ANALYSIS - Policy drift slows mining revival

First posted 04:05pm (Mla time) Sept 20, 2006
By Dolly Aglay Reuters

http://news.inq7.net/archive_article/index.php?ver=1&index=1&story_id=22092

INSURGENCIES and lawlessness have not completely deterred mining companies seeking to invest in the resource-rich Philippines, but uncertainty over the country's policies for the industry has cast a pall.

The Philippines, believed to have $1 trillion worth of unexplored copper, gold and nickel, has secured only $500 million from mostly foreign firms in 24 priority mining projects since last year.

In January last year, the government finally enforced a new, investor-friendly mining act after it was caught up for years in courts. But it has now ordered a review of the law after challenges by powerful local interests.

Analysts say the government has to speed up the review if it wants investors to pour the bulk of the $6.5 billion Manila says the country needed to revive its once lucrative minerals sector.

"The interest in mining is overwhelming," Astro del Castillo, managing director at local investment firm First Grade Holdings, said.

"However, investors' patience is thinning due to regulatory issues such as the proposed revision of the Mining Act and challenges posed by the church and environmental groups," Castillo added.

The Philippines' mining revitalization campaign was sidetracked by two cyanide leaks in October at the copper and gold mine run by Australia's Lafayette Mining Ltd. in Rapu-Rapu island, southeast of Manila.

Under pressure from the powerful Roman Catholic church, Manila said in May this year it would review its 1995 Mining Act that allows foreign firms 100-percent ownership in local projects from 40 percent previously.

Environmental safeguards were cited as an issue. That review remains pending in both houses of Congress, and it may take months before investors can gauge whether there will be drastic changes in the law.
"I think it's not so much politics, but policy uncertainties, that will affect investment, as we are a little unsure on where the government stands right now," said Peter Wallace, head of private think-tank Wallace Business Forum.

President Gloria Macapagal Arroyo, who last year weathered an impeachment attempt over charges of vote-rigging and graft, is pushing for the revival of mining to cut the government's $79 billion debt but must be careful to stay on good terms with the bishops.

POLICY SHIFT?

The problems hounding mining investment in the country was brought into the open last week, when a letter of the Chamber of Mines of the Philippines was leaked to the media.

The chamber said it had postponed its scheduled mining conference on Oct. 3-5 this year to 2007 because of "a seeming policy shift from active promotion of the previous two years to one of cautious re-consideration of policy reforms."

The chamber said Manila had announced a moratorium on new projects outside the 24 priority ones.

A promised one-stop shop in granting permits is also not happening, and four provinces in the country have passed resolutions banning mining in their areas, the chamber said.

The perceived policy shift "has led mining companies to believe and confirm their early suspicions that investment policies in the Philippines are not stable and are heightened by high political risks," chamber president Benjamin Philip Romualdez said in his letter to Arroyo dated Aug. 29.

Other industry executives say red tape in the approval of permits by both local and national governments and opposition by small-scale miners are also slowing the rehabilitation of existing mines and the development of new ones.

Many foreign companies have been put off in previous years by political turmoil, corruption, and insurgencies by Muslim and communist rebels. Many areas rich in mineral deposits are in the south of the country, where Muslim rebels, communist insurgents and bandits operate.

UNFAZED

Despite the risks, mining majors looking to expand production because of high gold and industrial metal prices in the world market are keen to break ground in the Philippines.

These investors included Rio Tinto, the world's second-largest mining firm, and Harmony Gold Mining Company Ltd., the world's fifth-biggest gold producer.

Other new investors who have expressed interest in the Philippines are Canada's Chemical Vapour Metal Refining Inc. and Jilin Nickel Group, China's second-largest nickel producer.

China's largest nickel producer, Jinchuan Group Ltd., and its largest steel producer, Baosteel Group, have already agreed to invest $1 billion to reopen the shuttered Nonoc nickel refinery in the southern Philippines.
"There are very few countries where there are no risks, so you have to weigh up the risks and you have to see whether you can accept those risks, manage those risks, and still end up with profitable mining operations," said Terry Burgess, head of the business development division of Anglo American Plc.

Anglo is in a joint venture with Philex Mining Corp. to develop the Boyongan copper deposit in the southern Philippines, one of the government's 24 priority projects.

"Mining companies are used to operating in very difficult conditions, both geographically and politically," Wallace said.

"But I still want to see the actual money coming in and the commitment made before I am fully convinced."