Philippines’ black market is China’s golden connection – by Rosemarie Francisco ( – August 23, 2012)

MOUNT DIWATA, PHILIPPINES – (Reuters) – Erich Mulato walked out of a dingy workshop in this mountain village and into a gold shop next door, clutching a handful of shiny warm nuggets newly refined from the ore he had brought in.

The 53-year-old father of six had come off a 24-hour shift at one of the hundreds of small-scale mines in this region of southern Philippines. He sold the 5.49 grams of gold in his hand – his share of the day’s output – for 8,260 pesos. That’s more than 16 times what a manual laborer earns daily in Manila.

“Here, we can easily make money,” Mulato said, blowing smoke from a cigarette as he waited for his money at the gold shop. “Whatever we want to buy, we can buy … Making a living is better here.” Better for Mulato, but not for the Philippine government.

In all likelihood, Mulato’s gold will find its way through middlemen and into the luggage of a tourist or the black market in Manila – not to its only legal destination, the Bangko Sentral ng Pilipinas or the central bank. Up to 90 percent of small-scale Philippine gold production is being smuggled out of the Southeast Asian country, according to estimates from officials and traders, much of it to China.

The potential revenue being lost is considerable: The Philippines, the world’s 18th largest gold miner, produced just over 1 million troy ounces of gold in 2011, worth $1.6 billion at current prices. About 56 percent of that came from small-scale miners, data from the Bureau of Mines showed.

A top central bank official told Reuters new taxes on gold sales imposed last year appear to be a key factor in the alarming rise in gold smuggling. But the head of the revenue agency said in an interview the 7 percent tax on gold sales will not be rolled back and suggested better policing of the borders instead.

The Customs Department, however, told Reuters the problem has become so overwhelming it can do little about the smuggling of gold and other minerals out of the archipelago of more than 7,100 islands.


“All the production of small-scale mines, almost all, now goes to the black market, because there is no tax in the black market,” said Rex Banggawan, an accountant for a small-scale mining cooperative that buys and sells gold in the mountain city of Baguio in northern Philippines. “After that, smuggling is automatic.”

Arthur Uy, who looks after Mount Diwata as governor of Compostela Valley province in southern Philippines, the top small-scale gold mining province in the Philippines, said the black market in gold is mainly based in the capital, Manila.

“Most of the gold is being smuggled out to Hong Kong, that’s the biggest market,” said Uy, a two-term governor whose family of Chinese descent partly owns one of the four most productive small-scale mines on Mount Diwata.

Both Uy and Banggawan estimated 90 percent of the gold produced by small-scale miners is going into the black market.

Official data reflects those estimates.

The amount of gold sold by small-scale miners and traders to the Philippine central bank in the second quarter plunged 98 percent from a year earlier, according to the latest government data. By law, all gold produced by miners such as Mulato in the Philippines should be sold to the central bank at around world market prices.

It has been an accelerating trend over the past year. The data shows central bank gold purchases dropped an annual 4 percent, 76 percent and 88 percent in the second, third, and fourth quarters of 2011, respectively. It fell 92 percent in the first quarter.

Small-scale gold mining output, is the main source of the central bank’s gold reserves, which hit a record high of $10.4 billion early this year.


The problem extends beyond gold to other minerals, which are being smuggled out of the porous and inadequately policed borders of the archipelago.

The Philippines has one of Asia’s richest trove of minerals with reserves of gold, copper, nickel, chromite, manganese, silver and iron worth a total of around $1 trillion.

Foreign investors are circling around one of Asia’s hottest emerging markets. The $225 billion economy grew 6.4 percent in the first quarter, second only to China among Asian economies. But mining investment has been held up for various reasons, including a moratorium on new projects until Congress passes long delayed legislation governing the industry.

That has left the field largely to small-scale miners, who fall under local regulations and are often in collusion with the officials governing them.


The record-breaking bull run in gold prices over the past decade has spurred small-scale gold mining, much of it illegal, across the developing world.

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