First 100% Foreign-owned Mining Firm to Start Commercial Production

Since the Supreme Court ruling in December 2004 calling the 1995 Mining Act as constitutional, the government has turned its high gears to entice foreign mining companies to invest in the Philippines. Of about nine million hectares of potential mining land only 1.4 million hectares are covered by mining permits. An Australian company will start commercial production soon, and more are expected to follow.

BY CAESAR BEN BASAN BAROŃA
Bulatlat

Amid the political crisis, the Macapagal-Arroyo administration has allowed the commercial production of the first 100-percent foreign-owned major mining operation in the country since 1946.

Department of Environment and Natural Resources (DENR) Secretary Michael Defensor announced last week the approval of the feasibility study of Australia-based Climax Arimco Mining's Dinkidi gold and copper project. He said the project is one of the government's 23 flagship projects that are expected to generate $6 billion in investments.

The mining project, located in Didipio (200 kms north of Manila), covers a total mining area of 21,465 hectares in the provinces of Nueva Vizcaya and Quirino. The area is inhabited mostly by Ifugao and Ibaloi indigenous people who were displaced from other mining operations, as well as by the Kalanguya, Tagalog, Ilocano and Visayan settlers.

Mining exploration in the Didipio valley began in 1994. Commercial production is expected to begin in the first quarter of 2007.

Defensor said that Climax Arimco is pouring in an initial investment of $79 million for the operation, along with $2.8 million and $8.6 million allotted for social and environmental expenditures, respectively.

The mining project is expected to generate $783 million in a 15-year period, according to Chito Gozar, general manager of Australasian Philippines Mining, Inc. (APMC), Climax Arimco's Philippine arm. The government, for its part, expects to collect $131 million in taxes from the project.

Climax estimates an annual production of 150,000 ounces of gold equivalent, containing 94,000 ounces of gold and 10,000 tons of copper in concentrate. These are mined from a total ore resource of 120 million tons and a mineable reserve of 23.8 million tons, consisting of 1.6 grams per ton of gold and 0.61 percent copper. Additionally, the Didipio mine has a diluted resource of 3.2 million tons, consisting of 2.5 grams per ton of gold and 0.61% per ton of copper. As of this writing, gold is trading at A$570 (or US$436.13) to A$578 (US$442.25) per ounce and copper at US$1.74 to US$1.78 per pound.

Shareholders of Arimco include ANZ Nominees, Ltd. (33 percent); Citicorp Nominees, Ltd. (15.8 percent) and the Den Dutys Corporation (7.4 percent). Climax is also tapping Australia and New Zealand (ANZ) Investment Bank for financing. Climax Arimco's Philippine chair is Jose Leviste, brother-in-law of former Senator Loren Legarda.

Mining operations involve four years of open pit mining and 11 years of underground sub-level caving operations, according to Climax. Around two million tons of ore could be processed every year from the open pit and underground mining excavations.

Supreme Court for foreign ownership

The DENR’s clearance for Climax’s commercial production came after the December 2004 Supreme Court ruling upholding the constitutionality of Republic Act 7942 (Mining Act of 1995) which allows 100-percent foreign equity ownership in mining ventures.

Government officials anticipate foreign investments amounting to $6 billion from 23 mining ventures in five years to revive the mining sector and to cater to China's demand for minerals.

The Mining Act provides incentives like income tax holiday. The law also grants exemption from taxes and duties on imported spare parts, wharfage dues, export tax, duty and impost fees. Mining companies may also avail of tax credit on raw materials and supplies, additional deductions from taxable income for labor expense and necessary and major infrastructure works. Non-fiscal incentives, on the other hand, come in the form of employment of foreign nationals and simplified customs importation procedures and importation of consigned equipment for 10 years.

In addition to these incentives, the Mining Act also grants incentives for “pollution control devices; income tax carry forward of losses; income tax accelerated depreciation on fixed assets; and investment guarantees such as investment repatriation, earnings remittance, freedom from expropriation and requisition of investment and confidentiality of information."

Renewed interest in mining investments has ensued following an East-West Center study in 1994 of 11 to 25 new mineral deposits that might be developed from 1995 to 2015. The Philippines has mineral reserves of 6.67 billion metric tons of metallic and 78.472 metric tons of non-metallic minerals. It also has the fifth largest gold and copper reserves in the world, with about nine million hectares of potential mining land. So far, only 1.4 million hectares are covered by mining permits. Gold and copper reserve estimates are 967,180,197 metric tons and 5,301,507,657 metric tons, respectively.

A Treasure MAP

In 1994, then President Fidel V. Ramos granted a financial and technical assistance agreement (FTAA) to Climax Arimco. According to the DENR, an FTAA allows a company to recover its investment, after that a scheme of 60 percent going to the government and 40 percent to the contractor, shall apply.

The government granted an environmental compliance certificate (ECC) in August 1999 but this was rescinded in October 2001 by then DENR Secretary Heherson Alvarez. At that time, opponents said that the company illegally obtained a memorandum of agreement with the officials of Barangay (Village) Didipio. They also said that the project affected a proclaimed watershed. Residents, moreover, felt large-scale mining would devastate a "booming upland agriculture," including rice and citrus plantations.

Various sectors have raised concerns about the social and environmental impacts of mining projects, as well as questions of constitutionality and sovereignty. After the Marcopper disaster in 1996, the DENR, non-government organizations and mining companies reviewed the implementing guidelines of the Mining Act which required companies to comply with environmental standards.

President Gloria Macapagal-Arroyo issued Executive Order No. 270 in January 2004 which seeks to open up and revitalize the mining industry. The DENR then prepared the Mineral Action Plan (MAP) which contains 57 strategies and 126 specific activities that were approved by the President through Memorandum Circular No. 67 in September 2004.

The appointment of Defensor paved the way for the Supreme Court ruling so that now, no less than a government’s primer admits that "foreign companies could exploit the country's mineral resources." The revitalization of the mining industry is considered a solution to curb the budget deficit.

Battleground against plunder

Procedures were simplified and streamlined to attract investors in mining. The government established regional one-stop shops for processing of mining applications to replace procedures requiring various government agencies to study each mining application. One process that was reduced was the Free Prior and Informed Consent (FPIC) of affected indigenous communities, reducing the procedure from 185 days to 107 days.

According to the Cordillera People's Alliance (CPA), however, this would reduce the FPIC into a "mere technical and procedural requirement" and would threaten the right of indigenous peoples to self-determination, including the control, management and utilization of their resources. Furthermore, legal shortcuts were introduced to circumvent local government units, the CPA said, adding that under the MAP, the Department of Justice can intervene in disputes with local authorities and the communities they represent. The CPA called for clearer guidelines on the contract and agreements, potential adverse impacts, independent and social studies and access to information. 

Defensor, in an Aug. 2 speech at the Asian Development Bank, said the MAP would be the master plan for the development and revitalization of the mining industry. Although Defensor said that third-party environmental audits will be required, the CPA countered that there is still a lack of strict regulation and that the MAP has no strong penalties and sanctions for serious environmental and ecological disasters. The CPA cited the collapse of 10 mine tailings dams yet no single responsible company was stiffly punished. The CPA said that in this case, actions speak louder than words.

Defensor also reiterated a recent Association of Southeast Asian Nations (ASEAN) Ministers' Meeting on Minerals statement urging the region to exploit its competitive advantage in mineral resources through joint explorations and joint mining operations, intra-regional trade and sharing of information and technical know-how. The ministers also urged the region to seek investment to "optimize the development of its reserves and (to) meet (the) increasingly complex demands of a global market."

On the other hand, the CPA stressed that the MAP “(sacrifices) environmental regulations and social acceptability for the unhampered entry of foreign mining companies" The CPA claimed that the serious social and environmental consequences are treated with "more rhetoric rather than decisive actions." It added that these concerns and national patrimony are sacrificed to satisfy the demands of the mining companies.

"The country will become a battleground against the plunder of the people's resources," CPA’s Joan Carling warned in the past. Given the historical record, the new decision may mine revitalized resistance. Bulatlat

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