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Monday, July 02, 2012

Cambodia—Prospective, Stable and Ignored: Ken Booth

The Gold Report: Why should investors pay attention to Cambodia?

Ken Booth: Because of political forces, Cambodia was forgotten and ignored. The French explored during its colonial period in Vietnam and other parts of Southeast Asia. That information was lost. The Australians explored Southeast Asia, but focused more on Indonesia, closer to its backyard. The political strife that ended in the mid-1980s further stopped foreign investment in Cambodia and it became a forgotten place.

While things were quiet in Cambodia, the past 20 years have seen significant exploration and development in Vietnam, Laos and Thailand. As a result, Laos has a world-class copper mine and a producing gold mine. Those countries share many geological similarities to Cambodia. For now, there isn’t a big database of exploration results for Cambodia. But the country should be on people’s maps for mining exploration. And it is beginning to be.

TGR: What types of deposits are explorers searching for? Gold? Copper?

KB: From a commercially viable point of view, the targets are copper, copper/gold systems and epithermal precious metal systems. That is true of the east and central areas of the country. In the western regions on the border with Thailand, small-scale miners have been extracting precious and semi-precious stones for decades.

TGR: So what’s the situation with regard to exploration in Cambodia right now? Is it a greenfield?

KB: It would be considered greenfields, but some initial work has been done. Some geological maps are available. Initial exploration is not too difficult—it’s fairly easy to get around. We’re not talking about difficult physiography. First-stage exploration can be done rapidly through stream-sediment sampling and geophysics. Modern exploration would be considered greenfield.

Interestingly, on the eastern border with Vietnam, there has been significant small-scale and artisanal mining over the past 10 years. That activity does not appear to be historical and seems to be on the decline. Many of the miners cross the border illegally; it is a fairly porous border. The miners mine the alluvial material down to hard rock.

TGR: In those areas, do companies follow the small-scale miners to the most prospective areas?

KB: Yes. There are many forces at work in this situation. The border is tightening up. A lot of those small miners don’t use the best environmental mining practices and many use mercury. The Cambodian government is in the process of removing many of these people off the properties, pushing them back into Vietnam. The good news is the miners have exposed veins at surface, or they’ve excavated pits and you can get to hard rock or regolith. Clearly, they are extracting gold out of the alluvium and out of the veins, so the miners are also benefiting while doing the prep work for the modern explorers.

TGR: Does this put the mining companies and the government in the path of conflict with the local population?

KB: The Cambodian government is encouraging economic development on all fronts. It looks around the world and sees how mining has benefited a lot of countries. The government is making positive moves toward resource development. With mineral resources, the government is proactive in making sure that illegal miners—especially the ones who have crossed over the border—are moved off the land. That places the government in a good position to work with companies. If a company has a memorandum of understanding with the government on a particular piece of ground, the government will support the company in its endeavors. In those cases, the government will resolve the issues with illegal mining. Most of the small-scale mining is alluvial, which is very different from the mining exploration that public companies are engaged in.

TGR: In the past, you have discussed Angkor Gold Corp. (ANK:TSX.V). What is new there?

KB: Angkor Gold is one of the most active companies in Cambodia. The other significant company is Renaissance Minerals Ltd. (RNS:ASX) from Australia, which recently purchased a 750,000 ounce (750 Koz) gold deposit from OZ Minerals Ltd. (OZL:ASX) Those are the companies that are the most proactive explorers in Cambodia. I’ve heard that there are Chinese-backed private entities working within the country, but I don’t have any knowledge as to who they are or what they’re looking for. Angkor Gold’s main focus is exploration for gold, copper and copper-gold systems while Renaissance Minerals’ main focus is developing its 750 Koz gold resource.

TGR: Angkor Gold is an early-stage exploration company. With so many projects, how do you value the company?

KB: Angkor Gold has a lot of projects. The beauty about going into a country like Cambodia at this stage of the game is you get to be the first mover. The best company to bet on is the first mover that gets in and acquires the most prospective land. Angkor Gold has used its in-country managers, who have had experience in Cambodia over the last decade, to claim or apply for large tracts of land in order to ensure that it is the first mover. Over time, as exploration companies explore their land packages, less prospective areas will be dropped. While Angkor Gold looks as if it has a lot of land, and it does, it’s only from the point of view of saying, “I’ve got six or seven areas here I really think are prospective, I want to make sure I have those.” And as it works those properties, hopefully it will be successful on one or more. But, that land position will change dynamically over time.

TGR: What would be the timeline to get a resource estimate in this situation?

KB: Faster than you might think. Cambodia has four drilling companies and three assay labs. I believe two of those assay labs are accredited for reporting under the Australian reporting system as well as under Canadian NI 43-101 policies. Drillers and labs are busy, but they exist. The large labor force is not a problem; people are available and ready to work. Infrastructure is good and improving.

Getting to a resource is no worse than in a first-tier mining jurisdiction like the U.S., Canada, Mexico or Peru. In fact, you could be slightly ahead just by virtue of not having to compete for labor and potentially less bureaucratic red tape than in more developed countries. If a company is looking at a small vein-style deposit, it can probably develop the resource in fairly short time. If it is trying to drill off a resource in a large copper-porphyry system, that will take a lot longer, just by virtue of it being a much larger target.

TGR: Many sources state that Cambodia has a stable legal and regulatory framework. The mining law was written about 10 years ago, so it is still young. Can you comment?

KB: The legal system was developed with external advisers to ensure that it could be used by foreigners who wanted to invest within the country to protect property and individual rights. For a country that has a fairly new legal system, it appears to be good. The same applies to the mining law.In creating legal systems, many developing countries rely on the expertise of people and legal systems from other jurisdictions. It seems to work well. It is an open system with clear rules spelled out in the memorandum of understanding. Companies can apply for small acreage or large acreage. But either way, exactly how to make the application and then what companies have to do to keep their tenure are well defined. It is an open and transparent legal system and mining law.

TGR: What are your thoughts on how an investor should participate in Cambodia?

KB: Investors should align themselves with managers that understand resource development in emerging jurisdictions. Investors need to realize that if they are in early, they have the potential for outsized rewards—if they pick the right managers. Early investment in a country like Cambodia needs to be managed by people who understand the initial foray into the country by companies like Angkor Gold, Oz Minerals and now Renaissance Minerals. Those initial prospects may generate gains when sold to developers.

In all these countries, people have their views on where they’ve come from and how bad the situation was. But the most important thing is to understand where they are today. Resource investors who get in early should do well. But they need an appetite for risk.

I consider Cambodia to be in its infancy, and it has not been explored to any great degree. There are similar stories of ignored countries in Africa including Somalia, Sierra Leone and the Democratic Republic of the Congo. We’ve got an example close by in Colombia. Fifteen years ago, exploring for gold in the Colombian jungle would have been considered crazy. Now Colombia is a major destination for exploration.

TGR: At this point, do you have an idea of what fraction of Cambodia has been explored?

KB: Oh, I would put it down to less than 5%.

TGR: There’s a lot of room for exploration still.

KB: A lot of room for exploration. Here is how I think it will play out. Somewhere, there will be a success or a discovery. You will see additional modern techniques applied on a large scale countrywide. How much has been explored? Well, a relatively small percentage, because it’s all being done using tried-and-true methods—feet on the ground, mapping and sampling. When larger surveys, such as airborne geophysics, start to highlight prospective areas, things could really open up.

TGR: What thoughts would you like to leave with the readers?

KB: If investors are looking for a company that’s early stage and prospective, they should look at Angkor Gold. If investors are looking for a country that is early stage and prospective, they should look at Cambodia. It is a mining-friendly jurisdiction. Investment is coming to the country and infrastructure is improving. As an investor or a company, the “first mover” gets the pick of the litter. And I think Angkor Gold has definitely done a good job on that. Investors should pay attention to both Cambodia and Angkor Gold.

TGR: Thanks for taking the time to talk to us.

Ken Booth has more than 30 years of experience in exploration, mining corporate finance and public company administration. In mining corporate finance, he has worked for two of Canada’s largest investment banks executing numerous equity financings for both junior and senior companies and was involved in a variety of significant mergers and acquisitions. While working for resource companies, Booth has held several positions including CEO and vice president of corporate development. He is currently providing financial advice to the junior mining sector and is a director of four exploration companies.
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1) Alec Gimurtu of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Angkor Gold Corp. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Ken Booth: I personally and/or my family own shares of the following companies mentioned in this interview: Angkor Gold Corp. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this story.
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Manulife Expands ASEAN Footprint

Leading Canada-based financial services company, Manulife Financial Corporation (MFC) has set up a head office in the Southeast Asian country of Cambodia. The new office has been set up to expand its business and presence in the Cambodian region, though it has already started its operations from June this year. The country, with a population of approximately 15 million, promises to be a good market for Manulife.

Earlier, during November 2011, Manulife received an approval from the Canadian government to establish a fully-owned life insurance operation in the region. The inauguration was scheduled to coincide with Manulife’s 125th anniversary. The company was established in 1887 and has been providing clients with reliable and progressive solutions and helped them to make significant financial decisions.

With market-leading positions in Asia, Canada and the United States, the company leverages a diverse business platform that offers a range of financial products in both developed and developing markets around the world.

The Cambodian operations will fall under its ASEAN segment and will mark the 11th Asian country in which Manulife has a presence.
The insurance industry in Cambodia seems lucrative, especially after the opening up of the sector in 2000, which allowed the entry of foreign players in the country. The country’s regulations required an insurance company to have a minimum paid up capital of $7 million. Though it was very easy to meet the financial requirements, it will it will be relatively tough for Manulife to educate its masses, which is unaware of its numerous insurance products and their benefits.

However, Manulife is enthusiastic about cashing in on the emerging life insurance needs of the people of Cambodia. The insurance market in this country remains largely underpenetrated with a mere 0.3% of the total population carrying insurance protection.

There are at present a handful of insurance companies, which include six general insurance players (led by Forte Insurance) and one life insurance company, Cambodia Life, which is a newly-formed joint venture between the government and four Asian firms. In the reinsurance space, there is just one domestic reinsurance company, the state-owned Cambodia Re.

With only a few companies in the market, competition is not much of a problem, and there are limited insurance choices for people. Also, high premium costs allow only 1-2% of the total Cambodian population to buy insurance protection at present.

Manulife is bent on serving the remaining population via its differentiated cost-effective products. Moreover, growing awareness about the importance of insurance will make it easy for Manulife to gain customers.

Manulife closely competes with China Life Insurance Co. Ltd. (LFC) and Sun Life Financial Inc. (SLF). The stock currently retains a Zacks # 2 Rank, which translates into a short-term Outperform rating. Considering the fundamentals, we are also maintaining our long-term Outperform recommendation on the shares.
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Cambodia gambles on development

By Muhammad Cohen

PHNOM PENH and MACAU - Since its casino resorts opened in 2010, Singapore has stood out as a shining example for global gaming companies. Everyone wants to imitate its success.

But few places can match Singapore as a destination for international tourism and investment. Rather than trying to copy the Lion City, many aspiring gaming centers would do well to consider the Naga alternative, based on the casino in Cambodia.

Singapore's example has been compelling. The country held an open tender for its two casino licenses starting in 2005, inspiring a fierce competition between most of the world's leading gaming companies.

The so-called Singapore model, spelled out in the bidding requirements, demanded iconic properties, non-gaming attractions and tourism appeal. That meant successful aspirants would have to spend billions of dollars on their new properties, which Singapore's well-paid bureaucrats dubbed integrated resorts (IRs).

As a result, Singapore wound up with two established international casino companies, Las Vegas Sands from the United States and Genting Group from Malaysia. They constructed the two most expensive casino properties yet built, with a total investment of more than US$10 billion.

Hot stuff
Marina Bay Sands has three 55-story hotel towers connected by a one-hectare rooftop deck that overhangs the east tower, creating a striking new vista in the Singapore skyline as well as a great vantage point to view the city. The resort also has a lotus-shaped museum, a million-square-foot convention center, and a glass-enclosed shopping mall.

Genting's Resorts World Sentosa features Southeast Asia's only Universal Studios theme park, and a multimedia, interactive, indoor/outdoor maritime museum soon to be linked to the world's largest aquarium. Both resorts have celebrity chef restaurants, destination spas, and tens of millions of dollars in artworks inside and out.

Combined casino revenue last year was estimated at more than US$6 billion, more than the total take of Las Vegas's casinos. They've become the most profitable properties for their companies, with combined profits on track to top US$2 billion this year.

Non-gaming revenue was $1.5 billion and EBITDA (earnings before interest, taxes, depreciation and amortization) reached US$500 million, "comparable to the top six hotel companies in the world", former Marina Bay Sands CEO Thomas Arasi noted at Global Gaming Expo (G2E) Asia 2012 in Macau.

As good as the casinos have been for Las Vegas Sands and Genting, they've been even better for Singapore. From 10 million visitor arrivals and S$10 billion (US$7.9 billion) tourist expenditures in 2008, arrivals rose to 13.1 million last year, with expenditures topping S$21 billion.

The city added close to 5,000 new hotel rooms that hospitality experts say were critically needed, yet seemingly defied the laws of supply and demand as rates rose 25%.

I'll have what she's having
Beyond numbers and dollars, the IRs have changed Singapore's image from stuffy and boring to exciting. They have in many ways given Singapore the "X factor" Prime Minister Lee Hsien Loong sought when he proposed casino legalization in 2004.

Seeing the impact of the two IRs, "Governments around the world will say, 'I want one of those'," Arasi observed.

But not every place has Singapore's special attributes. Its government and legal system inspire the confidence foreigners need to plunk down several billion dollars. Equally attractive, more than one in seven Singapore residents is a millionaire. Even before the IRs opened, Singapore was a leading international travel destination, supported by one of the world's best airports in terms of both facilities and travel links.

A country like Cambodia, especially the war-torn, capital-poor Cambodia of two decades ago, needs a different approach. NagaWorld, the only casino in Cambodia's capital of Phnom Penh, is a fraction of the size of Singapore's IRs. It was built in stages at a fraction of the cost, and is a fraction as profitable. But NagaWorld may be as beneficial to Cambodia as the IRs are to Singapore.

In 1991, just after a United Nations administered peace agreement gave hope of ending decades of political chaos and civil war, the government asked for bids to build an airport and related infrastructure in Sihanoukville, a port and beach resort on Cambodia's southern coast about 185 kilometers southwest of the capital.

NagaCorp founder and chief executive officer Chen Lip Keong, a Malaysian property developer who at the time had no experience in casinos, won the contract, which included the "carrot" of a gaming license, NagaWorld chairman Timothy McNally said.

"Cambodia was starting at ground zero," McNally, a former US Federal Bureau of Investigation agent who joined NagaCorp after working as director of security and legal services at the Hong Kong Jockey Club, said.

Rather than rounding out its tourist offerings, Cambodia was just trying to stop being the butt of the joke in Holiday in Cambodia, a 1980 punk anthem. It was a poor, war-weary nation struggling to get back on its feet, an unlikely site for casino development.

"When I used to go on road shows, they would look at us like, a casino in Cambodia? Still any M-16s on the streets? There were a lot of perception issues," McNally said.

In 1994, NagaCorp opened its first casino on a barge in the Mekong River. Two years later, the company saw its initial 20-year gaming license extended to 70 years. The license also gives NagaCorp exclusive rights to casino gambling within a 200-kilometer radius of Phnom Penh until 2036.

The casino moved on shore in 2004, and in 2006 NagaCorp raised US$95 million with a Hong Kong stock offering, the first Cambodian company to list internationally, helping to open the country to foreign investment.

By the end of this year, NagaWorld will total 1.4 million square feet, including 700 hotel rooms, a spa with Jacuzzi tub, sauna and steam bath in every treatment room, the country's top business meeting (and wedding) venue, and an epic breakfast buffet.

The company doubled net profit to US$92 million last year, and this year welcomed 490,000 visitors in the first quarter. "We brought pride to Cambodia, prestige, showed confidence in Cambodia, and raised the visibility of the country and the company. We were confident the story would become monumentally better, like the country," McNally said.

Ambitious expansion plans call for two more towers with over a 1,000 more hotel rooms and at least double the gaming capacity, plus Phnom Penh's first modern luxury mall. The US$369 million project, dubbed Naga2, includes a waterfront public park and a third tower that will be given to the government for offices.

The company's success to date and ambitious plans are reflected in its share price. The stock has doubled in the value in the past year, compared with a drop of around 9% in the benchmark Hang Seng Index.

Game theories
Those successes have tracked Cambodia's wider economic gains. Since 1999, Cambodia's gross domestic product has grown by more than 6% every year except for a flat 2009, reflecting the global financial crisis. Overseas visitor arrivals have increased from 460,000 in 2000 to 2.8 million last year and are on track to top 3 million this year.

"It has not happened by accident," McNally said. The government "has made a concerted effort with tourism. We've tried to tailor our offerings in line with what the government wants and needs". For example, NagaWorld's casino voluntarily excludes Cambodian citizens, except those who hold foreign passports.

One of Cambodia's great needs is well-paid jobs. NagaWorld has 3,600 employees, more than 90% of them Cambodians. The company provides skills and language training to employees across the board, as well as advancement opportunities. Many Cambodian employees have moved through the ranks to become managers.

Singapore needs more workers, not jobs. But below the surface, there are many similarities in the casino policies of Cambodia and Singapore.

One key motivation for both was to change their international reputations. To get what they wanted, both countries decided to give foreign investors a lot of what they demanded. Both allow full foreign ownership of casinos, lengthy lease and license terms, and low gaming taxes, compared with nearly 40% in Macau.

The Philippines has long had casinos, but now is trying to move to the next level as an international travel destination. The country has opted for a version of the Singapore model, demanding major upfront investment.

The Philippines also has its own perception issues that are closer to Cambodia's than Singapore's regarding its safety as both an investment and vacation destination. Like Singapore, the Philippines allows its citizens to gamble in casinos, but they're not nearly as high-rolling as wealthier Singaporeans.

The Philippines also has PAGCOR, the Philippine Amusement and Gaming Corporation, a government agency that both operates and regulates casinos. In other words, it's poised to compete with the new private casinos while also setting down the rules for the game.

The Philippines may have picked the right model, but PAGCOR's dual rule, different from anything in Singapore or Cambodia, could prove a deal breaker.

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More and More Cambodians Going Online for Advocacy, Blogger Says

“We see Internet surfers using it for sharing information and joining discussions on human rights and other social issues.”

Chak Sopheap, a Cambodian Web log user, or blogger, surfs her blog during the Cambodian Bloggers Summit in Phnom Penh.

Cambodian Internet users are increasingly going online for more than mere socializing, a popular blogger says.

Chak Sopheap, who is currently in the US on a blogging fellowship, says more and more Cambodians are using the Internet as a tool for advocacy, especially on issues of corruption and rights abuses.

Internet usage remains low, but it is increasing, said Chak Sopheap, a 2012 Internet Freedom Fellow. Recent statistics show Internet penetration in Cambodia at only about 3 percent, but growing.
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