The Philippines is renowned for having an abundance of metals and minerals reserves, and has long been the world’s leading supplier of nickel ore. Yet long-standing corruption, challenging investment laws, land rights issues, and a growing environmental movement is suffocating the industry.
With the world’s second largest gold reserves, as well as supplies of nickel, copper, silver and chromite, the Philippines should have been top of the list for mining investment since the 1980s. It is estimated that the country’s reserves could produce close to USD1 trillion in revenues and deliver consistent economic growth of around 6% per annum. However, the mining sector has long been mired by a series of investment and operational barriers that have consistently undermined the country’s reputation as a top mining destination.
Perhaps the clearest indication to date of how the Philippines has failed to capitalise on its mining wealth is to examine government policy-making at the time of the commodity supercycle, which saw metal prices skyrocket from 2001-2012. During this period, most countries with significant metals and minerals reserves welcomed investment in order to benefit from pricing peaks. Miners were willing to venture into new territories, buoyed by ready access to finance and encouraged by the consistent upward movement in prices. Even in the face of extreme political risks in some territories, including tax and royalty hikes, licence repudiation and security threats, the upside of investing in frontier markets outweighed the risks by some margin.
Yet from 2009 onwards, the percentage contribution of mining to the Philippines’ GDP has dropped every year, ever since the government of President Benigno Aquino III started to show a resource nationalist streak which manifested in changes to mining law and regulation, changing taxation and royalty rates, and increased red tape. By mid-2016, mining contributed less than 1% to GDP, and with the inauguration of President Rodrigo Duterte and his appointment of staunch environmentalist and fierce mining critic Gina Lopez as Environment and Natural Resources Secretary, it was clear that risks of investing in the Philippines were once again set to increase, despite encouraging movements in international metals prices that has signalled green shoots for mining exploration activity worldwide.
Under the new administration, the mining industry in the Philippines has experienced a tumultuous eight months. The outcome of an environmental audit was released in early February, with the government announcing that it will be ordering the closure of 23 mines – cutting the number of operational mines in the Philippines by 50%. This has implications for global nickel prices. Political risks remain elevated, as do long-standing operational challenges such as gaps in infrastructure, extreme weather and security risks. Those investors remaining in the Philippines have challenging times ahead of them. President Duterte has said in the past that the Philippines could survive without a mining industry – that may now well be the reality.
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For further information, please contact Phil Ondaatje, Mining Practice leader, JLT Asia on +65 6411 9640 or email firstname.lastname@example.org