Vietnam’s resource vision

By Jessica Roberts
Published: Tuesday, 26 October 2010

Strong government support is seeing increased development of Vietnam’s key mineral resources, but red tape threatens to hold back over-eager foreign investors

"Patience, persistence and perseverance” were the three key qualities one US foreign investor advised for companies looking to invest in Vietnam.

The South East Asia country is emerging as an attractive exploration target; an abundance of bauxite, coal, and iron ore, in addition to significant deposits of strategic industrial minerals such as rare earths, is providing the stimulus needed for long-term investment in the country.

This is a government-backed charge towards resource development. Compared to other countries in the region, such as China, Malaysia and Thailand, Vietnam’s industries are still by and large waiting to be established - and it is accepted that raw materials are an integral part of the investment cycle that is needed to ensure the country continues to grow.


Illegal sand dredging on the Mekong River Delta: the
Vietnamese government is clamping down on illegal
operations which threaten its mineral development plans
Courtesy strange_skies


Perhaps because of this, the central government is also highly protective of Vietnam’s natural resources and is determined that value creation occurs domestically. This means that foreign investors are scrutinised and business plans are advised to detail not what Vietnam can offer you, but what you can offer Vietnam.

“Any company wanting to start a business in Vietnam must be willing to build a relationship with the government and its domestic partners,” one investor told IM.

“[Companies should] develop a plan for investment that meets with the government’s development plans; not necessarily only based on their own corporate plans,” he added.

Governmental regulation

Generally mining activities in Vietnam are regulated by master plans, which are put together by the central government. The plans attempt to forecast which minerals will be in demand, and where they can be sourced, according to the industries the country wants to develop.

“These plans are a combination of inputs from the ministries of construction, industry, natural resources and so on,” Antonio Sequeros, Tractus Asia’s Vietnam consulting manager, said in an interview with IM. “The ministries sit down together and decide what industries they are going to need to develop and what resources will be used.”

Complications for investors arise when master plans are disseminated at the provincial government level. Local governments may have specific, and conflicting, interests; while one province may want to develop mining, another may be targeting tourism.

“Ultimately local governments must comply with the central government’s master plan. So in theory local governments can make decisions, in practice they cannot,” Sequeros said.

This sometimes results in land use conflicts, where a local government attempts to reclaim the land that is held under mining licences.

“Legally those mining companies have rights, but local governments are trying to reclaim the land,” Sequeros explained. “In these cases, the ultimate decision is made by the central government; so the higher an investor’s political connections go, the better.”

Tractus Asia is one of the companies aiding project development in the region, by helping foreign investors to set up businesses in Asia.

The company is presently involved in two industrial mineral projects - bentonite and silica sand - with undisclosed partners. Much of Tractus’ work has focused on understanding market dynamics in Vietnam and supply-demand chain for certain sectors.

Both projects are in the early stages of development, but the silica sand project in particular is promising for providing the value creation that Vietnam’s government seeks. It is understood that float glass and photovoltaic cell markets could be supplied with material from the company’s partner.


Table 1: Vietnam’s mineral production (2008)
 

Mineral
Production (tonnes)
Barytes 80,000
Bauxite* Feb-86
Chromite* 55,880
Clays (including kaolin) 650,000
Fluorspar 14-12
Graphite 2,000
Gypsum
5m.
Lime 6-8
Manganese* 20,000
Phosphate rock
2.1m.
Pyrophyllite 30,000
Salt 847,000
Sand and gravel 200,000
Sulphur 22,000
Zinc* 45,000

*including metallurgical grades
Source: USGS



Investment precedence


The central government’s desire to aid the start-up of projects that significantly benefit Vietnam means that certain projects will take precedence over others - namely mineral projects that potentially bring the most downstream profit.

One such mineral is chromite which, due to Vietnamese government regulations, cannot be exported as mineral concentrate.

Archipelago Resources Plc (ARP) is presently developing an alluvial chromite project, located in Thanh Hoa province to the south of Hanoi, which will produce 3m. tpa (110,00 tpa concentrate) initially for ferrochrome markets.

Two ferrochrome are plants under construction on the margins of ARP’s deposit, with targeted capacities of 20,000 tpa and 70,000 tpa.

“We are working in cooperation with the state mining company, Vinacomin,” country manager Steven Dudka told IM. “ARP first became interested in Vietnam in 2004 and representatives came at that time to research exploration and mining opportunities.”

Vinacomin holds a mining license over an area of 16.6km2, and an additional area of over 23km2 that also contains chromite. The overall deposit is reported to contain about 21m. tonnes chromite at a grade of about 3% Cr2O3.

“We have been requested by the government to complete licensing procedures and commence mining as soon as possible. With this government support to expedite licensing, our production may come on stream in late 2011 or early 2012,” Dudka added.

At this time all production is scheduled for metallurgical use, but the company said other grades may be assessed once the project is running.

Vietnam mineral highlights

The initial challenge for any company looking to develop a Vietnam-based mineral project is information; the results of exploration work in the country are not publicly available.

“The potential of industrial minerals is very large in Vietnam, but the amount of exploitation is still low,” Dr Tran Kim Phuong, Vietnam Institute of Geosciences and Mineral Resources, told IM.

Despite the information shortage, several industrial mineral deposits have been documented as key development targets for the country.

As Dr Tran explained, projects that are considered to be the most promising in Vietnam at present include:

  • white limestone in Quy Hop district, Nghe An province and in Ba Be and Cho Don districts, Bac Can province;
  • rare earth ore in Phong Tho district, Lai Chau province;
  • feldspar in M’Drac and Ea So areas belonging to M’Drac and Ea Kar districts of Dak Lak province (High Central Land);
  • monazite (phosphate and rare earth oxide-bearing mineral) in Kon Ray district, Gia Lai province;
  • ilmenite in the coastal area of Binh Thuan and Baria-Vung Tau provinces.

Vietnam’s most established mineral resource projects are discussed below.

Phosphate

Vietnam has emerged as a major phosphate producer in the South East Asia region, and has nearly doubled production of the phosphorus-bearing mineral apatite from about 1.1m. tpa in 2005 to around 2.1m. tpa in 2008.

The push for phosphate development in Vietnam is clear: the country has 7m. hectares used for agriculture and 12m. hectares of undeveloped land, which the government is keen to improve.

“The fertiliser requirement for intensive farming in agriculture is very large and increasing continuously every year,” Tran said.

Over 90 deposits of phosphate rock have been explored in Vietnam, the majority of them occurring in limestones in the northern provinces of Lang Son, Nge Thin and Thanh Hoa.

The Lao Cai deposit is the country’s biggest phosphate resource, located on the western side of the Red River. The apatite occurs in metamorphosed phosphorites that can be found over 100km in Vietnam.

Total reserves are estimated to be 1.7bn tonnes, capable of producing a range of grades including 36-41% P2O5 down to below 16% P2O5. Table 2 discusses some of Vietnam’s recent phosphate expansions.

Kaolin

Vietnam’s tropical climate is ideal for the formation of clays, and the country has some good deposits of kaolin and refractory clays which have formed from high-alumina rocks such as pegmatites.

Kaolin from Vietnam has long served local ceramics industries, but high quality ball clays suitable for export have also been exploited. Kaolin is mined in six districts throughout the country including Dalat, Hai Hung, and Red River.

Silica sand

The Vietnamese coast is home to several deposits of high quality silica sand, including Thuy Trieu, 18km from the Nha Trang, which holds 22m. tonnes of reserves with an average grade of 98.52% SiO2. The deposit is above sea level which has aided its extraction.

Glass grade silica sand also occurs on the islands of Hai Son and Van Sai, which is mined to supply the glass industry in Hai Phong.

In late 2009 the government banned the export of certain types of low-grade silica sand, namely construction sand, in response to illegal mining of river sands from the Mekong Delta River.

Regulation of sand dredging in the Mekong Delta is considered imperative to prevent further erosion of riverbanks in the regions. Dredging in the area intensified last year following a ban on sand exports implemented by the Cambodian government on its side of the Mekong Delta.

Since 2009 the stretch of the river around the city of Can Tho has become a major trading centre for sand, both illegally and legally dredged, transported for use in construction projects around the region including Singapore, Malaysia, Indonesia as well as the domestic construction industry. Close to 10m. tonnes of sand was exported from Can Tho last year, compared to 1.4m. tonnes in 2008.

Barytes

The Nghe Tinh province is home to significant deposits of barytes located in thin veins located over 60km of the region. Average grades at two of the deposits, Bao Khe and Ngia Lam, exceed 75% BaSO4.

Thick veins of barytes are also located south-east of Tuyen Quang in Bac Thai province - such as Cho Ra and Ngai Thang. Meanwhile, barytes deposits are also associated with Vietnam’s rare earth resources in Dong Pao, Lai Chau province, which contains about 2.9m. tonnes of the oilfield drilling mineral.

Rare earths

In June 2009 Toyota Tsusho Corp. and Sojitz Corp. established a joint venture to develop the Dong Pao rare earth deposits. Operations are scheduled to start in 2011, supplying about 5,000 tpa RE minerals over a 20-year mine life. It is understood that Toyota will begin importing 4,000 tpa RE from 2010.

In addition to the Dong Pao deposit, which contains about 7m. tonnes of rare earth oxides, Vietnam holds large rare earth deposits hosted in the carbonatites of Fan Si Pan mountain in the north of the country.

The mineralisation comprises bastnaesite, parisite, uranopyrochlore, gadolinite, pyrites, apatite and significant amounts of barytes and fluorspar.

Kušn’r reports that the weathered zone of the rare earth mineralisation contains 4-5% RE oxides with the primary ore grading 1.4% rare earth oxide (REO): (mainly Ce, La, Nd, Pr, Y, but also Gd and Eu Ð 4% of REO), 1.1% Nb, 200-300 ppm U and 30% Ba.

The reserves amount to as much as 7.8m. tonnes of REO, from which 1.7m. tonnes are proven, at one of the sites (Mau Xe North) alone.

Graphite

The Lao Cai region contains the most important deposits of graphite in Vietnam, which are found to the east of the Red River. Proven reserves in this area total around 3.8m. tonnes of graphite grading 5-12% C.

Several graphite deposits are found around the Yen Bay area, south-east of Lao Cai, which are mined for domestic consumption. Reserves here are thought to be 1.3m. tonnes.

Elsewhere, graphite occurs in the Precambrian sillimanite-garnet schists near Hung Nhuong. Proven reserves of six main deposits stand at 2.5m. tonnes, with massive graphite (30-50% C) and low grade graphite (6-8% C) both mined here.

Investment outlook

Vietnam’s economy has grown significantly over the past decade, expanding at an average rate of 7.5% pa, with pledged foreign investment totalling $64bn in 2008. The country’s top investors are Malaysia, Taiwan, and Japan, with China particularly focused on natural resource investment.

Total mining output has increased 400% since 1995, and, according to Tran, exploration work in Vietnam has found 1558 deposits of non-metallic mineral resources and industrial minerals.

There are 210 deposits of cement raw materials, 131 deposits of ceramic raw materials, 35 deposits of refractory materials, 49 deposits of glass sand, 288 deposits of fertiliser materials, 145 deposits of dimension and decorative stones, 609 deposits of common construction materials, and smaller occurrences of semi-precious stones.

But, as Tran noted, the known mineral resources are yet to be appropriately exploited, processed and utilised, and exports remain low.

Implementation by the country’s National Assembly of a new mineral law in 2005 has certainly provided more favourable conditions for foreign investors, however, rumours of a new mining law due to be announced in 2011 could cause uncertainty in Vietnam’s investment climate.

“The exact details of the new law are still uncertain, but it is definitely happening,” one Vietnam-based analyst told IM.

But what can investors offer to make their projects more attractive to the central government?

“Be willing to spend the time and efforts up front to allow for the Vietnamese government and any Vietnamese partners to build a trust in you and a strong relationship,” one chromite explorer commented.

“Find a competent Vietnamese partner, preferably two; one representing the central government and one to represent an interest for the host province,” he added. “An attractive company is one that can provide advanced technology and is willing to invest in an A-Z project plan.”

Tractus Asia’s Sequeros agreed: “If you find a local partner with the mining rights, you can bring processing technology and capital to the project Ð both of which the government deems interesting for the country.”

Finding a local partner which already owns land removes one challenging aspect of the investment process.

“Anything to do with land acquisition is complex,” Sequeros said. “If a company wants to get mining rights, or exploration rights, they have to buy it directly from the government.”

The only other option is to buy land rights from another company which previously sought government approval; however, in such cases the land rights will have been approved based on it being used for a certain activity. If the company buying the licence wants to change the activity, the government again needs to be consulted.

Despite Vietnam’s bureaucracy, the country remains an attractive venue for minerals investment. Generous incentives combined with a high potential for growth in the domestic market and a young, work-keen population, mean that foreign companies willing to spend time building relationships with local partners will generally be well rewarded.

Selected mineral deposits in Vietnam




Spotlight: bauxite and alumina

Vietnam’s primary commodity is coal, but bauxite and phosphate rock are quickly emerging as two of its significant mineral products. State mining company Vietnam National Coal-Minerals Group (Vinacomin) holds a minimum 51% interest in nearly all bauxite projects in the country, while foreign investment has been capped at 49%.

The Department of Geology and Minerals of Vietnam (DGMV) is keen to develop the country’s rich resources and has set out exploration targets for some of Vietnam’s key bauxite deposits.

In addition to bauxite exploration, development work has been undertaken by Vinacomin and foreign partners to start up new alumina plants. The majority of these are targeted to produce smelter grade alumina, although some non-metallurgical grades have been eyed. To date, the most likely is Bao Loc’s two aluminium hydroxide plants, which combined are forecast to produce 1.55m. tpa this year.

The government’s push to increase its bauxite and alumina production has spurred major logistics and infrastructure projects - notably the Binh Thuan sea port and the railway linking it to Tay Nguyen. By 2022 the rail and port network are scheduled to handle 25-30m. tpa of material.

Bauxite exploration targets

Exploration region Mineable tonnages (m.) 
Dak Nong province 2,000-2,100
Lam Dong province 250-300
Mang Den, Kon Ha Nung bauxite deposits of Konplon – Kanak area 280-330
Binh Phuoc province 150-200
Cao Bang area 30-40
Lang Son area 25-35
Ha Giang area
10-15


Alumina plant investments

Project Bauxite source Capacity (m. tpa) Investment schedule
Bao Loc 1 aluminum hydroxide plant Doi  Thang Loi deposit in Bao Loc - Di Linh area 0.1 2010 (new investment)
Bao Loc 2 aluminum hydroxide plant Bao Loc deposit of Bao Loc - Di Linh 55.00% 2010 (new investment)
Nhan Co alumina plant Nhan Co deposit and adjacent deposits of Dak Nong area 0.3-0.6 2010 (new investment)
Kon Ha Nung alumina plant Kon Ha Nung and Mang Den deposits 1-1.5 2011 (new investment)
Dak Nong 2 alumina plant “1 - 5” deposit and adjacent deposits of Dak Nong area 1.5-2 2011-2014 (new investment)
Dak Nong 3 alumina plant Gia Nghia deposit and adjacent deposits of Dak Nong area 1.5-2 2012-2015 (new investment)
Dak Nong 4 alumina plant Tuy Duc, Dak Song deposit s and adjacent deposits of Dak Nong area 1.5-2 2012-2015 (new investment)


Infrastructure projects

Project Capacity (m. tpa) Investment schedule
Railway from Tay Nguyen to Binh Thuan sea port, phase I (single track, 1435mm gauge)
40,816
2013 (new investment)
Binh Thuan sea port, phase I
10-15
2012 (new investment)
Railway from Tay Nguyen to Binh Thuan sea port, phase II (double track, 1435mm gauge) 25-30 2016-2022 (expansion)
Binh Thuan sea port, phase II 25-30 2016-2020 (expansion)