YEARENDER: Gov’t, mining sector remain at odds over revenue issue

MANILA, Philippines - Two years after the issuance of the new mining policy, the state and the extractive industry are still striving to find compromise on a number of changes in the country’s mining regime, chief among which is the new taxation scheme.

To recall, the government wants to increase its share of revenues from the mining industry, but the business community deems the latest revenue-sharing proposal by the Mining Industry Coordinating Council (MICC) to be detrimental to attracting investments.

The MICC has approved the imposition of either a 10-percent tax on gross revenues or a tax of 55 percent on adjusted mining revenues, plus a percentage of windfall profit, whichever would give higher revenues to the government.

Adjusted mining revenues were defined as the difference between gross sales and direct cost (direct mining cost and administrative expenses). 

The new revenue sharing scheme would apply to metallic mining projects holding a mineral production sharing agreement (MPSA) and Financial Technical Assistance Agreement (FTAA).

To date, the draft revenue- sharing bill is still being reviewed by the Office of the President. Pending the passage of the bill, no new mineral agreements may be signed with the government, although the Mines bureau continues to approve exploration permits.

Miners are also contesting a slew of other changes in the mining regime such as the mapping of the so-called no-go zone areas, or areas where mining activities would be restricted or prohibited.

The business sector is not pleased with the results, claiming it renders around 85 percent of the country’s total land area off limits to exploration.

Recently, miners were also a tad spooked by the bill filed by Sen. Paolo Benigno “Bam” Aquino in August seeking to stop the export of unprocessed mineral ores, similar to the export ban imposed by Indonesia to develop its mineral processing industry.

The bill seeks to attract more investments and generate more income from the extractive industry.

At the time of its filing, the bill spooked the international nickel market, leading to price spikes of the commodity. With the Indonesian ore export ban in place, the Philippines  is now the main supplier of nickel ore to China’s nickel pig iron industry.

The business sector likewise met this with apprehension as the local mining industry is not considered large enough to attract investments in smelting plants.

Businessman Manuel V. Pangilinan, whose Philex Mining Corporation, processes copper ore into concentrate, said the government must first encourage growth in the mining industry to encourage investments in the downstream sector.

There are only two nickel processing facilities in the Philippines, both owned by Nickel Asia Corp. Most of the country’s nickel ore is shipped to Japanese and Chinese smelters. There are also two gold processing plants and one for copper processing.

Even the Mines and Geosciences Bureau (MGB) has some concerns about the provisions of the bill as the term mineral processing entails the production of various finished products.

Mines bureau director Leo Jasareno said the intention of the bill conforms to the provisions of the new mining policy for the development of strong downstream operations in the country, but it still has to be determined if the country has sufficient resources to support a robust mineral processing industry.

The new policy, indeed, is an ambitious overhaul of the country’s mining industry as it aims not only to increase government revenues from the production stream but also seeks to impose stricter environment protection for areas that may be adversely affected by mining operations.

Black sand mining

This year, still in line with the new policy, the MICC has ordered a review on the legality and safety of existing black sand operations to curb the proliferation of illegal mining activities.

The MGB has thus imposed, since October, a moratorium on the issuance of mineral ore export permits (MOEP) for magnetite operations.

It has been found out that many holders of dredging permits for flood control projects misuse their permits to extract magnetite. To stop this, the MICC appointed the Department of Public Works and Highways (DPWH) as the supervisor of river delta dredging activities.

Several black sand operations in Cagayan, Ilocos and Zambales have also been found using their industrial sand and gravel permits for black sand operations.

Black sand, or magnetite, is a component of steel production. Most black sand miners in the Philippines export to smelters in China. The Philippines exports an aggregate of about one million tons of magnetite to various buyers annually.

The MGB is also laying down the groundwork for the establishment of more Minahang Bayan sites or areas were small scale mining activities would be confined and practiced safely.

The revised implementing rules and regulations (IRR) for the Small- Scale Mining Act of 1991 has been completed and is awaiting approval of the Environment secretary.

The government is now pushing for the confinement of small scale mining activities to minimize environmental damage caused by its unsafe mining methods and use of chemicals that may pollute waterways.

While no new contract areas may be opened for extractive activities, operating mines are either ramping up their operations or are exploring the environs of their tenements for additional deposits.

Many metallic mines are now extracting high-grade ores to cope with weak metal prices.

The government is helping them sustain their operations and contributions to the economy by allowing them to expand their contract areas provided that these have viable reserves and the expansion are be made within the immediate vicinity of the contract area.

Through the recommendation of the MGB, the Department of Environment and Natural Resources has recently allowed the expansion of existing MPSA and FTAA areas upon validation by the MICC.

Most operating mines, to date, continue to perform well, with some degree of difficulty because of weak metal prices.

Philippine metal production rose 22 percent in the first half of the year in terms of value on strong copper and nickel production. The aggregate metal production for the period reached P57.27 billion from P46.84 billion registered in the same period last year.

Major copper ore projects in the country such as the Didipio copper-gold project in Nueva Ecija of Oceanagold Philippines, Inc. and the Padcal Copper-Gold Project of Philex Mining Corporation sustained high production volume during the first half.

Likewise, the nickel sector received a boost from the operations of the high pressure acid leach (HPAL) plant of Taganito Mining Corporation that joined the production stream in 2013.

The commencement of operations of the Taganito plant cushioned the effects of the closure of the Canatuan copper-zinc project of TVI Resource Development (Phils) Incorporated and the Rapu-Rapu Polymetallic project of Rapu-Rapu Minerals, Incorporated (RRMI).

The MGB has yet to release data on the volume of investments made in the mining sector for this year. In 2013, however, investments exceeded targets on continued capital expenditure of existing mining projects as well as potential big ticket projects that are still in the pre-development stage.

Investments totaled $1.311 billion, higher than projected investments of $812.49 million for 2013.