The Philippines: Cautious kick-start for mining

In a move that should pave the way for renewed growth in the minerals sector, The Philippines has lifted a moratorium on issuing new mining exploration permits. However, the end of the ban may not lead to the surge of new investments the government is hoping for, as local and foreign investors are likely to be cautious as they assess the impact of new capitalisation requirements and tax regulations.

In mid-March, the Mines and Geosciences Bureau (MGB) began accepting applications for mining exploration permits following a two-year hiatus ordered by the government. In part, the 2011 moratorium had been imposed to allow the government to draft and enact new legislation for the mining sector, prevent speculation, and set new levels of taxation for mining operations.

Among the reforms put in place to improve accountability and exclude improper mining operations, the government increased the minimum capital requirement for firms applying for permits from $250,000 to $2.4m, and also hiked the filing and processing fee of applications.

With the uncertainty created by the moratorium, mining firms scaled back on investments in existing operations, and the blocking of further exploration meant that new investments dried up. A sharp decrease in investment in 2012 prompted the government to review its targets for 2013, forecasting a capital inflow into the industry of more than $700m, well below the $1bn worth of investments it had projected in 2012. It is estimated that mining investments totalled $500m last year, well short of the $2.27bn the government had initially targeted.

The government is confident that reopening the books on exploration permits will lead to a strong increase in investment in the sector. Leo Jasareno, the director of the MGB, predicted investment would rebound. “A $1bn mining investment is achievable,” Jasareno said on March 18. “We see a positive outlook in the mineral development sector and the revised target of $718m will likely be surpassed.”

Mining firms remained cautious, however, even after applications for new permits began to be accepted. While there were more than 1200 blocks on offer, the MGB received only 126 applications on March 18, the first day it resumed processing new permit requests.

While welcoming the resumption of the process to allow new exploration, many leading firms may also be concerned the government is looking at increasing taxes levied on the sector, having also removed some incentives, such as tax holidays for new developments.

It is estimated that the Philippines has mineral deposits worth more than $850bn, having the world’s third-largest reserves of gold and fourth-largest in terms of copper. However, the economy has often struggled to cash in on this abundant natural wealth, with delays in major projects – such as the $6bn Tampakan copper and gold mining project in the province of South Cotabato that has had to overcome numerous bureaucratic hurdles – discouraging some investors.

Sagittarius Mines, for example, the local unit of international mining firm Xstrata, originally applied for an environmental compliance certificate (ECC) in 2010, with plans to commence operations in 2016. However, the ECC was only ratified in February 2013, meaning the mine may not be operational before 2019.

In addition, concerns over the environmental impact of the sector are very real, with the industry having a poor track record when it comes to mishaps. In August 2012 flooding caused the collapse of a tailings dam of a mine in the municipality of Itogon in Luzon island’s Benguet region, which resulted in some 20.6m tonnes of waste being washed into the river system.

With the ban on new permit applications now ended, Juland Suazo, a spokesman for environmental protection group Panalipdan Mindanao, warned that a new wave of projects could result in greater environmental harm. “The lifting of the mining moratorium on new projects provides the green light to unabated plunder of our environmental resources and allowing more disasters to happen,” Suazo said.

With the government working to address concerns over environmental issues, at least some of the public opposition to the sector could be mollified, though mining firms will need to ensure they comply with new and existing regulations, as well as working on improving their public image.

Despite the slow-but-steady pace adopted by mining firms toward the new permit process, it is likely that new investments will pick up as the year progresses. This will particularly be the case if there are no further obstacles to development and the promises to reduce bureaucratic red tape are met.