Outlook for mining upbeat

Rising prices, global recovery cited; value of Q1 output up 28%

THE PHILIPPINE MINING INDUSTRY could be headed for a good year given higher metal prices and the prospect of more investments, officials and analysts said.

The value of metallic mineral production rose by 28% in the first quarter, the Mines and Geosciences Bureau (MGB) reported, and a trade official said the sector overall was expected to achieve “moderate investment growth … particularly towards the end of the year.”

The potential impact of a provincial government’s looming ban on open-pit mining was discounted and an industry observer also noted that the successful conduct of the May 10 national elections was boosting market confidence and could fuel investments.

Board of Investments managing head Elmer C. Hernandez, in a speech at the 1st Mining Engineers’ Convention in Davao last week, said the government was optimistic as “the global economy is slowly positioning for the economic rebound.”

A “continued upsurge in world metal prices, particularly for gold” will likewise attract more mining investments, he added.

Latest MGB data put the value of first quarter metallic mineral output at P20.72 billion, up from P16.20 billion in the same period last year. Gold accounted for the bulk at P13.1 billion, followed by copper concentrate (P3.95 billion) and nickel concentrate (P2.14 billion).

“Mineral production for the second quarter is also expected to increase year on year because the higher metal prices is a driver for more production,” said Glenn Marcelo C. Noble, chief of the MGB’s Mining Economics Information Division, in a telephone interview yesterday.

The bureau, said Mr. Noble, is looking at a 20% increase in production for 2010. “We are not looking at any crisis that may affect metal prices, so there is an optimistic outlook for production within the year,” he said.

A 39% increase in output value, to P107 billion, was recorded by the MGB last year.

Mr. Hernandez, meanwhile, reiterated the MGB’s target of luring $13.5 billion worth of mining investments by 2013. Some $2.8 billion has already been poured in by investors since the 2004 Supreme Court ruling allowing foreign ownership of local mining ventures.

The bureau has forecast $1.428 billion worth of investments this year versus 2009’s $640.22 million that was 1.51% short of the $650-million target.

The upbeat forecast comes even amid a likely ban on open-pit mining in South Cotabato, the site of Xstrata Plc’s $5.2-billion copper-gold project.

“There are many other prospects,” Mr. Hernandez said in a text message yesterday.

Industry expert Richard Mills, chairman of executive search group Chalre Associates, said the policy was unlikely to be mimicked in other provinces. Xstrata Copper for its part has said its project was not in any danger as national laws were on its side.

Investments this year will come from expansions of existing projects and from new entrants, likely from Australia, Japan, China and Canada, Mr. Mills said.

“Global metal prices have certainly improved… And I think the overall good impression that the Philippines made with the successful elections just recently [will attract investors],” he said in a telephone interview.

The MGB said the 11% rise in value for gold came via higher prices — above $1,000 per ounce — during the period. Actual output for January to March, however, was down 7% to 8,389 kilograms.

Known as a “safe haven” investment, gold is expected to continue gaining this year as the global economy has yet to recover, the MGB said.

Copper concentrate production, meanwhile, rose 45% to 58,078 metric tons during the period, with soaring prices pushing growth in the red metal’s value to 94%.

Prices, the MGB said, are expected to rise even further as no new major mines are expected to come onstream worldwide in the next three years.

Nickel concentrate output was up 72% to 9,742 MT while its value increased by 36% on a recovery in prices — at $9.05 per pound which the MGB said was due to higher demand for stainless steel. Prices, however, are not expected to hit the over $23 per pound hit in 2007.

Nickel ore shipments, meanwhile, rose by 42% to 1.2 million MT. Value was up 105% to P1.08 billion.

Zinc posted the highest growth in value, 149% to P116.6 million, even as output fell 3% to 5,194 tons.

Silver saw value rise 135% to P310 million as output rose by 70% to 12,410 kilograms. Prices during the period averaged $16.90 per ounce, with the MGB noting declining world supplies and significant industrial and jewelry demand.

The only decliner for the period was chromite, which saw a 29% drop in value to P20.4 million on a nearly identical 26% output drop to 2,408 metric tons.

“At present there is a turnaround of events as demand for base metals have (sic) partially returned as major economies begin to bounce back from the economic slump,” the MGB said.

“At the same time, stockpiles of metals are diminishing, giving rise to a scenario where demand is rising faster than supply. This situation is expected to stabilize metal prices at its current levels or may even boost it upward,” the bureau added.

Twenty-five players — 11 nickel mines; eight gold mines (also producing silver); three copper mines (with gold and silver as ‘co-products’); a polymetallic mine producing gold, silver, copper and zinc; a nickel plant, a chromite mine, and numerous small-scale gold operations — accounted for output during the first quarter, the MGB said. — reports from Jessica Anne D. Hermosa and Kathleen A. Martin, Businessworld