Gov’t eyes out-of-court settlement with Philnico

The Arroyo administration is considering the possibility of an out-of-court settlement with Philippine Nickel Co. (Philnico) over some $300 million worth of receivables from the sale of Nonoc mines.

Officials disclosed over the weekend that the Arroyo administration was considering its options which could include a restructured settlement schedule and debt-for-equity swap that would allow the government to retain part of its ownership of Nonoc mines.

If successful, the settlement would facilitate the entry of the group of Chinese investors led by Jinchuan Non-Ferrous Metals Corp. and Shanghai Bao Steel Corp. which expressed intentions to invest about $1 billion in Philnico’s Nonoc mines.

Philnico bought Nonoc mines from the government but finance officials said it has not been able to pay for this acquisition since it bought the mine and the nickel processing plant in Nonoc Island, Surigao City.

Jinchuan, on the other hand, is China’s biggest nickel mining and processing corporation, with a nickel reserve of 5.5 million tons.

According to Finance Undersecretary Gabriel Singson Jr., Jinchuan has been interested in Nonoc mines for years. The Jinchuan Group signed a memorandum of understanding during the recent state visit of Chinese prime minister Hu Jintao last April.

During the visit, Jinchuan and Baosteel officially stated their intentions to invest in the country’s mining industry, following the Supreme Court decision allowing foreign companies to hold controlling interests in Philippine mining firms.

Eager to facilitate Jinchuan and Baosteel’s entry, Singson said over the weekend that the Privatization Management Office (PMO) has given the go-signal to start negotiations with Philnico and explore possible options to expedite the settlement of the case.

Singson told reporters that the government will begin to explore its options and it was possible that an out-of-court settlement could be reached before September.

According to Singson, the Chinese Group was expecting the Philnico situation to be resolved within six months after signing the MOU.

The case is pending in court but Singson said both parties had agreed to explore other options including restructuring.

Philnico owed the National Government at least $300 million when it bought Nonoc nickel mines in Nonoc Island, Surigao. Singson said the company made some small payment when the transaction was completed but it has not made any other payment since.

"We are glad that Jinchuan and Baosteel are interested in Nonoc mines, but that investment can happen only after Philnico settles government’s claims," Singson said. "By that we mean some agreement has to be reached on how Philnico will pay the government."

According to Singson, the government was not ruling out debt-for-equity swap and the government could end up retaining partial ownership of Nonoc mines.

Apart from the Philnico case, Singson said the PMO has also approved the transfer of North Davao Mining and Batong Buhay Gold Mining Corp. to the National Resources and Mining Development Corp. in an attempt to encourage foreign investors to consider using these companies for joint ventures in the mining industry.

"These are companies with mining rights and they should look attractive to foreign investors looking for entry point in our mining industry," Singson said.

According to Singson, the government had originally intended to sell the assets outright but said the PMO ultimately decided that the government would maximize its position better if it stayed as owner of the companies when foreign investors came in.

Singson said the government has ordered the revaluation of North Davao Mining and BatongBuhay Mining whose mining rights cover gold deposits in Kalinga Apayao in Northern Luzon.