the age-article

Lafayette and Indophil hope to make it pay
Email Print Normal font Large font November 3, 2005
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Two Australian mining companies are digging in in the Philippines under Manila's "open door" policy, writes resources editor Barry FitzGerald.

LAFAYETTE'S Andrew McIlwain is the first to admit that his group's new gold and base metals operation on Rapu Rapu island — the first funded by foreign capital in 30 years — was the "easiest" of Filipino mining projects to get under way under the country's open-door mining policy.

Reached by a 40-kilometre boat ride from Legaspi at the base of the smoking Mayon volcano in south-eastern Luzon, all-Christian Rapu Rapu is the closest thing you will find to a Club Med-style mining operation. But it has not all been easy: the boat trip out to the island is one of the fastest in the Philippines in case there is a need to outrun pirates.

Rapu Rapu started producing from the gold-only circuit in July after eight years of tenacious work. The base metals circuit gets switched on next month.

"I've got a few grey hairs and I am a few inches shorter as a result of it," McIlwain said of bringing the mine to production at a site briefing recently for Australian brokers and media.

Perched on a the side of hill that overlooks a surf beach and the Pacific ocean, the $US43 million ($A58 million) development is forecast to be a sweet one for Lafayette. The mine, whose life was recently extended to eight years, is expected to have a payback of just two years.

Lafayette wants to use Rapu Rapu (which means "distant island") as a springboard to other operations in the Philippines after testing more fully the exploration blue-sky on the island. "We see ourselves as the partner of choice in the Philippines," McIlwain said.

McIlwain is as popular man in the nearby villages, where his height gives those children game enough to take him on in a game of keepings off with a tennis ball a special challenge. The older folk acknowledge the company's efforts in piping in clean water and its support of educational and cultural activities.

INDOPHIL chief executive Tony Robbins is a seasoned campaigner when it comes to dealing with the challenges of operating in the Philippines.

Robbins, a straight-talking geologist, led the WMC exploration team that found the world-class Tampakan copper/gold deposit in southern Mindanao in 1992, only to pick it from his old boss in 2002 when then WMC chief Hugh Morgan culled all exploration in issue-challenged overseas locations.

Tampakan has certainly been issue challenged. Apart from its central role in the Supreme Court challenge over financial and technical assistance agreements (FTAAs), Tampakan's Mindanao location means Indophil is constantly questioned by the investment community about security issues, notably the presence of Jemaah Islamiah terrorist training grounds. That is despite the security hot spots on Mindanao being hundreds of kilometres to the west of Tampakan.

Rather than JI training camps, Tampakan's immediate neighbours are US-owned pineapple and asparagus plantations. Queensland cattlemen are also moving into the area, drawn by the more reliable rainfall and the proximity to South-East Asian markets.

About 50 kilometres north of the port city of General Santos City — the nearest point in the Philippines to Australia and the country's tuna and pineapple capital — Tampakan has no particular security fears for Robbins. It's all about relativities and managing the issues.

"I am nervous every time I go through airport security in Thailand or Bali. The world is not the same place it was 10 years ago," Robbins said at a mine site visit. He said the best protection against external threats was the strength of its relationship with the five animist tribal groups that occupied the valleys that drape off the mountain that is also home to the Tampakan copper/gold ore body, the biggest undeveloped resource of its kind in South-East Asia.

Tampakan is now the subject of an aggressive drilling program, the results of which will be fed to a pre-feasibility study due for completion in the second half of 2006. Expectations are that a $US600 million-plus go-ahead decision will be made at the end of 2007 for the development of a 50-year mine at Tampakan.

Well before then, Indophil will know whether Mick Davis at Xstrata will exercise an option it holds over acquiring a 62.5 per cent interest in the project at a cost of $52 million.

"If they (Xstrata) don't exercise, no doubt someone else will be in there in a flash," Robbins said. To that end, just about every big copper mining group has crawled over the deposit, the most recent party from Polish producer KGHM.

Like Xstrata and the rest of the global industry, the Polish are scrambling to line up the big new copper developments required to meet the China-led boom in demand. Tampakan is certainly big enough to meet the supply challenge.

The reporter travelled to the Philippines as a guest of the Australia-Philippines Business Council, Lafayette and Indophil.