Modest economic growth for the Philippines will continue in 2015 with low oil prices supported by increased government and election spending. Capital outflows in mining indicate the presence of a poor investment environment in the Philippine mining sector relative to the other ASEAN countries. Given the current volatility in metal prices and the onset of a new government following the presidential elections in 2016, it is difficult to predict if the worst is over for the industry. While the long-term fundamentals for metals remain strong, the industry is still in a limbo as it waits for the outcome of the 2016 elections. No amount of company restructuring or cautious optimism can reverse the tide of the industry’s demise if an anti-mining or a status quo president is elected.

1. Is
There
Hope
for
Mining
after
the
Aquino
Administration?
Formerly
branded
as
the
sick
man
of
Asia,
the
Philippines
grew
faster
than
its
Association
of
Southeast
Asian
Nations
(“ASEAN”)
peers
during
the
administration
of
President
Benigno
Simeon
C.
Aquino
III.
This
can
be
attributed
to
the
country’s
strong
macroeconomic
fundamentals,
restructurings
in
government
standards
and
competitiveness
indicators,
and
more
stable
politics.
Aquino’s
government
has
implemented
administrative,
institutional
and
governance
reforms
that
have
unlocked
the
country’s
growth
potential
resulting
in
all
three
major
credit
ratings
agencies
upgrading
the
Philippines
to
investment
grade
in
2013
and
the
economy
growing
by
an
impressive
6.4
percent
in
2014.
The
Philippines
received
another
upgrade
from
Fitch
Ratings,
which
upgraded
the
country’s
outlook
to
positive
from
stable
as
it
affirmed
the
credit
rating
at
“BBB-­‐“
or
minimum
investment
grade.
In
the
report
published
by
A.T.
Kearney,
“Global
Economic
Outlook
2015-­‐2020”
(June
2015),
the
country
is
one
of
seven
emerging
markets
called
the
2020-­‐
Seven:
China,
Malaysia,
Chile,
Poland,
Peru,
Mexico,
and
the
Philippines,
where
the
next
wave
of
global
growth
is
expected
from.
Amid
higher
volatility
and
more
regional
risks
brought
about
by
weak
trade
and
financial
turbulence
in
China,
Socioeconomic
Planning
Secretary
Arsenio
Balisacan
admitted
that
the
country
would
grow
at
around
6%
in
2015.
This
is
a
downward
revision
from
the
7-­‐
to
8-­‐percent
goal
the
government
set
for
this
year.
Confounding
the
external
factors
are
slowing
export
growth,
fiscal
under
spending
in
the
first
half
of
2015
and
the
threat
of
the
El
Niño-­‐related
dry
spell
that
can
hurt
agricultural
production.
Nevertheless,
the
economy
is
expected
to
expand
between
5.6
and
6
percent
this
year.
The
International
Monetary
Fund
(“IMF”)
lowered
its
growth
forecast
for
the
Philippines
to
6
percent,
before
accelerating
to
6.3
percent
next
year.
The
World
Bank
revised
its
projection
for
the
Philippines
to
5.8
percent,
lower
than
the
previous
forecast
of
6.5
percent.
The
Asian
Development
Bank
revised
its
economic
growth
projection
to
6
percent.
Standard
&
Poor's
slashed
its
2015
economic
growth
forecast
to
5.6
percent
while
Moody's
lowered
GDP
growth
projection
to
5.7%.
Despite
weak
global
demand,
the
Hong
Kong
and
Shanghai
Banking
Corp.
(“HSBC”)
said
the
Philippine
economy
remains
resilient,
as
it
is
less
sensitive
to
the
deterioration
in
external
demand
and
is
not
as
dependent
as
other
members
of
ASEAN.
“The
Philippine
economy
is
still
a
bright
star
in
a
dim
sky,”
HSBC
noted.
In
its
October
2015
World
Economic
Outlook,
the
IMF
said
the
Philippines
would
outperform
Indonesia,
Malaysia
and
Thailand,
but
grow
slower
than
Vietnam,
where
cheap
fuel
is
having
a
bigger
positive
impact
than
anywhere
else
in
the
region.
Unfortunately,
the
economic
boom
did
not
bring
about
a
similar
boom
in
the
mining
industry.
Optimism
in
a
revived
industry
started
to
dampen
in
January
2011,
when
Aquino
imposed
a
moratorium
on
the
processing
of
exploration
and
mining
permits
in
anticipation
of
a
new
revenue
sharing
scheme.
Executive

2. Order
No.
79
(“EO
79”)
was
subsequently
issued
by
Aquino
on
06
July
2012,
laying
down
the
administration’s
fiscal,
regulatory,
environmental
and
administrative
policies
in
the
hope
of
stimulating
investments
in
mining.
The
issuance
of
new
exploration
and
mining
permits
continues
to
be
held
in
abeyance
while
Congress
deliberates
on
a
law
addressing
the
revenue
sharing
scheme
between
the
mineral
developer
and
the
government
as
formulated
and
recommended
by
the
multi-­‐agency
Mining
Industry
Consultative
Council.
The
proposed
mining
fiscal
regime
filed
by
Marikina
Rep.
Romero
Federico
“Miro”
S.
Quimbo
now
contained
in
House
Bill
No.
5367
is
currently
being
deliberated
at
the
Ways
and
Means
Committee.
With
Congress
on
its
third
and
last
regular
session
that
is
expected
to
end
earlier
in
light
of
the
2016
presidential
elections,
the
possibility
of
the
bill
to
be
passed
as
a
law
is
remote.
During
the
committee
hearings,
Department
of
Finance
officials
testified
that
the
proposed
mining
revenue-­‐sharing
scheme
could
raise
the
government’s
take
to
as
much
as
71%
—
the
steepest
in
ASEAN,
making
the
Philippine
mining
industry
uncompetitive.
Missed
Opportunity
The
mining
industry
is
currently
in
the
midst
of
an
apparent
reversal
of
the
resource
super-­‐cycle
that
dominated
commodity
markets
in
the
2000s.
While
the
fall
in
fossil
fuel
and
other
commodity
prices
should
provide
a
boost
to
global
growth
as
consumers
will
have
more
spending
powers
resulting
in
an
aggregate
increase
in
demand,
the
mining
industry
is
reeling
from
the
effects.
Former
Budget
Secretary,
Prof.
Benjamin
Diokno,
said
that
the
Philippine
mining
industry
missed
the
opportunity
when
prices
of
precious
metal
soared
to
new
heights
following
the
2008-­‐09
global
financial
crisis
and
Great
Recession,
driven
largely
by
demand
from
resource-­‐hungry
China.
The
euphoria
began
to
fade
in
the
second
half
of
2011
as
economic
growth
slowed
in
China.
Unstable
recoveries
in
Europe
and
the
US
have
also
weighed
on
global
economic
growth.
The
global
economic
uncertainty,
combined
with
an
oversupply
of
many
metals
and
minerals
has
led
to
a
dramatic
drop
in
commodity
prices
over
the
past
three
years.
Diokno
noted
that
the
mining
industry
received
32
out
of
462
policy
recommendations
by
the
Joint
Foreign
Chambers
of
the
Philippines.
However
of
the
32
recommendations,
only
two
were
implemented:
adoption
by
the
Mines
and
Geosciences
Bureau
(“MGB”)
and
the
Securities
and
Exchange
Commission
of
the
Philippine
Mineral
Ore
Resources
Reserve
Reporting
Code;
and
the
completion
of
the
MGB
review
of
regulations
to
increase
the
allocation
of
direct
mining
and
milling
costs
for
community
development
from
1%
to
1.5%
to
be
utilized
for
information,
education
and
communication
campaigns,
and
the
development
and
mining
and
processing
technology
and
geosciences.
Some
13
“more
substantive”
recommendations
have
been
rated
“Not
Ongoing”,
meaning
no
progress
has
been
made
as
far
back
as
2011.
According
to
the
2014
paper
of
Dr.
Roberto
B.
Raymundo
of
the
De
La
Salle
University
School
of
Economics,
during
the
past
15
years
the
highest
share
of

3. mining
output
to
GDP
was
at
1
percent
while
the
contribution
of
mining
employment
to
total
employment
has
at
most
been
0.7
percent.
In
2011,
net
foreign
direct
investment
inflows
to
the
Philippine
mining
sector
were
drastically
lower
compared
to
those
of
Indonesia,
Malaysia,
Thailand,
Brunei
Darussalam,
Laos
and
Myanmar.
Net
foreign
direct
investment
inflows
was
at
negative
$240.4
million
indicating
a
greater
amount
of
mining
investments
moving
out
of
the
Philippines
relative
to
investments
coming
in.
Citing
the
2012
ASEAN
Investment
Report,
Raymundo
noted
that
net
foreign
direct
investments
severely
lagged
behind
those
of
Indonesia
at
$3,882.0
million,
Malaysia
at
$2,410.9
million,
Brunei
Darussalam
at
$1,058.0
million,
Thailand
at
$296.2
million
and
Laos
at
$78.9
million.
By
2012,
net
foreign
direct
investment
inflows
for
Philippine
mining
indicated
larger
negative
capital
flows
while
exports
of
minerals
and
mineral
products
were
at
most
6
percent
of
total
country
exports.
Philip
Romualdez,
President
of
the
Chamber
of
Mines
of
the
Philippines
(“COMP”),
noted
that
during
the
five
years
of
the
Aquino
government,
the
MGB
recorded
only
US$
693
million
in
mining
investments,
less
76%
from
its
original
projection
of
US$3
billion.
The
COMP
identified
four
major
issues
hounding
the
mining
industry:
the
moratorium
on
new
permits;
the
Alternative
Mining
Bill
currently
being
deliberated
in
Congress;
the
tedious
permitting
process
most
notably
the
National
Commission
on
Indigenous
Peoples
Guidelines
on
free
and
prior
informed
consent;
and
local
government
units
continuing
to
ban
mining
in
their
jurisdictions.
On
the
other
hand,
civil
society
advocates
for
transparency
and
accountability
found
an
ally
in
Aquino,
who
they
believed
was
elected
on
a
reform
platform
that
focuses
on
transparency,
accountability
and
the
pursuit
of
the
rule
of
law
as
preconditions
for
national
development.
While
legislative
bills
on
the
Freedom
of
Information,
Alternative
Mining,
and
National
Land
Use
Management
are
currently
pending
in
Congress,
transparency
and
accountability
advocates
believe
that
these
are
steps
in
the
right
direction
(Revenue
Watch
Institute,
2012).
They
also
lauded
efforts
by
local
governments
and
communities
to
assert
their
local
autonomy
and
environmental
rights
in
the
provinces
of
Quezon,
Romblon,
Zamboanga
Del
Norte,
South
Cotabato,
Romblon,
Albay
and
Marinduque.
In
addition,
there
are
pending
mining-­‐free
zone
bills
pending
in
Congress
covering
Cagayan
de
Oro,
Catanduanes,
Eastern
Samar,
Nueva
Vizcaya,
Sorsogon,
Biliran,
Davao
City
and
Nueva
Ecija.
Mining
Agenda
of
Presidential
Candidates
In
May
2016,
the
Philippines
will
hold
its
presidential
election
the
results
of
that
will
determine
the
country’s
economic
and
foreign
policies,
which
will
have
an
impact
on
mining.
The
ruling
Liberal
Party
of
Aquino
has
decided
to
cast
its
lot
on
Manuel
“Mar”
Roxas
II,
the
current
secretary
of
Interior
and
Local
Government
and
former
secretary
of
Transport
and
Communication.
Roxas
is
expected
to
continue
Aquino’s
policies
on
mining.
Focus
is
now
on
two
other
leading
contenders,
Vice
President
Jejomar
Binay
and
Senator
Grace
Poe.
Binay
and
Poe
declare
that
both
will
push
for
responsible

4. mining
and
transparency
and
the
need
for
mining
to
make
economic
growth
more
inclusive
to
benefit
the
greatest
number.
This
means
growing
the
industry
responsibly
and
distributing
mining
taxes
efficiently.
Both
candidates
believe
that
transparency
should
be
institutionalized
not
only
to
ensure
good
governance
but
also
to
render
a
fair
sharing
of
revenues.
Of
all
the
presidential
candidates,
it
appears
that
Binay
has
the
more
comprehensive
platform
for
the
mining
industry.
Binay
bats
for
the
harmonization
of
national
and
local
laws,
and
consistency
in
policies
that
should
transcend
political
timelines.
To
attract
investors
with
the
capacity
to
deploy
advanced
technologies
to
minimize
risks
to
personal
safety
and
the
environment,
the
government
must
have
clear
policy
guidelines
and
rules
that
foster
strong
cooperative
relationships
between
the
national
and
local
governments.
Binay
believes
that
mining
taxes
must
not
be
higher
than
they
already
are
and
instead
be
fair
and
consistent
with
international
best
practices.
Global
competitiveness
is
crucial
to
the
industry
and
is
an
objective
that
must
guide
fiscal
policy
reform.
He
called
for
a
careful
study
on
the
economic
effects
of
proposals
to
increase
mining
revenues.
Binay
will
also
work
to
upgrade
the
capacity
of
regulatory
agencies
as
a
well-­‐equipped,
highly
competent
governance
institution
enforcing
mining
and
environmental
laws
at
both
national
and
local
levels.
The
mining
sector
should
spur
the
creation
of
high
value-­‐added
businesses
with
commensurate
employment
potentials.
Binay
will
give
importance
to
processing
intermediate
products
that
will
eventually
encourage
manufacturing
of
finished
products.
What
is
interesting
is
that
Binay
has
indicated
that
he
would
have
a
different
China
policy
than
the
one
pursued
by
Aquino.
On
the
maritime
sovereignty
dispute
with
China,
Binay
pronounced
“we
have
to
accept
the
fact
that
China
has
all
the
capital
and
we
have
the
property
over
there,
so
why
don’t
we
try
to
develop
that
property
as
a
joint
venture?”
This
could
bode
well
for
Chinese
investments
in
the
mining
industry,
which
was
viewed
with
suspicion
and
unease
by
the
Aquino
government.
Senator
Grace
Poe,
on
the
other
hand,
is
working
for
greater
transparency
and
openness
in
the
mining
industry
to
address
people’s
negative
perceptions
to
mining.
As
one
of
the
proponents
of
the
Freedom
of
Information
(“FOI”)
bill
in
the
Senate,
she
has
been
fully
supportive
of
the
Philippine
Extractive
Industries
Transparency
Initiative
(“EITI”)
because
it
promotes
greater
transparency
in
the
mining
sector.
Aside
from
the
full
disclosure
by
the
government
of
mining
contracts,
the
FOI
bill
if
enacted
into
law
will
encourage
the
mining
industry
to
“publish
what
you
pay”
to
inform
the
people
how
much
exactly
the
industry
is
returning
to
the
people
in
terms
of
taxes,
jobs
generated,
livelihood,
and
corporate
social
responsibility
projects.
She
added
that
the
Transparency
Report
would
help
the
government
compute
the
right
formula
for
what
constitutes
as
“fair
and
equitable
share”
for
stakeholders
involved.
Senator
Poe
calls
for
an
inventory
of
natural
resources
and
plotting
a
schedule
for
harnessing
these
resources.
She
has
sponsored
Senate
resolutions
on
the

5. Benham
Rise,
which
is
believed
to
have
potential
natural
gas
deposits
and
manganese
nodules.
Poe
believes
that
knowing
the
amount
of
resources
and
identifying
areas
where
mining
is
permitted
will
serve
as
a
solid
foundation
for
economic
policy
makers
to
develop
a
sustainable
and
long-­‐term
strategy
for
the
growth
of
the
mining
industry.
Though
he
has
not
filed
his
certificate
of
candidacy
for
presidency,
Davao
Mayor
Rodrigo
Duterte
is
clearly
anti-­‐mining
having
lauded
the
approval
of
an
anti-­‐
mining
ordinance
by
the
Davao
City
Council.
He
has
been
consistently
against
mining
saying
that
mining
results
in
nothing
that
benefits
host
communities
and
the
country.
Duterte
is
fully
supportive
of
the
mining
ban
in
Davao
City
because
of
environmental
concerns
and
social
problems
related
to
mining.
He
said
the
economic
benefits
of
mining
are
not
enough
to
outweigh
the
destruction
it
leaves
many
years
after
and
“the
government
gets
very
little
royalty.”
Outlook
for
the
Industry
The
global
demand
for
metals
will
depend
a
lot
on
sustained
economic
growth
but
economic,
political
and
environmental
risks
are
expected
to
disrupt
growth.
European
growth
appears
to
have
hit
a
snag,
which
could
impact
the
mining
industry’s
recovery.
The
US
economy
is
rebounding
but
still
faces
some
strong
headwinds.
Investor
sentiment
will
depend
on
the
strength
of
the
US
dollar
and
China’s
economy.
The
current
strength
of
the
US
dollar
and
the
declining
oil
price
will
help
some
miners
manage
costs.
However,
extreme
weather
and
geopolitical
issues
also
pose
a
risk
to
recovery.
(Price
Waterhouse
Coopers,
Gold
Silver
Copper
Price
Report
2015)
Depressed
metal
prices
have
been
devastating
for
the
mining
industry
resulting
in
widespread
cuts
and
restructuring
from
exploration
and
production
as
well
as
operating
and
capital
expenses.
Investments
in
the
industry
have
slowed
from
key
consumers
like
China
as
a
result
of
recent
reforms
in
that
country.
In
order
to
improve
its
national
extractive
industry
competitiveness,
the
Philippines
needs
to
address
political
risk
and
unstable
fiscal
policy
particularly
in
the
revenue
transfer
in
the
form
of
taxes
and
royalties.
In
a
presentation
during
the
Mining
Philippines
2015
Conference,
Price
Waterhouse
Coopers
(“PwC”)
identified
the
following
regulations
as
affecting
the
mining
industry:
control
versus
grandfather
rule
on
ownership;
adoption
of
FTAA
framework
in
all
contracts;
removing
constitutional
limitations
on
foreign
equity;
possible
ban
of
unprocessed
ore
similar
to
Indonesia;
mining
ban
through
provincial
and
municipal
ordinances;
and
the
mandatory
implementation
of
EITI/perpetual
confidentiality
waiver.
Despite
the
fact
that
the
Philippine
mining
industry
is
one
of
the
poorest
performers
in
terms
of
mineral
product
exports
and
foreign
direct
investments,
the
Aquino
administration
remains
resolute
to
enforce
resource
nationalism
through
EO
79.
Had
the
big-­‐ticket
mining
projects
in
the
pipeline
pushed
through,
the
Philippines
according
to
the
COMP
would
have
obtained
almost
US$20
billion
in
investments.
The
COMP
calls
for
a
repeal
of
EO
79
and
urges
the

6. government
to
maintain
the
current
fiscal
regime.
PwC
also
called
for
a
reassessment
of
the
fiscal
regime
following
the
drafting
and
submission
of
a
revised
tax-­‐sharing
scheme
under
HB
5367,
which
according
to
PwC’s
computation
pushes
the
Effective
Tax
Rate
to
79.3%.
Exploration
companies
operating
in
the
Philippines
have
been
in
a
wait
and
see
mode
given
the
moratorium
on
new
permits
while
operating
mines
are
trying
to
make
ends
meet
to
adjust
to
the
current
low
commodity
prices.
Whether
the
mining
“super
cycle”
has
ended
or
the
current
slump
in
commodity
prices
is
just
a
manifestation
of
the
cyclical
nature
of
the
industry,
PwC
believes
that
demand
for
metals
will
continue,
but
it
won’t
be
the
steady
upward
climb
that
was
seen
between
the
end
of
2009
and
early
2011,
or
in
the
years
leading
up
to
the
2008
commodities
crash.
If
the
next
administration
will
follow
the
EO
79
blueprint
laid
down
by
the
Aquino
mineral
policy
makers
and
mineral
prices
have
yet
to
recover,
no
foreign
direct
investments
inflow
are
expected
as
risk
capital
are
turned
off
by
the
unattractive
tax
and
sharing
arrangement,
the
unstable
regulatory
regime,
and
the
convoluted
permitting
system.
Needless
to
say,
an
anti-­‐mining
president-­‐
elect
will
be
a
death
knell
for
the
industry.
On
the
other
hand,
a
president
who
is
willing
to
stick
his
neck
despite
the
general
negative
perception
of
mining
will
be
a
shot
in
the
arm
for
the
industry
that
has
been
lingering
in
the
hospital’s
intensive
care
unit
for
the
past
six
years.
Conclusion
Modest
economic
growth
for
the
Philippines
will
continue
in
2015
with
low
oil
prices
supported
by
increased
government
and
election
spending.
Capital
outflows
in
mining
indicate
the
presence
of
a
poor
investment
environment
in
the
Philippine
mining
sector
relative
to
the
other
ASEAN
countries.
Given
the
current
volatility
in
metal
prices
and
the
onset
of
a
new
government
following
the
presidential
elections
in
2016,
it
is
difficult
to
predict
if
the
worst
is
over
for
the
industry.
While
the
long-­‐term
fundamentals
for
metals
remain
strong,
the
industry
is
still
in
a
limbo
as
it
waits
for
the
outcome
of
the
2016
elections.
No
amount
of
company
restructuring
or
cautious
optimism
can
reverse
the
tide
of
the
industry’s
demise
if
an
anti-­‐mining
or
a
status
quo
president
is
elected.

7.
Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo Law
Offices (www.punopenalaw.com). He specializes in Energy and Resources Law,
Project Finance and Business Development.