Besra Chief Operating Officer affirms long term investment in Vietnam

Besra’s COO Darin Lee shared his thoughts on the future of the company and how it will solve its debt problems with reporter Nguyen Trang.

Could you please update me on the company’s current debt status? How and when will the company complete its payments to creditors?

Recently, Besra Vietnam has been constantly facing difficulties in finance and production due to many reasons which leading Besra Vietnam with its two JV’s Phuoc Son Gold (PSGC) and Bong Mieu Gold Mining (BMGMC) to be behind in payment to the government, our contractors and suppliers.

It is normal for a company to carry an amount of debt during the normal course of operations.The amount of debt is not the issue, it is that the current business environment is not supportive of our payment schedule, we need a new one that extends our deadlines.

 We are cutting costs and also meeting with suppliers and contractors to find the best way to make sure they get paid within our ability. We have successfully negotiated longer payment schedules, which we would rather not have to do, but is imperative given the current business climate.

 What led to Phuoc Son’s debts?

Besra Vietnam, including PSGC, has faced many difficulties in finance and production recently. The low gold price, lower grades, high taxes and some very bad weather have all combined to make this a very difficult time.

Since November 2012 the gold price has fallen by nearly one third. In November 2012 gold was trading at $1,800 per ounce and has since fallen to around $1,200.  To try and counter this we would normally increase production, but this has also been negated by falling grades, especially at our Phuoc Son mine.  A reduction in grade means we have to mine and process much more ore to achieve the same amount of gold.  The grade at Phuoc Son used to be 11 grams of gold per tonne of ore but is now around 3 to 4 grams per tonne.  But as we mine and process more ore, that means that our costs increase greatly – more supplies, more time, more maintenance.

The high tax situation in Vietnam has also caused us great difficulties, especially as it has been constantly increasing and at a very high rate. When Phuoc Son was granted licenses in 2003 the royalty rate was 6 percent, which underwent several increases before arriving at the current rate of 15 per cent, implemented in January 2010.

The way that royalties were calculated also changed. The royalty of 6% in 2003 was calculated on net profits while the rate of 15 per cent in 2010 was calculated on gross sales. It is clear that the new calculation has created significant disadvantages for Besra. The company was able to maintain our operations because the gold price was higher. But with much lower gold prices, it has become difficult to maintain good profitability, despite our efforts to increase efficiencies and reduce costs.  The Environmental fee levied by the government has also increased by a massive 1,800 percent from VND10,000 per tonne of ore when it was first introduced to VND180,000 per tonne today.

 Finally we have, like much of central Vietnam, felt the full force of some of the worst weather in recent history.  Heavy rain from typhoons has washed away roads and caused major landslides that have prevented us from being able to safely access our site at Bong Mieu. We had no choice but to temporarily suspend operations and suffer the resulting loss in production.

Because of your long lasting debts, in late December around 200 locals gathered to demonstrate in front of the company, blocking roads in and out of the facility. How is Phuoc Son Gold Company faring after the roadblock?

The roadblock at the Phuoc Son gold mine and the subsequent ramp up back to normal operations caused PSGC a great production loss. We completed our negotiation with the suppliers, the district authority and police and resumed our operation at 7pm on December 27, 2013.

As far as I know, on Jan 3 Phuoc Son Gold Company sent a document to Quang An Limited Company saying that you will write off VND17 billion ($809,532) in debts to the main contractor. Could you share with me some details and further information about the document and your argument for your deduction?

It's company policy to not discuss any pending civil disputes with the media. However, we can say that all Besra Vietnam contracts with suppliers and contractors, have clauses on compensation for damages and losses and termination due to damages and losses caused by one party to the other. These are enforceable by the Commerce Law and the Civil Law of Vietnam.

How about the Vietnamese General Department of Customs (GDC) decision to collect gold export taxes of up to more than $10 million for Besra's two gold mines? After working with GDC and other agencies, will you pay or not?

We believe the GDC’s decision on collecting gold export taxes from us is unreasonable. Therefore, we sent two petitions to the government and relevant authorities at two different times last year and have been waiting for their final decision. Besra Vietnam fully complies with Vietnamese law and is transparent and cooperative with authorities.