The Philippines: Mining magnet

Text size +-

The mining industry in the Philippines seems set for a boom, with earnings advancing and large-scale projects scheduled to come on-line over the next few years. However, lingering concerns over the global economy could dent demand and slow the flow of investment, as could uncertainty over regulations governing the industry.

It is estimated that the Philippines is sitting on some $1trn-worth of mineral wealth, with gold, nickel, copper, silver and zinc the largest reserves. If anything, this estimate is on the conservative side, with many regions of the widespread country yet to be fully surveyed for potential deposits.

It was not until 2005 that the industry really began to take off, after the Supreme Court confirmed the legality of the 1995 Philippine Mining Act, which allowed 100% foreign equity in mining projects. The long-running dispute over the act, with legal suits and court hearings dating back to 1997, had done much to discourage overseas investment in the sector. Combined with government efforts to streamline bureaucratic procedures, including speeding up the approval process for new projects from three to five years to just six months, the final confirmation of the act’s validity did much to boost interest in the industry.

That interest is now paying dividends. A report issued on May 31 by the Mines and Geosciences Bureau (MGB), part of the Department of Environment and Natural Resources, forecast the value of metallic mineral production in the Philippines to soar by 24% this year, with earnings of $3.1bn, up from $2.5bn in 2010. These figures do not take into account non-metallic mining activity, which is estimated to have accounted for $750m last year. Overall, mining contributed 1.7% of GDP in 2010, a figure that could well hit 2% if, as the bureau predicts, metal prices remain strong throughout the year.

“This optimistic outlook can be attributed to the sustained upbeat price of metals in the world market during the year, coupled with the projected growth in the mine output of local mineral producers,” the MGB report said. “Given the current state of the world economy, gold and silver, with their commercial and monetary utility, are expected to remain bullish.”

Though a renewed global economic downturn may prompt greater demand for precious metals such as gold, a return to recession could see other segments of the Philippine mining industry feel a chill, with nickel, sands, gravel and cement production in line for a slowdown if demand cools.

Another concern local and international mining companies have is the differing layers of administration in the country, with regional governments at times enacting regulations that are at odds with national laws governing the industry. One such issue involves Xstrata’s $5.9bn Tampakan Copper-Gold Project in the southern province of South Cotabato, which has faced long delays after the local government imposed a ban on open-cut mining.

While the company is still hopeful it can have the ban overturned by presenting a favourable environmental impact study, and the Department of Justice has advised that the local action is contrary to national legislation, there is no guarantee that the order will be lifted and work allowed to resume. There have been bans on mines in other regions as well, but none involving projects as large as Tampakan. Such uncertainty can make investors uneasy, especially when large sums of money are involved in what is already a risky industry.

If Tampakan, which is still scheduled to begin full production in 2016, does get the final go ahead, it has the potential to become the biggest mine in the Philippines and the fifth-largest copper mine in the world. The project’s supporters claim the mine will add a full 1% to GDP when it comes on-line, and provide much-needed employment in the South Cotabato region.

A proposal by the Department of Environment and Natural Resources to add a 5% royalty fee to the current 2% excise tax and other levies – amounting to some 15% of gross revenues on most mining operations – has also been met coolly by the industry. Some, such as Gavan Collery, the vice-president for corporate affairs at Indophil Resources NL, one of the partners in the Tampakan project, feel that a hike in duties may stifle the industry just at the time it is taking off.

“The mining industry is very young,” he said in an interview with Business World on June 16. “We’d like the government to ease off a little bit and allow the industry to go forward.”

Though some miners remain cautious, government officials have vowed to dig in and overcome any obstacles to future growth in the industry. Speaking in the Australian capital, Canberra, on June 16, where he was attending a joint Philippines-Australia ministerial meeting, the trade undersecretary, Adrian Cristobal Jr, said the government was determined to promote mining.

“There are issues and challenges in mining but that is not unusual in mining for any country,” said Cristobal. “There are policies and laws that will have to be reviewed. We are determined to resolve these issues.”

While the government may be determined, so too are many opponents to large-scale mining, and it may take some time for the concerns of both the industry and lobby groups to be addressed and a balance struck to allow for sustainable development. Once that is achieved, the Philippines will be able to exploit the gold mine it is already sitting on.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Asia

Exploring the future of sustainable aquaculture in emerging markets

With per capita fish consumption having doubled in the past six decades, aquaculture is becoming more important in combatting food insecurity. Recent innovations seek to improve sustainability and...

In Industry

Marco Parsiegla, CEO, Amouage

To what extent has the Covid-19 pandemic changed the business environment, and how is Oman helping companies adapt to new realities?


Exploring the future of sustainable aquaculture in emerging markets

With per capita fish consumption having doubled in the past six decades, aquaculture is becoming more important in combatting food insecurity. Recent innovations seek to improve sustainability and...