The ugly mining ‘investor’

When faced with political problems such as those we have today we often hear it said that we should behave or else investors will not come and woe to us if they don’t come. This is only partly true. The other part is about investors who don’t behave. These investors we don’t need. Unfortunately, most local mining players know too little about the big bad wolves of international mining.

Reliable sources in the mining industry called this column’s attention to one such ugly investor: Copper Resources Corporation (CRC), a British Virgin Island (BVI) registered holding company for a group of mineral exploration/development companies including Hinoba Holdings (Phil.) Inc., Hinoba-an & Sipalay Holdings Inc. and Selenga Mining Corp. Copper Resources Corporation was able to get hold of a copper project owned by Colet Mining & Dev. Corp. in Negros Occidental, Philippines. It has a mine-able ore reserve of 425 million tons averaging 0.415% Cu, duly validated by the Mines & Geosciences Bureau. To give you an idea of how big this project is, the value of this reserve is $6.5 billion at $3 per pound copper price. It was ready for start-up and operation when troubles began. Going back to its history, this was started sometime in the seventies by then Lepanto Consolidated Mining Corp.

It used to have a subsidiary that had a timber license in the area. Then the National Development Company took over to ensure the supply of copper concentrates for the Philippine Smelter Corporation that used to be under the government.

Junior companies with strong ties to the major players decided to explore the area further. One of these is International Pursuit that drilled a number of holes that culminated in a Scoping Study.

Using this study and a few additional confirmatory drill hole data, Copper Resources was able to raise a whopping 27 million pounds sterling in London’s Alternative Investment Market (AIM). The money was to be used for a bankable feasibility study to put up a copper mine capitalized at $268 million scheduled to operate in 2009.  But instead of using the money it raised at the London Stock Exchange for the Negros project, it gave it only a measly 3 million pounds and the rest went to CRC’s projects in the Democratic Republic of Congo. But it does not mind printing in its brochures to attract investors that it holds a 92.5% economic interest in the Hinoba-an Project Negros Island in the Philippines. Moreover it announced that a “significant amount of exploration and metallurgical test work has been undertaken on the Hinoba-an property and previous studies indicate that approximately 2 billion pounds of copper could be profitably mined by open pit.”

In July 2007, while the Bankable Feasibility Study was ongoing, another mining company, METOREX bought controlling share in CRC with the main objective of operating the Congo Projects (Kinsenda Mine, Musoshi Mine and Lumbembe). As a consequence, the Negros Copper Project was put on hold, thus jeopardizing its schedule for an early production.

The Philippine claim owners had no choice but to take back its mineral rights from CRC to look for a more reliable investor since CRC failed to put the project in operation by 2009 as agreed upon despite the takeover of Metorex. According to these sources, Metorex purchased majority share of CRC in the London Stock Market but was not fully informed of the situation in the Negros Project.

This is all happening at this time when the price of copper remains high, which meant delayed revenues both for the local company and taxes for the Philippine government. Meanwhile, the project cost has also escalated. The delay is prejudicial to the local authorities, the local company and the local claim owners.

This Negros copper project is one of the 24 priority mining projects of the Philippine government. The Philippines has always invited and welcomed foreign investments for mining and it has attracted a number of big players and junior companies. Companies like Xtrata, Western Mining to name a few big players and junior company investors in Abra Mining, Apex, TVI and Medusa.

“Copper Resources is not the kind of foreign investor our country needs. While foreign investors are most welcome, and stock market listings are acceptable as venue to raise and provide investment, one should be selective if it is a serious company or just a mere “stock market player” whose intention is to make money in the stock market out of our resources but not really generating income to develop our resources so that our country can benefit in the long run,” the sources added.

CRC is a good example on how to spot a “bogus foreign investor from a genuine one. In hindsight, some due diligence of its convoluted structure before dealing with CRC ought to have flashed the caution lights. It is registered in British Virgin Island, then evolved another company known as Hinoba Holdings Ltd. (HHL) registered in Bahamas, gave birth to another Philippine company known as Hinoba-Holding (Phils) Inc. (HHPI) and further formed another Philippine company known as Hinobaan & Sipalay Holdings, Inc. (HSHI) and finally Selenga Mining Corporation (SMC).

Selenga Mining Corporation (SMC), a 60-40 Filipino owned subsidiary of CRC was the Philippine company set to develop the Negros Project owned by Colet Mining & Dev. Corp. (CMDC), which holds a mining title MPSA No.   217-2005-VI. If it is any consolation to the locals, CRC is also facing huge internal problems. A Financial Times report says “it seems every decision made at copper miner Copper Resources Corporation [AIM: CRC], as the South African-headquartered company struggles to “enhance shareholders’ value” results in someone resigning from the company’s board of directors. The report adds there is a split among CRC’s directors on Metorex’s offer.

Metorex offered 73 of its shares for every 100 Copper Resources’ share with cash alternative, valuing the company’s stock at £1.49 per share, with its CEO Charles Needham saying this would provide the company’s shareholders with an exposure “to Metorex’s established projects in the DRC and a diversified mineral portfolio”. While Metorex values the company at roughly £121 million, it recently slipped further to 119.50 pence bringing its capitalization to £96.873 million. The sale literally diluted the Metorex bid, according to the Financial Times report.

Maybe someone high enough in the Philippine government should raise stink and send the message that it is prepared to protect local claim owners from such investing vultures as CRC.

These groups play at the desire of the Philippines to develop its mining potential as a wealth generator to lift up the poor of the Philippines. It is well known in the international mining community that the Philippines has a long and established history of mineral production and once ranked among the world’s top producers of chromite, copper, nickel and gold. According to various estimates, Philippines has the world’s fifth-largest gold and copper reserves.

It is also worth noting that mineral resources development important for the Medium-Term Philippine Development Plan, 2004-2010.