21 July 2008

Responsible mining drives growth?

A Response to "Responsible mining drives growth - Jose Leviste Jr."

Trust a miner to talk about the hopes and dreams of a better Philippines pinned upon a measly 2% excise tax on mining, and then to belittle the Catholic Church's and "international welfare agencies"' anti-mining polemics as nothing but appeals to romantic ideals of national patrimony, and then conveniently lump them with certain seedy local powers-that-be who just want the money for themselves.

The issue for Mr. Leviste is money. What about sustainable development? And are we forgetting something else, like the environment? By the way Mr. Leviste analyzed things, it seemed like the environment was never an issue. The word was mentioned not even once in his article. Okay, the article was just an excerpt, so there just might be some other things left out. And he did use "responsible mining", the one motherhood statement pro-miners rally about.

Could mining be ever responsible in a corruption-mired industry, with a corrupt and inept State monitoring and regulatory system? Could mining be ever responsible when indigenous peoples and local communities are, at turns, deceived, threatened and their rights violated? Could mining be ever responsible in such ecologically fragile islands as Rapu-Rapu, Sibuyan and Palawan?

But for Mr. Leviste, the main issue is money. Let's talk about money then. In most countries around the world, where there is mining, there exist the State's pre-tax share of the cash flow generated by a mining project, representing the national patrimony, which averages a hefty 38% (Chile 15.00%, Bolivia 27.06%, Venezuela 32.82%, Peru 36.52%, United States 36.61%, Mexico 37.21%, Botswana 40.10%, Brazil 40.85%, Argentina 46.13%, Canada 46.71%, Guyana 48.16%, Australia 50.60%)! In the Philippines , the share representing the national patrimony is exactly zero percent.

If this government is giddy about the financial benefits of mining, and mining companies are harping about following international standards, then why is nobody from both sides talking about a 38% pre-tax share from mining? Of course, the issue is money, more money for themselves. Obviously, mining companies and certain seedy national government powers-that-be want the rest of us to believe a 2% excise tax is the best deal we could ever have.

Thankfully, the Catholic Church and Mr. Leviste's "
international welfare agencies" don't think so. Unfortunately though, no matter how they whine about the bad rep they're getting, mining companies and corrupt government officials are already getting the money, while the rest of the Filipinos are left with an environment irreparably damaged and patrimony irreversibly wasted.

Responsible mining drives growth - Jose Leviste Jr.

The report of the Fraser Institute of Canada shows that the Philippines ranks among the highest in the world in terms of prospectivity and among the lowest in the world in terms of investability.

I have some difficulty with that position and I will tell you why. First, if the Philippines is bad as they say, why is that companies are still fighting to get a piece of the action in the Philippines? Sure, much of the promised investment on the ground is still waiting to happen but on the exchanges of Sydney, London, Toronto and elsewhere, the stocks of
companies that have projects in the Philippines are much sought after.

The fact is that despite the noise, quite a deal is happening in the Philippines and much of it for the good of the industry. We may not have seen much of the promised investment actually hit the ground as yet but we have certainly seen quite a deal of activity in regard to the shares of international companies that are developing local projects.

Only around 30 percent of the Philippines has been properly surveyed and yet already it is regarded as the fifth most mineralized country in the world. The total value of those minerals in today’s market is estimated at more than $840 billion.

If “exploited” in the proper way, with an excise tax of 2 percent being paid to government, that is $16.8 billion in royalty payments alone, of which $6.7 billion would be paid to local government units; plus a further one percent in royalties to indigenous communities—$8.4 billion.

Those numbers would start to make a real difference, especially if they provided the catalyst for further downstream investment. Mining, responsible mining that is, is an important driver of future growth of the Philippines.

Bad news

You hear much about the bad news on mining in the Philippines but much less about the good news. That is the nature of journalism. Anything unfortunate that happens is considered newsworthy. Anything good that happens is regarded as corporate propaganda.

What is the true story of what is happening with mining in the Philippines?

The fact is that there continues to be a battle for the hearts and minds of the people of the Philippines over the efficacy of the 1995 Mining Act which back in late 2004 was declared to be constitutional ‘with finality’ by the Supreme Court and which allows foreign companies to enter into agreements with the government of the Philippines to explore and develop local mineral deposits on behalf of the people of the Philippines.

At root, and in the context of responsible mining, it is all about money. This is not an issue that is unique to the Philippines. Fights over money and who gets what are as old as time and mining companies are used to such fights.

To exploit known mineral reserves in a manner consistent with international best practice requires both money and technology that is not available locally. International best practice is locked in battle right now (in some places) with vested local interests who wish to exploit these resources for themselves. Their argument is couched in terms of “national patrimony” and “Filipino first.” These are terms that appeal to certain elements of the Catholic Church and to international welfare agencies who echo the refrain—but the truth of the matter is somewhat different.

What these people really mean by the terms they use is that they do not wish to share local wealth but keep it for themselves. Remember that small-scale miners (ostensibly pick-and-shovel stuff but in fact many so-called small-scale miners are anything but small-scale) do not report their income to the national government, do not pay excise taxes and often pay their “taxes” not by cheque but in cash—without the corresponding receipts.

So the real battle is between a system whereby earnings from mining will be returned to the national and local governments as well as the people of the Philippines through defined revenue sharing formula and in a manner that will redistribute wealth throughout the Philippines versus a system which enriches a few local oligarchs and the politicians that support them while keeping the mass of the people impoverished.

Pockets of resistance

Among the various “stakeholders,” some of the opposition to national mining policy is brought about through ignorance while other opposition is ideological in nature—vested interests are under threat.

At the national level, the fight has already been won. The national government is firmly behind the minerals industry as a future driver of our growth. What you are seeing now are the mopping up operations of that fight—pockets of resistance that are holding out and fighting ferociously in the process. And yes, sadly, there are delays and occasional road blocks in some prospective mining areas of the country.

But these delays and occasional road blocks, as unfortunate as they are, should not discourage us but should steel us in our resolve to win the fight on behalf of the legitimate industry.

Indeed, the situation is changing for the better and the legitimate industry is slowly again gaining the upper hand. We say “again” because it was a battle already won back in 2005 but which was set back immeasurably by the incidents at the Rapu Rapu mine in Albay province. The response to those incidents and the manner in which they were handled by the previous management at the time damaged not only the company but set back the entire industry. It was caught flat-footed.

Rapu Rapu got new Filipino management, was rehabilitated and is now under new Korean and Malaysian ownership and management and it remains to be seen how the new owners handle things from this point.

Certainly the industry cannot afford another setback of this nature.

Revenues for local government

Evidently, “enough is enough” and mining companies, traditionally wanting to keep a low profile and needing to refer any public comment back to their corporate headquarters, are now starting to realize that profiles can sometimes be too low.

The key issue of course again comes back to money and the need to ensure that revenues from mining activities flow back to local government in a transparent and timely fashion. There is some validity to the complaint of many local officials that they have yet to see any benefit from allowing foreign mining companies to undertake activities in their areas. That has to change and is changing.

So while the Philippines may not represent the best of all possible worlds, it is far from being the worst either. Our international credibility is starting to improve.

But in the Philippines as in any business venture, the time to get in is when things are just starting to move. Wait too long and you will assuredly miss the boat.

These are excerpts from the speech of the author in Brisbane, Australia on June 26, 2008. He is resident representative of the Australia-Philippine Business Council and chairman of Oceana Gold Philippines Inc.

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