The hodge-podge character of the present Philippine mining industry, marked by great numbers of very small- scale and small- scale pre -industrial and precariously existing enterprises dominated by a few relatively large-scale foreign-controlled corporations, has the attributes of economic dualism, or the co- existence of two broad sectors of employment (formal and informal) common to developing countries. (After Rees, J. in Global Change and Challenge, Benett, R. and Estall, R. Eds. [1991] Reprint 1993) . An intermediate sector supposedly composed of medium- scale endeavors is practically non-existent or has been long extinct.
C.1 Mining Operation – Its Statutory Context
In the Philippine statutory context (RA 7942), mining operation covers the following major activities:
Exploration or prospecting (4-6 years) entails the search for mineral resources for the purpose of determining the existence, quality and quantity as well as the feasibility of mining these resources for profit (additional 2-4 years).
Mine development (1-4 years) pertains to all work undertaken to explore and prepare an ore body or mineral deposit for mining, including the construction of necessary infrastructure and related facilities. In the case of open pit mining, the overburden is removed or stripped to expose the ore body and the adjacent areas are cleared in order to serve as dumping grounds for the overburden.
Utilization or extraction and disposition of minerals comprise the mining proper either done on the surface or underground.
Initial mineral processing refers to the milling, beneficiation or upgrading of ores or minerals and other by-products to convert them into marketable products.
Decommissioning includes all activities leading to the winding-up of mining operations, including final mine rehabilitation.
Although refining, smelting and fabricating are constituent stages of the mining industry, these three are considered only as subsidiary industries because the Philippine mining industry is not integrated, and is basically extractive and export-oriented.
C.2 Industry Players
In terms of the number of operating large metal mines, the DENR recently disclosed that only eight mines were left in 2002, from the total of 58 mines in 1981. Roughly, this negative trend translated into an attrition rate of two mines per year. But the bulk of these metal mines, numbering 43, were decimated between 1981- 1996. One could not help but compare this negative trend with the Darwinian selection process marked by the “survival of the fittest”.
According to IBON, at the start of 1996 there were 15 surviving large-scale metal mining corporations in the country engaged in the production of gold, silver, copper, chromite and nickel. (Table 5) The fact that Marcopper shut down by the middle of the year due to its mine tailing disaster reduced their number. They are listed in the 1996 Directory of Philippine Producing Mines and Quarries.
Six of these mining companies listed in Table 5 as the country ’s major producers of gold, silver and copper (viz. Benguet Corporation; Dizon Copper Silver Mines; Lepanto Consolidated Mines; Manila Mining Corporation; Philex Mining Corporation; and United Paragon Mining Corporation) are also among the 11 active mining firms at the Philippine Stock Exchange. (Table 6) These big mining companies belong to the Chamber of Mines of the Philippines (COMP).
The 1996 Directory also had 48 officially listed small- scale miners, broken down as follows: 28 for gold and silver; 17 for chromite; and three for manganese. Non-metallic producers numbering 230 were likewise enumerated, but were not classified accordingly into large or small producers.
Excluded in this 1996 directory was a rag-tag army of about 500,000 small-scale gold miners, plus a few thousands more engaged in the small-scale mining of chromite and other near-surface minerals.
Establishments in coal mining and petroleum/natural gas exploration and production were not included in the 1996 directory. But based on the earlier 1993 Survey of Establishments, there were 14 commercial firms engaged in coal mining and 12 in petroleum exploration.
In 2000, the country’s major coal producers were Semirara Coal Corporation, Looc Limestone and De- velopment Corporation and Asia Coal Corporation. The country’s chief producer of crude petroleum in the same year was Trans-Asia Oil and Energy Devel- opment Corporation. At present, there are eight oil exploration companies active in the country’s stock exchange. (Table 6)
In 2003, the Department of Energy (DOE) bid out 43 exploration blocks adjacent to the Malampaya gas field, and to the other oil and gas discoveries and producing fields at southwest and east Palawan, Sulu Sea and Reed Bank. Two years earlier, the Malampaya Natural Gas Project, with the Shell Philippines Exploration B.V. (SPEX) as main proponent, started commercial operations.
C.3 Industry Performance
Although the Philippines has a vast mineral resource potential, recent studies show a declining mining industry, now aptly termed a “sunset industry”. The negative assessment has been made principally in terms of the declining dollar receipts from exported minerals. This thinking is in line with government’s view that the main contribution of mining to the national economy is its generation of substantial export receipts.
C.3.1. Volume of Mineral Production
(After IBON’s Globalizing Philippine Mining [2002])
Metallic ore production declined in the 1990’s mainly because of depressed international markets and low prices of metal ores, thus making production unprof- itable. But mineral production, even at its peak, had barely reached its full potential. The industry had been dependent on foreign capital and at the mercy of the international market.
Copper production (1975-1999) was in shambles, from the 1980 peak output of 1,123,900 dry metric tons (DMT) way down to the 1999 meager produce of 151,220 dry metric tons (DMT). Within the 19- year period, the country ’s copper metal output shrank by 87%. (Table 7)
In the beginning of 2000, only three large copper producers remained, namely, Philex Mining, Maricalum Mining and Manila Mining, from a peak of 18 in 1980. Philex Mining in Padcal (Benguet) was the major copper producer, with its 54% share of the meager metal output in 1999.
In terms of gold production, the country’s output had been less abrupt but equally alarming. At the start of 2000, there remained only 11 primary and secondary gold producers from a peak of 28 in 1980. But barring double counting and taking ownership into account, there were actually six gold producers within the last few years.
The country’s top gold producer was Philex Mining, with its three mines at Padcal (Benguet); Bulawan (Negros Occidental); and Sibutad (Zamboanga del Norte). In 1999, the combined output of the three Philex gold mines accounted for nearly 26% of the country ’s total gold production. Moreover, the min- ing company was the chief producer of silver in the country, contributing 48% of the precious metal out- put in 1999. (After IBON, pages 44 and 50-51)
Within the purview of the 1975-1999 mining period, the Philippine total gold production peaked between 1985 and 1987 with annual haul of over 30 tons (nearly one million troy oz). After 1987, however, there was a marked decrease in gold output among the country’s large-scale producers. (Table 8)
Panned gold output of the very small-scale and small- scale miners reached its maximum level between 1994 and 1996, with more than 10 tons (321,000 troy oz), compensating for the general decline in the precious metal production of the large mines. Between 1995 and 1999, the share of gold production from panning and small mines had increased to more than 50% of the total. (Table 8)
Within the mining period 1975-1999, silver production posted the highest amounts (from kg. to troy oz.) in 1980 (1,950,000 troy oz), 1981 (2,000,000 troy oz) and 1982 (1,980,000 troy oz). Domestic production of this precious metal hit the rock bottom in 1998 (610,000 troy oz) and 1999 (578,000 troy oz) respectively. (Table 7)
Based on the 1975-1999 mining output data, chromite production attained its highest level in 1978 (556,100 dry metric tons) and hit the rock bottom in 1999 (17,000 dry metric tons). (Table 7)
Benguet Corporation had been the only refractory chromite producer since 1997, out of the original eight refractory chromite mines in 1977.
Since 1997, there were only three metallurgical chromite concentrate producers out of the original five such mines in 1980. Since 1997 also, only one metallurgical chromite ore producer survived from the maximum of 24 such mines in 1978.
Nickel production was erratic based on the 1975- 1999 mining data. The highest nickel metal output was in 1980 (47,100 metric tons), and the lowest in 1987 (8,500 metric tons). (Table 7)
Out of the five nickel mines established before 1992, only three were left in 1997. And since then, the surviving mines – all controlled by the Zamora Group—concentrated in the production of beneficiated ores, in lieu of previous refined nickel outputs.
C.3.2. Value of Mineral Production
(After IBON’s Globalizing Philippine Mining [2002])
From 1970 to 1974, mineral exports accounted for an annual average of 21.6% of total exports, mainly due to favorable world prices. Mineral exports reached its peak of 24.6% share in 1973 realizing $463 million in receipts. In terms of value, mineral exports peaked in 1980 at $1.235 billion in receipts.
This contribution declined to 16.1% during the period 1975-1985, with a brief comeback (21.3%) in 1980. Since 1986, the average value of mineral exports per year has been equal to only 7.25% of the total foreign exchange earnings. In 1987, the Mines and Geo-Sciences Bureau reported that mineral exports amounted to $769 million, with the gold shipments valued at $482 million.
By 1996, the share of mineral exports was down to a measly 3.75 % of the total exports. In terms of value, exported ores in 1996 amounted to $770 million, with copper accounting for a 39% share.
In 2003, mineral exports posted $519 million in total receipts based on data from the DENR. In the same year, the industry recorded Php 41.9 billion worth of mineral produce. It paid Php 2.1 billion in taxes and fees.
For the period January- June 2004, preliminary data from the National Statistics Office (NSO) disclosed that mineral commodities comprised less than one per cent of the country ’s total exports. The first semester’s mineral shipment of about $146 million is broken down as follows:
For the major period under consideration (1970- 1996), the bulk of the Philippine mineral exports went to Japan, the USA and Europe. In the case of the 2004 chrome ore exports, China has emerged as an important buyer in lieu of the European market.
C.3.3. World Status of Philippine Mineral Production
(After IBON’s Globalizing Philippine Mining [2002])
Although the world status of Philippine mineral pro- duction declined over the years, the country remained as one of the world’s major producers of gold, cop- per, chromium (chromite) and nickel. It ranked 7th in gold production in 1988, was dislodged to 13th in 1992, and down to 17th in 1997 and finally 20th in 1998.
In copper production, the country has not yet recovered its position as the 10th major producer in 1988. It ranked 16th in 1992 and dropped by six ranks more in 1997, and finally 23rd in 1998.
Although the country was believed to have the biggest nickel reserves in the world in the 1970s, it has fallen to 13th in nickel production in 1992. In 1997, the country ’s nickel output ranked 14th, and it improved somewhat the following year (1998) by ranking 11th.
C.3.4. Causes of the Mining Industry’s Decline
(After Corpuz, C. in Second National Mining
Conference (1997) Baguio City
What caused the moribund state of the Philippine big mining industry? Specifically, what caused the impending demise of large-scale metallic ore mining in the country?
For one, the Chamber of Mines has been pointing to the international crisis in the industry, as manifested by low market prices of metals, notably gold and copper. This condition has affected both local and transnational mining companies severely. No dramatic recovery has happened as anticipated. The mining crisis, which to them is the usual short cyclic boom and bust, has overextended.
Within the period 1970-1980, there was a steady increase in the average price of gold in the world market from $35.96/troy oz to $612.46/troy oz. The latter part of 1979 and 1980 were abnormal times as high demand brought up gold prices to $850/troy oz and even reaching $1,000/troy oz.
But this heyday was short-lived as the average price of gold went down $463.13/troy oz in 1981 and nose- dived further to $284/troy oz by 1985. The price of gold has been fluctuating between $360/troy oz and $400/ troy oz during the subsequent decade. In 1997, gold was bought only at $331/troy oz. By 2001, the price of gold slid further to $271/troy oz.
But since then, the precious metal’s average price made a long hard climb to the level of $452.25/troy oz. as it neared end of November 2004 (Business World November 26-27, 2004 issue). This price behavior becomes all the more pronounced as safe- haven precious metals such as gold beckon investors amid a sliding dollar and rising oil prices.
Unlike gold that experienced price increases in the period 1970-1980, the price of copper metal was very erratic during the same period. The base metal reached its highest price of 99.38 cents per lb. in 1980, but steadily declined to 62.98 cents per lb. in 1986. Between 1987-1997, copper prices fluctuated between 90 cents to $1.03 per lb.
By 2001, it fell to 72 cents per lb. But in the last few years, the base metal’s average price had been climbing steadily up to its present level of $1.30 per lb. (October 2004). The recent price upswing, amid intensifying regional conflicts and military build-up, seemed to bode well for a copper comeback.
While it is true that gold and copper prices had been unfavorable in the past, this did not explain why countries such as Indonesia, Chile and Colombia and other developing nations had overtaken the Philippines in mineral production.
On the basis of the different studies made, the foreign mining consultants, local industry players and the Philippine government itself concluded that the dismal state of the mining industry stems from:
There is no need to belabor on the subject of “back- ward” mining technology. As for investment, it should be noted that most of it went to the exploration of petroleum and the production of non-metallics due to the construction boom, and not to the strategic development of metal mining and its associated pro- cessing activities.
For instance, data from the Board of Investments (BOI) showed starting in the 1990s, foreign investments in metal mining accounted for only 7% of the total investments in the industry. On the other hand, local equity since 1992 has been infused into the non- metalllics sector. (After IBON)
Data from the Securities and Exchange Commission (SEC) revealed that in 1997 mining and quarrying captured only Php 404 million out of a total initial capital investment in the country of Php 59 billion. Also in that year, mining captured only 4.83% of the total foreign investments in paid up capital. (After IBON)
The mainstream framework, viz. Philippine mining as basically extractive, export-oriented, and dependent on foreign capital, defined the foreign consultants‘ conclusion. Their solution boiling down to a policy of liberalization was to explore ways to harness and make these industry features more efficient to expand ore exports.
The proponents of liberalization failed to grasp an essential cause of the dismal state of the mining in- dustry, viz. the government’s lack of a clear policy on the development of the industry to its full potential, considering the country’s long history of mining and its vast mineral reserves.
Consequently, the mining industry was not able to adjust to the price fluctuations in the international market. There was a strong ningas cogon tendency in the industry: when metal prices in the international market go up, mining companies suddenly sprout. And when metal prices go down, many of them suddenly find themselves in distress, being unable to cope with payments for loans they incurred in reviving, expanding or putting up new mining firms.
Further deterioration of the industry was aggravated by the government’s pathetic economic policy based on raw material extraction and export. There were no incentives to develop the local mining industry because it literally followed the “boom and bust cycle” of the international market.