Mining industry in distress

THE PHILIPPINE economy has to grow vigorously and on a sustained basis by 7 to 8% for a decade in order to make a difference in the lives of poor Filipinos. But it is important that all cylinders should be firing simultaneously — agriculture, construction, manufacturing, mining, housing, and other service sectors. Yet, agriculture is growing feebly while manufacturing is operating below capacity. While public construction is picking up, private construction is slowing down. Mining, after a strong though volatile growth in the last 12 years, is in distress.

Mining output is on a free fall. From a 16.1% output growth rate in 2009, it slowed to 11.4% in 2010, edged down to 7.0% in 2011, then finally plunged into negative territory, shrinking by 8.4%, in the first half of 2012.

The mining industry has seen better times before. During the last 10 years, 2002 to 2012, growth in the mining output has been quite dynamic — though erratic — registering at an average rate 14.8%. Mining output peaked in 2002 with a staggering 64.2% growth. But even in the last three years, mining was chugging along at an impressive averaged 14.3% growth.

Lately, there has been a reversal of trend: the mining industry has hit a formidable wall. Uncertainty has increased. The new mining policy laid out in an Executive Order by President Benigno Aquino III bans the acceptance of new mining application pending the identification of sites where mining activities would be restricted or prohibited.

Moreover, granting of new mining permits would be deferred until a law rationalizing the revenue-sharing scheme between the government and mining companies . The latter is a difficult conditionality; no such law is not coming out of the present Congress soon.

The present Congress is faced with a long list of time-consuming bills before the year ends. This list includes the General Appropriations Bill, the proposed higher taxes on cigarettes and liquor, the Freedom of Information Bill, and the Reproduction Health Bill, to mention a few.

With time ticking away and as the elections of 2013 nears, legislators will spend more time hitting the campaign trails rather than passing new laws. My own sense is that Congress has neither the time nor the inclination to pass a law changing the revenue-sharing arrangement between the government and the mining firms.

This evaluation is based on the perceived unwillingness of President Aquino to use his political capital to push important pieces of legislation.

SHRINKING, STALLED MINING INVESTMENTS
Not surprisingly, mining investments have not only stalled, they have fallen precipitously. Mining investments dropped by half in the first semester of the year — to $160 million from the $309.31 million registered in the same period in 2011.

The reasons, according to the Mines and Geosciences Bureau (MGB), are project delays and uncertainties in the investor community brought about by the creation of a new mining policy.

Total investments in the mining sector for the whole of 2011 reached $624.06 million. For the whole of 2012, investments of $2 billion are targeted. But that target is virtually un-achievable now given the dismal investments in the mining sector for the first half of the year.

Many potential investors have decided to wait until a “clearer” and more hospitable mining policy evolves. The deferred investments for 2012 include the following: the $200-million investment of Intex Resources for a nickel project in Mindoro Oriental, $649 million for a processing plant of Taganito HPAL Nickel Corp., $39 million for the expansion of the Siana Gold project of Australian miner Red 5 Limited, $350 million for the development of the King King gold project by Canadian miner St. Augustine Gold and Copper Ltd., $66 million for the Far Southeast project of Lepanto Consolidated Mining Co. and Gold Fields Limited of South Africa, and $200 million for the Silangan copper-gold project of Philex Mining Corp.

A large portion of the investments realized during the first six months of the year were made by Philsaga Mining Corp., the operator of a gold mine in Agusan del Sur and Sagittarius Mines Inc. that is pursuing the Tampakan copper-gold project in South Cotabato, said MGB Director Leo Jasareno. These two investments account for about $30 million.

The rest of the investments made for the period were “smaller ones,” mainly for expansion activities of other existing mining companies.

The mining industry could be a major contributor to strong and sustainable growth in the Philippines. It potential is enormous once world growth is restored.

But political leaders have chosen to procrastinate and muddle through rather than defining clearly, and with a deep sense of urgency, the correct public policy on mining in this country. –Benjamin E. Diokno, Businessworld

Benjamin Diokno is former Secretary of Budget and Management. He is Professor of Economics at the UP School of Economics.