An engineering feat would let PanAust send ore concentrate direct to China, writes Lindsay Murdoch.
Australian miner PanAust will be able to transport copper, gold and silver from its mines in central Laos on an ambitious 420-kilometre high-speed train line that appears set to transform the sleepy south-east Asian nation into a globally linked hub.
Gary Stafford, the company's managing director, says instead of trucking ore concentrate to a Thai port it could be sent on the train to China, the market for about two-thirds of the material produced at its Phu Kham and Ban Houayxai open-cut mines.
"If it is cost-effective, we will look to it," Stafford told a small group of Australian journalists the company took to the mines last weekend, including from Fairfax Media.
About 50,000 Chinese workers are expected to take five years to build the railway with 76 tunnels and 54 bridges through the geologically unstable limestone mountains of northern Laos, a massive engineering feat designed to form part of an ASEAN-China rail network linking southern China with Laos, Thailand, Malaysia and Singapore.
A link is also planned from Thailand to the Bay of Bengal in Myanmar, providing another route to transport oil from the Middle East that would enable China to bypass the Malacca Strait, a potential choke point between the Indian Ocean and China's east coast.
The proposed Laotian railway will run between Kunming, the capital of the southern Chinese province of Yunnan, and the Laotian capital Vientiane, where Chinese interests have invested heavily, including building hospitals and luxury villas and upgrading the airport.
The Laotian government's decision to make the railway a priority has surprised economists, foreign business people and diplomats in Laos, a landlocked country of 6 million people that ranks last only to Myanmar among south-east Asian nations in the United Nations Development Program's (UNDP) human development index.
Most Laotian people live on less than $5 a day and agriculture dominates the economy.
Laos' 11-member communist politburo, which includes guerilla veterans who fought alongside the Viet Cong in the Vietnam War, has agreed to finance the project with a $7.2 billion Chinese loan amounting to a staggering 86 per cent of the country's annual economic activity.
One UNDP consultant described the terms of the financing by China's Export-Import Bank as so onerous they put Laos' "macro-economic stability" in danger.
Officials of the World Bank and Asian Development Bank have also privately expressed concern about the deal, according to diplomats.
Chinese state media has been quoted as saying China will be looking to receive minerals, mainly potash, timber and agricultural products from Laos in years ahead.
Although criticism of the railway is muted in Laos, where people critical of government policy sometimes "disappear", some Laotians are unhappy about China's growing influence in their country, fearing it will become the equivalent of a new Chinese province.
Laos also has big ambitions to become an electricity exporter through a series of 11 hydro-power dams along its stretch of the 4900-kilometre long Mekong River, mostly to Thailand, despite concerns expressed by downstream countries Cambodia and Vietnam.
A ground-breaking ceremony was held last year for the $US3.5 billion ($3.65 billion), 1260-megawatt Xayaburi Dam despite environmental studies not being completed.
Stafford is taking a cautious approach to the proposed railway and is not relying on it to expand PanAust's operations in Laos through its Laotian-registered subsidiary Phu Bia Mining Limited, a company that is 10 per cent owned by the Laotian government. He is "fairly confident" the company will push ahead to develop a new mine close to the town of Phonsavan in the northern part of its 2600 square kilometre contract area.
One option is to build a processing plant at the site costing about $300 million, while another less costly option is to build a crusher there and construct a 100-kilometre road so trucks can take ore to the company's existing plant at Phu Kham, in a mist-shrouded valley 120 kilometres north of Vientiane.
A feasibility study is expected to be completed by the end of the year.
Stafford, who formerly held management positions with CRA, BHP Billiton and Barrack Mine Management, has, since 1996, overseen PanAust's development into a S&P/ASX 100 mining company that has invested up to $US1.6 billion in the Laotian economy and now accounts for more than 7 per cent of the nation's gross domestic product, more than 30 per cent of the country's exports and employs 3500 people, 87 per cent of them locals.
Asked about corruption in the country, where the communist party operates in secrecy and there has been a trend of obstruction of justice and free expression, Stafford says "we haven't seen any" and the company has a clear policy not to pay bribes or facilitation payments although "you have to be careful of definitions".
He says it is normal, in developing countries, to pay costs associated with extra work done by low-paid civil servants with invoices and receipts issued.
The company has also paid for independent consultants reviewing environmental impact reports for the government while remaining at arm's length from them.
"You have to step back and understand from their perspective," Stafford says.
He says government officials are "strong negotiators who are always looking for a resolution".
"They want you to intensify your work and grow your business but, of course, they want it to be a fair outcome from their perspective," he says. "We most definitely see us in Laos for the long term."
Lindsay Murdoch travelled to Laos as a guest of PanAust.