Situated upon a belt of volcanic activity, the archipelagic nation of the Philippines is the fortunate beneficiary of millions of years of violent volcanism and tectonic plate convergence that have left behind a fortune in mineral wealth just beneath the surface. These riches form the foundation of the country’s mining industry, attracting some of the world’s most prominent mining companies over the years.
Overall, the country’s mineral wealth was estimated at 14.5bn tonnes of metallic reserves and 67.7bn tonnes of non-metallic reserves in a 2010 report by the Philippine Mines and Geosciences Bureau (MGB). This put the country fifth in the world in terms of total mineral reserves, including third in gold, fourth in copper, fifth in nickel and sixth in chromite. However, a 2014 report prepared by the Australia-New Zealand Chamber of Commerce in the Philippines placed these estimates slightly lower, with copper reserves at 63% of the MGB estimate, and revising the levels of gold, nickel, chromium and zinc downwards. The 2014 report valued the country’s overall mineral reserves at around $1.4trn overall, with gold, nickel and copper contributing 75% of the value.
Driven currently by the nickel segment, this potential has translated into strong growth of gross mining sector revenues. According to MGB data, mineral revenues grew from P99.38bn ($2.2bn) in 2013 to P137.53bn ($3.1bn) in 2014 – a growth rate of 38%. The nickel segment continued to dominate the industry, with the metal (direct shipping ore and mixed nickel-cobalt sulfide) accounting for 58.1%, or P79.84bn ($1.8bn), of the 2014 total production value. Gold production ranked a distant second, accounting for 23.97% of the total, or P32.97bn ($732m), followed by copper with 16.55%, at P22.76bn ($505.3m) and silver, chromite and iron, which made up the remaining 1.42%, equivalent to P1.96bn ($43.5m). The addition of three new nickel mines in 2014 brought the total number of operating metallic mines to 44, while downstream processing remains somewhat limited, with two nickel processing facilities and an equal number of gold processing plants operational.
But while there is no disputing the country’s mineral potential, the sector has fallen upon hard times over the past five years due to legislative uncertainty, which has left mining companies in limbo while the government debates its next regulatory move. Caught in the crossfire between competing interests and diverging agendas, policy makers attempting to hammer out a new regulatory regimen for the mining sector have been hard pressed to reach a consensus between the various stakeholders in recent years. In an attempt to find middle ground, the central government has tried repeatedly to introduce reforms and reinvent a legislative framework capable of both encouraging further investment in the sector and serving the best interests of the Filipino people. The results of these efforts have been a mixed bag as the regulatory landscape continues to evolve, leaving behind a patchwork legacy that inspires little confidence of achieving the sustained long-term stability necessary to attract new investment from both foreign and domestic mining outfits.
Applying A Framework
At the heart of the issue is Executive Order (EO) 79 and the ensuing confusion over its implementation. The legislation is the result of a mining study group formed by the government in October 2011 to rectify a host of issues, including the environmental and social debates that lie at the heart of many of the anti-mining arguments, and the revenue splits plaguing the industry.
Signed in July 2012, with rules governing legislation implementation and regulations issued in October 2012, EO 79 is an attempt to reconcile a wide range of contradictions and shortcomings perceived in the current framework. Some of the highlights include clarification of areas closed to mining and the development on a no-go zone map; full enforcement of environmental standards; development of the downstream industries sector; rationalising small-scale mining activities; and creating a one-stop-shop for all mining applications and a centralised database. The other key point of contention between the government and the mining companies is the proposed reconfiguration of the tax structure. While the government feels entitled to a higher take, claiming that the mining companies are unduly profitable, the industry has countered with data and studies that indicate that the current taxation structure is on par with, if not more restrictive than those of the majority of countries across the globe and should not be raised.
Local government units are also weary of the possible effects of implementing EO 79, in particular the clause removing local power to enact measures controlling mining activity, such as open pit mining. With an election coming up in 2016, it is unlikely candidates would want to move forward with any measures that might be received unfavourably by the large blocks of rural voters.
As of late 2015, three house bills (5367, 3568 and 5843) seeking to restructure the fiscal regime for minerals and mineral products, and a host of other issues, were making their way through Congress, although at the time of writing it looks unlikely that they will be passed in their current form. One of these also includes the creation of proposed mining economic zones, which would further restrict mining operations and introduce an additional level of permitting to be overseen by the Philippine Mining Development Corporation.
In spite of this uncertainty, companies continue to apply for and receive exploration permits (EPs), with the intention of waiting out the period of transition in the hope that a more favourable operating climate will materialise after the 2016 elections. These permits allow for an initial validity of two years, with a series of two-year extensions available for a total possible exploration period of six years, meaning that companies willing to ride out the current uncertainty could be rewarded for their tenacity by sitting in pole position for new potentially lucrative claims once regulatory stability returns. After a moratorium and political uncertainty pushed down the number of approved and registered EPs from 113 in 2011 to just 36 in 2014 (along with other permits), the government has begun sifting through its substantial backlog, according to MGB data. As of the end of 2014, a total of 966 EP applications were being processed, up from 853 the previous year.
Until some of these exploratory efforts bear fruit, the industry’s bright spot will likely remain the nickel sector for the time being. Fuelled in part by Indonesian export restrictions on raw metallic minerals and continued demand from China, direct shipping nickel ore and mixed nickel-cobalt sulfide dominated the production scene between 2012 and 2014. Philippine mining operations produced 30.19m dry metric tonnes (DMTU) of direct shipping nickel ore in 2014, up 20% from the 25.23m DMTU from the previous year. The largest of the nickel producers in 2014 was the Rio Tuba Nickel project of Rio Tuba Nickel Mining Corporation in Palawan, with 693,585 DMTU, followed by the Claver Nickel Project of Taganito Mining Corporation in Surigao del Norte with 515,033 DMTU. Rounding out the top four were the Tubay Nickel-Cobalt Project of SR Metals, incorporated in Agusan del Norte with 434,158 DMTU and the Toronto-Pulot Nickel projects of Citinickel Mines and Development Corporation in Palawan, with 413,147 DMTU. China remains the largest purchaser of Philippine nickel, followed by Japan.
Unlike the copper and gold projects, which have not seen any major mining developments come online in years, nickel projects continue to crop up across the country, with the number of active mines increasing from 18 in 2011 to 27 by the end of 2014. The two most significant recent additions to start operations in 2014 were the Libjo Nickel Laterite Mining Project, operated by the Libjo Mining Corporation and located in the Province of Dinagat Island, with a projected ten-year mine life; and the Agata North Nickel Lateritic Project, operated by TVI Resources Development and located in Agusan del Norte, with a projected mine life of 11 years.
These new nickel mining projects are expected to boost the 2015 nickel production of the country, with the expected mine output of Libjo and Agata to be about 714,000 DMTU and 1,360,000 DMTU, respectively. The 2015 mine volume of nickel ore is expected to be further bolstered following the lifting, in February 2015, of the mine suspension order on the nickel mining operations of three Zambales mining contractors: namely, Lnl Archipelago Minerals, Benguetcorp Nickel Mines and Eramen Mineral.