Photographer: Dario Pignatelli/Bloomberg

Shuttered Gold Mine Shows Investors Risks of Thai Power Grab

  • 19 percent stock drop shows investment risk under Thai Junta
  • Article 44 may disappear once Thailand has elected government

When Thailand’s junta leader-turned-prime minister used his absolute power to suspend gold mining -- prompting an Australian miner’s shares to plummet 19 percent in a single day -- he complicated efforts to attract foreign investors already spooked by military rule.

Prime Minister Prayuth Chan-Ocha announced the order last week, saying that gold mining will be suspended from the start of the year in a bid to address health and environmental concerns. By issuing the order under Article 44 of the constitution enacted when his junta toppled the elected government in 2014, Prayuth ensured it was “lawful, constitutional and final.”

The most immediate loser is Australia’s Kingsgate Consolidated Ltd., which through its subsidiary operates Thailand’s largest and only commercially viable gold mine. Its shares dropped as much as 19 percent last Wednesday and are down nearly 40 percent since May 10, when Thailand announced the Chatree mine might close amid complaints of arsenic and manganese contamination in nearby villages.

The bigger loser may be Thailand’s economy itself, which is already growing at a slower rate than neighbors at an expected 3.2 percent this year. Exports have steadily fallen, dropping the most in three months in October. Foreign direct investment fell to $10.8 billion in 2015, down from $16.7 billion in 2013, according to UN figures. Neighbors Indonesia and Malaysia attracted higher amounts last year, the data shows.

‘Arbitrary Rule’

“The Kingsgate gold mine in Phichit is far from a clear-cut case, and the firm can hardly be surprised by this latest development,” said Michael Montesano, co-coordinator of the Thailand Studies Programme at the ISEAS Yusof Ishak Institute in Singapore. “Nevertheless, investors must realize that the country has fallen under utterly arbitrary rule. Large investments in even potentially sensitive sectors will then be subject to the whims of a dictatorship whose mentality few outside investors will be prepared to understand.”

Prayuth has used his powers under Article 44 dozens of times, from banning protests to giving soldiers authority to make arrests to removing and replacing officials across the country -- including Bangkok’s elected governor. Officials have previously touted the article’s ability to cut through red tape, with the transport ministry saying it wanted to use it to fast-track approval of a new runway at Bangkok’s main airport and separate rail projects. Finance officials said it could be used speed up trade talks.

‘Power To Do Anything’

The clause, which Prayuth has in the past boasted gives him “power to do anything,” has affected local businesses before. He’s gone after those seen overcharging for lottery tickets, selling alcohol near schools and universities and running so-called “zero-dollar” tour operations accused of taking advantage of Chinese visitors. But Kingsgate is seen as the first big foreign investor directly impacted by the use of Article 44.

“This has got major ramifications,” Kingsgate Chairman Ross Smyth-Kirk said by phone last week. Thailand’s government doesn’t “seem to understand the harm that they are doing to themselves as a destination for international investment.”

The Chatree mine, which opened in 2001, will be placed into care and maintenance at the end of the month. Already about 1,000 staff and contractors have left the operation, Smyth-Kirk said, adding that the company would be seeking compensation from the Thai government. Kingsgate has repeatedly rejected the allegations of environmental abuse and has argued that a government-commissioned report had offered a “scientific rebuttal of unsubstantiated and vexatious allegations,” according to an April filing.

Election Doubts

Government spokesman Werachon Sukondhapatipak said he needed to do more research on why Article 44 was used for the gold mine before commenting. He said the article wasn’t meant to cause fear and was only used constructively, including to cut red tape and facilitate trade and investment. Mining accounts for 2.8 percent of Thailand’s economy, based on the latest data from the National Economic and Social Development Board.

Sometimes the existing laws “reduce the ability to compete or the competitiveness of the country so therefore we cannot wait to have the law passed,” Werachon said. “It could take six months or years. Article 44 is used as the best option in order to make everything happen quicker.”

The junta’s plan to hold an election late next year is “increasingly in doubt,” BMI Research report said on Dec. 14, adding that the vote would be “largely ceremonial” due to controls on political parties and the need to adhere to a military drafted 20-year reform plan. In the short-term foreign investors would likely welcome greater stability, it said, but in the longer term the business environment would likely suffer from the heavy centralization of economic power and a lack of political freedom.

‘Special Nation’

Whether Thailand has a civilian government or not is less important to the private sector than whether it can take steps to make it more competitive in the region, including following through in 2017 with planned infrastructure development, said Stanley Kang, chairman of the Joint Foreign Chambers of Commerce in Thailand.

“Thailand is a very special nation in that economics is economics, politics is politics,” Kang said. “If they do the infrastructure investment in the right way, the good way, foreign direct investment will come.”

Attracting investment and managing the economy is something the military government is ill equipped for since its biggest priority is maintaining its own power, said Watana Muangsook, a former commerce minister and industry minister who is allied with the ousted government and has been a vocal critic of the junta. The use of absolute power without checks and balances undermines the rule of law in the eyes of foreign investors, he said.

Watana said he was also concerned about whether an upcoming military-backed constitution and its accompanying core laws would allow future governments to have the tools needed to stimulate the economy. Yet there would be one major positive, he said: “When you have an elected government, Article 44 will disappear.”

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE