Philippines' Mining Down In The Dumps

Published by MAC on 2006-05-26
Source: Asia Times Online

Philippines' mining down in the dumps

By David L Llorito, Asia Times online

26th May 2006

MANILA - These should be boom times for the Philippines' mining industry, given that the country has some of the world's biggest under-exploited deposits of copper, gold and to a lesser degree nickel, and commodity prices are at historic highs. Instead, a toxic spill at an Australian-run mine has the entire industry in turmoil, with powerful political interest groups calling for a total ban on mining activities.

Mining opponents, including the Catholic Church, nationalistic politicians and non-governmental organizations (NGOs), have recently taken hard aim at a tailings spill on Rapu-Rapu Island, where seepage of toxic metals allegedly polluted fishing waters. An independent commission submitted a 169-page report to the government last Friday urging it to stop all mining in the area, revoke Australian mining concern Lafayette's Environmental Compliance Certificate (ECC), and force the company to pay damages.

Philippine President Gloria Macapagal-Arroyo on Saturday declined the commission's request to ban all mining activities, though she has promised to study carefully the report's various other recommendations, including a review of the 1995 Mining Act's provisions for foreign participation and management. Lafayette has dismissed the commission's findings as "unscientific and flawed", while other Philippines-based mining executives have questioned the ad hoc body's independence. The whole affair has greatly undermined investor confidence in the Philippine mining-policy regime. Hundreds of millions of dollars' worth of proposed new mining projects have recently stalled because of foreign investor and bank reservations about the legal status of their established and planned investments.

Liberal on paper, restricted in practice

On paper, the Philippines has some of the region's more liberal mining codes, including the Mining Act, which allows for 100% foreign-equity participation through so-called financial and technical assistance agreements with local miners. Challenged by nationalist politicians, the Supreme Court upheld the Mining Act as recently as December 2004.

However, the lingering memories of the 1996 Marcopper mining disaster on Marinduque Island, where toxic pollution spoiled fishing waters and caused health problems among local villagers, still casts a long shadow over the entire industry. So does the government's poor record of handling and distinguishing between minor and major environmental incidents.

Manila has nonetheless actively sought new foreign mining investments, offering a wide raft of tax and non-tax incentives to potential investors and creating the Mineral Development Council to help foreign investors cut through red tape and quickly begin digging. The government has said it expects mining to generate between US$5 billion and $7 billion annually in foreign exchange and to create as many as a quarter of a million jobs over the next six years.

It doesn't always work that way on the ground, however. Strident, widespread opposition from local-level activists and the Catholic Church are undermining the government's efforts to attract more foreign mining-oriented investment. When local mining companies backed by Canadian, Australian and Japanese investors recently started probing around local communities for undiscovered deposits of precious metals, they were frequently confronted by environmentalists, civil-society groups, and the politically influential Catholic bishops, who together represent a formidable political force against miners.

The outspoken Bishop Dinualdo Gutierrez of South Cotabato recently accused the Tampakan Gold and Copper Project invested by Australia's Indophil Resources of "environmental degradation" and "displacement" of indigenous peoples - even though the project was still in the exploration stage. (According to a study by Peter Walpole, an academician-priest who has studied the social impact of mining in the Philippines, to date there have never been any documented cases of people being displaced to make way for mining sites.)

Similar unsubstantiated complaints have recently been leveled against, and complicated the workings of, the Didipio Gold/Copper Project operated by Australian Philippines Mining Inc, the Teresa Gold Project operated by Lepanto Consolidated Mining in Mankayan, Benguet, and the Canatuan Gold Project in Siocon, Zamboanga del Norte, backed by Canada's TVI.

Those complaints, regardless of their scientific or technical veracity, can bring mining operations in the Philippines to a screeching halt. In 2001, protests led by NGOs, left-leaning groups and Catholic priests forced then-environment secretary Heherson Alvarez to cancel the mining rights of the Mindoro Nickel Project financed by Crew Minerals, a Norwegian company. President Arroyo has only recently reinstated Crew's mining rights, after more than five years of lost revenues.

Another project, the Kalaya-an Gold Project, commissioned to the Manila Mining Corp, was stymied after a vigorous campaign led by local community organizations and militant leftist groups against feared environmental degradation.

The situation for foreign miners has become all the more precarious since January, when the politically influential Catholic Bishops Conference of the Philippines (CBCP) issued a pastoral statement denouncing mining as a "destroyer of life", and called for the repeal of the 1995 Mining Act and the closure of big mining operations across the country.

In their statement, the bishops echoed the sentiments of militant environmental groups, claiming that mining operations often displace indigenous peoples, gives away control of lands to foreigners, and destroy the environment. "The adverse social impacts on the affected communities far outweigh the gains promised by [transnational mining] corporations," the public statement said.

The Ghost of Marcopper

The opposition movement draws heavily on one tragic mining accident to push its agenda. In 1996, the plug in the Tapian pit drainage tunnel operated by the Marcopper Mining Corp on Marinduque Island failed, unleashing 1.6 million cubic meters of toxic mining slurries and tailings into the Makulapnit and Boac rivers. The spillage caused health problems among local residents and devastated the island's ecosystems.

Ten years later, the national government still has not decided on how best to clean up the social and environmental mess, even after the commissioning and availability of extensive scientific and technical studies of the incident. The executives of Canada's Placer Dome, which then controlled the Marcopper Mining Corp, have packed their bags and returned home unscathed.

The lack of foreign-company accountability has not gone down well with the Philippines' active and vocal civil-society, environmental and faith-based groups. Now, the controversy over the tailings spill at the Rapu-Rapu mine operated by Lafayette Philippines and Lafayette Mining of Australia has, rightly or wrongly, conjured up the bitter memories of Marinduque.

Mining-industry sources say their current headaches started last October, when a pump at the Rapu-Rapu mines failed, causing the overflow of cyanide-laden tailings into nearby creeks, killing about 2 kilograms of fish. About three weeks later, a heavy six-hour rain caused the tailings pond to overflow into the nearby Ungay and Hollowstone creeks, this time killing 15kg of fish."It was really a minor incident, a drop in the ocean," said Benjamin Philip Romualdez, president of the Philippines' Chamber of Mines.

A Mines and Geosciences Bureau (MGB) source said, "The total volume of the tailings released in the two incidents is just about 20 cubic meters. It's just about a truckload. It's nowhere near the scale of the Marcopper mine tailings spill."

Regardless, the government has contended that Lafayette Philippines has violated some of the conditions of its original ECC. On January 6, the Pollution Adjudication Board (PAB) slapped the company with a P10.7 million ($210,000) fine for three different ECC violations.

To resume operations, PAB said Lafayette Philippines must submit an environmental-management system or ISO 14001 certification, implement a comprehensive pollution-control program, put up a surety bond equivalent to 25% of the total cost of the pollution-control program, and hire a full-time pollution-control officer.

The Rapu-Rapu incident occurred in October, notably at the same time the government and Chamber of Mines were actively pursuing new foreign mining investments as part of a state-led job-creation scheme. Arroyo at first tried to ignore the Rapu-Rapu controversy, but as the protests and media coverage became more widespread, Arroyo finally acquiesced to the political pressure.

On March 10, Arroyo announced the creation of an allegedly "independent commission" to investigate the health and environmental impacts of the twin tailings spills. The commission was to be headed by Bishop Arturo M Bastes, a well-known opponent of the mining industry. In a surprising move, Arroyo, politically embattled over allegations she had attempted to rig national elections, also announced a congressional review of the Mining Act, a statement that immediately sent shock waves through the foreign investment community.

"It's not good news for the Philippines as there is a perception now that policy is going the other way," Ted Leschke, mining analyst with Shaw Stockbroking based in Sydney, was quoted as saying in the Malaya newspaper. "From a geological standpoint, the Philippines is A-1. But if they keep changing things, miners will go to Mongolia or somewhere else."

Sean Georget, executive director of the Canadian Chamber of Commerce of the Philippines, told Asia Times Online that the Philippine Mining Act compares favorably with similar mining legislation in Canada, Australia and the United States. "What is there to review? If you say you are going to review the law, you are putting uncertainty into the policy landscape."

Foreign banks exposed to the industry, including NM Rothschild & Sons (Australia), ABN AMRO Bank NV (Australia), Australia and New Zealand Banking Group Ltd, Investec Bank (Mauritius) Ltd, and Standard Chartered First Bank Korea Ltd, have also reportedly been shaken by the possibility of a policy flip-flop.

The growing uncertainty surrounding Philippine mining comes as the industry was clearly re-emerging from the Marcopper Marinduque Island debacle. A total of 17 metal mines were operating across the country in 1997, but because of the fallout of the Marcopper incident, that number was down to seven by 2002, according to statistics provided by the Philippine Embassy in Washington.

Since then, however, mining investments have steadily increased, reaching $345 million and employing 7,000 workers by the end of 2005. Romualdez said that as of this month, total "on the ground" investments have reached about $500 million, and that another $2 billion in so-called "announced investments" are in the pipeline.

The Chamber of Mines also said in a recent statement that by continuing to allow foreign investments in mining, the industry would in the coming years ensure the inflow of $10 billion into the economy through the expansion of existing projects and the operation of new ones. However, with a pending congressional review of the Mining Law, many of those promised projects have stalled or have failed to secure the necessary foreign financing needed to commence operations, according to MGB officials.

Political mine shaft

Last Friday, Bastes presented his report to Arroyo at a closed-door meeting in the presidential palace. Sources inside the Bastes Commission said the final report echoed the PAB's findings against Lafayette and, in an extreme measure, called for the cancellation of Lafayette's ECC. The report also reiterated calls for a congressional review of the Mining Act, especially the provisions allowing for greater foreign-equity participation.

Cancellation of Lafayette's ECC would mean that the company could not resume operations and would be forced to close shop - an outcome that industry sources contend would scare off resident and potential new foreign investors.

"It's really up to the Department of Environment and Natural Resources [DENR] now. But how could 17kg of dead fish force the closure of a multimillion-dollar project that is benefiting more than a thousand workers and the community in terms of social development projects?" asked one mining executive. "All [the fact-finding commission] had in the report are pure allegations. They haven't built a case against the company."

Indeed, in a statement this week Lafayette challenged the scientific accuracy of the Bastes Commission's allegations that the company caused mercury contamination of coastal water areas, saying that, in fact, the company does not use any mercury in its production processes.

Still, the threat of closure compounds the company's daily losses suffered by their padlocked operations. The firm claims it has already hired an independent group of mining and engineering experts to help it comply with the requirements of the PAB.

Since early this month, Lafayette's managers have repeatedly asked the government to allow it to conduct test runs and eventually resume normal operations. The DENR, however, did not act on the company's request because at the time it was still waiting for the results of the Bastes Commission's investigation. It's still altogether unclear what the department will do next now that the report is in hand.

"If the restart of the project is subjected to further delays, despite having completed all the required remedial measures, [it] may be forced to close," said Lafayette's Manny Agcaoili. He claims that the company is bleeding about $2.7 million each month in overhead costs and about $13 million in forgone revenue."Investment losses would amount to $259 million in terms of bank loans, shareholder advances, and bank hedging exposures. Loss of employment ... would be approximately $1,000 ... Now the company fears that its creditors might foreclose on their dormant operating assets." Not exactly the sort of financial result that Lafayette had in mind when it signed up, at the government's invitation, to tap the Philippines' rich bounty of natural resources.

David Llorito is a researcher at the BusinessMirror, a Manila-based daily newspaper. He has more than a decade of experience in socioeconomic research, policy analysis, and business-economy journalism in the Philippines.