COMPILED BY: Securicor (Laos) Co. Ltd
PO Box 8218, Vientiane Lao PDR
Tele: (856-20) 516 587,
Fax: (856-21) 219 580

FOR: Gem Mining Lao PDR

PROVINCE: Borkeo

Introduction
In a letter dated 19 September 2000 to the Governor Borkeo Province titled "Gem Mining Lao PDR Company Limited - Theft of Company Assets", Gem Mining requests Securicor (Laos) to conduct an independent security assessment of the Gem Mining sites to ascertain the level of damage and theft that has occurred since the Prime Ministers directive No. 07/PM, dated 17 July 2000, assigning the responsibility for the organization, implementation and control of the provincial security. Specifically tasked by His Excellency, the Prime Minister, directed the Governor of Borkeo Province to secure and protect all Gem Mining assets, and prevent access and removal of all and any property by any unauthorised persons.

His Excellency, the Prime Minister's directive was explicit and easily assimilated by any person who did not have a vested interest in undermining his Excellency's directive or whom had an ulterior motive to destroy or undermine the current and future operational capabilities of Gem Mining. The directive detailed the security protection of all Gem Mining Areas as well as the sapphire processing factory, equipment and vehicles of the company in the Borkeo Province. The protection order specified the security cover to be seven (7) days a week, twenty four (24) hours per day until further notice.

Security Auditors

Securicor (Laos) Company Limited were requested by the Directors of Gem Mining Lao PDR to conduct an independent, comprehensive Security Audit Report for the attention of the Prime Minister Lao PDR. Representatives from Securicor (Laos) travelled to the town of Huayxai in the Borkeo Province on the 21 September 2000 to conduct a full Security Audit and report during the period of 21, 22 and 23 September 2000.

The representatives of Securicor (Laos) are as follows;

a) Mr. Kerry Danes - Managing Director Securicor (Laos);
b) Miss Chanla Douangpanya - Personal Assistant to the Managing Director; and
c) Mr. Yommala - Assistant to the Operations Manager Securicor (Laos).

Supporting documentation to this report;

a) Photographs of Gem Mining Areas; and
b) Inventory of Stolen, Missing or Damaged parts and supplies at Gem Mining's Old and New Plant.

Statement: The Directive of His Excellency, the Prime Minister of Lao PDR has not been enforced. Upon arrival to the Gem Mining 'Old Plant Site,' in the Borkeo Province, it was evident the security at the site was not in place as the site had no access control whatsoever, leaving free entry to all persons. We discovered in excess of three hundred (300) Lao Nationals stealing, looting and wilfully destroying Gem Mining property which is best described as 'Criminal Vandalism". In addition to the mass of looters, there were approximately thirty (30) farm tractors, trucks, and trailers being used to illegally remove sapphire bearing soil from the Gem Mining site. The criminal element is well established on site and this is evident as a shop has been erected to sell food and drinks to the criminals on the site. A number of illegal sapphire buyers are on site purchasing stones from the criminals. This revenue is illegally obtained and as a result, there is no accounting of the actual loss in resources to Gem Mining as income or the Lao Government as tax revenue.

Four (4) Lao Police Officers who had been assigned by the Governor of Borkeo Province to secure and protect the site, were resting idly in a central location of the site. They did not enforce any security procedures or appear to show any interest in controlling the criminal activity going on around them. Moving around the site taking photographs, we asked local villagers who were conducting the illegal mining if they were aware of the Prime Minister's directive. Most stated they were aware, but since there were no authorities prepared to enforce the directive from the Prime Minister, they disregarded the order. This is a further indication of the lack of interest to support a Central government directive in the Province.

We witnessed local village people selling bamboo pans used to sift the soil and various tools to extract sapphires, from their residences. They are capitalizing on catering for the new business created by the criminal element and in doing so, openly defy the authority of Borkeo Province and the directive of the Prime Minister of Lao PDR. We have been advised that pan mining is illegal in the Borkeo Province.

2. POLICE SECURITY FORCE ON SITE

During discussions with Police Officers assigned to protect the site, we asked why they were not in uniform. They responded by admitting to us they were afraid and feared for their own personal safety. They admitted they were fully aware of the Prime Minister's directive but were not confident to enforce it. There appears to be an overall feeling in the community that no support should be given to Gem Mining as the villagers blame Gem Mining for causing their unemployment situation. Without proper respect for the authority in place, the situation will only escalate and future illegal activities will increase and spread to other areas. Initially, the Police Officers arrived at the site on the 7 June 2000 and since that time have received visitation from senior person(s) of authority on only one (1) occasion. The visit was approximately two months ago (July 2000) by the Governor of Borkeo Province and Mr Amphone, who is the Provincial Head of Industry and Handicraft. To an independent observer, it would appear there is very little interest overall, to enforce the Prime Minister's directive and as a result, the assets of Gem Mining have not been secured in any way.

As an International Security provider and experienced in this field we confirm that had it been so desired, the security of the site(s) could have been effectively implemented according to standard security practices. The immobility of the Police Officers to enforce the Prime Minister's directive has resulted in a ground swell of criminal activity extending to other concession sites of both Borkeo Mining and Buhae Industrial Company. These companies are highly frustrated with the lack of support by local Police authority.

It is understandable that the problems are now greatly amplified given the way in which this matter has been administered and it is clear the authority of the local Police is not recognised as a deterrent to the criminal activity, nor do they appear to be concerned with encouraging appropriate lawful behaviour from local residents. The Police are more than able to command attention when tasked to do so. An example of their effectiveness has resulted in their implementation of the imposed night curfews, which they conduct without incident. This shows they are resourceful and highly capable of enforcing law and order, which is a credit to them.

Independent, private security could effectively work in a positive way with local authorities to encourage law and order at this site. However, private security alone would not be effective unless fully supported by the Law Enforcement agency and Governor's Office, since the security position is currently untenable.

3. ASSESSMENT OF VEHICLE AND MACHINERY AT THE OLD PLANT

With the exception of those vehicles and machinery still in a serviceable condition, which are currently being illegally impounded by various unauthorised groups, the remaining vehicles and machinery have suffered considerable damage and theft. These vehicles have been so vandalised that they will require costly, time consuming overhauls and replacement of stolen parts, before they can be brought back into service. The criminal activity has greatly reduced the overall value and serviceability of the vehicles and machinery on site, which previously were in very good condition as a result of the maintenance checks directed by Gem Mining management. These items will continue to depreciate unless proper maintenance checks are again enforced. Tarpaulins to protect them from the weather previously covered all vehicles and machinery. These tarpaulins have since been stolen; as have the alternators, fuel lines and fuel injectors. Oil and fuel caps have been stolen allowing water to enter the engines. Over a prolonged period of time, this will result in major damage to the motor.

4. GENERAL ASSESSMENT OF SECURITY AT THE 'OLD PLANT SITE'

The presence of the four (4) Police Officers dressed in civilian clothing is totally ineffective. They also rely on the criminals to resupply their water and food stocks. They do not have any form of communications that they can use to relay information to their superiors at Head Office. They have no means to request immediate backup and emergency response is non-existent. In effect, they are in a very vulnerable position and are unable to access support for their own safety in the event of an emergency.

5. GENERAL ASSESSMENT OF SECURITY AT THE 'NEW PLANT SITE'

The presence of the three (3) Police Officers dressed in civilian clothing at the New plant site is also ineffective. They do not have any direct form of communications with their superiors. This site was not operational at the time of closure when the Government forced Gem Mining to cease all operations. There has been little interest in this area for illegal mining as there is no sapphire bearing soil on site. There is evidence of minor theft as the electrical circuit breakers from various locations around the site are missing and this has been conducted in full view of the police. There were several attempts to steal various items ie: exhaust pipes, fuel injectors and fuel lines from a water pumping motor near the creek. During our visit, we moved the water pumping motor to a more secure position undercover near the Police Officers. It is our hope they will at least prevent the theft of this item. Although there has been limited theft at this stage from the New Plant site, we are concerned that it is only a matter of time before the theft in this area increases. Security of this site could be greatly enhanced through regular, random patrols of diligent security personnel working in conjunction with the local authorities.

6. SUMMARY

There appears to be no constructive support to the Prime Minister's directive within all levels of the provincial government. Those we spoke with stated that the situation had compounded out of control to such an extent that they were unable to implement proper security practices to regain control of the Gem Mining site. The provincial representatives were argumentative when we arrived for the meeting. They were not receptive to the security solutions we put to them and showed very little concern regarding the destruction of the Gem Mining Site and surrounding area. We observed that the overall procedures implemented to protect and secure Gem Mining assets were not in place as directed by the Prime Minister. This could place the Prime Minister's Office in an embarrassing position should the Foreign Investor seek compensation through legal channels.

During our meeting with the Head of the Governor's Office, we asked if he could provide a representative to accompany us to the site so they could witness with us the way in which the site was being vandalized. We were asked by him to return to the office at 1130 hours for his answer. On our return we were told that there was no one available to accompany us but new instructions had been sent through a senior authority to the Police Officers on site and that the security of the site would be improved. At precisely 1600 hours we returned to the site only to observe the same volume of criminals continuing to illegally mine the site. On speaking with the Police Officers, they confirmed that they had received a new instruction from the Senior Police Officer - Mr. Somsuck who had directed them as follows; Quote: "No one is allowed to take any photographs at the site" end quote.

The Police Officers confirm that there were no further instructions regarding the mass theft and destruction of the Gem Mining Site. We had on previous occasion reported to the Head of the Governor's office that we had taken photographs as evidence to the mass destruction of the site. This evidence is attached to this report. These local villagers have no regard for environmental issues which should be addressed independently to this report. It is clearly obvious that they have caused massive destruction to which our past investigations had revealed were previously managed effectively by Gem Mining.

We found the Gem Mining Site has suffered mass destruction at the hands of the local villagers who continue to conduct illegal activities with full knowledge of local authorities and Government representatives. In conclusion to this summary, it must be stated that it is not the intent of Securicor (Laos) to discredit any persons in this report, however the report reveals through objective observation the current weaknesses that have resulted in mass security breeches, wilful destruction of property and blatant disregard for the Office of the Prime Minister of Lao PDR and the investment of Foreign Investors.

We consider that if the recommendations contained within this report are seriously implemented by an appropriate authority or by an independent security organization, it will prevent further destruction and illegal access to a vital project that can only positively enhance the economy of Lao PDR and protect the reputation of the Prime Minister's Office.

Kerry Danes
Managing Director
Securicor (Laos)