The Philippines lies on top of some of the richest metallic mineral deposits anywhere on earth, as the country’s active geology has vast concentrated amount of nickel, gold, copper, silver and other precious metals. According to the Mines and Geosciences Bureau, in 2016 the Philippines’ mining potential was ranked fifth largest in the world with 30% of its land area, or about 9m ha, identified as having high mineral potential. In all, the country’s mineral wealth was estimated at 14.5bn tonnes of metallic reserves and 67.66bn tonnes of non-metallic reserves in 2010. It ranks third in the world for its gold mineral reserves, fourth for its copper deposits, fifth in nickel and sixth in chromite. Capitalising on this, the country was once a leader in nickel production and export along with substantial gold, copper and other precious metal output.

Efforts by the government in the 2000s to bolster the mining sector included the formation of a mining development council, which initiated a period of strong growth in the industry by boosting investment and related government revenues from extractive industries. The programme proved highly successful as companies from around the world began pouring capital into the Philippines, hoping to benefit from the untapped potential of the country. Large international operations such as Vale, Anglo American, BHP Billiton, Rio Tinto and Xstrata all entered the market to develop mines and triggered a sharp increase in production. However, as the business environment became more challenging in subsequent administrations, these heavyweights began exiting the country one by one for better opportunities in other countries.

Toughing It Out

In the years since this boom cycle, the sector has fallen upon hard times after the administration of President Benigno Aquino III rolled out a series of often confusing new regulations impacting mining development nationwide. The root of these impediments has been the enactment of ordinances dating back to 2012, which have resulted in an environment of uncertainty and intermittent moratoriums on new exploration and production permits. Even when the blanket moratoriums were not in effect, Executive Order 79 disallowed applications for mineral contracts and concessions in prime agricultural lands, including fisheries development zones, tourism development areas, and vaguely defined critical areas, island ecosystems and other impact areas.

Further compounding the issue is the power of local government units to override national permits, enabling them to prohibit types of mining operations in their province and create an additional level of permitting, which has frequently proven difficult or impossible for mining companies to successfully navigate.

In addition to the regulatory challenges, which could have a significant impact on the development and output of new potential projects for years to come, the slipping of base metal commodity prices and demand worldwide has had an even greater impact on the short-term profitability of the Philippine mining sector. Declining nickel orders from China, the country’s largest purchaser, hit the sector hard in 2015; as the quantity of nickel ore produced dropped by 2% by volume to 32.3 dry metric tonnes (DMTU) while the value of this product fell by 41% to P36.73bn ($777m) from P62.7bn($1.3bn) in 2014. Mixed nickel-cobalt sulfide output likewise shrunk from 87,280 DMTU valued at P20.31bn ($429.7m) in 2014 to 84,995 DMTU worth P17.47bn ($369.6m) the following year. Copper concentrate, chromite and iron ore production values all experienced significant declines as well, contracting by 17%, 66% and 81%, respectively.

New Sheriff In Town

In 2016 the election of President Rodrigo Duterte brought about hope in the mining community that this deadlock would ultimately be broken by a new administration with little historical attachment to Executive Order 79 and its implementing legislation. Although 100 days into the administration’s rule, this hope had yet to be realised. If anything, the situation has become more challenging with the appointment of a new secretary of environment and natural resources who appears less sympathetic towards the industry. Responsible for the issuance and compliance of environmental compliance certificates (ECC) for all metallic and non-metallic mining permits, the Department of Environment and Natural Resources (DENR) is holding a moratorium on the issuance of any ECCs for new mines while also launching an comprehensive, industry-wide audit on every commercial-scale mine operating in the Philippines. As a result of this audit, roughly three-quarters of all metallic mines had been shut down or recommended for suspension as of October 2016.

In explaining the reasoning behind these tougher new requirements, Leo Jasareno, former undersecretary of the DENR, who initially headed up the audit, told OBG, “There is a misconception in the public that the secretary and the DENR is anti-mining. The DENR is out to strengthen the industry – it has to be a sustainable industry able to make a difference in the lives of the affected communities for the common good.”

Policy Questions

Regardless of the intention of the new government and the DENR in particular, the early results of this shift in emphasis towards more stringent enforcement has resulted in the revocation of approximately 25% of metallic mining permits in the country, with another 50% recommended for suspension as of October 2016. That means that of the 41 metallic mines operating in the Philippines prior to the shake-up at the DENR, only 11 have passed the new, more rigorous requirements.

“The criteria are based on existing guidelines, so all we have done is raise the bar for enforcement,” Jasareno told OBG. “Companies will be required to fix all their violations before they are allowed to resume operations. The philosophy is that we will go hard on the mines so that they will shape up, and eventually we will have greater stability in the sector as a whole.”

Reacting to this new change in tactics, the mining industry has expressed concern that the application of existing laws has been unclear and could damage the long-term viability of the sector. From the mining perspective, one of the most difficult aspects of this new emphasis is the lack of transparency in terms of what constitutes an infraction and how to rectify the situation in order to comply with the audit. “Most of the companies recommended for closure already have internationally accredited ISO certifications, but now other subjective metrics have been added so there is a wide degree of latitude for enforcement,” Ronald Recidoro, vice-president for legal and policy at the Chamber of Mines of the Philippines, told OBG. “We have been given no guidelines for the audits and no feedback so the mining companies still do not know what they have done wrong.”

This will undoubtedly have a dramatic effect on the country’s nickel output, which, as one of the world’s top nickel ore exporters, had been one of the bright spots in the sector up to this point. The impact of the mass mine closures is expected to be significant, and the anticipated sizeable reduction in exports was enough to spur a bull run on international nickel prices in September 2016, with the markets anticipating a future decline in global supply.

In addition to the new audits, the previous issues regarding amendments to the existing mining act and deciding the future of Executive Order 79 are still very much in play with legislators still pushing proposed changes including an increased government share of mining revenues and boosting value-added activity in the country. These bills have been refilled in the 17th congressional session, and could be passed as early as the end of 2016. The primary concern of the mining industry with these bills is a repeal of existing the Philippines Mining Act and its subsequent replacement with a more flexible set of legislation. These include provisions such as a 15-year cap on mine leases with no possibility of transfer or extension, as well as banning foreign ownership. These measures, other changes to mine tenement sizes, further implementation of no-go zones and other provisions could effectively constrain development of large-scale mines, which require significant ongoing capital expenditures to operate and can produce for three, four or five decades.

Precious Metals

If there is a bright spot in the sector, it is the precious metals sector, which has maintained a number of copper, silver and gold operations operating in the Philippines. This list includes the Didipio Copper Gold Project operated by Oceana Gold Philippines, which is country’s largest mine in terms of 2015 production value at P12.24bn ($258.9m) and has so far escaped cessation orders from the government. Other major operations still under way include Toledo Copper Operations, producing P11.12bn ($235.2m) worth of copper, gold and silver in Cebu in 2015; Philix Mining’s Padcal Copper-Gold Project producing P9.35bn ($197.8m) worth of gold, copper and silver; and Fiminera Mining’s Masbate Gold Project producing P9.27bn ($196.1m) worth of gold and silver in 2015.