Philippines Mining Report 2008

In the first half of 2008 the Philippine government took a bullish position on the potential for newinvestment and development in the local mining industry. Private sector miners were on the whole muchmore cautious, however. In April presidential press secretary Ignacio Bunye gave the upbeat view. Henoted significant interest and investment from foreign majors since a 2005 Supreme Court ruling thatclarified ownership rights and opened up the industry. Total foreign investment in mining in 2004-2008had been US$1.4bn. and Bunye expected another US$9bn to be invested by 2011, with the bulk of themoney coming in between 2008 and 2010. By 2011 mineral shipments would be close to 6.5% of totalexports, enough for the Philippines to be classified as a mining country based on World Bank standards.

Private sector miners were more guarded in their forecasts. Press reports noted that their concernsincluded rising costs, tough competition, gloomy financial markets and a number of specific localproblems: land ownership disputes, communist and Muslim insurgencies and slow-moving bureaucracies.‘We have so many opportunities around the world available to us, if it’s complicated, then we justcouldn’t be bothered to worry about it’ Reuters news agency quoted Jesse James of US-based commodityfund Geologic Resource Partners saying.

The Philippines islands include 18 active volcanoes, and lie within the Pacific ‘rim of fire’, an orogenicbelt associated with active ore-forming mineralisation. Three principal ore deposit types are associatedwith this volcanic arc environment - large-tonnage porphyry copper-gold deposits; disseminated andvein-type gold deposits, and volcanic sulphide deposits primarily constituting copper and gold.

The Philippines has had a long and established history of mineral production and once ranked among theworld’s top producers of chromite, copper, nickel and gold. According to various estimates, thePhilippines hosts the world’s fifth-largest gold and copper reserves. However, at the end of 2006, thenation’s mining industry was valued at under US$2bn and accounted for less than 2% of GDP.

Considering the abundance of mineral potential in the Philippines, there are a number of factors that haveconstrained the domestic mining industry.

Production has been hampered for much of the last two decades by low foreign investment owing topolitical instability, accompanied by high costs of production, labour problems and natural disasters,including intense volcanic activity, cyclonic storms resulting in severe flooding and periods of extensivedrought. Foreign investment has also been impeded by the requirement of 60% domestic equity control ofthe mining-processing facilities coupled with high excise taxes - mineral royalties - on production.

However, the Philippines mining scenario is not completely grim. An improving political situation, alongwith the fine-tuning of the Philippine Mining Act of 1995, has resulted in rising levels of miningdevelopment and exploration programmes throughout the nation. In 2004, the government unveiled theMineral Action Plan (MAP), which identifies 24 large-scale mining projects. According to theDepartment of Environment and Natural Resources (DENR), these projects were expected to bring inUS$4-6bn in investments and US$5-7bn in foreign exchange during 2004-2010. Mineral resourcesdevelopment has been identified by the government as an area of focus in the Medium-Term PhilippineDevelopment Plan, 2004-2010.

Industry Forecast

The positive steps taken by the government towards mineral resource exploration and development areexpected to bear fruit in the longer term. In the medium term, BMI forecasts a growth rate of 6.4% perannum on average over 2008-2012.