PRLog (Press Release) – Jun 17, 2011 – BMI believes that the outlook for the Philippines mining sector is decidedly mixed at present. On the one hand, big investment projects, such as Xstrata's US$5.9bn Tampakan copper and gold project (operated via by its local partner Sagittarius Mines - SMI) and Sumitomo Metal Mining's Taganito nickel mining project, have the potential to transform the output of the wider Philippines mining sector. Moreover, the sheer scale of untapped natural resources in the country (with an estimated value of some US$1trn) should be making the country a key target for foreign mining concerns over the long term.
That said, rising local hostility towards mining on a variety of environmental and social grounds, which has seen a ban on open-pit mining passed in the key mining state of South Cobatabo, represents a clear risk to the industry's future develop trash bins ment. Recent proposals from the Department of Environment and Natural Resources that the government should strictly enforce a mineral royalty rate of 5% on all domestic production would also represent a deterrent to foreign investment. In addition, there remains a bill filed in Congress calling for a new mining act to be passed.
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Certainly, the influential Fraser Institute believes that the current outlook for Philippines mining is poor, ranking the country 66th out of 79 jurisdictions in its Annual Survey of Mining Companies 2010/11, released in March 2011. The country scored badly on several key indicators including taxation, infrastructure, political stability, labour issues, and security and environmental regulations. We share the Fraser Institute's downbeat assessment of the situation in the Philippines and would like to see more support given to mining companies by both federal and provincial authorities in order for the mining sector to reach its true development potential.
One additional threat to the mining industry is posed by the ongoing activities of Communist rebels, who have raided and damaged mining equipment across the country in recent years. The Philippines is believed to hold an estimated US$1trn-worth of mineral deposits, but much of it remains untapped because of the country's underdeveloped mining sector. Government efforts to attract foreign investment in the sector have been hampered by staunch opposition from several groups, in particular Maoist rebels from the Communist Party of the Philippines (CPP), which accuses large, foreign mining companies of destroying the environment and exploiting local communities. Additionally, there has been anecdotal evidence that many mining companies have been forced to pay the rebels a 'revolutionary tax' in order helicop ter technology to prevent their operations from being attacked.
Against this rather unpropitious backdrop, it is perhaps little surprise that The Philippines ranks at the bottom of our newly-updated Business Environment Ratings for the Asia-Pacific mining sector in 2011, with a score of 38 out of 100.
Country Overview
The Philippines is home to reserves of coal, copper, gold, nickel, silver and zinc, among other minerals.
The leading domestic player in the Philippines is Philex Mining, which produces copper, silver and gold. Major foreign players currently involved in the Philippines mining sector include Japan's Sumitomo Metal Mining (developing the Taganito nickel project), N manual trash compactor orway's Intex Resources (developing the Mindoro nickel deposit), CGA Mining (operating the Masbate gold project) and Canada's Rugby Mining (developing the Mabuhay gold project).
Industry Forecast
Political difficulties notwithstanding, we believe that the stage is set for a period of measured growth within the Philippines mining sector over our newly-extended forecast period to 2015. However, we would underline that the sector's growth and development is clearly being held back by a variety of political and social factors as outlined above. Production of several key mineral commodities should increase,and we are forecasting that the two new nickel projects being developed at Mindoro and Taganito by Intex Resources and Sumitomo Metal Mining re garbage compactor review spectively, should add some 93,000 tonnes per annum (tpa) to Philippines nickel output as of 2013.
The contribution of mining to overall GDP may fall slightly. However, this is more a reflection of faster growth rates in other areas of the Philippines economy, as opposed to any long-term declining trend in output by the mining sector. We actually forecast the overall size of the mining sector to increase from PHP118bn in 2010, to some PHP167bn by 2015, with scope for substantial upside if provincial mining bans can be overturned and rebel activities cracked down upon.
The key unknown in our forecasting is whether or not SMI will get government approval to commence work at Tampakan. As we were preparing this report in April 2011, there was still uncertainty as to whether or not environmental and other regulatory approvals would be granted this year. Adding to the problems surrounding the project, in October 2010 the governor of South Cotabato province (where Tampakan is located) signed into a law a ban on all open-pit mining. Although the federal government has said that it will challenge this ban, any legal challenge could take months or years to be completed.
Consequently, if the mine does not receive government approval in 2011, then there is little chance of the mine becoming operational before 2016 at the earliest. For now, therefore, we choose not to include any contribution from Tampakan in our copper and gold production forecasts out to 2015, as the likelihood of the mine being open by this time is now very slim. About Business Monitor International
Business Monitor International 1086274749 (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at http://www.fastmr.com/catalog/publishers.aspx?pubid=1010
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