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Fernando Penarroyo - March 10, 2022
Mining Trends 2022: Will the Outlook Remain Positive?
Last year saw miners experiencing record profitability and revenue. While the industry continues to benefit from relative high metal prices and opportunities from the clean energy transition and digital transformation, there are identified risks arising from COVID-19's resurgence and disruptions, potential for weaker-than-expected global economic growth, government intervention, and community opposition. Meanwhile compliance with environment, social and governance (“ESG”) standards will obligate mining companies to protect the environment, contribute to community development, and behave ethically. On the local front, Department of Environment and Natural Resources (“DENR”) Secretary Roy Cimatu lifted the four year-old ban on the open-pit method of mining for copper, gold, silver, and complex ores. Enforced in 2017, the ban was one of the high-impact measures taken by the late DENR Secretary Regina Lopez. The former DENR secretary also ordered the closure of 26 mines. However, with the completion of the Mining Industry Coordinating Council audit which started in 2019, only 3 out of the 26 mines were deemed unsafe and the other closures were reversed. The Chamber of Mines of the Philippines deplored the lost opportunities in the mining sector in the last decade. The chamber believed that the industry has been unjustly scrutinized and subjected to unfair publicity, which cost billions in lost revenue. Foreign direct investment (“FDI”) will remain stagnant for the industry unless regulations are eased and barriers are lowered. The ban also delayed FDIs in open pit mining projects like Sagittarius Mines Inc.’s $5.9-billion Tampakan copper project in South Cotabato and St. Augustine Gold and Copper Ltd.’s $2-billion King-king copper-gold project in Compostela Valley. The lifting of the ban according to the DENR order, is meant to “revitalize the mining industry and usher in significant economic benefits to the country by providing raw materials for the construction and development of other industries and by increasing employment opportunities in rural areas.” With the lifting of the ban, the Department of Finance said the mining industry can become a key contributor to the nation’s economic recovery per DENR’s projection that open-pit mining will lead to the immediate development of 11 pending projects. These projects are expected to generate about PHP11 billion combined in yearly government revenue, increase annual exports by PHP36 billion, and provide employment to 22,880 people living in remote municipalities. Economists see the Philippine economy’s continuing rebound this year after registering a 5.6 percent GDP growth in 2021. However, the outlook is threatened by the emergence of new COVID-19 variants and how the government handles them. Based on the World Bank’s Global Economic Prospects, despite the spike in infections from the omicron variant, the Philippines is poised to register the fastest growth in ASEAN this year and the second highest growth in 2023. According to the World Bank, the projected economic growth rate of 5.9 percent for 2022 will be the fastest growth expected in ASEAN, while the 5.7 percent expected next year will be second only to Vietnam’s 6.5 percent. ESG will dictate investments in mining Miners are under increasing pressure to integrate ESG into corporate strategies, investment decisions, and stakeholder reporting. Demands from shareholders, financial institutions, local communities, national governments, customers, and the sector’s own workforce are requiring miners to adhere to ESG standards. Sustainability in mining means minimizing the consumption of resources, reducing the use of energy through new technologies, and the use of alternative energies. Mining operations must utilize cost-effective and environmentally sound extraction alternatives, and efficient biodiversity and water management. Green transition leads to a low-carbon economy The green transition will accelerate amidst global pressures to reduce carbon footprints. At the latest UN Climate Change Conference (COP26) summit, many mining countries pledged to bring down their methane emissions. The rise in sustainable finance and tighter ESG criteria set by financial institutions on mining projects have led to an upcoming rise in GHG emission costs due to carbon pricing. Reducing emissions will require companies to invest in renewables to energize operations and advanced technologies in their decarbonization efforts. Renewable energy technologies, green buildings, electric vehicles, solar panels, wind turbines and battery storage will rely to a great extent on minerals and metals. Project developers and governments are moving away from investments in thermal coal. Major mining companies, driven by ESG targets, will remove thermal coal projects from their portfolios and coal mining will be dominated by small-cap, pure-play and state-owned mining companies. Coal projects will be mostly self-funded, private equity-funded or state-funded as international banks reduce their financing of coal assets. Miners will have to contend with license to operate (LTO) Miners are under intense scrutiny on how they contribute to the social and economic well-being of local and national governments, engage with host communities and indigenous peoples, and protect water resources and heritage sites. Needless to say, LTO is also linked to a company’s ability to access capital and financing. While metals are a critical input for green transition technology, the mining sector’s social license to operate is contending against the rising public opposition to mines arising from environmental pollution and loss of diversity. The difficulty in acquiring LTO could lead to a slow-down in new project development. New COVID-19 variants will be a game changer Hopefully, COVID-19-linked operational disruption will ease with increased vaccinations. However, new wave of restrictions with the omicron variant or subsequent waves will be a challenging environment for mining operations in 2022 and will cause a setback in economic recovery. Lockdowns not only hamper mine site operations but also slow down the movement of products and services in the supply chain, and affect consumption of goods. The COVID-19 pandemic resulted in the increase of costs of inputs, shipping, talent and decarbonization programs. COVID-19 has challenged the deployment of investments in 2020 and to some extent in 2021. Hopefully with the roll out of vaccines especially in emerging economies, COVID-19-related operational disruptions will most likely ease in 2022, helping exploration, construction and mine works to pick up. Mineral demand will continue to grow but metal prices to weaken Global demand for minerals and metals especially arising from the green transition, will continue to grow despite slowing growth in 2022. The outlook for auto manufacturing, machinery, appliances, and consumer electronics sectors is positive. Households with huge savings realized during the pandemic are eager to go into revenge spending. All eyes will be on China’s property development sector woes which will put a cap on overall metal demand in 2022. Evergrande’s financial difficulties and a general slowdown in Chinese construction activity will put pressure on ferrous metal prices. Meanwhile, investments in infrastructure is expected to remain relatively stable. Fitch Solutions forecast that most metal prices to average lower in 2022 but will remain high compared with 2016-2020 averages. Looking at 2022, slowing economic growth, slow normalization in fiscal and monetary policy, and China's property sector woes will push metal prices lower in 2022. However, prices will still average at elevated levels, higher than pre-COVID-19 levels as the market balance for most metals remain extremely tight and stocks are historically low. Existing deposits that are known or held by the majors are being depleted and new ones will be required. Investments in mines and oilfields have dropped sharply over the past five years. The result is “greenflation” in commodity prices, which have had their biggest yearly increase since 1973. Access to Capital will be a challenge amidst upward trend in global exploration budget Access to capital for new projects or expansions will continue to be a challenge for the industry, as investors are deterred by risks associated with ESG, LTO, resource nationalism and geopolitics. Higher ESG ratings can enable access to a larger pool of attractively priced capital. Still, elevated metal prices coupled with an increase in production across commodities in 2022 will help mining and metal companies' financial performance to remain strong next year amidst the acceleration of the green transition and opening up of new business opportunities. However, strict ESG requirements will make development of new projects potentially more difficult. Meanwhile, a report by S&P Global Market Intelligence notes that the aggregate annual global exploration budget is expected to increase between 5% and 15% year over year for 2022. According to S&P, a faster-than-expected recovery in market conditions and easing of lockdowns allowed explorers to reactivate programs by mid-2020, which caused some campaigns to carry over into 2021. Government intervention intensifies In 2022 Because of the economic and fiscal hardships, and rising social inequality during the pandemic while mining companies are benefitting from elevated metal prices, government intervention in the sector will remain firmly in play in 2022 posing additional risks to mining projects. Companies will be subjected to resource nationalism in the form of increased taxes and royalties, policies to boost domestic beneficiation, and the renegotiation of contracts to get better terms for the governments. Governments are also developing investment plans to boost their own production or secure minerals that will be key to the green and digital transitions. Thus, miners will also need to contend with trade wars, geopolitics of the COVID-19 pandemic, and changing governments or policies aimed at protecting strategic resources and increasing “self-sufficiency” in critical products like fossil fuels and rare earths. Automation, digitalization, and electrification to address productivity, safety, and ESG priorities The mine of the future will be less visible and smaller, use less water and energy, less polluting, more productive, and extract minerals more efficiently due to the application of new technologies. Incorporation of new technologies in mining is critical for companies to modernize their operations and meet increasingly stringent environmental and sustainability goals, while remaining competitive and relevant. The automation, digitalization and electrification of mining operations has the potential to increase mine productivity, daily operational capacity, sustainable use of non-renewable resources, operational safety, and productive lifespans of mines. The transition to off-grid mining and battery storage, together with the use of renewable energy to power operations are expected to bring advantages not only in terms of CO2 emissions reduction, but also in terms of helping industry-related companies manage costs. Electrification of mines have the potential to incur lower expenses due to minimal maintenance requirements leading to a reduction of operational downtime. Operational downtime is common among diesel-powered machinery due to the extensive maintenance required for their internal mechanisms that are prone to breakdown. While automation and electrification will result in a decrease of operational input costs, digitization produces predictable data. Data management also converts data into decision-making information. Digital innovation also allows diversification into greener products and improve transparency of reporting. These innovations include artificial intelligence, big data and satellite imagery. However, digitalization also exposes companies to cyber threats and hacking. Technical advances have also been made in waterless processing and waste disposal, and biogenic processes. Technological change in mining will require a workforce with new skills in roles that would be familiar with new technology. There will be a shift in the skills profile for future workers who will need to manage and engage the electric and digital transformation in the industry. A reevaluation of current skills sets will need to be considered as the future mining workforce is likely to change, which will be driven primarily by the adoption of new technologies. Opportune time for new business and operational models Miners now operate in a more volatile environment because of ESG and technology disruptions. They should adopt new business and operational models that will deliver greater returns directly to host communities and governments, minimize waste, reduce emissions, bring more value to investors, and gain low-risk access to capital. Mining and metal players need to accelerate their efforts to benefit from the new opportunities brought about by the green transition. These involve more exposure in energy transition materials and spinning off higher growth businesses linked to the green transition to unlock value. Miners also have opportunities to invest in product differentiation to benefit from green price premiums on lower-carbon products. Product differentiation based on green/ESG credentials and assorted price premiums will make some metals more of a specialized product sector and less of a bulk commodity material. Conclusion Disruptions open the industry to new risks and volatility. The local industry needs to adapt to these disruptions in light of the possibility of a more severe COVID variant and the political uncertainty in the conduct of the coming elections. The lifting of the open pit mining ban was a step in the right direction. However, the incoming government’s stand on mining will determine if the industry will be able to take advantage of the increasing global demand for minerals and metals or miss out on the boat again. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at email@example.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 Ferguson, Mark, The Big Picture: 2022 Metals and Mining Industry Outlook, S&P Global Market Intelligence, 02 November 2021, https://www.spglobal.com/marketintelligence/en/news-insights/blog/the-big-picture-2022-metals-and-mining-industry-outlook Ford, Alastair, The Mining Sector: 4 Key Trends for 2022, Proactive Investors, 27 December 2021, https://www.proactiveinvestors.co.uk/companies/news/968909/the-mining-sector-4-key-trends-for-2022-968909.html Goosen, Matthew, The Future of Mining Through Electrification, Digitalization and Automation, Energy Capital and Power, 08 September 2021, https://energycapitalpower.com/the-future-of-mining-through-electrification-digitalization-and-automation/ Mining: News on Mining & Construction Machines, https://www.bauma.de/en/trade-fair/trade-fair-profile/exhibition-sectors/mining/ Mining And Metals Key Themes For 2022, Fitch Solutions, 06 October 2021, https://www.fitchsolutions.com/mining/mining-and-metals-key-themes-2022-06-10-2021 Mitchell, Paul, Top 10 Business Risks and Opportunities for Mining and Metals in 2022, Ersnt and Young, 07 October 2021, https://www.ey.com/en_gl/mining-metals/top-10-business-risks-and-opportunities-for-mining-and-metals-in-2022 Ordinario, Cai, PHL Will Post Fastest Growth in Asean—WB, BusinessMirror, 12 January 2022, https://businessmirror.com.ph/2022/01/12/phl-will-post-fastest-growth-in-asean-wb/ Sharmka, Ruchir, Ten Economic Trends That Could Define 2022, Financial Review, 04 January 2022, https://www.afr.com/policy/economy/ten-economic-trends-that-could-define-2022-20220104-p59lpj Six Global Trends Shaping the Industry, https://www.futuremineralssummit.com/mining-trends/ Top Three Technology Trends Set to Disrupt Mining, Australian Mining, 02 December 2021, https://www.australianmining.com.au/news/top-three-technology-trends-set-to-disrupt-mining/ Upward Trend in Global Exploration Budget to Continue in 2022 – Report, MINING.COM Staff, 19 October 2021, https://www.canadianminingjournal.com/news/upward-trend-in-global-exploration-budget-to-continue-in-2022-report/ What’s In Store For The Mining Industry In 2022?, Ag Metal Miner, 20 December 2021, https://oilprice.com/Metals/Commodities/Whats-In-Store-For-The-Mining-Industry-In-2022.html
Patricia A. O. Bunye - November 23, 2021
What does ESG mean for the Mining Industry?
In recent years, ESG - environmental, social and governance – has become a major concern in corporate boardrooms: criteria by which strategy is developed and risks are assessed. While the term may be relatively new [having been coined as late as 2005 in a study of the International Finance Corporation (IFC) entitled “Who Cares Wins”], it has always been top of mind in the mining industry even if it has not always used the same terminology. Responsible mining companies have always been concerned about sustainability, care of the environment and working with their host communities towards achieving these goals. ESG now brings together these in a comprehensive framework that can help a mining company navigate and balance the benefits to the planet, people and profit successfully. ESG is now front and center in the discussion of many boards, even those whose businesses do not generally deal with the environment, as investors are increasingly paying attention to environmental, social and governance-related matters and data. As Forbes Magazine notes, “many investors recognize that ESG information about corporations is vital to understand corporate purpose, strategy and management quality of companies.” Increasingly, transactions are done with an eye on ESG issues. A company’s track record on ESG would certainly influence how it is able to raise funds and attract investments. In this regard, in their quest to improve diversity and broaden their representation, many boards are electing directors whose expertise and experience encompass ESG. Of course, not all boards have embraced the importance of the ESG framework in their decision-making. In a study conducted by the Harvard Business Review, they classified board attitudes towards ESG into four: “The Deniers”, “The Hardheaded”, “The Superficial”, “The Complacent” and “The True Believers”. “The Deniers” are those who see sustainability as nothing more than a buzzword or a fad, i.e., sustainability is (at most) a page in the annual report. For “The Hardheaded”, sustainability is a factor affecting their business, but reduce it to strategic reasoning (e.g. how can costs be minimized? are there market opportunities?). “The Superficial” have a shallow understanding of the need for sustainability, including those who implicitly promote greenwashing. “The Complacent” may be early adopters of initiatives like CSR reports, green product lines, or responsible supply chains, but have not kept up-to-date with the latest developments in sustainability, or use past sustainability triumphs to shut down the conversation about sustainability. Hopefully, responsible mining companies fall into the category of “The True Believers”, for whom the long-term economic viability of their organization is closely linked to, and dependent on, social and environmental responsibility. True believers undertake careful analysis of business benefits and disadvantages with a long-term approach to governance. With this backdrop, a mining company’s ESG agenda would now include, among many others: Environment: biodiversity, ecosystem services, water management, mine waste/tailings, air, noise, energy, climate change (carbon footprint, greenhouse gas), hazardous substances, mine closure Social: human rights, land use, resettlement, indigenous people, gender/diversity, labor practices, worker/community health & safety, security, small-scale miners Governance: legal & regulatory compliance, ethics, anti-bribery and corruption, transparency. [Incidentally, at his presentation at the Philippine Mining Club on November 12, Mines & Geosciences Bureau Director Wilfredo G. Moncano announced a forthcoming Department Administrative Order on enhancing biodiversity.] Many mining companies are already taking steps to assess and improve their ESG performance. Certainly, for companies in the Philippines, there is a long list of laws and regulations to be complied with that would tick all the ESG boxes. However, experts says that the real benefits come when companies move beyond mere compliance and into maximizing the opportunities arising from ESG. Mining companies also are being encouraged to improve their ESG records by aligning with internationally recognized frameworks (and seeking certification from the relevant body, if applicable): UN Guiding Principles on Business and Human Rights UN Guiding Principles Reporting Framework International Council on Mining and Metals’ 10 Sustainable Development Principles Towards Sustainable Mining (championed by the Chamber of Mines of the Philippines) Responsible Gold Mining Principles It is worth noting that in EY’s list of Top 10 Business Risks and Opportunities for mining and metals in 2022, ESG emerged as number one. More than 200 global mining executives were surveyed and named ESG, decarbonization and license to operate as the top three risks/opportunities facing their businesses over the next 12 months. With ESG at the top of the global business agenda and the intense scrutiny faced by the mining industry in particular, the challenges never cease for mining companies.
Fernando Penarroyo - November 23, 2021
Investing in ESG is Good Business for Mining
New mining projects faces relative difficulty in attracting investments because of opposition by host communities and local governments brought about by potential mine accidents, transparency issues, and operations infringing on ancestral and agricultural lands. Regulators often impose huge taxes and environmental users’ fees on new projects, in addition to stiff penalties on erring mining companies involved in violation of safety and environmental laws and regulations. The industry is currently benefitting from the global objective of lowering carbon emissions to keep the rise in mean temperatures to below 2°C above pre-industrial levels in accordance with the 2015 Paris Agreement and 17 Sustainable Development Goals, which requires the deployment of renewable energy and efficient battery storage. The unprecedented demand for green metals like copper, nickel, lithium, and cobalt needed for energy transition and digital transformation has also paved the way for sustainable investments in mineral projects. To address these developments, mining companies are now including environmental, social and governance (ESG) and sustainability issues as part of their strategy to improve the reputation of the industry, acquire the consent of stakeholders to operate, and at the same time realize profits from their operations. According to the Ernst and Young 2022 Report on the Top 10 Business Risks and Opportunities for Mining and Metals, ESG tops the list of risks/opportunities facing mining companies over the next 12 months. The study indicates that shareholder expectations are impacted by numerous challenges, including the mining industry’s contribution to communities, economies, protection of heritage sites, and engagement with indigenous communities. Shareholders are also concerned with the industry’s role in prioritizing ethical supply chains, with diversity and inclusion also in the spotlight. Lenders and investors are also focusing on mining projects especially those that are vital to the energy transition but these projects need to have a good ESG strategy to become bankable. The formalization of the requirement for ESG criteria to be incorporated into the financial evaluations of companies started in August 2005 in a conference hosted by The United Nations Global Compact in Switzerland. The financial industry’s recommendations were compiled into a report entitled "Who Cares Wins.” The report came out with a conclusion that the "endorsing institutions are convinced that a better consideration of environmental, social and governance factors will ultimately contribute to stronger and more resilient investment markets, as well as contribute to the sustainable development of societies.” In the report, the financial industry called on all sectors of society and business to integrate ESG into their core activities, and investors should "reward well-managed companies" that embrace ESG. In 2006, a group of large institutional investors under the auspices of the United Nations, collaborated on a process to develop what has become the Principles for Responsible Investment (PRI). Developed "by investors, for investors," the six PRIs aim to contribute to a more sustainable global financial system and in the long term, the interests of the environment and society as a whole. Signatories to the PRI have grown to over 3,000 since its launching. The World Economic Forum (WEF) also published the Davos Manifesto, which set out a common code of ethics for business leaders. The manifesto was updated at the WEF's Annual Meeting in 2020, which built on the concept of 'stakeholder capitalism' first introduced in the initial manifesto. Stakeholder capitalism recognizes that long-term business value is only created when the interests of all stakeholders -- employees, shareholders, governments, the environment, and society as a whole, are served simultaneously. What is ESG? ESG is a set of standards or criteria for a company’s operations that investors now use to screen potential investments. While ESG is spoken about as a single concept, it is an amalgamation of three distinct but clearly overlapping disciplines -- environmental, social, and governance, each with their own knowledge base, areas of focus, and methodologies for approaching problems and solutions. Environmental criteria consider how a company performs as a steward of nature. The criteria can also be used in evaluating any environmental risks a company might face and how the company is managing those risks. They include a company’s energy use, waste, pollution, hazardous substances, mine waste/tailings, mine closure, natural resource conservation, treatment of animals, biodiversity, ecosystem services, water management, climate change, carbon footprint, and greenhouse gas emission. Social criteria, on the other hand, examine how a company manages business relationships with employees, suppliers, and customers. Social criteria also look at how the company deals with the communities where it operates and include human rights, land use, resettlement, vulnerable people, gender, diversity, labor practices, worker/community health and safety, security, artisanal miners, and mine closure/after use. Lastly, governance criteria deal with a company’s leadership, executive pay, audits, accounting systems, internal controls, and shareholder rights. It also includes legal compliance, ethics, anti-bribery and corruption, anti-money laundering, transparency, corporate governance, ethics, compliance, diversity, lobbying, and approach to taxation. Governance also covers how stockholders are allowed to vote on important issues. Investors want assurances that companies avoid conflicts of interest in their choice of board members and don't use political contributions to obtain unduly favorable treatment. ESG investing is also referred to as sustainable (or responsible) investing, impact investing, or socially responsible investing. Sustainable investing incorporates ESG criteria in the investment decisions of investors in companies, organizations, or funds. These decisions are based on the investor’s real or perceived understanding of the environmental and/or social impacts that will result from their investments in parallel with the expected financial returns. The purpose of directing funds towards investments that are seen as sustainable is to generate measurable environmental and social impacts in addition to financial returns. Governments and regulators are obviously supportive of ESG criteria. It is for this reason that ESG investing was identified as an investment megatrend. The Covid-19 pandemic also proved to be a positive catalyst for many investment managers to place their money in the accelerating global trend in sustainable investment. This emerging, new normal investment strategy is gaining momentum and the use of ESG criteria is set to be the standard in sustainable investments. Aside from proposing new standards and frameworks against which investments should be measured using ESG criteria, institutional investors and fund managers have also created investment products that enable investors to put their money into products that meet their ESG performance requirements. ESG-based investments can offer quick returns. Investors, notably millennials who are the major beneficiaries of the largest intergenerational transfer of an estimated wealth of $30 trillion, have shown interests in putting their money in EGS. ESG in Mining Mining has never been regarded as a “green” or sustainable investment, and this stigma has been the main reason for the difficulty in financing large-scale operations. Investor appetite has gone beyond balance sheets and now dwells in the realm of addressing the urgent need to preserve resources for future use of the coming generations. To responsible investors, mining may not be on the top of the list when considering an investment based on their ESG criteria. Recently, ESG has provided the opportunity for the industry to address the sustainability challenges by laying down a comprehensive framework that stakeholders can use as metrics when considering their involvement in a mining project. Before risking capital in a project, investors are now looking to consider the ethics, competitive advantage and culture of a mining organization to determine how the company can balance profits and the benefits to the environment. Mining finance transactions have evolved in recent years to integrate ESG and sustainability considerations. Now, investors, lenders and other stakeholders in the financial industry look into the ESG credentials of mining companies and very few transactions are done without conducting a due diligence of of ESG issues. Failure to address these issues will ultimately reduce access to funding while good ESG equates to more and cheaper funding. Mining investors, shareholders, as well as financiers across the spectrum —export credit agencies, development finance institutions and commercial lenders — are making sure that borrowers have the appropriate ESG strategy in place for full implementation. Investors are no longer passive in their sustainability due diligence of mining projects and exerting efforts to obtain more information from other available sources in addition to mandatory disclosures made under existing regulations and codes. Aside from traditional environmental and social reporting covenants, enhanced ESG and sustainability reporting are becoming standard provisions in loan documentation. Some investors and lenders are requiring that borrowers comply with the lenders’ own internal ESG policy and sustainability reporting requirements. Some mining finance transactions may also require the appointment of a lender to take on an ESG or sustainability coordinator role for the project. One particular organization, the World Gold Council, is lobbying for insurance providers to become more involved in the ESG movement by requiring mining companies to uphold ESG principles in order to be eligible for insurance policies. In some large mining initial public offerings, investor roadshows have become venues for investors to grill companies of their ESG initiatives in relation to relevant laws and internal reporting. On the demand side, cautious buying of mineral commodities is now a reality, as socially-responsible customers want to be kept informed about ESG issues of the supplier. End-users not only look into to the ethical production of minerals but also to the supply chain as well. Stakeholders like government and financial regulators, ESG rating agencies, civil society and advocacy groups, employees, and host communities are increasingly demanding transparency and performance on ESG issues more than ever. ESG factors have also led to a rise in shareholder activism, where existing investors use their shareholding to influence the mining company’s ESG performance. Non-compliance with ESG regulations and best practices will result in activist shareholder protests and class action suits against the parent companies of global mining groups particularly those operating in developing countries where environmental laws and governance rules are not properly implemented. ESG Strategy, Mineral Reporting Standards, and Sustainability Reporting Frameworks As pressure mounts from capital markets and the public, investments with a well-defined ESG strategy are outperforming their peers in the market and experiencing lower levels of volatility. According to a review of companies listed in the S&P 500 undertaken in 2019 by NASDAQ, companies that received high sustainability ratings "exhibited both higher returns and less risk.” On the other hand, companies with poor ESG ratings "showed the opposite results.” It is thus imperative if not good business practice for mining companies to engage in the preparation and implementation of a clear ESG strategy that will help address investor concerns and promote additional investments. The strategy containing the company’s corporate values and ESG priorities must fully explain how the company complies with both mandatory and voluntary obligations set out in the ESG company policy. The ESG strategy must also outline the company’s management plans and how it will assist in meeting its key performance indicators in relation to its sustainability goals. Lenders are also prescribing ESG principles to companies for them to receive green loans and sustainability-linked investment facilities, and incentivize the borrower to meet predetermined sustainability targets. Examples of predetermined sustainability targets for mining companies are increased energy efficiency and improved working or social conditions. Foremost among the inevitable risks that come with poor ESG management record is the loss of the social license to operate. Dissatisfied government and host communities will post obstacles to mine start or expansion by imposing onerous taxation regimes and regulatory obstacles to erring companies. Examples of ESG management failure range from repeated environmental violations to outright mining disasters resulting from failed tailings disposal systems and environmental pollution. Violation of land access agreements with local governments, landowners, indigenous peoples, and artisanal miners often lead to cancellation of consents and expose the mining companies to additional civil and criminal liability. Human rights violations, militarization, and poor workplace health and safety conditions will lead to disruption to operations brought about by labor unrest and even heightened insurgency in the mine area. Wasteful utilization of water and energy resources will not only diminish the company’s bottom line but will cause civil unrest in the communities because wastage will disrupt their livelihood. On the other hand, a well-managed and transparent ESG compliance system will bolster strong relationship with the stakeholders, easy access to financing, good customer relationship, and better management of scarce resources and raw materials, which will enhance the profitability of the mine operations. Good labor, health, and safety practices and human resources development also minimize employment turnover and enhance company loyalty. There are so many benefits and opportunities for companies with a strong ESG track record that in the long term will enable the company to operate in other mineralized sites because of good social and political risk management. Even in national mineral reporting codes that set the minimum public reporting standards of exploration results, mineral resources, and mineral reserves, the inclusion of ESG reporting has been gaining traction. Investors rely on these reporting codes before they proceed with their investment decisions. Prepared for the purpose of informing potential investors and their advisors on the mineral assets of a reporting company, these reporting codes are now including ESG issues as important contributors to modifying factors which can influence the commercial declaration of mineral reserves. ESG criteria play an important role in determining whether the mineral resources can be capable of being extracted economically. The investors are looking for evidence of how companies integrate ESG considerations into their businesses and this evidence needs to impact all aspects of the business, including geological processes and mining activities. Sustainability reporting is largely undertaken voluntarily by companies, regardless of their listing status on a stock exchange. Investors obtain ESG information about companies directly through engagement with companies or via information generated by ESG ratings agencies. The increasing influence of these rating agencies has resulted in ESG becoming a key factor in raising funds from capital markets. Rating agencies base their ratings from aggregated information directly obtained from the mining companies and rely solely on their review of publicly available information. However, there remain some questions on the ratings given by these agencies because of transparency issues on what they do with the information obtained and how they generate the ratings. In response to the growing desire to report on their ESG performance, companies have developed a number of reporting frameworks, the objective of which is to provide guidance and metrics to companies who wish to disclose their sustainability performance. Some of the more commonly used frameworks include the Global Reporting Initiative, Sustainability Accounting Standards Board, Carbon Disclosures Project, and Task Force on Climate-related Financial Disclosures. Critics of sustainability reporting suggest that these reports have done little to improve the actual management of sustainability issues and instead are utilizing company resources that could be better spent managing sustainability issues on the ground. Gaps also remain between society's expectations of mining companies and their performance in respect of ESG issues. Companies need to be realistic about what they can deliver and build an ESG strategy that can manage stakeholders’ expectation. There is also a call by industry and investors to standardize sustainability reporting metrics. Conclusion To achieve a sustainable future, the global economy will rely to a great extent on resources and raw materials to be provided by the mining industry. To achieve this, companies need to take into account ESG and sustainability practices to attract risk capital and make mining projects bankable. The industry needs to apply ESG criteria from project inception to mine decommissioning, and throughout the supply chain to make its operations efficient, cleaner, and socially responsible. To preserve their license to operate and achieve sustainability, mining companies must also ensure that they have an ESG strategy in place to adhere to relevant laws, comply with regulatory codes, and satisfy all stakeholders. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at firstname.lastname@example.org 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 Environmental, Social, and Governance (ESG) Criteria, 05 March 2021, https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp ESG Investing Will Speed-up the Energy Transition, 27 July 2021, https://foresightdk.com/esg-investing-will-speed-up-the-energy-transition/ Holman, Chris, ESG Investments in Mining, Azure Capital, 11 March 2021, https://apac.cib.natixis.com/m-a-pulse-in-apac-articles/focus-on/articles/esg-investments-in-mining Introduction to Environmental, Social and Governance (ESG) Considerations for the Mining Sector: Reporting Obligations and Investor Expectations, Baker Mckenzie, Sankaran, Aparna, ESG with a Heightened Focus on Environment and Social Issues, Emerges as the Top Risk/Opportunity for the Mining Sector, https://www.ey.com/en_gl/news/2021/10/esg-with-a-heightened-focus-on-environment-and-social-issues-emerges-as-the-top-risk-opportunity-for-the-mining-sector Steele-Schober, Teresa, The Importance of ESG for Mineral Reporting, http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2225-62532021000600003 Taking ESG Seriously: The Crucial Role of Mining investors in the Energy Transition, White and Case, https://www.jdsupra.com/legalnews/taking-esg-seriously-the-crucial-role-2066231/ Walker, David, ESG Insights: What does ESG mean for the Mining industry? https://www.slrconsulting.com/news-and-insights/insights/esg-insights-what-does-esg-mean-mining-industry
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Marcelle P. Villegas - September 01, 2021
When a volcano in Guatemala becomes a pizza kitchen
Pacaya volcano is one of the most active volcanoes in Guatemala and in Central America. It is 2,500 meters high and located 30 kilometers south of Guatemala City and close to Antigua. It was dormant for more than 70 years but started erupting again in 1961, and has been erupting often ever since. In March 2021, it had two strong explosions. After four months of being calm, it showed some activity again last August 5; however, it was a low-level activity. David Garcia, a 34-year-old accountant, saw the fiery mountainside as an opportunity to make “Pacaya Pizza”. While lava was oozing down the volcano, the glowing volcanic rocks fascinated tourists and locals. Cooking pizza using volcanic rocks is a practice that Garcia first tried in 2013. This year when Pacaya was regularly erupting, he cooked pizza directly on the moving lava flows.
Patricia A. O. Bunye - August 31, 2021
Lifting the open-pit ban and using 'AI' in mining
In my previous column, I had mentioned that, in the Stakeholders’ Forum on Recent Policy Issuances Relating to Mining conducted by the Mines and Geosciences Bureau (MGB) last June, hopes were raised that the ban on open pit mining would finally be lifted. In response to a question in the open forum, MGB Director Wilfredo Moncano stated that the repealing clause of the draft Implementing Rules and Regulations (IRR) of Executive Order No. 130 (EO 130) would refer to Department Administrative Order 2017-10 (DAO 2017-10) on the ban on open pit mining. Thus, while EO 130 itself does not explicitly refer to the lifting of the ban on open pit mining, the intent was to lift it since, in the proposed IRR, Section 11 referred to the repeal of the said DAO. Administrative Order No. 2021-25, or the IRR of EO 130, which was published on 08 August 2021, and which will take effect 15 days therefrom and registration with the Office of the National Administrative Register, did not repeal DAO 2017-10 or mention open pit mining at all, dashing any expectation that the ban will be lifted during this administration, notwithstanding the professed objectives of, among others: promoting direct investment for significant economic benefits of the country; ensuring adequate raw materials to support the various government projects, such as the Build, Build, Build Program and the mineral and allied industries; and promoting the development and increasing of employment opportunities in remote rural areas where there are mining activities in support to the Balik Probinsya, Bagong Pag-asa Program the government. All of these laudable objectives would be met if only the long-stalled priority open pit mining projects were allowed to proceed to operate. On the positive side, with respect to the grant of new mineral agreements, upon effectivity of the IRR, all qualified applicants for a Mineral Agreement may now file their applications pursuant to Department Administrative Order No. 2010-21 and Republic Act No. 11032 (the Anti-Red Tape Act). Further, the permittee of an existing Exploration Permit with an approved Declaration of Mining Project Feasibility (DMPF) may apply for a Mineral Agreement and submit to the MGB Regional Office concerned within 90 days the mandatory requirements outlined in the IRR. If complete, the MGB Central Office, 15 days from receipt of the Mineral Agreement application, shall review and shall endorse the same, to the DENR Secretary, for approval and issuance of the Mineral Agreement. It must be noted that new Mineral Agreements shall include a stipulation that they shall adhere to the existing revenue sharing scheme and to any future legislation pertaining to revenue sharing, taxes, fees, royalties, and charges. Previously, I also touched on how artifical intelligence (AI), which is defined as the ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings, such as learning from past experience, is creeping into many aspects of how we do our work. Repetitive tasks, or those which may be done more efficiently are seen as better done by AI. The mining industry, where efficiency and productivity are paramount, has made profitable use of AI throughout the world. In Bagdad, Arizona, for example, data scientists, metallurgists, and engineers from Freeport-McMoRan created a custom AI model at a copper-ore concentrating mill in 2018 which was loaded with three years’ worth of operating data. It was programmed to look for operational tweaks to boost output. Thirteen monitors were placed in the control room to show readings from hundreds of performance sensors located around the mill. Over time, the collected data were used to maximize copper production at a reasonable cost, with little new capital investment. The team created, tested, and refined algorithms that would look into the data and recommend settings to maximize the copper output. Their prediction model, called “TROI”, became so agile, that it was capable of issuing recommendations every 12 hours. Though not initially reliable, “TROI” was continuously improved by the team such that its recommendations became more plausible, to the point that 80% of its recommendations were accepted by the company’s metallurgists. The mill’s production substantially increased in just four quarters with its throughput exceeding 85,000 tons of ore per day, while its copper-recovery rate rose by 10% and its operations became more stable. In Canada, the government utilizes AI to promote clean, sustainable growth of its mining sector competitiveness by reducing costs and increasing productivity through automation. It recognizes that innovation may lead to increased efficiency and productivity, reduced costs, and improved environmental performance. The Canadian government is now using machine learning to develop better models for the prediction of rock type and economical mineral deposit locations for extraction purposes without engaging in time and resource-intensive approaches. It also uses AI to map Canada’s water and infrastructure, and to improve its ability to create geospatial data layers which can be used for emergency management, flood mapping, and change detection. In the Philippines, despite rapid technological developments, there are currently no government issuances governing the use of AI-related technologies in the mining industry. Nevertheless, the DENR appears to recognize the impact that AI can make in preserving and protecting natural resources as it recently partnered with SMART and PLDT to protect peatlands in the Philippines using AI solutions. Outside the mining industry, other government agencies, notably the Department of Trade and Industry considers AI as a “nation defining capability” as it created an AI Roadmap to provide an actionable guide on how to “harness AI’s potential to uplift Filipinos, our local industries, and our economy.” It is geared towards preparing the nation to maximize the benefits of employing AI technologies. The Philippines is supposedly among the first 50 countries in the world to have a national strategy and policy on AI. Such a policy is touted to increase the Philippines’ gross domestic product by 12% by 2030 as the roadmap can establish the Philippines as an “AI Center for Excellence in the region” and be a “hub for data processing” which can provide high-value data analytics and AI services to the world. The trouble with such projections and roadmaps is that, unless they are acted upon, and until we stop shooting ourselves in the foot, they remain aspirational. We have roadmaps for practically every industry, yet we have spent decades going around in circles instead. Back in 2004, a Mineral Action Plan for the revitalization of the mining industry had already been put in place to implement Executive Order 270 (The National Policy Agenda on Revitalizing Mining in the Philippines). The DENR was to be the lead agency in crafting and implementing a strategic plan, in consultation with the other concerned agencies, such as, but not limited to, the Department of Trade and Industry, the Department of the Interior and Local Government, the Department of Finance, the National Economic Development Authority, the National Anti-Poverty Commission, the National Commission on Indigenous Peoples, the mining industry and civil society. Despite the fantastic roadmap laid out, and three administrations later, we all sadly know what followed next: the saga of Executive Order 49 and all the other monkey wrenches thrown in, which prevented the approval of new mining agreements and projects from proceeding for many years. While this may be oversimplifying all the myriad challenges the mining industry has faced, instead of trying to find new solutions to age-old problems, it may be worth taking a second look at prescriptions that may have been there all along. Unfortunately, rare is the administration that considers and implements the plans and strategies of the previous ones, no matter how well thought out, for the simple reason that it is ‘contra-partido’ or someone else’s idea, which is why our country has not fared as well as others in the execution of long-term strategic plans. The issuance of Administrative Order No. 2021-25 is undoubtedly a welcome development, but the road (though paved with good intentions) is still littered with obstacles, many of our own making. As we soldier on, I cannot help but wonder whether it is AI that can help humans truly learn from past experiences by warning us against committing the same mistakes and allowing us to make better decisions, or humans should finally just face up to the consequences of our folly.
Fernando Penarroyo - August 31, 2021
A Shot in the Arm for Philippine Mining
During the early stages of the pandemic, the performance of the mineral industry was seriously dictated by the slowdown of economic activities, lethargic world metal prices, and limited and hampered mining operations. The mining index however, made a turnaround by the end of 2020 and has recovered by an astonishing US$636 billion thanks to a boom in spending brought about by the current green energy and digital transition, and unprecedented infrastructure-focused stimulus packages initiated by many governments to lift their economies. As the global economy slowly recovers, prices for energy and metals are helping big commodity producers and exporters. Big miners, awash with cash from record-high metals prices and forced to adapt operational efficiencies during the pandemic, are returning billions of dollars to shareholders through dividends and buybacks. Bullish investor sentiment has been a critical driver of surging metal prices as the rollout of Covid-19 vaccines sees major economies emerge from lockdown restrictions. Mining financing hit an eight-year high in 2020. Dawn of a Super-cycle? The rapid expansion of a global middle class continue to fuel the demand for coal, copper and iron ore. While the mining and refining sectors for ‘traditional’ base metals are well established, lithium and cobalt mining will develop quickly in the coming years. Copper, nickel, tin, aluminium and rare earths which, together with lithium and cobalt, are expected to see a demand boom amidst the battery revolution. In the case of copper, some major banks are already predicting a super-cycle, i.e., a sustained spell of abnormally strong demand growth that producers struggle to match, sparking a rally in prices that can last decades. Previous copper rallies reveal a pattern of broad-based growth, industrialization, and new technologies that can help drive demand and prices. As copper is set to play a key role in electricity infrastructure, electric vehicles (EV) including hybrids and renewables fuel additional demand. The copper price hit a record high in May 2021 ($10,476 a tonne) and trading house Trafigura Group, Goldman Sachs, and Bank of America expect the metal to extend its recent gains. Market watchers and analysts, however, have debated how long the boom will last. On the other hand, the EV Metal Index, which tracks the value of battery metals in newly registered passenger EVs around the world, came in at $477 million in April, an increase of 326% over the same month last year and bringing the year-to-date total to $2.03 billion. Lithium prices are averaging $10,800 so far in 2021 versus over $17,000 in 2018. Fitch Solutions Country Risk & Industry Research expects lithium consumption growth to outpace current supply developments. Demand is to be boosted by strong government support to promote EVs and large-scale energy storage systems. Low supply means that prices will remain high in the short term. Mining as a Contributor to a Battered Economy The Philippines is one of the countries that has a high vulnerability to Covid-19 as it continues to struggle to contain the Covid-19 pandemic and normalize economic activity. The economy contracted last year by 9.6% while GDP shrank by 3.9% in the first quarter this year. While the economy registered 11.8% growth in the second quarter, the country is currently battling the latest surge of Covid-19 cases under the more infectious Delta variant. With the reimposition of the enhanced community quarantine in the national capital region, renewed mobility restrictions, and higher petroleum prices, full economic recovery is expected to be delayed further. According to a report from the Asian Development Bank, public spending on infrastructure and social assistance, better progress in the country’s vaccination drive, and a steady recovery in the global economy will underpin the growth of the Philippine economy this year and the next. Despite the pandemic, the Mines and Geosciences Bureau (MGB) reported that the metallic mineral production value ended 2020 on a positive note with a 1.13% gain from ₱130.74 billion in 2019 to ₱132.21 billion, a ₱1.47 billion increase. The gains were driven mainly by nickel demand from China and high gold prices. The MGB further reported that: Mining industry contributed ₱102.3 billion to the GDP in 2020 comprising 0.76% and ₱25.52 billion from national and local taxes, fees and royalties; Mining and quarrying activities generated 184,000 jobs and around ₱25.71 billion was committed for Social Development and Management Program to host communities; Metallic mineral production was at ₱132.69 billion; and Total value of minerals, mineral products, and non-metallic mineral manufacture exported was at US$5.2 billion. The domestic nickel industry also benefitted as Indonesia, the world’s biggest nickel producer, continues to impose an export ban on the metal. The Philippines, the world’s number two producer, stepped in to fill the demand from China, exporting 333,962 tonnes in 2020. Government policy changes and upbeat commodity prices boosted mining and oil stocks in the Philippine Stock Exchange (PSE). The sector closed 17.5% higher by the end of 2020, making it one of the biggest gainers for the year. According to the Philippine Statistics Office (PSO), the government expects an increase in earnings from excise tax collections. The PSO attributes this to the Tax Reform for Acceleration of Inclusion (TRAIN) Act passed in 2017, which doubled excise taxes on minerals, mineral products and quarry resources from 2% to 4%. Meanwhile, the Department of Finance (DOF) is proposing further amendments to fiscal provisions in mining laws that will allow for the rationalization of existing revenue-and benefit-sharing schemes and incentives given to companies to ensure that the country benefits from mineral resources. Government’s New Policies Expected to Give Mining a Boost President Rodrigo Duterte’s earlier policies on mining have caused anxiety in the industry. At the start of his administration, the Department of Environment and Natural Resources (DENR) issued MO 2016-01 on 08 July 2016, mandating the audit of all operating mines and declaring a moratorium on new mining projects, covering the environmental, economic, social, legal, and technical aspects of the mining operations. In addition, DAO 2017-10, issued on 27 April 2017, banned the open pit mining method for gold, silver, copper, and complex ores describing open-pit mines as “perpetual liabilities, causing adverse impacts to the environment, particularly due to the generation of acidic and/or heavy metal-laden water, erosion of mine waste dumps and/or vulnerability of tailings dams to geological hazards.” What hit the industry real hard was when former DENR Secretary Regina Paz Lopez ordered the closure of twenty-eight (28) operating mines and the cancellation of seventy-five (75) Mineral Production Sharing Agreements (MPSA) as they allegedly encroached on watersheds and destroyed marine ecosystems. These development dampened investor interests in the local industry. Lately however, the Philippine government seemed to be considering the mining industry as part of its economic recovery plans in light of the havoc created by the pandemic. Various policies and administrative actions, notably the lifting of the moratorium on new mining agreements and the favorable resolution of an FTAA renewal, were implemented with the view of attracting more mining investments. Lifting the moratorium on new mining agreements The industry was given a boost when President Duterte issued Executive Order (EO) No. 130 on 14 April 2021, which lifted the nine-year moratorium on mineral agreements. EO 130 amended Section 4 of EO No. 79, series of 2012 that prohibits the grant of mineral agreements “until a new legislation rationalizing existing revenue sharing schemes and mechanisms shall have taken effect”. The MGB has noted an increase in mining applications, especially coming from inactive mining companies and exploration permittees that have scaled down their operations in the last few years. Three months after the issuance of EO 130, the MGB approved 26 out of 36 applications for new non-metallic mining operations. In April this year, 36 new metallic and non-metallic mines have been identified as priority in terms of the processing of applications. The MGB will also be prioritizing 65 applications that are likely to be granted with MPSAs. These mining applications were accepted and processed and the MPSAs will be issued once EO 130’s implementing rules and regulations (IRR) take effect. According to the DOF during the Philippine-Extractive Industries Transparency Initiative National Conference 2021, the lifting of the moratorium on new mining projects is expected to boost mineral production by around ₱15 billion every year until 2023, and an additional ₱43 billion annually until 2027. Potential new entrants will increase exports by $1 billion to $2 billion every year, as well as employ as many as 1.3 times more workers. The DOF is expected to collect an additional ₱34 billion in taxes and fees. In the same conference, Rep. Joey Salceda, Chair of the House Committee on Ways and Means, however, identified key deficiencies in the country’s extractive industry governance framework which could be resolved by a “coherent tax regime.” He noted that in EO 130, neither Congress nor the DOF is given a specific role in the taxation process. Salceda also observed that EO 130 delegated some powers that were not supported by law, including the power of the DENR to negotiate tax agreements with mining applicants. He recommended that the DOF, which has the experience in financial management, negotiate revenue sharing agreements on the government’s behalf. Resolution of OceanaGold FTAA Renewal Another recent bright spot for the industry was the much-awaited government’s renewal of the Financial or Technical Assistance Agreement ("FTAA") of OceanaGold Corporation’s Didipio operations. The FTAA was renewed for an additional 25-year period on substantially the same terms and conditions but included certain modifications: The equivalent of an additional 1.5% of gross revenue shall be allocated to community development in the form of increased contributions to communities in the region and provincial development projects in addition to the existing fund for Social Development and Management Program provided to the host and neighboring communities. One percent (1.0% ) will be allocated to community development for additional communities and half-percent (0.5%) to the host provinces of Nueva Vizcaya and Quirino; Net Smelter Return will be reclassified as an allowable deduction and shared 60%/40% rather than wholly included in government share; At least 10% of the common shares in OceanaGold Philippines Inc. ("OGPI"), the Company's Philippine operating subsidiary and holder of the FTAA, shall be listed at the Philippine Stock Exchange within the next three years; OGPI shall offer to the Banko Sentral ng Pilipinas for the latter to buy not less than 25% of OGPI’s annual gold doré production at fair market price and mutually agreed upon terms; and OGPI's principal office shall be transferred to the host province within the next two years from execution of the renewal agreement on 19 June 2019. OGPI plans a staged restart of operations with milling to recommence utilizing stockpiled ore approximately 19 million tonnes. It also aims to achieve full underground production capacity within twelve months. Once fully ramped-up, OGPI expects Didipio to produce approximately 10,000 gold ounces and 1,000 tonnes of copper per month. The resumption of Didipio’s mine operations will give direct employment to about 1,800 people and indirect employment for another 2,000 to 3,000 employees. Addressing the open pit mining ban The issuance of EO 130 sparked some hope in the industry that President Duterte will give the go-signal to the DENR to lift the ban on open-pit mining, which has been a contentious issue among miners, host communities, local government units, and environmental advocates. Among the salient features of the DENR-drafted EO 130 IRR was the provision lifting the ban on the open-pit mining method. Open pit mines are often used in mining near-surface metallic or non-metallic deposits and more sparingly in coal and other bedded deposits. Open pit mining is an internationally accepted method done in many countries and repeatedly proven to be safe for miners, the community and the environment. While the environmental footprint may be visibly large, open pit mines can be successfully rehabilitated and converted into other land uses like agriculture, forestry, tourism, and recently as sites for renewables. For shallow ore deposits, such as nickel, iron, coal, and copper, open pit mining is the only economically viable method extraction. An open pit mining ban will also have adverse impacts on our energy security, as coal mining is presently done in the country only through open pit mines. In the meantime, the definition of open pit mining method as per DAO No. 2017-10 vis a vis other surface mining methods was clarified by the MGB through the issuance of MC 2019-08 on 10 December 2019. Open pit mining method is the process of mining by means of a surface pit excavated using one or more horizontal benches. The MC defined and clarified that open cast mining, strip mining, and quarrying are not considered as open pit mining methods. PMRC 2020 Approval and CRIRSCO Membership to Boost Investor Confidence The ongoing revisions to the Philippine Mineral Reporting Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“PMRC”) is considered auspicious by the industry as investors are expected to take a look at the Philippines following the lifting of the nine-year moratorium on new mining projects. The PMRC was created on 08 August 2007 to set out the standards, recommendations and guidelines for public reporting of exploration results, mineral resources and ore reserves, as may be required as a listed company or when applying for listing with the PSE. The PMRC is also currently used as a reporting standard by the DENR/MGB in technical submissions by mining companies under DAO 2010-09, “Providing for the Classification and Reporting Standards of Explorations Results, Mineral Resources and Ore Reserves.” Last 26 February 2019, the PMRC Committee (PMRCC) applied for membership in the Committee for Mineral Reserves International Reporting Standards (CRIRSCO), the committee of all internationally recognized national reporting organizations. When implemented in 2008, PMRC was compatible with the Australian Joint Ore Reserve Code of 2004 and CRIRSCO Template 2006. As a condition for PMRCC’s acceptance under the Memorandum of Understanding dated 27 February 2019, there is a need to revise the 2007 PMRC to make it compatible with the current 2019 CRIRSCO template. The PMRCC Standards Sub-Committee (StandCom) completed the current draft of PMRC Edition 2020 after CRIRSCO finished its detailed review on 10 October 2020. The PMRCC submitted the draft to the PSE on 30 October 2020 that was followed by a public comment period from 04 to 16 March 2021. The PMRCC conducted virtual public consultations on the drafts on 11 June and 18 November 2020. The PSE Board approved the draft on 25 March 2021 with additional revisions on sustainability: such as mitigation and remediation plans to solve environmental, social, and health and safety impacts; and the inclusion of a consent form to indicate the accredited competent person agrees to the public disclosure of the report. The PSE endorsed the revised draft to the Securities and Exchange Commission (SEC) which is currently under deliberation. Once the PMRC has been upgraded to the 2019 CRIRSCO Template and approved by the PSE and SEC, the PMRCC is expected to be accepted as a CRIRSCO member. The sooner the PSE and SEC approve the submitted draft, the better for the mining industry so that it will be at par with global reporting standards to professionalize the industry and attract investors. Meanwhile, the PMRC StandCom is currently reviewing the draft IRR of PMRC 2020, which is targeted for completion in 2021 and will be subsequently submitted to the PSE anew for endorsement and approval. Offshore Mining Permits Another area of interest for possible investments is offshore mining. MGB MC 2016-05 covers the conduct of offshore mining within the country’s territorial sea and exclusive economic zone and extended continental shelf, as established under Parts V and VI, respectively, of the United Nations Convention on the Law of the Sea. Under MGB MC 2016-05, offshore mining operations shall be conducted in a manner that will not adversely affect biodiversity, safety of sea navigation, and other marine activities. The Offshore Mining Chamber of the Philippines (OMCP) announced that it received numerous expressions of interest in offshore mining following the issuance of EO 130. The OMCP urged the MGB to approve offshore mining tenement applications only from qualified offshore mining companies with adequate capital, proven technical expertise and demonstrated capability to engage and deploy offshore equipment for exploration, seabed scientific research, and sea bottom profiling. OMCP further recommended that the MGB should start a review of mine tenement systems and processes, with a view towards terminating inactive claims for offshore mining. Dealing with Mining Industry Risks Uncertainty concerning the administration, interpretation, or enforcement of existing laws and regulations on environment, taxes, land use, infrastructure, socio-economic agreements, and labor remain to be the biggest investment barriers to mining investments according to the Fraser Institute Annual Survey of Mining Companies 2020. Companies are also more exposed now to political risks and security issues. In addition to the traditional risk factors, the mining industry faces a wider range of challenges such as climate change, new technologies, and economic uncertainties. The economic crisis caused by the pandemic that heightened fiscal and external imbalances in many emerging markets has led host governments to review existing mining contracts and legislations, and introduce new taxes and royalties to replace lost revenues. Resource nationalism has become much more sophisticated and complex in the forms it takes, not purely driven by nationalistic policies but by wider political, economic, social and environmental drivers. The Philippine government is fully aware that existing mineral agreements entail that some deposits can only be extracted through open pit mining given the available data already known to both regulators and developers. An open pit mining ban would in effect cause these resources to be stranded and mineral agreements impaired if the ban is continuously imposed. The government must put in place stable policies if it wants the industry to move forward by expeditiously lifting the open-pit mining ban and existing suspension orders. The industry is keenly awaiting for a favorable outcome on these issues. Conclusion Recent policy initiatives by the government are laudable to erase policy uncertainties that can be extremely damaging to both investors and the host country, and hamper the successful development of mineral endowments. The key challenge is to bring back investors’ confidence to the mining industry that will assure appropriate profit to investors, protect our natural resources, and provide other long-term benefits to the Filipinos. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at email@example.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 Annual Survey of Mining Companies, 2020, Fraser Institute, 23 February 2021, https://www.fraserinstitute.org/studies/annual-survey-of-mining-companies-2020 Are Copper Prices in a Supercycle? A 120-Year Perspective, MINING.com, 19 July 2021, https://www.mining.com/web/are-copper-prices-in-a-supercycle-a-120-year-perspective/ COVID-19 Impact & Recovery: Metals & Mining, S&P Global Market Intelligence, https://www.spglobal.com/marketintelligence/en/news-insights/blog/covid-19-impact-recovery-metals-mining EO 130 Spurs Growth of Offshore Mining, Manila Standard, June 13, 2021, https://manilastandard.net/mobile/article/356999 EV Metal Index Quadruples Year-on-year as Lithium, Nickel Prices Rally, MINING.com, 19 July 2021, https://www.mining.com/ev-metal-index-quadruples-year-on-year-as-lithium-nickel-prices-rally/ Miraflor, Madelaine B., 26 New Non-metallic Mines Cleared to Operate, Manila Bulletin 19 July 2021, https://mb.com.ph/2021/07/19/26-new-non-metallic-mines-cleared-to-operate/?fbclid=IwAR3UL8vfSYuCqu_zMLzt3LRp6th9_xOa99V5afeF4xXZQHQhXodpkHp7CfQ Oceanagold Advises Didipio FTAA Renewal and Provides Operations Update, 14 July 2021, https://www.newswire.ca/news-releases/oceanagold-advises-didipio-ftaa-renewal-and-provides-operations-update-844978564.html Philippine Economy Seen Recovering in 2021, with Stronger Growth in 2022 - ADB, 28 April 2021, https://www.adb.org/news/philippine-economy-seen-recovering-2021-stronger-growth-2022-adb Solutions to Mining Industry Risk Challenges, Marsh, https://www.marsh.com/us/industries/mining-metals-minerals-insurance/solutions-to-mining-risk-challenges.html
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George Bujtor, Marcelle Villegas - August 21, 2021
How Indonesia Beat the Philippines to Become the World’s Undisputed Nickel Pig Iron (NPI) Producer (and Likely to Replicate this as a Battery Feedstock Supplier)
When Indonesia announced the reimposition of their nickel export ban in 2019, why were many key players in the Philippine mining industry optimistic about this? Was their optimism based on the belief that Indonesia is out of the game due to their nickel export ban? Did the Philippines really benefit from Indonesia’s export ban on laterite nickel ores? What actually happened is that during the years when Indonesia halted their laterite nickel ore exports to the world, outsiders still got their nickel supply from Indonesia by investing in the country, thus giving them internal access to Indonesia’s nickel. This investment strategy brought a win-win situation to both Indonesia and their foreign investors. This is an angle of the Indonesian nickel export ban story which is disadvantageous to the Philippine nickel industry. But are the industry players in the Philippines aware of this? To give an in-depth analysis on what really happened to the Philippine nickel industry while Indonesia was implementing their nickel export ban, top Australian mining executive and CEO of Electric Metals Limited, George Bujtor shares his thorough research about the matter. For background, George Bujtor has extensive work experience in technical, financial and commercial aspects of mining operations. He is one of the authors of a paper titled “A Guide to the Understanding of Ore Reserves Estimation”. The paper was published by the Australasian Institute of Mining and Metallurgy in March 1982 and was the basis for the development of the JORC Mineral Code used worldwide today. This study is a remarkable peer-reviewed journal and significant reference of most international mining studies and academic research in relation to JORC studies and Mineral Reporting Code. His career is notable as past General Manager and Managing Director during his 22 years in Rio Tinto, Australia, and as former CEO of Aldoga Aluminum, Australia. On his first years in the Philippines, he developed the Berong Nickel mines in Palawan as CEO of Berong Nickel Corporation. Following this, he became the CEO of Carmen Copper Corporation/Atlas Mining where he successfully raised over US$200M in bond issue for the expansion of the mine and processing operations. He held numerous Board positions and is a Fellow of the Australasian Institute of Mining and Metallurgy, and is a Competent Person as defined by the JORC & NI 43-101 codes (Australasian Joint Ore Reserves Committee). Here’s an extensive report, analysis and forecast by George Bujtor about the current situation of the Philippine nickel industry.
Patricia A. O. Bunye - June 29, 2021
What does "going back to work" look like in Mining?
In Issue 4 of Philippine Resources, I recapped how much of my 2020 was spent on Zoom calls and webinars. A year and a half into the pandemic, and after 15 months of working from home, the situation has not changed, and it looks like this will be our way of life for some time to come. Major online events were conducted recently by the Department of Environment & Natural Resources (DENR) and Mines and Geosciences Bureau (MGB). First was the Consultative Meeting on May 19 on the Implementing Rules and Regulations on Executive Order No. 130, with Day 1 being attended by mining companies and Day 2 by NGOs and the academe. Second was the MGB’s Stakeholders’ Forum on Recent Policy Issuances Relating to Mining, also held over two days on June 8 and 9. The introduction to the Consultative Meeting was an opportunity to review the issuances of the DENR and MGB from 2015 to 2020, the more significant of which were discussed in greater detail in the MGB’s Stakeholders’ Forum. In the open forum that followed the Consultative Meeting, MGB Director Wilfredo Moncano confirmed that, although EO 130 does not explicitly refer to the lifting of the ban on open pit mining, the intent is to lift it since Section 11 or the repealing clause of the its proposed IRR explicitly refers to Department Administrative Order 2017-10 on the ban on open pit mining. The MGB’s Stakeholders’ Forum offered a deeper dive into the following issuances, with the formal presentations being followed by Q&As with the participants both on Zoom and Facebook: Mining Tenements: MGB Memorandum Circular No. 2019-001 (Clarificatory Guidelines on the Industrial Sand and Gravel Permit) MGB Memorandum Circular No. 19-08 (Clarification on the Definition of the Open Pit Mining Method as per DAO No. 2017-10 and other Surface Mining Methods) MGB Memorandum Circular No. 20-010 (Harmonizing the Mining Production Capacity Threshold or Limit of a Mining Permit/Contract and the Pertinent Environmental Compliance Certificate) DENR Administrative Order (Guidelines on the Automatic Renewal of the Exploration Period and the Timely Declaration of the Mining Project Feasibility under the EP, MPSA, FTAA, and Similar Mining Tenements) [For Publication, as this column was being written] Environmental Protection MGB Memorandum Order No. 20-01: Care and Maintenance Program for Mining Projects MGB Memorandum Circular No. 2020-04 (Clarificatory Guidelines for the Establishment of the Contingent Liability and Rehabilitation Fund for Dredging Projects/Activities pursuant to DPWH-DENR-DILG-DOTR Joint Memorandum Circular No. 1, Series of 2019) Online Filings Memorandum Order No. 2020-007 (Policy on Online Filing of Application and Payment) Enforcement MGB Memorandum Circular No. 2019-002 (Supplemental Guidelines to MGB Memorandum Circular No. 2018-01) MGB Memorandum No. 2018-01 (Guidelines in the Conduct of Apprehension, Seizure, Confiscation and Disposition of illegally sourced minerals/mineral products and by-products, tools, conveyances and equipment used) Appeals MGB Memorandum Circular No. 2019-006 (Clarificatory Guidelines on the Rules of Appeal) Dredging & Offshore Mining MGB Memorandum Circular No. 2019-07 (Clarificatory Guidelines on Section 5.1.2.c of DPWH-DENR-DILG-DOTr JMC No. 2019-01) MGB Memorandum Circular No. 2020-008 (Revised Guidelines on Offshore Mining - Revision to MGB Memorandum Circular 2016-05 "Guidelines on Offshore Mining") While the aforementioned webinars with the DENR/MGB are illustrative of government’s engagement and cooperation with its stakeholders, on the same day, June 9, in another time zone, the World Association of Mining Lawyers (WAOML) was conducting a webinar on the international arbitration of mining disputes against governments. The global panel described an upward trend in mining arbitration against governments and government entities, i.e., since 1990, there have been around 100 recorded mining arbitration cases against governments, 73 of which have been brought in the last 10 years. Within the last few days before the WAOML webinar, 4 new ones were brought against the governments of Colombia, Republic of the Congo, Cameroon and Turkey. International arbitration against governments are usually resorted to when mining projects, which are typically long-term and complex, and depend on a stable legal, fiscal and political environment, experience major shifts such as resource nationalism, and/or unexpected changes in financial/tax/royalty regimes. in 40% of the cases that have been brought, the mine could not start operating, and there was government action or inaction that led to the investment dispute. in more than half of the cases, the projects were operating, but the mine had to close down, because the license was not renewed or the investor lost control because of an expropriation. Interestingly, Latin America leads the way with the most number of international mining arbitration cases filed, with Asia and Africa following. From the perspective of the mining companies that file the cases, international arbitration is just one tool in their arsenal, and often it is, as expressed by one speaker, an ‘absolute last resort’ because, once the arbitration is instituted, it will inevitably lead to the breakdown of the relationships that have been built. It will also take time and resources to complete, and even assuming that the company obtains the desired award, it still needs to have the award enforced. On the lighter and brighter side, the International Women in Mining (WIM) Alliance, which I have written about previously, recently held the first of new series of global calls via Zoom which was attended by the counterpart organizations of Diwata-Women in Resource Development from just about every corner of the globe. It was gratifying to hear how diverse yet similar our experiences are, and how much common ground there is for us to start from. This significant as the Alliance is about aligning the interests of these international women’s mining groups through multilateral, mutually beneficial relationships and leveraging their collective strength to pursue a common agenda, without integration, control or affiliation. For me, the fact that, through technology, it is so much easier now to reach out to other ‘sisters in mining’ is a plus in itself. Pre-pandemic, it would have taken attendance in an international conference to meet even a quarter of this group. With technology allowing me to be as, if not more, productive, than being at my office, am I looking forward to going back? Even with more people being vaccinated, the discussion is less about ‘going back to work’ than what ‘going back to work’ will look like, i.e., how to implement a hybrid workplace. For the mining industry, which certainly is not predominated by desk-bound jobs, there is already a trend worldwide to see how certain repetitive tasks can be automated versus those which need analytical skills, and therefore a demand for individuals with such capabilities. Part of this shift is for artificial intelligence, machine learning and process-automation experts to oversee new ways of working. In this regard, the World Economic Forum’s Future of Jobs report identifies leadership and social influence as a main focus of mining companies’ reskilling or upskilling programs. In any industry, empathy is vital to mitigating the potential negative impact of remote working on mental health, and managers need superior communication skills to manage isolated teams. Thoughts to further ponder on in a future column!
Fernando Penarroyo - June 08, 2021
Renewables Can Make Mining a Sustainable Industry
There is no doubt that public perception of mining is that of a dirty, hazardous, and ecologically-destructive industry. Sustainable mining is non-existent to critics because of the industry’s perceived large carbon footprint brought about by deforestation and large contribution to greenhouse gas emissions. By its very nature, mining is also energy-intensive starting with the development and production processes requiring fuel for heavy equipment and machinery, up to the processing stage where metallurgical plants consume a huge amount of electricity. Energy expenses constitute approximately 30 percent of cash operating costs as majority of mining operations continue to rely on fossil fuel-based grid power or off-grid diesel-generated power. While accounting for up to 11% of global energy consumption, the industry is responsible for 22% of global industrial greenhouse gas emissions. Despite the pandemic, the mining index has now recovered by an astonishing US$636 billion thanks to a boom in spending brought about by the current green and digital transition, and unprecedented infrastructure-focused stimulus packages initiated by many governments. The Philippines also benefitted from this development. According to a report by the Mines and Geosciences Bureau, metallic mineral production value ended 2020 on a positive note with a 1.13% gain from PhP130.74 billion in 2019 to PhP132.21 billion, a PhP1.47 billion increase. As mining operations need a consistent and reliable source of power, and renewables becoming a mainstream energy source, mining companies have a material opportunity to lower costs and improve safety, reliability, and sustainability. The regulatory and risk mitigation landscape is also changing with many governments enacting legislation to bring their economies in accordance with the 21st Conference of the Parties to the 1992 United Nations Framework Convention on Climate Change or Paris Agreement goals of net-zero greenhouse gas emissions by 2050 and maintaining planetary warming below 2°C of preindustrial levels. The industry and its investors need to urgently promote less carbon-intensive energy consumption to address future pressures on the climate in order for the public and stakeholders to be more receptive and appreciative of the contributions of mining. This article discusses how mining and innovative renewable energy technologies can combine to achieve the transition to a more sustainable energy system. Attracting Investors’ Appetite Back to the Mining Industry While demand for renewable energy continues to grow, investors’ and lenders’ appetite in mining is shrinking. The sector is facing a market that is smaller, pricier, and subject to an increasing regulatory oversight to help manage its exposure to environmental and social risks. On the other hand, the cost of producing renewable energy has dropped dramatically making it more competitive with fossil fuels with technological innovation and huge investments from China pushing down the its costs. The opportunity lies in companies focusing on clean metal production and investors supporting cleaner and greener minerals extraction. While mining companies see the opportunity, they are in a catch-22 situation. According to an Ernst and Young report, environmental, social and governance (ESG) issues are getting in the way of the green transition because how the needed minerals are produced is under more scrutiny from governments, investors and end consumers. Institutional investors have pledged to completely remove fossil fuels from their portfolios by 2030 and banks have priced their loan products in correlation to the environmental risks of the borrower. BloombergNEF confirms the change in investor perspective most notably with the move by BlackRock – the world’s largest asset manager with $7.4tn on its books – to divest from companies not aligned with the policy goals of the low-carbon energy transition. Investors, governments and top companies like Amazon to JPMorgan Chase are injecting billions of dollars into sustainable projects. In addition, corporate directors are required to ensure compliance with all applicable environmental laws and regulation and consumers are demanding sustainable business practices, persuading hundreds of major companies to issue net zero emissions commitments. Clients of institutional investors are also pushing fund managers to create sustainability-focused portfolios and banks are requiring more rigorous covenant packages in their loan agreements with extractive industry businesses. Mining companies have no choice but to engage in decarbonization in order to access capital. How Renewable Energy is Transforming the Mining Industry Minerals are critical to the clean, green, and digital transition. The growth of renewable energy is heavily reliant on commodities like copper, gold, lithium, cobalt which are used in the manufacture of new technologies that could one day replace fossil fuels in the global energy mix. Copper supplies, for example, need to increase by as much as six percent (6%) per year to meet the goals laid out in the Paris Agreement. Copper is needed for wind farms, solar panels and electric vehicles, and generally essential to all power generation infrastructure. Solar power, expected by the International Renewable Energy Agency to reach 8,519 GW of capacity worldwide by 2050, relies on the supply of aluminium, copper and certain rare earth elements (including indium and cadmium) to produce photovoltaic (PV) panels. Wind turbines are made from steel and is therefore dependent on the production of iron. Certain rare-earth elements such as neodymium are needed for the magnets used inside turbine generators, as well as electric vehicle (EV) technology. Zinc and titanium are used mostly for wind and geothermal energy. Metals are also used in high tech devices like aircraft engines, rockets, and other military equipment, hence, the label of critical minerals. Driven by the demand for EV batteries and renewable energy infrastructure in battery storage, the need for lithium, graphite, nickel, cobalt, platinum-group and rare earth elements is primed to explode. The World Bank predicts that production of these minerals could increase nearly five hundred percent (500%) by 2050. For cobalt, lithium, and nickel, projected demand is greater than known reserves. As the demand for renewables continues to grow, the mining industry indeed faces a bright future in becoming a recognized vital contributor to the clean energy transition. With advancements in renewable energy technology and the commitment of some key industry players, there are many benefits for mining companies to switch to renewables. In addition to the financial botomline, renewables also offer important social, health, safety, and environmental benefits that are harder to quantify, which can potentially include: Stability in power price, increased energy security, and reduced reliance on fossil fuels that are vulnerable to global price fluctuations - Solar and wind facilities have high upfront costs to build but input costs drop to near-zero when operational. The cost of battery production is also predicted to halve in the next decade, making large-scale energy storage capable of powering a mine’s operations even in the absence of a consistent supply; Sustainable development support - Satisfaction of environmental and social criteria used to measure the sustainability and green credentials of a given project will be a pre-requisite for off-takers, investors, and lenders. Debt and capital markets will shift towards sustainable and green investments; Lower greenhouse gas emissions and reduced carbon liabilities; Energy efficiency in mine sites by synchronizing peak load with cheaper renewable energy sources, thus bringing down the overall cost of mining operations and maintenance; and Additional revenue from selling excess generation capacity and providing ancillary services to grid operators. RE Projects at Minesites Around the World Realizing the benefits from efficient energy management systems, some miners are now driving down their energy costs by up to 25% in existing operations and 50% in new mines. Renewables, whose levelized costs have achieved parity with traditional fossil fuels, is a major component. These developments in the mining sector are part of a larger, global trend toward greater procurement of renewables by corporations. A report by Fitch Solutions Macro Research revealed that around 1 GW of renewables was already built at mining sites across the world, and that another 1 GW is in the pipeline. Solar PV and wind are leading the way in installed renewables generation among mining companies, with thirty percent (37%) and fifty-nine percent (59%) share in 2017 respectively. By one estimate, investment in renewables just for mining will reach nearly US$4 billion by 2022, which represents more than a tenfold increase from a decade before. Several large mining companies have been integrating renewables at progressively higher ratios, and all four of the world’s biggest miners plan to source more of their energy needs from renewables. Table No. 1. Renewable Energy Projects at Minesites Around the World Mining Company Renewable Energy Project Anglo American Signed a deal to run its Quellaveco copper mine in Peru 100% on renewables, effectively allowing the miner to deliver on its promise of powering all of its Latin American operations by green energy by 2022. The facility is expected to provide 150 MW for an initial eight-year period to Anglo’s Quellaveco, located in the Moquegua region. Also inked a 15-year contract in Brazil to buy 70 MW of solar power from Atlas Renewable Energy as of 2022 for its iron ore operation in Minas Gerais. Rio Tinto Announced that it would reduce the annual carbon footprint associated with its Kennecott Utah copper mine by as much as 65%, by purchasing renewable energy certificates and permanently shutting its coal power plant. The mine’s electricity needs will now be supplied with 1.5 million megawatt hours (MWh) of renewable energy certificates supplied by energy company Rocky Mountain Power, primarily sourced from its renewables portfolio in Utah and including wind power from Wyoming. Supported a 9MW wind farm in the Arctic near its mine. Added an additional 5MW of solar panels, and advanced battery storage, to an existing solar/diesel microgrid to further decrease diesel use at a bauxite mine. Gold Fields Announced plans to predominantly operate its Agnew gold mine in Western Australia (WA) using renewable energy in partnership with global energy group EDL and involving an AUD112m ($77.59m) investment in an energy microgrid combining wind, solar, gas and battery storage. In February 2019, Aggreko was contracted to create a hybrid solar-battery generation system to power the Granny Smith mine. The hybrid system will be integrated with the 24.2MW already generated by the natural gas engine station. Antofagasta Signed an agreement in June 2018 with utility company Colbún to make the Zaldívar mine the first Chilean mine to operate with 100% renewable energy. From 2020 the mine will be powered by a mix of hydro, solar and wind power producing 550 gigawatt hours per year, which is expected to remove emissions equivalent to 350,000 tons of greenhouse gases per year. Newmont In September 2018, UK-based solar company Cambridge Energy Partners (CEP) announced that American mining corporation Newmont had deployed CEP’s Nomad mobile solar power array at the Akyem gold mine in Ghana. Zijin In May 2017, UK-based power generation company Aggreko announced that it had signed a ten year deal to provide solar-diesel hybrid power to the Bisha mine in Eritrea owned by Chinese mining group Zijin. Aggreko provides 22MW of diesel and 7.5MW of solar-generated power for the Bisha mine’s copper and zinc operations. Sandfire Resources Added a 10.6MW solar power plant at the DeGrussa mine in Australia. B2Gold Added 7MW of solar panels to its Namibia mine to complement existing heavy fuel oil generators. Caterpillar Began marketing hybrid microgrids that incorporate solar, diesel and natural gas generators, and advanced storage options. Target customers include remote mines and drill sites. While energy management practices using renewables are becoming more prevalent in the sector, some have yet to integrate renewable energy sources and enabling technologies. This may be due to the existing perceptions of renewables in terms of complexity, cost, reliability, and performance. Many miners still think of renewables like solar and wind, as the higher cost option for mines operating both on and off the grid. In addition to cost, reliability is another often-cited reason for not considering renewables. However, these concerns have largely been addressed. When speaking of renewables, there are two facets to reliability. The first relates to the efficacy of the technology itself, while the second relates to intermittency. Intermittency is being addressed and demonstrated to be manageable since the viability of battery storage is now enhanced by new technologies and the cost of utility-scale batteries is starting to decline. Incentivizing RE Technologies Various factors are influencing the optimal electricity generation at mining sites. Some of these are external factors such as sun and wind conditions, grid-availability or grid stability, while some are directly related to the mining company like environmental sustainability policies and availability of capital. Other factors are related to the mining site, among which are the remaining lifetime of the mine, the load-profile or the need of process-heat. Depending on several internal or external factors, a mining company may apply various business models for renewable energy: Plant Ownership Self-consumption (plant ownership). The power plant is constructed on-site and the mine consumes the energy (electricity or process heat). An added option is selling excess electricity to the grid or to adjacent consumers. Co-ownership (joint venture). The mining company and a third-party investor create a joint venture, which then acts similarly as an IPP and sells electricity to the mine. Leasing or rental agreements. The mine has no investment costs, but instead pays a leasing rate, operates the renewable energy plant and consumes or sells excess electricity that is produced from the leased power plant. Power Purchase Agreement (PPA) Standard PPA. The mine purchases the electricity at a predefined price from an independent power producer (IPP). The IPP can be off-grid or grid-connected and the PPA may contain flexible mechanisms such as link to diesel price or spot market price. Synthetic PPA. Even if it is not viable for a mine to establish its own renewable energy source in close proximity to its operations, the rise in so-called synthetic or virtual PPAs provides an incentive for mining companies to invest in renewables. The IPP sells at market price and power marketers provide a guaranteed price and compensate for certain deviations. This business model requires a grid-connection and a functioning spot-market. A mine enters into an agreement directly with a renewable energy producer at a fixed price but pays a fee to the utility, via which electricity will pass through to cover the cost of managing the grid. Energy-metal Swap. Basically it is a PPA, but the electricity is paid with mining products, which may eliminate some of the metals market price risk. Hybrid Microgrids. A key advantage of renewable energy is that it can power the energy needs of mining operations in remote areas, where the cost of building the infrastructure required to hook the mine up to the grid network or building a conventional power station will be significant. By having a dedicated off-grid renewable power source, a mining operation can meet all its energy requirements from green sources and make significant cost savings in the price it pays for electricity. Micro-grids involve a combination of power sources, usually diesel or natural gas generators combined with some renewable resources. Several mines have started down this path, integrating wind or solar PV generation with short duration lithium-ion batteries that produces 10-25% of a mine’s total electricity needs. The microgrid continues to be controlled by the diesel gensets with renewables acting as a reduction to the overall mine load. Fortunately, battery technology has advanced rapidly in recent years to keep up with the need to store increasingly large amounts of renewable energy at a lower cost and lesser physical footprint. One of the keys to this relationship is the rapid development of suitable renewable power supplies to both existing and new mining operations. The sooner mining operators adapt their models to accommodate this development, the sooner they will be able to persuade investors, lenders, and off-takers to support them. Miners must soon decide whether to push forward in the direction of renewables or else they risk becoming high-cost producers in their respective commodities as renewables are increasingly becoming factors for competitiveness. Renewables should also be examined as part of a broader social and environmental agenda in addition to their financial proposition as a replacement for existing traditional energy sources. Legacy Mines as RE Sites Mine site conversion can provide ongoing and long term value in the form of an alternative income stream well after mining operations have ceased. Specific benefits can include reusing infrastructure, reduced cleanup and decommissioning costs, re-employment of a skilled mining workforce and/or new local employment opportunities, and a clean after-use for a mine site that can also create a potential source of carbon credits with tradable value. Mine sites may prove to be ideal locations for the generation of renewable energy because they often cover extensive areas where wind and solar power structures will have less environmental impact and are therefore less likely to meet opposition. In addition, mine sites often already have the necessary electricity transmission lines and transport infrastructure in place, avoiding extra capital costs. Other forms of redevelopment may not be an option due to the remoteness of the site, or environmental conditions may rule out residential or commercial use without significant extra development cost. Although interest is increasing, the re-use of mine sites for alternative energy generation remains at a small scale but already in place in some sites. Table No. 2. Renewable Energy Technologies at Former Mines Sites Technology Former Mine Sites Wind Power In the largest wind farm planned in Virginia, 166 turbines will be sited on over 4000 hectares of land disturbed by coal and hard rock mining activities. 99% of the land remains usable for other activities including farming. In Scotland, Black Law Wind Farm near Forth covers 1850 hectares of abandoned coal mine land, grazing land and commercial forestry, with 42 wind turbines generating 97 MW, and plans for expansion potentially increasing the total generating capacity to 193 MW. At the Hazlehead Wind Farm site in West Yorkshire, wind power is now being generated on the site of a former clay quarry spoil tip and landfill site, with three turbines and a proposed installed capacity of 6 MW. Solar Power The Geosol solar plant at Espenhain, Leipzig, constructed on a former lignite mine ash site, generates 5 MW and saves around 3700 tonnes of CO2 every year. UK’s first large-scale solar PV farm developed by Lightsource Renewable Energy is located on the south-facing site of the former Wheal Jane tin mine near Truro in Cornwall. The solar farm houses 5680 panels with a peak generating capacity of 1437 MWh. If not done responsibly, researchers have found that the mining necessary for producing more metals and creating the required renewable energy infrastructure could exacerbate threats to ecosystems. While they fully support the move away from fossil fuel production as an essential part of the fight against climate change, alternative energy production must not happen at the expense of biodiversity, rainforests, and the livelihoods of indigenous peoples. In response to increasing corporate demand for clean energy, industry associations and coalitions have sprung up to make it easier for mining companies to enter into power PPAs with developers and utilities, or to self-generate their own electricity. There’s an optimal point in any proposed mining project where a decision needs to be made to integrate renewables, or else the mine life will expire before the full benefits of renewables can be realized. Conclusion If the mining and renewable energy industries pursue a strong symbiotic relationship, both will benefit in cost savings, reduced emissions and more importantly, preserving their social license to operate. This will be a very long transformation process but with new technologies in commercial development especially in battery storage, the mining industry has an incredible opportunity to drastically curb climate change impacts in its operations. Investors and lenders will also need to be part of the solution by revisiting the mining industry as an investment opportunity. They have to work with mining companies to implement ESG improvements and transition to sustainability. Instead of dismissing these efforts as industry “greenwashing”, critics and skeptics must exercise open mindedness in giving a chance to mining that, whilst historically perceived as dirty, is essential for the global aspiration of a clean and green energy transition. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at firstname.lastname@example.org for any matters or inquiries in relation to the Philippine resources industry. Atty. Penarroyo’s commentaries are also archived at his professional blogsite at www.penarroyo.com References Ali, Umar, Going green: renewable energy projects at mines around the world, Mining Technology, April 15, 2021, https://www.mining-technology.com/features/going-green-renewable-energy-projects-at-mines-around-the-world/ Better fit for mining and renewable energy, THEnergy, 2020, https://www.th-energy.net/english/platform-renewable-energy-and-mining/business-models/ Cormack, David and Wood, Michael, Renewables in Mining: Rethink, Reconsider, Replay, Deloitte, 2017, https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Energy-and-Resources/gx-renewables-in-mining-final-report-for-web.pdf Fawthrop, Andrew, Why the mining industry must continue to embrace renewable energy, NS Energy, 20 March 2020, https://www.nsenergybusiness.com/features/renewable-energy-mining-bnef/#:~:text=Financial%20incentives%20for%20mining%20industry%20to%20embrace%20renewable%20energy&text=%E2%80%9CThis%20means%20miners%20can%20negotiate,the%20volatility%20of%20energy%20markets. Gracey, Kyle, How can renewable energy technologies support mining and drilling?, Prescouter, October 2017, https://www.prescouter.com/2017/10/renewable-energy-mining-drilling/ Jamasmie, Cecilia, Anglo American to run South America mines 100% on renewables, MINING.COM. April 15, 2021 https://www.mining.com/anglo-to-run-south-america-mines-100-on-renewables/#:~:text=Anglo%20American%20(LON%3AAAL),by%20green%20energy%20by%202022. Kostigen, Thomas M., The might of metals in the clean energy transition, GreenBiz, 10 February 2021, https://www.greenbiz.com/article/might-metals-clean-energy-transition#:~:text=Here's%20why%3A%20Minerals%20are%20critical,in%20the%20Paris%20Climate%20Agreement. Maisch, Marija, Mining sector to rely increasingly on renewables, report finds, PV Magazine,11 September 2018, https://www.pv-magazine.com/2018/09/11/mining-sector-to-rely-increasingly-on-renewables-report-finds/ Mining & Renewable Energy – A Greener Way Forward, Watson, Farley, and Williams, 23 November 2020, https://www.wfw.com/articles/mining-renewable-energy-a-greener-way-forward/ Sonter, Laura, Watson, James and Valenta, Richard, Renewable energy can save the natural world – but if we’re not careful, it will also hurt it, The Conversation, 02 September 2020, https://theconversation.com/renewable-energy-can-save-the-natural-world-but-if-were-not-careful-it-will-also-hurt-it-145166 Thomas, Tobi, Mining needed for renewable energy 'could harm biodiversity’, The Guardian, 01 September 2020, https://www.theguardian.com/environment/2020/sep/01/mining-needed-for-renewable-energy-could-harm-biodiversity#:~:text=The%20mining%20necessary%20for%20producing,to%20biodiversity%2C%20researchers%20have%20found.&text=The%20scientists%20found%20mining%20potentially,used%20in%20renewable%20energy%20production Whitbread-Abrutat, Peter and Coppin, Nick, Wardell Armstrong International, Renewables Revive Abandoned Mines, Renewable Energy World, 13 April 2021, https://www.renewableenergyworld.com/baseload/renewables-revive-abandoned-mines/#gref Zuliani, Jocelyn and Guilbaus, Joel, Renewable energy in mining: A practical application for active operations, Canadian Mining Journal, 01August 2020, http://www.canadianminingjournal.com/features/renewable-energy-in-mining-a-practical-application-for-active-operations/
Patricia A. O. Bunye - March 17, 2021
International Women in Mining and the Wawa Weir 2 Project
Kicking off International Women’s Month, the International Women in Mining Alliance (IWIM) Alliance held its first ever-virtual Global WIM Summit on March 1-2. Through the wonder of technology, I had the pleasure of connecting with other IWIM leaders throughout the world without having to hop on a plane and despite our differences in time zones. The summit also combined live and pre-recorded sessions which made it possible to view sessions at leisure. Diwata-Women in Resource Development, Inc, of which I was Founding President, is IWIM’s member organization in the Philippines. There are currently at least 37 IWIM organizations throughout the world. The Alliance is a pioneering initiative that brings IWIM organizations together to leverage their collective strength to provide a global, multilateral platform that will facilitate collaboration among them and promote the emergence of a strong, unified IWIM voice. Prior to its launch, the different IWIM organizations were under a loose umbrella, getting together only occasionally for teleconferences to exchange ideas and experiences. Last year, IWIM embarked on a strategic partnership with the World Bank on a research project to gather information to understand the opportunities and constraints women in mining organizations face. Results of the research project have been collated in a report to be published online and presented at international mining conferences starting with the Global WIM Summit. It will also be presented at Mining Indaba, PDAC, the World Bank's 2nd Gender Conference, and other events. In November last year, Diwata’s core group, led by our President, Atty. Joan Adaci-Cattiling, were interviewed by the World Bank’s researcher on the challenges we have faced, the lessons we have learned and our recommendations for strengthening IWIM organizations. Hearing excerpts of the final report, it was heartening to know that our sisters in other IWIM organizations face the same challenges, including difficulty in obtaining funding, dependence on the efforts of volunteers and getting members who are busy with their day jobs to engage. One session that I would have wanted to attend, but missed was on “Role Models and Mentors for Women in Mining”. While women are very well represented in all facets of the mining industry (as geologists, mining engineers, metallurgists, environmental scientists, community relations officers, lawyers, accountants, human resources professionals, adminstrative staff, truck drivers, etc.), we want to see the numbers of women at the very top increase. Recently, the Philippines topped Grant Thornton International’s 2021 Women in Business Report, a global survey among 29 economies on the role of women in senior management. While I do not have the figures for the mining industry, a quick “scan of the room” will show the male mining CEOs still outnumber the women. Thankfully, we have strong figures likes Gloria Tan Climaco, Chairman of the Board of Filminera Resources Corporation and Mt. Labo Exploration and Development Corporation, and Diwata’s own Joan Adaci-Cattiling, President of OceanaGold (Philippines), Inc., as exemplars. Before the March 2020 lockdown, Diwata was scheduled to launch its 'Industry Leaders' professional mentorship & networking program (with Gloria Tan Climaco as the first speaker), which is designed to benefit female professionals through interaction with respected resource persons, professional mentorship and networking opportunities. While it is entirely possible to hold this activity online in the near future, we are still looking forward to in-person connections with our members soon, particularly young women mining professionals who will most benefit from the program. In the eight years of Diwata’s existence, perhaps we have focused on the word “resources” in its name to refer to natural resources, but we have not lost sight of our equally valuable human resources. To build and sustain the mining industry, we must support the professional development and career progression of the women who “hold up half the sky”. On February 26, I had the pleasure of emceeing the Philippine Infrastructure & Construction Club’s webinar on the Prime BMD Wawa Weir 2 Project featuring Prime BMD’s CEO J.V. Emmanuel A. “Jocot” De Dios and Director of Operations, Jeff Gallus. They were joined by their colleague, Gisoue (Jeff) Pani, who focused on the technical aspects of the project. Once completed, the Wawa Weir 2 Project is expected to deliver 518 million liters per day (MLD) of water to 500,000 households within Manila Water Co. Inc.’s franchise area. The presentation was very timely as water is a basic necessity that cannot be taken for granted, especially as pointed out by Jocot, our population grows and migration into Metro Manila increases the demand for water. In the webinars that I have hosted and attended, I have noted that the attendees are less shy about asking questions. Perhaps this is because 99% of webinars start punctually compared to live events, and more time can be devoted to the Q&A. In the Q&A on the Wawa Weir 2 Project, the questions ranged from technical to practical (“who do we contact in your company”), but what I found most interesting were Jocot’s responses to observations that Prime BMD appears to have handled its community relations well. In the case of Prime BMD, Jocot says that there is no tried and tested formula or template, but what has worked well for them is ensuring respect for the communities, particularly the indigenous communities, in their project area, constantly engaging with them to understand their needs, and upholding their culture and traditions. This is of course easier said than done, but it seems, at least in this respect, Prime BMD has succeeded where other companies have faced much difficulty. Patricia A. O. Bunye is a Senior Partner at Cruz Marcelo & Tenefrancia where she heads its Mining & Natural Resources Department and Energy practice group. She is also the Founding President of Diwata-Women in Resource Development, Inc., a non-government organization advocating the responsible development of the Philippines’ wealth in resources, principally through industries such as mining, oil and gas, quarrying, and other mineral resources from the earth for processing.
Fernando Penarroyo - March 17, 2021
Let’s Make It A Better 2021
COVID-19 and its impact on the world provided a harsh lesson and wake-up call for all of us. People lost their jobs, businesses and entire fortunes on account of a virus whose origins remain a mystery. We worked from home, home schooled our kids, stayed away from senior members of our families, canceled special celebrations and well-planned vacations, and restricted our mobilities because we were afraid to catch and spread the virus. But the one thing that we will never forget is loved ones and friends losing their battle to this horrible illness. In 2020, the Philippine economy started on the wrong foot. It began with the eruption of the Taal Volcano creating a setback in the agriculture and tourism industries in Cavite and Batangas. Typhoons Rolly (international name Goni), Siony (Atsani), and Ulysses (Vamco) that hit the country in November in just a span of two weeks also brought considerable devastation to a large area in Luzon. These natural calamities and the pandemic caused a plunge in private domestic demand, deep contraction in investment activities, and weak exports bringing down the economy to -9.5%, its worst performance since the country began releasing growth data in 1947. After a long bout of physical exhaustion, mental fatigue, emotional stress, and apprehension, somehow we felt a bit of relief that the long and dragging 2020 ended. There was a feeling of ambivalence as we reminisced the past year. We felt exuberant that we made it out alive from 2020 but melancholy for those who continued to suffer or didn’t make it through. However, the same mixed reactions and emotions continue to haunt us in 2021 as we are fully aware that though vaccines are being rolled out in succession, emerging variants of the virus bring uncertainties to our lives. Like a ship in a raging storm coasting along the shore, we can see the lighthouse but the waves prevent our vessel from getting to safe harbor. Certainly, there are still challenges that should not put us in complacency. If there is indeed a rebound that will return us to some semblance of normalcy, I don’t believe that we’ll ever return to where we were before. We will continue to wear masks, limit in-person meetings, and practice physical distancing, afraid that there will be another virus waiting to unleash its force with more tenacity and strength. We will continue to adjust our daily existence depending on how new developments in science will provide the safeguards to physical interaction and provide adequate disease prevention and cure. Coping with the pandemic “What happens to me now that my livelihood is gone? How will I pay my suppliers, creditors, and employees? Will the banks foreclose on my mortgages? Where will I get the capital to start all over again? Am I still employable? Will my kids have to stop going to school? How is my family going to survive? How will I get back on my feet?” We are all saddled with negative thoughts. Sometimes the more we think about negativity, the less we become creative and confident. Acting unkind to ourselves during these difficult times serves no purpose but to pile on more anxiety. We must confront the brutal realities head-on by resolving to be patient and steadfast. Undoubtedly 2021 will hold new challenges. This is the reality of life. Yet like those we’ve faced before, what matters most is not the problems themselves, but how well we’ve responded to them and how we’ve applied their lessons to grow and thrive in our lives. There are probably a million reasons not to smile during the pandemic. Some people struggle on a daily basis to look for the next meal, payment for rents, and money to buy the bare necessities. Some people vented their anger and frustration in social media. If you’re actually doing it, take a minute to realize that you have the literacy, luxury of time, and internet connectivity to read and type in your device. You have the ability to access the whole world with your gadget while others struggle to meet their most essential needs and probably wish for things you are currently enjoying. In many ways, all the reasons for complaining seem to be trivial and certainly no reason to bicker about. It is definitely better to flash that smile behind the mask than rant online. It is better to be content with what you have and strive hard to survive for the future. We’re all on the same team in the same boat. All of us need some form of encouragement and everyone will benefit if we decide to argue less and understand more. We are often tempted to be couch potatoes during these times when our mobility is hampered. We tend to binge on online entertainment and video games, which does not physically or mentally nurture us. Being busy is the best way to avoid feeling empty and dull. 2020 was touted by astrologers and feng shui masters to be an auspicious year for wealth building and the year people would get everything they wanted. No one predicted that 2020 will be the exact opposite. COVID-19 made us realize that there are certain aspects of our life that are uncontrollable. Instead of losing ourselves in despair and anxiety by focusing on situations beyond our control, it was our moment to reconnect to a deeper sense of purpose, promote our individual faith, and commune with nature. Hoping for a better 2021 In 2020, we lost the ability to physically connect with others at our usual places of congregation in offices, schools, restaurants, concerts, sporting events, homecomings, and church services. Now we look forward to reconnecting in-person with others including people who we often took for granted before. Though we may realize that returning to the old normal is not possible in the near future, at least there is hope that 2021 will bring us some respite from the virus. Most people expect things to start to return to a restrictive new normal as vaccines have arrived and inoculations began. For some of us, it will take some time until we have access to the vaccine, but as more people get it, there is a bigger chance that fewer people will acquire or die from the virus. The good news is that science has made us understand the virus better and will help humanity prepare for the next virus outbreak. We now see things from a different perspective. We appreciate our families, our friends, and everything that we have. We cherish not only our own lives but simple things like our environment and nature as a whole. We indulge in activities that nourish our physical and mental well-being. We start to have leisurely walks, road tours by bike, and indulge in our hobbies like growing plants and cooking. We see brand new clothes and shoes, unused and gathering dusts in our closets. We see cars parked idly in our garage because our movement is restricted. Nature has decided for us that now we need to own less. The pandemic has given us the opportunity to heal, preserve, and strengthen our bodies. It was also a time to cultivate more positive emotions – gratitude, compassion for self and others, connection and intimacy with family and optimism. It taught us to refocus on the most important things in life. What should we expect for 2021? 2021 is the time to dedicate ourselves to reflect, renew, and reset our lives after a tumultuous 2020 beset by failures and disappointments. It is a propitious time to reflect on where we’re at and where we want to be. It is the moment to renew our commitment to be a better person and make positive choices in life. It is the point of realization to reset everything and start anew after embracing our failures and making sure that things will turn out differently. Some people experience a positive change as a result of their struggle with a major life crisis or traumatic event. Success waits for people who can cope with the ongoing uncertainty. “What have we done differently in 2020 to cope with the pandemic?” For some of us who managed to navigate the pandemic with a positive attitude, the ongoing crisis honed our adaptability, resilience, agility, and tenacity. Just because our plans got derailed last year is no reason not to set our sights on our goals. Consider 2020 as a temporary setback and continue to believe in ourselves and trust our abilities to recover. We have to set a daily goal to keep us on our toes and motivate us to continue studying, and working. We must make it a point not to waste any day, any moment, or any amount of energy remaining as we continue to live on. Our inner confidence will allow us to direct our time and talent to our vision and ultimate goals. Our purpose should not be limited by the plans that fell through in 2020 or what we were unable to do. If we learn from our failures and take full responsibility, our trials will make us successful. And in time, we'll be even more successful, because we'll never stop trying to be better than we are today. Successful people have a purpose in life. They generate excitement, dedication and passion and these they share their passions with others. If we've found a purpose, something that inspires and fuels us to stand up and achieve, then we’re living life the way we want it. We are now witnessing the unprecedented development of different vaccines produced by both private and state-sponsored companies. Science-based and democratic institutions are much needed to address the vaccine development and roll-out. It is now government’s responsibility to procure them cheaply and distribute them within the soonest possible time. Hopefully, the end to the pandemic is near at hand though we’re not there yet. In the meantime, we should continue to be vigilant about our own safety and that of others. The challenge now is to educate a misinformed populace about the enduring risks of the coronavirus and the disinformation that circulates on social media on the necessity to be vaccinated. Vaccine hesitancy is a global health threat especially in developing countries. Even if a coronavirus vaccine is made available to everyone, people especially our front liners and elders need to be convince to get it. Personal reflections There were some silver linings in the clouds despite the pale and gloom that came in 2020. People learned how to become creative in augmenting their incomes and made use of their time for self-improvement. Since people no longer have to endure wasted hours spent in traffic, people working from home have become more productive. Meetings and conferences are easier to organize and attend. People actually looked forward to seeing their colleagues online to break the monotony of working alone. Attending professional and self-improvement webinars and getting accreditation from such became easier. Parents and children shared meals, bonded, and communicated forging stronger relationships never experienced during the time before the pandemic. Parents suddenly were getting involved in school work making sure that the kids are not getting shortchanged in their online schooling. People learned new skills and pursued a variety of home-based businesses and recreational activities. I know of some friends who renewed their passion in reading, cooking, gardening, painting and other personal pursuits which they have passed off in favor of the corporate rat race in their concrete jungles. Some of them turned their passions into successful online businesses. I discovered myself, learned to understand my quirks, and made it easy on myself. I believed we were brought up in a culture of accumulating material possessions which paled in comparison to the actual life-giving pursuits we have taken for granted. I see each day as a gift of life and another opportunity to live because many people had such chance taken from them. To keep myself busy, I made a thorough search of all the articles and photographs I have saved in my computer through the years. I compiled my Master or Laws research papers, notes, and powerpoint presentations accumulated in my teaching and lecturing vocation. I organized them, created my website and uploaded them in my blog site. It was the next best thing to writing and publishing a book. I also wrote blogs about music, films, arts, and even K-dramas. I tried perfecting my pasta recipes. I made a point to walk around the village everyday and converted part of our garage to a mini-gym. I continued to look after my health through video consultations with my doctors. Due to the physical distancing and travel restriction guidelines during the pandemic, what I really missed was our trekking group’s outdoor activities. I missed climbing mountains and camping in forests and mountain base camps. Nevertheless, with my new found time, it allowed me to take in the beauty of nature right in my own surroundings. I learned to slow down, relax and appreciate the good and simple things in my mundane life. I enjoyed staying under the sun and proverbially stopped to smell the flowers. The air was noticeably clean. During a lakeshore drive, I could clearly gaze at both the high-rises of Bonifacio Global City and the wind farms nestled on the Sierra mountain range of Rizal while taking a whiff of fresh air. Despite the pandemic, I continued to write articles for Philippine Resources as a way of getting myself updated with the resources and infrastructure industries. I did a lot of online lectures and webinars, gave interviews, and acted as resource speaker for online forums and conferences as part of my advocacy for renewable energy and responsible mining. My audience were varied - leaders of various industries, law school organizations, students and professionals involved in the mining and renewable energy industry, and geology majors reviewing for their board exams. These activities were my mental exercises. Though I certainly prefer in-person interaction, the good thing about my online lectures was that participants have overcome their nerves by interacting virtually compared to a physical seminar or conference. I noticed that participants in my webinars and lectures were more active in engaging me with their questions and comments. Surprisingly, even technically-challenged seniors have learned to master the internet and online meetings, including screen sharing of their presentations and files. I wish an instant reboot of life if not a total deletion from my memory of the enduring tragedies we experienced in 2020. I desire to return to people interacting without wearing wearing face masks and not conscious of any physical distance. But I realize that our lives will not return to our previous normal overnight. My motto is to survive in order to strive and prepare myself for the new normal. It will be a gradual and slow learning process beset with both small victories and temporary setbacks. Chaos and crises will not follow a timeline. The underlying challenges we encountered in 2020 will continue to haunt us well into the forthcoming years until the virus has totally been eradicated and the traumatic memories would just become a mere footnote in mankind’s history like the Spanish flu of the previous century. In 2020, we see how quickly our lives changed with the blink of our eyes. We realized that we are not in total control of the world. But the best part is that we are in total control of ourselves and we can certainly control how we interact with the world around us. That basically makes all the difference. We hope that 2021 will be a brighter and better year. Perhaps we can find inspiration in the biblical story of Job. After Job was made to suffer all misfortunes and tragedies in life, “…the Lord blessed the later days of Job more than his earlier ones ... Job lived a hundred and forty years; and he saw his children, his grandchildren, and even his great-grandchildren. Then Job died, old and full of years.” A better 2021 starts with a better “me”. Perhaps after a full year of a better 2021, we can look forward to a 2022 that will be even better. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at email@example.com for any matters or inquiries in relation to the Philippine resources industry. Atty. Penarroyo’s commentaries are also archived at his professional blogsite at www.penarroyo.com
Patricia A. O. Bunye - December 01, 2020
Zooming (and more) in the Pandemic
By: Patricia A. O. Bunye I have always wondered how the founder of Zoom, Eric Yuan, feels about making over USD12 billion since March 2020, when the pandemic began and practically everyone on the planet has been ‘Zoom-ing’ for work or play. With its simple features, Zoom has left competitors like Skype in the dust. Yuan is now ranked No. 85 on Bloomberg's list of the 500 richest people in the world. Before 2020, he wasn't even on the list. He is also number 43 in the Forbes 400, the magazine's annual ranking of the 400 wealthiest people in America, for the first time in 2020. He also made it to Time’s 100 Most Influential this year. It is not a fortune built overnight or by taking advantage of Covid 19, as some may wrongly assume. Yuan says he got the idea for Zoom while trying to find a way to connect with his long-distance girlfriend (now his wife) as a student. He was one of the original hires of WebEx, a videoconferencing startup, when he first moved to the US. When WebEx was acquired by Cisco Systems, Yuan pitched a new smartphone-friendly video conferencing system to Cisco management, but it was rejected. Cisco apparently preferred to concentrate on enterprise systems which was not the direction Yuan wanted to take, so Yuan left to establish his own company, Zoom Video Communications. It is not widely known that Yuan has a connection to the mining industry: his parents are mining engineers and Yuan himself has a master’s degree in geology engineering from the China University of Mining and Technology in Beijing. Thanks to Zoom, there a semblance of normalcy in our lives as it enables us to hold meetings, teleconferences, classes, negotiations, and lectures. I have attended masses, Holy Week services, a wedding, a wake, and reunions. This Christmas, I will likely see friends and family online there as well. Not a day has passed since the declaration of the lockdown in March that I have not connected with others via Zoom. The silver lining of the pandemic, if you could call it that, is that it has opened many opportunities for online learning. Students are not the only ones who have classes to attend online. There is a wide array of webinars pertaining to my areas of practice available at the click of a mouse, as well as many other topics such as politics (starting with the US elections), economics and finance, as well as a number of my (nerdy) pursuits. In fact, it has developed in me FOMO: a fear of missing out on the sheer variety of offerings. The Financial Times, for example, ran “The Commodities Mining Summit” online in October with the theme “A New Narrative for Mining”. With the 17 sessions featuring the CEOs of BHP, Anglo American, Glencore and Vale, among others, still available on demand, it is an unparalleled resource. In his opening keynote, BHP’s CEO Mike Henry underscored that mining remains an essential industry, something that we know too well, but the larger population still fails to appreciate. He says that Covid 19 has given the industry an opportunity to demonstrate its capabilities: how quickly it can mobilize, particularly in safeguarding the health of the companies’ workforces, to support the communities and business partners. According to him, the value created is not just for direct stakeholders, but the resources produced, the ability to generate employment, taxes, royalties, and dividends in a time of crisis is a “positive differentiator” relative to other industries, which produces economic development and an improvement in living standards throughout the world. He further stressed that there is little choice as to whether mining happens or not, but the choice is as to how it happens and who does it. In this regard, Mike Henry highlighted the role that commodities play in “rebuilding a better world”, particularly in addressing climate change and de-carbonization. He also emphasized the “build back better” (BBB) approach in relation to recovering after Covid 19, i.e., continuing to ensure sustainability as the mining industry bounces back. That commodities are essential was seconded by Glencore’s Ivan Glasenberg in a succeeding panel. He said that “new generation companies” like Tesla all depend on mining for the commodities that they require for batteries, solar panels, windmills and like. Unfortunately, he said, mining companies “get it wrong” by building new mines and underestimating the cost. Mark Cutifani of Anglo American, for his part, said that it is time for mining companies to stop thinking in terms of B2B (business to business) and start thinking in terms of B2C (business to consumer) so that the dialogue around mining shifts, i.e., when people talk about the provenance of products, they will become more comfortable with the idea that when they drive a car, build a house, use electrical power, or even drink water, the mining industry is involved in everything. Apart from this outstanding series of the FT, I have enjoyed the Wall Street Journal’s Women in the Workplace Forum where Facebook’s Sheryl Sandberg was one of the many speakers. It was also an occasion to launch “Women in the Workplace 2020” LeanIn.org’s comprehensive study on women in corporate America in collaboration with McKinsey & Co. What struck me in the study was that, notwithstanding the many gains made by women, Covid 19 has presented more challenges or demands on them in terms of additional child care or home schooling responsibilties, the health/illnesses of family members, mental issues/burnout, and other unique issues brought by the pandemic. One of the best online engagements I’ve had so far was a networking evening where the participants received cocktail making kits at home prior to the event and a bartender demonstrated how to mix drinks via Zoom. Next May, a conference that I attend annually may possibly be held 24/7 by Zoom to enable its members worldwide to participate from different timezones in 6 hour shifts. A radical idea, but with the world turned upside down by Covid 19, anything is possible these days. Patricia A. O. Bunye is a Senior Partner at Cruz Marcelo & Tenefrancia where she heads its Mining & Natural Resources Department and Energy practice group. She is also the Founding President of Diwata-Women in Resource Development, Inc., a non-government organization advocating the responsible development of the Philippines’ wealth in resources, principally, through industries such as mining, oil and gas, quarrying, and other mineral resources from the earth for processing.
Fernando Penarroyo - December 01, 2020
Infrastructure Investments to Return Philippine Economy to Growth
By: Fernando Penarroyo The Philippine economy grew on average by 6.3 percent annually over the last decade due to the country’s sound macroeconomic policies and structural economic reforms under President Rodrigo Duterte and his predecessor Benigno Aquino III. Before the COVID-19 pandemic, the Philippine economy ranked among the best performers in Asia. A December 2019 survey showed that most Filipinos deemed that the Duterte administration was building infrastructure “better” than previous administrations through the “Build Build Build” (BBB) program. The Philippines is among the most vulnerable countries in the world susceptible to risks from climate change, and volcanic, and tectonic activities. Hazard-resilient infrastructure will help lessen the impact of natural disasters. Regulators have markedly scaled-up public infrastructure investment, from an average of 3% of gross domestic product (GDP) during 2011–2016 to 5.1% in 2018. They plan to boost investment further to over 6% of GDP by 2022. The Duterte administration is banking on its infrastructure development program to be the main driver of the country’s economic recovery as the Philippines is currently in economic recession caused by the COVID-19 pandemic. The Philippines has suffered from one of the region's worst COVID outbreaks and among the top 25 countries with infections and fatalities, and with the longest government-imposed lockdown. To the credit of the government, a number of infrastructure projects has seen completion despite the quarantine measures in the past months. The two most anticipated infrastructure projects - the Metro Manila Skyway and the Metro Manila Subway, are expected to decongest the worsening transportation situation in the National Capital Region. To address capital's notoriously gridlocked roads particularly along the main artery traversing the city, the Metro Manila Skyway System (Skyway) is a 40-km long elevated expressway that cuts through greater Metro Manila. The Skyway, will connect the South Luzon Expressway with the North Luzon Expressway passing through the major cities of the National Capital Region including, Makati, Manila, Muntinlupa, Paranaque, Taguig, Quezon City, Caloocan, Pasay City and San Juan. With the completion of the Skyway Stage 3, the elevated expressway will also help cut the travel time between Metro Manila and Clark International Airport in Pampanga. On the other hand, the Metro Manila Subway (Subway) is the most expensive transportation project undertaken by the Duterte administration. The Subway, an underground rapid transit line currently under construction, spans a 36-kilometer line, which will run north–south between Quezon City, Pasig, Makati, Taguig, and Pasay consisting of 17 stations. It will become the country's second direct airport rail link after the North–South Commuter Railway, with a branch line to Ninoy Aquino International Airport Terminal 3. It is scheduled to be partially operational in 2022 and fully operational by 2025. In addition, construction of six railway projects is also underway. Once all the railway projects are completed, the number of stations across all railway systems will increase to 169 from 59, the number of trains to 1,425 from 221, and daily ridership to 3.26 million from 1.02 million. Following the COVID-19 pandemic however, the “BBB” program encountered setbacks with the realignment of part of its budget to finance the government’s response to the health and socio-economic crises. In the first semester of 2020, the government’s spending on infrastructure fell by 4.3% year on year to P297.9 billion. The 2020 budgets of the implementing agencies of the BBB program were also cut to fund dole-outs and medical response costing around PHP 121.9 billion (US$2.5 billion). The Department of Public Works and Highways (DPWH) was left with a much-lowered infrastructure program spending budget for 2020 at around PHP 458.9 billion (US$9.4 billion) down from PHP 580.9 billion (US$11.9 billion) while the Department of Transportation suffered a budget cut of around PHP 8.8 billion (US$181.2 million) from its original budget of around PHP147 billion (US$3.02 billion). Despite budget cuts in public spending on infrastructure projects, the government has revised the list of flagship projects and reprioritized its infrastructure program. The National Economic and Development Authority Board approved a revised list of 104 projects worth P4.1 trillion under the “BBB” program. In response to the country’s post-pandemic needs, the government came out with a new list that included the national broadband program, an irrigation project, transportation infrastructure projects, health care systems, and the construction of the Virology Science and Technology Institute of the Philippines with an estimated total value of around PHP 4.1 trillion (US$84.4 billion) Under the proposed P4.5-trillion national budget for 2021, the government increased the budget for infrastructure development by 41% to P1.107 trillion from the reduced P785.5-billion budget this year, with the biggest allocation of P157.5 billion going to the DPWH. Reverting to PPPs Public-Private Partnership (PPP) will play an increasingly important role in the “BBB” infrastructure plan to tap on private capital as the government’s ambitious infrastructure plans face fiscal challenges. This marks a shift back to the investment policy previously adopted by the Aquino administration and will offer more opportunities for private sector participation. However, the present administration has tighten provisions employed by the Aquino government which present regulators deem to be ‘detrimental’ to public interest, including automatic rate increases, commitments of non-interference, and non-compete clauses. Since the start of 2020, PPP projects have reportedly raised Php1 trillion ($20.62 billion) worth of investments as approved by the Interagency Investment Coordination Committee-Cabinet Committee. These include the $15-billion second airport for Manila signed in September 2020. San Miguel Corp. entered into a $15-billion contract with the government to build Manila’s second aviation gateway in Bulacan province, 30 minutes north of the capital. The build-operate-transfer project, covered by a 50-year concession deal, calls for a new airport designed to accommodate up to 200 million passengers annually aim at decongesting the overcrowded Ninoy Aquino International Airport. On the power side, ongoing projects include the LNG Import Facility in Batangas at the cost of $2 billion. The Department of Energy recently issued an order calling for a moratorium on the endorsements of the construction of future coal-fired power plants. Also, the DOE has finally confirmed that foreign-owned companies can engage in geothermal exploration, development, and utilization. This is provided under the Renewable Energy Law of 2008 which defined geothermal as mineral resources. The Philippine Constitution allows foreign ownership of large-scale petroleum, minerals, and mineral oils projects. These two developments are expected to benefit the incipient imported LNG and renewable energy industries. According to the “Procuring Infrastructure PPP” component of Fitch Solutions Country Risk & Industry Research’s Project Risk Index (Fitch PRI), the Philippines has a relatively well-structured PPP framework compared to other major South-East Asian emerging markets,. Its well-developed PPP program is mainly driven by the Philippine PPP Center, an administrative body tasked with providing technical assistance to various stakeholders involved in the PPP transaction and advocating policy reforms to improve the PPP framework. There currently exists three pieces of legislature - Republic Act Nos. 9184, 6957 and 7718, which provides the legal framework in the implementation of PPP projects. Challenges and Risks While the PPP business environment for infrastructure has a supportive institutional framework for private sector participation, the World Economic Forum’s global competitiveness report places the Philippines among the lowest in ASEAN in key infrastructure services and substantially lower than the ASEAN average in overall infrastructure. Given the prospects of a high demand for infrastructure from economic and demographic growth, there is a need for a significant upgrade. According to Fitch PRI, the Philippines rank lowly in both indicators of construction timeliness (Bureaucratic Environment and Construction Permit), pointing to a heightened risk of completion delays. In addition to project risk, there exists high operational risk, mainly attributable to crime and security risks, as the country suffers from high levels of crime and is vulnerable to terrorist attacks. In the 2018 Corruption Perception Index, the Philippines was ranked 99 out of 180 countries, indicating a high level of corruption which undermines the effectiveness of laws and regulations in place. Electricity generation capacity per capita is among the lowest in ASEAN while power transmission and distribution loss is at the ASEAN average. The government must address the need to enhance capacity with the expected continuous high economic growth. Also, with the impending depletion of the Malampaya natural gas field, there is a need to replace this energy source. The Malampaya gas-to-power facility comprises 21% of the total generation mix in the country and fuels five power plants with a total generating capacity of 3,211 megawatts. Internet speed in the Philippines is among the slowest and most expensive in the world, no thanks to under-investment, poor government policy and the country’s archipelagic nature. In a 2018 test measuring the average download speed of a 5GB file, the Philippines ranked 97th in the world (at 1hr 52min) compared to 8 min in Taiwan, 9 min in its ASEAN neighbor Singapore, and Thailand at 37 minutes. Slow internet speed puts the country at a great disadvantage. Industry consolidation in the last 30 years has resulted to the virtual duopoly of Globe Telecom and Smart Telecom. The Duterte government recently gave the third franchise to a new operator, Dito Telecom, which promised to use the latest 5G technology, install 10,000 cell sites and roll out services by March 2021. Investors continues to face a high degree of risks as the infrastructure program is undermined by a number of major impediments, particularly the four Cs - inadequate cost recovery, corruption, insufficient competition, and low credibility of institutions. Despite having one of the most comprehensive PPP frameworks in the region, the government must institute reforms to tackle these impediments. Improving Infrastructure Investments Management Ensuring that the government properly manages its infrastructure spending will be a challenge. Enhancing public investment management would contribute to timely and cost-effective planning and execution of infrastructure projects. A recent IMF Public Investment Management Assessment ranks the Philippines similarly to its regional peers, but observes an efficiency gap of about 23% compared with best practices in translating public investment into infrastructure. As recommended in the report, project appraisals can be enhanced by requiring upfront identification of risk mitigation measures and publishing appraisal analyses to elicit comments from the public. An adequate identification and management of risks will complement public sector efforts in infrastructure promotion. Regulators can also embark on an update of the legal framework to include encouraging new forms of PPPs and developing domestic capital markets that will entice more private-sector participation, as long as financial risks to the government are well managed. Measures to promote competition and trade would reinforce the benefits of other reforms. Recent reforms have focused on reducing the costs of doing business through increased administrative and regulatory efficiency with the establishment of the Anti-Red Tape Authority, promoting one-stop shops, e-platforms, standardization of licensing procedures, and regulatory transparency. Implementation of the ease-of-doing-business law will complement efforts to cut red tape as well by increasing transparency and accountability of regulatory agencies. Greater competition will help in managing costs and reducing risks of corruption. Although an institutional framework is in place for transparent and competitive public procurement process, reforms are still needed to ensure that the process is made more competitive. Competition is still not sufficiently effective in practice with many tenders resulting in bid rigging. Competition can also be promoted by imposing stricter sanctions on anti-competitive practices, such as larger financial penalties and longer exclusion from future tendering. Making procurement information more easily accessible and ensuring that bidders are technically and financially qualified will increase transparency. Authorities should also be insulated from short-term political pressures so as not to undermine regulatory credibility. Upgrades in public information technology infrastructure, such as e-invoicing and digital national identification cards, will also promote efficiency and transparency. Despite recent progress, high barriers to foreign direct investment remain in the Philippines. Lowering obstacles to foreign investment, currently pegged at 40%, will stimulate private investment, ease domestic capacity constraints, and facilitate absorption of frontier technologies. Finally, tax reform can help sustain the infrastructure push while safeguarding fiscal sustainability. The government’s recent tax reforms have led to a significant increase in revenue collection but it is imperative to pass the remaining packages of reforms for further improvements in the tax system once the country is out of the pandemic crisis. These reforms will support sustainable investment in infrastructure and human capital. Conclusion The infrastructure industry remains an important engine of growth for the Philippine economy but despite recent progress, there still are relatively high barriers and procedural hurdles that hampers the development of its full potential. Strengthening the public procurement process with greater competition and transparency, and allowing greater foreign participation in domestic projects would help in managing costs and reducing risks. Private investment is projected to increase over time with the government’s infrastructure push and ongoing economic policy reform efforts, which will lead to higher economic growth and subsequent investments in education, health care, digital technologies, climate change and natural disasters mitigation. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at firstname.lastname@example.org for any matters or inquiries in relation to the Philippine resources industry. Atty. Penarroyo’s commentaries are also archived at his professional blogsite at www.penarroyo.com References Hilotin, Jay, Philippines: $85 Billion Infrastructure Spending in 104 Projects, Gulf News, 01 October 2020, https://gulfnews.com/business/philippines-85-billion-infrastructure-spending-in-104-projects-1.1601554247671 Malindog-Uy, Anna, “Build Build Build” Program Amid a Pandemic, The ASEAN, 13 September 2020, https://theaseanpost.com/article/build-build-build-program-amid-pandemic Noble, Luz Wendy T., Infrastructure Push to Aid Recovery, BusinessWorld, 14 September 2020, https://www.bworldonline.com/infrastructure-push-to-aid-recovery/ Philippines IMF Country Report 20/36, 06 February 2020, https://www.imf.org/en/Publications/CR/Issues/2020/02/05/Philippines-2019-Article-IV-Consultation-Press-Release-and-Staff-Report-49021 Philippine Infrastructure To Rely More On Private Capital, Infrastructure & Project Finance / Philippines, Fitch Solutions Country Risk & Industry Research, 12 November 2019, https://www.fitchsolutions.com/infrastructure-project-finance/philippine-infrastructure-rely-more-private-capital-12-11-2019 Takuji, Komatsuzaki, Improving Public Infrastructure in the Philippines, Asian Development Review, vol. 36, no. 2, pp. 159–184, 2019, https://www.imf.org/external/pubs/ft/wp/2016/wp1639.pdf The Philippines: A Good Time to Expand the Infrastructure Push, IMF Country Focus, 06 February 2020, https://www.imf.org/en/News/Articles/2020/02/06/na020620the-philippines-a-good-time-to-expand-the-infrastructure-push
Fernando Penarroyo - September 24, 2020
New World Economy - Tech Giants Go Into Mining
BY: Fernando “Ronnie” S. Penarroyo Late last year, the International Rights Advocates filed a lawsuit in a Washington DC court on behalf of fourteen (14) Congolese families against several companies, alleging that their children were killed or injured while mining for cobalt in the Democratic Republic of the Congo (DRC). The lawsuit further alleges that the young children are being forced to work full-time jobs under extremely dangerous conditions at the expense of their educations and futures with the defendants knowingly benefiting from and providing substantial support to this artisanal mining system. Cobalt extraction is beset with concerns of illegal mining, human rights abuses and corruption and this could be regarded as an ordinary suit lodged by human rights advocates and interests groups against erring mining companies operating in Africa. This is in fact a landmark suit in the annals of the mining industry. More than 60% of the world’s supply of cobalt is mined in the ‘copper belt’ of the south-eastern provinces of DRC. Cobalt is a mineral used to produce lithium-ion batteries for electric cars, laptops and smartphones. What makes this case interesting is that among the defendants in the case are some of the world’s largest tech companies - Apple, Alphabet (which is the parent company of Google), Microsoft, Dell and Tesla. The tech companies are accused of aiding and abetting the deaths and serious injuries of children working in cobalt mines, a vital cog in the corporations’ supply chain in the manufacture of their products. Digital Technology Drives Demand for New Economy Minerals Digital technology is becoming a defining factor in the future of mining operations. Robotics and automation through drones, autonomous vehicles and remote-controlled operational systems will be rolled out more widely to enhance exploration efforts production. Cloud computing, information sharing and big data enable work to be performed remotely and more flexibly taking employees away from hazardous on-site events and improving health and safety conditions. On the demand side, technology is also impacting the market for mining’s outputs. The rise of electric vehicles and the production of an ever-growing variety of high tech and green technologies, have also boosted demand and competition for new economy minerals. ‘New economy minerals’ is an umbrella term for a range of metals and mineral elements used in many emerging technologies including electric vehicles, renewable energy products, low-emission power sources, consumer devices, and products for the medical, defense and scientific research sectors. Technology have also expedited the dramatic rise of the ‘sharing economy’, where consumers use their smartphones to share goods and services such as accommodation, transportation, and finance, as well as streaming of entertainment and data. According to a recent report by McKinsey, some 1.8 billion people are expected to “join the global consuming class by 2025”, a huge 75% increase from 2010. The mining industry will be hugely affected by this growth, with predicted shortages of a range of metals and minerals including copper, nickel, cobalt and lithium. Tech Companies - Emerging Big Miners? Flushed with capital and brand-savvy, technology companies who are major users of mining products, want to take full control of their supply chains and are out-competing incumbent conventional miners, who are struggling for the capital, skills and capacity to innovate. These new players have access to cutting edge technologies and a track record of success in highly regulated environments such as healthcare, finance or defense. They know they can do a better job and are free of legacy issues attached to the mining industry. These new entrants can take advantage of low valuations and asset fire sales from the conventional miners. Technology companies have become direct or indirect investors as a way of shoring up and securing supply and are moving to control whole value chains from raw material sourcing up to product delivery of new economy minerals. Using blockchain technology, new technology entrants can engage in mining without owning any mines or distribution infrastructures in the same way that Uber does with no cars and Airbnb, with no real estate listings. The transformation to digital technology and low-carbon clean energy was further expedited by the onslaught of the Covid-19 pandemic, which disrupted lives and operations but heightened the use of the app economy. Amazon, Apple, Facebook, Google and Microsoft are now aggressively placing new bets as the coronavirus pandemic has made them near-essential services, with people turning to them to shop online, entertain themselves and stay in touch with loved ones and business colleagues. New investments by tech giants are transforming the landscape of the resources industry. Among those leading the charge are tech billionaires Bill Gates, Jeff Bezos and Richard Branson, who have all built their careers on innovation, thinking outside the box and pushing through disruptive change. They are backers of technology fund, Breakthrough Energy Ventures (BEV), which joined forces with hedge fund a16z to invest in mineral exploration company KoBold Metals and its search for ‘ethical’ cobalt. Google, on the other hand also entered into a partnership with a global consulting firm to boost productivity in mining in Kazakhstan. Back in 2015, automotive and energy storage company, Tesla signed early stage agreements with junior mining companies, with no prior existing production, to supply their new ‘gigafactory’ in Nevada with lithium. The deal signaled to the world’s incumbent lithium miners that new customers like Tesla are not frightened to explore high-risk, high return alternatives when they find that current market conditions do not suit their needs. Tesla CEO Elon Musk is reportedly considering taking the company into the mining business to gain more control over its supply chain and the scalability of raw materials for its electric car and battery work. Meanwhile lawmakers and regulators in Washington and Europe are sounding the alarm over the tech giants’ concentration of power and how that may have hurt competitors. Without any pushback from regulators, big tech companies would almost unquestionably come out of the pandemic more powerful. Clean Energy Transition - Goodbye Fossil Fuels? Hello Minerals! The pandemic has caused disruptions to the renewable energy industry in its supply chains, and slowdowns in permitting and construction have delayed projects. Still, analysts agree the renewable energy sector’s fundamentals are strong. Technologies have matured and prices dropped, to the point where renewables in most cases provide cheaper energy than fossil fuels. Policymakers are now starting to shift their focus from pandemic challenges to economic recovery and energy infrastructure plans. The fossil fuel industry is among the hardest hit by the coronavirus crisis, with leading oil, gas and petrochemical companies losing an average of 45% of their total market value. The challenge from the coronavirus for oil & gas companies has been heightened by the oil price collapse and continuing price uncertainty because of weaker demand from the transportation and power industry. With the crisis also hastening a global shift to cleaner energy, fossil fuels will likely be cheaper than expected in the coming decades, while emitting the carbon they contain will get more expensive. These two simple assumptions mean that tapping some petroleum fields no longer makes economic sense. British Petroleum announced that it would no longer do any exploration in new countries. The pandemic will likely discourage exploration and about 10% of the world’s recoverable oil resources—some 125 billion barrels— is expected to become obsolete and stranded assets. Some larger companies would evaluate its portfolio of discoveries and leave some undeveloped. Complicated projects could be shelved in favor of fields that are quicker to develop. Less than a decade ago, Exxon Mobil was the most valuable company in the world. On the last working day of August this year, it was taken out of the Dow Jones industrial average after nearly a century of inclusion in the index. Exxon and other oil giants mostly missed out on the fracking boom, and on the move away from fossil fuels. Apple which became a US Dollar Two Trillion company in market capitalization is now the world’s most valuable company. Today the personal wealth of Jeff Bezos of Amazon is worth more than Exxon. Exxon and the oil industry is giving way to a dominant tech industry with Exxon’s spot in the stock exchange being taken over by a tech company: Salesforce.com. One will ask, what is the role of mining in the clean energy transition. A new World Bank Group report, “Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition”, analyzes how the clean energy transition will impact future mineral demand. The report finds that the production of minerals, such as graphite, lithium and cobalt, can increase by nearly 500% by 2050, to meet the growing demand for clean energy technologies. It estimates that over 3 billion tons of minerals and metals will be needed to deploy wind, solar and geothermal power, as well as energy storage, required for achieving a below 2°C future. The report also finds that even though clean energy technologies will require more minerals, the carbon footprint of their production—from extraction to end use—will account for only 6% of the greenhouse gas emissions generated by fossil fuel technologies. The report underscores the important role that recycling and reuse of minerals will play in meeting increasing mineral demand. It notes that even if the recycling rates for minerals like copper and aluminum is scaled up by 100%, recycling and reuse would still not be enough to meet the demand for renewable energy technologies and energy storage. Amidst the pressure to continue or even increase the use of clean energy and electric cars, a report by the Manhattan Institute entitled “Mines, Minerals, and ‘Green’ Energy: A Reality Check” postulated issues that were left out in the discussions of the environmental and supply-chain implications in renewable energy technology. According to the report, no energy system is actually ‘renewable’, since all machines require the continual mining and processing of millions of tons of primary materials and the disposal of hardware that inevitably wears out. Compared with hydrocarbons, green machines entail, on average, a ten-fold increase in the quantities of materials extracted and processed to produce the same amount of energy. This means that any significant expansion of today’s modest level of green energy will create an unprecedented increase in global mining for needed minerals and radically exacerbate existing environmental and labor challenges in emerging markets. Among the material realities of green energy cited by the report are: Building wind turbines and solar panels to generate electricity, as well as batteries to fuel electric vehicles, requires, on average, more than ten times the quantity of materials, compared with building machines using hydrocarbons to deliver the same amount of energy to society. A single electric car contains more cobalt than a thousand smartphone batteries; the blades on a single wind turbine have more plastic than five million smartphones; and a solar array that can power one data center uses more glass than fifty million phones. Replacing hydrocarbons with green machines under current plans will vastly increase the mining of various critical minerals around the world. For example, a single electric car battery weighing a thousand pounds requires extracting and processing some five hundred thousand pounds of materials. Averaged over a battery’s life, each mile of driving an electric car “consumes” five pounds of earth. Using an internal combustion engine consumes about 0.2 pounds of liquids per mile. Oil, natural gas, and coal are needed to produce the concrete, steel, plastics, and purified minerals used to build green machines. The energy equivalent of a hundred barrels of oil is used in the processes to fabricate a single battery that can store the equivalent of one barrel of oil. By 2050, with current plans, the quantity of worn-out solar panels—much of it non-recyclable—will constitute double the tonnage of all today’s global plastic waste, along with over 3 million tons per year of non-recyclable plastics from worn-out wind turbine blades. By 2030, more than ten million tons per year of batteries will become garbage. Green machines mean mining more materials per unit of energy. Since clean tech is about supplying energy in a more ‘sustainable’ fashion, one needs to consider not just the physical mining realities but also the hidden energy costs of the underlying materials themselves. Finally, in any full accounting of environmental realities, there is the disposal challenge inherent in the very large quantities of batteries, wind turbines, and solar cells after they wear out. Ethical Sourcing of Minerals for Tech Companies - Smarter and Greener? Ethical supply chains and ‘green’ practices will be on the agenda for tech giants with mining ventures, a brand promise that the minerals that go into their products are produced in the most responsible way and meeting the changing expectations of their consumers. A poll completed by Forbes in 2018 showed that 88% of consumers would like brands to be more environmentally friendly and ethical. As such, it is unsurprising that companies are increasingly starting to investigate not only their sustainability but also that of their supply chain. One condition that can slow a company’s growth is poor sustainability performance, as measured in environmental and social impact, as well as permission from consumers, investors, and regulators to do business. While tech companies may declare their deep commitment to the responsible sourcing of ‘ethical’ minerals that go into its products, how can a company ensure the sustainability of its supplier? With supplies of metals like nickel becoming depleted, companies may have to broaden their supplier pools if they wish to expand but doing so will increase the risk of having to rely on suppliers that do not meet sustainability standards. Elon Musk promises a ‘giant contract’ with the miner that can supply nickel for Tesla batteries at low cost with minimal environmental impact. However, the nickel projects expected to supply a large part of the demand being built in Southeast Asia will rely on coal, fuel oil or diesel to run their operations leaving a very large carbon footprint. In Indonesia which holds about a quarter of all nickel reserves, companies operating there are investing in projects that will use acid to process low-grade nickel ore and produce high-quality battery chemicals. The diluted byproducts will be piped out to the sea using a process known as deep-sea tailings disposal. Apple, recently has been accused of abetting child labour and environmental damage. In recent years the company has sought to clean up its act by collaborating with suppliers to increase their usage of renewable energy and altering designs to reduce its usage of key aspects like aluminium. A significant proportion of cobalt and tantalum, both used in handheld gadgets, is produced by artisanal miners in countries where regulations can be lax or non-existent. In addition, data of origin from the mine site passes through seven stages from mine to manufacturer and can be changed along this process, thus data credibility is endangered by unscrupulous traders and middlemen. Monitoring by tech companies of their raw materials suppliers would be increasingly complicated. While companies have no real power to make their suppliers pursue sustainable practices, some tech companies are joining forces with the purpose of helping suppliers guarantee the ethical sourcing of such minerals. These companies share secured information using enterprise-grade blockchain middleware in solving the mineral sourcing problem faced by technology companies. Others are creating platforms that provide technology companies transparency on the origin of the minerals they use to avoid funding conflict or child labour, while also giving them the control to make contracts with the miners directly. From Trade War to Tech War The world’s largest economies obviously the most voracious users of new economy minerals are also involved in securing the commodities owing to its economic and strategic value. Rare earth metals, a suite of 17 elements, are crucial to important technological applications ranging from electric cars and smartphones to satellites, lasers, fighter jet engines and missiles. China owns 36.7 per cent of global reserves and is the world’s largest producer and exporter. Its output last year accounted for 62.8 per cent of the world’s total, according to the US Geological Survey. Because rare-earth elements have essential uses in a range of civil and military technologies such as weapons guidance systems, China’s control of supply is a powerful commercial and diplomatic bargaining chip. China supplies the US about 80 per cent of its rare earths requirements from 2015-2018. However, exports of rare earth elements decreased down to 1,620 tonnes in July 2020, a drop of 69.1 per cent from a year earlier and down 44 per cent from June, according to Chinese customs data. Earlier threats to cut-off supplies of the elements, especially the two most important heavy rare earths, neodymium and praseodymium, have caused short-term disturbances in the market. Part of the decline can be attributed to the risks of relying on China for rare earth supplies and the US restarting operations last year at mines in California. As the US is launching sanctions against Chinese technology companies and threatening to punish Chinese financial institutions, there are voices in China saying the country can take countermeasures by restricting rare earth exports to the US. The rising calls on rare earth trade came as the escalating rivalry between the world’s two largest economies has fueled concerns over a trade war turning into a technology war. Whether China intends to proceed with a trade embargo on rare earths is unclear but the threat itself has sparked a reaction which involves the U.S. government and several allies in pushing ahead with plans to develop non-Chinese supplies of rare earths. The rollout of fifth generation, or 5G, network technology would be a battlefield in the US-China tech war. The upgrade from 4G to 5G is expected to exponentially increase internet-connectivity in industries that require big data, improve off-load computing to the cloud, and enable huge advances in automation and artificial intelligence. The 5G infrastructure will intertwine factories, power plants, airports, hospitals and government agencies. Huawei Technologies, a Chinese company which is the world’s biggest telecommunications company and also the largest manufacturer of smartphones, has all but cornered the market for the roll out of 5G networks. The US has security concerns over the company and has accused it of rampant theft of intellectual property and selling U.S. tech to hostile states like Iran and North Korea. The advent of 5G using Huawei’s technology and network infrastructure brings with it enormous geo-strategic implications to the defense and security of the US and its allies. The US is doing everything it can to slowdown Huawei’s technological advance not only in the US’ domestic market, but also putting intense pressure on allies around the world to ban Huawei from their 5G networks on national-security grounds. So far, the UK government has heeded the call to ban Huawei from participating in its 5G mobile network. Australia, New Zealand, Japan, and India have imposed similar bans while numerous countries alleged that the company’s products may purposely contain security holes and malware that China’s government could use for spying purposes. Huawei also faced numerous supply chain, chip and software partner challenges amid new U.S. regulations against the company. Google, Intel, Qualcomm, Xilinx, and Broadcom are cutting supplies to Huawei, according to multiple reports. However, industry executives and experts warned that U.S. restrictions on Huawei are likely to choke the Chinese company’s access to even off-the-shelf computer microchips ultimately disrupting global tech supply. TikTok, a popular video-streaming app and social media platform developed by China’s ByteDance, is similarly accused of data privacy violation by the Trump administration. Trump issued an executive order forcing ByteDance to sell or spin off its U.S. TikTok business. Under the order, ByteDance is expected to destroy all its copies of TikTok data attached to U.S. users. Conclusion There are two stark realities arising from the digital and clean energy transformations - the mining industry is here to stay and tech money is flowing into the industry. There will also be disruptions in the way that mining is done as the industry migrate to a digital core. Not only will digital technology be an integral part in the mining value chain but companies will also need to address the sustainability and ethical challenges demanded from them not only by direct stakeholders but from consumers as well. The tech sector, bereft of legacy issues, offers to innovate and improve operational efficiency, reduce costs, enhance productivity, and improve safety and environmental performance. Let’s see if they can live up to their promises. As the cliche goes, “Go ahead, put your money where your mouth is”. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at email@example.com for any matters or inquiries in relation to the Philippine resources industry. Feel free to follow Atty. Penarroyo’s professional blogsite at www.penarroyo.com References: Bridgwater, Holly, Vanadium Industry In The News, Bill Gates and Richard Branson Have Their Sights on the Mining Sector — and Investment Opportunities for Startups Abound, https://www.vanadiumcorp.com/news/industry/bill-gates-and-richard-branson-have-their-sights-on-the-mining-sector-and-investment-opportunities-for-startups-abound/ Casey, JP and Lempriere, Molly, Debate: Can Tech Giants Like Tesla and Apple Change Mining for the Better? Mining Technology, 19 November 2019, https://www.mining-technology.com/features/tesla-apple-mining-technology/ Hund, Kirsten; La Porta, Daniele; Fabregas, Thao P.; Laing, Tim; Drexhage, John, Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition, World Bank Climate-Smart Mining Facility, 2020, http://pubdocs.worldbank.org/en/961711588875536384/Minerals-for-Climate-Action-The-Mineral-Intensity-of-the-Clean-Energy-Transition.pdf Hurst, Laura, Oil Companies Wonder If It’s Worth Looking for Oil Anymore, Bloomberg, August 16, 2020, https://www.bloomberg.com/news/articles/2020-08-16/oil-companies-wonder-if-it-s-worth-looking-for-oil-anymore?campaign_id=7&emc=edit_MBAE_p_20200816&instance_id=21327&nl=morning-briefing®i_id=61527711§ion=whatElse&segment_id=36249&te=1&user_id=9d764125756d748742119e474622a869 Is Mining Really Ready for the Future? https://www.pwc.com/gx/en/energy-utilities-mining/assets/pwc-mining-transformation-final.pdf Mills, Mark P., Mines, Minerals, and "Green" Energy: A Reality Check, Manhattan Institute, July 9, 2020, https://www.manhattan-institute.org/mines-minerals-and-green-energy-reality-check Ochab, Ewelina, Are These Tech Companies Complicit In Human Rights Abuses Of Child Cobalt Miners In Congo? Forbes, Jan 13, 2020, https://www.forbes.com/sites/ewelinaochab/2020/01/13/are-these-tech-companies-complicit-in-human-rights-abuses-of-child-cobalt-miners-in-congo/#6bc8cd483b17 Tang, Frank, China’s Rare Earth Export Plunge Caused by Coronavirus, Not Beijing Agenda, Industry Group Says, South China Morning Post, 18 August 2020, https://www.scmp.com/economy/china-economy/article/3097847/chinas-rare-earth-export-plunge-caused-coronavirus-not Tech Companies Join Forces to Promote Ethical Sourcing of Minerals, MINING.COM, October 11, 2019, https://www.mining.com/tech-companies-join-forces-to-promote-ethical-sourcing-of-minerals/ The Future of Work: The Changing Skills Landscape for Miners, Ernst and Young, Mining Minerals Council of Australia, https://minerals.org.au/sites/default/files/190214%20The%20Future%20of%20Work%20the%20Changing%20Skills%20Landscape%20for%20Miners.pdf
Patricia A. O. Bunye - September 24, 2020
A “modern day gold rush”
BY: Patricia A. O. Bunye: Over the past few months, the price of gold has been going haywire. As the coronavirus pandemic changed the world as we knew it in March, the price of gold crashed alongside stocks then quickly regained. Thereafter, a frenzy of investment drove up the price to an all-time high. On August 4, it shot up to USD2,021/troy ounce for the first time ever before another week of big swings. It has also been reported in the Financial Times that governments globally have announced USD20 trillion worth of stimulus to combat the impact of the coronavirus, equivalent to a little over 20% of global gross domestic product. According to Bank of America, the impact of the coronavirus and US-China tensions could push the gold price towards USD$3,000/ troy ounce in the next 18 months. The volatility of the price of gold has drawn both Wall Street and mainstream investors seeking fast gains, leading some analysts to call it a “modern day gold rush” and call into question gold’s reputation as a safe haven asset. Gold is generally considered a “safe haven” because it has acted as a store of value, maintaining its purchasing power for thousands of years. The reality is that over the long term, the price of gold remains constant while the price of everything else goes up. A safe haven investment typically offers diversification to an investor’s portfolio, helping it withstand volatility, or short-term swings in the prices of assets that are more vulnerable to market whims. They normally perform well during downturns and financial crises when riskier assets underperform. These days, however, prices can move at a moment’s notice without a fundamental reason. Volatility means more risk and that means gold isn’t necessarily the haven people think that it is. To understand why the price of gold is so volatile, it is also necessary to understand how gold trading works. Like other precious metals, the price of gold is tied to other physical assets. The physical gold market involves mining, processing, travel and sales. Mining happens on every continent, except Antartica. The top producing countries are China, Russia and Australia, accounting for 2500-3000 metric tons of gold annually. The gold is smelted and refined into bars, coins, and other products, including jewelry. According to the Wall Street Journal, much of the gold is sent to London where the Bank of England holds roughly 400,000 bars of gold worth USD260 billion. The physical trading of gold takes place with a few banks working with the London Bullion Market Association to set the price of a troy ounce of gold. The gold stash in London is said to be rivaled only by that of the Federal Reserve Bank of New York, which holds the largest hoard of physical gold. In other places in the world, gold is a common investment as well. In many cultures in Asia, gold is seen as having an intrinsic value and prestige that can be passed down from generation to generation, thus generating a large demand for physical gold in the form of bars, jewelry and coins. Those who want physical gold, generally go to sources such as APMEX, the world's largest online retailer of precious metals, with over USD11 billion in transactions since its founding in 1999. It is also possible to buy exchange-traded funds that hold physical metal, the largest of which is SPDR Gold Shares, which is traded on the New York Stock Exchange (NYSE). Aside from gold that is traded on the physical market, gold is also tied to commodity futures. Gold futures are traded on the commodity exchange (comex) of the New York Mercantile Exchange (NYMEX). After the unexpected stellar performance of gold last August, the price has gone down again as of this writing, a reminder that the momentum in the market can change quickly. Still, it hasn’t stopped the gold frenzy. Some analysts say that what’s drawing investors to gold now is not faith in gold itself, but more a lack of faith in other things: central banks, governments and, in particular, a lack of faith in the availability of real returns elsewhere. Patricia A. O. Bunye is a Senior Partner at Cruz Marcelo & Tenefrancia where she heads its Mining & Natural Resources Department and Energy practice group. She is also the Founding President of Diwata-Women in Resource Development, Inc., a non-government organization advocating the responsible development of the Philippines’ wealth in resources, principally, through industries such as mining, oil and gas, quarrying, and other mineral resources from the earth for processing.