Philippines Mining Sector Looks Toward Recovery but Not Out of the Woods Yet – by Gerelyn Terzo (Sharemoney – May 18, 2021)

Mining is once again welcome in the Philippines. President Rodrigo Duterte in a 180-degree turn has decided to lift a nearly decade-long moratorium on new mining permits in an attempt to bolster mining revenues amid a COVID-19-battered economy. The decision, which was made via executive order, stands to usher in investments into the Southeast Asian country’s vast resources, including nickel ore, copper and gold. The Philippines is also poised to benefit from a ban on nickel ore production in nearby Indonesia.

The ban dates back to 2012 when the Philippines placed a moratorium on new mineral agreements, a ban that President Duterte left intact when he came to office. In the interim, the government has been working to increase its slice of the mining revenue pie. In 2018, policymakers managed to double the rate of excise tax on minerals from 2% to 4% via the Tax Reform for Acceleration and Inclusion (TRAIN) Act, positioning the Philippines to capture more market share.

Meanwhile, in 2017, President Duerte doubled down on the critical sentiment, placing a moratorium on large-scale open-pit mining operations that in turn led to the closure or suspension of more than two-dozen mining projects for what was cited as “serious environmental violations,” according to the country’s Department of Environment and Natural Resources (DENR).

President Duterte’s decision to ease restrictions does not apply to the ban on open-pit mining. According to reports, however, it could be a harbinger of an easing of local restrictions on open-pit mines.

Mining Investment Landscape

The Philippine mining industry was responsible for 0.76% of GDP in a challenging 2020 and with the renewed permitting could contribute approximately 1.4% by some estimates. Mining represents 6% of total exports in the country. Despite its vast mineral resources, which according to estimates are worth some USD 1 trillion, the Philippines has been unable to exploit all of it due to the ban. Now the potential is there for the floodgates of investment to open.

“The removal of this policy roadblock will undoubtedly help encourage both local and foreign investments into the country. Since 2010, investor interest in the Philippines has declined. Executive Order 130 will help bring the Philippines back on the investment map,” stated the Chamber of Mines in the Philippines.

Chamber of Mines of the Philippines Vice President Rocky Dimaculangan recently participated in an interview with ONE News, which was then broadcast on Facebook. He explained how the country’s “reputation as an investment vehicle” was damaged, noting that investors will not return overnight. Instead, it will take time for them to rebuild their confidence in the country as well as for projects to restart their otherwise dormant operations.

In addition, environmental assessments are required that come with a price tag of millions of dollars. Realistically, it will be another five-to-10 years before they are able to return to normal operations, but Dimaculangan is pleased that the ball is at least rolling. The Philippines is poised to generate more than USD 400 million each year in mining-related tax receipts if mothballed mining projects are restarted within half a decade.

Dimaculangan pointed to three copper mining projects that he said are expected to pave the way for USD 5 billion in total capital investments in the coming years with annual exports at USD 2 billion. These three projects include:

● Silangan is Philex Mining’s USD 1 billion copper and gold project on Mindanao Island. The project has estimated mineral resources of 571 million tons. Silangan has a funding requirement of USD 700 million, which Philex Mining will raise via debt and equity.
● Tampakan is a multi-billion dollar copper and gold project also located in Mindanao that has been stalled in the wake of the bans. It could be revived if it meets certain regulatory criteria, according to the Mines and Geosciences Bureau cited by CNN Philippines.
● King-king, also located in Mindanao, is a copper and gold project being developed by NADECOR. According to estimates, the project has the potential for annual production of 100,000 tons of copper and 500,000 ounces of gold.

Silangan and King-king are reportedly on a priority list of applications for the go-ahead to dig. While the King-king and Tampakan projects are open-pit mining, they could receive the regulatory green light to start digging under the 1995 Mining Act.

Philippine FDI

Foreign direct investment (FDI) into the Philippines last year came in at USD 6.5 billion vs. USD 8.6 billion in 2019. The central bank of the Philippines has forecast that FDI will come in at USD 7.8 billion if the post-COVID economic recovery gains steam. The country is off to a good start, with FDI inflows totaling USD 961 million in January 2021, up 41.5% year-over-year and close to twice as much as December 2020 levels.

As a major importer of nickel ore from the Philippines, China is a major investor in the country’s mining sector. The Philippines holds the top spot for nickel ore exports to China, a position that has been buoyed by Indonesia’s export ban of the raw material, whose biggest use case is for making steel.

While the mining industry is welcoming the lifting of the ban on mining agreements, not everyone is happy, mainly environmental activists. Alyansa Tigil Mina, or the Stop Mining Alliance, suggesting in a statement that the decision was “another incompetent COVID-19 response from the government.” Their disapproval is unlikely to move the meter, however, as the government is not likely to let the anticipated tax revenue slip through its fingertips, especially as the Philippine economy struggles to recover from the pandemic amid a resurgence in COVID cases.

The surge in infections could pose a hurdle to the country’s expected economic expansion this year, which would be lucky to reach 5% in 2021, according to economists. Before the latest wave of coronavirus hit, economists were predicting GDP growth of 6.5% for this year on the heels of a record 9.5% decrease in 2020.