MAC: Mines and Communities

Philippine Court Allows Foreign Control Of Mines - Supreme Court Decision Opens Door To $5.8 Billion

Published by MAC on 2004-12-02
Source: the Wall Street Journal ()

Philippine Court Allows Foreign Control of Mines - Supreme Court Decision Opens Door to $5.8 Billion In Potential Investments

By James Hookway, Staff Reporter of the Wall Street Journal

December 2, 2004

MANILA, Philippines -- The Philippine Supreme Court decided to allow foreign control of mining projects, reversing an earlier ruling that unnerved investors and threatened to stall development of the Philippine mining industry.

In a decision announced yesterday, the court ruled that a mining act introduced in 1995 to spur foreign investment didn't break a constitutional provision limiting control of mining ventures to Filipinos.

The decision opens the way for potential investments in the industry that government officials have said could total $5.8 billion. At present, mining accounts for 1.5% of gross domestic product, while some officials believe it could be a key part of the Philippine economy.

Analysts had described the court case as a test of the Philippines' commitment to be open to foreign investment. The new decision "is what the mining industry has been waiting for," said Luz Lorenzo, an economist at ATR-Kim Eng Securities Inc. in Manila.

Digging Deep

In January, the court embarrassed the Philippine government, which has been trying to woo foreign investors to pump money into the country's dwindling mining industry. The court initially ruled that the 1995 Mining Act violated the constitution, and declared that a mining contract between the government and Australian company WMC Resources Ltd. was illegal.

Under Philippine law, the government could appeal that decision, and it did. In the new ruling, the Supreme Court said "the constitution should be read in broad life-giving strokes." It added that the constitution should be interpreted to allow the government sufficient leeway "to attract foreign investment and expertise."

The Supreme Court Justices voted 10 to 4 to declare the 1995 Mining Act constitutional, with one abstention.

Enacted after the fall of former President Ferdinand Marcos in 1986, the Philippine Constitution was drafted to prevent the rise of future dictators. But the constitutional drafting committee also wrote in protectionist economic restrictions, including limiting foreign ownership of mining projects to a 40% equity share.

The 1995 Mining Act effectively provided a loophole under which foreign investors could get a greater role in the industry. Under the act, they were allowed to control as much as 100% of Philippine mining ventures.

But legal challenges to the act's constitutionality have stalled liberalization, and without access to foreign capital, many potential sites have remained untapped.

At present, the Philippines mines about $500 million worth of minerals a year, far less than in Indonesia, which produced $18 billion of minerals in 2002. Philippine Socioeconomic Planning Secretary Romulo Neri estimates there could be $840 billion worth of untapped mineral wealth in his country.

WMC Resources no longer has a Philippine investment. It sold its interest in the Tampakan gold and copper mine in the southern Philippines to Sagittarius Mining Inc., which is 40% owned by Indophil Resources NL of Australia.

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