THE prospect of Cambodia developing its biggest mine to date – the United Khmer Group titanium concession in Koh Kong province – promises considerable economic potential. Unfortunately, the project quite simply does not add up.
CEO Chea Chet’s assertion that the mine could generate revenues of up to US$2,500 per tonne of slag is frankly absurd. To begin with, titanium slag has been fetching less than a third of this price all year in a market that at the beginning of 2010 was considered overheated due to high Chinese demand.
Last month delivered titanium slag from Hebei province, the highest-value in China at the time, fetched a top price of 4,600 yuan, or $670 per tonne, which includes government tax. The actual revenue generated for the mining firm itself would therefore have been even lower.
Since May, prices in China – the main foreign investor in the Koh Kong mine – have fallen as Chinese manufacturers have used up stockpiles of the raw material. This does not necessarily impact the United Khmer Group mine, as it will not start production until mid-2011 at the earliest, but considering the highest prices in the market today, the mine is worth more like $36 billion at the absolute maximum. According to Robert Porter, general manager of investor relations and corporate affairs at Australian miner Iluka, the value is even lower at $21.6 billion. He should know – Iluka is the second-largest producer of titanium minerals on the planet. Why then is United Khmer Group inflating the value of the mine so drastically?
Even if the concession were only to produce revenues at the lower, more realistic end of these estimates, it would represent a significant natural resource for Cambodia – under current legislation the Kingdom would generate tax worth 30 percent of total profits. But then, the resource has to be handled correctly by the government and all stakeholders if it is to realise its true economic potential, and here there are further concerns.
To begin with, the concession appears to be more than twice the legally permitted limit at more than 20,000 hectares. More importantly, environmental concerns should be appropriately considered, a point that has already caused behind-the-scenes disagreement within the government. That the mine appears to lie within a protected forest area is just one concern.
Just 10 kilometres away from the edge of the concession, Chi Pat is set to be the country’s foremost eco-tourism site when a high-end lodge currently under construction is completed in partnership with Wildlife Alliance. The key will therefore be making sure both projects can live together without the mine degrading the local environment to such an extent that the area is no longer attractive to the expected surge in tourists.
As we have seen in the case of neighbouring Laos, which generates 15 percent of its GDP from mining, extractive industries can play a major role in developing economies. But the Cambodian government needs to guarantee that mining plays a positive role for everyone concerned.