Q+A-What ails the Philippine mining sector?
By Erik dela Cruz and Rosemarie Francisco
MANILA, Sept 13 | Tue Sep 13, 2011 3:52am EDT
(Reuters) – Mining investments in the Philippines this year are forecast to hit $2.8 billion, double initial forecasts of $1.4 billion, and the highest annual figure since 2005 when the sector was opened fully to foreigners.
The Southeast Asian country, which sits on an estimated $1 trillion worth of mineral resources, wants to attract more mining investors and take advantage of higher global metal prices to create jobs and stimulate the domestic economy.
Investment policy flip-flops and a strong anti-mining lobby, however, have slowed development and the chances of boosting investments in the sector.
WHAT IS THE GOVERNMENT’S STAND ON MINING?
Investment of $560 million in Aquino’s first six months in office last year was in existing projects.
But hopes for new operations have grown after the Environment department completed in July an eight-month “cleansing” process aimed at getting rid of mining speculators.
The proliferation of mining speculators, or those given permits but have not started any projects, has discouraged serious investors and the development of the country’s mining industry.
The government’s use-it-or-lose-it policy has resulted in the cancellation of hundreds of permits for non-moving projects and the opening of about 5 million hectares of potentially mineralised areas across the archipelago to new investors.
The government is also seeking a review of fiscal incentives in the Mining Act to get more revenues to plug a huge budget gap.
But the 2010/2011 Fraser Institute annual survey of mining companies showed the Philippines was among the least attractive mining territories in the world, although it improved its ranking to 66th out of 79, from 70th out of 72 in the previous survey.
The index measures overall policy attractiveness based on taxation, infrastructure, political stability, labour issues, security and environmental regulations.
WHAT IS THE STATUS OF THE COUNTRY’S BIGGEST MINING PROSPECT?
The $5.9 billion Tampakan copper-gold project of Xstrata Plc in the southern province of South Cotabato — Southeast Asia’s largest undeveloped copper-gold prospect — is under threat from an open-pit mining ban imposed by the local government.
The justice, environment, and local government departments agree the mining ban and other anti-mining measures imposed by local governments run counter to the national mining law.
However, local government officials have invoked their powers and rights to protect their communities, causing an impasse on how to proceed with mining projects.
Sagittarius Mines Inc, Xstrata’s Philippine unit, has sought a review of the ban, saying open pit mining was the safest and most economic extraction method.
Sagittarius has presented an environmental impact statement (EIS) on the mine via a series of public consultations, set to end this month, one of the requirements before a review of the local code starts.
ARE OTHER PROVINCES ADOPTING ANTI-MINING MEASURES?
Environmental concerns were also cited for similar bans and mining moratorium in other provinces.
Industry group the Chamber of Mines of the Philippines has said local government bans on mining have also been issued in the central provinces of Capiz, Bohol, Samar, Romblon, and Mindoro and the southern province of North Cotabato.
Anti-mining groups cite local opposition borne out of past accidents.
In 2005, heavy rains and a lack of safeguards triggered a cyanide spill at the poly metallic mine operated by Australian miner Lafayette in the central Philippines — the first foreign-owned mine in the country after the Mining Act was enacted. The mine was closed after the accident and efforts to restart work failed due to a lack of funding.
Another often-cited accident was the 1996 tailings spill at Marcopper Mining Corp’s copper mine in central Marinduque province, in which at least 1.5 million cubic metres of mine tailings flowed into surrounding rivers following flash floods, contaminating the river system and causing illnesses in the communities around the mine up to today.
WHAT PROBLEMS DO MINERS FACE?
A strong opponent in the majority Christian country is the Catholic Church, which has come out against mining projects such as the proposed Tampakan mine, citing local concerns.
Tax and security issues are also among investors’ major concerns. Environment Secretary Ramon Paje has proposed a 5 percent royalty fee from miners on top of the existing 2 percent excise tax, a proposal shot down by the industry.
Existing investors also complain that local governments impose unregulated taxes on mining. Local government units are given the power to levy taxes, fees or charges on businesses in their areas under the local code.
Miners must also deal with communist rebels demanding revolutionary taxes and compensation for communities hosting mining projects, and miners are harassed if they fail to pay up.
One result of large players shunning the country is that small-scale gold mining accounts for two-fifths to nearly half of annual total mining output by value, becoming a major employer as a result. (Editing by Ramthan Hussain)