Possessing some of the region’s most impressive reserves of mineral wealth, the Philippines has the potential to forge itself into one of the world’s premier mineral extraction and export nations. Situated along the Pacific’s famed Ring of Fire, the country boasts mineral reserves estimated at $850bn, including the third- largest gold reserves in the world, fourth-largest copper reserves and fifth-largest nickel reserves, according to the Philippines Department of Environment and Natural Resources (DENR). All told, approximately 14.5bn tonnes of metallic minerals (including gold, copper, iron, chromite, nickel, cobalt and platinum) and 67.66bn tonnes of non-metallic minerals such as sand and gravel, limestone, marble, clay, and other quarry materials lie waiting for the turn of the shovel.
LOST OPPORTUNITY: In spite of this potential, the mining sector currently makes only a minimal contribution to the country’s economy due to a range of factors and competing interests, which have severely impeded development. As a result, the industry has not been able to capitalise on these resources, and generated only 0.7% of total GDP contribution worth $1.72bn in 2012, according to the Mines and Geosciences Bureau (MGB).
This is in line with previous years’ contributions, which registered 0.8%, 1% and 1% from 2009-11, worth $1.38bn, $1.96bn and $2.24bn, respectively. Figures for 2012 indicate the country officially exported $2.27bn worth of minerals and mineral products, accounting for 4.9% of all exports, down from $2.84bn the previous year, or 6% of total 2011 exports. The sharp drop in value between the two years is the consequence of a number of factors, including a decline in market prices, lower production due to temporary mine closures, as well as a lower reported production of small-scale mining operations as a result of policy changes.
More positively, employment in the sector has increased each year since 2008, growing from 158,000 that year to 252,000 (0.7% of the national labour force) in 2012. The state’s take from the industry due to taxes, fees and royalties totalled P1.64bn ($39.5m) in 2012, significantly higher than the P1.18bn ($28.44m) tallied in 2011 and P800.6m ($19.3m) in 2009. However, mining taxes collected by local governments plummeted from P12.89bn ($310.6m) in 2012 to P5.82bn ($140.3m) in 2011, as reported income from artisanal miners was curtailed sharply, as well as taxes and fees collected by local government units (LGUs), which likewise decreased from P1.18bn ($28.4m) to P496.6m ($11.9m).
LAY OF THE LAND: As of May 2013 there were 35 commercial-scale metallic mines operating in the Philippines, according to figures from the MGB. Nickel mines continue to lead the sector with a total of 21 active mines currently running, along with six gold mines with silver, three each of chromite and copper with gold and silver mines, one iron mine and one copper mine with gold, silver and zinc. These were complemented by an additional 55 operating non-metallic mines extracting raw materials for use in construction and industrial applications, including limestone, shale, silica, aggregates, clays, sand and gravel.
Nickel production dominates the mining landscape in the country, with a 2012 production run of 293,731 tonnes of nickel and 23,890 tonnes of nickel concentrate, just off the 2011 pace of 296,569 tonnes (down 1%) and 22,794 tonnes (up 5%) respectively, according to data from the MGB. The production of copper concentrate nudged up 3% from 63,385 tonnes in 2011 to 65,444 tonnes in 2012, while silver output increased 48% from 45,530 tonnes to 67,477 tonnes.
Conversely, reported gold production was nearly halved from 31,120 tonnes to 15,762 tonnes over the same year. Chromite, zinc and iron ore production registered 36,628 tonnes (up 44% over 2011), 40,205 tonnes (up 8%) and 216,176 tonnes (down 26%), respectively in 2012. The combined output of these commodities was valued at P100.8bn ($2.4bn) in 2012, down 18% from the previous year’s P122.98bn ($2.9bn).
NEW ARRIVALS: Bucking recent trends which have slowed mine development, the Didipio gold and copper mine located in Luzon commenced commercial production in April 2013. The mine is being operated by Australian mining outfit OceanaGold, and is expected to produce 100,000 ounces of gold and 14,000 tonnes of copper per annum on average, over an estimated 16-year mine lifespan, according to the company. Feasibility studies of the open pit site have revealed measured and inferred resources of 2.14m ounces of gold and 290,000 tonnes of copper. In addition to the Didipio mine, OceanaGold is also exploring other sites within its lease. The most advanced of these is the D’Beau copper gold prospect, located roughly 1 km south of Didipio. The company also holds exploration licences, licence applications and option agreements in the Surigao Peninsula area of North Eastern Mindanao including Paco (granted tenement), Mayag (tenement application), Asiga (option to purchase agreement) and Manhulayan (option to purchase agreement).
OPENING SOON: With the Didipio copper project moving from the developmental stage to commercial production in May 2013, the second most advanced large mining project in the country is the Runruno Gold-Molybdenum project, which is operated by the FCF Minerals Corporation. Wholly-owned by London-listed Metals Exploration, FCF Minerals was awarded a financial or technical assistance agreement (FTAA) in October 2009 according to company reports.
The company acquired the final permit necessary to move ahead with the construction phase of the mine following DENR approval of its declaration of mining project feasibility in 2011; this followed on the back of its environmental compliance certificate (ECC) in 2010, according to company reports. With these and other permits now in place, FCF Minerals is expecting to continue construction works on the mine and processing plant through the third quarter of 2014, with the first gold pour targeted for the second half of that year.
Over the course of its planned 10.3-year life cycle, Runruno is projected to produce an average of 96,700 ounces of gold annually, with a total payable production of just more than 1m ounces of gold, according to an April 2013 company report from Metals Exploration. Capital costs for the project, including the mining fleet, are estimated at $182m. Proven and probable reserves for Runruno Main are estimated at 15m tonnes graded out at 1.85 grams of gold per tonne (g/t), along with 18.3m pounds of molybdenum at 603 parts per million (ppm). A second site within the mining tenement, Malilibeg South, also holds inferred reserves of 7.6m tonnes at 1.40 g/t and molybdenum 19.98 m tonnes at 1200 ppm. Approximately 1.75m tonnes per annum of ore will be transported via conveyor to the processing plant from the open mine pit, which will measure approximately 600 metres by 1500 metres.
QUEUING UP: In addition to Runruno, a sprinkling of other large-scale projects are currently in the feasibility stage of development. These include the Tampakan Copper-Gold project of Sagittarius Mines/Xstrata; the Silangan Copper-Gold project of Philex Mining; the Far Southeast Copper Gold Project of Lepanto Consolidated Mining Company and Gold Fields Limited; and the King-king Copper-Gold project of the Nationwide Development Corporation (Nadecor) and St. Augustine Gold Mining Corporation. With the potential to become one of the country’s largest standalone investments at $5.9bn, the Tampakan Copper-Gold Mine project is a critical cog in the country’s mining future.
Located on Mindanao Island, roughly 40 km north of General Santos City, the 10,000-ha mine site straddles the four provinces of Sarangani, Sulatan Kudarat, Davao del Sur and South Cotabato. The joint venture is owned by Glencore Xstrata with 62.5% and Indophil Resources NL (37.5%). Furthermore, mining operations at the site are handled by Philippine-based affiliate Sagittarius Mines Inc. (SMI), whose 40% controlling stake in the project is owned by Glencore Xstrata.
STRONG PROSPECTS: Results of a feasibility study for the project have proven positive, with a mineral resource of 2.94bn tonnes at 0.51% copper, plus 0.19 g/t of gold using a cut-off grade of 0.2%, according to a company report from Glencore Xstrata. With its 15m tonnes of copper and 17.6m ounces of gold, this project would yield on an annual basis an estimated output of 375,000 tonnes of copper and 360,000 ounces of gold in concentrate over the 17-year lifespan of the mine.
The Sagittarius project was dealt a setback, which has become all too commonplace throughout the sector in recent years, when the DENR denied the developer’s ECC in January 2012, and a later appeal of the verdict in May of that year. At the heart of the issue is the conflict between local and central government authority; in this case an open-pit mining ban in South Coabato versus a recent Department of Justice legal opinion citing that there is no provision in the Philippine mining act that prohibits such processes being used in the field. An independent review committee analysing the issue also recommended issuing the ECC to SMI. The project’s fortunes were later reversed, when the Mining Industry Coordinating Council endorsed the granting of an ECC to SMI in December 2012.
FEASIBILITY STUDY: First discovered in August 2000, the Silangan deposit, located in Surigao del Norte, is Philex Mining’s most mature exploration project and is projected by the company to be Philex’s next operating mine. Comprising the Boyongan and Bayugo copper-gold porphyry deposits, as well as the adjacent Kalayaan property added in 2011, the Silangan project is expected to have its pre-feasibility study completed by March 2014, feasibility study by September 2014 and the commencement of commercial operations by 2017, according to Philex’s 2012 annual report.
The Boyongan and Bayugo incorporate three separate exploration and two MPSA tenements covering a total of 23,283 ha. Measured and indicated resources of the Boyongan deposit are estimated at 273m tonnes at 0.53% copper and gold at 0.72 g/t, while the deposits at Bayugo sit at around 125m tonnes graded at 0.66% copper and 0.66 g/t. In May 2011, Philex added the adjacent Kalayaan territory, encompassing 286 ha under the exploration permit 148 through a farm-in agreement with the Manila Mining Corporation; the cost was $25m for a 5% interest in Kalayaan Gold-Copper Resources, with the additional right to later purchase a further 55% of the venture should it be commercially feasible at a future date.
A 60: 40 joint venture between the Lepanto Consolidated Mining Company and Gold Fields, the Far Southeast project is also in the pre-feasibility stage with a Lepanto executive confirming to the Philippine Stock Exchange in April 2013 that the company intended to have all requirements necessary to acquire the FTAA by the end of the year. Preliminary studies indicate that the proposed mine, which has a target start-up date of 2022, possesses inferred mineral resource of 892m tonnes at 0.7 g/t of gold and 0.5% copper for a total of 19.8m ounces of gold and 9.92m pounds of copper, according to a Gold Fields report.
Last but not least, the King-King mine is one of the largest undeveloped copper-gold deposits in the world. Indeed, the site has a measured and indicated mineral resource of 962.3m tonnes at 0.25% total copper, 0.06% soluble copper, and 0.33 g/t of gold resulting in 5.4bn pounds of contained copper and 10.3m ounces of contained gold, according to a November 2012 investor report by St. Augustine. Located 35 km east of Davao City on Mindanao, the project entered the feasibility stage of development in early 2013 after pre-feasibility work was completed in 2012. King-King is a joint venture between the Philippines-based Nadecor and Toronto-listed St. Augustine.
EXPLORATION: As of February 2013 there were a total of 717 valid mining permits and other agreements issued at the federal level, coving a total area of 942,000 ha, or 3.2% of the country’s landmass, according to DENR. The majority of contracts issued are for exploratory activities such as mineral production sharing agreements (339 issued) and exploration permits (53 issued) along with other agreements consisting of FTAAs (six), industrial sand and gravel permits (235), mineral processing permits (84) and mining lease contracts (14).
Thousands of additional mining permits are also issued by local governments, ostensibly for smaller scale and artisanal mining operations, as well as a handful of joint operating agreements between private mining companies and the state-run Philippine Mining Development Corporation (PMDC).
STATE OF FLUX: The mining sector is governed by an amalgamation of different laws, regulations, executive orders and proclamations, most of which date back to the 1980s. Among the most influential of these are the 1987 Constitution, the 1995 Mining Act, and most recently Executive Order 79. The past few years have been particularly tumultuous in terms of the regulatory environment, due to included multiple alterations, moratoriums and general uncertainty, which had yet to be resolved as of the time of publication.
The basic licensing scheme applicable to foreign mining operations consists of exploratory permits, FTAAs and mineral production-sharing agreements (MPSAs). An FTAA is a mining right applicable to large-scale mining projects, allowing for 100% foreign ownership with a 50:50 revenue sharing arrangement with the government, while an MPSA is an arrangement in which the government takes a share of production along with the mine operators (all MPSA applications remain suspended at the time of publication), which for all intents and purposes results in near equal revenue split as well.
NICKEL: Nickel is by far the largest contributor to the country’s mining sector, accounting for the bulk of mines, production and exports, not only domestically but internationally. Ranked as the number one nickel producer in the world by the United States Geological Survey in 2012, the country leapfrogged its closest rival Indonesia for the top spot by besting its annual production by 10,000 tonnes for a total of approximately 330,000 tonnes for the year.
The single-largest producer of laterite nickel ore in the Philippines is the Nickel Asia Corporation (NAC), which operates four mines: Taganito, Rio Tuba, Cagdianao and Taganaan. Together, these four mines held proven and probable reserves totalling 118.6m wet metric tonnes of saprolite and 233.6m wet metric tonnes of limonite as of December 2011, according to company reports. The Cagdianao and Taganaan mines are wholly owned by NAC, with the outfit holding a majority 65% stake in Taganito (along with Pacific Metals Company holding 33.5% and the Sojitz Corporation holding the remaining 1.5%), and a 60% share of Rio Tuba (with Pacific Metals and Sojitz holding respective shares of 36% and 4% in the mine).
In 2012 the company shipped 11.73m tonnes of ore, up 13% over the 10.39m tonnes produced the previous year, according to NAC financial reports. Of the total, 2.24m tonnes were saprolite ore and 7.49m tonnes were limonite ore (3.35m tonnes of which was produced by the company’s Coral Bay hydrometallurgical processing plant). Despite higher volumes, NAC nevertheless saw its revenues fall off by 9% to P11.61bn ($279.8m) due to weaker nickel prices and a stronger peso. Covering a total of 4862 ha, the Taganito mine is larger than the other three operations put together and boasts the longest lifespan – estimated at 29 years – for its saprolite production (24 years for limonite).
PROCESSING: In addition to its mining operations, NAC is also a partner in the nation’s newest hydrometallurgical nickel processing plant, located next to the Taganito mine in Surgigao del Norte. Commercial operations at the facility are expected to begin by the end of 2013 at which point the plant will process approximately 1.8m tonnes of low-grade nickel oxide ore (limonite) before moving up to around 4.5m tonnes in 2014 in its first full year of production, according to a report filed by NAC with the Philippine Stock Exchange in January 2013. Once fully operational, the project will have a capacity to produce approximately 30,000 tonnes of contained nickel and 2600 tonnes of contained nickel cobalt per annum using a high-pressure acid leaching (HPAL) process. The project will be a partnership between Sumitomo Metal Mining, holding a 62.5% share in the venture, along with NAC, with a 22.5% stake, and Mitsui holding the remaining 15%.
Costs for Taganito have increased substantially for a number of reasons since the project’s initiation, including damages and delays resulting from attacks by Maoist rebels in October 2011, as well as higher material prices and changes in specifications. According to a Sumitomo company announcement in November 2012, costs rose 22% from initial projections of $1.3bn to $1.59bn as a result of the aforementioned factors, with the $150m attributed to the 2011 attacks on the site and associated construction and safety costs, along with $140m due to the devaluation of the US dollar since 2009 when the basic agreement for joint implementation was signed for the project.
This second processor will complement the existing Coral Bay HPAL facility in the south-western Palawan province. The plant, which has a smaller capacity at 24,000 per annum of contained nickel, was commissioned in 2005 and is similarly owned by a partnership of Sumitomo (54%), Mitsui (18%) and NAC (6%). In addition to standard nickel processing, Sumitomo announced in March 2013 plans to build a pilot scandium recovery plant in Palawan later, which is scheduled to be operational by 2014. The Philippines also has a lone copper smelter located in Lyte with a capacity to process 1.2m tonnes of copper concentrate and is operated by the Glencore-majority-owned Philippine Associated Smelting and Refining Corp (Pasar).
OUTLOOK: Despite its vast potential, the mining sector will likely continue to expand in small, incremental steps due to regulatory gridlock brought on by a multitude of special interest groups. Yet even with the slow pace of progress being made, there remains hope that the government’s renewed recognition of the importance of the mining sector will help drive it forward. This promise, combined with the country’s tantalising potential, is expected to continue to draw interest from major international mining companies, as well as from cash-flush local players looking to enter the sector.