Mining in the
philippines:
DR. CARLO A. ARCILLA
Mining in the
philippines: PROBLEMS AND SUGGESTED
SOLUTIONS DR. CARLO A. ARCILLA
Copyright © 2017 by Albert Del Rosario Institute for Strategic and International Studies Studies
All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, photocopying, recording or otherwise), without the prior written permission of the Institute, except in the case of brief quotations embodied in critical articles and reviews. For information, address ADRi Publications: 9F 6780 Ayala Avenue, Makati City 1200
Design by Carol Manhit Text set in 11 type Minion Pro
Printed in the Philippines by Rex Publishing Quezon City, Metro Manila
Stratbase ADR Institute Te Stratbase Albert Alber t del Rosario R osario Institute (ADRi) is an independent international and strategic research research organization with the principal goal o addressing the issues affecting the Philippines and East Asia. Victor Andres “Dindo” C. Manhit
President, Stratbase-Albert del Rosario Institute (ADRi)
BOARD OF TRUSTEES Ambassador Albert del Rosario was the Secretary o Foreign Affairs o the Philippines Philippines rom 2011 to 2016. He also served ser ved as Philippine Ambassador to the United States States o America rom rom 2001 to 2006. 200 6.
Manuel V. Pangilinan is CEO and managing director o First Pacific Company Limited. He is also the chairman o MPIC, PLD, Meralco, and Smart Communications, among others.
Edgardo G. Lacson is an honorary chairman o the Philippine Chamber o Commerce and Industry (PCCI). He was the ormer president o the Employers Conederation o the Philippines.
Benjamin Philip G. Romualdez is the president o o the Chamber o Mines o the Philippines Philippines since 2004.
Ernest Z. Bower is senior adviser or Southeast Asia at the Center or Strategic and International Studies (CSIS). He is CEO o BowerGroupAsia BowerGroupAsia (BGA), and a leading l eading expert on Southeast Asia.
Renato C. de Castro, Ph. D is a ull proessor o international studies at De La Salle University – Manila (DLSU). He holds the Charles Lui Chi Keung Proessorial Proessorial Chair in China Studies.
Judge Raul C. Pangalangan, Ph. D is a judge o the International International Criminal Court. He was previously a dean o the University University o the Philippines College o Law and publisher o the Philippine Daily Inquirer.
Epictetus E. Patalinghug, Ph. D is a proessor emeritus at the Cesar E.A. Virata School o Business, University o the Philippines (UP), Diliman.
Francisco A. Magno, Ph. D is the executive director o the Jesse M. Robredo Institute o Governance and President o the Philippine Political Science Association. He is a proe proessor ssor o political science at DLSU. DLSU.
Carlos Primo C. David, Ph. D is a proessor o Geology and Environmental Science in UP Diliman. He heads the Innovation Innova tion Council o the Department o Science and echnology (DOS). (D OS).
CONTENTS Executive Summary
viii
Introduction
1
Knowing the Mining Cycle
2
Regalian Doctrine Prospecting and Exploratio Exploration n Environmental Enviro nmental Complia C ompliance nce Certificate, Developmen De velopmentt and Construction Operation Rehabilitation and Post Mining Clearing Misconceptions
Up to 40% o the Philippines will be Mined Te Philippines is One o the Most Mineralized Countries in the World Mining Contributes <1% to GDP and Employment and So It Can Be Stopped Without Harm Harm to the Country Small-scale Mining is Small Moving Forward: Proposed Actionable Solutions
Using an Endpoint Perspective, Not Just NPV Separate EMB rom MGB Revenue Sharing: An In-Depth Study Needed Increase the Revenue Share o Local Governments and Allow Mining Companies to Pay the LGUs Directly Encourage Value-Adding and Vertical Integration o the Mineral Industry Exotic Elements and Black Sand: Te Scandium Story Conclusions Acknowledgments About the Author
2 3 3 4 5 8 8 10 12 15 18 18 20 21 24 25 27 30
EXECUTIVE SUMMARY SUMMARY Mining has invited significant attention in recent months, given the controversies surrounding then Secretary Regina Lopez’s efforts to shake up the industry. As a positive consequence o Ms. Lopez’s Lopez’s advocacy, the industry and its critics have had to look deeper into the industry’s dynamics and find solutions to pressing issues. Tey say that sunlight is the best antiseptic: as such, our hope is that t hat the industry’s industry’s exposure to scrutiny will wi ll result in more transparent, transparent, efficient, and sae operations. Tis Special Study combines insights, drawn rom personal experience and those o industry and environmental stalwarts, with data collected over several years. It aims to provide readers with a suitable background in the industry and clear up popular misconceptions on the industry itsel and its effects on the country. Mining is important, as what cannot be grown must be mined, and mining products pervade daily lie. Responsible mining is possible, but it will require sel-policing among mining companies and and the ull implementation implementation o the mining law. law. As it is, mining occurs in less than 0.3% o the total land area in the t he Philippines. While exploration exploration applications cover 40% o the country, many no-go zones and uneconomic mining conditions prevent mining activities. Moreover, while mining contributes less than 1% to national GDP and employment, employment, its occurrence occu rrence in less than 1% o the t he land area means that where mining occurs, it is significant. Mining comprises the most important economic activity in MIMAROPA and CARAGA, where its contribution is around 20% o GDP. Te real problem is in small-scale mining, which has become the ace o the industry.. Te vast majority o Philippine gold production is produced by small-scale industry small-s cale mining, which is plagued with the use o harmul mercury mercury,, the non-payment o taxes, the employment o children, non-rehabilitation, non-rehabilitation, and many atal accidents. Resolving the concerns with small-scale mining should include a combination o non-harmul gold recoveries palatable to small-scale miners but also strong political will to stop harmul practices. Tis is where a Duterte moment is needed. Tis Special Study provides recommendations or the government, primarily the Department o Environment and Natural Resources (DENR), and the industry itsel. Tere is room or improvement in how the DENR and mining firms approach projects, in monitoring environmental compliance, and in nationallocal revenue sharing. Moreover, government and industry should work to exploit opportunities in exotic minerals and to produce higher-value mining products. Other recommendations include the empowerment o the Mines and Geosciences Bureau and the Environmental Management Bureau; the provision o urther research unding; the constructive use o the mining audit; and the possibility o paying taxes directly to local loc al government units. Ultimately, the recent attention given to mining companies should orce them to cleanse their ranks, exceed compliance and visibly demonstrate how responsible mining is possible. viii
Mining in the Philippines: Problems Problems and Suggested Solutions CARLO A. ARCILLA, PH.D
M
ining has invited a lot o attention in the past months, given Secretary Regina Lopez’s exposés on the industry. A positive consequence is that the good Secretary’s advocacy has prompted the industry and critics to look deeper into the industry’s dynamics and to find solutions to pressing issues. According to an old adage, sunlight is the best antiseptic: it is our hope that the mining industry’s exposure to scrutiny will result in more transparent, truly efficient, and environmentally sae operations. Although this paper does not claim to have an exhaustive view o mining, it summarizes personal insights and research data collected over a number o years, and it borrows heavily rom the wisdom wisd om o industry and environmental stalwarts. st alwarts. o o provide readers with a suitable background o the industry, it begins by describing the main steps o the mining cycle—rom getting permits, to exploration, to extraction, and to rehabilitation. Tis inormation helps to clear up some popular misconceptions o the mining industry and its effects on the country, which are discussed in greater detail in the subsequent section. Finally, this paper outlines recommendations or the government, primarily the Department o Enviro Environment nment and Natural Natural Resources (DENR), and the industry itsel. Tere are improvements that can be made in the way that the DENR and mining firms approach their projects, in the monitoring o environmental compliance, and in national-local revenue sharing. Moreover, government and 1
2
MINING IN THE PHILIPPINES
industry should work to exploit opportunities in exotic minerals and to produce higher-value mining products. Mining is needed or civilization: “Whatever is not grown has to be mined.” Te challenge or the Philippines is in how to make the mining process environmentally environmentally and socially responsible, as well as acceptable. Tis article presents ideas or how this can be made more possible.
Knowing the Mining Cycle Knowledge o the mining cycle is o undamental importance in evaluating the contributions and unique characteristics o the mining industry.
Regalian Doctrine Mining activity is ramed based on the Regalian doctrine, which holds that all mineral wealth is owned by the State. Under Under this doctrine, do ctrine, any person or institution
PROBLEMS AND SUGGESTED SOLUTIONS
3
extracting minerals is a service contract contractor or o the government, unless the government does its own mining. For this reason, mining is governed by the rules o tenements, sometimes known as mining claims and, in current law, as mineral production sharing agreements (MPSA), mineral processing permits (MPP), and Financial or echnical Assistance Agreements (FAA). Analogously, mining operations could actually use a label, “Do Not Delay, Government Project.” Tis doctrine implies that mining compani companies es must strictly ollow legal guidelines, such as the terms o sale, because the companies do not own the minerals. Consequently, mining companies are subject to supervision by the DENR Mines and Geosciences Bureau (MGB) or mineral tenements and operations, and the Environmental Management Bureau (EMB) or environmental compliance.
Prospecting and Exploration Exploration Te mining cycle begins with the Exploration Permit, obtained rom the MGB, which lists and documents the tenement holders to prevent overlapping claims. Each exploration permit comes with ees and requirements, including duties to ‘use it or lose it.’ All expenses incurred in exploration are to the account o the contractor. Should there be no economic minerals discovered, these expenses are written off. Te government risks nothing in giving out exploration permits, as it cannot afford to conduct its own extensive exploration work because o the costs involved. Te risks inherent to mineral exploration put in perspective how the previous Benigno S. Aquino III (P-Noy) government effectively adopted an antimining stance. In a span o 6 years, the Aquino administration granted ewer than ten exploration permits, most o them renewals.
Environmental Compliance Certificate, Development and Construction I the tenement holder encounters significant mineral deposits, they can then apply or an MPSA or development. o obtain an MPSA, the tenement holder perorms substantial work to estimate resource blocks, ofen involving expensive
4
MINING IN THE PHILIPPINES
drilling and analyses. Once the ore body is delineated, a mining plan is prepared and summarized in a document called the Determination o Mining Feasibility. Te easibility study is vital because it incorporates the amount o estimated mining reserves, the method o mining, the mining plans, the Environmental Environmental Compliance Certificate (ECC), and the business plan. Te business plan must show that the MPSA (development) is economically easible, in addition to showing agreement with indigenous peoples and all levels o local government. Tereafer, the MPSA or development is converted into an MPSA or operation, and the mining extraction begins. Te ECC requirement is not trivial, as it comprises a holistic environmental assessment and evaluation o risks, including a mapping o biological and sociological impacts when mining operations begin. Te ECC also requires several stages o public hearings on the natur naturee and potential p otential impacts o mining operatio operations. ns. A strict implemen implementation tation o the ECC parameter parameterss should orce the mining company company not to incur environmental violations.
Operation Te process rom exploration to operation could take years, even decades, during which all expenses are risked by the contractor. Te length o time involved underscores an important point: since years o tremendous expenses are risked in mining, even beore extraction is done, only a stable set o policies will allow investors to risk upront huge amounts o time and resources. Changing rules midway is atal to the mining industry and, unsurprisingly, this was one o the main objections levelled at then Secretary Regina Lopez during her short stint as DENR head. For instance, her blanket prohibition o open pit mining or prospective (and even active) mines, which is permitted under the Mining Act o 1995 (RA 7942), was illegal and ran counter to international international practices. No other country that permits p ermits mining has orbidden open pit mining; this is because most deposits can only be mined using open pit methods. Making the industry ace concerns about tailings disposal (common to both open pit and underground mining) and rehabilitation is a more reasonable way o addressing issues related to open pit mining. Te decision
PROBLEMS AND SUGGESTED SOLUTIONS
5
had the effect o quashing potential investments. investments. Tis was the case or the t he Silangan project in Surigao del Norte, which had costed PHP 17 Billion in developmen developmentt prior to the open pit mining ban. I the government cannot be consistent in its policies, it has no business handing out mining permits. A small, but “powerul”, permit that has been abused is the tree cutting permit. It has happened that several mining companies who have completed all the needed permits (ECC, local permits, etc.) could not start operations because their tree cutting permits were delayed, and their issuances were reserved or the highest officers o the DENR. Te needless delays in granting the tree cutting permits have been occasions or corruption at the highest levels, which need to be investigated.
Rehabilitation and Post Mining Afer the mining operations cease comes the phase that is least understood: final rehabilitation. rehabili tation. Te government, learning rom the numerous cases o legacy legac y mines and related disasters, requires the rehabilitation o mined-out areas and mandates the contractor to allot unds or this sole purpose. Te proposed use o rehabilitation unds or other purposes pro provides vides another example o the misguided efforts o the t he ormer DENR secretary. o use unds or other purposes, even worthy ones, would have been illegal. We should note that mining, especially open pit mining, is an ugly process: trees have to be cut, mountains reshaped (flattening is not economical), a lot o dust raised, and so on. Although an active mining operation is not pretty, it is a temporary use or the land, and the mining cycle should only be judged aferward, i rehabilitation was done properly on disturbed areas. Mining is not complete until rehabilitation is finished. In act, progressive rehabilitation is the best practice. Concurrent rehabilitation costs may be cheaper than rehabilitation done at the end o a mine’s lie. Analogously,, any construction site is ugly and shows disturbed soil, cut trees, Analogously poor drainage, etc. However, afer the building is finished, no one remembers how ugly the ormer construction site was. A good example o nickel mining that has had a positive record o rehabilitation is the Rio uba mine o Nickel Asia Corporation, which has operated or 40 years now and whose mining areas and tailings disposal areas are good examples o responsible mining.
6
MINING IN THE PHILIPPINES
Te photo above, taken from the Rio uba mine of Nickel Asia, shows active mining area in the foreground, the “ugly” side, and rehabilitated areas in the background.
Te media has been flooded, however, with images o open pit mining areas, especially along the environs o Surigao and Agusan, and these images are what remain in the memories o the public. Even open pit mining o nickel ore can be done properly, but the operations or this type o ore are relatively recent and thus have little to show or rehabilitation. Drainage management o mining areas is absolutely essential to prevent siltation in nickel mining areas: these include creation o silt ponds, check dams, etc., beore any mining is done, and active drainage maintenance must be done during mining. Because o the high-clay nature o nickel laterite mines, mining cannot be done during the rainy season, but this means that t hat the mining company must still have heavy equipmen equipmentt on the ready to mitigate siltation. A mine’s ‘ugly’ presence in an area has made it a scapegoat or any environmental disaster. One example is the siltation in Zambales, which has been blamed on the nickel mining companies in the area, despite all o them being closed. A one-year study conducted by the Environmental Monitoring Laboratory o University o the Philippines’’ National Institute Philippines Institute o Geological Science S cience (UPNIGS) showed otherwise. other wise. Te study demonstrated quantitativel quantitativelyy that mining contribu contributed ted less than 10% o the siltation, and it was the erosion o previously deorested areas that was responsible or the sedimentation. Te summary o these sediment s ediment studies is presented: presented:
PROBLEMS AND SUGGESTED SOLUTIONS
7
Unortunately, there are a number o non-compliant mining companies who do destroy the environment and do not rehabilitate, reinorcing the many negative images thrown against the mining industry as a whole. In this regard, the legitimate and compliant mining companies should police themselves so that they do not get tarred with the same brush as irresponsible miners. Irresponsible miners will also cease to exist i current laws are strictly implemented and corrupt regulators brought to prison. Key to improving implementation is or the government to provide adequate salaries and incentives to the geologists, mining engineers and environmental enviro nmental inspectors in the DENR, who are the police o the mining industry. Needed too are amendments to the mining law that will update the amounts o penalties prescribed or mining violations – the current amounts (e.g., a ew thousand or siltation, etc.) are ridiculously low and must be proportionate to the damage done. Te inclusion o penal/criminal punishments or violators, including prison terms, will wil l certainly reduce environmental environmental violations.
8
MINING IN THE PHILIPPINES
Clearing Misconceptions
Up to 40% of the Philippines Will Be Mined I one listens to the news and social media, one would think that mining is so pervasive in the country. Contrary to popular belie, mining only occupies a very small portion (<0.3%) o the total land area o the Philippines. Mining is only pervasive in the media, because in reality, actual mining occurrence is small, as shown in Figure 2.
PROBLEMS AND SUGGESTED SOLUTIONS
9
It is sae to say that most Filipinos have not seen an actual mining area, but have instead been bombard b ombarded ed by negative publicity about mining. Te total mining area in the Philippines comprises less than hal o 1% o the country’s total land area. o compare, the actual area o islands and nearby seas devastated by illegal dynamite and cyanide fishing in the Cuyo group o islands in the Sulu Sea is much bigger. One graphic shown consistently by anti-mining groups shows that 40% o Philippine land area area will be mined (Figure 2, lef). Tis gives avenues avenues or comparison with places such as Nauru, where 75% o the area was mined or phosphate, leaving it a barren wasteland. Tis comparison leads to the argument that the Philippines, being an island ecosystem, cannot afford to have mining activities. Tis misconception is cleared up by restating the act that the first procedure or mining in the Philippines comprises an application or an exploration permit, and that the Philippines is subdivided into 81-hectare blocks wherein one has to apply or exploration. Te total area area where exploration has been applied or or is probably close to 40%. What is not explained is that the exploration permits are subject to many no-go rules where mining cannot occur. For example, areas that are populated, that are agricultural, that are protected, or meet other standards, are automatically excluded rom mining. Te reality is this: the areas that have active mining tenements only comprise less than 3% o the total area o the country, and o these MPSA-covered areas, less than hal a percent p ercent (0.3%) are being actively mined. Contrast this with the decline o the orest cover o the Philippines over the years (Figure 3). Te loss o orest cover has many causes, but illegal logging and kaingin (slash and burn clearing) are probably the main reasons. Tis type o environmental degradation has not received the same negative coverage as mining, despite mining directly affecting a much smaller area. Tis is not to apologize or the sins o the mining industry (which exist), but to put the issues into proper spatial and temporal perspective. We could be shouting loudly at a cause while being blind to the deeper problems that plague our environment. environment. On a personal note, I recently toured the many islands in the Cuyo Islands in Palawan, located in the Sulu Sea, and noted with a lot o sadness that many o the islands I visited were nearly devoid o corals. Te locals said that the corals were destroyed by dynamite and cyanide fishing that only stopped recently. All o the area occupied by the mining companies in the Philippines would fit into the area occupied by the Cuyo group o islands.
10
MINING IN THE PHILIPPINES
Te Philippines is One of the Most Mineralized Countries in the World An old adage says that clear accounting preserves riendships. Tere is the ofrepeated statement that the Philippines is one o the most mineralized countries in the world, and that there are trillions o dollars o resources in the ground just waiting to be dug up. Tese projections do not take into account the cost o recoveringg these mineral resources. Te problem o this misconceptio recoverin misconception n is that it can give rise to the mistaken thinking that since we have mineral wealth, investors will be lining up to mine it. Under this assumption, we can let investors wait because our country controls controls the disposition o the highly valuable mineral goods. Another way o looking at this approach is to not to let anything be mined until such time that the rules o mining, markets, and acceptability have have reached equilibrium levels. First, while it is true that a large portion o the country is mineralized, due in a large part to our location within the “Ring o Fire”, the quality o our ore deposits is not better than other deposits elsewhere in the world. Te deposit quality o
PROBLEMS AND SUGGESTED SOLUTIONS
11
Philippine copper ores, ores, or example, pales in compari comparison son to those o Chile or Peru. Te Philippine cut-off grade o 0.2%, versus 1.2% or Chile, means that every ever y tonne o ore mined in Chile C hile produces 5 times t imes more copper than ours, translating to lower costs. Te grades o copper, gold chromite and even nickel ores in South Arica are much better than that those in the Philippines.
In the Philippines, the chances o ore prospects (exploration (exploration targets) becoming actual mines is less than t han 10% (data rom MGB). Tis means that mining firms take risks with exploratio exploration. n. Should exploratio exploration n move up into drilling and development, the associated costs could run into the hundreds o millions o dollars without guarantee o success. Exploration and development are high-risk, high-capital ventures, ventur es, which very ew Philippine companies companies can afford afford.. Te costs involved imply that (a) we need investors i we are to exploit our mineral resources res ources and (b) investors will only stay in an environment with stable and
12
MINING IN THE PHILIPPINES
predictable rules governing the mining business. In a talk, the Chilean ambassador once said that Chile’s most attractive quality as a mining destination is that its rules are predictable and do not change mid-stream. Moreover, the recent debacle in Mongolia is an important lesson: one o the largest and richest porphyry copper deposit, Oyo ulgoi, has been hamstrung by changing rules o mineral extraction by its government. In this context, the declarations declarations o then Secretary Lopez to close mines because b ecause they are located lo cated in alleged water watersheds sheds were damaging to business. Her declarations declarations did not only reflect a change in policy, they ran counter to the law: the Mining Act does not prohibit mining in “proclaimed watershed orest reserves.” For it to have been done correctly, the President should have made a ormal proclamation delineating additional critical watersheds. Additionally, no mining operation would be allowed to deprive agricultural lands or communities o water. Tis issue is addressed during the environmental studies leading to the grant o the ECC. Exploration permits to define these mines required a lot o expenses, and these contracts, especially the subsequent MPSAs (assuming there are potential deposits among the many ailed, expensive ones) take years to perect. Te watershed definitions are already imbedded in the contracts (critical and proclaimed), and a sudden redefinition devoid o scientific merit will not only expose the government to lawsuits and uture arbitral awards to be paid or by taxpayers, they would discourage any uture investments in the mining industry.
Mining Contributes <1% to GDP and Employment and So It Can Be Stopped Without Harm to the Country It is true that mining contributes only <1% to the GDP and employment, and it would seem logical to just cancel this segment o the industry because o the pollution it is causing. First, the industry has not been allowed to grow, as there has been a moratorium on new mining permits or the last five years (our years under the Aquin Aquino o administration and one year under the Duterte administration). Despite this, only 0.3% o the country is actually being mined—and this small area alone contributes 1% to the GDP and employment. Moreover, the 1% contribution arises because the GDP contributions rom areas without mining are included
PROBLEMS AND SUGGESTED SOLUTIONS
13
in the averaging, thus diluting the contribution o mining. However, when we consider the economies o regions where mining is actually occurring (e.g., Caraga Administrative Region [CARAGA] and MIMAROPA Region [MIMAROPA], see figures below), mining contributes at least 20% o the regional or local lo cal government unit’s GDP. For this reason, local officials rom these regions are against the sudden suspension o mining activities. Tese points are clarified in Figures 5-8. A corollary misconception misconception is that mining causes poverty. poverty. Mineralized areas will have higher metal contents, and will thereore be a priori detrimental to agricultural activities. For example, some areas in the CARAGA, particularly Surigao del Sur, have soils with iron contents over 40%, making profitable rice growing almost impossible. As one test, the question can be asked whether w hether there was poverty beore b eore or afer mining activities began. Mining-intensive Mining-int ensive areas are not the poorest places in the Philippines. Te poorest areas in the Philippines are in the Autonomous Region o Muslim Mindanao (ARMM), and in act, the CARAGA areas are among among the astest-growing; this was correctly pointed out to Secretary Lopez L opez by Senato S enatorr Juan Miguel Zubiri during the Commission on Appointments (CA) hearing in March 2017. Te municipalities o Bataraza, Palawan, where there is a large mine and processing plant, and Claver, Surigao del Norte, where there are a number o nickel mines, are both first class municipalities, and first in terms o income, assets, and cash balances in their respective provinc provinces. es.
14
MINING IN THE PHILIPPINES
PROBLEMS AND SUGGESTED SOLUTIONS
15
Small-scale Mining is Small Small-scale mining is the biggest problem o mineral extraction in the Philippines. Small-scale mining reers to operations that, in theory, should not exceed 50,000 tonnes per year and should not use heavy equipment. Many small-scale mining operations do not have permits, although some can be obtained rom local governments, which have varying degrees o discipline in the disposition o these permits. In actual scale, s cale, small-scale mining or gold comprises over 70% o the total gold production, greatly exceeding the combined output output o all al l the large gold mines. Tis happens because some gold deposits, especially those in Diwalwal and Compostela Valley, are high-grade and accessible via shallow tunneling by artisanal miners. According to some exploration geologists, the grade and tonnage o the Diwalwal deposits could be comparable with some o the best in the world. Estimates o the number o artisanal miners vary, but they could easily exceed
16
MINING IN THE PHILIPPINES
hundreds o thousands. Solutions Solutions to the issues arising rom small-scale mining can only be multi-aceted and will require the cooperation o both local and national government, governmen t, with the help o civil society. Te problems associated with small-scale mining include, but are not limited to, to, the ollowing ollowing:: 1. Use of Mercury . Many o the artisanal miners use mercury, one o the most toxic substances available. Mercury Mercury recove recoveries ries rom small-scale smal l-scale operations are very low (estimates suggest <50%) and the unconfined tailings are still concentrated with mercury. Tis mercury will eventually flow into the ocean, where it could become methyl mercury, the cause o mercury poisoning (Minimata syndrome). syndrome).
Photo shows mercury-laden tailings from artisanal gold operations in Camarines Norte.
2. Severe Environ Environmental mental Degradation. Many small-scale mining areas employ no mining proessionals, resulting in the use o unplanned and dangerous dangerous methods, unconfined mine tailings, requent accidents, and no rehabilitation. Sadly, many people think that small-scale small-s cale mining is synonymous with the mining industry. industry.
PROBLEMS AND SUGGESTED SOLUTIONS
17
3. Non-payment of axes. Te estimate o large production rom artisanal gold miners comes rom the Bangko Sentral, which established buying centers in the gold areas (e.g. Baguio, agum). When a tax was levied on artisanal miners, the gold sales dropped close to zero. Te small-scale gold miners do not pay any taxes, especially to the local governments, who will have to bear the brunt o their environmental degradation. Small-scale mining operations also do not set aside rehabilitation unds to restore the mined-out areas at the end o mine lie, unlike large-scale mining companies. 4. A Abuse buse of Smal Small-scale l-scale Mi Minin ningg Permi Permits. ts. Since most permits are given by local governments, some unscrupulous mining operators, in connivance with corrupt local government officials, have gotten around getting permits rom MGB by misusing local permits. Local permits, unlike large mining tenements, do not come with ECC, prior and inormed consent rom indigenous peoples, and other monitoring requirements. Some oreign (mostly Chinese nationals) mining operators operato rs have used this route in order to illegally mine black sand and high-grade minerals using local dummies. Examples o these are seen in the ollowing photos. photos.
Mineral processing plant, owned by Chinese Mineral C hinese operators somewhere in Luzon, with only local LGU mining and environmental permits contrary to law.
18
MINING IN THE PHILIPPINES
Stockpile of chromite mined illegally by Chinese operators somewhere in Luzon, with permits given by local LGU despite despite a valid MPSA granted granted by national national government government to another another mining mining company.
Moving Forward: Proposed Actionable Actionable Solutions S olutions
1. Using an Endpoint Perspective, Not Just NPV Te idea or the approach comes rom a speech delivered in May 2017 by DENR Undersecretary and concurrent MGB Director Mario Luis Jacinto, who has had the unique experience o being a regulator in the MGB and a proponent or host communities in Mindanao. It is a proound insight wherein both the government and the mining company look at mining projects not just rom the beginning, but rom the end or post-closure perspective. Tis means visualizing the final
PROBLEMS AND SUGGESTED SOLUTIONS
19
mine rehabilitation; the disposition o water, waste and tailings; and sustainable communities. communi ties. Tis perspective, p erspective, also shown by David Brett in a talk on Responsible Resp onsible Mine ailings ailings Disposal, will employ exhaustive exhaustive proactive methods in the beginning o operations (e.g., thorough mineralogical characterization o ore and waste), rather than playing catch-up later on, when the costs o mitigation and remediation will then be prohibitive. prohibitive. Tis shif would mean that it should not only be financial considerations that should determine whether mining projects projects should proceed. In contrast, contrast, mining mining easibility is more ofen viewed largely rom a net present value (NPV) point o view.. view Perhaps Perha ps this view vie w is most easily seen in the disposition o mine tailings. A mine tailings disaster would make all NPV calculations useless and would erase all goodwill generated by mining activities—the Marcopper disaster comes to mind. Using this approach, one can already visualize that a ormer pit filled with water with a drainage pipe underneath is a disaster waiting to happen. A continuous hydraulic orce, even i resisted by a tunnel, could weaken altered clay-rich rocks and eventually cause ailure. ailure. Hence, even i a pit were to be used or a tailings t ailings pond, a simultaneous sealing o the drainag drainagee tunnel should have been be en done. As another example, a proactive, orward-looking characterization o the mineral components o a deposit, including waste materials, would reveal i there will be substantial sulfide-bearing minerals in the tailings that could cause uture acid mine drainage. Knowing in advance about a large amount o non-economic sulfides in the deposit, the company should make proactive adjustments in the milling process to isolate and contain the sulfides and reduce their content in the tailings. I tailings cannot be properly managed, then the mine should not even start operations, no matter the NPV. Herein is the root difference between quarrying and metal open pit mining: quarrying does not entail tailings disposal because almost all o the quarried materials are used in construction. In contrast, metal mines only use 1% or less o the ore and the 99% o the materials are ground into powder, mixed with water and impounded in tailings ponds. While both operations are truly open pit, quarries leave holes but open pit metal mines leave holes and tailings dump impoundments with substantial sulfides; the latter is much more difficult to manage in the long term.
20
MINING IN THE PHILIPPINES
Tis ‘backward’ approach should help in the evaluation o very large and controversial projects such as the touted USD 6 Billion ampakan project. Tis deposit is one o the largest and potentially rich deposits in the world, and its mining tenements traverse the boundaries o several provinces. While a local ban on open-pit mining was a significant hurdle in its development, several sectors point out that there are technical issues that need to be resolved i this project is truly easible, as suggested by its mining easibility study. study. Te first issue is the extent and scale o its tailings dump, and another is the elevated content o arsenic in its ores. Te tailings dam/dump issue is o great concern as the structure will be huge, and there will be b e numerous communities communities downstream which will be affected should a ailure happen. We are assured by the technical staff in the ampakan project that many models and simulations simulations have been made to show that the tailings dam will not ail. But how does one assure people downstream that such water-logged structure will remain stable decades afer final mining operations have ceased? I ound mysel remarkin remarkingg that i the mine managers truly believe that this dam is impregnable, then they should build their residences at the base o the dam, to graphically demonstrate their trust in this structure. str ucture. Te approach outlined above dictates that perhaps an approach with a lower NPV, but with more manageable and realistic tailings management option, would be a good compromise. Te arsenic issue is not only a metallurgical but also a marketing concern, and a solution or the arsenic deportment and management must be firmly established beore b eore operations operations commence.
2. Separate Sep arate EMB from MGB Within the current structure o the DENR, the agency responsible or giving and supervising mining tenements (MGB) and the agency responsible or managing the environment (EMB) report to one Secretary. Sec retary. Tus, while mining projects project s require an ECC, it only becomes one requirement requirement among several others beore a mining project goes orward. As the Secretary o the DENR is typically a political appointee, it is possible to have a situation wherein a project with poor environmental environmental credentials still goes ahead i the mining proponents have political clout. clout.
PROBLEMS AND SUGGESTED SOLUTIONS
21
Having an independent EMB analogous to the Commission on Audit strengthens the protection or the environment: i a project is ound, ab initio, not to be environmentally responsible, responsible, then it cannot advance even with a very positive NPV. I a mining company employs the ‘backward’ approach outlined earlier, then it will emphasize acquiring a genuinely effective ECC. Tis system will only work, however, i the EMB management comprises genuine scientists and not simply environmental advocates with no rigorous scientific background and training. oo ofen, afer an ECC is obtained, not just or mining companies but or all institutions, there is little ollow up rom the government to check i the original conditions outlined in the ECC are being strictly ollowed. Te EMB should not only be an ECC giver but also an effective monitor. Tere must be a need to update the value o fines levied on mining companies or environmental violations. Some serious violations are meted only a ew thousand pesos, which is a travesty. travesty. Serious S erious environmental environmental violations should merit suspension or cancellation cancellation o mining permits or ECCs, EC Cs, including even prison terms or the violators.
3. Revenue Sharing: An In-depth Study Needed An overriding principle in revenue sharing is transparency, so as to reduce discretion given to regulators that could be a potential source or corruption. One important recent initiative is the Extractive Industries ransparency Initiative (EII), which aims to make mining and other resource companies transparent in declaring financial and resource values. Requiring all mining companies to participate in EII is a big step. As it is, many sectors claim that the current 2% excise tax on mineral products (and 5% on those in mineral reservations) is too little, considering that the State owns the minerals. Mining companies, on the other hand, contend contend that they pay many other taxes, such that the sum total o their taxes make them heavily taxed. At the root o this problem is that mining companies can have very different business models. Most nickel companies, or example, ship their ores directly; gold companies process their metal completely; and copper miners process them into concentrates and export the concentrates (except those selling to Philippine
22
MINING IN THE PHILIPPINES
Associated Smelting and Refining Corporation-PASAR). Te varying levels o integration suggest that different approaches should be taken, but this is not so straightorward. straightorwar d. One version calls or a simple increase in taxes afer net income. An exhaustive study that considers these complexities and strikes a balance in imposing taxes is needed—too many taxes will kill the industry whereas too little gives windalls. But in act, such windalls do not ofen consider the costs borne b orne by the mining and exploration companies during exploration and development that need to be recover recovered. ed. An important comparison comparison in studying this issue is the Service S ervice Contract concept employed by the Energy Department, which has been a stable vehicle in granting resources in oil, gas, geothermal, and coal. Perhaps a variation can be adopted or the minerals sector. As one example, the terms or the FAAs should be laid out completely. FAAs allow oreigners almost 100% equity, similar to Service Contracts, because o the level o investments needed. Confidentiality should not be a actor because, first, the tenements cannot be stolen and transerred, second, the state owns the minerals and should be given its rightul share and, last, the people must be inormed o the proceeds, much like a government government project is required to publicize details o its financial transactions. Tere are only two FAA contracts in operation (OceanaGold and FCF Minerals Corporatio C orporation), n), so their financial arrangements arrangements can be models or uture projects. projects. In addition, since mining companies are ofen given tax holidays, the MGB and Department o Finance (DOF) should ascertain that these companies do not highgrade the richer ores during the tax-ree times, otherwise there will be little lef or the government when the lower-grade and revenue ores are mined during the implementation o taxes post-holiday. Te use o income tax holidays as a policy should be studied; ew other countries provide this incentive and it may tempt mining companies to selectively mine high-grade ores during the tax-ree period. Finally,, even as the government is trying to secure its rightul share o revenues Finally rom mining, it must also investigate losses due to underreporting and transer pricing. Such may be the case in direct-shipping nickel ores where the pricing is arbitrary, unlike trades involving pure metal, which are governed by the London Metal Exchange (LME) prices. Insights into the occurrence o transer pricing come rom presentations made by George Bjutor, illustrated in the ollowing figures:
PROBLEMS AND SUGGESTED SOLUTIONS
23
24
MINING IN THE PHILIPPINES
Te Philippines earns less rom its mining exports because many are not processed. I one only only sells ore, the payability payability (the amount amount paid as a percentage percentage o the pure nickel price) is low simply because the ore is unprocessed. Copper concentrates or gold doré are already considered semi-processed. In the case o copper, the grade o a typical copper mine min e in the country countr y o, say, say, 0.3% is concentrated to 25-30% in the concentrates. Tat, thereore, calls or a higher payability o the copper in the concentrate.
4. Increase the Revenue Share of Local Governments Governments and Allow Mining Companies to Pay the LGUs Directly Although mining only occurs in only 0.3% o the country while contributing 1% o the GDP, the government has done very little or the mining areas simply because they are hard to reach. Very ofen in mining communities, the mining and exploration exploration companies provide the roads, schools, and health centers or their
PROBLEMS AND SUGGESTED SOLUTIONS
25
workers and local communities that were not or could not have been provided by the governmen government. t. Revenues rom excise taxes should be shifed substantially towards the LGUs (more than 50%) and away rom national government. Te LGUs bear the brunt o the impacts o mining and they should proportionately proportionately share share more in the sharing o tax revenues. Tis is an application application o subsidiarity in the distribution o needs. Te sharing itsel, even more importantly than the actual percentages, must be done immediately, so as to have temporal cadence in the disturbance o mining and its benefits to the people p eople most affected. It has been documented that the LGU share o the excise taxes ofen takes years to be remitted, giving the impres impression sion that mining does nothing or the local residents and, politically, or the local leaders who have to answer to their electorates. An exemption should be studied and granted to mining companies similar to that granted to firms in special economic zones that are allowed to pay taxes directly to the local government units. A solution, hopeully done by executive order, is to permit mining companies to directly pay LGUs their share o the excise tax and also to increase the LGU share o the excise tax.
5. Encourage Value-Adding and Vertical Integration of the Mineral Industry Since minerals are part o the national patrimony, the State must employ means to maximize the benefits rom resource exploitation. Tis could mean giving incentives or firms to produce higher-value mining products. Some have highlighted the absence o an indigenous steel industry, whose potential is evident in the example o Japan. At the beginning o the 20 th century, Japan had been an exporter o raw ore. It decided to produce its own steel and copper by constructing its own smelters and quickly became a world power. o produce stainless steel, the main ingredients are iron, nickel and chrome—the Philippines possesses these elements in abundance. Te Philippines is the largest source o nickel in the world at the moment (while Indonesia completes its nickel processing plants) and also possesses extensive chromite deposits. Its substantial black sand deposits could be a source o iron.
26
MINING IN THE PHILIPPINES
Te ingredients are only one part o the puzzle: one must wonder why Australia and Brazil, who are the are top exporters o iron ore (in the billions o dollars) to China, also sell unprocessed ore. It may have to do with what economists call comparative advantage. China has cheap power and relaxed environmental rules, and or as long as they can get iron ore rom a number o sources, it will be difficult or Australia, as one example, to grow its steel industry and compete. Value adding should also be financially easible. For the Philippines, the main main hurdle or or an indigenous indigenous steel industry is the cost o power. With our cost o power among the highest in the world, producing local steel would make it more expensive than importing rom China, which has a glut o steel production. Moreover Moreover,, or the Philippines to produce its its own steel, it will have to make adaptations to supplement technical issues, such as using black sand as iron ore and sourcing coking coal (which will have to be imported). Perhaps we can learn rom aiwan, which has its own successul steel industry despite importing all its raw materials. George Bjutor Bjutor illustrates well the need or value-adding in the ollowing graph: graph:
PROBLEMS AND SUGGESTED SOLUTIONS
27
6. Exotic Elements and Black Sand: Te Scandium Story Our research at UPNIGS has highlighted some possible additional elements that could be derived rom Philippine ores given the right procedures. Because o the rise in the market or nickel laterites, some research in the past decade has highlighted other elements that could be accompanying nickel, whose occurrence in these ores range range rom 0.8% - 2%, and are imported mostly by China as eed or their blast urnaces. Foremost among them is the element scandium, a rare-earth element. Te pure metal price o scandium at $170/gram makes it more expensive than gold, but this is probably because there is so little o the pure metal produced. Te technology technolo gy is just starting start ing to catch up on on more extensive applications o scandium in high-perormance batteries, aircraf construction, etc. Pioneering work in the Philippines by Dr. R. Santos and Japanese colleagues showed the potential o scandium in nickel laterite ores, and we have extensively studied the mineralogy and geochemistry o these ores. Te Department o Science and echnology (DOS) has unded research aiming to quantiy scandium and all other rare and precious elements in exported nickel ores, which reach up to 30 million metric tonnes per year year.. Te main objectives o our study were to determine the baseline concentrations o scandium in most nickel mines in the country and, based on these concentrations, give the supporting data to metallurgists and materials scientists to figure out the best b est and economic way o recovering the metal. Because most o the exported exp orted nickel ores to China are used in blast urnaces, there is little reason to believe that the Chinese are recovering recovering scandium rom our nickel ores. However, preliminary findings (e.g., K. Sanematsu, personal communication) suggest that in acid dissolution experiments, the scandium is correlated to iron contents. Tese preliminary data suggest that the high-pressure acid leach (HPAL) method currently employed by two plants in Palawan and Surigao, by companies affiliated with Nickel Asia and Sumitomo Metal Mining, have the best chance o recovering Scandium alongside Nickel in their operations. It remains to be seen whether scandium can be b e mined and recovered recovered on its own, so its present economic economic easibility is providing an additional income stream to an HPAL operation. Some other materials science approaches or scandium recovery are being undertaken (e.g., L. Abad, PNRI) but these are still in the nascent stages. I scandium were to really become an important element in the mining
28
MINING IN THE PHILIPPINES
industry, a potential hint where it could be enriched could be in the high-iron, low-nickel ores, which are ofen considered waste material in nickel operations. Another element present in nickel ores, and being recovered, is cobalt, which is an element with a bright uture because o its extensive use in high-tech batteries. Cobalt is recover recovered ed by the two nickel processing plants in the country because be cause they process the nickel ores through HPAL, HPAL, which allows them to create special streams or cobalt recovery. Tis method can also be used to recover scandium rom the nickel ores. Even i capitalization is high, HPAL or related processes should be encouraged or nickel ores in the Philippines because through it, iron, scandium and even cobalt can be b e recovered, in addition to nickel. Tese trace elements should add to firms’ income streams and serve as a reward or value-adding. Data on actual black sand production in the country are sparse because most black sand mining operations are undertaken with permission rom LGUs. Moreover, ofentimes black sand miners call their operations “dredging” when in act the occurrence o magnetic separators in vicinities where black sand mining occurs strongly suggest that magnetite mining is being undertaken. Te
PROBLEMS AND SUGGESTED SOLUTIONS
29
mining statistics or black sand is spotty at the MGB because the majority o black sand mining permits are issued by local governments who do not impose strict reporting and environmental compliance. Black sand is predominantly magnetite, which can be used in steel manuacture. manuacture. We We have also undertaken a survey o black sand occurrences in the country and, with the exception o the Cagayan Valley area where we could not sample because o security issues, the samples suggest that black sand could be a substantial source o raw material or iron. Tis is shown in Figure 13.
30
MINING IN THE PHILIPPINES
Conclusions Mining is important, as what cannot be grown has to be mined. Mining products pervade our daily lives and cannot be avoided without a liestyle (very abrupt!) change. Responsible mining is possible, but it will require sel-policing among mining companies and vigorous and complete implementation o mining law by government agencies. 1. Mining occurs in less than 0.3% o the total land area in the Philippine Philippines. s. While exploration applications cover 40% o the country, many no-go zones and uneconomic mining conditions prevent mining activities. Te Philippines is not comparable to Nauru, where mining occupied up to 75% o their land area. 2. While mining contributes less than 1% to national GDP and employment, its occurrence in equally less than 1% o the land area means simply that where mining occurs, it is very significant. Mining comprises the most important economic activity in MIMAROPA & CARAGA, where its contribution is around 20% o GDP. 3. Te vast majority (up to 80%) o gold productio production n o the country is produced by small-scale mining, which is plagued with the use o harmul mercury, nonpayment o taxes, employment o children, non-rehabilitation, many atal accidents, and is perceived as the ace o mining. Tis is the real problem in mining that needs resolution. Its resolution should include non-harmul gold recoveries palatable to small-scale miners but also strong political will to stop harmul practices. Tis is where a Duterte moment is needed. 4. All the minerals in the Philippine Philippiness are owned by the state. Te current sharing o revenues needs review in view o different metals requiring different mining methods, differen differentt levels o integration, and different marketing marketing methods. MGB, EMB, and DOF need to be empower empowered ed to understand deeply the nuances o mining so as to assess the right revenue mix. 5.
Te share o mining revenues must shif in avor o the majority going
PROBLEMS AND SUGGESTED SOLUTIONS
31
to the local governments because they host the minerals, and their remote access means they were not cared or properly by government until mining operations began. Mining companies must also be allowed to pay taxes directly to LGUs to establish cadence between the t he impact and rehabilitation rehabilitation and its earnings. e arnings. 6. Event Eventually ually MGB and EMB need to be separated, separated, but both have have to be staffed with the best and best-paid people. An independent EMB can guarantee that environmentally, non-viable projects do not even begin, unlike the current situation situatio n wherein only one Department and Secretary S ecretary run contradicto contradictory ry unctions unctions o permit-giving and policing. 7. Research unding must be maximized in order to address the ollowing subjects: a. Determining the occurrence occurrence o o other valuable elements such as as scandium in directly exported ores; b. Developing the processes needed to vertically integrate integrate downstrea downstream m processes that add value in mining operations; c. Reducing environmen environmental tal impact; and and d. Studying the health effects o mining operations. operations. 8. Use the current mining audit not only to determi determine ne compliance o mining companies, but also to determine cases o collusion and corruption within regulatory agents and, especially, to look into allegations o transer pricing in the sale o nickel ores. 9. Te recent attention given to mining companies should orce them to cleanse their ranks, exceed compliance and demonstrate visibly that responsible mining is really possible.
32
MINING IN THE PHILIPPINES
Te views in this paper are the sole responsibility of the author, but I must acknowledge “mining” ideas from Roger Laraya, George Bjutor, Glenn Noble, Louie Jacinto Jacin to,, David Brett, Brett, Prof. Prof. Dr Dr.. Carsten Carsten Drebenstedt, Drebenstedt, Guillermo Balce, Rolly Rolly Pena, Pena, and many others. Tis study was not funded by mining companies nor by the Chamber of Mines, and a lot of the data gathering came from our own funded research. Te Department of Science and echnology (DOS) funded our research on black sand and scandium, and is gratefully acknowledged. Te Senate Office (Blue Ribbon Committee) of Senator Richard Gordon has also granted supplementary research funding for our trace element work, for which we are thankful. - Dr Dr.. Carlo A. Arcilla
ACKNOWLEDGMENTS Te Stratbase ADR Institute grateully acknowledges all those who have extended their support, cooperation, and commitment in the development o this project. Tis publication would not have materialized without their help. We are ortunate ortunate to engage with insightul insightu l persons rom different sectors, namely: namely : the academe, public and private sectors, as well as civil society organizations, who have shared their expertise expertis e and have actively contributed to discussions in various ora. We would also like to thank Pro. Victor Andres ‘Dindo’ Manhit, President o the ADR Institute, or his leadership, vision, and guidance in making this endeavor possible. Last but not the least, we would like to thank the ollowing or their hard work and dedication, and or working tirelessly towards the completion o this project: Deputy Executive Director or Research, Ms. Angelica Mangahas and Senior Research Associate, Ms. Weslene Uy, who both served as editorial staff. Our design consultant, Ms. Carol Manhit, or the publication lay-out and cover design; And the rest o the ADRi team headed by Executive Director, Atty. Katrina Clemente-Lua, Deputy Executive Director or Programs, Ms. Ma. Claudette Guevara, Program Associate, Ms. Vanesa Lee, and External Affairs and Social Media Associate, Ms. Krystyna Kr ystyna Dy.
ABOUT THE AUTHOR Dr. Carlo Arcilla is a licensed geologist and proessor o earth sciences at the National Institute Institute o Geological Sciences, University University o the t he Philippines. He is a product o public schools, rom elementary schooling in Virac, Catanduanes, to the Philippine Science High School in Diliman. He earned his BS in Geology (cum laude) rom the University o the Philippines and obtained a Fulbright scholarship to complete a Masters and PhD in Geotechnical Engineering and Geosciences rom the University o Illinois at Chicago.
Dr. Arcilla worked or Atlas Consolidated Mining and Development Corporation as a geologist but has also contributed significantly in environmental enviro nmental work, notably as the Chie C hie Scientist S cientist or Makati that documented the worst pipeline pipeline spill in the country country.. He has been called to testiy as amicus curiae o the Supreme Court in several environmental cases. He was also Philippine expert witness in the arbitration case o the Philippines versus Baggerwerken filed at the World Bank in Washington, DC; this case reerred to the cancellation o the raudulent contract to dredge the Laguna de Bay. He has conducted pioneering research in carbon sequestratio se questration n by mineralization in the Philippines, in cooperatio cooperation n with Ja Japanese panese and European scientists. Tis research demonstrates the substantial trapping o carbon dioxide by natural processes in areas in arlac, Pangasinan, Zambales and Palawan. Dr. Arcilla also built the Earth Materials Science laboratory Dr. laboratory at UP NIGS to be one o the most modern analytical laboratories laboratories in the country country.. Tis laboratory has trained dozens o students and works in the service o government government and private agencies. He has been consulted by several mining companies or their mineral and economic geology work in connection with listing on the Philippine Stock Exchange. He is one o the ew Competent Persons in Geology accredited by the Securities and Exchange Commission to evaluate mineral projects under the Philippine Mineral Reporting Code. He was considered considered Most Most Outstanding Geologist Geologist by the Philippine Regulatory Commission and also received the PRC’s PRC’s highest awar award, d, the Eric Nubla medal or the t he Most Outstanding Philippine Proessional, Proessional, in 2014.
