The World Bank WASHINGTON DC,

TRUST FUND : #030670

Final Report for

Mining, Infrastructure and Environment

FR-4

SECTOR PLAN FOR SUSTAINABLE DEVELOPMENT OF THE MINING SECTOR IN THE LAO PDR

CONSULTANT : Kazuki Shingu Mining, Infrastructure and Environment Expert

November 2006

i

Content

1. Current State of Mining Production in Laos -------------------------------------------------------- 1

1.1 Medium-Large Mines with Modernized Production System ----------------------------------- 3

1.1.1 Sepon Gold Mine ----------------------------------------------------------------------------------- 3

1.1.2 Sepon Copper Mine ------------------------------------------------------------------------------- 4

1.1.3 Phu Bia Gold Mine --------------------------------------------------------------------------------- 6

1.1.4 Other Mines ----------------------------------------------------------------------------------------- 7 1.2 Small Mines without Modernized Production System ------------------------------------------ 7

1.3 Illegal Artisanal Gold Mining without Mining Concession ------------------------------------- 7

1.4 Tasks for the Lao Mining Sector -------------------------------------------------------------------- 10

2. Infrastructure and Related Plans in Laos ---------------------------------------------------------- 11

2.1 Roads ------------------------------------------------------------------------------------------------------ 11 2.1.1 Current State of National Roads -------------------------------------------------------------- 11

2.1.2 Tasks for Roads------------------------------------------------------------------------------------ 12

2.2 Electricity ------------------------------------------------------------------------------------------------- 13

2.2.1 Management of Electricity ---------------------------------------------------------------------- 13

2.2.2 Electrical Supply----------------------------------------------------------------------------------- 14

2.2.3 Development Plan of Electricity --------------------------------------------------------------- 17

2.2.4 Transmission Construction Plan --------------------------------------------------------------- 19

2.3 Railway---------------------------------------------------------------------------------------------------- 20

2.4 Water Supply -------------------------------------------------------------------------------------------- 21

2.5 Tasks of Infrastructure for Mining Development ----------------------------------------------- 22

3. Environmental Consideration-------------------------------------------------------------------------- 24

3.1 Natural and Social Environments in Laos -------------------------------------------------------- 24

3.1.1 Valuable Species ---------------------------------------------------------------------------------- 24

3.1.2 National Biodiversity Conservation Areas and Cultural Heritages -------------------- 24

3.1.3 Ethnic Minorities ---------------------------------------------------------------------------------- 25

3.1.4 Military Conservation Areas -------------------------------------------------------------------- 26

3.2 Environmental Management in Laos -------------------------------------------------------------- 26

3.3 Environmental Management for Mining ---------------------------------------------------------- 27

3.4 Tasks for Environmental Consideration ----------------------------------------------------------- 29

4. Characteristics and Future Tasks for the Lao Mining Industry ----------------------------------- 30

4.1 Characteristics of the Lao Mining Industry --------------------------------------------------------- 30

5. Action Plan ------------------------------------------------------------------------------------------------- 32

5.1 Investigation on Current Operating Mines ------------------------------------------------------- 32

5.1 Investigation on Current Operating Mines ------------------------------------------------------- 32

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5.2 GDM Staff Training -------------------------------------------------------------------------------------- 32

5.3 Investigation on the Current State of Illegal Artisanal Gold Mining ----------------------- 32

5.4 Establishing a Machine Leasing System for Small Mines ------------------------------------- 33

5.5 Preparing Model Mines-------------------------------------------------------------------------------- 34

5.6 Infrastructure to Promote Mining Development ------------------------------------------------ 34

5.7 Mineral Surveys in Hydraulic Dam Construction Areas --------------------------------------- 34

5.8 Baseline Surveys for Mining Environment-------------------------------------------------------- 35

5.9 Establishment of an Environmental Monitoring System -------------------------------------- 35

5.10 Disclosure of Information ------------------------------------------------------------------------- 35

5.11 Establishment of a Mining Technical Center --------------------------------------------------- 35

5.12 Technical Improvement of the Chemical Laboratory ---------------------------------------- 36

Appendix------------------------------------------------------------------------------------------------------- 37

Figures

Fig. 1 Registered Mine Locations in Laos------------------------------------------------------------------- 1

Fig. 2 Current State and Main Maintenance Plans of Lao National Roads --------------------------- 12

Fig. 3 Power Transmission Lines and Power Supply Regions in Laos -------------------------------- 15

Fig. 4 Current Railway in Laos------------------------------------------------------------------------------ 20

Fig. 5 Relationship between Ore Deposits and Infrastructure ------------------------------------------ 23

Fig. 6 NBCAs and Cultural Heritages Sites in Laos ----------------------------------------------------- 25

Fig. 7 Military Conservation Areas in Laos --------------------------------------------------------------- 26

Fig. 8 Structural Concept for Lao Mining Industry ------------------------------------------------------ 31

Fig. 9 Basic Concept for Organizing Artisanal Miners -------------------------------------------------- 33

Tables

Table 1 Producing Mines in Laos ----------------------------------------------------------------------------- 2

Table 2 Capital Investment for the Sepon Gold Mine------------------------------------------------------ 3

Table 3 Operation Results in the Sepon Gold Mine -------------------------------------------------------- 4

Table 4 Capital Investment for the Sepon Copper Mine--------------------------------------------------- 4

Table 5 Operation Results in the Sepon Copper Mine ----------------------------------------------------- 5

Table 6 Financial Data of the Lane Xane Mineral Limited ----------------------------------------------- 5

Table 7 Capital Investment for the Phu Bia Gold Mine --------------------------------------------------- 6

Table 8 Operation Results in the Phu Bia Gold Mine------------------------------------------------------ 6

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Table 9 Comparison of Mine Operators in Laos---------------------------------------------------------- 10

Table 10 Construction Program of Main National Roads ----------------------------------------------- 11

Table 11 Existing Power Plants (as of December 2002) ----------------------------------------------- 15

Table 12 Existing 115kV Transmission Lines (as of 2004) -------------------------------------------- 16

Table 13 Average Household Electrification in Laos ---------------------------------------------------- 16

Table 14 Existing Electric Supply Facilities--------------------------------------------------------------- 16

Table 15 Transitions of Power Supply and Demand Balance------------------------------------------- 17

Table 16 Demand Estimate ---------------------------------------------------------------------------------- 17

Table 17 Priority of IPP Projects in PSDP----------------------------------------------------------------- 18

Table 18 EDL Power Plants Plan for Domestic Demands (2004-2013) ----------------------------- 19

Table 19 Water Supply in Lao Provinces ------------------------------------------------------------------ 21

Table 20 Current Situation and Tasks of Infrastructure ------------------------------------------------ 22

Table 21 Threatened Fauna Species ------------------------------------------------------------------------ 24

Table 22 Threatened Flora Species ------------------------------------------------------------------------- 24

Table 23 Characteristics of the Lao Mining Industry ---------------------------------------------------- 31

Appendix

Photographs taken in the Sepon Gold Mine --------------------------------------------------------------- 37

Flow Sheet for Ore Processing in the Sepon Gold Mine ------------------------------------------------ 37

Photographs take in the Sepon Copper Mine-------------------------------------------------------------- 38

Flow Sheet for Ore Processing in the Sepon Copper Mine --------------------------------------------- 38

Photographs taken in the Kopung Plant-------------------------------------------------------------------- 39

Photographs taken in the Phila Gold Plant ---------------------------------------------------------------- 39

Photographs taken in the Vilaco Gypsum Mine----------------------------------------------------------- 39

Photographs taken in the VSK Limestone Mine---------------------------------------------------------- 39

Photographs taken in the artisanal gold mining sites----------------------------------------------------- 39

Photographs taken in the artisanal gold mining sites----------------------------------------------------- 40

Laotian Ethnic Groups---------------------------------------------------------------------------------------- 40

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1. Current State of Mining Production in Laos

Mineral production, as a percentage of Lao GDP, has abruptly increased since gold

production began in the Sepon Mine. It is likely that this trend will continue for some time in the

future and mining production will be further intensified. There are 35 producing mines registered in

DGM as mines with mining rights as of April 2006, as shown in Table 1. These mines are separated

into 9 metal mines, 23 non-metal mines and 3 sapphire mines. The mine locations are shown in Fig.1.

Lao mining activities are simply categorized into three groups, as follows;

a. Medium-large mines with modernized production systems

b. Small mines without modernized production systems

c. Illegal artisanal gold mining without registered mining rights (NB) According to the Article 20 of the Mining Law and the Article 4 of its detailed regulation the Article 20 of the Mining Law and the Article 4 of its Detailed Regulation in Lao PDR, large mines are defined as having a mine-life of more than 20 years with an initial investment of more than US$50 million, medium mines as having a life of 10 to 20 years with an initial investment of US$10 to 50 million, and small mines as having a life of less than 10 years with an initial investment of less than US$10 million.

Production sites in the Lao mining industry increase from c. to a., but a. has an

overwhelming impact on the Lao economy. The current mining production state in each level is

described from a. to c., as follows;

Fig. 1 Registered Mine Locations in Laos

2

Tabl

e 1

Prod

ucin

g M

ines

in L

aos

3

1.1 Medium-Large Mines with Modernized Production Systems

There are only three mines with modernized production systems in Lao PDR, the Sepon

Gold Mine and the Sepon Copper Mine belonging to Lane Xane Minerals Limited, and also a gold

mine belonging to Phu Bia Mining Limited. All these mines are new mines established by Australian

investors. The Sepon Gold Mine opened in 2003, the Sepon Copper Mine opened in 2005, and Phu

Bia Gold Mine has just begun production since end of 2005.

1.1.1 Sepon Gold Mine

As a result of exploration begun in 1994, the gold reserve of the mine was 14.22 million

tons (ore average grade: Au 3.43g/t) as of August, 2003. Capital investment calculated in 2002 was

about US$ 40 million. The breakdown is shown in Table 2;

Table 2 Capital Investment for the Sepon Gold Mine Item Capital Cost (US$)

Mining 4,849,972

Process Plant 11,392,336

Infrastructure 1,709,935

Indirect Construction 13,813,102

Others 8,142,571

Total 39,907,916

Mining

Over the duration of operations, five deposits will be mined as open pits. At any one time,

only two or three pits will be operational, including at least one on either side of the river (to ensure

a continuous feed to the plant if access across the river is restricted due to flooding). The open pits

will develop the Discovery West, Discovery, Nalou and Namkok East and West deposits to produce

ore and waste rock. Ore and waste will be mined from the pits by two contractors 24 hours a day,

365 days a year. Prior to construction, unexploded ordnance was detected and removed. The areas in

and immediately around the site of the open pits and the waste rock dumps were cleared of

vegetation and prepared for mining. Limited commercially-valuable timber was collected and not

used by the mine, but was made available for use by the local communities. Topsoil and plant matter

were stockpiled for later use in progressive rehabilitation of mined areas. Ore and waste are mined

using large backhoes, with the rock being blasted where it is too hard for backhoes to dig efficiently.

Waste rock is taken to the waste rock dumps by 25t to 100t dump-trucks or used to construct

embankment dams. The ore is taken (again by trucks) to the process plant for subsequent recovery of

the gold. A picture showing panoramic view of the Sepon Gold Mine is accompanied in Appendix.

Ore Processing

The treatment involves crushing and grinding the crude ore to reduce its size and render

the gold amenable to cyanide leaching. Crushing and grinding are followed by conventional

cyanidation and carbon- in-leach (CIL) of gold and silver. The gold-enriched cyanide solution is

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subjected to electrowinning where the gold is plated onto stainless steel wool and smelted into

bullion.

Cyanide is recovered by dewatering the slurry (tailing) in a high-rate tailing thickener,

which allows most of the process water to be recirculated to the process plant. The dewatered tailing

is then subjected to cyanide reduction, where a large part of the residual cyanide is destroyed by

adding sulfur dioxide and air. Sampling and analysis of the slurry are performed. The slurry is then

pumped to the tailing storage facility.

The plant operates 24 hours a day, 365 days a year. A picture showing crushing plant of the

Sepon Gold Mine and its flow-sheet are shown in Appendix.

Operation results are shown in Table 3. Crude ore grade has been controlled to prolong the

mine life due to the recent high price of gold. Operation results have improved steadily.

Table 3 Operation Results in the Sepon Gold Mine Ore grade (g/t) Metal production (kg)

Year Crude ore

(t) Au Ag Au Ag

2003 1,173,248 5.00 8.41 5,140.009 3,850.053

2004 1,379,434 3.73 6.33 4,392.219 2,734.620

2005 2,659,948 2.77 4.99 6,232.208 3,404.589

2006 726,312 2.15 5.18 - -

(source: 2003-2005 from Oxiana Annual Report and 2006 from DGM)

1.1.2 Sepon Copper Mine

The Sepon Copper Mine has been operated in the Khanong deposit since 2005. The ore

reserve of the Khanong deposit is about 15.5 million tons with an average grade of Cu 5.2％. Total

capital investment calculated in 2003 was about US$ 16.73 million. The breakdown is shown in

Table 4.

Table 4 Capital Investment for the Sepon Copper Mine Item Capital Cost (US$)

Mining 4,869,053

Process Plant 85,446,788

Infrastructure 4,990,513

Indirect Construction 51,816,550

Others 20,197,828

Total 167,320,732

Mining

Ore and waste have been developed from the Khanong pit 24 hours a day, 365 days a year, using

excavators with the rock being blasted where it is too hard for the excavator to dig efficiently. Base

case pit scheduling and optimization has been undertaken to provide a copper production of 60,000

tpa. The feed tonnage and grade vary to provide this continued production rate. Initially, throughput

rates will be low while high grade material is processed in the early years of the project.

Subsequently throughput will increase to the nameplate capacity of 1.3 Mtpa as the average head

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grade declines. The crude ore at Sepon Copper Mine is predominantly chalcocite, although it can

also contain a range of copper oxide and carbonate minerals, depending on the depth and location of

the mining operation. Other minerals present in the ore include pyrite as well as gangue minerals

(mainly clay). The current reserves provide a mine life of approximately 13 years. However, the

Khanong resource has further resource potential, as does the nearby Thengkhan resource and other

targets in the area. A picture showing the Sepon Copper Mine is accompanied in Appendix.

Ore Processing

The copper process plant is designed to process 0.8 to 1.3 Mtpa of crude ore at an

average grade of approximately 5% copper to produce a nominal 60,000 tpa of LME Grade A copper

cathode over the mine life at varying throughput rates depending on the copper head grade. In the

process, chalcocite and other copper minerals are leached to produce a copper rich liquor. This is

achieved via a two-step process comprising an atmospheric leach and subsequent pressure oxidation

circuit. Initially, the majority of the copper minerals are extracted into solution using a sulfuric

acid/ferric sulfate leach medium under controlled conditions in a series of agitated open tanks. The

dissolved copper is then recovered in a solvent extraction (SX) circuit to extract the copper, which is

then electro-won (EW) to produce copper cathode. As an intermediate step, the residue from the

leaching process will be subjected to flotation to separate any remaining sulfide. This material will

then be re-leached at an elevated temperature and pressure in an autoclave to extract residual copper,

but mostly to generate the acid used in atmosphere leaching. A picture showing copper produced in

the Sepon Copper Plant and its flow-sheet are accompanied in Appendix.

Tailings from the copper ore processing plant are joined with tailings from the gold ore

processing plant and stored in the tailing dam.

Operation results of Sepon Copper Mine are listed in Table 5. The Sepon Copper Mine

began copper production in March 2005, and copper operation was not stable just after starting

production. But its operation reached full production in the end of 2005. The results of 2005 include

this unstable time, and the results of 2006 are data up to March.

Table 5 Operation Results in the Sepon Copper Mine Ore grade Metal production

Year Crude ore

(t) Cu (%) Cu (t)

2005 643,771 5.80 30,480

2006 856,869 4.12 15,073

(source: 2005 from Oxiana Annual Report and 2006 from DGM)

Financial data of Lane Xane Mineral Limited are shown in Table 6.

Table 6 Financial Data of the Lane Xane Mineral Limited (source: DGM) gold (000US$) copper (US$)

Year Sale Profit Sale Profit

2003 58,846 16,227 - -

2004 55,494 6,232 - -

2005 88,633 36,562 120,141 34,706

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1.1.3 Phu Bia Gold Mine

The Phu Bia Gold Project comprises three oxide gold deposits located within the

Xaisomboun Special Region. These are as follows;

1) Ban Houayxai

2) Phu Kham gold cap, located approximately 34 km east of the Ban Houayxai deposit.

3) Long Chieng Track (LCT), located approximately 8 km north-west of the Phu Kham deposit.

The total measured and inferred reserve is 7.53 million tons with an average grade of Au

1.1g/t. The total capital investment calculated in 2004 was about US$ 15 million. The breakdown is

shown in Table 7.

Table 7 Capital Investment for the Phu Bia Gold Mine Item Capital Cost (US$)

Mining & geology 200,000

Process Plant 11,493,644

Infrastructure 1,267,038

Others 2,360,254

Total 15,320,936

Mining

The deposits are mined as open pits using a combination of drilling and blasting, and

excavation methods to extract the gold ore. Approximately 20% of the ore/waste rock requires

blasting prior to excavation. The Ban Houayxai and LCT deposits are located at topographical high

points and will be mined to an average depth of 60m. The Phu Kham gold cap is located in low, hilly

topography and will be mined to an average depth of 20m. The strip ratios for the three deposits are

low as a result of their proximity to the ground surface. Mining is conducted in 10-hour shifts, six

days a week. The mined ore is transported in 25t dump trucks to the crude ore stockpile pad located

near the heap leach facility. Waste rock is placed in waste rock dumps located adjacent to each of the

pits. Mining operations in the Phu Kham gold cap began in the end of 2005, and operation results up

to March 2006 are shown in Table 8.

Table 8 Operation Results in the Phu Bia Gold Mine (source: DGM) Ore grade Metal production

Year Crude ore

(t) Au (g/t) Ag (g/t)

2005 400,567 1.63 -

2006 618,127 1.27 -

Ore Processing

From the crude ore stockpile, ore is transported to a crushing plant and agglomeration

facility to render the gold amenable to cyanide leaching. The agglomerated ore is then stacked using

conveyors onto a heap leach pad lined with a high density polyethylene membrane. At the heap leach

facility, sodium cyanide solution is irrigated over the surface of the stacked ore and allowed to

percolate through the heap. The gold-bearing leachate from the heap is flown by gravity via a series

of drains to the pregnant liquor pond. From here, the pregnant solution is pumped to an

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adsorption-elution gold recovery plant for final processing. All the processing facilities referred to

above are located in the LCT valley, approximately 5km north of the Phu Kham pit, and 3km

south-east of the LCT pit.

1.1.4 Other Mines

Other medium-large mines not mentioned above will be developed in the near future, such

as the Phu Bia Copper Mine, and the Kopung Gold Mine belonging to Vientiane Mining Trade

Limited, which have finished exploration work and are preparing for production. The Phu Bia

Copper Mine will start to produce concentrate in the end of 2007, and the Kopung Gold Mine will

start produce gold within this year. A picture showing the Kopung Gold Plant under construction is

accompanied in Appendix.

1.2 Small Mines without Modernized Production Systems

All mines were in this category until the Sepon Gold Mine was opened. Currently there are

32 producing mines in this category. There are 13 national mines, which include 7 mines managed

by MIH, 5 mines managed by the Ministry of Defense, and one mine managed by the Ministry of

Commerce and tourism. There are 19 private mines. There are 12 mines with foreign investment, 6

mines invested in by China, 3 mines by Thailand, 2 mines by Vietnam, and 1 mine each by Korea

and North Korea. There are 20 mines invested in by local investors.

These mines are managed on a very small scale, with 150 workers at the maximum and 10

at the minimum, and with many mines having about 20 workers. Their mining machines include

hand drills, compressors, and tracks which are often very old and superannuated. Ore processing is

not mechanized either. Sometimes crude ore is transported by rail directly to China, Thailand or

Vietnam. In this case, the crude ore is processed in foreign countries. Workers are collected from

nearby villages, so operation is stopped during the rainy season or farming seasons. Sales are

comparatively small with small profits. Therefore, tax payments are supposed to be low. However,

these mines are important cash income sources in industrially undeveloped local areas. Their

economic impacts are not neglected in the rural regions. Appendix includes pictures showing the

Philat Gold Plant managed by the Chinese Investor, the VILACO Gypsum Mine managed by the

Vietnamese investor, and the VSK Limestone Quarry managed by the Thai investor.

1.3 Illegal Artisanal Gold Mining without Mining Concession

The Mekong River flows down in the western part of Lao PDR, and has many tributaries.

Much artisanal gold mining is conducted on the Mekong River and its tributaries. These operations

are not officially registered, and are mainly carried out as farmers’ sidelines during the dry season

when water levels are low. Some villagers increase purity of panned gold by means of amalgamation,

8

which may contaminate the surrounding environment with mercury. Therefore, UNIDO undertook a

sociological survey on artisanal gold mining in Luang Prabang Province in association with DGM in

2003. Its report is summarized as follows;

Primary data was collected by means of interview with the heads and elders of each

village, and using questionnaires from 271 randomly selected volunteer households in the villages of

Ban Houay Gno, Ban Houay Koh, Ban Houay Lo, Ban Kiad, Ban Latthahai, Ban Pakchek, Ban

Pak-Ou and Ban Thinhong.

The average size of the eight villages surveyed is 402 persons, with an average of 5.6

persons residing in each household. Six ethnic groups are represented in the region, with the Lao

Loum and Lue being the predominant ethnic groups. The region, like much of rural Lao PDR, has

low cash income (an average of 4.85 million kip or US$ 461 per annum in surveyed villages) and

high mortality rates (15.2 deaths per 1,000 persons, 1995 Population Census). On average, 47% of

the sampled population experienced a major illness during the last 12 months, with malaria and

Acute Respiratory Illness (ARI) being the most common. Three of the eight surveyed villages do not

have access to an active medical facility. Of those that do, most villages only have access to a

pharmacy. Local produce, particularly rice and fish, dominate the diet with the latter forming an

important source of protein.

Among the surveyed villages, small-scale artisanal gold mining began in the mid-1970s,

and was a widespread activity by 1980. Artisanal gold mining is typically carried out at the family

level, involving men, women, and children, who are generally lacking in technical skills and

sophisticated equipment. The extent of mining activities and the resultant gold outputs vary among

villages in the region, with between 45% and 96% of the surveyed households having at least one

household member engaged in the activity. The peak mining season is short, primarily between

January and April at the end of the dry season when water levels are low, exposing ephemeral islands

and other areas of alluvial sediment. Typically, men will operate the equipment, such as shovels and

chisels, used for ore/alluvial extraction, while women and children transfer the ore/alluvium to bowls

and slice boards, pan the ore and perform the gold extraction processes (which are usually carried

out in the home).

The mining process and the use of mercury vary between villages situated on the Mekong

River and villages situated on the Nam Ou River. The process of ore extraction on the riverbank, on

ephemeral islands or from the riverbed using simple tools is similar for each of the surveyed

villages. However, for villages along the Mekong River, mercury is traditionally added at the

panning stage to form an amalgam with alluvial gold particles. The amalgam is subsequently

heated to cause the separation of the two elements as the mercury evaporates. Conversely, villages

on the Nam Ou River do not typically use mercury to form an amalgam with gold, but rather use

gravity separation by heating the sieved and panned material and periodically blowing away the

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concentrate surrounding the gold particles. It is not clear why there is a difference in techniques,

although it may be influenced by the size of gold particles within the respective rivers.

Mercury is a relatively expensive input to the mining process in Lao PDR, thus providing

an incentive for its recovery and re-use. This is typically carried out in the home, where, being a

confined space with limited air displacement, the potential for the inhalation of vaporized mercury

is high.

In many instances mining appears to be an important source of cash income, although

agricultural activities represent the principal occupation of village inhabitants in the region. Typically,

households involved in gold mining produce between 10 and 40 grams of gold per year (an average

of approximately 24 grams). This corresponds to an average village total of approximately 0.6kg per

annum. Gold resulting from artisanal mining in the region is sold directly to a gold merchant who

periodically visits each of the villages engaged in mining. The gold merchant may be required to

further refine the gold prior to sale at a regional market or directly to jewelers.

No obvious signs of mercury poisoning were identified, although a detailed health survey

would be needed to confirm this. Household awareness of the potential health implications of

exposure to mercury is invariably low. Only a small number of households recorded a general

perception of a risk, and generally lacked any data or specific information on what hazards mercury

use presented or how these hazards could be avoided. The addition of mercury to the excavated ore

generally occurs on the riverbank, thus potentially resulting in contamination of the soil substrate

and the adjacent watercourse. This in turn may lead to bioaccumulation in the aquatic food chain

upon which village nutritional intake, through fish and other aquatic fauna, is highly dependent.

The World Bank Team also attempted to conduct a brief survey on artisanal gold mining in

Luan Prabang, Savannakhet, and Borikhamxay Provinces. There are still many artisanal miners,

although gold quantity panned by artisanal mining has been limited recently and the number of

miners has decreased. In most cases, women excavate the ore by chisels and pans with bowls in the

riverbed. There are rare cases in which men with oxygen cylinders go under the water to excavate a

comparatively great deal of mud on the river bottom. In this case, they earn US$50 a day on average.

Along the Nakadok and Nam Houay streams in Borikhamxay Province, artisanal gold mining has

been carried out for more than 100 years. At present, gold mining is conducted in Nam Hoay stream.

Male inhabitants excavate 5m deep vertical shafts with iron billets and mine gravel containing gold

to be panned in the river. Mercury is not used there. Appendix includes pictures showing artisanal

gold mines working by the Nam Ou River, some men digging mud of the riverbed, and man

excavating a shaft.

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1.4 Tasks for the Lao Mining Sector

According to operation scale, mining activities are separated into three categories which

form a structure of the Lao mining sector with remarkable characteristics, as mentioned above.

Generally speaking, the mining sector in mining countries forms a pyramid structure consisting of

large scale mines, medium scale mines and small scale mines. They have reciprocal relation in

technology and labor, and they have been working together with exchanging and competing within

each category, and have made contribution to development of the mining sector. Each category has

developed ore deposits to meet its capital and technology. However, each mine operator works

independently without reciprocal relation in business manner, technology and labor in the Lao PDR.

Three categories with different characteristics can be said in other expressions as follows:

a. Medium-large mines with modernized production system: international mines operators

b. Small mines without modernized production system: regional mine operators

c. Illegal artisanal gold mining without registered mining right: artisanal miners

Table 9 Comparison of Mine Operators in Laos item International mine operators Regional mine operators Artisanal miners

Capital Attain large capital overseas Attain small capital in Laos

or neighboring countries

None

Technology & facility Covers all processes with modern

technology.

Superannuated and manual

type mainly for mining

None

Labor Attain it systematically inside and

outside of the country

Small and mainly part-timers

and inhabitants by the mine

Mainly farmers

Environmental

management

Well managed None None

Exploration Systematically done A little done or none None

Office works Utilize IT technology Manual calculation None

infrastructure Possible Almost none None

Operation in rain Possible Stop operation Impossible

Organization Stable Unstable None

Training Actively available None None

This mining structure was caused mainly by the Laotian history of the mining sector

which has been operated in small scale by regional operators with small capital, and the late

participation of the international mine operators in a short time. Furthermore, the overall mining

sector has not been completely impacted by activities of DGM which must lead the sector, and also

no expert has been nurtured so far. As reported in DFR-2 by Economic Geologist, resources

information is currently shorted, so it is difficult for regional operators with small capital to invest

in exploration. Also, mining activities would not be activated and the distorted structure would not

be improves if resources survey data are not given to international mine operators. MEM must

understand well the current state of the mining sector for promoting the overall mining sector.

11

2. Infrastructure and Related Plans in Laos

2.1 Roads

The governmental authorities which administrate the roads in Laos PDR are the Road

Department and the Transportation Department in the Ministry of Communication, Transport, Post

and Construction (MCTPC). The Road Department consists of Road Administration, Project

Monitoring, Local Roads, Bridge Project, and other Divisions to manage mainly road construction.

The Transportation Department consists of Land Transport, Transport Equipment Management,

Traffic Safety, Transport Control, and other Divisions to manage all services related to transportation

in the country.

Up to 2000, more than 24,000km of roads have constructed and rehabilitated. 3,800km

roads have been paved, and two bridges across the Mekong River and 114 small bridges in various

places have been constructed.

Financial sources for transportation (by roads and rivers) in Laos DPR depend on foreign

aid (grants or low-interest loans). The total 6-year budget from 2000 to 2005 is shown below;

Total domestic funds 302,206 million Kip (10.2%)

Total foreign funds 2,646,591 million Kip (89.8%)

Grand Total 2,948,797 million Kip (100.0%)

The Transportation Department manages several international projects, such as the

Improvement Project of Logistic System and Traffic Safety Project by the Asia Development Bank,

and the Vehicle Transportation Improvement Project by the World Bank. The ratio of vehicles using

roads in Laos is motorbikes 78%: cars 22%.

2.1.1 Current State of National Roads

The current state and main maintenance plans of Lao National Roads are shown in Fig.2

and main national roads programs are listed in Table 10.

Table 10 Construction Program of Main National Roads No. Construction areas Length Cost Period

1 No. 3: Huaysai-Luangnamtha-Natuay-Botan 250km Mil.US$90 2002-06

2 No.13:

Natuey-Odomsai-Pakmong-Luanprabang-Vientiane-

Pakse-Veurnkham

388km milUS$59 2000-10

3 No.2: Ngeun-Pakbaeug-Oudomsai-Taichang 391km milUS$57 2005-10

4 No.12 Thakhaek-Yommalath-Kiewmuya 149km milUS$32 2002-10

5 No. 18 Piafai-Attapui-Banhard 221km milUS$76 2004-10

Total 1,399km milUS$267 -

12

Fig. 2 Current State and Main Maintenance Plans of Lao National Roads

According to this figure, there are Lao national roads (No.1 to 18) throughout the country ,

but some roads constructed during the French Colony Period are currently out of use (the south

section of No.1). No.13 (south-north) is the most important road among the main national roads,

followed by No.9 (east-west) and No.7 (east-west). The main national roads have been developed

along the Mekong River, closely tied to the current population distribution and economic activities.

The East-West (No.9) and North-South Corridors (No.3) are known internationally, but No.9 has

much greater importance than No.3 from the viewpoint of domestic needs. There are three

international east-west corridors connecting Vietnam with Thailand, No.8 (north corridor), No.9

(central corridor) and No. 16-11-18 (south corridor). No.9 has been rehabilitated and improved by

Japanese assistance with US$ 49 million during 2001 to 2005.

2.1.2 Tasks for Roads

There are some tasks for roads, described as follows;

1) Lao roads have surface dressing, and their structural strength is only 9.1 t/axle, which is

weaker than roads in other countries, like Thailand (11t/axle). The cost estimate for

13

strengthening the roads is undertaken with the cooperation of the World Bank.

2) Road maintenance is insufficient. For this reason, the surface-dressed roads will turn to gravel

roads in about 6 years. The World Bank is studying a project for road maintenance.

3) There are no local constructors who can build roads. Foreign contractors undertake large

projects, but local contractors undertake only temporary small work or maintenance jobs.

Chinese projects are undertaken using all Chinese workers.

Lane Xang Mining Limited selected the Thai route for transporting machines and

equipment to the Sepon Mine, rather than the shorter Vietnamese route, due to vexatious

transboundary procedures and worse transportation. All loads were taken on ferryboats with capacity

of 300t across the Mekong River from Laem Chabang Port, a base station in Thailand, to

Savannakhet, and transported to the mine site via National Road No. 9. At that time, many bridges

were needed reinforcement for passage because their structures were weak.

The roads are worn out by exporting lignite, and their repairing and maintenance are

insufficient.

2.2 Electricity

The Mekong River from Yunnan, the People’s Republic of China, flows 1,500 km across

the country from the north to the south, and many tributaries join into it from hills, such as the

Annam Cordillera. Therefore, Lao PDR has a plenty of hydraulic resources, and its technical

potential hydraulic power is estimated at 18 million kW. The currently excavated hydraulic power is

630,000 kW which is only 3.5% of total potential. Lao PDR has still gigantic resources to develop.

According to Lao statistics, wood or charcoal occupies 78%, petroleum 13%, coal 0.6%

and electricity 8% in domestic energy consumption. There are serious issues in energy consumption,

such as very high consumption for non-commercial purposes, and all petroleum products are

imported.

2.2.1 Management of Electricity

In 1994 the Department of Electricity (DOE) was established in MIH, which formulates

the electrical policy, electrical supply plans (including power generation, transmission, supply, rural

electrification) and gives advice to the Minister. The DOE also manages investigations and designs

for achieving development of electric power resources, undertakes rural electrification plans, such as

hydraulic power, diesel generation and solar energy generation, and promotes hydraulic generation

projects invested in by foreign organizations.

Electricite du Laos (EDL), under the MIH, manages the main system of power generation,

transmission and supply, as a national company. The EDL exports surplus electricity to Thailand, and

14

also imports necessary electricity for areas without transmission lines from Thailand, China and

Vietnam. The organization of the EDL consists of five departments; administration/finance,

projects/development, power generation, transmission, supply, and service. Its total employees are

2,977, as of December 2004. An hydraulic plant owned by Independent Power Producer (IPP) began

to operate in 1998 with the purpose of exporting power to Thailand. As of 2006, there are 2

hydraulic plants operated by IPP and 1 plant under construction for exporting power. The EDL

develops hydraulic plants for domestic consumption, and also participates in 2 IPP projects, which

are the Theun Hinboun Plant with 210 MW since 1998 (60% shareholder), and the Houay Ho Plant

with 150 MW since 1999 (20% shareholder).

The Provincial Department of Industry and Handicrafts (PDIH) is a part of the local

government, and power generation facilities below 2 MW are permitted by the PDIH based on the

“Electric Power Law” established in 1997. The PDIH does not belong to the MIH, but receives

support from the MIH.

The electricity business used to be administrated by the MIH, but was reorganized into

Ministry of Minerals and Energy, June 2006. The Lao Holding State Enterprise was established in

2004 for separating new investment in IPP from EDL to improve transparency and efficiency in the

electricity business.

2.2.2 Electricity Supply

For electric supply, there are two kinds; “on-grid” type directly from power transmission

lines, and “off-grid” type from independent generators. “On-grid” electric supply is managed by the

EDL, but the power transmission system is not sufficient, not connected throughout the country, and

is divided into 4 electric supply regions (northern, central 1, central 2 and southern regions).

Fig.3 shows power transmission lines and power supply regions in Lao PDR. “On-grid”

supplies are fed by three sources, a. EDL power plants, b. IPP power plants (which are responsible

for 5% of domestic supply) and c. imported electric supply from Thai, Vietnam, etc. It should be

noted that “off-grid” supply is produced by small hydraulic plants operated by local communities

and others.

Table 11 lists existing power plants as of December 2002, and Table 12 lists existing

115kV power transmission lines as of 2004.

Table 13 shows yearly transition of average electrification of Lao households for 10 years. The

Vientiane Capital is highest, 97.2%, and northern Phongsaly is lowest, 10.6% in provincial

electrification, which shows the large difference between urban and rural areas.

15

Fig. 3 Power Transmission Lines and Power Supply Regions in Laos

Table 11 Existing Power Plants (as of December 2002) Plant Name Power

MW electricity 1million kWh/y

operators Started from Province

Theun Hinboun 210 1,561 IPP 1998 Khammouane

Houay Ho 150 617 IPP 1999 Attapeu

Nam Ngum 1 150 1,021 EDL 1971 Vientiane

Nam Leuk 60 249 EDL 2000 Vientiane

Xeset 1 45 180 EDL 1991 Saravane

Selabam 5.0 30 EDL 1969 Champasak

Nam Mang 3 40 147 EDL 2004 Vientiane

Nam Phao 1.6 7 Province 1995 Borikhamxay

Nam Ko 1.5 8 EDL 1996 Oudomxai

Nam Dong 1.0 3 EDL 1970 Luangphabang

(micro hydraulic powers)

1.462

Province

34 sites

(diesel powers) 17.343 EDL, province 48 sites

(photopiles) 0.178 Province 123 points

Total 683.087

(source: DOE, MIH "Statistics of Electricity Consumption in year 2004", others)

16

Table 12 Existing 115kV Transmission Lines (as of 2004) Region Route Distance

（km） No. of lines

Central 1 Nam Ngum 1Power Plant ‒ Border of Thailand 97.0 3

Central 1 Thalat Substation - Luang Prabang Substation 212.0 1

Central 1 Nam Leuk Power Plant ‒ Paksan Substation 87.0 1

Central 1 Nam Leuk Power Plant - Nam Ngum1 Power Plant 55.0 1

Central 2 Pakbo Substation ‒ Border of Thailand 1.7 1

Southern Xeset 1 Power Plant ‒ Border of Thailand 114.0 1

Others 419.3 1

(sources: DOE, MIH: “Statistics of Electricity Consumption in year 2002”, EDL: “Annual Report 2004”).

Standard voltage of EDL supply is 22kV, but 35kV is also used for imported electric

supply. Table 13 shows existing supply facilities for EDL. It should be noted that there are “off-grid”

supply lines operated by provinces, etc. not shown in Table 14.

Table 13 Average Household Electrification in Laos (unit: %) Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Country ave. 15.0 18.9 26.1 30.0 33.1 35.9 35.1 38.9 42.9 47.0

(source: DOE, MIH “Statistics of Electricity Consumption in year 2002”)

Table 14 Existing Electric Supply Facilities (unit: km-circuit） Province 35 kV 22 kV 0.4 kV Region

Oudomxai 98 75 Northern

Bokeo 143 106 〃

Huaphan 170 0 116 〃

Luangprabang 351 179 Central 1

Vientiane Capital 1,271 1,849 〃

Xayaboury 404 378 〃

Vientiane 746 900 〃

Bolikhamxay 650 547 〃

Khammoan 1,299 811 Central 2

Savannakhet 1,414 1,144 〃

Saravan 742 641 Southern

Champasak 1,233 1,194 〃

Total 170 8,401 8,034

(source: EDL "Annual Report 2004").

Table 15 shows transitions of generated quantity (including IPP), imported and exported

quantity and domestic consumption. The table indicates exported quantity has been larger than

domestic consumption. Especially, exported quantity increased sharply since 1998 because IPP

plants began operating in succession for exporting. Electric exportation is an important foreign

currency earning source for Laos, but there are some areas which need to import electricity due to

the insufficient power transmission system, as mentioned above.

17

Table 15 Transitions of Power Supply and Demand Balance International accommodation (1 mil. kWh)Capacity

（MW） Generated quantity (1 mil. kWh)

Exporting quantity

Importing quantity

Difference

Loss (1 mil. kWh)

Consumption(1 mil. kWh)

Year

A B C D e (c+d)

F g (ｂ+e－f)

1995 218 1,085.0 ▲ 675.5 76.8 ▲ 598.7 148.8 337.5

1996 222 1,247.8 ▲ 792.4 87.5 ▲ 704.9 163.4 379.5

1997 222 1,218.9 ▲ 710.2 101.7 ▲ 608.5 176.5 433.9

1998 432 2,298.9 ▲1,613.4 142.3 ▲1,471.1 314.5 513.3

1999 643 2,978.4 ▲2,228.8 172.2 ▲2,056.6 356.3 565.5

2000 643 3,618.6 ▲2,792.8 180.2 ▲2,612.6 366.1 639.9

2001 643 3,837.4 ▲2,871.4 183.8 ▲2,687.6 439.5 710.3

2002 643 3,804.9 ▲2,798.4 200.8 ▲2,597.6 440.6 766.7

2003 643 3,407.5 ▲2,284.6 229.3 ▲2,055.3 468.5 883.7

2004 688 3,625.2 ▲2,424.7 277.6 ▲2,147.1 575.3 902.8

(source: DOE, MIH ” Statistics of Electricity Consumption in year 2004”, EDL:” Annual Report 2004”, and others)

In the customers’ proportional usage of EDL, “residence” stands out with 52%, followed

by “industry” 21%, and “commerce” 10%. This ratio has remained mostly unchanged for a long

period of time.

The Lao Government announced a goal of electrification of 90% of households by 2020 in

the socioeconomic development policy published in March 2001. Also, the government announced a

goal of electrification of 70% of households by 2010 in NGPES, and rural electrification will be also

promoted by means of expanding “on-grid” lines and increasing “off-grid” sources.

The demand estimate was studied by the Power System Development Plan, EDL, ADB,

World Bank and JICA. Table 16 shows the “Power System Development Plan 2006 - 2015” as

formulated by EDL.

Table 16 Demand Estimate Year 2005 2010 2015 2020

Electric demand （1million kWh） 1,693.7 3,067.9 4,062.9 5,181.7

Growth rate （%） 13% 6% 5%

Peak power （MW） 317.7 533.5 729.3 950.6

Average growth （%） 11% 6% 5%

Load factor （%） 61% 66% 64% 62%

(source: EDL, 2006 "Power Development Plan 06-15 (PDP 06-15) provisional edition")

2.2.3 Electricity Development Plan

The power development plan consists of hydraulic power plants, not including small scale

“off-grid” generations. Power development projects are separated into the following 2 types,

according to different objectives;

1) Development projects for hydraulic plants for domestic consumption

These projects are developed and operated for electric supply to domestic demand by EDL.

Generation plants are small or medium, with a capacity of less than 100 MW. Development funds

18

are mainly financed by international aid organization loans with low interest rates, and recently

Chinese loans have been increasing.

2) Development projects for hydraulic plants for exporting power

These projects are formulated for electric exportation, and generation plants are medium

or large, with a capacity of more than 100 MW, and basically by IPP, which are mainly foreign

investors who play central roles. After IPP signs a memorandum (MOU) for the Lao government,

IPP evaluates a project, and then goes to design, construct, and operate a new plant.

The World Bank reviewed previous IPP plans and re-evaluated the priority and scale in the

“Power System Development Plan (August, 2004)”, as shown in Table 17.

Table 17 Priority of IPP Projects in PSDP No. Project Power

(MW) Generated Quantity(1 million kWh/year)

Generating Cost (US$/kWh)

1 Nam Theun 2 1,080 5,922 1.6

2 Theun Hinboun Expansion 105 686 2.4

3 Thakho 30 214 2.6

4 Nam Mo 125 603 2.7

5 Xe Kaman 3 250 1,369 2.8

6 Xe Kaman 1 470 2,068 3.1

7 Nam Ngum 2 460 1,901 3.2

Nam Ngum 2B 140 196 8.7

8 Xe Kong 5 400 1,795 3.2

9 Nam Sane 3 60 283 3.3

10 Nam Ngiep 1 330 1,537 3.8

11 Xe Kong 4 490 2,257 3.8

12 Nam Ngum 3 530 2,167 4.1

Nam Ngum 3B 690 2,859 3.9

13 Houay Lamphan Gnai 60 250 4.0

14 Nam Pot 25 99 4.6

15 Nam Ngum 5 75 317 5.4

16 Nam Bak 2B 85 389 5.6

17 Nam Long 12 63 6.2

18 Nam Sim 10 47 7.1

19 Xe Katam 13 60 8.1

(Source: the World Bank "Power System Development Plan for Lao PDR（PSDP）2004")

The Nam Theun 2 Power Plant utilizes the vertical interval between the Nakai highland

and the Gnommalat plain located in the central Laos. Its prospective installed capacity is 1,080 MW

with water consumption of 345 m3/s and an effective vertical interval of 348m, and exports 995 MW

to Thailand, and supplies 75 MW for domestic needs. Its construction began in May 2005, and will

be completed in December 2009. The total project cost is estimated to be US$ 1.45 billion.

Table 18 lists plans for hydraulic power plants prepared by EDL in 2004. Only the Xeset 2

19

Plant is now under construction, as other plans have been delayed in feasibility studies as well as

fundraising.

Table 18 EDL Power Plants Plan for Domestic Demands (2004-2013) A-Year Power Plant Power

（MW） Supply Region Remarks

2006 Xeset 2 76 Southern Region Started construction in Oct. 2005

2007 Nam Sim 7.8 Northern Region IPP for domestic needs

2007 Theun-Hinboun(Extention) 110 Central Region IPP for domestic needs

2008 Nam Beng 20 Northern Region IPP for domestic needs

2009 Nam Theun 2 (Domestic) 75 Central Region 2 IPP for domestic needs

2010 Nam Ngiep 16 Central Region 1 IPP for domestic needs

2011 Nam Chia 116 Central Region 1 IPP for domestic needs

2013 Houay Lamphan Gnai 60 Southern Region

(source: EDL “PDP 2004-13”)

2.2.4 Transmission Construction Plan

Transmission facilities for newly constructed plants are usually constructed newly as a part

of the power development project. Also, with the cooperation of the World Bank and ADB, a

transmission network is being constructed for rural electrification. The main transmission plans are

as follows;

1) Southern Provincial Rural Electrification: SPRE

This is a project financed by the World Bank. SPRE 1 (1999 to 2004) has been completed,

and SPRE 2 (2005 to 2010) is the next stage under preparation.

2) Power Transmission and Distribution Project: PTD

This is a project financed by the ADB, etc. PTD 1 (2000 to 2003) has been completed,

PTD 2 (2004 to 2007) is the next stage under construction.

3) Greater Mekong Power Network Development Project

This is a project financed by loan aid from the Japanese government. Transmission with 2

lines will be constructed between Pakxan - Thakhek – Pakbo (about 320km). This loan aid is

about US$ 33 million. After completion in April 2009, Central Region 1 and 2 will be connected

by this project.

20

2.3 Railway

A new railway is being constructed from the Friendship Bridge, constructed by Australian

aid in northern Thailand, to Ban Thanaleng, located about 15 km to the southeast of Vientiane. There

is a Thai railway in the mid- Mekong River, so this will be extended 2.6km in Lao territory to Ban

Thanaleng, where a new station will be constructed. The construction cost is estimated to be US$ 6.8

million, which will be entirely incurred by Thailand. This railway will make massive transport to

Thailand possible, and is expected to play an important role in the transportation of materials and

passengers.

For future railway construction, there is a great idea to extend this railway to the north and

south via Vientiane, but it is unlikely to happen in the near future, due to low traffic volume

(passengers and transportation tons).

Fig 4 Current Railway in Laos

21

2.4 Water Supply

The current water supply facility is at a low level in Lao PDR. Water supply is a large task

for Laos, and is clearly pointed out as a burning issue in NGPES. Water supply facilities are mainly

financed by international organizations such as the ADB, JICA, France, Germany, and other donor

countries, managed by the Committee of Water Supply, and operated by each province. Water supply

facilities are installed in only limited urban areas. Urban average coverage is less than 40%, and total

coverage including rural areas is less than 10%, as shown Table 19.

Table 19 Water Supply in Lao Provinces Population

Total Urban

Urban pop. served

Urban coverage

Production

capacity Province

000 000 000 % m3/day

Vientiane Cap. 628 400 252 63.0 101,100

Phongsaly 183 24 7 29.2 2,300

Luangnamtha 138 17 15 88.2 1,750

Oudomxay 348 61 18 29.5 3,800

Bokeo 136 31 8 25.8 1,200

Luangprabang 437 120 41 34.2 15,000

Huaphanh 292 33 12 36.4 1,000

Xayabury 349 125 11 8.8 4,000

Xiengkhuang 240 54 12 22.2 5,600

Vientiane 338 89 18 20.2 4,200

Borikhamxay 196 39 7 17.9 2,900

Khammuane 327 71 22 31.0 7,800

Savannakhet 802 142 55 38.7 15,400

Saravane 307 25 13 52.0 1,800

Sekong 77 17 7 41.2 2,150

Champasack 601 119 37 31.1 15,000

Attapeu 104 23 8 34.8 900

Xaysomboune 65 16 4 25.0 400

Total 5,568 1,406 546 38.8 186,300

(source: WASA)

First priority in water supply is to increase the coverage ratio. In water supply, there are

many other problems, such as low capacities of water supply facilities, low water quality in some

areas, and low water recovery rate.

The official water supply networks in Lao PDR are limited to urban areas, and they are

insufficient. Therefore, water needed for mining development must be provided by developers in

rural and suburban areas.

22

2.5 Tasks of Infrastructure for Mining Development

Laotian infrastructure has been steadily constructed by supports from the international

organizations and donor countries. From viewpoint of all the country, construction has just begun.

As the current state of infrastructure, road, electricity, raiway and water supply were described here.

However, so far all infrastructure projects have not planned and constructed in connection with

mining activities. This reason comes from the fact that the mining industry had not been recognized

as important industry because it had occupied about 0.5% of GDP before the Sepon Mine was

opened. However, the situation was changed completely after the Sepon and Phu Bia Mines were

opened. The mining industry began to give its contribution to the national economy. It should be

noted that constructing infrastructure considering mining activities can link with promoting the

mining industry which could give more economic contribution.

DGM was reorganized into MEM which supports the national economy with electricity

that is an important factor of infrastructure. More close relation between mining and energy would

be expected to work in favor of growing the Laotian economy. Table 20 shows current situation and

tasks of infrastructure for mining development.

Table 20 Current Situation and Tasks of Infrastructure

Based on growth of mining activities by 2025 (DFR-2), accumulated revenues from

mining activities are estimated to be US$ 1 to 2 billion which is corresponds to 3-7 times of road

construction cost for 6 years after 2006. The revenues correspond to 4 to 7 times of total construction

costs for principal national roads with total length of 1,333km such as No.3, 13, 2, 12 and 18

National Roads. It is a serious restriction of exploration/development activities for investors to

construct infrastructure. Without partial budgeting of revenues from mining activities to constructing

roads for the mineral potential areas, it is very difficult to promote explorations owing to excess

burdens of infrastructure for investors. Concerning electricity, shortage of electric network will

worsen profitability in FS for resources development. MEM should establish a system which

supports constructing power plant for developing mines that must supply partially their electricity to

local communities around the mines. If a new large cooper mine cannot apply SX-EW production

system like the Sepon Mine, it must transport a large amount of copper concentrates to foreign

countries. But truck transportation would be much more expensive than train. Therefore, extension

of railway could be very effective for mining promotion. A location map for infrastructure and

ore-deposits is attached in Appendix.

I te m C u r re n t s itu a to n Ta s k s

R o a d R e s o u rc e d e v e lo p m e n t n e a r ro a d s . R o a d c o n s tru c t io n to m in e ra l p o te n t ia l a re a s .

E le c tr ic ity E le c tr ic ity p ro d u c t io n m a in ly fo r c ity s u p p ly a n d e x p o r ta t io n .

S u p p o r ts fo r c o n s tru c t io n o f s m a ll p o w e r p la n t fo r lo c a l s u p p ly.

R a ilw a y V e ry s h o r t d is ta n c e u n d e r c o n s tru c t io n . C o n s tru c t a m a in ro u te .

W a te r s u p p ly M a in ly fo r c it ie s . S u p p o r t o f w a te r fa c ilit ie s fo r m in in g d e v e lo p m e n t a n d its c o m m u n it ie s .

23

Concerning electricity, shortage of electric network will worsen profitability in FS for

resources development. DFR-2 points out increased energy cost may worsen profitability of the

mines. MEM should establish a system which supports constructing power plant for developing

mines that must supply partially their electricity to local communities around the mines.

The Lao PDR has only a very short railway under construction. However, if a new large

cooper mine cannot apply SX-EW production system like the Sepon Mine, it must transport a large

amount of copper concentrates to foreign countries. But truck transportation would be much more

expensive than train. Therefore, extension of railway could be very effective for mining promotion.

A location map for infrastructure and ore-deposits is attached in Appendix.

Water supply should be also supported by the government in same way as electricity

supply. If mines receives some supports for water supply from the government, they can give some

water to the communities around the mines, using the same water lines.

It should be noted that it is important to construct infrastructure considering resources

potentials.

Fig. 5 Relationship between Ore Deposits and Infrastructure

24

3. Environmental Considerations

3.1 Natural and Social Environments in Lao PDR

3.1.1 Valuable Species

Laos PDR is a mainly mountainous, densely-forested country in Southeast Asia, and

possesses a tropical monsoon climate. Therefore, its biodiversity level is very high, and a lot of

valuable fauna and flora species make their habitats throughout the country. Valuable species are

shown as follows;

Table 21 Threatened Fauna Species IUCN category Mammal Bird Crawler Pisces

EX - - - - EW - - - - CR 3 2 1 1 EN 8 4 1 4 VU 20 21 5 - LC 20 45 2 - DD 9 - 1 4 Total 60 72 10 9

Table 22 Threatened Flora Species IUCN category Number

EX -

EW -

CR 5

EN 7

VU 5

LC 23

DD 5

NT 5

Total 52

(source: IUCN Red List 2005)

EX: A taxon is extinct when there is no reasonable doubt that the last individual has died.

EW: A taxon is extinct in the wild when it is known only to survive in cultivation, or as a naturalized population well

outside of the past range.

CR: A taxon is critically endangered when the best available evidence indicates that it meets any of the criteria,

and it is therefore considered to be facing an extremely high risk of extinction in the wild.

EN: A taxon is endangered when the best available evidence indicates that it meets any of the criteria, and it is

therefore considered to be facing a very high risk of extinction in the wild.

VU: A taxon is vulnerable when the best available evidence indicates that it meets any of the criteria, is therefore

considered to be facing a high risk of extinction in the wild.

DD: A taxon is data deficit when there is inadequate information to make a direct, or indirect, assessment of its risk

of extinction based on its distribution and/or population status.

NT: A taxon is near threatened when it has been evaluated against the criteria but does not qualify for CR, EN or

VU now, but is close to qualifying for or is likely to qualify a threatened category in the near future.

3.1.2 National Biodiversity Conservation Areas and Cultural Heritages

The Lao government established National Biodiversity Conservation Areas (NBCAs) in

1993 with the purpose of conserving biodiversity, representative biological habitats, threatened

species, and landscapes. NBCAs are indicated in the green part in Fig. 7.

25

Luanprabang and Vatphou were designated as the World Heritage Sites in 1995 and 2001

respectively. These cultural heritage sites are indicated in red parts in Fig. 7.

Fig. 6 NBCAs and Cultural Heritage Sites in Laos (source: ICEM 2003)

3.1.3 Ethnic Minorities

Lao PDR is a multiracial country. Racial numbers are not fixed, but linguistic families are

broadly divided into Lao-Tai, Mon-Khmer, Hmong-Mien and Tibet-Burmese Families. Laotian

ethnic groups based on a 1995 national census are shown in Appendix.

It should be noted that Lao ethnic groups are classified into the following three groups

according to the altitude of their residences;

・ Lao Loum: ethnic group which lives in the lowland or plains in the river basin (200-400m ASL).

・ Lao Theung: ethnic group which lives on the hillsides (300-900m ABL).

・ Lao Soung: ethnic group which lives in the highland (800-1,600m ASL).

26

3.1.4 Military Conservation Areas

There are a few military conservation areas, as shown in Fig.8. Permission from the

Ministry of Defense is necessary to enter these areas.

Fig. 7 Military Conservation Areas in Laos (source: DGM)

3.2 Environmental Management in Laos

The main administrative authority for the environment in Lao PDR is the Science,

Technology and Environment Agency (STEA) of the Prime Minister’s Office. STEA is responsible

for environmental conservation and protection from pollution. Its rights and duties are defined in

Article 36 of the Environmental Protection Law, as follows. STEA implements environmental

management and monitoring activities and regularly reports to the government on the country’s

environmental situation. STEA is responsible for instructing development projects and activities to

prepare EIA reports according to the regulations of the EIA, and STEA is an examination authority

for the EIA. STEA has 200 staff in total, and 35 staff in the Department of Environment. The

department consists of four divisions: EIA, Environmental Policy, Environmental Protection and

Awareness, and Foreign Environmental Administration Survey. The total applications to IEE and

27

EIA were 55 from 2000 to 2005. Among them, 48 applications were permitted and 9 applications are

still under examination. The largest group of applications is for mining development, 15 applications

(including the Sepon Mine and Phu Bia Mine), followed by hydraulic power development, 12

applications.

STEA is legally required to implement environmental management and monitoring

activities, but does not currently implement any environmental monitoring due to a budget shortage.

So far, STEA has cooperated on a project with DANIDA (Danish International Development

Agency) to undertake air and noise monitoring in Vientiane from September 2002 to February 2003,

and participates in the EANET (Acid Monitoring Network in East Asia) to measure rain precipitation

and water quality (pH and electric conductivity) at a fixed point in Vientiane. There is no other

monitoring performed by the government.

It is likely that a baseline survey has not yet been conducted for the country, but some

baseline surveys were conducted in the necessary areas for large projects such as the Sepon Mine

development. Therefore, no basic environmental survey has been implemented for small projects.

The Lao environmental standard values are not yet established, but some provisional

values have been applied, and environmental values used by international organizations and

advanced mining countries have been adopted as compliance values to be referred to. A department

director of Environment, STEA, has stated that Lao environmental standards will be established

during 2006.

Currently, there is no comprehensive environmental plan for the entire country. Generally,

country-wide environmental plans include environmental management programs for the mining

sector. Under such country-wide plans, each agency can work together. Mining environmental

management is also administratively effective for environmental protection of the Laotian land. The

national environmental plan is directly connected to the protection of land, forest, biodiversity, and

cultural heritage.

As a general rule, Lao environmental management activities are still considered low level.

3.3 Environmental Management for Mining

The relevant laws for the mining industry related to the environment are the Lao

Constitutional Law, Environmental Protection Law, Environmental Protection Law Regulations,

Environmental Assessment Regulation, Mining Law, Mining Law Regulations, Environmental

Protection Regulations for the Mining Sector, Law on Water and Water Resources, Land Law, Forest

Law, etc.

The main administrative authority for the mining industry in Lao PDR is the Department

of Geology and Mines (DGM) belonging to the Ministry of Industry and Handcrafts (MIH). DGM

issues exploration and mining licenses and maintains the environmental protection policy. Article 4

28

of the Environmental Protection Law defines “DGM and relevant local government officers have to

promote environmental protection by giving information and regulations for environmental

protection, and also encourage investors to understand the importance of the environment.” The

Environmental Section of the Mining Concession Division is in charge of environmental matters in

DGM.

An Environmental Compliance Certificate is needed to attain licenses for exploration or

mining, after examination and approbation by STEA.

For example, the ESIA (Environmental and Social Impacts Assessment) for the Sepon

Mine was examined from 2000 to 2002. This ESIA report consists of an executive summary, a main

report, an environmental management plan including a detailed resettlement action plan and

community/indigenous people development program, a public consultation and disclosure plan, and

technical reports. STEA employed a foreign consultant to examine this report.

Detailed decrees on regulating mining activities are shorted for DGM to conduct

environmental management. They must be fulfilled in the future.

The “Action Plan for Implementation of Environmental Legislation” created by Australian

Trust funds (the World Bank, July 2004) pointed out the need for detailed quality standards, and

concluded that Lao PDR has chosen a route for the administration of environmental legislation

which is not commonly found in other countries, and that DGM should be a leading agency for its

administration. Also, it gave principal recommendations for environmental management, as follows;

1) Regulations for Implementation of Environmental Assessment in the Mining Industry

should be issued by DGM.

2) General Environmental Standards should be issued by STEA.

3) Regulations concerning mining industry environmental standards for air (dust and fumes),

waste water, soil, noise, and vibration, including detailed sampling and measurement

procedures, frequency, and time tables for improvement of set standards, should all be

issued by DGM in consultation with STEA. As a first step, the standards should be

published by the World Bank.

4) Management of mining industry environmental legislation by DGM;

a. Environmental Assessment including EIA

b. Monitoring of environmental performance

5) General Guidelines should be issued by DGM for the compilation of a Code of Practice for

specific environmental aspects, including

a. Tailings dams,

b. Cyanide management,

c. Water and waste management,

d. Acid mine drainage, etc.

29

6) Establishment of a monitoring infrastructure within DGM (field sampling, field

measurements, and laboratory analysis) to monitor compliance of mining enterprises with

environmental legislation.

7) Specialized environmental investigation and testing, as well as control analysis should be

handled by STEA or another suitably qualified independent agency/laboratory. A suitable

arrangement needs to be finalized by DGM.

8) Strengthening of the Environmental Section within the Mining Concession Management

Division of DGM to facilitate assuming full responsibility for environmental management

and control in the mining industry.

The Environmental Section should meet the following criteria:

a. Mining and mineral processing background

b. Environmental expertise

c. Risk assessment capability

d. Field monitoring and sampling experience

e. Experience in drafting regulations

9) Analytical work should be performed by the existing analytical infrastructure within DGM,

and this infrastructure has to be strengthened within certain areas.

3.4 Tasks for Environmental Consideration

It is natural to observe strictly natural environmental protection in promoting exploration

and development of resources. It is also necessary to protect societies including local communities

and cultural heritages, and consider ethnic minorities (see Fig.7). It is a basic prerequisite for mine

developers to investigate these matters in EIA before opening a mine.

EIA is examined by STEA, and mine development is examined by DGM. However, EIA is

very close to development plan. Therefore, it is desirable for MEM to manage exclusively EIA and

mine development, by absorbing partially functions and organization of STEA. Situation of

monitoring system should be same as EIA.

It is necessary for MEM to cooperate and coordinate with other ministries for developing

mines around restricted areas such as NBCSs, Cultural Heritage Sites, Military Conservation Areas,

etc. Also, some measures for redundant procedures are needed for permitting investments. When

ministries are reorganized in the future, it would be efficient to grow the mining sector by stopping

these redundant organizations.

30

4. Characteristics and Future Tasks for the Lao Mining Industry

4.1 Characteristics of the Lao Mining Industry

Based on mine site surveys of the project, the Lao mining industry has clear distinguishing

characteristics, described as follows;

In Lao PDR there are three types of mining systems: medium-large mines with modern

production systems, small mines with obsolete machines, and traditional methods and

artisanal gold mining without modern technology.

There are large differences between these types of mining systems in capital, technology,

scale, management, production, etc. The Lao mining industry includes very different

modern and traditional production methods.

Exploration in the medium-large mines has not been promoted yet, although they do have

potential for resources. Some small mines have developed production activities although

they have not been fully explored. Some of them mine ore almost at random.

Basic infrastructure, such as roads, electricity, etc., are still under construction all over the

country. Lack of infrastructure is one of the challenges in promoting exploration and

development. Furthermore, operational stoppage during the rainy season is also an issue. It

should be noted that construction is dependant on financial aid and loans from

international organizations and donor countries.

Most of the joint venture companies are funded by neighboring countries, and Lao local

investors excavate only crude ore with traditional technology, so there hasn’t yet been

much basic technology transferred to the Lao side.

Artisanal gold mining in placer deposits contributes important cash income to rural

farmers, but also encourages illegal mechanical excavation by miners from neighboring

countries.

Environmental issues are not considered by small mines and artisanal miners. There is also

insufficient man-power, technology, and knowledge for environmental management in the

governmental organization (DGM). It is especially a problem that they have no analyzing

technology to identify mercury, arsenic, etc.

Medium-large mines export metal, such as gold ore and electric copper, as mineral

products, but many small mines produce construction materials for domestic users and

export crude ore without processing it.

Spin-offs, such as metal processing, industrial material processing, transportation, trading

etc. from mining industry have not yet been created.

The roles and locations of national mines, including mines belonging to the Ministry of

Defense, have not been cleared, and in that sense are competition for private companies.

It is hard to attain exact production and financial data for mines other than medium-large

31

Australian-managed mines. Therefore, it is very difficult to know the exact current status

of mining in Lao PDR.

Table 23 Characteristics of the Lao Mining Industry Item Medium-large mines

(International operators)

Small mines

(Regional Operators)

Artisanal mining

(Artisanal Miners)

Capital Australian capital Local or neighboring

countries

None

Technology Modern Traditional None

Production

Products Gold, Electric copper Crude ore/metal conc.

Industrial materials

Gold particles

Employees 500 to 2,500 10～１50 Household

Environmental

considerations

Exist None None

Mining rights Exist Exist None (partially exist)

Engineers Allocated in fields Partially allocated None

Sales amount US$90million/mine US$10,000～1million US$200～800/household

Fig. 8 Structural Concept for Lao Mining Industry

3,000 Workers

1,500

7,000～15,000

Total Workers

US$ 200 million

US$ 15 million

US$ 4 million

Total Sales

: Medium-Large Mines

: Small Mines

: Antisanal Gold Miners

32

5. Action Plan

The following action plan must be implemented and addressed, with concrete measures for

each task, such as methods, organization, effectiveness, finance, etc, to promote the Lao mining

industry.

5.1 Investigation on Current Operating Mines

There is no exact detailed data for mines operating in Lao, as DGM has not collected

information on the mines. It is crucial and fundamental for the mine administrating authority to

know all mining activities, as this data is the basis of all actions.

The basic data for mining activities consists of ore production, ore grade, concentrate

production, concentrate grade, sales amount, number of workers, working days, number of accidents,

environmental problems, etc. These data should be collected from each mine in a standardized

format as basic materials for administration.

Also, these data should be made available as Lao mining information through a website

and other methods as a first step toward open mining in Lao PDR.

5.2 DGM Staff Training

The low technical level of the DGM staff could be an obstacle to attracting investment

from advanced mining countries. It would be very useful for them to study the modernized operation

systems in place at Sepon Mine, in observance of such important mine operation points as investor

concerns, and the many mine management requirements, including mining, processing, mine safety,

environment issues, mine administration, and mine accounting. Therefore, training at the actual mine

is the most efficient and practical approach.

5.3 Investigation on the Current State of Illegal Artesian Gold Mining

Detailed interviews with miners should be carried out with the goal of organizing the

artesian gold miners across the country as mentioned above. Investigation topics should include the

number of mines, working periods, operating scale, income, volume of mercury consumed,

explanation of organization, hearing their opinions on it, etc. Based on this investigation, it would

then be necessary to incorporate the artesian miners into legal mining, and manage them.

33

Fig. 9 Basic Concept for Organizing Artisanal Miners

• Organize current household digging into village unit excavation.

• Village units will attain mining licenses. The Mining Law will need to be changed to

authorize artisanal mining licenses.

Organization of artisanal gold miners will enable expanded production and increased

profits through systematic and efficient small machine mining operations. Programmed mining will

assure operational continuity, and will allow DGM to grasp the production situation to manage

artisanal gold mining, which will eventually lead to the full and optimal utilization of Laotian

national resources. An organized consortium of individual businesses will relieve women and

children of the economic burden of buying mercury and tools, the physical burden of arduous labor

in the water, and will promote healthy and safe living conditions. The marketing route for gold

concentrate (product) will also be organized to enable periodic trading and the abolishment of

mercury use. These types of organization will require specific policies and a legal framework for

artisanal gold miners. Also, MEM will need to conduct technical instruction, campaigns for

environmental awareness, and various supporting activities.

5.4 Establishing a Machine Leasing System for Small Mines

Most machines operating in the small mines are superannuated with operating efficiency

in Lao PDR. Small mines must increase production to improve their profits, but this very difficult to

do with their inferior machines. Therefore, leasing new mining machines to mines which cannot

afford to purchase them would be systemized in order to support production increases. For example,

Area A Area B Area C

Regional consortium

Unit union Unit union Unit union

Gold digging Gold digging Gold digging

Village A Village B Village C

Report the activities Instruct Technology to miners artisanal

Collect gold particles

Smelting and refining

Environmental management

Household miners

Grouping (unit)

DGM

• Formulate laws and regulation • Isuue mining licenses • Instract mining technology • Environmental management (Monitoring)

34

more stripping in open pits and more drifting underground would be made possible by leasing these

machines. Small mines could also buy these machines after they had increased their profits.

5.5 Preparing Model Mines

Some model mines will be selected from small mines which are managed by DGM.

Modern mining measures will be transferred to these mines by engineers and managers invited from

advanced mining countries, and these mines will be managed on a commercial basis. Transfer topics

would include new technologies in exploration, drilling, mining (open pit and underground),

processing, as well as modern company management, accounting, administration, etc. Managers,

engineers and operators in the domestic private mines could receive training in these model mines,

and also consult with the model mine staff about technical and management issues.

5.6 Infrastructure to Promote Mining Development

Foreign investment is needed to initiate mining development, and infrastructure is one of

the key factors to attracting foreign investors. Mining development in Laos will put an especially

large burden on investors for infrastructure construction costs, due to the insufficient basic

infrastructure. Therefore, constructing a basic infrastructure, such as roads and electricity in

promising areas, should be studied with the cooperation of other ministries like the MCTPC. If basic

infrastructure is constructed in the promising areas, Laos will be in a stronger position than other

countries to attract foreign investment. This will be a large incentive to promote mining development

in the future.

However, the government basically cannot afford to, and is not in a position to finance all

of the infrastructure needs of mines. Therefore, the government needs to clarify which basic

infrastructure will be constructed by the government, and which additional infrastructure will require

investment by the developers. The roles and responsibilities for infrastructure maintenance also need

to be defined. The rules for BOT when transferring rights to public ownership will likely be adopted.

Case-by-case negotiations between the government and developers for infrastructure construction

will also likely be needed, based on the regulations mentioned above. Globally, there are various

different solutions for infrastructure construction, and case studies from several countries need to be

considered for appropriate adoption by Lao PDR.

5.7 Mineral Surveys in Hydroelectric Dam Construction Areas

Hydroelectric power is an important industry in Lao PDR, which has many hydraulic

power plants because it is very rich in water resources. Considering the current water resource

utilization rates and the economic growth of the countries around Laos, Laos will have major

potential for additional hydroelectric power plants in the future. There is a strong possibility for

35

construction of gigantic hydroelectric dams like the Nam Theun 2. However, it is not clear if

sufficient mineral surveys have been conducted before the construction of such huge hydroelectric

dams. Once constructed, those dams are very difficult to tear down. It is very important to prepare

legal considerations for mineral surveys around construction areas for huge structures like

catchments.

5.8 Baseline Surveys for Mining Environment

There is a strong possibility for initiating mining activities in the future, but at the same

time, there is a strong necessity to protect the rich natural environment of Lao PDR. It is very

important that future environmental management of mining activities fully understand the current

environmental state, in which mining development has not yet been fully implemented. The

possibility of future environmental contamination should be addressed relative to the current

environmental state. Therefore, quantitatively understanding the current state through environmental

baseline surveys around promising mineral areas is recommended. The result of the baseline surveys

should reflect the environmental standards for mining activities to prevent environmental

contamination from mines in the future. The funds for the surveys must depend on support from

donor countries and international organizations.

5.9 Establishment of an Environmental Monitoring System

The increase in mining impacts on the environment in Lao PDR need to be understood. It

might be necessary to select some very active mining areas in the country for monitoring of their

environments under national management. Chemical analyses and data processing should also be

done to devise counter-measures against problems which occur in mines.

5.10 Disclosure of Information

Disclosure of information concerning environmental protection is effective for protection

from occurrences and expansion of environmental accidents, and increasing environmental

awareness of inhabitants. It is desirable for inhabitants and NGOs to monitor mining activities

together through governmental wide propaganda of mining environmental administration. Currently,

there is no data to be disclosed except environmental data monitored by the Sepon Mine. But, more

data can be collected in the future if mining activities would be encouraged. Methods for disclosure

are supposed to be websites, library and press releases. It is basic for environmental protection to

keep transparency by disclosing a lot of environmental information as well as mining activities.

5.11 Establishment of a Mining Technical Training Center

Considering the mineral potential in Lao, a system which trains mining technicians for

36

long-term work needs to be prepared. There are needs not only for the private mines, but also for

government agencies which supervise mining activities. If this center can systematically instruct

them about the mining technologies and knowledge which are required by mining management, it

could be a powerful force to drive the Lao mining industry in the long-term.

5.12 Technical Improvement of the Chemical Laboratory

It is vital for Lao PDR to acquire scientific analysis methods for independently achieving

environmental mining management. This is a basic step toward environmental monitoring. Scientific

analysis methods will be available for mineral analysis of exploration samples, and could be one

type of mining promotion. Currently, the chemical technical level is not high in Laos, and analysis

facilities are insufficient. Analysis technology should be improved urgently. Improvement will come

mainly through support from donor countries and international organizations.

End of Report

37

Appendix

Flow Sheet for Ore Processing in the Sepon Gold Mine

A Crusher in the Sepon Gold Mine PlantPanoramic View of the Sepon Gold Mine

38

Flow Sheet for Ore Processing in the Sepon Copper Mine

The Open Pit of the Sepon Copper Mine Copper Cathode Produced in Sepon

39

Digging Gravel by the River Nam Ou

The Philat Gold Plant invested by China

The VSK Limestone Mine invested by Thailand

The VILACO Gypsum Mine invested by Vietnam

Panning Gravel in the River Nam Ou

The Kopung Plant under Construction

40

Laotian Ethnic Groups

Lao-Tai phylum (6) 1 Lao 2,403,8912 Phuthai 472,4583 Lue 119,1914 Nyuan 260,2395 Yang 4,6306 Saek 2,745

Mon-Khmer phylum (32) 7 Khmu 500,9578 Katang 95,4409 Makong 92,32110 Suay 45,49811 Laven 40,51912 Taoy 30,87613 Taliang 23,09114 Tri 20,90615 Phong 21,39516 Lave 17,54417 Katu 17,02418 Lamet 16,74019 Thin 23,19320 Alack 16,59421 Pako 13,22422 Oy 14,94723 Ngae 12,18924 Cheng 6,51125 Nyahuen 5,15226 Yae 8,01327 Samtao 2,21328 Singmum 5,834

Excavating Mud in the River Bottom

Excavating a Shaft in Nakadok

41

29 Tum 2,51030 Mon 21731 Bit 1,50932 Nguan 1,34433 Sadang 78634 Lavi 53835 Khmer 3,90236 Kli 739

Hmong-Yao Phylum (2) 37 Hmong 315,46538 Yao 22,665

Tibet-Burmese Phylum (7) 39 Ko 66,10840 Khir 1,63941 Phounoi 35,63542 Musir 8,70243 Kui 6,28644 Sida 1,77245 Lolo 1,40746 Hayi 1,12247 Ho 8,900

End of Appendix