There were reasons to be optimistic about the mining industry in the past two years. It started with the the lifting of the ban on open pit mining and moratorium on new mining projects, and the renewal of the Financial and Technical Assistance Agreement (“FTAA”) of Oceana Gold in 2021. Last year, the Philippines also rejoined the Extractive Industries Transparency Initiative (EITI) after clearing misunderstandings with the policy institute’s alleged bias in assessing the country’s compliance with EITI’s standards. The Marcos administration also affirmed support for mining as it seeks the industry’s help in the country’s post-pandemic recovery. The deployment of clean technologies leading to an increase in demand for critical minerals abundant in the Philippines as well as the global demand for mineral products that will help address climate change are positive developments on which the country can revitalize its mining industry.
The exponential growth needed in mining as a result of the booming demand from the energy transition will inevitably bring greater awareness of the industry by the broader public. The question remains, is the country on the verge of the much-awaited turnaround? We examine the industry as the present administration concludes its first year of office and how the industry is coping with the recent developments.
PMRC 2020
To expedite the evaluation and development of mining projects and implement globally-accepted standards in the reporting processes related to mineral exploration and reserve calculation, the Philippine Mineral Reporting Code (“PMRC”) has been updated from PMRC 2007 to the PMRC 2020 and will be implemented after a transition period of two (2) years on 20 September 2023. PMRC was compatible with the Australasian Joint Ore Reserves Committee (“JORC”) Code of 2004 and the Committee for Mineral Reserves International Reporting Standards (“CRIRSCO") International Reporting Template of 2006. Since the CRIRSCO Template and the JORC Code have been upgraded in 2019 and 2012, there is a need to make the PMRC compatible with the code and present template.
The revision of the PMRC to its 2020 edition was undertaken by the PMRC Committee, whose members come from the different professional organization which include the Geological Society of the Philippines, the Philippine Society of Mining Engineers, Society of Metallurgical Engineers of the Philippines along with industry-related organizations and bodies, such as the Philippine Stock Exchange (“PSE”), the Chamber of Mines of the Philippines, the Philippine Mining and Exploration Association, the Philippines-Australia Business Council, and the Philippine Chamber of Coal Mines.
With the Securities and Exchange Commission (“SEC”) approval of PMRC 2020 in September 2021, PMRC was cited for having made strong progress in being a true National Reporting Organization in CRIRSCO's Annual General Meeting held in Johannesburg, South Africa last 20 October 2022. Acceptance to CRIRSCO is currently being deliberated by its Executive Committee and the Philippines hopes that it will be accepted as the 15th Member in the third quarter of this year.
Upon PMRC 2020 taking effect, the PSE will only accept reports from listed mining/exploration companies if they are compliant with the revised version. On the other hand, the DENR recently adapted PMRC 2020 as embodied in DENR Administrative Order (“DAO”) No. 2023-05, which amended DAO 2010-09.
Under the revised reporting process, an expanded and detailed checklist of assessment criteria must be considered by an accredited competent person (“ACP”) in preparing reports on exploration results, mineral resources, or mineral reserves. It also includes an “if not, why not” criteria which requires that should any item in the checklist is not discussed, the ACP must explain the reason for such exclusion. Other important revisions include the required reporting of metal equivalents, as well as non-technical aspects of reporting of parameters, notably commodity pricing and marketing, permitting, legal requirements and sustainability considerations.
Meanwhile, the PMRC Standards Sub-Committee is continuing the drafting of the Implementing Rules and Regulations (“IRR”). The PMRC Committee expects the finalization of the draft IRR by September for submission to the PSE for endorsement. The PMRC Committee will then hold a public consultation and comment period for the PSE to further fine tune the IRR, and submit to the SEC for final approval. The PMRC Committee will also continue to work with the Department of Energy to implement PMRC-compliant coal reporting procedures following the lead adapted by the MGB in mineral reporting.
National Unified IEC
To encourage transparency in mining operations and address the negative perception of mining, the MGB in cooperation with the industry initiated the National Unified Information Education Communication Program utilizing funds from the information, education and consultation (“IEC”) budgets under the Social Development Management Program (“SDMP”) of operating projects. The initiative has selected EON, a public relations agency, to help in the national IEC of the Chamber of Mines of the Philippines. For 2022, the MGB, as the oversight body, collected Php 116.4 million out of the Php 141.9 million budget, representing 35% of IEC and 20% of the Development of Mining Technology and Geosciences allocations from the mining companies’ SDMP. The Annual Report for 2022 has been submitted to MGB as a requirement for the collection and release of the 2023 funds. There are numerous calls for the SDMP to be aligned with environment, social, and government, a framework used to assess the industry's business practices and performance on various sustainability and ethical issues. For this reason, some protocols may need to be revised to allow the NUIEC to prove its worth as it is being funded by mining companies’ SDMP.
Critical Minerals
The rush for critical minerals, which are essential to the lithium-ion batteries that power electric vehicles (EVs) and other green technology has escalated geopolitical tension between the US and China. By 2050, clean energy technology could require billions of tons of these minerals as inputs, according to the World Bank.
Decades of investments have allowed China to dominate the processing and refining of key critical minerals. China overwhelmingly commands these minerals’ processing and refining markets and controls some seventy-seven percent (77%) of the world’s EV battery manufacturing capacity. According to a report by the Australian Strategic Policy Institute, China also leads the world in 37 out of 44 critical technologies.
U.S. lawmakers are setting-up policies to weaken China’s grip on the critical mineral supply chains. The Biden administration passed the Inflation Reduction Act, a climate, health, and tax law designed to accelerate the shift from fossil fuels. The act offers tax credits if a sizable proportion of the EV batteries’ mineral inputs are sourced from the United States or its free trade partner. Desperate to lessen its reliance on China, the US has been joining forces with its allies to secure new supplies by forging new trade agreements based on geopolitical alliances.
Meanwhile, the Philippines, the world's second-largest nickel supplier, is increasingly playing a greater role in the critical minerals market in Asia-Pacific. President Biden and President Marcos advanced an ambitious agenda for the U.S.-Philippines alliance particularly in the development of these minerals. The US government announced that the US Agency for International Development will invest $5 million to support increased production of processed minerals and expand downstream mineral industries in the Philippines, such as the production of EV components and information and communications technologies while improving governance standards in the mining industry.
In addition, the U.S. Department of the Interior and the Philippine DENR intend to partner on the identification and classification of mineral commodity resources, and capacity-building on minerals governance. Finally, the US will establish technical cooperation with the Philippines to develop the country’s nickel and copper resources in a manner that promotes sustained economic growth and social benefit. This builds on ongoing work to support the development of environmentally sustainable nickel processing facilities in the Philippines.
For its part, the Philippines released a national EV roadmap this year to encourage investments in high-pressure acid leaching to transform laterite ores for battery production. Regulators hope to limit raw nickel ore exports by providing sufficient manufacturing incentives. The country expressed willingness to work with the US in its Inflation Reduction Act by helping with the sourcing and processing of battery materials.
Mining Issues Still to be Addressed
The DENR’s permitting process for mining permit applications and ECCs is still the main issue for investors in the industry. Add the permits from the local government units and NCIP and it will be the ultimate recipe for bureaucratic inefficiency. On the other hand, some Filipino companies and individuals with existing mining permits usually ask unconscionable upfront payments from serious investors in order to put money into moribund and inactive tenements resulting in unexplored greenfield areas.
To address the permitting issue the DENR announced hat it has signed an Memorandum of Understanding (MoU) with Isla Lipana & Co. (PwC Philippines), an auditing firm to assess the systems and processes of the MGB and the Environmental Management Bureau (“EMB”). The MoU seeks to review the existing policies of the MGB and EMB to pinpoint the major gaps in their processes and functions. According to DENR Secretary Maria Antonia Yulo-Loyzaga, the project shall conduct comprehensive assessment using appropriate governance, risk management, and compliance tools to review and assess risks in the existing systems and processes of the MGB and EMB.
Under the MoU, PwC will develop a five-year transformation roadmap with corresponding action plans and recommendations for improvement to fortify the DENR towards a better organizational performance. At the end of the project, PwC shall submit a Completion Report with the results of organizational/process diagnosis and assessment; observations and areas for improvement, and indicative five-year transformation roadmap.
Meanwhile, while there are numerous pending bills in Congress to amend the RA 7942 or the “Mining Act of 1995”, the MGB has initiated proposed amendments to the law which after review by its Policy Technical Working Group would be for submission to the DENR. It has been the consistent position of the industry that nothing is wrong with the Mining Act and if there are any perceived defects in the law, they can be remedied by amending the IRR or issuing DAOs.
There is still the ongoing review of the mining fiscal regime following strong opposition to the passage in September of a House Bill that would have rendered the country’s mining tax structure even more onerous than that currently being levied on FTAAs. Mining companies make long term financial investment commitments. To generate certainty about the costs, the government can use the model of the South Africa Royalty Act which authorizes the Minister of Finance to conclude binding “fiscal stability agreements” with developers. Fiscal stability agreements guarantee the terms and conditions that will apply to the mineral resource rights (for as long as the developer holds the rights) and to all participating interests subsequently held by the developer in respect of the right. Such agreements protect the developer from increases in the mining royalty rate.
Another issue that the industry has to deal with is legal artisanal or small-scale mining. There is a growing perception if not realization by the public that illegal mining has caused the contamination of river systems and endangered the lives of miners. The MGB is reportedly looking into the amendment of Small Scale Mining Act in cooperation with the planetGOLD program, which works in partnership with governments, the private sector, and artisanal and small-scale gold mining communities to significantly improve the production practices and work environment of artisanal and small-scale miners.
Mining took another blow when the DENR issued a cease-and-desist order to Altai Philippines Mining’s Sibuyan operations following widespread protests from locals. Residents held protests and demanded the company to show barangay clearance, municipal business permit, foreshore lease contract from the DENR, and a permit from Philippine Ports Authority to construct a private port. The news generated further scrutiny and opposition to mining as miners and the government seem unable to counter these negative narratives effectively. There is a general perception that mining is a technical discipline and mining people are not very good at communicating with the public.
Amidst the negative news on mining, the DENR said that it has no time to attend to these as it has other priorities which are more important. Issues like climate change and water resource management seem to be on top of the priority list of the DENR. This seem to be a cop-out because rather than addressing the pressing issues on mining heads on, regulators prefer to ignore opposition because of the fear that they may be perceived as pro-mining if they say anything good about the industry.
Conclusion
The protracted and debilitating permitting process and bureaucracy are the most important problems faced by the industry. Applicants have become increasingly frustrated by the continued hindrances and hesitation of regulatory authorities to approve mining projects. Permitting delays from numerous overlapping agencies have caused opportunity cost and investment losses. The government must work to streamline the process and avoid duplication of work by numerous regulatory agencies. In the race to fast track the energy transition through the deployment of critical minerals, there seem to be a lot of concern over regulatory delays. Governments would definitely want to avoid their critical minerals supply chain heavily reliant on less friendly nations similar to what had transpired during the energy crisis in Europe following the invasion of Ukraine by Russia. Needless to say, the industry needs to work and develop under a stable policy and fiscal regime. No matter how hard the government tries to drumbeat the industry to investors, only for them to be mired in the country’s bureaucracy, and the confusing and often-changing tax system, the much-anticipated mining turnaround seems to be a far-fetched idea.
Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He is also currently the Chair of the Professional Regulatory Board of Geology. He may be contacted at fspenarroyo@penpalaw.com for any matters or inquiries in relation to the Philippine resources industry and suggested topics for commentaries. Atty. Penarroyo’s commentaries are also archived at his professional blogsite at www.penarroyo.com
References
Al Jazeera, China Beating West in Race for Critical Technologies, Report Says, 03 Mar 2023, https://www.aljazeera.com/economy/2023/3/3/china-beating-west-in-race-for-critical-technologies-report-says
Ho, Joseph, Philippines Wants to Leverage on its Critical Minerals, Argus, 05 May 2023, https://www.argusmedia.com/en/news/2446301-philippines-wants-to-leverage-on-its-critical-minerals
Investing in the Special Friendship and Alliance Between the United States and the Philippines, 01 May 2023, https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/01/fact-sheet-investing-in-the-special-friendship-and-alliance-between-the-united-states-and-the-philippines/
Lu, Christina, The Critical Minerals Club, 14 April 2023 https://foreignpolicy.com/2023/04/14/us-china-critical-mineral-security-europe-rare-earth-energy-transition/
Santos, Jel, DENR Taps Private Auditing Firm to Review Processes of 2 Bureaus, Manila Bulletin, 09 June 2023, https://mb.com.ph/2023/6/9/denr-taps-private-auditing-firm-to-review-processes-of-2-bureaus
Strydom, Betsie, Fiscal Stability Agreements Offer Protection Against Increases in Mining Royalties, https://bowmanslaw.com/article-documents/Fiscalstabilityagreementsofferprotectionagainstincreasesinminingroyalties.pdf
