Impact of the Philippines’ elections on the mining sector - part three

Allan and Associates, a security risk management consultancy based in Hong Kong, has assessed the implications for the mining industry based on the known policies and priorities of an administration led respectively by any one of the three leading contenders.

To read the first part of this report click here.
To read the second part of this report click here.

Security risks facing the Philippines mining sector
The principal security threat to mining operations in the Philippines comes from the communist New People’s Army (NPA) guerrilla group. The NPA are active, to varying degrees, in all regions of the Philippines.
The NPA stepped up its opposition to the mining sector following the December 2004 decision by the Philippines’ Supreme Court to uphold the constitutionality of the Mining Act of 1995, which for the first time permitted foreign investors to fully own local mining concessions under so-called Financial or Technical Assistance Agreements (FTAAs).
Attacks against mining-related targets – such as remote exploration site, heavy equipment or the poorly trained mine guards who often serve as little more than de facto armouries for the NPA – are either linked to extortion (‘war taxes’) or in support of local communities opposed to mining (‘mobilisation’).
Raids against foreign mining interests tend to follow cycles that reflect a number of factors, ranging from heightened local nationalist or xenophobic sentiments linked to a specific incident to gain tactical advantages through distracting and dispersing military units. Attacks against foreign mining interests have fallen sharply over the past two years, but could resume as and when the NPA chooses. A retired Philippines Army general noted in May 2008 that ’mines are the milking cows of insurgents,’ offering some context as to why raids against mining companies rarely lead to a devastating levels of damage or high casualties.

Attacks against foreign mining companies in the Philippines – 2007-2008
6 March 2008: At least 50 NPA guerrillas raided the Anglo-Norwegian owned Apex Mines site in Barangay Masara, outside Maco township in Compostela Valley province, southeast Mindanao. The attack on the exploration site lasted around two hours, was carried out by NPA fighters wearing military-style uniforms and mounted on dump trucks. The raiders disarmed at least 13 security guards, taking five M-16 rifles as well as shotguns, handguns and personal radios, and burned five specialised mining vehicles. Local media reported that the new management had ended the practice of paying ‘war taxes’ to the NPA. No casualties were reported in the attack. The same site was also raided by NPA guerrillas on 30 October 2005, when three weapons were seized from security guards.

6 February 2008: Up to 30 NPA guerrillas were involved in an attack a gold processing plant operated by JB Management and Mining Corp. in Monkayo township in Compostela Valley province in southeast Mindanao. Two of the company’s security guards were killed in the attack and their firearms seized. In October 2005 at least five people were killed and up to 12 injured in an explosion in mine operated by JB Management and Mining Corp. Local media reported that there had been numerous killings in the region over disputed mining claims in the region since the 1980s.

1 January 2008: Up to 100 NPA guerrillas raided the Tampakan mine site of Swiss-Australian owned Xstrata Plc, located in southern Mindanao’s South Cotabato province. The attackers burned down an administrative building and a sub-contractor’s office in the pre-dawn raid. The chief security office was briefly held, and some weapons and office equipment seized. According to an NPA statement the attack was meant to end Xstrata’s operations in the area. The Tampakan site, which will cost more than US$5.2 billion to develop, has been subject to exploration activity by foreign mining companies for more than a decade. The development has also been opposed by a broad coalition of local groups, ranging from environmentalists to the Catholic Church. The NPA warned that it would take further action if the site remained operational.

3 October 2007: Up to 40 NPA guerrillas raided the Australian-owned El Dore Mining Corp. site in Camarines Norte province's Labo town, 210km southeast of Manila. The attackers set fire to heavy equipment and vehicles and seized the weapons and mobile telephones of the security guards. No injuries were reported at the mine exploration site, which had operating for about a year. The NPA said the raid was intended to warn El Dore to end its operations, which it claimed damaged the environment, displaced local people and exploited resources that should benefit Filipinos.

3 April 2007: Up to 50 NPA guerrillas raided a gold mine site being developed by Australian-owned CGA Mining Ltd. in Aroroy, central Masbate province in the Bicol region. The guerrillas set fire to five buildings and some heavy equipment in the raid, leaving behind a number of home-made bombs to hinder the security forces. A police officer who pursued the attackers was killed.

Operational risks facing the Philippines mining sector
The main operational problems facing mining companies in the Philippines are opposition from the myriad community, special interest groups and NGOs that are active across the country. These groups are often supported by the country’s principal religious orders and local politicians seeking electoral support.
The problem for mining companies is that such a dense network of opponents can counter many of the strategies they employ to secure local acceptance and cooperation in what may become a decades’ long project. This can lead to endless attrition tension generated by the near impossibility of meeting all the expectations of communities affected by the project, creating in turn a level of opposition that can cause a company endless delays, disruptions and reputational damage far beyond the mine site.

Outgoing president Gloria Macapagal-Arroyo’s government had sought during its term of office to attract investment worth at least US$6.5-billion in exploration and mining projects. Despite surging metal prices and the growing interest of China and India in the Philippines’ natural resources, the mining sector has failed to attract anything approaching the foreign investment required to fulfil its potential.
Persistent legal challenges, opposition from community, environmental and other groups, as well as security risks serve to deter newcomers or exhaust those who try and navigate these obstacles.
An Aquino or Villar presidency is unlikely have any material impact on the status quo in the mining sector. This is a negative outcome for foreign miners seeking to diversify or offset what may become a broad trend towards high taxation in the mature mining provinces.
While both candidates have emphasised the need for foreign investment as part of the country’s wider needs to address issues of social and economic inequality, neither have offered any specific or costed policies that may encourage or achieve this outcome.
Given the political influence and often monopolistic instincts of the domestic business lobby - including much of the mining sector - foreign interests are unlikely to seen as a priority for the incoming administration.

Allan & Associates is a Hong Kong based security risk management consultancy that provides security risk management advice to companies involved in extractive industries across the Asia-Pacific region. To learn more about Allan & Associates visit: www.allan-assoc.com

To read the first part of this report click here.
To read the second part of this report click here.