The State and Prospects of the Philippine Mining Industry


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  • Good morning to everyone.I would like to thank the DBP for this opportunity to present a quick picture of the mining industry in the Philippines today.The local mining industry is currently at the center of a policy maelstrom, with numerous stakeholders all trying to get their competing views heard and adopted by the national government. The attention given to mining by the Executive Department is indeed well-justified, given the massive potential of our mineral resources to contribute to our country’s growth, both from an economic and social perspective.Amidst these developments, a heightened and slick media campaign waged by civil society groups opposed to mining—which has seen a surge in negative images with the revival of old mining practices from the pre-1995 Mining Act era and the introduction of scare tactics in relation to food security, environmental destruction, and the prospects of a mined-out Philippines—has led to a patent bias against the mining industry. Mining companies have also been portrayed by these groups as corporate behemoths, unfeeling and immune to the interests of government and its people, while also claiming that there is no such thing as responsible mining in the Philippines today, an absurd notion that flies against the evidence, if one would only care to take a close and hard look, devoid of any bias or preconceived notions.The Chamber of Mines of the Philippines, as the lead association representing the interests of the large-scale mining, exploration, and mineral processing sector, would like to rise above the noise and present a sober view of the industry. There is indeed a pressing need to get to the truth, for only then can realistic and appropriate recommendations come forth that should have as its overriding goal a strong, vibrant and RESPONSIBLE, mining industry that develops, as contractors of the State, the country’s mineral resources to bring much needed revenues to government, employment, countryside development, and indeed the alleviation of poverty in areas where it operates on an inclusive basis through its social development programs.
  • President Marcos saw wisdom in encouraging growth in the mineral development sector. His industrialization roadmap saw the construction and operation of some 45 large-scale mines, as well as downstream processing plants for gold (BSP Refinery), Copper (PASAR), and Steel.It also saw landmark legislation when he signed PD 463 in 1974, which basically put in place a system for mineral rights and tenements. It specified technical parameters to avoid overlapping claims, laid guidelines to spot and manage market speculation, trimmed procedures involving application and settlement of conflicts, and established safeguards for the community settlers and the environment. Marcos also issued PD1899 in an effort to organize small scale miningThe 1995 Marcopper Disaster and other legacy issues have left a negative perception of mining;But perhaps the biggest piece of legislation was the passage of the Philippine Mining Act in 1995. Its key features were :Local government empowerment; Respect and concern for IPs; Equitable sharing of benefits; SUSTAINABLE DEVELOPMENT; meeting economic demands of present generation while providing the necessary foundation for future generations;Worldwide trend towards globalization (allowed 100% foreign equity ownership of mines) ; andProtection for and wise management of the environment.
  • 1. Base and strategic minerals have recently hit historic highs, especially GOLD which is currently at $1700/oz.As I shall show you later, prices of base and strategic metals have been at high levels for a long period already The market demand is there, which the Philippines cannot even meet. In fact, copper production worldwide has lagged behind consumption since 2010(source: International Copper Study Group)Industry experts expect that Copper supply shortages will extend into the first half of next year as the Chinese economy works to double its pace of growth in global consumption. Demand will outpace supply by 316k mt before a surplus emerges in the 2nd half 2013.Investments continue to pour in and are currently being led by Filipinos (MVP, Ramon Ang, Lucio Tan and Henry Sy)2. However, as the market for minerals continues to go up, CSOs have also intensified their anti-mining campaign;- Most notable are the efforts of Ms. Gina Lopez NO2mininginpalawan;AlyansaTigil Mina, the Catholic Church—all operating under the notion that large-scale mining is destructive and contributes little to national development;3. Many large-scale operations are now in their twilight years with mining investments started in mid 2000s only now poised to take off;Lepanto is 75; Philex is 50; Rio Tuba is 35. Goldfields/Lepanto; SilanganMinadanao, SMI, OceanaGold4. With the issuance of EO79, the industry is in limbo; With the moratorium in place since 2010, resulted in the loss of US $240.43 million or the equivalent of P10.4 billion foreign direct investments in the mining sector, as indicated by the Bangko Sentral ngPilipinas.
  • Copper is projected to average $8,300/mt in the 2Q, 5.1% higher than current prices.Industry experts expect that Copper supply shortages will extend into the first half of next year as the Chinese economy works to double its pace of growth in global consumption. Demand will outpace supply by 316k mt before a surplus emerges in the 2nd half 2013.China (which accounts for 41% of world copper demand) is working to rebound after 7 quarters of slowing growth, with the approval $161B subways-to-roads construction plan in September.See also gradually improving housing market in the US, and the the unexpected strengthening of Germany’s economy.
  • Nickel prices are forecastto average $18,750/mt in 2013 compared with $17,840/mt for 2012 but the rise is likely to be limited by the scope for accelerated consumption of nickel pig iron across China.The nickel market has changed perceptibly over the course of 2012 with the implementation of a ban on unprocessed raw materials by the Indonesian authorities. The ban has caused Indonesian nickel ore imports into China to fall to around 1.5 million mt in August from around 4 million mt in May.However, the loss of nickel ore from Indonesia has been replaced by an increase of nickel ore imports from the Philippines. A rise in Philippine exports to highs of more than 4 million mt/month means that Chinese imports of low-grade nickel ore have been sustained at around 6 million mt/month.China, instead of reducing nickel pig iron output in response to lower nickel prices, has pushed production up to new highs since May 2012, relying upon a combination of cheap and plentiful low-grade ore and falling energy prices.Global demand for nickel is expected to grow by around 3% in 2013.
  • As global uncertainty is increasing and Asian gold buying season is just around the corner, experts see gold heading toward $2,000 /oz.Over the last decade jewellery demand for gold decreased in relation to demand from other sectors, mainly the investment sector. High gold prices and economic uncertainties will likely keep gold demand from jewellery moderate in 2013.Old demand for industrial purposes and dental uses accounted for just about 10% of total gold demand in 2011. As with jewellery demand, high prices and potentially low/volatile growth will likely dampen demand for gold for industrial uses in 2013.Besides jewellery, the demand from the investment sector accounts for more than 40% of total demand. Following the financial crisis which started in 2007, the demand for gold as an investment reached record highs in 2011. While during the previous gold price peak in the second quarter of 2010 the demand came nearly in equal parts from gold securities like Gold ETF and physical gold in the form of bars and coins, this changed during the latest peak in the third quarter 2011, when nearly 80% of investment demand flowed into physical gold, e.g., in the form of professionally vaulted gold. This indicates that safety is a major concern for gold investors, who usually view physical gold or vaulted gold as more safe than so called ‘paper gold’IN SUMMARYThe global economy needs huge amount of mineral products to jump start manufacturing and industrial activities again. There is high demand for iron ore gold, nickel, copper, because as standards of living rise around the world, there will be greater demand for durable goods and products manufactured from minerals and metalsEmerging markets are keen to lock up access to future supply.The Philippines is well placed to capitalize on the global market demand for mineral commodities. Competition for supply markets is at an aggressive pace and top mining producers are looking beyond their territories.
  • Perceived Environmental Destruction - EIA and ECCCSOs have been relatively successful in propagating a lot of the wrong information about large-scale mining—whether advertently or inadvertently. However, and this is where most anti-mining activitists blur the line, a critical distinction must be made between responsible large-scale mining, and the numerous illegal small-scale mining operations proliferating in the countryside today. Illegal SSM is responsible for most of the perceived problems in the mining industry. The lack of regulation and monitoring of the SSM industry has caused these SSMs to mushroom. 300k – 500k SSMs at present—all operating without a studied/approved environmental protection plan, a SDP, and most importantly, without paying taxes.NDF, ATM, CBCP, IP groups, LRC, Bayan Muna, and Gina Lopez/No2MininginPalawan
  • Our vast mineral resource is distributed in the twelve areas nationwide that have strong mineral potential and/or areas of current mining activities. The most prolific copper and gold producers in the Philippines are found in the Baguio and Mankayan districts where the country’s oldest mines, Philex and Lepanto are operating. The Surigao-Davao Districts also contributed much to Philippine gold production. in the case of nickel, Major Producers Are In Palawan (No. 12) And Surigao (NO. 8).Atlas in Cebu (copper and gold);Nickel- Zambales, Palawan, Surigao;Iron- Northern Philippines Bicol Region and Leyte;Chromite - Zambales
  • Total area to be impacted by 30 Operating Mines: 60,000 HECTARES (0.2% of landmass) (includes mine camp site, administration and mill facilities, and support communities)Footprint of 30 operating mines: 8,500 HECTARES (0.03% of landmass)
  • Highlight future projects:OceanaGold in Didipio, N Vizcaya;FSE in Mankayan, Benguet;SMI in Tampakan, S. Cotabato.
  • Operating Metallic Mines – 30; Nickel Processing Plant – 1; Copper Smelter – 1; Gold Refinery – 1 Approved/Registered Tenements – 730 (FTAA, MPSA, EP, IP AND MPP)Some 1,818 mining applications are under process (all on hold by virtue of EO79).
  • National Government taxes: Excise Tax – 2% of GROSS outputContractor’s Income Tax – 30% of taxable income Customs duties and feesValue added tax on imported equipment, goods, and servicesRoyalties in mineral reservationsDocumentary stamp taxCapital gains taxTax on interest payments to foreign loansTax on foreign stockholders’ dividendsLocal government taxesLocal Business TaxReal Property TaxRegistration FeesOccupation FeesCommunity TaxOther Local Taxes – depending on LGUsOther payments: SDMPSpecial AllowancesRoyalty payments to indigenous peoples Royalty payments to surface owners and claim owners
  • However, with the issuance of EO 79, both government and industry have reconsidered their projections. The government has lowered significantly its forecasts for mining investments this year and the next 4 years because of project delays due to the implementation of Executive Order 79, also known as the Aquino administration's mining policy.Data from the Mines and Geosciences Bureau (MGB) showed that $509.24 million mining investments are seen to flow into the country in 2012, 75% lower than the previous $2 billion estimate.Investment targets from 2013 to 2016 were also revised, in consideration of the EO.Investment inflows for 2013 are likely to reach $718.47 million, down from the previous target of $2 billion; for 2014, $851.75 million from $2.4 billion;for 2015, $757.60 million from $2.9 billion, and for 2016, $619.50 million from $2.3 billion.
  • In Samuel Beckett’s absurdist play “Waiting for Godot”, two characters wait endlessly and in vain for the arrival of someone named Godot. Not knowing who or what Godot looks like, the protagonists spend the entire time eating, sleeping, conversing, arguing, singing, playing games, exercising, swapping hats and even contemplating suicide—anything “to hold the terrible silence at bay”. Despite the issuance of EO79 and its IRR, numerous questions still abound regarding the government’s real plan for the mining industry. Despite the issuance of EO79 and its IRR, the question of whether Government will actively endorse mining as an economic driver has not been answered. Despite the issuance of EO79 and its IRR, is the industry, in fact, still waiting in vain?
  • On April 23, 2012 the government’s Mining Policy Study Group met with mining industry representatives to present a 6-Point Agenda to Ensure Responsible Mining that sought primarily to promote sustainable development through mining. A key action item proposed by the study Group which was supported by the mining industry was the enforcement of national laws over local issuances and the harmonization of laws, policies and regulations.  The Chamber also agreed with action items proposed by the Study Group that ensured that the government gets its due share in mining revenues. The Chamber only expressed concern with the proposal to enact a Comprehensive Mineral Code to replace the existing Mining Act, believing that the Mining Act of 1995 is still good law and needs only to be implemented strictly, consistently and properly. Enacting a new Mineral Code will only further delay the growth of an already delayed industry. The Chamber of Mines further maintained that the country should adhere to a mining policy that will not only assure government of its fair share in mining revenues but be internationally competitive as well. The Chamber recommended the engagement of credible third-party experts to conduct a comprehensive study on the country’s fiscal regime on mining, and help develop a taxation system that is progressive, competitive, and equitable for all stakeholders.
  • The Chamber disagreed with the proposal to establish mineral reservations if the objective is to increase the collection of royalties from mining contractors. The Philippines already imposes one of the highest tax rates on mining operations in the world. In its 2012 Technical Assistance Report, the IMF considers the 2% excise tax plus 5% royalty as too high, and has characterized the existing fiscal regime on mining operations as “one that levies a high royalty rate”, and “not conducive to the development of the mining industry as a source of growth”.  To be competitive in the global mining arena, government must strive to maintain a fiscal regime that is at par with other similarly mineral-rich countries. An additional 5% royalty tax over and above the existing 2% excise tax will be a step in the wrong direction.  On July 6, 2012, Executive Order No. 79 is signed by President Aquino, declaring his administration’s official policy on mining. While the Executive Order is clear in its respect for existing rights, the future of the mining industry remained unclear, in large part due to the expansion of the areas closed to mining, and the moratorium on new mining agreements until a rational revenue-sharing scheme is passed by the national legislature. While no new mineral agreements will be issued until a rational revenue sharing measure is passed by Congress, exploration permits may still be issued by the DENR. FTAAs are technically not mineral agreements and are presumably also exempt from the moratorium. However, this has not been clarified by the MGB or even the MICC. EO 79 identified additional areas closed to mining applications, and required legislation to amend the existing tax system for mining before any new mining agreements would be issued. EO 79 also formalized the government’s position on the superiority of national laws and policies over local ordinances the sought to ban mining. To further enhance the government’s control over mineral resources, the President ordered that all open areas and those owned by government would be awarded through public bidding. It also mandated stiffer penalties for mining-related offenses. EO 79 also decreed improvements in the monitoring and regulation of small-scale mining activities.
  • September 11, 2012- DENR Secretary Paje signs DAO 2012-07 as the implementing rules and regulations of EO79. However, upon closer study, it appears that Sec. Paje made key revisions to sections 3 and 9 of the MICC-approved IRR, causing government to suspend its application. October 10, 2012 – The DENR publishes DAO 2012-07-A which again revises sections 3, 7, and 9 of the IRR. Absent any further revisions, the same become final and effective on October 25, 2012. The revised IRR raised new issues for the mining industry, particularly on the right to renew mining tenements. The definition of “Expired Mining Tenements” in the IRRprovides for a renegotiation of terms andis seemingly inconsistent with Section 32 of the Mining Act, which provides that mineral agreements shall be renewable under the same terms and conditions thereof, without prejudice to changes mutually agreed upon by the parties.  The industry’s concern stems from the fact that large-scale mining projects have long gestation periods, taking years to progress from exploration to development to actual mining operation. Certainties that the contract will be renewed and a second 25-year term will be obtained are integral factors in determining whether an investor will continue to make sizeable investments in its mining project. In the end, the government’s mining policy essentially boils down to increasing government’s share in mining revenues. While government planners aim for a “fair share”, none of the agencies put in charge have given any indication as to what this “fair share” may be. Thus despite the issuance of EO 79 almost three months ago, there is still no proposed law to amend the Internal Revenue Code in the House of Representatives. If the government is unable to pass such revenue measure within the 15th Congress (and by all indications it will miss such target), the mining industry will have to wait for the 16th Congress—at least another two years before such a law is proposed, deliberated, and passed.
  • The State and Prospects of the Philippine Mining Industry

    1. 1. EO79 and Beyond: the State and Prospects of the Philippine Mining Industry Atty. Ronald S. Recidoro Vice President, Legal & Policy Chamber of Mines of the Philippines
    2. 2. Key Points in Mining History 1974 1991 – 1997 – President Aquino signs RA7076 ‘People’s Small-scale Mining Act’ President Marcos signs PD463, Th e Mineral Resources Dev’t Act 1984 – President Marcos signs PD1899 defining small-scale mining. 1995 President Ramos signs RA7942 ‘The Philippine Mining Act’ – President Ramos signs RA8371 ‘Indigenous Peoples’ Rights Act’ – 1995 – The Marcopper Tailings Disaster 2004 – The Supreme Court declares the Mining Act constitutio nal. 2004 President Arroyo signs EO270 – 2012– The Philex Tailings Spill 2012 - President Aquino signs EO79 Institution alizing Reforms in the Mining Industry
    3. 3. The Current Situation  All signs point to a mineral resource boom;  CSOs have intensified their anti-mining campaign;  Many large-scale operations now in their twilight years with mining investments started in mid 2000s only now poised to take off;  However, with the issuance of EO79, the industry is in limbo;
    4. 4. A Mining Boom 20-Year Copper Price $/lb. 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
    5. 5. 20-Year Nickel Price $/lb. 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
    6. 6. 20-Year Gold Price $/tr.oz 1,800.00 1,600.00 1,400.00 1,200.00 1,000.00 800.00 600.00 400.00 200.00 0.00 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
    7. 7. Large-scale Mining is still largely misunderstood. Perceived environmental destruction of watershed and key biodiversity areas;  Pollution; Displacement of indigenous peoples; Violence and conflict in mining areas.
    8. 8. The Philippines: A Poor Man Sitting on a Pot of Gold?  3rd in GOLD;  4th in COPPER;  5th in NICKEL.
    9. 9. Our country’s mineral resource
    10. 10.  Only 2% are covered by mining contracts/ permits; High-Potential Our Total Land Area: 30 million hectares
    11. 11. Footprint of Major Operating Mines COMPANY LOCATION FOOTPRINT Lepanto Benguet TD 100 has Philex Benguet TD Subsidence 450 has 200 has Rapu-Rapu Albay Open Pit, TD 230 has Filminera Masbate Open Pit, TD 650 has Taganito Surigao Open Pit 200 has Cagdianao Surigao Open Pit 200 has CTP Surigao Open Pit 360 has Atlas Cebu Open Pit 1200 has Rio Tuba Palawan Open Pit 1200 has Other Mines Total ~3,700 hectares 8,500 hectares
    12. 12. Footprint of Future Mining Projects COMPANY LOCATION FOOTPRINT OceanaGold Cu, Au Nueva Vizcaya ~750 hectares Maricalum Cu Negros Oriental ~750 hectares Boyongan Cu, Au Surigao del Norte ~500 hectares Batong-Buhay Cu, Au Kalinga-Apayao Far Southeast Cu, Au Benguet Kingking Cu, Au Compostela Valley ~1,000 hectares Tampakan Cu, Au South Cotabato ~2,000 hectares Red5 Au Surigao del Norte ~300 hectares Diwalwal Au Compostela Valley ~400 hectares Runruno Au Nueva Viscaya ~700 hectares Philnico Ni Surigao del Norte Mindoro Ni Mindoro ~700 hectares Pujada Ni Davao Oriental ~700 hectares Total ~1,000 hectares ~200 hectares ~1,000 hectares 10,000 hectares
    13. 13. Our Estimated Inventory 8.03 Billion tons of COPPER; 4.91 Billion tons of GOLD; 0.81 Billion tons of NICKEL; 480.26 Million tons of IRON;  39.66 Million tons of CHROMITE; 433.88 Million tons of ALUMINUM.
    14. 14. US$1,000,000,000,000.00 (Yes, that’s TRILLION, with a T.)
    15. 15. The Philippine Mining Industry  In 2011, all mines in the Philippines had a total GROSS MINERAL PRODUCTION of Php163.2 Billion;  Large-scale mines accounted for Php88 Billion;  Small-scale mines and non-metallic mines produced Php75.2 Billion;
    16. 16. Philippine Mining Now   Operating metallic mines Nickel processing plant Gold refinery Copper Smelter = = = = 35 1 1 1  Approved/registered tenements = 730  Some 1,818 mining and exploration applications are currently under process. ------------------------ As of October 2012, based on MGB data.
    17. 17. Mining’s Contribution to the Economy Mining’s contribution to GDP:  2011: Php99.2 Billion (1.00% of GDP) Mineral Exports  2011: US$ 2.659 Billion (5.6% of Total Exports) Taxes, Fees & Royalties from Mining  2010: Php17.364 Billion
    18. 18. The people we employ. 340,000 jobs as of 2010. *Mining Industry Statistics Table of MGB (Release Date: May 6, 2011)
    19. 19. The Taxes we pay.  Corporate Income Tax  Excise Tax  Withholding taxes  Customs Duties  Value-added Tax  Mineral Reservation Royalty  Additional Government Share in FTAAs  Local Business Tax  Real Property Tax  Social Development Management Program  Indigenous People’s Royalty  Landowner’s Royalty
    20. 20. COPPER PROJECTS Far Southeast Project 2018 Philex Oceana Project $1.5B (Operating) 2013 $320m Atlas Copper Project (Operating) Maricalum Project Boyongan Project TVI 2016 2014 $250m $1.5B (Operating) Kingking Project 2016 $1.3B Tampakan Project 2017 $5.9B 3 operating mines 6 large scale projects in the pipeline
    21. 21. GOLD PROJECTS Victoria Gold Project (Operating) Runruno Gold Project 2014 Masbate Gold Project $150m (Operating) RED5 Gold Project 2014 Philsaga Mining (Operating) Apex Gold Project (Operating) 4 operating mines 2 gold projects in the pipeline $83M
    22. 22. NICKEL PROJECTS • Eramen Nickel Project (Operating) • Sta. Cruz Nickel Project 2011 • Mindoro Nickel Project 2015 • Philnico Nickel Project 2013 • Berong Nickel (Operating) • Coral Bay (Operating) • Taganito Project (NA) 2012 • Carrascal (Operating) • Marcventures (Operating) • Pujada Nickel Project 2016
    23. 23. Potential Growth for 17 New Projects Philippine Metallic Investments and Revenues 2011 2012 2013 2014 2015 2016 Total Investment (Million $) 730 1,369 2,072 3,302 3,995 2,892 Total Revenues** (Million $) 2,820 2,820 3,955 4,954 7,163 9,248 2017 Total investments from 2011 to 2018: Total Annual Revenue: 2011, ramps up to $12.1 billion in 2018; Mining contribution to GDP: 6% in 2018 2018 812 11,171 12,114 US$15.2 billion US$2.8 billion in 1.7% in 2011, increases to 5-
    24. 24. Opportunities  Construction companies to do contract work for infra-structure projects;  Service contractors for open pit and underground mines;  Foundry and steel fabrication shops;  Suppliers of heavy equipment, explosives, steel balls/rods, and lime plants.
    25. 25. Challenges & Roadblocks to Growth  Need for clear, stable and predictable policies on minerals development;  LGU ordinances banning open pit mining;  Illegal SSMs that give mining a negative image;  Heightened opposition from CSOs;  Security issues for mining investors.
    26. 26. The Latest Challenge: A New Mining Policy.
    27. 27. E.O. 79 and its IRR: The Good, the Bad, and the Ugly.
    28. 28. The Aquino Administration’s Mining Policy: A case of Waiting for Godot?
    29. 29. The GOOD: It mostly reiterates existing laws, rules and regulations on mining; It recognizes and upholds existing mining tenement rights; It takes steps to improve the small-scale mining industry; It has a clear aspiration for consistency and harmonization of laws; It makes a clear commitment for the PHL to join the EITI;
    30. 30. The BAD: It expands “no-go” areas for mining applications; It disqualifies applicants with previous “record(s) of environmental incidents”;
    31. 31. The UGLY: It imposes an indefinite moratorium on new mining agreements until a new revenue sharing law is passed; It manifests Government’s intention to review and renegotiate all existing contracts; It says nothing about promoting mining as a driver for the Philippine economy.
    32. 32. The Challenges Continue Meanwhile… The moratorium on new permits continues; An Alternative Mining Bill in Congress; Tedious permitting process: NCIP Guidelines on FPIC; LGUs continue to ban mining in their jurisdictions.
    33. 33. THANK YOU. The Chamber of Mines of the Philippines. Working for responsible mining.