what ails the philipine mining sector?

+A-What ails the Philippine mining sector?

By Erik dela Cruz and Rosemarie Francisco

MANILA, June 15 | Wed Jun 15, 2011 6:09am EDT

(Reuters) - Mining investment in the Philippines is forecast to reach $1.4 billion this year, 40 percent above earlier estimates and the most since the sector was opened fully to foreigners in 2005.

President Benigno Aquino, elected a year ago, wants the Southeast Asian country, which has explored a miniscule amount of its estimated $1 trillion of mineral resources, to capitalise on higher prices to boost its economy.

Investment policy flip-flops and a strong anti-mining lobby however have slowed development and chances of hitting the forecast for new investment.

WHAT IS THE GOVERNMENT'S STAND ON MINING?

Investment of $560 million in Aquino's first six months in office last year was in existing projects.

But hopes for new operations have grown after the Environment department launched a review of existing mining permits with the view to selling off idle sites to new investors. The "use it or lose it" review of permits ends this month.

The government is seeking a review of fiscal incentives in the Mining Act to get more revenues to plug a huge budget gap.

But the 2010/2011 Fraser Institute annual survey of mining companies shows the Philippines is among the least attractive mining territories in the world, although it improved its ranking to 66th out of 79 from 70th out of 72 in the previous survey.

The index measures overall policy attractiveness based on taxation, infrastructure, political stability, labour issues, security and environmental regulations.

WHAT IS THE STATUS OF THE COUNTRY'S BIGGEST MINING PROSPECT?

The $5.9 billion Tampakan copper-gold project of Xstrata Plc in the southern province of South Cotabato -- Southeast Asia's largest undeveloped copper-gold prospect -- is under threat from an open-pit mining ban imposed by the local government.

The Philippines justice department has issued an opinion against this mining ban and others, saying they run counter to the national mining law.

However, local governments have invoked their powers and rights to protect their communities, causing an impasse on how to proceed with mining projects.

Sagittarius Mines Inc, Xstrata's Philippine unit, has sought a review of the ban, saying open pit mining was the safest and most economic extraction method. The review is yet to start as the local government is still waiting for Sagittarius to present an environmental impact statement.

ARE OTHER PROVINCES ADOPTING ANTI-MINING MEASURES?

Environmental concerns were also cited for similar bans in other provinces, such as Zamboanga del Norte and Mindanao.

The provincial bans could jeopardise two large-scale projects -- the Canatuan mine of TVI Resource Development, the Philippine affiliate of TVI Pacific Inc , and the Silangan mine of Philex Mining Corp , the country's largest listed miner.

Industry group the Chamber of Mines of the Philippines has said local government bans on mining have also been issued in the central provinces of Capiz, Bohol, Samar, Romblon, and Mindoro and the southern province of North Cotabato.

Anti-mining groups cite local opposition borne out of past accidents.

In 2005, heavy rains and a lack of safeguards triggered a cyanide spill at the polymetallic mine run by Australian miner Lafayette in the central Philippines -- the first foreign-owned mine in the country after the Mining Act was enacted. The mine was closed after the accident and efforts to restart operations failed due to a lack of funding.

Another often-cited accident was the 1996 tailings spill at Marcopper Mining Corp's copper mine in central Marinduque province, in which at least 1.5 million cubic metres of mine tailings flowed into surrounding rivers following flash floods, contaminating the river system and causing illnesses in the communities around the mine until today.

WHAT PROBLEMS DO MINERS FACE?

A strong opponent in the majority Christian country is the Catholic Church, which has come out against mining projects such as the proposed Tampakan mine, citing local concerns.

Tax and security issues are also among investors' major concerns. Environment Secretary Ramon Paje has proposed a 5 percent royalty fee from miners on top of the existing 2 percent excise tax, a proposal shot down by the industry.

Existing investors also complain that local governments impose unregulated taxes on mining. Local government units are given the power to levy taxes, fees or charges on businesses in their areas under local code.

Miners must also deal with communist rebels demanding revolutionary taxes and compensation for communities hosting mining projects, and miners are harassed if they fail to pay up.

One result of large players shunning the country is that small-scale gold mining accounts for two-fifths to nearly half of annual total mining output by value, becoming a major employer as a result. (Reporting by Erik dela Cruz and Rosemarie Francisco; Editing by Ramthan Hussain)