Tributeproduction represents ores purchasedby MC2. Such costs are completelyvariable. 2/ Because of Burmeseemployment practices, labor costs tend to be fixed over wide ranges of output.

3/ Materialsand overheadcosts (fuel,repairs, transportation, supervisory salaries, etc.) are estimatedto be 1/3 variableand 2/3 fixed.

4/ Commoditytax is 16.8% on all costs.

5/ Includescommodity tax on sales deductions(freight and insurancecharges on exportsof concentrates).

6/ Actual debt repaymentin 1981-82is K 1.9 million. The above figureof K 9.0 millionis more representative of the repaymentburden once repaymentbegins on the proceedsof the IDA credit.

Industrial Projects Department February1977 ANNEX7-2 Page 2

BURMA

TIN/TUNGSTENEXPANSION PROJECT

BREAK-EVENPOINT (1981-82)

Kyats (000's)

200

Break-Even Point/

100 ixed Costs

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

/ ~~~~~~~~~~~~~~~~~~~~~~~~~~I

2470 3,160

Tons of Output

Industrial Projects Departsent October 1976 ANNEX 7-3 Page I

BURKA

TIN/TUNGST$NUPANSION PROJECT

FINANCI RATS OF RETURNAND SENSITIVIfT ANALYSIS

Assumptions

1. Financial rate of return calculations are based on the incremental capital cost, operating cost and revenue streams shown in page 2 of this Annex. All streams have been deflated to 1976 price terms on the basis of international inflation rates (1976 - 8.4J%, 1977 - 8%, 1978 - 7.5%, 1979 and beyond - 7%). These are the same inflation rates used for the current firancial projections (Annex 7-4., paragraph 3). Different inflation rates have been used for capital costs (Annex 5-2).

2. Other basic assumptions used in the financial rate of return calculation are as follows:

Construction period: 3 years Life of projectt 19 years AMUX7-3 Pagl 2

BURMA

TIN/TUNGSTEN EXPANSION PROJECT

FINANCIAL RATE OF RETURN - COST AND BENEFIT STREAMS 1/ (Kyats Millions - Real Terms)

(Taxes Subsequent Total Included in Fixed Working2 / Capital/ Capital Operatigg Operating5/ Year Assets Capital- Costs- Costs Costs- Benefits Costs) -

1976-77 ------

1977-78 8.4 - - 8.4 -

1978-79 77.6 - - 77.6 - -

1979-80 55.0 3.8 - 58.8 4.9 5.8 0.5

1980-81 1.1 (2.1) - (1.0) 22.1 56.6 5.3

1981-82 0.7 (1.7) - (1.0) 21.6 38.1 5.1

1982-83 - - 3.4 3.4 21.4 42.7 4.9

1983-84 - - 5.0 5.0 21.3 44.5 4.8

1984-85 - - - - 21.0 42.8 4.5

1985-86 - - 1.3 1.3 20.9 43.3 4.4

1986-87 - - - - 20.7 42.3 4.2

1987-88 - - 0.4 0.4 20.5 39.3 4.0

1988-89 - - 7.8 7.8 13.9 28.2 2.9

1989-90 - - 1.7 1.7 15.9 30.7 3.1

1990-91 - - - - 20.1 33.6 3.6

1991-92 - - 1.7 1.7 19.9 33.2 3.4

1992-93 - - - - 19.8 32.8 3.3

1993-94 - - - - 19.7 32.0 3.2

1994-95 - - 0.5 0.5 19.7 31.6 3.2

1995-96 - - 0.4 0.4 19.7 31.6 3.2

1996-97 - - - - 19.6 32.0 3.1

1997-98 - - - - 19.2 31.2 2.7

1998-99 - - - - 19.1 30.1 2.6

1/ All streams are in terms of September 30, 1976 prices (the mid point of MC2's 1976-77 fiscal year).

2/ Inital working capital needs with increased production in 1979-80 are recouped in the following two years when the Tavoy concentrator comes on stream--allowing MC2 to reduce its inventories and receivables.

3 Subsequent capital costs are primarily associated with the Heinze Basin Kanbauk components. They include: 1982-83 improvement of roads; 1983-84 renewal of bucket band for the dredge; 1988-90 dredge rehabilitation-increasing the digging depth and replacing the pontoons.

4/ Incremental operating costs decline in 1988-90 due to shut down of the dredge for rebabilitation.

5/ Taxes refers to t$716.8commodity tax on production and overhead costs which replaced the income tax in IYi T e commodity tax declines over time due to decreasing depreciation and interest charges when expressed in real terms. ANNEX7 Paes 3 BURNA

TIN/TUNGSTENEXPANSION PROJECT

FINANCIALRATE OF REIURN- SENSITIVTY ANALYSIS

20 %7 Revenue

.~ ~ ~~ ~ ~ ~ ~~~~~s Returen 107.

/ "~~ Olperatin / Costvs. Cap C . / \ ~~~~~~Return . - 0% 1 307 20% 10% 0 10% 207 30% Decrease Increase

After Tax Pre-Tax Capital Operating Financial Financial Case Cost Costs Revenues Rate of Return Rate of Return

1. (BaseCase) 100 100 100 10.0 13.7

2 110 100 100 8.3 11.8

3 120 100 100 6.9 10.2

4 100 110 100 8.0 12.3

5 100 120 100 5.8 10.8

6 100 100 90 6.0 10.1

7 100 100 80 1.3 6.2

8 100 110 110 11.7 15.6

9 100 120 120 13.4 17.5 10 110 110 100 6.4 10.5

11 120 120 100 3.0 7.6 12 One year projectdelay 8.5 11.5

InalJtr1l ProJeotaDspartmt Ootobw21976. ANNEX7-14 Page 1

BURKA

TIN/TUNGSTENMAPANSION PROJECT

ISSUMPTIONSUSED IN FINANCIALPRIJECTIONS

A. INOCKESTATEMUNT 1. Gross Sales (a) Tonnage Tonnage sales by type of concentrate are based on the Projected Output by Mine table (Annex 7-8). Also, tonnage sales are affected by changes in inventory levels each year. Assumpticas on inventory levels are given in paragraph 7 (c) of this Annex. (b) Selling Prices Prices for tin and tungsten concentrates are based on forecast setal prices prepared by the Comodities and Export Projections Divisimn (Annexes 3-1 and 3-2) Details on the "revenue factor" used to calculate revenues to MC2as a percentage of the forecast metal price are given in Annex 7-6.

2. Sales Deductions Freight, insurance, MEICcomission, and furthw treatment charges are deducted from XC2'a gross sales. In the past, these have averaged 6% to 7% of sales revenues. Thia is expected to decline to 4% during F177-80 with the replacement of MIEC (which charges a 239 comission) by the marketing committee. Once the Tavoy concentrator comes on stream treatment charges will be eliminated (presently about 2% of gross aales 5 reducing sales deductions to 2% in PY81 and beyond.

3. Cost of Production Costs of production by mine are given in Annex 7-7. Information on operating costs of the project components (Heinze Basin, Gravel Pumps, Tavoy Concentrator) is provided in Annex 7-1. For existing mines, production cost forecasts are based on the followings (a) Tonnage output by mine for both tributor and Coxporation operations as detailed in Annex 7-8. ANNEX7-h Page 2

(b) Total production costs reprosents the cost of MC2's own output as well as tb cost of purchased ores from tribu- tore.

(c) The cost of purchased ores is equal to tribute output times the relevant tribute rates by mine. It is assmed prices paid for tribute ore will remain constant in real terse over the forecast period.

(d) Costa by nine of KC2as own production are based on FY76 costs with adjustment to reflect the present situation. Labor costs have been increased 25% in FY77. This takes into account the 10% cost of living adjustment granted to workers in July 1976, plus bonuses and the social security scheae introduced by the Government in 1976 which will raise labor costs a further 15%. In addition, costs of imported materials included in operating costs have been raised 30% to reflect the new commodity tax on such imports. Overall, the effect of tbese changes is to raise costs of MC2's own production by 20-25% at each mine site. It is assmed that, over the balance of the forecast period, costs of WC2's ow production will rmain constant in real terms, except where affected by expansion or modernization projecta (Heinda and the IDA project).

(e) Costs at the Hinda mdne are expected to rise substantially over the next three years. In addition to the factors' mentioned in (d), this is the result of the expansion of mining activities at this site in connection with the current rehabilitation program due to come on stream in 1977. Based on discussionswith the Corporationand analyseaof existingdata, C2's productiomcosts at Heindaare forecastto rise (in constantterms) at 70% of the rate of increasein outputover the Fr76-79 period (outputrisea from 140 to 940 tons or 6.7 times,own productioncosts rise from K2.9 to K13.7 millionor 4.7 times). (f) Outputand productioncoats at the Kanbauk mine increase in 7I80 as a result of closersupervision of these operations as implementationof the HeinseBasin project proceeds. Increrentaloperating costs are obtained from the variable Coat compoents of the Gravel Pump operating cost table in Annex 7-1.

4. Inlation of Costsand Revenues It is assumed that escalation of both costs and revenues will approximateworld inflation rates as forecast by the Bank (1976 - 8.4t, 1977 - 8%, 1978 - 7.5%, 1979 and beyond - 7%). This assumption is based an the following factors: ANEX 7-4 Page 3

(a) All of MC2's revenues and about 30% of production costs are in foreign exchange or are foreign exchange reated (i.e. duties and couodity taxes an imported materials).

(b) With respect to local production costs (70% of the total), the majority of theseare made up of labor (10% of total production costs) and ores purchased from tributors (50% of total production costs). Based on MC21s past experience, these costs should be largely set by the Corporation's ability to pay - i.e. the prices it receives for its output - and thus may be reasonably assumed to follow international inflation rates.

While devaluation of the kyat over the forecast period is possible, such an occurence would lead to a proportionately greater increase in revenues than in costs. This would result in an improvement in cash flows and financial rate of return above those presently projected.

5. Indirect Expenses (a) Interest

Interest on onlending of the IDA credit from GOBto KC2 is assumed at 10%. Interest on other loans (FRG loan for the Heinda mine) is about 2¼%annually.

(b) General and Administration

These costs are projected at 6% of annual produstion costs. This is in line with MC2's experience over the FY72-76 period.

Depreciation is forecast at 7.5% of operating assets at year end.

6. Comodity Tax

A 16.8% commodity tax on cost of sales, overhead, interest and depreciation costs incurred in the year replaces the 50% income tax, beginning FY77. This is based on a 15% tax on thesum of totaloperatilng costs plus a 12% nominal profit.

B. BALANCESHEET 7. Current Assets (a) Cash and Bank Forecast at 5% of production costs. ANNEM7-4 Page4

(b) Receivables

Receivables are projected to decline from 33% of sales in FY76, to 25% in FY77, and to 16.7% over the Fr78-80 period. This improvement will be achieved through a reduction in the delays in transmission of cash receipts to KC2 after the Marketing Committee assumed control of the Corporation's sales in late 1976. A further reduction in receivables to 8.3% of sales in forecast for Fr81 and beyond once the Tavoy ooacentrator comes on stream and MC2can enter into long term smelter contracts for its production. (a) Mineral Ores Inventory Inventories of mineral ores are expected tp decline from 103%of production coats in 7176 to 70% in F717. In fact most of this reduction has already been achieved. At the end of Auguat 1976 MC2's inventories of mineral ore were 35%below year-end levels. Closer control over inventory levels in future should allow a reduction to 60% of pro- ductimn coats in F778, and to 33%over the F779-80 period. In F781, with the start-up of the Tavoy concentrator, elimination of the need to process and re-process poor quality concentrates, and the establishment of smelter contracts, a further redoution in inventories to 16.7% of production costs is possible.

(d) Supplies Inventory

Inventories of supplies are forecast at 40% of production costs in FY77, 35% in Fr78,and 30% thereafter.

(e) Other Receivables

Forecast at 15% of production costs.

8. Current Liabilities (a) Accounts Payable MC21s purchases are conducted almost entirely on a cash basis. Accounts payable are thus forecast at 5% of production costs. ANNIZ7-4

(b) Tames Payable

It in ewpected 3C2 wil1 rmit the accusulated incame tax payable by the end of FY77. Comodity tax.s are to be tranitted to the Goverment as sales are made, thus it is unmikely that a significant payable in this respect will arise.

Indnstrial Projects Department January 1977 BURMA: TIN/TUNGSTEN EXPANSION PROJECT

PROJECTED INCOME STATEMENTS

(ICATS 000)

1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87

REVENUES

GROSS SALES 45536 66194 75780 112186 119045 200147 188695 211102 230972 246715 266334 282863 SALES DEDUCTIONS 2985 2648 3031 4487 4762 4003 3774 4222 4619 4934 5327 5657

TOTAL REVENUE 42551 63546 72749 107699 114283 196144 184921 206880 226353 241781 261007 277206

OPENING STOCK 31101 33037 24325 30016 26874 23123 22685 16139 17270 18480 19779 21157 COST OF PRODUCTION 32013 34750 50027 59721 70071 90741 96641 103414 110657 118437 126686 135538 CLOSING STOCK 33037 24325 30016 26874 23123 22685 16139 17270 18480 19779 21157 22635 DEFERRAL OF PRODUCTION COST 1799 ------

COST OF GOODS SOLD 28278 43462 44336 62863 73822 91179 103187 102283 109448 117138 125308 134060

GROSS PROFIT 14273 20084 28413 44836 40461 104965 81734 104597 116905 124643 135699 143146

INDIRECT EXPENSES INTEREST ON IDA LOAN - - - - - 10347 10466 10512 9853 9127 9329 7451 INTEREST ON OTHER LOANS 384 825 1197 1197 1197 1185 1138 1090 1043 995 946 892 INTEREST ON LT DEBT 384 825 1197 1197 1197 11532 11604 11602 10896 10122 9275 8343 GENERAL AND ADMIN. 1910 2085 3002 3583 4204 5444 5798 6205 6639 7106 7601 8132 DEPRECIATION 1552 4350 7545 7673 9294 21659 21880 22427 23207 23880 23747 23935

SUB-TOTAL 3846 7260 11744 12453 14695 38635 39282 40234 40742 41108 40623 40410

NET PROFIT BEFORE TAX 10427 12824 16670 32383 25766 66330 42452 64363 76162 83535 95076 102735

INCOME TAX 5214 ------COMMODITY TAX - 8966 9931 13407 15671 22481 24569 24652 26008 27414 28771 30261

NET PROFIT AFTER TAX 5214 3858 6739 18976 10095 43849 17883 39711 50154 56121 66305 72474

R A T I O S

GROSS PROFIT/REVENUE-X 33.5 31.6 39.1 41.6 35.4 53.5 44.2 50.6 51.6 51.6 52.0 51.6 NET PROFIT AFTER TAX- REVENUE-Z 12.3 6.1 9.3 17.6 8.8 22.4 9.7 19.2 22.2 23.2 25.4 26.1

INDUSTRIAL PROJECTS DEPARTMENT REPORT PREPARED-01/24/77 BURMA: TIN/TUNGSTEN ESPASSION PROJECT

GROSS SALES

(STATS 000)

1975-76 1976-77 1977-78 1978-79 1979-80 t980-81 1981-82 1982-83 ______- - _ _ -- _ _ _ _- 1983-84 1984-85 1985-86 1986-87 - - _- _ _- -- _- _- _ _ -_ _-- - _ _- - _- - - - ______

GROSS SALES

TIN CDNCENTRATES

VOLUME (000 TONS) 616.0 840.0 975.0 1490.0 151s.0 2675.0 2375.0 2480.0 2510.0 2450.0 2450.0 2425,0 TIN PRlCE/TON ILMEP-KYATS 44673.0 51233.0 52146.0 53058.0 53970.0 54883.0 55794.0 56707.0 57619.0 58684.0 59290.0 59290.0 REVENUE FACTOR .X .620 .650 .650 .650 .650 .695 .695 .695 .695 .695 .695 .695 REV/TON OF CONCENTRATE 27697.0 33301.0 33895.0 34488.0 35081.0 38144.0 38777.0 39411.0 40045.0 40785.0 41207.0 41207.0 REVENUE-O0O KYATS 17065.0 27973.0 33048.0 51387.0 53147.0 102034.0 92095.0 97740.0 100513.0 99924.0 100956.0 99926.0 TUNGSTEN CONCENTRATES

VOLUME (000 TONS) 497.0 595.0 670.0 650.0 580.0 880.0 8030.00 830.0 830. 0 830.0 830.0 W03 PRICE/LTU (LMB)-KYATS 613.0 703.0 712.0 712.0 726.0 749.0 755.0 761.0 767.0 773.0 778.0 778.0 REVJENUE FACTOR 2/ 58.100 59.500 59.500 59.500 59.500 62.000 62.000 62.000 62.000 62.000 62.000 62.000 REV/ON OF CONCENTRATE 35615.0 41829.0 42364.0 42364.0 43197.0 46438.0 46810.0 47182.0 47554.0 47926.0 48236.0 48236.0 REVENUE-O0O KYATS 17714.0 24888.0 28384.0 27537.0 25054.0 40865.0 38852.0 39161.0 39470.0 39779.0 40036.0 40036,0 MIXES CONCENTRATES

VOLUME (000 TONS) 442.0 350.0 345.0 680.0 650.0 220. o _ _ _ REV/TON OF CONCENTRATE 22597.0 24187,0 24569.0 24824.0 25276.0 25853.0 _ - - _ REVENUE-OOO KYATS 10021.0 8466.0 8476.0 16880.0 16429.0 5688.0 - TIN METAL

VOLUME (000 TONS) 16.0 95.0 - - - TIN PRICE/TON (LME)-KYATS 44673.0 51233,0 - REVENUE FACTOR 1.440 1.000 - - - REV/TON OF METAL 64329.1 51233.0 - - - REVENUE-000 KYATS 1029.0 4867.1 - - - OTHER SALES REVENUE (293.0) - - -

TOTAL SALES

VOLUME (000 TONS) 1571.0 1880.0 1990.0 2820.0 2745.0 3775.0 3205.0 3310.0 3340.0 32fO.0 3280.0 3255.0 REVENUE-000 KYATS 45536.0 66193.8 69907.7 95803.8 94630.4 148587.5 130947.3 136901.2 139983.3 139702.8 140991.9 139961.8

INFLATION FACTOR 1.000 1.000 1.084 1.171 1.258 1.347 1.441 1.542 1.650 1.766 1.889 2.021 SALES-000 KYATS 45536.0 66194.0 75780.0 112186.0 119045.0 200147.0 188695.0 211102.0 230972.0 246705,0 266334.0 282863.0

j/ Based onen slyaia of sles contracts sd assay fEgoree for rsere prodoelioc, IC2 ceo be e-pected to re-lS1s the follo1iog retaUns on itc sales of coscestrateo over the 1976-80 period: tcn .oocentratec--65% of the 124Eprice; ttogatan coocestrstea--59.5% of the pre.vilieg karketprice; need cotceorr,t--28% of the LHE tic price ad142 of th- pr-tLlins price for tungote. Once the Tw-yo co-centr.t.r come ou ttte Ln l9dO-81, irprowe-et in ahipct gradee od rsoaovl of -ootiseno bhoold allo tche Corpoartiooo iprove It re-ra oo exititug sed project- aas.iated production to - average of 69.5% for ti and 62% for tssg.tsc.

Indnatrial Projects Dprtnest October 1976 BURMKA: TIN/TUNGSTEN EXPANSION PROJECT

MINERAL CORPORATIONNO. 2

PRODUCTIONCOSTS

(KYATS 000)

1975-76 1976-771' 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87

MINES HEINZE OUTPUT-TONS -- 650.0 400.0 580.0 COUrPTN-TAN894 - - 13331.0 21663.0 190.0 14940.0580.0 16990.0510,0 16663.0'520.0 17684.0490.0 COST-0OG KYATS - - 8665.0 8665.0 8665.0 8665.0 8665.0 8665.0 8665.0

MAUCHI OUTPUT-TONS 402.0 350.0 SOO5O 650.0 650.0 525.02/ 525.0 525.0 525.0 525.0 525.0 525.0 COST/TON-KYATS 23726.0 29714.0 26800.0 23692.0 23692.0 29333.0 29333.0 29333.0 29333.0 29333.0 29333.0 29333.0 COST-Oo KYATS 9538.0 10400.0 13400.0 15400.0 15400.0 15400.0 15400.0 15400.0 15400.0 15400.0 15400.0 15400.0 HEINDA OUTPUT-TONS 210.0 300.0 750.0 1000.0 1000.0 1000.0 1000.0 1000.0 1000.0 1000.0 1000.0 1000.0 COST/TON-KYATS 19962.0 20667.0 16267.0 14800.0 14800.0 14800.0 14800.0 14800.0 14800.0 14800.0 14800.0 14800.0 COST-Ooo KYATS 4192.0 6200.0 12200.0 14800.0 14800.0 14800.0 14800.0 14800.0 14800.0 14800.0 14800.0 14800.0 YADANABON OUTPUT-TONS 104.0 75.0 100.0 135.0 135.0 135.0 135.0 135.0 135.0 135.0 135.0 135.0 COST/TON-KYATS 24500.0 33333.0 28000.0 23704.0 23704.0 23704.0 23704.0 23704.0 23704,0 23704.0 23704.0 23704.0 COST-000 EYATS 2548.0 2500,0 2800.0 3200.0 3200.0 3200.0 3200.0 3200.0 3200.0 3200.0 3200.0 3200.0 KYAUKMEDAUNG OUTPUT-TONS 85.0 80.0 100.0 120.0 150.0 150.0 150.0 150.0 1500. 150.0 150.0 150.0 COST/TONS-KYATS 23271.0 25000.0 21000.0 20000.0 19333.0 19333.0 19333.0 19333.0 19333.0 19333.0 19333.0 -193*.0' COST-O0O 1978.0 2000.0 2100.0 2400.0 2900;0 2900.0 2900.0 2900.0 2900.0 2900.0 2900.0 29e8.0 NERMYlNGYY OUTPUT-TONS 207.0 160.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 COST/TON-KYATS 18309.0 21875.0 20000.0 20000.0 20000.0 20000.0 20000.0 20000.0 20000.0 20000.0 20000.0 20000.0 COST-00o KYATS 3790.0 3500.0 4000.0 4000.0 4000.0 4000.0 4000.0 4000.0 4000.0 4000.0 4000.0 4000.0 KAN8AUK OUTPUT-TONS 171,0 170,0 250.0 250.0 350.0 350.0 350.0 350.0 350,0 350,0 350.0 350.0 COST/TON-0KATS 25439.0 29412.0 26000.0 26000.0 24571.0 24571.0 24571.0 24571.0 24571,0 24571,0 24571.0 24571.0 COST-000 KYATS 4350.0 5000.0 6500.0 6500.0 8600.0 8600.0 8600.0 8600.0 8600.0 8600.0 9600.0 9600.0 NANTHILAR OUTPUT-TONS 16.0 15.0 15.0 ------COST/TON-KYATS 22313.0 30000.0 30000.0 - - - COST-OO KYATS 357.0 450.0 450.0 ------OTHER NINES OUTPUT-TONS 307.0 250.0 250.0 250.0 250.0 250.0 250. 0 250.0 250.0 250.0 250.0 250.0 COST/TON-KYATS 17134.0 18800.0 18800.0 18800.0 18800.0 18800.0 18800.0 18800.0 18800.0 18800.0 18800.0 18800.0 COST-O00 KYATS 5260.0 4700.0 4700.0 4700.0 4700.0 4700.0 4700.0 4700.0 4700.0 4700.0 4700.0 4700.0 GRAVEL PUMPS OUTPUT-TONS - - - - 75.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 CDST/TONS-RYATS - 28000.0 24000.0 24000.0 24000.0 24000.0 24000.0 24000.0 24000.0 COST-000 EYATS -2100.0 3600.0 3600.0 3600.0 3600.0 3600.0 3600.0 3600.0

NEW CONCENTRATOR (INCR. COST) 1200.0 1200.0 1200.0 1200.0 -000 KYATS - - 1500.0 1200.0 10. 200 10. 20010. 1200.0

TOTAL OUTPUT-TONS 1502.0 1400.0 2165.0 2605.0 2B10.0 3410.0 3160.0 3340.0 3340.0 3270.0 3290.0 3250.0 AVERAGE COST/TON-KYATS 21313.6 24821.4 21316.4 19577.7 19822.1 19755.1 21223.1 20079.3 20079.3 20509.2 20446.6 20635.4 TOTAL COST-00G KYATS 32013.0 34750.0 46150.0 51000.0 55700.0 67365.0 67065.0 67065.0 67065.0 67065.0 67065.0 67065.0

INFLATION FACTOR 1.000 1.000 1.084 1.171 1.258 1.347 1.441 1.542 1.650 1.766 1.89 2.021 TOTAL PRODUCTION COsN -000 KYATS 32013.0 34750.0 50026.6 59721.0 70070.6 90740.7 96640.7 - 103414.2 110657.3 118436.8 126685.8 135538.4

A/e result of seourity problees an transportation bottleneks involving shipents of diesel oil, MC2's output i. expected to d eline at sat aim sites in 1976-77. These problsa are presently being reolved and 1977-78 produotion sould be at mrssl levels.

Separation of 650 tons of sixed coneontrates into their ole n oomponents yields 525 tons of separated ores.

Iwstrial Projects Depert.ent October 1976 BURMA

TIN/TUNCSTEN EXPA9SION PROJECT

PROJECTED 00PUT bY 14INE

--- 1975-76___ --- 1976-77------1977-78------I97879------1979-80------1980-U-- --- _1981-82------1982-83 --- -1983-4--- - 1984-85-- --- 1985-8------19B6-87---

OUR TRIBUIE OWN TRIB.TE OWN TRIBUtE OWN TRIBUTE OWN TRIBUTE OWN TRIBUIE OWN TRIBUSE 0M5N TRIBUTE owN TRIBUIE OWN TRIbUTE (MI TRIBUTEr! TUIE

REISZE -TIN _ 650 - 0 - 580 _ 580 - 510 _ _ 20 -

PIlW GRAVEL PUP -TIN _ _ _ _ _ = _ 75 - 150 - 150 - 50 150 -_ 150 - 150 -IO

KANNLAUK -TIN 67 22 70 30 70 30 70 30 170 30 170 30 170 30 170 '0 170 30 170 30 170 30 170 30

-TUNGSTEN 3 79 - 70 - 150 - ISO - 150 - 150 - 150 - 150 150 -- 150 - 158 - 15O

-MIXED ------

70 101 70 100 70 180 70 180 170 180 170 180 170 180 170 180 170 a80 170 180 170 ISO 170 180

mI -TIN ------65 210 65 210 65 210 65 210 65 210 65 210 65 210

-TUNGSTEN ------55 195 55 195 55 195 55 195 55 195 55 195 55 195

-MNXED 106 296 100 250 100 400 150 50U 150 500 -15050- - - -0 - - - - _

106 296 100 250 100 400 150 5UE 150 500 120 405 120 405 120 405 120 405 120 128 405 120 405

HEINA -TIN 141 69 240 60 690 60 940 60 940 60 940 60 940 60 940 60 940 60 940 60 940 60 940 80

YADANABON -TIN - 10 - 10 - 10 - 15 - 15 - 15 - 15 - 15 - 15 - 15 - 15 - 15

-TUNGSTEN 29 65 15 50 25 65 40 80 40 80 40 80 40 8o 40 80 40 80 40 80 40 80 40 80

-IM2ED - - _ - _ - _ - - - - _ ------

29 75 15 60 25 75 40 95 40 95 40 95 40 95 40 95 40 95 40 95 40 95 40 95

KYAUIIKIM - TIN 4 62 10 50 20 55 20 70 20 90 20 90 20 90 20 90 20 90 20 90 20 90 20 90

-TUIBISTEN - 19 - 20 - 25 - 30 - 40 - 40 - 40 - 40 - 40 - 40 - 40 - 40

-MIXED - _ ------_ _ _ _ ------

4 81 10 70 20 80 20 10 20 130 20 130 20 130 20 130 20 130 20 130 20 130 20 130

HERYINY7 YI - TIN - 87 - 60 - 8go 80 80 - 80 - 80 - 80 - 80 - 80 - 80 - 80

-TUlNGSTEN - 120 - 100 - 120 - 120 - 120 - 120 - 120 - 120 - 120 - 120 - 120 - 120

_MIXED ------

- 207 - 160 - 200 - 200 - 280 - 200 - 200 - 200 - 20 200 - 200 - 20

NANITHLAR - TIN 16 _ 15 _ 15 - _ _ _ _

CT8ERMKE -TIN - 130 - 100 - 100 - 100 - 100 _ 100 - 100 - 100 - 100 - 100 100I 100

-TUNGSTEN - 177 _ 150 - 150 - 150 - 150 - 150 - 150 - 150 - 150 - 150 - 150 - 150

-IXED - _ _ _ - _ - -_ - _ _ - - _:._ - - -_

- 307 - 250 - 250 2505 250 250 - 250 _ 250 - 250 - 250 - 250 - 250

TOTAL ALL MINES - TIN 228 380 335 310 795 335 1,030 355 1,205 375 1,995 585 1,745 585 1,925 585 1,925 585 1,055 585 1,865 581 1,835 585

- TUNGSIEN 32 460 15 390 25 510 40 530 40 540 95 235 95 735 9. 735 95 735 95 735 95 735 95 735

- MIXED 106 296 100 250 100 400 150 500 150 500 - - - _ _- _ _ - - - -

36 1136 4505 0 0 920 1.245 1.220 1.35 1.395 1.415 2.090 1.320 1.40 1.320 2.020 1.32 2.020 1,320 1.950 1.320 1_960 1,320 1.930 1.320

- T00AL RODUCSION 1,502 1,400 2,165 2,605 2,810 3,410 3,160 3,340 3,340 3,270 3,280 3,250

1.dut.NiN- P1o9e76 I 0eo.tw.nt October 1976 BUJMNA: TIN/TUNGSTEN EXPANSION PROJECT

PROJECTED BALANCESHEET STATEMENTS

(KYATS 000)

1975-76 1976-71 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87

ASSETS

CURRENT ASSETS CASH AND BANK 1508 1738 2501 2986 3504 4537 4832 5171 5533 5922 6334 6777 RECEIVABLES 14318 15887 14550 17986 19085 16280 15348 17171 18787 20068 21664 23008 MINERAL ORES 33037 24325 30016 26874 23123 22685 16139 17270 18480 19779 21157 22635 SUPPLIES 15012 13900 1/509 17916 21021 27222 28992 31024 33197 35531 38006 40662 OTHER RECEIVABLES 5314 5213 7504 8958 10511 13611 14496 15512 16599 17766 19003 20331

TOTAL CURRENT ASSETS 69189 61062 72080 74721 77244 84335 79808 86148 92596 99065 106163 113412

CASH SURPLUS - - - - - 55564 96200 136538 184258 245995 313452 388670

FIXED ASSETS GROSS FIXED ASSETS 76938 99000 110049 206086 285325 288761 291732 299032 309432 311732 316632 319132 LESS ACCM. DEPR. 15519 19869 27414 35087 44381 66040 87920 110347 133554 157434 lS1lal 205116

NET FIXED ASSETS 61419 79131 82635 170999 240944 222721 203812 188685 175878 154298 135451 114016 OTHER ASSETS DEFERRED EXPENDITURES 20380 20380 20380 ------GOODWILL 34226 34226 34226 - -

TOTAL OTHER ASSETS 54606 54606 54606 ------

TOTAL ASSETS 185214 194799 209321 245720 318188 362620 379820 411372 452731 499358 555066 616099

ILIABILITIES

CURRENT LIABILITIES ACCOUNTS PAYABLE 1112 1738 2501 2986 3504 4537 4832 5171 5533 5922 6334 6777 INCOME TAX PAYABLE 11667 ------COMMODITY TAX PAYABLE ------CURRENT PORTION LT DEBT - - - - 1906 1902 8498 9157 9883 11009 11884 -

TOTAL CURRENT LIABIL. 12779 1738 2501 2986 5410 6439 13330 14328 15416 16931 18218 6777

OTHER LIABILITIES 2243 2243 2243 2243 2243 2243 2243 2243 2243 2243 2243 2243

LONG TERM DEBT IDA - - 6077 63280 102742 104198 98526 91271 83290 74511 64857 64857 OTHER 34561 49212 49212 49212 47306 45404 43502 41600 39698 37468 35238 35238

TOTAL L.T. DEBT 34561 49212 '5289 112492 150048 149602 142028 132871 122988 111979 100095 100095

EGUITY RETAINED FROFITS 19242 23100 29839 28435 38530 82379 100262 139973 190127 246248 312552 385027 STATE FUNDS(EQUITY CAPITAL) 116389 118506 119449 99564 121957 121957 121957 121957 121957 121957 121957 121957

TOTAL EOUITY 135631 141606 149288 127999 160488 204336 222219 261930 312084 368205 434510 506984

TOTAL LIABILITIES 185214 194799 209321 245720 318188 362620 379820 411372 452731 499358 555066 616099

R A T I O S LT DEBT/EQUITY - L.T. DEBT 20.3 25.8 27.0 46.8 48.3 42.3 39.0 33.7 28.3 23.3 18.7 16.5 - EQUITY 79.7 74.2 73.0 53.2 51.7 57.7 61.0 66.3 71.7 76.7 81.3 83,5

CURRENT RATIO 5.4 35.1 28.8 25.0 14.3 13.1 6.0 6.0 6.0 5.9 5.8 i6.7 '9

INDUSTRIAL PROJECTS DEPARTMENT IREPORT PREPARED -01/24/77 BURNA: TIN/TUNGSTEN EXPANSION PROJECT

PROJECTED SOURCES AND APPLICATIONS OF FUNDS

(KYATS 000)

1975-76 t976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87

SOURCES

FROM OPERATIONS NET PROFIT AFrER TAX 5214 3858 6739 18976 10095 43849 17883 39711 50154 56121 66305 72474. DEPRECIATION 1552 4350 7545 7673 9294 21659 21880 22427 23207 23880 23747 23935

SUB-TOTAL-CASH GENERATION 6766 8208 14284 26649 19389 65508 39763 62138 73361 80001 90052 96409

IDA LOAN - - 6077 57203 39462 1456 924 - - - - -

OTHER FOREIGN LOANS 14390 14651 - - -

LOCAL LOANS

TOTAL LOANS 14390 14651 6077 57203 39462 1456 924 - - - - _ STATE FUND (EOUITY CAPITAL) 7484 2117 943 14341 22393 ------

TOTAL SOURCES 28640 24976 21304 98t93 81245 66964 40687 62138 73361 80001 90052 96409

APPLICATIONS

FIXED ASSETS (INC.IDC) HEINZE BASIN/KANBAUK - - 8465 63467 62423 ------TAVOY - - 984 11777 13400 - - - - - GRAVEL PUMPS - - - 18680 1137 ------TECHNICAL ASSISTANCE - - - 413 479 1536 971 - - - - - HEINDA 20942 22062 ------OTHER - - 1600 1700 1800 1900 2000 7300 10400 2300 4900 2500

SUB-TOTAL -FIXED ASSETS 20942 22062 11049 96037 79239 3436 2971 7300 10400 2300 4900 2500

DEFERRED EXPENSES 1799 ------

REPAYMENTS IDA LOAN - _- - 6596 7255 7981 8779 9654 OTHER LOANS - - - - - 1906 1902 1902 1902 1902 2230 2230

SUB-TOTAL ------1906 1902 8498 9157 9883 11009 11884 WORKING CAPITAL INCREASE/DECREASE 5899 2914 10255 2156 2006 6058 (4823) 6002 6085 6081 6685 6807

TOTAL APPLICATIONS 28640 24976 21304 98193 81245 11400 50 21800 25642 18264 22594 21191

CASH SURPLUS - - - 55563 40637 40338 47719 61737 67457 75219 ACCUMULATED CASH SURPLUS - - - - - 55564 96200 136538 184258 245995 313452 388670

R A T I O DEBT SERVICE RATIO 18.6 10.9 12.9 23.3 17.2 5.7 3.8 3.7 4.2 4.5 4.9 5.2

INDUSTRIAL PROJECTS DEPARTMENT REPORT PREPARED - 01/24/77 BURMA: TIN/TUNGSTEN EXPANSION PROJECT

CAPITAL COST ESTIMATES - TOTAL

(KYATS 000)

1975-76 1976-77 1977-78 1978-79 1979-60 1980-S1 1981-62 1982-83 1983-84 1984-85 1985-86 1986-87 ______------_ -_ _---- _------

BASE COSTS

EQUIPMENT - - - 53724 35883 - - - BLDGS.,CIVIL WORKS - - 1889 7542 6583 ------ENG PROJECT MANAGEMENT - - 4322 3851 2447 1130 672 - - - - TRAINING - - 858 1011 ------ADMIN,PRE-OPERATING EXP. - - 665 931 665 ------______------______- _ ___------_ ------TOTAL BASE COSTS - - 7734 67059 45578 1130 672 - - - -

PHYSICAL CONTINGENCIES - - 186 6091 3498 - - - - - PRICE CONTINGENCIES - - 1230 17709 20057 406 299 -__ - -

TOTAL FIXED ASSETS - - 9150 90859 69133 1536 971 - - - - WORKING CAPITAL ------___._____ ------______-__ __ _ ------___------__ -______

TOTAL PROJECT COSTS - - 9150 90859 69133 1536 971 - - - INTEREST DURING CONSTRN. - - 299 3478 8306 - - ______------TOTAL FINANCING REOD. - - 9449 94337 77439 1536 971 - _ Of WHICH - TOTAL LOCAL COSTS -- - 3372 37134 37977 80 47 - - - TOTAL FOREIGN COSTS - - 6077 57203 39462 1456 924 - - - -

INDUSTRIAL PROJECTS DEPARTMENT REPORT PREPARED-01/24/77 BUREA: TIN/TUNGSTEN EXPANSION PROJECT

MINERAL CORPORATION NO. 2

WORING CAPITAL REQUIREMENTS

(KYATS 000)

1975-76 19Z6-77 1977--7't 1978-/9 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-36 1986-87

WITH PROJECT

PRODUCTION QUANTITY (TONS) 1502.0 1400.0 2165.0 2605.0 2810.0 3410.0 3160.0 3340.0 3340.0 3270.0 3280.0 3250.0 PRODUCTION COST (000 KYATS) 32013.0 34750.0 50026.6 59721.0 70070.6 90740.7 96640.7 103414.2 110657.3 118436.8 126685.8 135538.4 GROSS SALES (000 KYATS) 45536.0 66194.0 75780.0 112186.0 119045.0 200147.0 188695.0 211102.0 230972.0 246715.0 266334.0 282863.0 NET SALES (000 KYATS) 43714.6 63546.2 72748.8 107698.6 114283.2 196144.1 184921.1 206880.0 226352.6 241780.7 261007.3 277205.7

WORKING CAPITAL NEEDS

CASH AND BANK 1508.0 1737.5 2501.3 2986.1 3503.5 4537.0 4832.0 5170.7 5532.9 5921.8 6334.3 6776.9 RECEIVABLES 14318.0 15886.6 14549.8 17985.7 19085.3 16280.0 15348.5 17171.0 18787.3 20067.8 21663.6 23008.1 INVENTORY MINERAL ORES 33037.0 24325.0 30016.0 26874.5 23123.3 22685.2 16139.0 17270.2 18479.8 19778.9 21156.5 22634.9 SUPPLIES 15012.0 13900.0 17509.3 17916.3 21021.2 27222.2 28992.2 31024.3 33197.2 35531.0 38005.7 40661.5 OTHER RECEIVABLES 5314.0 5212.5 7504.0 8958.2 10510.6 13611.1 14496.1 15512.1 16598.6 17765.5 19002.9 20330.8 TOTAL CURRENT ASSETS 69189.0 61061.6 72080.4 74720.6 77243.9 84335.4 79807.8 86148.3 92595.6 99065.1 106163.0 113412.2 ACCOUNTS PAYABLE 1112.0 1737.5 2501.3 2986.1 3503.5 4537.0 4832.0 5170.7 5532.9 5921.8 6334.3 6776.9 INCOME TAX PAYABLE 11667.0 ------CONMODITY TAX PAYABLE ------_ - TOTAL CURRENT LIABILITIES 12779.0 1737.5 2501.3 2986.1 3503.5 4537.0 4832.0 5170.7 5532.9 5921.8 6334.3 6776.9 TOTAL WORKING CAPITAL 56410.0 59324.1 69579.0 71734.6 73740.4 79798.4 74975.7 80977.6 87062.8 93143.3 99828.7 106635.2

INCREMENTAL NEEDS 5899.0 2914.1 10255.0 2155.5 2005.8 605a.1 (4822.7) 6001.9 6085.2 6080.5 6685.4 6806.5

WITHOUT PROJECT

PRODUCTION QUANTITY (TONS) 1502.0 1400.0 2165.0 2605.0 2635.0 2635.0 2635.0 2635.0 2635.0 2635.0 2635.0 2635.0 PRODUCTION COST (000 KYATS) 32013.0 34750.0 50026.6 59721.0 64787.0 69371.0 74212.0 79413.0 84975.0 91464.0 97284.0 104082.0 GROSS SALES (000 KYATS) 45536.0 66194.0 75780.0 112186.0 113970.0 124968.0 135503.0 146946.0 159317.0 173040.0 186760.0 199810.0 NET SALES (000 KYATS) 43714.6 63546.2 72748.8 107698.6 109411.2 119969.3 130082.9 141068.2 152944.3 166118.4 179289.6 191817.6

WORKING CAPITAL NEEDS

CASH AND BANK 1508.0 1737.5 2501.3 2986.1 3239.4 3468.6 3710.6 3970.7 4248.8 4573.2 4864.2 5204.1 RECEIVABLES 14318.0 15886.6 14549.8 17985.7 18271.7 20034.9 21723.8 23558.4 25541.7 27741.8 29941.4 32033.5 INVENTORY MINERAL ORES 33037.0 24325.0 30016.0 26874.5 21379.7 22892.4 24490.0 26206.3 28041.8 30183.1 32103.7 34347.1 SUPPLIES 15012.0 13900.0 17509.3 17916.3 19436.1 20811.3 22263.6 23823.9 25492.5 27439.2 29185.2 31224.6 OTHER RECEIVABLES 5314.0 5212.5 7504.0 8958.2 9718.1 10405.6 11131.8 11911.9 12746.3 13719.6 14592.6 15612.3 TOTAL CURRENT ASSETS 69189.0 61061.6 72080.4 74720.6 72044.9 77612.8 83319.8 89471.2 96071.0 103656.9 110687.1 118421.6

ACCOUNTS PAYABLE 1112.0 1737.5 2501.3 2986.1 3239.4 3468.6 3710.6 3970.7 4248.8 4573.2 4864.2 5204.1 INCOME TAX PAYABLE 11667.0 ------COMMODITY TAX PAYABLE ------

TOTAL CURRENT LIABILITIES 12779.0 1737.5 2501.3 2986.1 3239.4 3468.6 3710.6 3970.7 4248.8 4573.2 4864.2 5204.1 TOTAL WORKING CAPITAL 56410.0 59324.1 69579.0 71734.6 68805.5 74144.2 79609.2 85500.5 91822.2 99083.7 105822.9 113217.5

INCREMENTAL NEEDS 5899.0 2914.1 10255.0 2155.5 (2929.0) 5338.7 5465.0 5891.3 6321.7 7261.5 6739.2 7394.6 INCREMENTAL NEEDS DUE TO PROJECT - - - 4934.8 719.3 (10287.6) 110.6 (236.5) (1181.0) (53.8) (588.1)

Industrial Projects Departmit, Januanr 27, 1977 BURMA: TIN/TUNGSTEN EXPANSION PROJECT

DEPRECIATION SCHEDULE

(KYATS 000)

1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87

NEW ASSETS DURING YEAR - UNDER CONST-UCTION - - 2/ 9449 94337 77439 1536 971 - - - - - OPERATING / - 22062- 1600 1700 1800 1900 2000 7300 10400 2300 4900 2500

ASSETS UNDER CONSTRUCTION 2/ YEAR END 51938- - 9449 103786 161408 - - - - - GROSS OPERATING ASSETS YEAR END 25000 99000 100600 102300 123917 288761 291732 299032 309432 311732 316632 319132

GROSS FIXED ASSETS YR.END 76938 99000 110049 206086 285325 288761 291732 299032 309432 311732 316632 319132 DEPRECIATION IN YEAR 1552 4350 7545 7673 9294 21659 21880 22427 23207 23880 23747 23935 CUMULATIVE DEPRECIATION 15519 19869 27414 35087 44381 66040 87920 110347 133554 157434 181181 205116

NET FIXED ASSETS YR.END 61419 79131 82635 170999 240944 222721 203812 188685 175878 154298 135451 114016

1/ New operating assets include project-related expenditures in 1982-84 (improvement in roads and renewal of the bucket band for the dredge) and in 1985-86 (additional vehicles).

2/ Represents expenditures on the Heinda Mine rehabilitation.

Industrial Projects Department January 1977 BURN1: TIN/TUNGSTEN EXPANSION PROJECT

DEBT REPAYMENT SCHEDULE

(KYATS 000)

1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87

IDA LOANS

DISBURSEMENTS IN YEAR - - 6077 57203 39462 1456 924 - 1 - - - ANNUITY REPAYMENT ------17108 17108 17108 17108 17108 INTEREST REPAYMENT - - 10347 10466 10512 9853 9127 8329 7451 PRINCIPAL REPAYMENT - - - - 6596 7255 7981 8779 9654

DEBT OUTSTANDING YEAR END - - 6077 63280 102742 104198 105122 98526 91271 83290 74511 64857 OF WHICH S.T. PORTION ------6596 7255 7981 8779 9654 -

OTHER FOREIGN LOANS

DISBURSEMENTS IN YEAR 14390 14651 ------ANNUITY REPAYMENT - - - INTEREST PAYMENT 384 825 1197 1197 1197 1185 1138 1090 1043 995 946 892 PRINCIPAL REPAYMENT - - - 1906 1902 1902 1902 1902 2230 2230

DEBT OUTSTANDING YEAR END 34561 49212 49212 49212 49212 47306 45404 43502 41600 39698 37468 35238 OF WHICH S.T. PORTION - - - - 1906 1902 1902 1902 1902 2230 2230 -

Industrial Projects Depa.tment, January 27, 1977 ANNElX8-t Page 1

TIN/TUNGSTENEPANSION PROJCT

oCONoaKICRATEOF RETURNAND SDISIVITT ANALYSIS

Aisuiitionlb

1. The econmic rate of return an the project has been calculated on the basis of cost and benefit streas expressed in 1976 real tems. These streams are based on those used in the financial rate of return calculation (Annex 7-3) adJusted to reflect costs and benefits to the economy as a whole. In particulars

(a) Cpiti Costa: duties and commodity taxes (15% and 30% of the c.i.f value) are excluded from the imported eomponents of capital costs and working capital needs.

(b) Oorating Costs: duties and taxes on ioportedcomponents are excluded. Such taxes amount to about 12% of base operating costs. Also, the 16.8% commodity tax on operating costs is excluded.

(c) Benefitss no changes have been made to the benefit strea which is already valued at world market prices. 2. The officialforeign exchange rate of US$1 - K 6.65 does not reflect the prevailing supply of and demand for foreign exchange in Burma since it is maintained by very stringent exchange and trade restrictions. For the purpose of presenting a more representative assessment of the returns from the project, the ecmnoaic rate of return has been calculated on three bases:

Case 1: No shadow pricing of foreign exchange Case 2: Foreign exchange is shadow priced at the rate of US$1 - K 10 Case 3: Foreignexchange is shadowpriced at the rate of US$1 - K 13

The rate used in Case 3 is the same as that arrivedat by Bank economistsfor the purposeof economicanalysis of the "BurmaPaddy Land DevelopmentProject" (Report No. 1129-BA,May 25, 1976). BURMA

TRIS/TBN BEXPANSIONPRiJECT

ECONOMICRATE OF RETtR8 - COST ANDBENEFIT STREAMS

(Ky.tE Millio - R-1 Ters)i

C A SeC A S E 2 C A S e 3 S.aheqosot Total OShoeqoant Total Sboeqoant Total AFd WCakital CapitRe C_pit.l ope-ti_g F a"t Capital CCosta13/ CPosts Co-ic FosolilaMata WC-kitg - CaPst-ll/ CaP t 3 Cots - escaflts

1976-77 ------

1977-78 8.2 - - 8.2 - _ 11.0 - - 11.0 - - 12.5 - - 12.5 - -

1978-79 57.8 - - 57.8 - - 82.4 - - 82.4 - - 104.4 - - 104.4 - -

1979-80 41.9 3.7 - 4j.6 3.9 5.8 57.8 4.5 - 62.3 4.6 8.7 71.8 5.2 - 77.0 9.1 11.3

1980-SE 1.1 (1.2) - (0.1) 14.8 56.6 1.7 (1.7) - - 17.4 85.1 2.2 (2.1) - B. 19.7 110.7

1981-82 0.7 (1.6) - (0.9) 14.5 38.1 1.1 (2.6) - (1.5) 17.0 57.3 1.4 (3.2) - (1.8) 19.3 74.5

1982-83 - _ 3.2 3.2 14.5 42.7 - - 3.4 3.4 17.0 64.2 - - 3.6 3.6 19.3 83.5

1983-84 - - 3.4 3.4 14.5 44.5 - - 5.1 5.1 17.0 66.9 - - 6.6 6.6 19.3 87.0

1984-85 - - - - 14.5 42.8 - - - - 17.0 64.4 - - - - 19.3 83.7

1985-86 - - 0.9 0.9 14.5 43.3 _ _ 1.4 1.4 17.0 65.1 - - 1.8 1.8 19.3 84.7

1986-87 - - - - 14.5 42.3 - - - - 17.0 63.6 - - - - 19.3 82.7

1987-88 - - 0.3 0.3 14.5 39.3 - - 0.5 0.5 17.0 59.1 _ _ 0.6 0.6 19.3 76.8

1988-89 - _ 6.1 6.1 9.6 28.2 - 8.0 8.0 11.3 42.4 - _ 9.6 9.6 12.8 55.1

1989-90 - _ 1.6 1.6 11.3 30.7 - - 1.7 1.7 13.3 46.2 _ 1.8 1.8 15.0 60.0

1990-91 _- - 14.5 33.6 - - 17.0 50.5 - - - - 19.3 65.7

1991-92 - _ 1.2 1.2 14.5 33.2 _ _ 1.8 1.8 17.0 49.9 _ 2.3 2.3 19.3 64.9

1992-93 -- - 14.5 32.8 - - 27.0 49.3 - - 19.3 64.1

1993-94 - - - - 14.5 32.0 - - - - 17.0 48.1 - - - - - 19.3 62.6

1994-95 - - 0.4 0.4 14.5 31.6 - - 0.6 0.6 17.0 47.5 - - 0.8 0.8 19.3 61.8

1995-96 - - 0.3 0.3 14.5 31.6 - - 0.5 0.5 17.0 47.5 - - 0.6 0.6 19.3 61.8

1996-97 _- - 14.5 32.0 - - - - 17.0 48.1 - - - - 19.3 62.6

1997-98 - _ _ 14.5 31_2 - - - - 17.0 46.9 _ _ _ - 19.3 61.0

1998-99 - - - - 14.5 30.1 - - - - 17.0 45.3 _ _ _ - 19.3 58.8

1/ A11 trr re to tera sf Septreser 30, 1976 prices (tho id-poist of 1417'a 1976-77 ilacaI year).

2/ C.e 1: Ass.-ee 0o shadow pricisg of fCeeig oe.haoge U1$ 1 - 6.65 Kyats C.sa 2: Fo-aige cechago shadow prices at the r-te US$ 1 - 10 gyato Case 3: Fo-eigo eZch1OEO shadow prices at the rate 170$ 1 13 Kyata

E3/Cerlode dotie cod coeo,dity ta-es as lp-ort-d cosposeots of .,apitl costs.

4/ Eseladoa dotis and co-odity tI ismo-t.orled coapocots of -orkiog capital. W-rkiog c-pital .eede it-rease is 1979-80 wLth i-ora-oed prodoctio. Moch of 1hi0 Ic recesped io the followiog two y- aSee-r the T-voy cooc- otr-tor ems on tErea lloa,Ig YC2 to red-ce roqitred levels of i-ovetories sod rossi-abloa.

> costa (bhfore the 16.8 tIn so 5/ ftclodos dotios ad c-sadity tIa so Isported eossoPotos . Snoh doties, aet. 5 r55t to boot 121 of bhse opcrotig total operstiEg c-ste). For the porpose of BhOdow priolcg Os Case 2 Sd Case 3, foreign -sts represent 307. of op-rtiog cols. arid local co.ts 58% of operating costa. ANNE( 8-1 Page 3

BURMA

TIN/TUNGSTEN EXPANSION PROJEC.

ECONOMIC RATE OF RETURN - SENSITIVITY ANALYSIS

30 %.

. \ /Reve~~~~~~~~nue \ /6 ~~~~~~vs.Return

207. 20 %_ / co~~~~~~~~~~~stOperatingvs. _ / | \ u~ ~~~~~~~~retr

_ / | ~~~~~~CapitalCos / o ~~~vsReturn X

10 7. 10v-.t 20% 107 0 101% 207. 30%/

Decrease Increase

Capital Operating Economic Rate of Return Case Cost Costs Revenues Case 1 Case 2 Case 3

1 (Base Case) 100 100 100 21.0 25.9 28.5

2 110 100 100 18.7 23.3 25.8

3 120 100 100 16.8 21.1 23.5

4 100 110 100 19.7 24.9 27.6

5 100 120 100 18.3 23.8 26.7

6 100 100 90 17.1 22.0 24.6

7 100 100 80 12.9 17.9 20.4

8 100 110 110 23.5 28.7 31.5

9 100 120 120 25.8 31.4 34.3

10 110 110 100 17.5 22.4 24.9

11 120 120 100 14.3 19.3 21.8

12 One yer project delay 17.3 21.0 22.9

Industrial Projects Department October 1976 bIURMA

ILN/T[INGSTEN EXPANSION PROJECT

ESTIMATED FOREIGN EXCtANGE SAVINGS GENERATED BY THE PROJECT

(Kyats million)!/

Foreign Exchange ifl. ------Foreing Exchange O utflow------IDA EXPORT SUB CAPIT* OPERATING SERVICE CHARG§ REPAYMENT 2 SUB NET YEAR CRIT EARNINGS TOTAL COSTS- COSTS ON Im T- QF IDA CRt31 TOTAL PLOW

1976-77 - - - - _

1977-78 5.6 - 5.6 5.6 - _ - 5.6 _

1978-79 48.8 -- 48.8 48.8 - -- 48.8 -

1979-80 31.4 5.8 37.2 32.9 1.3 0.2 - 34.4 2.8

1980-81 1.1 56.6 57.7 0.2 5.1 0.5 - 5.8 51.9

1981-82 0.6 38.1 38.7 (1.0) 5.0 0.6 - 4.6 34.1

1982-83 - 42.7 42.7 0.4 5.0 0.5 - 5.9 36.8

1983-84 - 44.5 44.5 3.4 5.0 0.5 - 8.9 35.6

1984-85 - 42.8 42.8 - 5.0 0.4 - 5.4 37.4

1985-86 - 43.3 43.3 0.9 5.0 0.4 - 6.3 37.0

1986-87 - 42.3 42.3 - 5.0 0.4 - 5.4 36.9

1987-88 - 39.3 39.3 0.3 5.0 0.4 - 5.7 33.6

1988-89 - 28.2 28.2 3.7 3.3 0.4 0.5 7.9 20.3

1989-90 - 30.7 30.7 0.2 3.9 0.3 0.5 4.9 25.8

1990-91 - 33.6 33.6 - 5.0 0.3 0.4 5.7 27.9

1991-92 - 33.2 33.2 1.2 5.0 0.3 0.4 6.9 26.3

1992-93 - 32.8 32.8 - 5.0 0.3 0.3 5.6 27.2

1993-94 - 32.0 32.0 - 5.0 0.3 0.3 5.6 26.4

1994-95 - 31.6 31.6 0.4 5.0 0.2 0.3 5.9 25.7

1995-96 - 31.6 31.6 0.3 5.0 0.2 0.3 5.8 25.8

1996-97 - 32.0 32.0 - 5.0 0.2 0.3 5.5 26.5

1997-98 - 31.2 31.2 - 5.0 0.2 0.2 5.4 25.8

1998-99 - 30.1 30.1 - 5.0 0.2 0.7 5.9 24.2

Present Value of Outstanding IOA Credit - - 1.3 9.1 10.4 (10.4)

TOTAL 87.5 702.4 789.9 97.3 93.6 8.1 13.3 212.3 577.6

1/ All streams are in 1976 prices.

2/ Capital costs include the foreign exchange components of: fixed assets associated with the project, subsequent capital costs, and incremental working capital needs (or as in 1981-82, reduced working capital needs).

3/ Service charge on the IDA credit declines in real terms over the period.

4/ Principal repayments on the IDA credit (repayable over 50 years, with 10 years grace) decline in real terms over the period.

Industrial Projects Department October 1976 0 ARyob ~~~~~~~~

--- IV] DIRR R.

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IBRD 12524

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BURMA TIN/TUNGSTEN EXPANSION PROJECT TENASSARIM DIVISION

PROPOSED DREDGING AREAS

C- ROADS

14045' K KYWETHA 00 TOWNS 14045'- 7 .- MINES

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2 MALIWU 7@ The boundariesshown on this rap do not imply endorsement or acceptance by the 97055' World Bankand its afffilates. 90