Gov’t may sell Philnico nickel mine in Surigao by Q3

The prized nickel mine of the Philippine Nickel Co. (Philnico) could be put on the auction block as early as the third quarter of the year once the financial model for the sale of Nonoc mines is finalized by next month.

Finance officials said the financial package for Philnico is expected to be completed by next month and would pave the way for decisions on how China-based nickel giant Jinchuan Group and Shanghai Bao Steel Corp. could proceed with their investment in the mining interest.

According to Finance Undersecretary Jay Singson, the feasibility study is scheduled for completion this month and would, in turn, be the basis for drawing up the financial plan for the Nonoc mines.

"The deadline for that financial plan is the end of April," Singson said. "It would tell us what our options are in terms of how Jinchuan and Bao Steel could come in."

Although the Nonoc mines have been sold by the government years before to Philnico, the company was never able to pay for the mine, except for a small initial payment right after the sale.

Singson said this made it less straightforward for new investors to come into the company and help develop its primary asset since Philnico would have to settle its obligations with the government first.

Despite the legal tangle delaying the privatization of Nonoc mines, however, Singson said the Jinchuan consortium has indicated it is willing to wait for the case to clear up.

The consortium had originally signed a six-month memorandum of understanding with the government but this has since lapsed. Although not formally renewed, Singson said the Chinese consortium is still "very much involved in discussions".

"We told them about the March deadline for the study and they said they were amenable to the timetable that has been set," Singson said. "This indicates that they are still very much interested and they are willing to wait."

The government was forced to go back to the drawing board to revalue the controversial Nonoc mines before the Chinese consortium buys into the Philnico.

The Jinchuan-led consortium had been promised a quick resolution of the Philnico case but the re-appraisal of the mine would push the Chinese investment back longer than originally expected

"There’s really no way around it, we have to know what we are talking about and how much it is worth," Singson said. "Only then can we start talking about terms."

Singson said even talks with the Jinchuan consortium have not reached the level of detail where the government could start considering its options on how to collect Philnico’s arrears.

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

"The bottom line is that we have to make this happen as soon as possible," Singson said. "We are glad that Jinchuan is interested in

Nonoc mines, but that investment can happen only after Philnico settles government’s claims."

In 2005, the Arroyo administration begun considering an out-of-court settlement with Philnico just to expedite the court case and finally facilitate the entry of the Chinese mining consortium.

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

According to Singson, however, there was a fundamental disagreement over the present and updated valuation of Nonoc mines. "We can not proceed with any of the arrangements we have to make until we get this done," he said. "We don’t know how much government will be paid for what Philnico still owes and we don’t know what is possible and what isn’t until we do this."