With Thoughts On Enhancing Their Chance of Success.


SMEDG – AIG Symposium, Sydney, 10 October 2003.


Mike Diemar

Diemar & Associates Pty Limited, 37 Ayres Road, St Ives, NSW 2075 Australia.


KeywordsSouth East Asia, gold, exploration, mining, focus, wisdom, persistence, Myanma, Thailand, Malaysia, Indonesia, Lao, Cambodia, Vietnam, China.




Small companies have played an important role in the discovery of mineral deposits in South East Asia in recent decades. However it is only in the last few years that they have been able to go-it-alone in mine developments. This has largely been due to the pioneering efforts of Avocet PLC at Penjom in Malaysia and of Kingsgate Consolidated Ltd at Chatree in Thailand.


This paper is a series of check lists resulting from some of the experiences of the author over the last 17 years in South East Asia and from the discovery and development of the Chatree Mine. It puts forward the view, that small companies often have an advantage over their big brothers if strong self control is practised, along with (perhaps arguably) adherence to a set of guidelines and avoidance of numerous pitfalls along the way.


There are many paths to both success and failure.


The Small Exploration Company

The small company in this paper is assumed to be a publicly listed or private explorer which is prepared to invest capital in the high risk area of exploration and mine development in Asia. It is assumed that the company policy is to actually progress from exploration to feasibility to development and production. Each company that achieves success today is a potential future mining powerhouse.


Successful small exploration companies commonly have the following characteristics:


Small relatively untidy head offices, statuary reports which are submitted on the last day, annual reports with photographs taken by staff, empty offices because staff are in the field, a part or full time secretary who is the communications hub for all parties, part time company secretary and outsourced accounts, a small underpaid board of non executive directors, no dedicated investor relations staff and most importantly, a champion, who single mindedly drives the company towards the goal.


South East Asian Overview.


South East Asia has had a continuous mining history from at least the early bronze age 4,000 years before present. The metals produced were gold, copper and tin (for bronze) then iron from about 2,000 years BP and in the last 150 years, tin, tungsten and base metals with a major surge in copper and gold in the last 50 years.


Small companies have always been successful explorers away from their home country, but increasingly they are becoming successful mine developers and operators. While this may be a world wide trend, it is nowhere more evident than in South East and East Asia.


Whether the success has come from grass-roots exploration, exploration through old mineral belts or from rehabilitating old mines, the number of developments or pending developments of metalliferous orebodies by small companies is increasing rapidly. This trend is predicted to continue.


The current South East Asian scene is believed to be as follows:


Myanmar has a modest mineral endowment combined with medium to high sovereign risk and a political climate which makes it difficult to finance mine developments. Environmental requirements are normal. Ivanhoe Mines Ltd has been active as an explorer and mine refurbisher for a number of years.


Thailand has a modest mineral endowment, low sovereign risk, a workable, but in part, impractical mining code and an extensive bureaucracy. It has only limited area in which it is reasonable to contemplate mine developments and the extensive bureaucracy and difficult land access slows progress. Environmental requirements are high. Kingsgate has been very successful at Chatree and Pan Australian Resources NL continues a copper joint venture with a Thai partner.


Malaysia has a medium to high mineral endowment on the peninsular and in East Malaysia and low sovereign risk. Its state based mining code adds a layer of difficulty but the long history of mining makes it practical as a target. Environmental requirements are medium. Land use pressure is reducing the area available on the peninsular. Avocet has been very successful at Penjom and has used this experience to confidently branch out into Indonesia and elsewhere.


Cambodia has a high sovereign risk and modest mineral endowment. There is personal danger in some areas. The minerals and investment codes are largely untested and exploration and mining is at a standstill.


Indonesia has a very high mineral endowment with low to high sovereign risk depending on the area. Environmental standards are medium. It has a mining history of gold and more recently copper production and despite being a high cost area, attracts large attention in boom times. The terms of the mining code are partly embodied in the COW terms which have varied over time from beneficial to impractical. KPs have been a successful title on Java. A range of very large to medium sized gold, copper and coal mines operate however political uncertainty and structural changes over the last 6 years have caused a major reduction in exploration and development. Newmont Mining Corporation, Austindo Resources NL, Avocet, Herald Resources Ltd, and others all have advanced projects which will be developed in coming years.


The Philippines has a very high mineral endowment and has medium to high sovereign risk depending on the area. Environmental standards are medium. The complex political and social history of the Philippines combined with an active domestic mining industry has generally translated into a difficult environment for mine development for foreign companies although there is evidence that this and the application of the mining and investment codes are improving.


Lafayette Mining Ltd, Climax Mining Ltd, Indophil Resources NL and others are all moving along the path to development.


Lao PDR has a medium mineral endowment and has medium sovereign risk. Environmental standards are also medium. Although the country is small, it has a very low population density. The hilly nature of the country, the poor infrastructure and the long distance to a port will ensure that only high quality orebodies are developed. CRA/Oxiana Resources NL have been very successful at Sepon and Pan Australian is active in northern Lao.


Vietnam has medium mineral endowment but over a wide range of minerals. It has medium sovereign risk. Its environmental standards and its mining and investment codes are largely untested. The lack of infrastructure in many areas and the ambivalent approach to foreign investment will test foreign investors in mining. Canadian based companies have been the most persistent, and therefore successful explorers. Developments in gold and tungsten are in the pipeline.


China has a medium mineral endowment, (but over a large area), and a very active domestic mining industry. It has had medium sovereign risk in recent years. The logistics in some of the mineral provinces will be challenging. Environmental requirements are medium. China has been difficult for non Overseas-Chinese foreign investment but this appears to be changing rapidly and many small and large companies are now active there. The next decade for these companies will be interesting and those with the correct approach should be successful. Sino Mining Ltd’s persistence has paid dividends and is proceeding to its second gold mine development. Due to the massive internal requirement for metals, mine production in China will generally be for domestic consumption.


Operating in Asia.


The art of being successful in Asian countries is related as much to ones ability to think long term and to appreciate the country’s culture, history and Confucian business systems as to one’s ability to find minerals.


There are important questions that the CEO and board of a small company contemplating entry into Asia must consider:


– Do any directors have any real understanding of the country and if so, can the long term backing of shareholders be gained?


– Is it practical for the company to commit to a 3-5 year minimum program in that country?


– Can the company fund the commitment if the mining sector moves into a down phase?


– Does the board have the determination to stay when other companies leave in a downturn?


– What proportion of the company’s activities would this program be and could it put the rest of the company’s activities at risk?


– Is the program being considered because of a perception that good quality resources can be acquired cheaply?


– Is the CEO committed to championing the program through all adversity?


Do the board and CEO have the skills to pragmatically analyse the program and keep it focussed?


Without this pragmatic approach combined with absolute commitment, the board’s resolve will generally waver and the effort will be wasted. Long term effort is not only required to give time for success to be achieved, it is needed for the company and its staff to gain the credit and reputation in country for its persistence. In many respects this reputation is the company’s greatest asset. The saying that, it is better to have tried and failed than never to have tried at all, is rubbish if it is not done with absolute commitment and passion.


There are standard do’s and don’ts about operating in each Asian country on a personal and corporate basis and these can initially be researched in books on the subject. The sooner that personal experience takes over from the books the better.


One important part of being in South East Asia is dealing with government employees or bureaucrats. In South-East Asia the exploration and mining industry is highly regulated and bureaucrats in this field are abundant. They looks forward to an entire career in the bureaucracy and strive for steady advancement, commonly by writing numerous reports and by cultivating protectors in the bureaucracy, in government, in universities and in industry.


The bureaucrat’s greatest fear is to make an error which if noticed might affect his future career. In this regard he is protected by his files. His files on any topic must be acceptably voluminous and contain evidence that he has rigorously questioned the company on all aspects of the subject under discussion. It must show that he has not, even in an Asian context, rushed the decision and that the answer is suitably qualified.


It is uncommon for a bureaucrat to be obstructive, but he may be uncomfortable because he is required to make a decision, on a particular topic, outside his area of expertise or there may be some political influences in the background.


It is incumbent on the company to keep the bureaucrat in his comfort zone. To do otherwise, say by unreasonably pushing the pace, can lead to problems for the bureaucrat, which will eventually backlash on the project in some way. The company should, in consultation with the bureaucracy, be active in training bureaucrats by arranging mine visits and by including them in company exploration, mining, process plant and environmental activities, particularly when new techniques are being used. As small companies sometimes have consultants on site, workshops by the consultant on a particular technical area for company and bureaucracy staff can be very productive.


Many bureaucrats are keen to improve their knowledge and to work productively with private enterprise and to carry out their work professionally. Occasionally a bureaucrat is found to be lazy or obstructive and out for personal gain. It is completely reasonable in the latter case for a company to officially complain to the most senior authority. However great care must be exercised prior to a complaint because, due to the unseen influences washing around in the background, it is surprisingly difficult to tell between the two examples.


Advantages of Small Companies in Asia

– Flexibility through rapid decision making.

– Ability to adapt to local conditions rather than being required to follow a standard format.

– Don’t have an international reputation to risk.

– Ability to establish the company (and to carry on exploration) in Asia at reasonable cost.

– Ability to blend in to the Asian way of doing business.

– Can make great use of local technical people and local specialists and suppliers.

– Can operate with a low profile so as not to attract unwanted attention.

– Can cut deals with governments on mineral properties without raising their expectations unrealistically.

– Ability for shareholders, investors, partners, bureaucrats, politicians and local communities to have direct access to the decision maker, the CEO.

– Exploration success has a large impact on share price.

– Are able to develop a modest sized mine because that wll have a major impact on the balance sheet.

– Both expat and national staff have a close relationship with the CEO and board.

– Can develop a simple story for investors by identifying with one commodity and one geographic region.


Ingredients for Success.


Persistence. Calvin Coolidge, US President had the last word on this topic.


Nothing in the world can take the place of persistence.


Talent will not; nothing is more common than unsuccessful men with talent.


Genius will not;unrewarded genius is almost a proverb.


Education will not; the world is full of educated derelicts.


Persistence and determination alone are omnipotent.


See The Big Picture. It is essential but difficult for the hands-on CEO and the most senior expat and national staff to maintain the vision and not to lose sight of the big picture, while at the same time dealing with the detail without getting bogged down in it.


Everybody’s Friend. Whether in the boardroom, with staff, bureaucrats, local communities, everywhere, using responsible steady leadership along the path to the goal, you cannot nor should not be everyones friend. Politeness is always essential, but it is poor management to try to keep everyone happy or satisfied. General Colin Powell, Chairman (Ret) of US Joint Chiefs of Staff said it best. Being responsible sometimes means pissing people off.


Focus. This is, very simply, making a plan and sticking to it. Easy to say, hard to do. There are always pressures from partners, shareholders, stockbrokers, directors or political or financial pressures to make a major change in company direction eg to go .com, to explore in East Kalimantan, to look for rubies or kryptonite, to hedge or to not hedge or ? Fashion is very powerful and changes with the season, however maintaining a steady plan, while being flexible within that plan, is crucially important for the small company.


It takes 2 or 3 years to build a public identity and profile for a company, but it takes many years to become successful through discovery and development. To give in to the fashion pressures may give short term gains, but invariably leads to loss of identity and aimlessness in the longer term. It is more satisfying, (to me) to be counter-cyclic with the plan and risk becoming weary swimming against the current than to be, after a moment in the sun, dashed at the base of the cliff with the other lemmings.


Luck. This is an ingredient in most successes and might involve getting an unexpected metal in a sample, jagging a new style of mineralisation in a drill hole, raising money just before a crash, being in the right place at the right time to do a property deal or developing a mine at the commencement of a period of sustained higher metal prices. Steady management and maintaining a balanced view of the big picture, increases the possibility of making your own luck.


Clear Honest Message. Success cannot come without supportive shareholders. Shareholders own the company and will generally support it through the long downturns if the CEO and board have been open, honest and regular in their communications with them, including giving realistic projections of forward achievements. A steady record of delivery is essential.


Selflessness. The CEO must immerse himself into the Asian scene by spending a great proportion of his time being face to face in-country at all levels with villagers, national staff, partners, bureaucrats and politicians.


History . All senior staff need to have a detailed understanding of the history of each of the Asian countries in their region over the last few thousand years. The history of the country and its relationship with its neighbours, of the ethnic groups and the trading history all have an input into the culture that moulds the individual, his thought processes and his business methods. Without this understanding, visits to Asia are pleasant, the locals are polite and friendly but little or no progress is made. To gain such knowledge is slow and time consuming and requires a great deal of time spent in-country, so it is never easy for non-executive directors to achieve this during the exploration phase, or ever. Directors who make the effort, with the help of the CEO, to gain understanding, will be better decision makers. More national directors in the parent company would help.


Stay With What You Know . Most of us have core skills and have experience in certain metals and regions. These skills and experiences can be extended over time, but jumping out of these areas will greatly increase the risk of failing to deliver value to shareholders.




Loss of focus by, taking on too many exploration properties, mixing commodities, or being in more than one country (prior to the first mine development). Stay with what you know best.


Loss of persistence by changing company policy and goals such as chasing the latest fashion commodity or region.


Matching exploration expenditures to availability of money leads to high staffing levels and high budgets and waste in booms, with little left for the long downturns. It is important to raise money in the good times and preserve funds for those long down turns. There is no real justification for markedly increasing staff and budgets, at least until exploration success is achieved and even then, there is a natural rate of, say drilling, that represents an efficient use of funds and a manageable rate of data acquisition for each style of mineralisation. Fast-tracking exploration, feasibilities or project design commonly translates into massive waste.


Choosing a place to explore, which has very difficult logistics but high mineral potential, is a common boom time activity of small companies. These expensive areas with high holding costs are not usually affordable during downturns, which usually represent 60-70% of time. Loss of control of the project commonly follows. This is destructive for staff and dilutionary for shareholders.


Bringing in a big brother to your advanced project to keep it alive during a downturn, or to ensure project funding and commodity marketing, can add great strength and build value if the terms are correct. Commonly, the incoming party participates in the upside potential of the property outside the actual proposed mine area, sometimes at a disproportionate level. In allowing this, the small company has seriously capped its upside potential and consequently suffers in the market place.


Slow progress may lead to loss of support of stakeholders resulting in a change of senior staff which damages continuity of relationships.


Adopting or maintaining a convenient but perhaps legally flawed corporate or shareholder structure in the Asian country, at the mine development stage, may lead to serious delays in project funding or legal problems at the point of success.


Exploration, without a development strategy in mind, often leads to unfocussed budgets and delays to feasibilities if discoveries are made. The purpose of a company is to make money from mining and exploration is a means to that end.


Short term thinking never works.


A distant management style (or head office mentality) usually fails to develop the personal contacts needed for success.


It is common, over time, for those expats living in Asia to become effected by their immersion in the totally different culture, by constant heat and by lack of contact with the outside world. This commonly leads to paranoia and a loss of judgement and certainly loss of respect from the national staff and community.


Many expats do not have the ability to work closely and productively with Asian people and can cause serious but often unseen problems and loss of morale in national staff.


Improvements in Recent Years for Small Companies.


– Discounts applied to Asian project valuations by analysts are slowly reducing.

– Small companies have much more ability to go-it-alone with mine developments as support from investors and resource banks grows following the success of Kingsgate and Oxiana.

– Mine developments with good fundamentals can now attract very high quality technical staff who work on a contract system and do not require a, so called, secure career path in a big company.

– The availability of good quality consultants and construction engineers with wide international experience, including within Asia, allows small companies to keep abreast of the latest developments. But always be wary of the guru.


After Success.


The discovery and development of a viable mineral deposit is reasonably rare and leads to massive changes in a small company. Apart from the improvement in company systems and reporting that is always required, the company, after a long period of intense focus, must lift its head and look to the future.


Strong cash flows and profits from a single mine may not last forever and it is incumbent on the company, if it wishes to be more than a one-mine milch cow for shareholders, to apply surplus funds to secure the safety of and to build the future of the existing mine, reward the shareholders with modest dividends and in particular acquire further projects in an effort to build a larger company with continuing profitably and a reduced risk profile.


This is a crucial stage in the evolution of any company and there have been many cases of wasted opportunity where companies have increased their risk by focusing exploration solely around the existing mine, or by investing very large sums on a wide range of exploration projects, diversifying into numerous different countries or acquiring a range of large but very uneconomic resources, or have done nothing because they believe that the good times will never end.


It is a time when the company needs to evolve in a controlled manner and in particular when wisdom must prevail because as the late Julius Tahija, founder of PT Austindo Nusantara Jaya wrote, Wisdom lies in maintaining a balance, in not being drawn too tightly into the embrace of one time or the other, in knowing that the horizon beyond sometimes offers new circumstances and other times demands a return to unchangeable truths.


LESSONS LEARNT about operating in Asia.

If you believe in a project fight for it. Always show your strong intent. Be single minded.

Patience is not a virtue it is a survival mechanism. Speed kills.

The shortest distance between two points is not a straight line.

Learn to recognise if you have a problem.

Learn to identify the problem.

Deal with the problem immediately.

Never take your eye off the ball or it will disappear.

Use trusted national staff in all dealings with nationals.

National and expat staff are very different. Only understanding can bring people together.

Budget size often has an inverse relationship to success as time kills the enthusiasm of backers.

Develop a wide network of national information contacts (spies).

Maintain a very low profile.

Equity is king.

Technical excellence is essential in exploration, feasibilities and mining.


Above all things, remember you are a guest in the country.