Olympus Pacific Minerals, a Canadian gold producer with two mines in central Vietnam, voiced its dissatisfaction after the finance ministry announced plans last week to bring in a 10 per cent export tax on gold from January.

“Taxes like this are often a disincentive to foreign investment,” said David Seton, chief executive of Olympus Pacific. “Until we get further clarity, we’re withholding $100m of new investment in Vietnam and looking at Malaysia, where there are zero royalties and a 5 per cent corporate tax regime for the first five years.”

The cash would have been used to boost production at the company’s Bong Mieu and Phuoc Son mines, according to Mr Seton.

The new levy is the latest in a long line of changes to Vietnam’s tax system, legal framework and regulatory environment that has led many in the mining industry to conclude that the Vietnamese government wants to shut foreign investors out of the sector.

The government has come under growing pressure to assert control over the natural resources sector after it licensed a Chinese state-owned company to develop a large bauxite mining project in Vietnam’s central highlands, sparking widespread concerns about environmental degradation and national security.

The industry’s main representative body warned the government at a high-profile business forum last week that a new and more stringent minerals law and “irrational” tax policies “may drive many businesses towards the brink of bankruptcy”.

Geologists believe that Vietnam has substantial reserves of minerals such as iron ore, coal, copper, bauxite, gold and zinc but that much of the country’s resource wealth remains undiscovered because of minimal exploration.

Only a few foreign mining groups have ventured into Vietnam and life has become increasingly difficult. Many now doubt the security of their tenure.

Foreign investors were taken aback when Dragon Capital, one of the most well-established foreign investment groups in Vietnam, was in effect elbowed out of a large tungsten mining project this year at a loss of over $100m.

“There’s now a sufficient body of evidence that would indicate that Vietnam feels it can develop its natural resources sector without significant foreign involvement,” said Dominic Scriven, Dragon Capital’s chief executive.

Asian Mineral Resources, a Toronto-listed mining company, shelved advanced plans to develop a nickel mine in north-west Vietnam in 2008 after the government quadrupled the proposed export tariff. Although the company had already spent $48m developing the mine, the tax increase made the project uneconomical as global nickel prices slumped and funding dried up in the wake of the financial crisis.

Foreign mining executives accept Vietnam needs a more rigorous auctioning process for mining licences. However, they say Vietnam is becoming less attractive than countries such as Indonesia and Chile.

By Ben Bland - The Financial Times - December 5, 2010