BWorld 162, Open pit mines and open economy

* This is my article in BusinessWorld on October 27, 2017.

Open pit mining (OPM) is not as scary and draconian as many activists would paint it to be. Thus the ban on OPM by the CA-rejected ex-DENR secretary Gina Lopez has little or zero technical basis, only emotional outburst.

The Mining Industry Coordinating Council (MICC), the multi-stakeholder body on the sector has finally decided that the ban on OPM should be abandoned and new DENR Secretary Roy Cimatu has said that he will soon issue a new department order for this.

OPM is done and practiced in many countries including developed ones like the US, Australia, Germany, Sweden and Canada. Mining firms and their stockholders get good income, governments get huge tax revenues, many workers get long-term high-paying jobs, and consumers worldwide enjoy continued supply of electricity, gadgets, appliances, cars, steel bars and numerous other products of mining. (See table)

Now that the uncertainty of OPM banning has been removed, existing mines should be able to continue their production without fear of policy reversals. The image of the country as having fickle, atras-abante investment policies should be somehow corrected.

New, big prospective mining projects in the Philippines will hopefully see the green light for their operations. Two of those big potential projects are (1) the $2-billion MVP-led Silangan gold mine in Surigao del Norte, and (2) the $5.9-billion Tampakan gold-copper project in South Cotabato. The latter is actually the Philippines’ single biggest foreign investment project and is expected to bring huge income for the locals and the government, national and local.

Many local anti-mining groups vehemently oppose the Tampakan project citing thousands of hectares of land that will soon be wasted. That is an outright exaggeration. The copper-gold ore extraction in just one area is projected to be about 2.5 kms. wide, 3 kms. long and about 0.8 km deep, after 17 years of operation. This is significantly smaller than the Hibbing and Bingham Canyon in the US, among other big OPMs in the world.

Government should simply set the parameters and criteria for business to follow based on existing laws, like the Mining Act of 1995. Once government has given its permit and approval for a mining project, it should simply monitor the players that they comply with the laws and penalize violators, not change rules midway and in the process, violate the laws that it is bound to follow and implement in the first place.

The rule of law applies not only to businesses and regulated entities but also to the government. The rule of law applies to both governors and governed, both administrators and administered, both regulators and regulated. If governors and regulators want to exempt themselves from the law and make their own instant rules, that is the rule of men with arbitrary powers circumventing the rule of law.

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See also:
BWorld 151, Mining taxes per hectare of land, September 22, 2017
BWorld 159, Electoral reforms and the President, October 19, 2017 

BWorld 160, A high carbon tax is irrational, October 25, 2017 

BWorld 161, The sin of smuggling and corruption in the Sin tax law, November 02, 2017

Mining 55, Kaleidoscope forum by UP MINERS

Last Thursday evening, September 28, the student organization UP MINERS held a forum on "Kaleidoscope: Various Perspectives on Mining" held at the UP College of Engineering Theater. Just panel discussions, no powerpoints. There were six of us panelists -- two from the DENR Mines and Geosciences Bureau (MGB), Atty. Josephine Sescon and another officer; Atty. Ronnie Recidoro of the Chamber of Mines (COMP), Engr. Duday de Sales of Woodfield Consultants, Jaybee Garganera of Alyansa Tigil Mina (ATM) and me.

Mining is beautiful in the sense that it can create a lot of jobs, lots of community projects for many decades in a relatively small area via deep open pit mines. Instead of quarrying and digging over a wide area of tens or hundreds of thousands of hectares, one open pit will need only several hundred hectares and machines and trucks can dig there for many decades. Similar to a high rise condo, instead of needing dozens of hectares to house 500 households, one will need only half hectare to build housing for 500 households in 1 or 2 condo towers.

I like the Australian case. Mining occupies only 0.02% of total land area but the sector contributes 9% of GDP. Compare with the PH exporting millions of OFWs who contribute 10% of GDP annually. No "small scale" mining in Australia, the sector is heavily mechanized, monster machines and engines at work, giving jobs to tens or hundreds of thousands of people.

Among the points I discussed were the following:

1. Mining share of 0.65% of GDP is indeed small if compared with nationwide average, what Dr. Caloy Arcilla says as "the tyranny of national averaging". But if compared with a provincial or regional GDP, mining share for certain provinces like Surigao can be as high as 25%.

People who argue that "it's only 0.65% of GDP, we can close mining totally" should also consider a similar argument that "poultry, piggery is perhaps only 1% of GDP, very small they can be closed totally."

2. Raising the excise mining tax from 2% to 10%, sure but there should be corresponding reduction if not abolition of other taxes, royalties, fees and charges.

3. Do mining communities and municipalities benefit from the industry or they are only taken for a ride? No in many areas like what I saw in Rio Tuba and Bataraza, Palawan. Yes in some municipalities perhaps. In a presentation by Dr. Cuano during Mining PH 2017 conference at Sofitel last Sept. 8 or 9, he showed that a small town Claver in Surigao has a per capita resources (IRA from national govt, mining share, etc.) of about P13,000+. Quezon City has a per capita resources of only P5,700+, 2015 figures. Or a mining town has per capita income more than 2x than a rich, big, LGU in Metro Manila.

4. The Tampakan gold-copper project in Mindanao, the single biggest FDI in the PH at $6 B. Granted permit, cancelled, repermitted, cancelled. Government has created great investment uncertainty in this project alone. That is not how governments should manage an economy.

5. Mineral-rich lands are almost useless for agriculture, useless for forestry, useless for animal farming, even for settlements of indigenous people (IPs). Why -- I explained my experience in agro-forest farming in the farm in Pangasinan. Land that is silica- and other mineral rich, we planted mahogany, acacia auri, eucalyptus, etc. After 10 years, they either die or are very thin, very short, stunted growth. Even cogons don't grow well. Just 100 meters away, the soil is soft, same trees planted a decade ago, they are tall and big.

Good summary by Ralph Abainza later. Above photo with UP Miners officers, panelists, moderator. Thanks for the opportunity to share insights with you guys.

Photo credits: colored ones from Ralph, the black and white from UP Miners.
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See also: 

Mining 52, Regulations and bureaucracies, the mining communities, June 07, 2017

Mining 53, Cobalt mining for electric cars, August 10, 2017 

Mining 54, Ralph Abainza on water table and Gina Lopez, September 30, 2017

Mining 29: On Open Pit Extraction, Tampakan and SDMP

A friend, Arcy Garcia, posted this poster in facebook soliciting anti-Tampakan mining signatures from the public. It says that "Almost 4,000 hectares of lush rainforest will be cleared and dug."

I commented on it saying that this is misinformation. If you have a 4,000 hectares mining permit area, you don't clear cut and dig a hole in all of it in one year. Usually you clear only 100 hectares or less, dig and dig for 10 years or so, then close it with top soil, plant trees as stipulated in the contract with MGB-DENR, then you clear and dig again on another 100 hectares or so.

I checked the website of the Tampakan project, owned by Sagittarius Mines, Inc. (SMI). My above statement is not even correct. Their plan is to have the copper and gold ore extraction in just one area, projected to be about 2.5 kms.  Wide, 3 kms. long and about 0.8 km deep, after 17 years of operation.

Arcy asked why it should be open pit mining, and not underground or tunnel mining. Personally I am in favor of open pit mining because it is less costly, so the company will have excess funds to build a school, a hospital, and housing for the employees and their dependents, roads and street lights for the rest of community. It is also less dangerous to workers compared to tunnel mining.

People opposed to any form of large corporate metallic mining often cite the case of the Boac, Marinduque mining and the huge mine tailings disaster. True that it was indeed a big environmental disaster, I saw the tv clips many years ago but I am not updated what what penalties were done to the mining company there.

There are only 35 large metallic mining operations nationwide. Except for the Padcal tailings destruction last year after heavy rains in Northern Luzon where Benguet Mining was heavily penalized by the MGB and LGUs, there are no other reports of mine tailings going to river systems. All of them are still contained and many have already dried up. I saw two tailings pond in Rio Tuba in southern Palawan. One active and one closed/dried up, here are the photos, http://funwithgovernment.blogspot.com/2013/03/mining-8-rio-tuba-mining-in-south.html

Nickel mining there has been  in operation since the 1970s and it seems there was zero incidence of mine tailings going to the river. Barangay Rio Tuba is more developed than Bataraza town proper, a few kilometers away. Dozens of people are applying for work in Rio Tuba every month, even as street sweepers to reduce dust pollution so they can have stable source of income. In nearby barangays and towns where there is no mining, life is poor and pathetic.

The Mining Act of 1995 or RA 9502 itself, not the BIR nor LGUs, mandates the large metallic mining firms to spend on Social Develoment and Management Project (SDMP, like hospital, public school, roads, skills training, etc.) on top of paying national and local taxes and fees. In a sense it is a good law. If LGUs and the national government (NG) will just get the money from dozen plus types of mining taxes and fees, most likely they will not do their job properly.

Take Bataraza town proper -- no hospital, old public schools with possibly no computers, no internet, ugly street roads. In Brgy. Rio Tuba, there is a private hospital, private school, with huge Apple computers with internet, and still free to the public, especially to employees and their dependents. Politics and politicians have their own dynamics and special interests that are off tangent with the community interest.

Back to Tampakan. It is projected to cover nearly 10,000 hectares, but not all, not even one-fourth (1/4) of that area will be cleared and dug. Here’s the project map. It is projected to give jobs to max of 10,000 employees during the project construction, and about 2,000 jobs in regular operation.

Metallic mining is a highly capital intensive business project. Workers there hardly touch the rocks and soil that contain the metallic objects. Bulldozers, backhoes, trucks and other big machines do. It therefore creates skilled labor, like drivers, operators and mechanics of those huge trucks and machines. Then another batch of workers who will do the forest rehabilitation of mined out areas.

But I think that instead of covering that 800-meters deep hole, it would be more economical, more practical, to covert that deep hole as a lake or dam, to catch excess water and flash flood during heavy rains. After the rainy season, that man-made lake can become a tourism area with lots of outdoors, fishing and water sports facilities.

There are concerns about killing related to the Tampakan project. It is a criminal act that must be pursued and the criminals should be penalized. Whether killing happened in a mining area or in a ktv bar or in a private house drinking session, the details are less important. Any act of killing or attempted murder should be penalized.

Meanwhile, here's a case of small scale mining, black sand mining in Cagayan, http://m.philstar.com/414576/show/04970f8def02819662bf82bae224afe6/

This is one example how some LGUs can be partners in crime of those private interests, local or foreign. It is impossible for anyone to have bulldozers and other capital equipment mining and quarrying without connivance and approval by LGUs and the local police.

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See also:
Mining 25: Changes in Brazil Mining Taxation, July 02, 2013 

Mining 26: Presentation at Rotary Club of Taguig Fort Bonifacio, July 16, 2013 

Mining 27: Ensuring Responsible Mining from Small and Large Projects, July 19, 2013 

Mining 28: Markets, Government and Rule of Law, July 31, 2013

Mining 20: Miscellaneous Comments on Mining

Below are several comments I got in my various exchanges in facebook on the subject, made last week.
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Froi Vincenton: IMHO, irresponsible mining exists in the Philippines because of several institutional factors. When I say 'institutional factors' I'm referring to government regulations and restrictions. The following are some institutional factors that encourage irresponsible mining:

1. The institutional/constitutional prohibition on ownership of mining lands. History has it that private property ownership promotes responsible business and proprietorial activities. It promotes responsible stewardship. Here in RP all lands of public domains, including mineral and mining lands, are owned by the State. In the U.S. mineral and mining lands can be owned by private citizens/individuals. Today millions of American land-owners have shares in big and small mining and oil companies.

If people are prohibited from owning mining and mineral lands, they would have less incentive to improve their property and to invest in long-term venture like tourism, parks, real estate, community building, etc. I think that if mining companies were allowed to own mining lands, they would have more incentive and reason to protect their property, invest in technology innovation to reduce waste, turn nearby areas into parks, tourism spots or new communities for their employees, etc.

2. Lack of competition due to protectionism. Under Philippine mining laws, foreign corporations may only be qualified to join the country's mining industry for purposes of granting an exploration permit, financial or technical assistance agreement or mineral processing permit. This system protects Filipino cronies and oligarchs against DIRECT foreign competition.

How does this promote irresponsible mining? The mining industry is technology intensive. It requires not only technology transfer but also intellectual capital. When it comes to mining technology innovation and developments are investments made by big mining companies. And these mining companies cannot just transfer their technology or teach us how to be responsible miners without getting something in return. They want trade. Unfortunately our Constitution is in breach of "free trade" and the reciprocity principle in international law.

Lack of competition means mining companies would have less incentive to innovate, to provide better compensation package to their employees, to improve their operations and systems, to reduce wastes, etc.

3. Environmental laws that make it almost impossible for mining firms to operate. These environmental regulations add costs. In other words, regulations have economic costs. and they also impact people's and organizational behaviors.

Nonoy: Thanks Froi. The industry -- (a) big metallic mining in particular -- is absolutely the most regulated, most taxed in this country. The two other players in the industry, (b) "small scale" metallic mining and (c) non-metallic big mining like coal, cement, quarrying, are not as taxed.

On top of the usual taxes that apply to corporations in other sectors (food/resto, transpo, shops and malls, beverage, etc.), there are additonal taxes and fees like: excise tax, contractor's income tax, royalties, occupation fees (to LGUs), royalties to indigenous people, royalty to surface private owners. Then there are mandatory CSR projects to communities like putting up health facilities if not a hospital, a private school but free to students, roads and street lighting network, etc., ON TOP of various taxes and fees collected by the national and local governments.

Jayant:  Filipino regulations are so difficult that good people cannot do business in mining. So mostly only crooked foreigners can manage to do mining.

I have been following a lot of mining companies in Philippines. As you can see in the responses you get on your comments about mining from your own friends (expect in the above rare case), well-educated Filipino take pride in being armchair economists. They know exactly how mining is not helping the locals and they know exactly what the regulations should be like. This despite that they have no clue what mining is about, how capital intensive and risky it is. But this has lead to a regulatory regime where... foreigners must own no more than 49% of a mine. Now, mining companies end up owning 100% but they do accounting and legal juggling to achieve this. So, while on paper their ownership is only 49%, they do transfer of profits to accrue 99% of the profits to themselves. Now, this requires help from corrupt locals. You end up with opaque financials. Also, the kind of manipulations this requires ensure that only corrupt people using other people's money run such mines. Now this is really, really bad for Philippines. But the normal guy is incapable for understanding this causality. He acts as if he knows exactly how Philippines should be run. But Philippines somehow creates some of the world's worst minds--they seriously lack critical thinking. You end up with people who are incapable of being leaders. The people who write on your blog about why foreigners should not be allowed in into mining fail to see that so many Filipinos end up being maids and prostitutes as a result. It is a sorry state of affairs.

Mining 6: Large Investments vs. Large Bureaucracies

The mining is perhaps the most regulated, most intervened, and most taxed sector by the government. Coming second would be the pharmaceutical sector, and perhaps the water and other utilities. One important indicator that there is heavy government regulation and taxation of a particular sector is the high presence of the informal or black market for such sector.

In the case of mining, the black market is the high presence of the  so-called "small mining" like in Mt. Diwalwal in Davao. In the pharma sector, it's the existence of so many unregistered "health products" like the "magic coffee" (or tea, juice, etc.) that can treat all types of cancer, TB, diabetes, and two dozens or more of other diseases, or even the fake and substandard medicines.

Last November 27, 2012, I attended the Philippine Economic Society (PES) 50th Annual Conference held at the PICC in Manila. In the afternoon session, I attended the panel on Mining Taxation. There were several speakers, like the IMF Philippines Country Director, one from the Asian Institute of Management (AIM), one from the DENR Mines and Geosciences Bureau (MGB), another one from UNDP I think, and the Chairman of the Chamber of Mines of the Philippines (CMP), Dr. Artemio Disini, also of the UP College of Engineering.

Of the various presentations, the most substantial for me was the paper by Dr. Disini. I got a copy of his powerpoint, posting here some of those slides. I will post the slides on mining taxation in another blog post as it seems to be the most controversial aspect that will require legislation.

From Dr. Disini's presentation, there is indeed huge investment, both actual and planned or potential, in the Philippine mining sector. See these two slides below. Please note again that these data were as of November 2012. There could be some slight changes in the data by now, am not sure.

The biggest is the Tampakan project by Sagittarius Mines, Inc. (SMI). Almost $6 billion, wow. It's a weird case. The company has already started so many infrastructures when suddenly the provincial government of South Cotabato passed a resolution banning open pit mining, so the operation was halted. You pour huge amount of money and human resources and suddenly one branch of the government, the provincial government, says "Stop!" wow.

I read today that Finally, Tampakan mine environmental clearance okayed. But still the company cannot operate because the moratorium on mining is still in effect unless a new law on mining taxation and other matters is enacted.

Below is a good map of where the big copper and gold mining projects are located. In copper mining, only three companies are operational while seven are still waiting for the final go signal from the government. Companies in gold projects are "smaller" compared to copper projects.

For nickel, the four companies still on the pipeline are pouring huge money, average of some $1 billion each. The projected exports revenues of those companies in the 3 metallic products would reach some $12.3 billion by 2018, that's a big amount indeed. But that is still a big IF because industry players, both existing and potential, cannot really predict what the legislators in the Senate and House of Representatives, as well as the Governors and Mayors in the provinces, will do with their existing and proposed investments.

The only saving grace of the Philippines perhaps is its geology. In the "Pacific Rim of Fire" where about 80 percent of all earthquakes and volcanic eruptions in the planet occur, those volcanic and other geological movements would turn ordinary rocks beneath the surface into something precious metallic rocks.