COMP Director Calls Unnumbered Bill as “Killing the Goose”
by Marcelle P. Villegas - November 02, 2022
05 Sept. 2022, Atty Ronald Recidoro, Executive Director at Chamber of Mines of the Philippines at the PMEA Monthly Membership Meeting, Manila Elks Club, Makati City (Photo by Marcelle P. Villegas for Philippine Resources Journal)
"We see very clearly that the provisions will be deadly for the mining industry. If 5% royalty across the board, and a 50%-50% government share, plus a 10% excise tax on raw exports will kill the industry, it will not be competitive and the revenues they are forecasting of something like 38 billion will not happen."
(Atty Ronald Recidoro on the new Unnumbered Bill)
Atty Ronald Recidoro, Executive Director at Chamber of Mines of the Philippines, described the new Unnumbered Bill in mining as “Killing the goose to get to the golden eggs”.
He expressed his sentiments and professional insights regarding the new mining bill during the recent Philippine Mining & Exploration Association (PMEA) Monthly Membership Meeting last 5th of September. Atty Recidoro was one of the guest speakers for this meeting.
One of the speakers for the evening was Atty Dennis Quintero, who gave a presentation on the Legal Updates for the industry. Atty Quintero is the Head of Energy, Mining & Infrastructure at Quisumbing Torres. He was joined by his colleague, Mr Kristian Angelo Palmares in explaining the Mining Bills Update, particularly about the Unnumbered Bill. This was followed by the reactions and comments by Atty Recidoro.
"An Act Establishing the Fiscal Regime for Mining Industry"
Atty Quintero explained that the Unnumbered Bill is a substitute to House Bills 373, 2014, 2246 and 3888. Its approval is currently pending with the Committee on Ways and Means.
Here are key points about the bill, as summarised by Atty Quintero:
~ At the beginning of the 19th Congress, House Bills 373, 2014, 2246, and 3888 were filed and subsequently referred to the Committee on Ways and Means. Having similar subject matters, these were consolidated into the Unnumbered Substitute Bill.
~ The bill seeks to impose margin-based royalties on income from large-scale metallic mining operations at a rate of 5% of the market value of the gross output whether inside or outside mineral reservations. It seeks to cover both Mineral Production Sharing Agreements and Financial or Technical Assistance Agreements.
~ Mining contractors are also required to pay minimum government share when the primary government share is less than 60% of the net mining revenue. The minimum government share shall be the difference between 60% of net mining revenue and the primary government share during the calendar year. In this regard, “primary government share” shall consist of all direct taxes, royalties, fees, and related payments required by existing laws, rules, and regulations to be paid by the contractor.
~ The bill likewise imposes a 10% tax on the market value of raw ore exports.
~ Furthermore, it treats each mining operation covered by a mineral agreement or FTAA as a separate taxable entity.
~ The bill also provides that the National Government shall have a share of 60% of the gross collection derived by any government agency or instrumentality from excise taxes on mineral products, royalties, and such other taxes.
~ Note: Before they were consolidated to the Unnumbered Substitute Bill on 24 August 2022, HB 373, 2014, and 2246 were filed on the following dates:
• HB 373 – 30 June 2022
• HB 2014 – 14 July 2022
• HB 2246 – 22 July 2022
• HB 3888 – 22 August 2022
Effects of the Proposed Bill on the Mining Industry
Atty Recidoro said, "We see very clearly that the provisions will be deadly for the mining industry. If 5% royalty across the board, and a 50%-50% government share, plus a 10% excise tax on raw exports will kill the industry, it will not be competitive and the revenues they are forecasting of something like 38 billion will not happen."
He also emphasised the unusually rushed passage of the house bill. “If you were in attendance at the meeting last Aug. 24, you will see that the four versions of the bill contained very different provisions. Now they provided four very different tax rates and had differing fiscal regimes. So in cases like these, the usual procedure should have been for the Committee to refer the bill plus the DOF proposal. The DOF proposal isn't even actually a bill. It was just a written proposal from the DOF. It was not yet filed as a bill. Some undersecretary from the DOF just went to the Committee at that day and gave the Committee a copy of the proposal.”
“So given these four versions plus the DOF proposal, the usual process should have been for the Committee to create a technical working group, and then try to hash out the differences and come out with a common substitute bill. This did not happen clearly. This was not done. The Committee voted instead the DOF proposal in its entirety.”
He said that the Committee threw away House Bills 373, 2014, 2246, and 3888. “They just chose to adopt the DOF version which we have not yet seen. Nobody has seen it at that time. So it is very strange from a procedural and substantive due process perspective.”
Furthermore, he clarified that they find this unusual because of the circumstances surrounding the mining fiscal regime. “The Marcos Administration has come up very strongly for mining. They have identified mining as key driver for this administration and they are seriously wanting to push it forward.”
Killing the goose that lays the golden eggs
Additionally, Atty Recidoro pointed out that the 5% royalty for all large-scale metallic mines, regardless of whether they are within mineral reservations or outside of mineral reservation, together with a 60%-40% sharing is exceptionally heavy. “If passed, that regime would make the Philippines mining fiscal regime uncompetitive versus other mineral-rich countries such as Peru, Chile, and South Africa.”
“In a recent study we did at the Chamber of Mines to model the average effective tax rate (AETR) of the DOF proposal, we found that the proposal would amount to something like 71% average effective tax rate, much higher than the AETR for the current FTAA which we beg at around 63.5%. AETR is essentially government's tax take.”
“So the proposal with net government 71% AETR over life of mine…that is exceptionally heavy! It will be higher than the following countries: Peru at 51.9%, Queensland, Australia at 51%, Canada at 50.4%, and South Africa. More importantly, it would bring up the AETR for existing MPSAs from the current 45.3% to 71%. So we were alarmed. This is an exceptionally heavy imposition which will kill the industry.”
In response to this, Atty Recidoro said that the Chamber has been exerting efforts to communicate this fact to the Committee Chair, the House leadership, the Senate, and even the Executive Department. The goal is to make them all aware that the DOF proposal, if passed, will not accomplish the objectives of the bill which is to increase revenues from the extractive sector, to fund government programs in disaster risk management, environmental rehabilitation, and economic recovery.
“If they push this bill, there will be no increased revenues from mining. This is essentially [the] government killing the goose to get at the golden eggs. It's just going to kill the goose. It would lead to the non-starting of three large-scale mining projects that they are already in the development stage which we envision will bring in an additional 1.2% to Philippine GDP once they start operating.”
He further noted that this would lead to closure of several large marginal mines, which would then lead to large-scale unemployment in the areas where these mines are operating.
“We have also issued a strongly-worded statement denouncing the substitute bill passed by the Committee essentially saying that this will not achieve the revenues it is targeting and will only underline the instability of the country's mining policy, making the country more uncompetitive to foreign investment.”
“Fortunately, it seems that our efforts, led by my chair, Atty Mike Toledo, and Gerry Brimo have borne fruit. Just this morning, we received word that the house bill which has already been approved by the Committee has been recalled.”
He said that the Committee has recalled and has re-opened discussions on it which was scheduled last 7th of September, to allow stakeholders to voice their positions on the bill.
Atty Recidoro said that the Chamber intends to give a presentation that will emphasize the negative impact of the DOF proposal and ask that the Committee should consider the passage of House Bill 373 instead.
House Bill 373 – A More Equitable Bill
“House bill 373 is not a new bill. It was previously passed in the 18th Congress as House Bill 6135 also by Salceda. This House Bill 373 will seek to establish a new mining royalty scheme over and above the existing excise tax under the NIRC.”
“However, it really imposed a tax not on gross output but rather it is conditioned on companies achieving a minimum margin. And as you achieve a larger margin, your tax rate will also increase but this tax will be imposed on income, and not on gross output, which means that you will only be taxed only when you’re making money.”
“If you have no margin then you have no additional tax which we have always insisted. This is the more equitable, more progressive way of doing it.”
Atty Recidoro said that the Philippines is probably the only mining country in the world that relies heavily on gross-based royalties and excise tax, which makes the tax rate heavy.
“The bill also proposes the establishment of a natural resource trust fund to be taken from government shares which will then be distributed to LGUs, to support educational programs, disaster risk management, and rehabilitation of abandoned mines. For as long as it is taken from government shares, I don’t think we have a problem. In fact, we will support that whole-heartedly. The Chamber of Mines has publicly given its support to the passage of House Bill 373 and we believe that if passed, it can serve as a competent financial baseline for re-negotiations, to guide DENR, MGB and DOF when we re-negotiate new mineral agreements.”
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Marcelle P. Villegas - July 07, 2022
PMEA Monthly Membership Meeting and Industry Updates
Mining events are slowly transitioning back to face-to-face gatherings, and this is something that Philippine Mining and Exploration Association (PMEA) has been initiating since April with their hybrid meeting. Last 6 June 2022, PMEA’s Monthly Membership Meeting resumes with several attendees who were present at Manila Elks Club that evening. Mr Joey Nelson Ayson, PMEA President, reported some PMEA matters and industry updates/news from MGB. Here are some of the topics he discussed:
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Philippine Resources - May 23, 2023
MEMORANDUM OF AGREEMENT SIGNED WITH TVI RESOURCE DEVELOPMENT (PHILS.) INC.
Photo credit: TVI Resource Development The Board of RTG Mining Inc. is pleased to announce that a comprehensive settlement of all outstanding issues with the Villar Family controlled Sage Capital and TVI Resource Development (Phils.) Inc. (“TVIRD”) has been reached and a binding Memorandum of Agreement signed. On execution of the final documents, expected in the next month, all litigation that RTG had launched will be withdrawn as part of an agreed restructuring of the Mabilo Project. The Villar Family is one of the most prominent families in the Philippines and RTG is pleased to partner with them in the development of the Mabilo Project, which is a significant mining project for the country. The key terms of the agreement for RTG include the following: RTG (through SRM Gold Limited) will retain a 40% interest in Mt. Labo Exploration and Development Corporation (“Mt. Labo”) with the project also developed by Mt. Labo, in line with Philippine regulatory requirements, with Sage Capital (which is owned by TVIRD) holding the remaining 60%; RTG will have a 2% net smelter royalty (“NSR”); RTG’s debt together with interest, currently in the order of US$27M (subject to audit) will be repaid out of the proceeds of Stage 1 of the project, the Direct Shipping Operation subject to customary requirements to address liquidity and ongoing operations of Mt. Labo; Funding arrangements for the project as between the major shareholders of Mt. Labo have been successfully renegotiated, (relieving RTG of a sole funding obligation) and replaced with a pro-rata funding obligation, together with a disproportionate funding obligation of Sage Capital, as set out below; With debt repayments in full and the NSR, RTG will be entitled to approximately 57% of the proceeds of Stage 1, the Direct Shipping Operation; RTG will be entitled to 40% of the operating cashflow of the project, together with the 2% NSR and repayment of its debt, which is currently in the order of US$27M; The first US$5M of expenditure for Mt. Labo (or 12 months of expenditure, whichever occurs the earlier), will be funded pro-rata between the two shareholders (ie RTG will provide 40%) and thereafter, Sage Capital/TVIRD will sole fund the next US$5M of expenditure, with all additional funding thereafter to be provided on a pro-rata basis; All parties are required to act in the best interests of the project and not compete; A shareholders’ agreement will be finalised which will provide typical minority interest protection clauses including reserve matters for voting including annual budgets and appointments of key personnel; Any disputes will be resolved by the Singapore International Arbitration Centre; and On completion of final signed documents, all litigation matters will be withdrawn and settled in full. With the restructuring of the Mabilo Project now agreed, over the balance of this year, the remaining permitting matters and financing plans will be finalised, a review of the 2016 Feasibility Study will be completed, together with finalising the acquisition of surface rights, following which, a commitment to development will be formalised by the Board of Mt. Labo. RTG is pleased with the outcome of the discussions and the co-operative and constructive approach adopted by the Villar Family representatives. RTG believes they can be a strong and positive partner to work with to take the Mabilo Project forward, with both a near term development and future exploration activities to expand the project, which will start to unlock the value of the project for all stakeholders, not only the local communities but for the country as a whole.
Philippine Resources - May 22, 2023
Mining Operational Excellence Through Digital Transformation
Part 1: Mining Operation Challenges and Mine Operations Management Domains 1 & 2. By Mae Ann Cabasag, EM Mining companies encounter numerous challenges throughout their operations. However, initiatives to mitigate these challenges and improve efficiency are often limited. Most of these limitations emanated from a common factor: the challenge of “poor visibility” in mining operations. A viable solution is to adopt digital transformation in mining operations by incorporating available real-time data into an integrated system— capable of ensuring automatic updates and reliable source of information. Through this, mining companies not only understand simulations and plans developed but also anticipate potential outcomes. Various mining industry analysts have found that using non-digital methods in the mining operations can lead to a 27% reduction in production time and 25% increase in data inaccuracy. For a mining company to remain competitive in an industry susceptible to operation challenges, i.e. production processes, workers’ and equipment performances, ore quality and quantity, compliance to regulations, and inter-departmental collaboration, it needs to embrace digital transformation. Dassault Systèmes Mine Operations Management provides transformative digital solution for mining companies to achieve excellence in their operations. Mine Operations Management (MOM) equips mining companies with an integrated system for their mining operations, enabling them to achieve efficient plan and schedule. This system integrates entire operation data into a single repository source of information, known as the “single source of truth”, ensuring complete transparency of the company’s processes from mine to port. By leveraging MOM, we can address the following global mining industry challenges: Maintaining competitiveness amidst market volatility. Eliminating waste materials, poor communication, and error duplication. Improving site productivity and efficiency. Utilizing assets and sharing best practices across the value chain. Ensuring an utmost level of safety. Reducing environmental impacts and achieving sustainable operations. The transformative digital solution, Mine Operations Management, is composed of eight work packages, split across four domains, namely: Data Management, Material Reconciliation, Operational Control, and Assets Performance. These domains help generate valuable insights from integrated operational data for rapid and informed strategic decision-making. The Data Management consists of Master Data Model and Integration Framework packages essential for material tracking, stockpile management, task and workforce management, machine performance, and asset maintenance. It enables users to manage master data objects such as Site, Material, Location, Equipment, and Operator through manual data entry or third-party source systems. With this, mining companies can ensure efficient and integrated management of critical data required for seamless operations. Material Reconciliation, on the other hand, consists of Material Tracking and Stockpile Management packages. Material Tracking enables us to track material movements across different stages, i.e. from the least accurate grade estimated in geological model to the most precise information on shipped material quantity and quality, to account for any inaccuracies. While in the Stockpile Management, users not only can calculate daily stockpile balance, add Survey or Sampling data, analyze inventory levels and trends, create graphical representation of the stockpile balances and movements, calibrate stockpile using volumetric survey and sampling, enables comparison of different models, track movement genealogy and review stockpile slices for stockpiles with LIFO and FIFO calculation type but can create a different type of analysis such as actual vs plan vs model. In the upcoming article, we will explore the two remaining domains of Mine Operations Management to where assigning operational tasks, tracking compliance to plan, monitoring equipment down to workers’ performance are feasible in the mining operations. To know more about MOM, mining innovations and solutions, contact Dassault Systèmes Value Solutions Partner: Paramina Earth Technologies Inc. through firstname.lastname@example.org References: Make it happen for mine execution excellence: Dassault Systèmes®. MEGATrends. (n.d.). https://events.3ds.com/make-it-happen-for-mine-execution-excellence Dassault Systèmes. (2021, August 12). Digging deeper: The virtual solution for Mining Operational Excellence. Dassault Systèmes. https://discover.3ds.com/virtual-mining-operational excellence dassault3ds. (2022, June 16). The mining industry needs to adapt, but how? Dassault Systèmes blog. https://blog.3ds.com/brands/delmia/the-mining-industry-needs-to-adapt-but-how/
Philippine Resources - May 22, 2023
Customer’s First Choice: Sandvik Philippines Delivers 11th and 12th Pantera DP1500i Drills to Filminera Resources Corporation
Sandvik Philippines has successfully commissioned and delivered to loyal customer Filminera Resources Corporation (“Filminera”) their 11th and 12th Pantera DP1500i Top-hammer Surface Drills last 25 January 2023 at the Masbate Gold Project (MGP) located in Masbate Island, Philippines. Photo shows Sandvik Technician Larry Lugnas (second from left) and Service Operations Manager Jorge Cabello (third from left) handing over the drills to MGP representatives. Located 360 km southeast of Manila, the Masbate Mine is operated by Filminera, the Philippine subsidiary of TSX- and NYSE-listed B2Gold with headquarters in Vancouver. In 2022, the mine produced a record-setting 212,728 oz of gold out of 7.93M tonnes of ore milled at an average grade of 1.11 g/t. B2Gold also operates the Fekola Mine in Mali and the Otjikoto Mine in Namibia. Their projects under development include the Anaconda Area in Mali and the Gramalote JV Project in Colombia. The Masbate Mine started operating in 2008 initially using 4 x Atlas Copco ECM660 Drills owned and operated by the erstwhile mining contractor, Leighton. When the opportunity for re-fleeting came about in 2012, Sandvik succeeded in winning the tender which came packaged with a full maintenance contract for 24,000 service meter hours of five years. Ironically, the said maintenance contract almost led to the cancellation of the order for the first 4 x DP1500i due to a dispute with the rates. Eventually, both Leighton and Sandvik were able to arrive at a mutually acceptable arrangement, and Sandvik ran the service contract for five years without incurring penalties in the availability guarantees. The contract was so profitable, Sandvik even had to share some of the residual profit at the end with Filminera under the pain-and-gain proviso of the contract. The next re-fleeting opportunity came in 2017, with the Masbate Mine. This time, there was no service contract attached to the equipment and Leighton was no longer the mining contractor; the mine has shifted to owner-miner operation. Sandvik managed to secure the repeat order for another batch of 4x DP1500i, banking on the proven performance and reliability of the first four. That brings the total to 8 units. Drill numbers 9 and 10 were ordered in July 2020 and delivered in 2021. Numbers 11 and 12 in the photo above were ordered in January 2022 and are now handed over to the customer. Filminera ordered two more DP1500i’s in November 2022; these machines are now awaiting completion in Tampere, for delivery later this year. That should bring the total to 14 x DP1500i units spread over 11 years for our most loyal Pantera DP1500i customer in the Philippines – Filminera Resources Corporation!
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