Ivanhoe Mines steps into the crossfire

Published by MAC on 2002-02-18

Stranger in a Strange Land

By Matthew McClearn

Source: Canadian Business, February 18, 2002, Vol. 75 Issue 3

Ivanhoe Mines steps into the crossfire between Myanmar's military dictators and their enemies

Inhale deeply on the streets of Yangon (Rangoon), Myanmar, and you probably won't detect the scent of opportunity. Those sniffing for business in this profoundly xenophobic Asian country are more likely to encounter the stench emanating from the city's open sewer system, which is particularly offensive during the scorching summer. It's just the first indication that Myanmar (commonly known as Burma, its official name prior to 1989) isn't exactly open for business. The people are famously friendly and eager to work, but the infrastructure around them is a shambles. Myanmar's network of barely serviceable roads can turn short trips into arduous journeys. A long-distance phone call to North America can cost you $25 a minute-and you'll be sure to have a few sets of attentive government ears listening in. If the power goes out, it could stay that way for days. Foreigners have to watch what they eat: if they get dysentery, malaria or food poisoning, ramshackle hospitals will be of little help. Civil conflict rages in some regions. And foreign execs can expect to be hit up for endless fees and payments by local bureaucrats.

Ivanhoe Mines Ltd. (TSE: IVN), a junior mining firm founded eight years ago by flamboyant entrepreneur Robert Friedland, is among the few foreign companies to brave this climate. With offices in Vancouver and Singapore, Ivanhoe is among a new breed of ultra-high-risk mining concerns that have risen to prominence in the past decade by operating outside politically stable nations. In Myanmar, its Monywa Copper Project, in operation since 1998, mines from open pits on lowland plains to produce metal sold throughout Asia. And Ivanhoe's joint venture partner in the enterprise embodies its biggest gamble to date: the State Peace and Development Council (SPDC), Myanmar's military government.

The SPDC ranks among the most repressive regimes on the planet, joining North Korea's Communists and Afghanistan's recently deposed Taliban on a long list of pariah dictatorships. Yearning for a freedom that has eluded them for decades, many Burmese despise the SPDC; some of the country's many ethnic groups - there are dozens spread throughout Myanmar - have taken up arms. Many oppose the regime from abroad, and they're supported by a number of influential human rights and labor organizations. Corporations that do business with the SPDC, meanwhile, have become targets of that opposition, because, in the critics' view, they provide revenue and legitimacy to the junta. Despite its best efforts, Ivanhoe finds itself caught in that cross fire-exactly where president Dan Kunz doesn't want to be. The company is "not motivated by political considerations," Kunz says. "Ivanhoe is in the mining business, not the political business."

It might not be that simple. Multinational corporations and activists have long sparred over whether foreign investment encourages oppressive governments to reform, or merely props them up. It's the same debate that has dogged Talisman Energy Inc. (TSE: TLM), the Calgary-based company that operates oilfields in Sudan in partnership with that country's much-scorned government. Talisman's 25% stake in the Greater Nile Petroleum Operating Co. Ltd. has drawn fire from church groups and activists, who claim the project's oil revenue is helping the Islamic fundamentalist government fund its war against Christian and animist rebels. Activists recently launched a class action lawsuit alleging Talisman is complicit in human rights abuses in Sudan, and the American Congress has introduced legislation to prevent oil companies operating in Sudan from tapping US financial markets.

Ivanhoe, too, is taking chances by partnering with Myanmar's government. But Friedland, who owns more than half the company, isn't the type to back down. "We operate a business on the rubber knife theory," he once said. "A lot of what you see in a strange country may look scary, like one of those big rubber knives you had when you were a kid, painted silver. As scary as it may be, it can't really hurt you." Now, as Ivanhoe gears up to expand its Monywa project, it may be balancing on the edge of a knife that is all too real.

Before the Second World War, Burma was a major economic centre in Southeast Asia, but had been under British colonial rule for more than 50 years. In 1948, an independent democratic government emerged, but it was supplanted in 1962 by a junta led by General Ne Win. Four subsequent decades of kleptocratic rule have all but severed Myanmar and its 45 million people from the world economy.

In the summer of 1988, students, workers and monks led a pro-democracy uprising in the capital, Rangoon. Ne Win stepped down, but within months the armed forces again seized control, killing and jailing scores of dissidents. The new State Law and Order Restoration Council (SLORC) renamed the country as well as its capital (to Yangon) and declared that it would return to democratic rule and a market economy. Free elections were held in May 1990, and the National League for Democracy, led by Daw Aung San Suu Kyi, daughter of independence hero Aung San, won by a wide margin. SLORC, however, refused to relinquish power.

The regime's repressive policies have drawn condemnation from such organizations as the UN, the International Labor Organization (ILO), Amnesty International and Human Rights Watch. It stands accused of employing forced and child labor on infrastructure and military
operations; forcibly removing citizens from land earmarked for state projects or by foreign companies; and carrying out arbitrary arrests, imprisonments, rapes, tortures and killings.

Outside businesses that operate in Myanmar can expect tough opposition at home. Recently, anti globalization protesters have taken aim at international underwear manufacturer Triumph International - has operated a factory in Myanmar since 1997 - urging women to "support breasts, not dictators." Unocal Corp. of California, one of four co-venturers developing the offshore Yadana natural gas field in
Myanmar, has also faced considerable criticism, two lawsuits, and persistent but unsuccessful shareholder resolutions at corporate annual meetings.

On occasion, activists have prevailed. In mid-1997, the US banned future investments in Myanmar; months later, Canada followed by selectively restricting trade. That same year, Newmont Mining Corp., a major US natural resources company, pulled out of a gold-exploration project in Myanmar, a move observers suspected had much to do with mounting public opposition. Consumer products companies have felt even greater pressure: Adidas Salomon AG, Nautica Enterprises Inc., PepsiCo Inc., Sweden's IKEA and US-based Williams-Sonoma Inc./Pottery Barn will not sell products made in Myanmar.

Myanmar's generals have gone to some lengths to polish their international image. After retaining Washington public relations agencies, SLORC changed its name to the more benign-sounding SPDC during a leadership shake-up in 1997. Since then, it has used the Internet to disseminate propaganda to the world (if not to its own citizens, who face long prison terms for owning an unauthorized Internet connection or, for that matter, a fax machine). Its Web site features a series of documents, entitled "The Truth," which provide alternate accounts of alleged human rights abuses. It has also posted Ivanhoe press releases verbatim. The PR campaign has not been confined to words: the junta has opened a dialogue with Suu Kyi to create "a functioning democracy," and in 2000 issued an order prohibiting forced labor. UN officials are getting increased access to the country.

So far, however, the junta's reputation remains little improved. Its "extremely poor human rights record and long-standing severe repression of the citizens continued" in 2000, concluded a report by the US department of State released last year. Among its claims: the SPDC restricts freedom of speech, press, religion, assembly and association; the judiciary is not independent of the junta; and political and extrajudicial killings continue unabated. The ILO reports that despite the ban on forced labor, the practice survives. And Suu Kyi, who was awarded the Nobel Peace Prize in 1991, has spent most of the past decade under house arrest.

For all its poverty and oppression, Myanmar is rich in natural resources, with reserves of silver, lead, zinc, copper and other minerals, as well as rubies, jade and sapphires. Artisan miners have chipped away at these deposits for centuries. But Myanmar lacks sufficient capital and expertise to harvest ore on a larger scale, and little of the country has been explored in any technologically advanced way.

The generals knew they needed help developing Myanmar's untapped
reserves. So in the early 1990s, they began courting international companies to explore and develop concessions in partnership with state-owned Mining Enterprise No. 1 (ME-1). Friedland was among the few foreigners to take them up on their offer. His representatives visited Myanmar in 1992 to inspect several concessions and eventually submitted a proposal to mine copper in Monywa, a region that has three known significant deposits: Sabetaung and Kyisintaung (known collectively as "S&K") and the much larger Letpadaung ore body. By 1994, the two parties had agreed to a pilot plan. That same year, Friedland founded Ivanhoe (known as Indochina Goldfields Ltd. before 1999), with himself as chair.

Ivanhoe execs knew that Myanmar was a dicey place to do business. In early 1996, company representatives approached the Department of Foreign Affairs and International Trade in Ottawa to satisfy themselves that, if Ivanhoe were to make a move there, there would be no international barriers. The response was encouraging: though the Canadian government has pressured Myanmar on human rights issues, it did not discourage ompanies from investing or operating in the country. Meanwhile, results from the pilot project were also promising. In 1996, Ivanhoe formed a joint venture with ME-1 called Myanmar Ivanhoe Copper Company Ltd. (MICCL), with each party owning 50%. ME-1 put up Burmese miners and equipment; Ivanhoe had to provide the capital. Much of that was raised when the company went public in mid-1996; 18 million shares sold for $15 each, resulting in gross proceeds of $270 million. It was the biggest IPO of any junior exploration company in Canadian history. But it was also a flop -shares lost almost $3 in value the first day, leaving many to conclude the offering was overpriced.

Even as the backlash against Western corporations in Myanmar grew, Ivanhoe was deepening its commitment. In late 1997, MICCL launched a US$150-million construction program at S&K. Its reserves had lured foreign miners before, only to disappoint. The Bor Copper Institute of Yugoslavia began developing an open pit mine there in 1984; by the mid-'90s, its small operation was processing 8,000 tonnes of ore a day. But in 1998, unable to recover enough copper to turn a profit, Bor departed. That same year, MICCL began commercial production.

Ivanhoe's technology might help it succeed where Bor failed. S&K's ore contains copper sulfides. The old way of doing things - Bor's - was to separate the copper by immersing ground ore in chemicals and letting the sulfides float to the surface. The copper concentrate was then refined in a smelter. Trouble was, much of the copper sulfides oxidized in the process, so not enough copper floated to turn a healthy profit. Ivanhoe figures it's found a better way in a more modern process, called heap-leach, solvent extraction-electrowinning (or SX-EW for short). With SX-EW, miners put crushed ore on leaching pads and spray it with solutions of bacteria and sulfuric acid, which dissolves the copper. Pumped to a recovery plant, the copper-rich solution is then subjected to organic solvents that isolate copper ions, producing an electrolyte. Zap the electrolyte with a current, and the copper ions migrate to a stainless-steel cathode plate-producing 100-pound sheets of exceptionally pure copper.

The process is simple, efficient and cheap. The sheets are trucked some 800 kilometres to Yangon (Rangoon), on Myanmar's southern coast; from there, they can be shipped throughout Asia. Distributed exclusively by Japanese trading house Marubeni Corp., most of the sheets are destined for copper wire and rod producers in Japan and Thailand. Low costs are vital, since copper prices are only now recovering from 14-year lows reached this past November. Hammered by a rapid global slowdown in manufacturing, copper is now priced at about US67¢ a pound, but spent much of last year hovering near US60¢. It hadn't been that low since "before I was in high school," says Terry Bell, a Toronto-based consulting mining analyst. "I'm 39 years old, and it's been more than [US]60¢ for my entire career."

The good news is that MICCL is among the world's lowest-cost producers. "It's quite unusual for a pure copper mine to have costs of less than 40¢ per pound," says Bell. Even under harsh market conditions, the operation has started to generate positive cash flow.

Labor costs are one factor. Only 10 of MICCL's 560 employees are from outside Myanmar; the remainder are Burmese. And Kunz says those jobs are highly prized. "Canadian miners can make $80,000 a year," Bell says. "In Myanmar, if they make $3 a day, that's $2.96 more than the next-door subsistence farmer." But, he adds, "it's not a labor-intensive operation." More significant is that the Yugoslav enterprise stripped away much of the rock and soil covering the ore before it shut down, reducing MICCL's up-front costs. Moreover, Monywa's ore is high-grade for an open-pit mine and, thanks to SX-EW, recoveries are good. While other techniques produce intermediate products that require further processing, Monywa's copper sheets are ready for market.

In 2000, the Monywa Copper Project produced 27,500 tonnes of copper and more than US$20 million in revenue for Ivanhoe. (In the first nine months of 2001, Ivanhoe lost US$18.4 million on revenue of US$55.8 million.) A few hundred kilometres southeast of Monywa, Ivanhoe is also examining the Modi Taung gold deposit it found in late 2000; the company is calling those gold veins "bonanza-grade." And S&K is only the first phase of the Monywa project. The joint venture hopes to harvest the nearby Letpadaung copper deposit, which Ivanhoe expects would boost total annual production to 155,000 tonnes and employ 1,000 locals. Kunz estimates the expansion will cost US$390 million-making it among Myanmar's biggest foreign investments ever-and he has been in talks with Asian investors to raise it. He predicted in late December that work at Letpadaung will begin soon.

As for the junta, it won't get its full share of the Monywa profits and its 4% royalty on copper sales until MICCL's Japanese investors have recouped their construction costs - which Ivanhoe expects won't happen until 2005 at the earliest. Until then, the government earns only a 2% royalty, which amounted to US$885,000 in 2000, along with some rental income. That represents a tiny fraction of the junta's US$7.9 billion in annual income (a figure calculated by the US Central Intelligence Agency) from taxation and state enterprises. But it still makes Monywa the biggest foreign mining operation in the country. "Friedland is loved in Myanmar because he's done what he said he'd do," says Patric Barry, president of Tiger International Resources Inc. (CDNX: TGR), a small Laguna Hills, Calif.-based exploration firm with an office in Calgary, that considered partnering with the SPDC on a mine in Myanmar around 1997. "They think the guy is great."

Those familiar with Robert Friedland's past may not be surprised at the hullabaloo the Monywa Copper Project has generated. Friedland made quite a name for himself promoting resource stocks on the Vancouver Stock Exchange over the past two decades. His modus operandi is mining where few others dare to tread, and he has been at the forefront of a new wave of mining executives charging into the frontiers of Asia, Africa and former Soviet republics.

Friedland's name surfaces around many high-risk - and often controversial - mining and technology ventures. His first was a small mining exploration outfit called Galactic Resources Ltd., which went public on the VSE in 1982 and developed a Colorado gold mine called Summitville that opened in 1986. Initial optimism drove the stock from its IPO price of 50¢ to a high of $18 in 1987. However, engineering flaws at Summitville - particularly regarding treatment of acid drainage at its heap leach pit resulted in a serious ecological crisis. By the time the US Environmental Protection Agency intervened in 1990, Friedland had resigned as president and chairman of Galactic. A flurry of lawsuits ensued, culminating in a settlement in 2000, in which Friedland agreed to pay US$20 million toward the cleanup. He has not been found responsible for the debacle in any court, but some critics impugn him nonetheless. Friedland blames other individuals, companies and governments involved in the Summitville affair, which he has sued.

During the early 1990s, Friedland's Venezuelan Goldfields Ltd. (Vengold) of Vancouver seized the imaginations of investors with its Kilometre 88 property in the South American country. It was a classic "area play": Vengold acquired land claims around Las Christinas, a promising gold discovery owned by Placer Dome Inc. But when long-awaited assays from its first drill cores were released in July 1994, the results fell well-short of Friedland's bullish predictions - and Vengold shares collapsed. DiamondWorks Ltd., a Vancouver-based exploration company in which Friedland was a minority shareholder, hunted for diamonds in several unstable African countries during the 1990s. Unrest in Angola and Sierra Leone (including an early-morning attack in 1998 on DiamondWorks' US$260-million Yetwene mine in Angola that left eight employees dead and 16 wounded) drove the company to close some properties. Adding to the intrigue: Anthony Buckingham, a Friedland associate who exercised the largest voting block of DiamondWorks' shares, was involved with an unsavory band of South African mercenaries called Executive Outcomes. (Friedland denies any personal connection with the group.)

Friedland's greatest success was on more familiar turf: Canada. He and four partners bought a VSE shell company in 1992, which they renamed Diamond Field Resources Inc. While looking for diamonds in Labrador, the company stumbled on a rich nickel deposit at Voisey's Bay. Friedland orchestrated a pitched bidding war between nickel giants Inco Ltd. and Falconbridge Ltd. over the deposit, which ended when Inco agreed to buy it for $4.3 billion in cash and stock. Friedland personally made $500 million on the deal.

Ivanhoe continues his risk-taking tradition. It recently restarted production at its gold mine in corruption-riddled Kazakhstan, and is exploring in Mongolia. Civil unrest hampered its exploration projects in Indonesia in the late 1990s, and a military coup last year undermined its majority investment in a gold mine on the island of Fiji. Ivanhoe is also involved in South Korea, Vietnam, Tasmania and Norway.

In early January, after exercising the right to convert debt owed to him into 30.6 million shares, Friedland's stake in Ivanhoe jumped
substantially: he now owns 58% of the company.

To anti-mining advocates and other critics - who've dubbed him, among other things, "Toxic Bob" - he might be a rapacious, devil-may-care capitalist. But among many businessmen and financiers/ both in Canada and abroad, Friedland is celebrated as a shrewd, bold operator. "He who dares, wins," says Bell. "If you're going to Myanmar and Mongolia, that's where you'll find the high-return projects - you're not going to find them in the southwestern US. Robert Friedland is a real capitalist, a real entrepreneur. He's created great opportunities for himself, and shareholders are in for an interesting ride."

Tin Maung Htoo, a Burmese exile living in Ontario, has spent most of his adult life fighting Myanmar's generals. At 16, he was among the throngs of students in Rangoon protesting against the government in the summer of 1988; he fled to the Thai-Burmese border after the military crackdown. There, in the jungle, he joined the ragtag army of the All Burma Student Democratic Front (ABSDF), a group that launched a guerrilla war against SLORC. Originally 20,000 strong, the ABSDF army dwindled as ill-trained and poorly supplied students were cut down in skirmishes with government soldiers, died from malaria or other jungle scourges, or simply gave up and escaped to Thailand.

By 1991, Htoo realized the ABSDF had little hope of dislodging the generals. He fled to Bangkok, where he joined other activists hoping to pressure the junta through political means. During a conference in 1993, Htoo and others were ambushed by Thai authorities, and he was imprisoned in a Bangkok detention centre without trial for three years for his political activities. He remained there until 1996, when pressure from Amnesty International and Western embassies, including Canada's, freed him. He eventually settled in London, Ontario.

Htoo is fighting Ivanhoe as both an activist and freelance journalist. Interviewed at a café in a Burmese neighborhood in west end oronto, he makes it clear he's concerned about Ivanhoe's operations in his homeland. "The dollars they bring from Canada are only providing the military with hard currency to buy weapons to strengthen their power and prolong their military rule," he alleges.

It's a concern shared by advocacy groups such as MiningWatch Canada and the Canadian Labour Congress. In a list of 24 Canadian companies investing or doing business in Myanmar, Canadian Friends of Burma - one of many non-governmental organizations demanding that companies sever all ties with the country - abeled Ivanhoe as the "worst offender." About 40 protesters picketed the Vancouver hotel where Ivanhoe held its annual general meeting last June, while shareholder activists raised their concerns inside.

Among the most strident voices is Roger Moody, a mining activist who runs a small firm called Nostromo Research in London, England. In 2000, he published a 78-page document entitled "Grave Diggers: A Report on Mining in Burma". In it, he identified more than 40 companies with past or existing involvements in the country, but singled out Ivanhoe as the gravest concern. Moody claims that locals have been forced from their land to make way for the Monywa Copper Project, and were compelled to work without pay on the construction of a nearby railway and a hydroelectric project. Moody also claims there are reports that wells in the area have been contaminated by chemicals from MICCL's tailings pond. His report is a centrepiece among anti-Ivanhoe protesters, and has been widely distributed.

Moody's treatise, however, suffers from a lack of supporting evidence. He did not visit the Monywa area; his accusations were based on reports from unidentified witnesses. That's hardly surprising - were such sources to be identified, they might very well face reprisals from the SPDC - but it doesn't exactly make for a solid indictment, either. "The report is pretty weak, and paved the way for the company to counterattack," concedes Htoo, who describes Grave Diggers as well-intentioned, but rash. Getting reliable information out of Myanmar is frustrating, and Htoo admits that protesters have difficulty backing some of their allegations. He wants Ivanhoe and the SPDC to allow journalists and independent observers into the Monywa area. "We are not saying these things with solid evidence, that's true," he allows. "But we cannot go and see! Let us see." The situation may be equally frustrating for Ivanhoe, which has said it is "prepared to be independently and impartially judged by our actions."

But the Monywa Copper Project remains shrouded behind the SPDC's veil. Canadian Business requested permission to visit the mine this fall. Stephen Ross, MICCL's general manager, declined, but if he hadn't refused, the junta almost certainly would have. "From my own experience, I'd say Burma isn't well disposed to foreign journalists at all," says Larry Kilman, communications director at the World Association of Newspapers in Paris. Journalist visas are rarely issued. (Myanmar is even less tolerant of its own media members, who are routinely imprisoned for any unauthorized commentary.)

Ivanhoe's Kunz, however, is anxious to answer critics. In an e-mail interview with Canadian Business from Vancouver, he writes like a man who's given considerable thought not only to making MICCL profitable, but also to the human rights and democratic issues he's confronted with regularly. Though he acknowledges the plight of the Burmese people and is sympathetic to their hopes for democracy, his assessment of the Monywa Copper Project is strikingly different from Moody's. "Ivanhoe is a small light of Western commercial responsibility burning inside the country," he says. "It has been as clear and forthright in its support of human rights as any company I've ever known."

The unsubstantiated accusations of forced labor and environmental irresponsibility irritate Kunz. "The very idea of the use of forced labor by anybody, anywhere, is as abhorrent to Ivanhoe as it is to any right-thinking person," he says. "We will satisfy ourselves that any new infrastructure built to support our Myanmar activities employs only voluntary labor." The environmental allegations, he adds, also couldn't be further from the truth. MICCL commissioned its own environmental and safety report in 2000 that found only minor problems, which were already being addressed. It has achieved certification under ISO 14001, an international environmental management system. In keeping with that commitment, says Kunz, the joint venture is cleaning up old tailings and waste left behind by the Yugoslavians. Grave Diggers, he adds, was an attempt "to influence decision-makers in Canada and to try and hoodwink media. It is political advocacy gone mad."

Kunz argues that MICCL provides well-paying jobs for locals, which, in turn, percolate through the economy. He adds that the company has substantially up-graded diagnostic and treatment equipment at several hospitals, treated drinking water to eliminate bacteria and provided scholarships for local children. He even holds out hope that Ivanhoe's presence might convince Myanmar's generals to mend their ways. "I believe that, in a small way, the Monywa Project does provide Myanmar with a window to see the possibilities that new technology and foreign investment could bring if domestic change is encouraged to proceed, thereby addressing some issues that others have cited as disincentives to new business investment."

Operating in Myanmar entails not only political risks but also practical ones-as other foreign businesses have learned. Patric Barry of Tiger International considered a joint venture with the junta to develop a platinum project in Kachin State in northern Myanmar in the mid-1990s, at the same time Ivanhoe was sizing up Monywa. "When you're in the mining exploration business, sometimes you have to go to parts of the world that are maybe not quite Rodeo Drive," he says. "The economic opportunity is definitely there. That's what tantalized me about Burma."

For one thing, labor is readily available. "When our geologists needed people to haul rocks, they went down to the town," Barry recalls. "The military commander there went into the streets, clapped his hands and yelled out 'Jobs!' People came running." And Myanmar's mining laws are lax. "There are no environmental restrictions or safeguards," Barry says. "You want to mine something, you just go mine it."

Ultimately Tiger's venture foundered. The company received assays from a government lab, which, it was told, contained large quantities of platinum. But when Tiger had those drill cores analyzed at a lab in Canada, it found something quite different. "The long and short of it was the platinum just wasn't there," says Barry. "We saw the lab where they'd done their analysis, and it was like something out of the 1930s. Using that equipment, it would have been impossible for them to get accurate results. I don't hold it against them."

Then there were the endless fees levied by government officials. "I wanted to rent a light aircraft in Thailand and fly over our concession in Burma with a video camera," Barry says. "They said: 'No problem, but you need a permit. The fee is US$3,000.' We wanted to bring in a satellite telephone. They said: 'No problem, but you must have a permit. And for that, the fee is US$3,000. I believe they were really more interested in charging us fees and picking our pockets [than opening mines.]"

Though there was apparently little platinum at Tiger's concession in Kachin State, more than 10,000 artisan miners were finding gold in nearby streams. Barry suspected a large deposit, but by late 1997 he'd already lost interest in pursuing any venture with Myanmar's generals The final straw was that the contract drawn up between Tiger and the SPDC was "unfinanceable," Barry says. Tiger tried to renegotiate, but to no avail. It soon announced it was pulling out of Myanmar, and has since moved on to another project in Australia. "Would I go back there? No!" Barry says emphatically. "I believe there are good opportunities in other countries that are much more politically acceptable."

In December, a group of eight large European institutional investors - representing about £400 billion in assets -i ssued a joint statement calling on companies to "justify their involvement'' in Myanmar by issuing independently verified assessments of the risks they're taking with investors' money. "Companies operating in unstable political climates can be exposed to loss of shareholder confidence, negative press and publicity campaigns, safety risks and corruption," the statement noted. "In the case of Burma, there is also the possibility of a democratically elected government returning to power and penalizing companies that supported the military regime."

Despite his wishes to stay out of Myanmar's politics, Kunz admits that Ivanhoe's fortunes are linked to reform." The political risks Ivanhoe faces in Myanmar would increase if the government fails in its current fforts to make changes toward a more democratic system," Kunz says. "Failure of the anticipated reforms also could wear thin on Ivanhoe shareholders;'

Given US sanctions, Ivanhoe cannot use American contract miners or suppliers, and is limited in its ability to win US investment. However impossible to quantify, the optics of operating in Myanmar have probably also contributed to the deflation of Ivanhoe's stock. In the $3 range, it trades far below its offering price.

After years of bad publicity, there are signs Talisman is weary of the controversy surrounding its Sudanese venture, and rumors abound that a divestiture is in the works. So far, however, activists have failed to send Ivanhoe packing from Myanmar. Since August, the company as raised US$31.75 million in five separate offerings, some of which will be spent at Monywa. With the Letpadaung expansion reportedly nearing commencement, Kunz vows to resist calls to withdraw. "There simply is no evidence that forcing Ivanhoe to abandon its investment in Myanmar would bring about any net benefit to the people of Myanmar;' he says. "We work beside these people. We know they are not asking to be summarily isolated to satisfy other people's agendas."

Whether or not corporations can reform military dictatorships by doing business with them is a complex and continuing debate. This much is clear, however: rightly or wrongly, companies doing so can expect to be held publicly accountable for the crimes of their joint venture partners. And for Ivanhoe, the barbs of its critics may yet prove more damaging than rubber knives.