BWorld 129, Open pit mines and the DENR Secretary

* This is my article in BusinessWorld on May 02, 2017.

Department of Environment and Natural Resources (DENR) Secretary, Ms. Gina Lopez, created a stir with the issuance of DENR AO (Administrative Order) No. 2017-10, banning all prospective “open-pit method of mining for copper, gold, silver, and complex ores.”

  

To be excluded in her AO are existing open-pit mining (OPM) of metals, existing quarries, and prospective quarries for non-metallic products like granite, marbles, and limestone.

The reason for the new order is that OPM by large metallic firms is destructive to the environment and that the method is already being avoided by many countries around the world.

This is not true, for three reasons.

One, almost all forms of deforestation or land conversion from forest to non-forest uses (agriculture, housing, commercial and industrial development, road construction, quarrying of non-metallic products, etc.) create damage to the natural environment and yet only large metallic mining is singled out.

Two, OPM concentrates metallic extraction in a few thousand hectares of land and spare millions of hectares of reservation from further disturbance and extraction.

Three, OPM continues to be practiced in many countries including developed ones like the US, Australia, Sweden, and Canada. Because mining firms and their stockholders earn substantial incomes, their governments get huge tax revenues, and many workers get long-term high-paying jobs.

What Ms. Lopez will likely do among others, if she is confirmed by the Congressional Commission on Appointment (CA) as DENR Secretary:

1. Enforce and implement the closure of 22 large metallic mines and continue hiding the results of their so-called “audit” as basis for such closure order. This is because the Mining and Geosciences Bureau (MGB) conducts a quarterly review of all mining firms based on technical criteria and its 4x a year assessment produce no recommendations of large-scale mine closure while the Secretary’s “audit” seems to be based on emotional criteria, hence it remains hidden.

2. Continue turning a blind eye on plenty of small-scale miners which operate more destructive open-pit mines to extract gold. About 80% of all gold purchases by the Bangko Sentral ng Pilipinas (BSP) are sourced from these small scale mines as gold output by large metallic mines is limited owing to regulations and prohibitions, if not outright closure orders.

3. Enforce and implement DENR AO 2017-10.

4. Create new AOs in the future that will ban and close existing OPM, producing another round of “audits” justifying such closure orders.

To avoid these and other uncertainties in the industry, the CA should consider rejecting her appointment. Let the President appoint a new DENR secretary.

The main purpose of government is to lay down rules and implement laws that apply to all, to institutionalize the rule of law that apply equally to unequal people and players,that exempt no one and rulers are prevented from making exemptions. Giving rulers and in this case a Cabinet secretary, the power to make exemptions is tantamount to the rule of men that despise the rule of law.

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See also: 

BWorld 122, Six more myths in the mining debate, April 13, 2017 

BWorld 126, Why mining is appropriate for certain areas and provinces, May 06, 2017 

BWorld 127, Economic freedom in Asia means faster growth, lower prices, May 07, 2017 

BWorld 128, The quest for more stable and cheaper electricity in the ASEAN, May 08, 2017

BWorld 126, Why mining is appropriate for certain areas and provinces

* This is my article in BusinessWorld on April 21, 2017.

Biodiversity of living things is more common in the tropics compared to those in the northern and southern hemisphere. Geological diversity of nonliving things is more common in the Pacific countries as there are more volcanic and earthquake movements in the “Pacific Rim of Fire” than the rest of the planet.

That is why for almost all commodities -- copper, gold, molybdenum, silver, nickel, bauxite, zinc, lead, etc. -- countries in the Asia-Pacific Economic Cooperation (APEC) are the dominant suppliers and exporters. Volcanic gases and molten rocks are the main producers of mineral products below the ground.

There is a good study on the mineral potentials of APEC economies published more than two years ago. Some definitions of the terms used in the table below:

1. Mineral rent is the difference between the value of production for a stock of minerals at world prices and their total costs of production.

2. Mining Contribution Index (MCI) is calculated based on aspects of mining and metals contribution to national economies, composite for three variables: (a) Mineral export contribution in 2010 as percent of total merchandise exports, (b) Increase/decrease in mineral export contribution 2005 to 2010, and; (c) Mineral production value as a percentage of GDP in 2010.

The above numbers show the following:

1. Countries on the “ring side” of the Pacific Rim generally have higher MCI -- Australia, Chile, Papua New Guinea, Peru -- than those a bit far from the Rim. Thus, while China has the biggest mining rent in 2013, it has low MCI.

2. The Philippines’ low mining rent and output is mainly a result of the policy and taxation environment that is generally not attractive to more big corporate mining but the country has high MCI. It is the world’s 2nd biggest producer of nickel, next only to Indonesia.

3. Employment in mining is generally low relative to total population because the industry is very capital intensive. Workers hardly use spades and other manual tools; they use huge trucks, loaders, bulldozers, and other machines. Thus, the Philippines’ 0.22% that is being looked down by many anti-mining groups as being “not job-creating enough” is actually higher than those in Indonesia, Canada, Mexico and USA.

The Philippines is one of the most mineral-rich countries in the planet, the archipelago being largely a product of volcanic movement rising from below the sea millions or billions of years ago. Thus, mining potential is very high even utilizing only a small portion -- less than 1% -- of the country’s total land area.

Recently, DENR Secretary Gina Lopez has launched a series of lectures and public fora advocating “more investments in biodiversity than in mining.” This is after she ordered the closure of 22 mines and suspended five others, and ordered a P2-million bond by mining companies per hectare of “disturbed” agricultural lands before they can haul their mineral stockpiles.

The Secretary has not produced any realistic numbers of biodiversity investments while the Chamber of Mines of the Philippines (CoMP) has projected at least $30 billion of big mining investments in the next 10 years if the policy environment has improved and stabilized.

In my agro-forestry farming experience in a farm in Bugallon, Pangasinan since two and a half decades ago, I saw how mahogany trees we planted would grow well in a relatively rich soil but would have stunted growth, many even die, just about 50-100 meters away in land with high silica deposit and potentials. This further shows that mineral-rich lands and mountains are generally less conducive for agriculture and even for forestry because the soil has very low nitrogen and phosphorous levels.

The government should optimize the high mining potential of the Philippines -- to create more jobs, generate more exports and economic output, give more community projects that mining companies are mandated to provide.

Big government presence in mining is justified only in laying down rules that apply to all, big and small-scale miners. Big mining companies in particular are expected to strictly follow existing rules especially those provided by the Mining Act of 1995.

Beyond that, there should be less government interventions and taxation, there should be less political harassment and business uncertainty, especially with many mining closures and suspensions.

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See also: 

BWorld 122, Six more myths in the mining debate, April 13, 2017 

BWorld 123, Drug-related murders and criminal justice in Asia, April 23, 2017 

BWorld 124, On Grab, Uber, traffic and LTFRB, May 05, 2017 

BWorld 125, On the retail competition and open access (RCOA) and EPIRA, May 05, 2017

BWorld 122, Six more myths in the mining debate

* This is my article in BusinessWorld last March 29, 2017.

A piece that I wrote for this space, “Seven myths in the mining debate” (March 15), has attracted attention from many readers, expressing either support or disagreement. One even sent an angry comment via e-mail. So I will add additional myths in the continuing debate on the issue.

To review, here are the seven myths discussed in the earlier article:

1. Mining contributes small, only P70 billion a year in gross value added (GVA).

2. Mining tax payment is small at only P3 billion a year.

3. Employment share of mining is very small at only around 100,000 workers.

4. Very small benefits, better stop all mining activities.

5. Open pit mining must be banned anywhere.

6. Closure of many mining firms means better investment environment.

7. Mining is entirely useless, we should have none of it.

HERE ARE ADDITIONAL MYTHS.

1 Large-scale mining covers a huge area of the Philippines.

Wrong. Only 2.3% of the Philippines’ total land area is covered by mining permits composed of 319 Mineral Production Sharing Agreement (MPSA) and five Financial or Technical Assistance Agreement (FTAA). Of this figure, only 0.27% of land area is actively mined, the rest are for roads, offices, houses, hospitals, schools, other community projects; mined out and rehabilitated areas, or for future mining. (See table.) 

What made the impression of “huge mining areas” include those under small scale mines (SSM) like in Mt. Diwalwal.

2 Large-scale mining is the biggest cause of soil erosion.

Wrong. Very often, it is deforestation or conversion of forest land into pasture land, agriculture land, or simply the endless cutting of trees in public forests.

The DENR is not exactly known to efficiently address these problems because it prefers to take more political noise in mining.

3 More mining areas result in more poverty.

Generally wrong. The top 20 poorest provinces in the Philippines and their poverty incidence are: (1) Tawi-Tawi 78.9%, (2) Zamboanga Del Norte 63.0%, (3) Maguindanao 62.0%, (4) Apayao 57.5%, (5) Surigao Del Norte 53.2%, (6) Lanao Del Sur 52.5%, (7) Northern Samar 52.2%, (8) Masbate 51.0%, (9) Abra 50.1%, and (10) Misamis Occidental 48.8%.

(11) Agusan Del Sur 48.7%, (12) Oriental Mindoro 47.1%, (13) Sulu 46.5%, (13) Occidental Mindoro 46.5%, (15) Kalinga 45.8%, (16) Surigao Del Sur 45.4%, (17) Mountain Province 45.0%, (18) Sarangani 44.8%, (19) Lanao Del Norte 44.1%, and (20) Negros Oriental 43.7%. (Source: NEDA, Philippine Development Plan 2017-2022).

Of these, only five host big mining companies (with an area of at least 4,000 hectares): Zamboanga del Norte (2 firms), Surigao del Norte (5 firms), Surigao del Sur (3 firms), and Mindoro Occidental and Oriental (2 firms).

These 21 provinces hosting big mining companies (at least 4,000 hectares) are not in the Top 20 poorest:, Zamboanga del Sur (Siennalyn Gold, TVI, 168 Ferum, Vilor), Sultan Kudarat (GRCO Isulan), Agusan del Norte (Agata), Davao Oriental (Hallmark, Austral-Asia Link, Dabawenyo Minerals, Sinophil, Oro East), Dinagat Islands (East Coast), Compostela Valley (Napnapan), Sarangani (Hard Rock).

Capiz and Iloilo (Teresa Marble, Parvis Gold,), Samar (Alumina, Bauxite), Leyte (Explosive Consult., Fastem Construction, Strong Built), Palawan (C. Palawan, Palawan Star, Pyramid Hill, Narra Nickel), Quezon and Camarines Sur (VIL Mines), Benguet (Philex), Zambales (Mina Tierra, Eramen), Cagayan (Peniel, JVDC, T&T, J&M), Nueva Vizcaya and Quirino (Oceana Gold), Ilocos Sur and Pangasinan (Altamina Exploration).

4 Mining can stop in the Philippines but continues in other countries.

Wrong. Mining is either good or bad; if bad then mining should stop worldwide, the same way that anti-coal campaigners want all coal power plants to close worldwide, not just in the Philippines. If mining is good abroad then the good practices should be adopted here. The law in post-Marcopper mining disaster in Marinduque, the Philippine Mining Act of 1995 has been hailed by many countries as the one of the world’s first stringent mining laws.

5 Open pit mines are destructive and not done in developed countries.

Wrong. Six of the 10 biggest and deepest open mines in the world are found in the US (Bingham Canyon, Hull-Rust-Mahoning), Canada (Diavik Diamond), Australia (Super Pit) and Russia (Mir Diamond Mine, Udachny Diamond). The other four are found in S. Africa (Kimberly Diamond), Indonesia (Grasberg Mine), and Chile (Chuquicamata Copper, Escondida Copper).

6 DENR Secretary’s closure of mining firms follows the rule of law.

Wrong. Secretary Gina Lopez has disregarded procedures and even the recommendations of her technical staff. As pointed out by Rep. Josephine Sato, “We are the legislature; if you’re not happy with the law tell us we will review and revise if necessary but you can’t legislate on your own...”

Mining practices that follow international and national regulations should continue and contribute to economic modernization and job creation. Those that violate these laws deserve suspension or closure.

----------------

See also: 

BWorld 19, Taxation and regulations in PH mining industry, September 24, 2015

BWorld 119, Seven myths in the mining debate, April 07, 2017

BWorld 120, Five myths of solar-wind energy, April 08, 2017 

BWorld 121, The PH tax reform bill and tax policies in East Asia, April 10, 2017

Mining 49, Ma'am Monsod on poverty in mining areas

Recycling an old article I wrote in September 2013, I re-read this BWorld article by my former undergrad thesis adviser in UPSE in the 80s, Ma'am Winnie Monsod.



She wrote,

“… the incidence of poverty in the mining sector is much higher than the Philippine average (roughly twice, if memory serves).…

A 2004 paper by Scott Pegg of the University of Indianapolis, entitled “Mining and Poverty Reduction: Transforming rhetoric into reality”…. found that not only was per capita GDP growth negative for all three categories during that period, but that the growth rates were inversely associated with the level of dependence on mineral exports -- i.e., countries with substantial incomes from mining performance performed less well than countries with less income from mining.
The list of the negative effects of mining (and other extractive industries) continues: countries that become heavily dependent on oil and mineral exports are become more vulnerable to economic shocks (e.g. price volatility), not to mention risk of “intrastate armed conflict,” social risks (price inflation, alcohol abuse, prostitution and child labor). Then there is corruption: Pegg cites the work of Leite and Weidmann (at the IMF) finding that “capital intensive natural resources are a major determinant of corruption.” Further, there is the matter of anti-democratic effects: Ross finds that oil and other minerals impede democracy, but other primary commodities -- which generate few or no rents, produce less export income for the state, and employ a larger fraction of the labor force -- do not….”

The first paragraph is easy to debunk. This table from NEDA's MTPDP 2011-2016 shows the top 25 poorest provinces in the country. Only 5 of these host big mining firms (at least 4,000 hectares) -- Zamboanga del Norte (2 firms), Surigao del Norte (5 firms), Surigao del Sur (3 firms), Mindoro Occ. and Mindoro Or. (2 firms).

In addition, capital intensive large metallic mining firms attract lots of job seekers, both skilled and unskilled. Some would get a job either as direct employees of the mining company or working indirectly in various micro to medium size enterprises around the mining area. Some would not find any job and become marginal and subsistence earning workers around the communities. The latter group is what is referred as “higher incidence of poverty” group of people.

The second paragraph would most likely refer to informal or small scale mining in those countries studied. There are many factors to explain a country’s fast or anemic economic growth. Like the quality and maturity of their institutions that observe the rule of law and penalizes corruption, frequent stealing or plunder. Compare for instance mining rich Indonesia and its neighbor, mining poor Singapore. The level of economic growth and per capita income in the latter is a lot higher than that in the former. The same can be said of mining rich Philippines and its neighbors, mining poor Hong Kong and Taiwan.

The third paragraph is highly suspect as it does not recognize mining rich yet developed economies like Australia and Canada. And the statement has gathered many types of social ills associated with poverty and dragged them as contributed by mining or extractive-dependence. Non-mining rich countries like India, Pakistan and Bangladesh also have”price inflation, alcohol abuse, prostitution and child labor, corruption.”

An paper from the Philippine Senate five years ago showed this table, nationwide averages.


Source: Alonzo, Emmanuel, Issues Affecting the Mining Industry, Senate STSR Taxbits, July-August 2012.

I think the numbers would approximate current data. Many agricultural farms and enterprises in the Philippines remain non-mechanized and hence, output per worker or farmer is low, whereas large metallic mining is highly-mechanized, output per worker is high.

Allotting some 0.2% to 0.3% of the country's total land area for active mining is not that big and destructive. A big portion of a mining firm's concession area is either for future mining or past, mined-out area that has been rehabilitated and hence, covered with forest or some agricultural farms, plus the usual areas for roads, offices, housing, school grounds, hospital, etc.

Government should recognize the value and job creation function of those big mining investments in a few provinces in the country and not just issue regulations that close down some firms without scientific and transparent basis, while allowing the others to operate but the threat of closure in the near future remains hanging on their heads.
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See also: 
Mining 46, The new DENR Secretary and other watermelon activists, July 07, 2016 

Mining 47, JB Baylon on the DENR Secretary, March 01, 2017 

Mining 48, Sec. Gina Lopez's rants, DENR inaction in other sectors, April 08, 2017

Mining 42: Presentation and Debate at UP PALS-NCPAG

Last month, I participated in an open debate on mining held at UP Diliman. Three of us pro-mining including Dr. Arcilla  (4th from left in this photo) of the UP National Institute for Geological Studies (NIGS), and three anti-mining including Mr. Garganera (3rd from right), National Coordinator of the Alyansa Tigil Mina (ATM, Alliance to Stop Mining).

The theme of the debate was "Mining: Boon or Bane?". Nice forum and debate.

Below are some of the major arguments of the anti-mining groups.

Good audience, should be 200+ students and teachers/professors, including some UP Mining Engineering students, and guests from other universities invited by the sponsor, UP PALS.

The anti-mining groups would clarify that "we are not anti-mining per se, we recognize the contribution of mining to society but certain conditions should be met like..." and such list can be long and/or very stringent.

Mining 41: Presentation at the UP MINERS Forum

The UP Mining Engineering Society (UP MINERS), an organization of BS Mining Eng'g majors in  UP Diliman, organized a forum on "Enlight EM Up" last Thursday, September 18, 2014. Thanks to Neil Esber, a member of the organization and in charge  of the event, for inviting me.

Good audience, though most  of them  are Eng'g majors, very few from the School of Economics.

There were two other speakers. Engr. Velasco  of the Mines and Geosciences Bureau (MGB, DENR) spoke first. Photo below,  from left: Neil Esber, Dexie Baay, President  of UP MINERS, and Engr. Velasco.

The third speaker was JB Baylon of Nickel Asia Corporation (NAC). JB is a friend since the 80s in UP Diliman undergrad. He is enjoying his new career and new company. He used to be with Coca Cole PH before joining NAC.

My presentation is 28 slides, available in slideshare. I will post only a few slides here, like some  basic data about the sector.

Fantastic, the  PH was #1 nickel producer worldwide in 2012. Australia and New Caledonia though, have the biggest nickel reserves.

When taxation and other policies are too restrictive or intimidating for other potential players, society is the net loser.

The tax-tax-tax thinking NGOs and bureaucracy are wrong if they think that higher tax rates automatically means higher tax revenues for the government. Even John Maynard Keynes share the same idea with Arthur Laffer that there is only an optimum (not maximum) level of tax rate that can maximize government revenues. Beyond that optimum level, revenues will decline.

Engr. Velasco  earlier explained the various permits and documentary requirements that big mining companies must submit to them; otherwise they will not get MGB permits and certificates. The list of documents is long, meaning  the requirements are plenty. That's for MGB alone. For the DOF-BIR, local governments, the list of taxes, fees and royalties is also long.

Mining 39: Taxes, SDMP and Small Scale Mines

After I posted my previous article, Canada's $7.8 B a year tax revenues vs PH's $0.3 B  last month in my fb wall, several friends commented on it. Some lively exchanges here.

-------

December 17-18, 2013.

Andrew. Yep, pretty sad. I note that Indophil/Xstrata's project is being delayed until 2019 thanks to an OC mining prohibition. Mind you, with that large-scale project, in this economy, it was always probably going to be delayed until then anyway. In fairness though, mining doesn't proceed so easily in populated areas like East Coast Aust. i.e. Coal mining conflicts with wineries and farming. Most mines in Australia are so far from cities...even 200km from a significant urban centre of say 20,000 people.

Jayant. Nonoy: I don't think why the national government should be ashamed. Filipinos are very muddleheaded about this matter. They don't understand mining but want to tax it to death. They get what they deserve--a muddleheaded, bad government.

What the Philippines has ended up with? The companies that are there are run by crooks, for the legal problems make it extremely difficult to make money there. So you have TVI Pacific in Mindanao, who have their own armed forces. And recently a bunch of crooked people--B2Gold--have bought a gold mine. This is what you get for making life difficult for good businessmen. 

Andrew. Mining is highly taxed in Australia. In fact, taxes are 50% (oil, gas, iron ore & coal) compared to 3-5% for Google. Its really the landowner conflicts and legal uncertainty...more than taxes. Lower taxes for other minerals. And of course wage rates are very high.

Stephen. Well it’s what the CBCP and China want. China would prefer to keep small scale miners.

Andrew. Not sure that is true Stephen, I often hear about China forcing the closure of small scale mines. I think its a regulatory nightmare, but they get away with it by paying kickbacks. Maybe you are talking of Philippines?

Nonoy Oplas Thanks Andrew, Jayant, Steve. Yes, it is anti-big business, anti-capitalism, anti-globalization, even anti-geological science sentiments, that dominate public opposition to mining. Some guys are not that anti-big business but they are socialist-leaning that they want the government and the communities to get 60%, or 80%, of the total revenues of mining firms to "fight poverty" or "fight climate change" and so on. One result is adverse selection problem in the sector. The players that people do not want to see doing mining -- those who just mine and mine with zero environmental rehabilitation afterwards, those who pay little or zero mining taxes -- are the ones who escape the various government regulations and prohibitions.

Stephen. Andrew...China is forcing the closure of small scale mines in the Philippines? How can they do that? Yes, I thought Nonoy's posting was focused on the Philippines. Sorry. In the Philippine context however, the small scale mines are reputed to sell all sorts of ore to buyers who represent China. Most sales are "off the books. "Since the LGU's are responsible for, but have not much capacity for, regulation of the small scale mines, they are essentially unregulated. Unlike the big mines.

Andrew. Stephen, I was just trying to make sense of what you said, based on the crackdowns on small, under-capitalised miners in China, who cause a lot of damage. The Philippines has them too, often with kickbacks to local mayors. I can conceive of Chinese titleholders in the Philippines, whether local Chinese or mainland/Singaporean entrepreneurs paying similar kickbacks to get mining done. But it was your assertion, and I must say your counterpoint clarifies. Thanks.

Stephen. Thanks, Andrew. One doesn't see much in the way of crackdowns and enforcement on small scale miners in the Philippines. Well...mother nature "spanks" them from time to time with landslides, but not so much from the local government people who are their "regulators." I've heard of the payments made "off the books" to those regulators. Most of the gold and other ore that is mined in the "small scale" system doesn't make it into the regulated market, so I'm told, but rather goes to a variety of buyers who represent China. Or so I'm told. But the large scale and centrally regulated mines are the focus of the "anti-mining" groups.

Andrew. Yeah, I think about 8mths I heard reported of a gun shoot-out as gold was reputedly run from Camarines Sur to Manila...the gold disappeared...if my memory serves me. It probably doesn't'. lol

Nonoy Oplas Now see this news report -- a 10% on gross revenues of mining firms, wow. 

Disadantage: this is big, whether the company makes a profit or not, govt share is already assured of its own share. 

Advantage: Govt will hopefully become less prohibitionist, less bureaucratic, in allowing more players or in allowing expansion by existing firms as govt will get sure money from them.

Mining 38: Canada's $7.8 B a year tax revenues vs PH's $0.3 B

* This is my article today in Mining Week.
----------

Two weeks ago, this report from Resource Clips bannered a bold story, Mining industry has paid Canada $71 billion in last 10 years. Excerpts:

“The Mining Association of Canada released its annual report on December 3 about mining industry payments to Canadian governments, prepared by ENTRANS Policy Research Group. Now in its tenth year of publication, the report found mining payments to federal and provincial government coffers total an estimated $71 billion from 2003 to 2012 in aggregate mining taxes and royalties, corporate income taxes and personal income taxes paid by mining sector employees….

“According to Natural Resources Canada, the Canadian mining industry employed more than 418,000 workers across the country in 2012—representing one in every 41 Canadian jobs. Moreover, mining workers earn the highest wages and salaries of all industrial sectors in Canada. The average weekly pay for a mining worker in 2012 was $1,599, which surpassed the earnings of workers in forestry, manufacturing, finance and construction.”

The 71 billion Canadian dollar is equivalent to around US$ 78 billion at average exchange rate of CA$1.1/US$ exchange rate from 2003-2012. That is an average of US$ 7.8 billion a year, wow.

The Philippines, which is supposed to be a mining powerhouse with an estimated mineral potential value of around US$ 1 trillion, is not able to optimize both its mining corporate revenues and taxes. From 2008 to 2011, the Philippine government was able to collect only around $310 million a year in corporate taxes, fees and royalties, from large-scale mining companies.

Source:  Dr. Elmer Billedo, Assistant Director, MGB-DENR. Presentation at an EITI Conference, September 27, 2013, Crowne Plaza, Ortigas, M.Manila.

The above Philippine data of mining taxes, fees and royalties is understated because (a) it covers only large scale mining firms, and excludes small scale mining that produce huge amount of gold via the black market, and (b) personal income taxes, social security contributions by workers and officials of large mining firms are also not included. By how much is the projected understatement? Maybe +/- $150 million per year, a rough estimate.

The way business uncertainty and financial instability is inserted in the country’s mining sector, both the economy and the government are the net losers here, as shown by preliminary 2012 and 2013 data from the MGB-DENR.

Source: http://www.mgb.gov.ph/Files/Statistics/MineralIndustryStatistics.pdf

Mining gross value production in 2012 was comparable to that in 2010 but lower than in 2011. Production this year, if the first half figures are the basis, should be less than P100 billion, which is even lower than 2009 and 2010 production.

In terms of taxes, fees and royalties collection, this year can be a catastrophe compared to collections in 2008 (P7.7 billion), 2009-2012.

The national government itself should be alarmed of this trend. If certain sectors are against large and corporate mining due to environmental, cultural, political or religious reasons, the national government should help explain to them the threat to people’s livelihood and fiscal shrinkage of collections from the sector. Very often, the same group of people who express strong opposition to large scale mining are also lobbying for more government welfare and subsidy programs, which are sourced from taxes and regulatory fees collection.

The $0.3 billion Philippine government collections from the large mining firms should see shrinkage in the coming years if anti-large mining and anti-capitalism sentiments are not checked and neutralized.

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See also: 

Mining 34: EITI, Taxes and Other Costs of Regulations, September 24, 2013 

Mining 35: Opposition to Mining, Where Do They Come From?, October 15, 2013 

Mining 36: Tax that can Wipe Out All PH Public Debt, October 22, 2013 

Mining 37: Adverse Selection of Anti-Corporate Mining View, November 21, 2013

Mining 37: Adverse Selection of Anti-Corporate Mining View

* This is my article today in Mining Week.
------------

In a Reuters special report, Philippines' black market is China's golden connection published on August 22, 2012, the story mentioned the following:

* Hundreds of small-scale mines in Mt. Diwata (or “Mt. Diwalwal”), Monkayo, Compostela Valley, Mindanao. One person  sold 5.49 grams of gold in his hand - his share of the day's output - for 8,260 pesos ($200). That's more than 16 times what a manual laborer earns daily in Manila.

* Up to 90 percent of small-scale Philippine gold production is being smuggled out, much of it to China.

Potential revenue loss is big.

* The Philippines, the world's 18th largest gold miner, produced just over 1 million troy ounces of gold in 2011, worth $1.6 billion at current prices. About 56 percent of that came from small-scale miners.

* A top central bank official told Reuters new taxes on gold sales imposed last year appear to be a key factor in the alarming rise in gold smuggling.

* “All the production of small-scale mines, almost all, now goes to the black market, because there is no tax in the black market," said Rex Banggawan, an accountant for a small-scale mining cooperative that buys and sells gold in the mountain city of Baguio in northern Philippines. "After that, smuggling is automatic."

* Arthur Uy, Governor of Compostela Valley, the top small-scale gold mining province in the Philippines, said the black market in gold is mainly based in the capital, Manila. "Most of the gold is being smuggled out to Hong Kong, that's the biggest market," said Uy, a two-term governor.

* The amount of gold sold by small-scale miners and traders to the Philippine central bank in the second quarter plunged 98 percent from a year earlier. By law, all gold produced by miners in the Philippines should be sold to the central bank at around world market prices. Small-scale gold mining output, is the main source of the central bank's gold reserves, which hit a record high of $10.4 billion early this year.

* Traders and officials say the biggest factor behind the spike in the gold smuggling trend the past year is a 2 percent excise tax and a 5 percent withholding tax approved in 2008 but which the Bureau of Internal Revenue (BIR) only started enforcing last year. The tax is imposed on gold sales to the central bank, so is usually borne by the traders.

* Tagum city, the provincial capital of Davao del Norte, is the biggest gold-buying centre nearest to Mount Diwata. Gold traders in Tagum say if not for the tax, they would rather sell to the central bank than in the black market where prices fluctuate fast.

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This development is what the public, the militant anti-mining environmentalists included, ironically get. A case of “adverse selection” problem in Economics. The things that they do not want to hear and see are what they get. When  large-scale and corporate mining is demonized, these firms that cannot avoid paying various taxes, fees and royalties because they are large enough to hide behind the mob, the firms that must comply with Mines and Geosciences Bureau (MGB-DENR) requirements and LGU regulations on giving various CSR projects to communities, then less corporate mining will happen.

Many local politicians and businessmen who own the mines can afford to be less caring of the mountain and the personnel.

One way to bridge the huge gap between large-scale corporate mining and small-scale guerilla type mining, is to encourage the latter to pool resources and become more transparent, more accountable, for their activities. It can be in the form of mining cooperatives, or a hybrid of corporate mining with lots of small holder investors.

When a business enterprise becomes big, like the multinationals or local firms which have joint venture and corporate partnership with multinationals, they are forced to become more transparent. They have websites, their corporate officers are there, they report to the SEC, BIR, MGB, LGUs. Often they are also listed in the stock market and hence, they report publicly to their shareholders and potential share buyers. Then there is the Extractive Industries Transparency Initiative (EITI) that both public and private agencies must divulge and submit information.

With such multiple system of reporting to government agencies, private investors and third party information reporting system, a large scale mining firm cannot afford to be too secretive of its mineral output, its tax payment and CSR projects.

Where there is more transparency, more accountability follows. And less environmental destruction, less disregard for health and labor regulations can be expected.

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See also: 

Mining 33: Job Creation, Taxes and the Politics of Envy, September 13, 2014 

Mining 34: EITI, Taxes and Other Costs of Regulations, September 24, 2013 

Mining 35: Opposition to Mining, Where Do They Come From?, October 15, 2013 

Mining 36: Tax that can Wipe Out All PH Public Debt, October 22, 2013

Mining 36: Tax that can Wipe Out All PH Public Debt

* This is my article yesterday in Mining Week.

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The mining industry is a very useful sector because many of the things that humanity needs in modern life come from mining, like cellphones, tv, cars, buses, electricity, appliances and so on. Yet mining is also highly criticized if not demonized for the various environmental damages attributed to it, real or imaginary.

The Extractive Industries Transparency Initiative (EITI) is an international voluntary system among governments and big mining worlds in many countries that help clear this issue of whether mining indeed deserves to be demonized or be protected, at least on the taxation and output transparency aspect. Its focus is on making revenue payment and collections from the extractive sectors like oil, gas and mining, become more transparent to the public. In the process, this enhances government revenues.

The EITI International Secretariat and the World Bank Washington office jointly sponsored the “Conference on the Adoption of the 2013 EITI Standards” last September 27, 2013 at Crowne Plaza in Ortigas. Among the speakers was Dr. Elmer Billedo, Assistant Director at the Mines and Geosciences Bureau (MGB) of the Department of Environment. This is one of the slides he showed.

Table 1. Mining Industry Performance, 2008-2012

There is no breakdown how much of those gross value production came from (a) large scale metallic mining (LSMM), (b) small scale metallic/gold mining (SSM), and (c) large non-metallic mining (LNMM) like cement and coal firms. Table 2 below will show breakdown.

Many sectors look down or understate the contribution of mining in the economy, as shown by its low share of only 0.7 to 1.0 percent of the gross domestic product (GDP) and only 0.5 to 0.7 percent of total employment in the country. With such a low share, then the country can possibly afford to shut down all mining companies and give the displaced workers alternative work elsewhere, particular in the agriculture, industry and service sectors.

This analysis is wrong. No mining raw materials and products means little or no industrial output as the iron, nickel, copper, chromite and other metallic products are the raw materials to produce various machines, steel and construction materials, cell phones and various electronic products and appliances. If these manufactured products are not available or present at very small amount and very high prices, then construction, transportation, telecommunications, trading and other service sub-sectors will have little or no output.

The analogy may also look like this. Raw and live chicken production is counted in the agriculture sector. Once it becomes litson manok or chicken adobo or chicken curry in food shops, it is counted under the service sector. If it is transformed into chicken cubes or chicken fillet or noodles, it is counted in the manufacturing and industry sector. Valuation in the industry and service sectors is a lot higher than those in the agriculture sector. A P115 per kilo live chicken raised for a month in the chicken farm can become P230 or higher as litson manok or a doubling of gross value after just a few hours.

Thus, raw, lower value mineral products actually have huge multiplier effects in the economy, from the agriculture to industry to service sectors. Even a 1 percent mining share of GDP can enable all the other  sectors to have high share of GDP.

Below is a breakdown of output by the three producing sectors, namely LSMM, SSM and LNMM. Data from the MGB

Table 2. Mining Industry Output and Taxes, 2008-2012

Note that those taxes and fees generally come from LSMM as the firms here are highly regulated and monitored by the BIR-DOF, MGB-DENR and local government units (LGUs). Such taxes, fees and royalties comprise between 43 to 60 percent of the LSMM’s net revenues.

The Philippines has been ranked by the US Geological Survey as being the biggest nickel producer worldwide. The estimated nickel reserves though is not very big compared to those in Australia, Brazil and Russia.

Table 3. Philippines as the world’s biggest nickel producer

During the open forum, I suggested that the BIR-DOF, MGB-DENR and LGUs-DILG should make data on  mining taxes, fees and royalties become more easily available online. Lack of updated and official data makes the anti-mining sentiment and biases become more convoluted. For instance, even known economist Ma’am Winnie Monsod is misinformed to insist that the government collects only two percent excise tax from LSMM which she says is peanuts, and proposed the Malampaya natural gas revenue sharing arrangement where the government gets 60 percent of the net revenues. The IMF says that if the Average Effective Tax Rate (AETR) formula is applied, LSMM in the country is paying up to 60 percent of their net revenues to the government, both local and national.

There is huge industrial potential for the country given our high mineral deposit and wealth. If those companies and investors are following existing environmental regulations, paying various taxes, fees and royalties, spending extra for the community via social development management program (SDMP), and creating lots of direct, indirect and auxiliary jobs to the people especially in rural municipalities and provinces, then they should not be demonized by the public.

With a $0.9 to 1.0 trillion value of mineral potentials, with potential net revenues of $400 billion (about 60 percent of gross production goes to operating costs like personnel salaries, depreciation of expensive capital equipment, fuel and electricity, etc.), and if government will collect about half of that in the form of taxes, fees and royalties, that is a whooping $200 billion revenues or P8.6 trillion at P43/$ exchange rate.

This amount can practically wipe out the total public debt of P5.45 trillion as of June 2013. It is a substantial or giant revenue that the government and the rest of society should recognize.

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See also: 

Mining 32: Output Contraction in 1st Half 2013, September 02, 2013 

Mining 33: Job Creation, Taxes and the Politics of Envy, September 13, 2014 

Mining 34: EITI, Taxes and Other Costs of Regulations, September 24, 2013 

Mining 35: Opposition to Mining, Where Do They Come From?, October 15, 2013

Mining 35: Opposition to Mining, Where Do They Come From?

In my previous article in this subject, I said that the EITI Secretariat has declined my belated application to join their conference last month. Upon the request of a friend who is a DOF official, the secretariat invited me to attend the conference of Day 2.

Below is my article today in Mining Week.
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Other than the usual left-leaning and anti-capitalism, anti-globalization groups, there are many other camps and individuals who oppose large-scale mining (metallic and non-metallic) for other reasons. What are these reasons and where do they come from?

During the “Conference on the Adoption of the 2013 EITI Standards” last September 27, 2013 at Crowne Plaza in Ortigas, sponsored by the Extractive Industries Transparency Initiative (EITI) International Secretariat and the World Bank, Dr. Elmer Billedo, Assistant Director of the Mines and Geosciences Bureau (MGB, DENR) was one of the speakers. Among the slides he showed was this one.

It is a useful illustration and it shows that the major groups of people who oppose the industry come from the following:

1. Politics and politicians, either for personal or professional reasons, the painted or assumed destructiveness of mining is exaggerated, begging for more regulations and taxation on top of existing ones, if not outright banning of LSM.

2. Propaganda groups, especially the anti-capitalism groups who dislike big corporations and multinational firms extracting rocks and soil from the Philippines and exported to other countries.

3. Lack of information by the public, media and other civil society organizations. Many are not aware that “responsible mining” is possible and is in fact happening in many large mining projects in the country.

4. Legacy mines, like the mining disaster in Marinduque about two decades ago. Then the occasional fatal landslides in Mt. Diwalwal and other areas where small scale mining (SSM) is the dominant practice, but is attributed to large scale mining (LSM).

5. Current violations of environmental standards, by some LSM companies, and is more rampant among SSM but is attributed by the public to LSM.

6. Lack of benefits, coming from some mine workers themselves and residents of the mining village. Sometimes this is an objective assessment but oftentimes, it is a subjective and biased opinion. For instance, some residents who are not connected with the mining company may feel that they should be “entitled” too to some benefits like free or highly subsidized healthcare, education, given by the mining  firm.

As a result of such opposition, (a) local government units (LGUs) are issuing more ordinances and resolutions against mining; (b) Congress is considering Bills declaring “mining-free” provinces, cities and municipalities; (c) MGB-DENR and BIR-DOF are increasing regulatory requirements and taxes; and (d)

Advocacy groups  are filing complaints and cases against mining projects, both in Congress and the Supreme Court.

During the open forum, I spoke and shared my observation that many anti-mining groups are easy to address if they are shown with lots of data, that responsible mining can and does exist, that LSM are already over-taxed, that the total area under LSM is very small compared to the total land area of the country. That I was surprised that my former teacher at the UP School of Economics (UPSE), Prof. Winnie Monsod, is misinformed and thinks that mining tax is only the 2 percent excise tax, that is why she is advocating that the Malampaya natural gas sharing scheme of 60-40 of net revenues going to the government and the private developer respectively, should also apply in mining.

Then I suggested that the MGB, DOF and DILG should produce more detailed data available online, like breakdown of mining taxes and fees collected by both national and local governments from LSM, SSM and large non-metallic mining. If the public can see these data for themselves, negative sentiments against LSM and mining in general can decline.

The participation of the Philippines at the EITI is a good move. The regulated and taxed companies can declare how much they have paid to the barangay, city/municipal and provincial governments, the royalties and social development management projects (SDMP) given to communities and people’s cooperatives, and to the MGB, BIR, BOC, SEC and other national agencies. These agencies will also be forced to report how much they collected from each mining enterprise, small and big alike.

Of course there are other costs that are not reported by the mining firms. Like special and monetary requests by the LGUs and national agencies, otherwise these government officials will harass the mining firm, if not disallow its continued operation. This data is hard to produce.

Nonetheless, information is empowerment. The more information that will be available to the public, the lesser will be the misconception and unnecessary opposition  to mining.

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See also: 

Mining 31: Prof. Winnie Monsod's Faulty Tax Proposal, August 22, 2013 

Mining 32: Output Contraction in 1st Half 2013, September 02, 2013 

Mining 33: Job Creation, Taxes and the Politics of Envy, September 13, 2014 

Mining 34: EITI, Taxes and Other Costs of Regulations, September 24, 2013