MAC: Mines and Communities

Pitfalls open in Philippine mining

Published by MAC on 2008-08-04
Source: Joel D Adriano, Asian Times

MANILA - Australian ambassador to the Philippines Rod Smith last week jumped to the defense of the dozen or so Australian mining companies operating there, in what is turning out to be a nightmarish venture for most of them. It's the latest sign that all is not well in the Philippine mining business, despite the government's various initiatives to promote more foreign investment in the underdeveloped sector.

One Australian mining company now faces criminal charges for alleged tax evasion; another is under investigation by the independent Commission on Human Rights for complaints of harassment, killings and mass displacements of indigenous tribes. A third is complaining behind the scenes about extortion from political operatives with alleged links to President Gloria Macapagal-Arroyo's government.

Smith says Australian mining firms operating in the Philippines adhere to the highest safety and environmental standards, according to reports, including one on the Radio Australia web site. He was confident the mining companies gave highest priority to sustainable development, the report said.

It wasn't supposed to be like this. After a nationalistic backlash and conflicting policy signals drove many international mining firms out of the Philippines in the 1990s, investors were assured it was safe to return after a Supreme Court ruling in 2004 that upheld the constitutionality of the 1995 Mining Act. This, among other industry promoting measures, allows for 100% foreign ownership of large mining projects.

Arroyo's government has since aggressively promoted the mining sector, promising foreign investors waived income taxes for between four to eight years, a special 5% tax rate after that period lapses, exemption from value-added taxes, tax-free importation of equipment and exemption from wharfage dues, among other deal sweeteners. Coupled with the upsurge in the global commodity prices, several global miners decided to give the Philippines mineral stores a new look.

The National Economic and Development Authority (NEDA), a state economic policy-making body, recently estimated the country's untapped mineral wealth at US$840 billion, while the Board of Investments has said around 30% of the country's terrain is geologically-prospective for minerals and only 1.4% of that area is covered by permits.

The United States Geologic Survey has estimated that the Philippines is home to 17% of the world's nickel reserves, representing the fourth-largest untapped store in the world. The country is also estimated to have the world's fourth-biggest copper and fifth-largest gold deposits. Even without substantial investments, the country is ranked as Asia's third-largest gold producer.

From 2004 to 2007, more than 40 major mining processing and exploration projects were approved by the government, totaling provisionally $1.4 billion in new investments. Authorities have said these initial outlays had the potential to expand by an additional $9 billion by 2011.

The government has said it expects production value to reach $10 billion by 2011, including local quarry this year, or more than three times the $3 billion earned in 2007. Those projections are based on expected increases in silver, gold and chromite production. The bulk of the recent foreign investment deals were expected to come online this year, as projects progressed from the exploration and construction to actual development.

Yet despite substantial foreign investor commitments and the central government's best promotion efforts, mining is still highly politicized in the Philippine countryside and it seems increasingly unlikely the sector will even come close to the government's previous ambitious production projections. For various reasons, foreign investment is down 60% in the first half of this year and foreign chambers of commerce have upped the volume of their complaints about the unlevel playing field they face in doing business here.

With global commodity prices at record highs, the Philippines is clearly squandering a golden opportunity to cash in on its massive untapped mineral wealth. A previous generation of foreign miners invested millions of dollars in outreach programs, education, local livelihood projects and even the provision of free electricity for local communities to curry favor and pave the way for their operations.

Those socially responsible investments were mostly squandered after the country took a nationalistic turn against foreign miners in the wake of the disastrous 1996 Rapu-Rapu cyanide spill by Canadian miner Placer Dome in Albay province (*). Now foreign miners are learning once again the hard way that policies and contracts devised in Manila often have little legal weight in the provinces against grassroots opposition to their activities from non-government organizations, tribal groups, the Catholic clergy and even local governments.

Philip Romualdez, president of the Philippines Chamber of Mines, said that issues between mining companies and local governments have hampered the progress of various mining projects already established and hence have dampened the government's drive to attract more foreign mining investments. He has repeatedly in vain called on local governments to realize the benefits of mining to host communities and the entire country.

Aussie go home

Consider, for instance, the case of Australia-based Oceana Gold. The firm's $320 million copper and gold mining project at the remote village of Didipio, which the company has described as involving "one of the highest-grade gold-copper porphyries in the world", faces criminal sanctions for its alleged refusal to pay local taxes worth 28 million pesos (US$635,000).

Nueva Vizcaya province authorities that lodged the charges have since issued a cease and desist order against the firm, despite Environment Secretary Joselito Atienza's insistence that under the old Financial Technical Assistance Agreement, a binding contractual arrangement between the central government and the mining firm, the project is exempted from paying quarry and other local fees.

Oceana is now under investigation by the independent Commission on Human Rights for complaints of harassment, killings and mass displacements of indigenous tribes, charges the company has said are unsubstantiated and aimed at derailing their contracted business activities. A regional trial court has ruled as illegal the firm's move to demolish more than 100 houses early this year to pave the way for the project.

Sagittarius Mines Inc (SMI), the Philippines affiliate of Australia-based Xstrata Copper, earlier reported that B'laan tribesmen, a local indigenous group, kidnapped several of the company's personnel to prevent them from conducting a geophysical survey. The company has since attempted to downplay the incident, apparently to avoid a prolonged stand-off with the local community near where it operates.

SMI currently conducts mining operations at the Tampakan copper and gold mines in South Cotabato province, where it has projected its total investments for the project could reach $1.14 billion by 2011. The company acquired the rights in the late 1990s from another Australian firm, Western Mining Corporation, which gave up on the project despite investing heavily in the face of political and legal harassment, a former company insider said. If it ever reaches full production, industry analysts estimate Tampakan would rank as one of the world's richest copper finds.

The World Bank has highlighted problems in the Philippines' mining concession process, where projects that overlap with indigenous peoples' territories are supposed to obtain consent from the concerned community but seldom do. The problem is exacerbated by the fact that many indigenous peoples and their territories are not legally defined, with different sources revealing different facts and figures.

There is also the problem of institutionalized corruption, industry executives say. One industry source close to Australian mining giant BHP Billiton claims a "wheeler and dealer" with close links to the Arroyo administration has tried to extort as much as 200 million pesos more from the company than detailed in their exploration contract.

The company is now known to be reevaluating its planned $1.5 billion nickel project in Davao City, according to the same source, who requested anonymity because he was not authorized to speak about the situation. Environment Secretary Atienza recently mediated a meeting over the allegations held in Singapore between BHP representative Chris Campbell and a related Filipino executive, though it's not clear any agreement was reached, the official said in a press conference last week without revealing details.

Horacio Ramos, head of the government's Mines and Geosciences Bureau (MGB), says that several small and large mining projects have ceased operations or failed to reach an advanced exploration stage due to labor disputes, local community's environmental concerns or a lack of social acceptability.

However, where big multinational Australian miners are being marginalized, smaller-scale Chinese firms are moving in. A dozen or more Chinese mining firms committed last April to pour as much as $1.5 billion into the mining sector through joint venture agreements. Details of the deals are scarce, with both the mining bureau and China business association declining to divulge specifics about the agreements.

This correspondent found that many of the addresses and contacts listed for the involved Chinese companies were inconsistent or nonexistent when followed up. That's likely because certain Chinese firms are operating under the radar by parceling out large mining areas into several small-scale production sites which are not required to register with the government's MGB, industry insiders say. Such arrangements lack the efficiency of large-scale operations and often represent greater environmental risks than the best practices employed by big multinational mining companies, they say.

China's ZTE Corporation, which was tangled up last year in an alleged kickback scandal involving Arroyo's husband over a multi-million dollar broadband infrastructure contract, is negotiating a mining contract in the 8,100 hectare Mount Diwalwal gold-rush area on the southern island of Mindanao. But even with political connections in Manila, it's not certain ZTE will have any better luck than its Western counterparts once they move to establish actual production operations in the provinces.

Joel D Adriano is an independent consultant and award-winning freelance journalist. He was a sub-editor for the business section of The Manila Times and writes for Asean BizTimes, Entrepreneur Philippines, Masigasig and People's Tonight.

* Editorial note: the Placer mine was actually situated in Marinduque province

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