The Mining Law Review-Philippines Mining Law

7/28/2019 The Mining Law Review-Philippines Mining Law

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Erik Richer La Flche


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Edo Pefce ...................................................................................................Erik Richer La Flche

Part I mining law..................................................... 1264

Chpe 1 ANgoLA .................................................................................. 1Joo Aonso Fialho and Hugo Moreira

Chpe 2 AzERBAjAN ......................................................................... 12Ilgar Mehti and Nurlan Mammadov

Chpe 3 BRAzL ................................................................................... 22Luiz Fernando Visconti

Chpe 4 ANAA ................................................................................ 34Erik Richer La Flche and David Mass

Chpe 5 EMoRA REPBL oF E oNgo ................. 44

Emery Mukendi Wawana, Edmond Cibamba Diata,Nady Mayiuila, Jonathan van Kempenand Eric Mumwena Kasonga

Chpe 6 EAoR ............................................................................. 58Jaime P Zaldumbide and Jernimo Carceln

Chpe 7 FNLAN ............................................................................... 63Tarja Pirinen

Chpe 8 gANA ................................................................................... 73Innocent Akwayena and Enyonam Dedey-Oke

Chpe 9 MExo ................................................................................. 87Alberto M Vzquez

oNENS


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Contents

Chpe 10 MoNgoLA......................................................................... 102Batzaya Bodikhuu and Enkhtsetseg Nergui

Chpe 11 MozAMBqE ................................................................... 115Joo Aonso Fialho and Nuno Cabeadas

Chpe 12 NAMBA .............................................................................. 126Axel Stritter

Chpe 13 NgER................................................................................... 144Daouda Samna Soumana

Chpe 14 NgERA............................................................................... 152Oladotun Alokolaro

Chpe 15 PER ..................................................................................... 162Giannina Assereto

Chpe 16 PLPPNES ....................................................................... 175Roderick R C Salazar III and Geraldine S Meneses-Terrible

Chpe 17 PoRgAL .......................................................................... 191Rui Botica Santos and Luis Moreira Cortez

Chpe 18 So AFRA .................................................................. 202Modisaotsile Matlou

Chpe 19 ANzANA ........................................................................... 220Charles R B Rwechungura, Cyril Peshaand Pendo Marsha Shamte

Chpe 20 REy ............................................................................... 229Safye Asl Budak and Merve Nazl Kaylan

Chpe 21 NE SAES ................................................................ 241Robert A Bassett, Karol L Kahalley and David I Stanish

Chpe 22 zBESAN ...................................................................... 252Eldor Mannopov, Anna Snejkova and Ulugbek Abdullaev


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Contents

Part II CaPital markEts...................................... 267338

Chpe 23 BRAzL ................................................................................. 267Rodrigo de Campos Vieira

Chpe 24 ANAA .............................................................................. 271Erik Richer La Flche, Raymond McDougalland David Mass

Chpe 25 MoNgoLA......................................................................... 282Yancy Cottrill and David C Buxbaum

Chpe 26 MozAMBqE ................................................................... 294Jorge Graa, Taciana Peo Lopes, Paulo Ferreiraand Mrcio Paulo

Chpe 27 NAMBA .............................................................................. 298

Axel Stritter

Chpe 28 So AFRA .................................................................. 310Francois Joubert, Catharine Keene, Robin Beale,St Elmo Wilken, Christopher Gibson and Itumeleng Mati

Chpe 29 REy ............................................................................... 321Safye Asl Budak and Merve Nazl Kaylan

Chpe 30 NE NgoM .......................................................... 329Kate Ball-Dodd and Connor Cahalane

appedx 1 ABo E AoRS .................................................... 339

appedx 2 oNRBNg LA FRMS oNA EALS.....355


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ix

editors preface

I am pleased to have participated in the preparation o the rst edition oTe MiningLaw Review. Te Review is designed to be a practical, business-ocused year in reviewanalysis o recent changes and developments, their eects and a look orward atexpected trends.

Tis book gathers the views o leading mining practitioners rom around theworld and I warmly thank all the authors or their work and insights.

Te rst part o the book is divided into 22 country chapters, each dealing withmining in a particular jurisdiction. Countries were selected because o the importance omining to their economies and to ensure broad geographical representation. Mining isglobal but the business o nancing mining exploration, development and to a lesserextent production is concentrated in a ew countries, Canada and the United Kingdombeing dominant. As a result, the second part o this book includes eight country chapters

ocused on nancing.Te advantage o a comparative work is that knowledge o the law anddevelopments and trends in one jurisdiction may assist those in other jurisdictions.

Although the chapters are laid out uniormly or ease o comparison, each author hadcomplete discretion as to content and emphasis.

Ater the lost decades o the 1980s and 1990s came the mining boom o the pastdecade and the beginning o the Commodities Super-Cycle. During this time, the priceo industrial minerals and other commodities rose sharply. Needless to say, the miningboom has resulted in the resurgence o mining and has been a boon to many emerging

economies, particularly in Arica and South America.Will the super-cycle continue? I one accepts that the root cause o the super-cycle

is China, then the answer is yes and mining has a bright uture: China needs minerals tocontinue its industrialisation and the rollout o modern cities and inrastructure. Whileits stated objective is to build a modern service-oriented economy, China is at best 10 to15 years away rom transiting out o its current intensive mineral consumption phase.

As a result, continued strong demand should sustain prices or the next decade this


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x

Editors Preface

is particularly true or metals little ound in China. Tereater, demand should remainstrong as the world adds an estimated 2 billion to its population by 2050, most o whom

will reside in emerging markets and i the past is indicative o the uture will wantgreatly improved living standards.

Te Commodities Super-Cycle has uelled increased mining activity acrossthe globe. It has also given rise to the most important trend acing mining: economicnationalism. Governments, under pressure rom their exchequers and populations, wantincreased and perhaps more problematically immediate economic benets rommining. Tis phenomenon can be observed in post-industrial economies as well as inemerging ones and across all political lines. No country is immune rom this trend.

Te long period o sustained high prices or minerals and metals has greatlyincreased expectations and mining companies and governments are struggling toachieve the right balance between competing interests. Te question o the day is howpredictably and airly to share income among various stakeholders: governments, miningcommunities, mining companies, their shareholders and employees. Tis is a verydifcult question and there is no one-size-ts-all solution.

Mining projects are endeavours o long gestation, which can take 10 years or morebetween discovery and commissioning. Mining projects are also very capital-intensive

with a ront-ended investment prole. In other words, mining companies invest largeamount o money early but have multi-decade payback horizons and require stable legaland tax environments in order to attract project capital.

Governments, on the other hand, are subject to shorter-term pressures. Teirbudgets are yearly aairs, employees and local communities are impatient, and politiciansare at the mercy o electoral cycles. Te tax-receipt prole o mining projects, however,is predominantly back-ended; that is to say, governments receive the bulk o taxes andother charges many years ater project commissioning and project debt repayment.

Te long-term needs o projects or stable legal and tax environments and theshort-term pressures placed on governments or more revenues has led to riction. Whilegovernments have considerable leverage thanks to supply constraints and high prices,they must nonetheless walk a ne line. Tey need to be careul not to kill the golden

goose while avoiding a race to the bottom. Ater all, governments compete with eachother to attract mining projects and mining companies can jurisdiction shop.

Economic nationalism is not limited to raising taxes: it can take other orms,including governmental or local ownership, benchmark export pricing, minimum in-country transormation, and export restrictions to ensure supply to local industry.

How can mining companies mitigate risks posed by economic nationalism? Oneo the best mitigation strategies is or mining companies to have a strong social licence.

A social licence may be dened as the acceptance or better still the approval o the

community adjacent to a project. A strong social licence is not only eective againstgovernmental overreach but can also serve as an eective anti-corruption mechanism.A social licence has to be earned and maintained. Tis is best achieved through

multi-stakeholder dialogues, local economic involvement, good environmentalperormance and social inclusion. Medical clinics, schools, roads, power plants, irrigationdams and water treatment plants are some o the types o projects carried out by miningcompanies as part o their social licence.


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Editors Preface

As you consult this book you will nd more on economic nationalism and othertopics apposite to jurisdictions o specic interest to you, and I hope that you will ndthis book useul and responsive.

Erik Richer La FlcheStikeman Elliott LLPMontrealNovember 2012


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Chapt 16

PhiliPPines

Roderick R C Salazar III and Geraldine S Meneses-Terrible1

I OvervIew

Being naturally endowed with a substantial number o mineral resources,2 the Philippineshas recognised the benets to be derived by it rom mining activities, economic or

otherwise. Tis act is supported by a provision o the 1987 Philippine Constitutionallowing the exploration, development and utilisation o mineral resources3 throughthe grant o an exploration permit (EP),4 mineral processing permit (MPP) mineralagreements such as mineral production sharing agreements (MPSAs),5 joint venture

1 Roderick R C Salazar III is co-managing partner and Geraldine S Meneses-errible is a senior

associate at Fortun Narvasa & Salazar.

2 Based on Statistics on Philippine Mineral Production as o June 2012 o the Philippine Mines and

Geosciences Bureau (the MGB), the ollowing quantities o metallic minerals were produced

in 2011: (1) gold: 31,120kg; (2) silver: 45,530kg; (3) copper: 63,835 metric tonnes; (4) nickel:

22,794 metric tonnes; (5) metallurgical chromite: 25,483 dry metric tonnes; (6) zinc: 37,354 dry

metric tonnes; and (7) iron ore: 126,177 dry metric tonnes (www.mgb.gov.ph/Files/Statistics/

MetallicProduction.pd). MGB also claims that out o the Philippines 30 million hectares total

land area, 9 million hectares have been identied as having high mineral potential.

3 Section 2, Article XII o the 1987 Philippine Constitution.

4 Section 20 o the Mining Act provides that an EP grants the right to conduct exploration orall minerals in specied areas and is recognised under the Mining Act IRR as the initial mode

o entry.

5 Section 31 o the Mining Act IRR denes an MPSA as an agreement wherein the Government

grants to the Contractor the exclusive right to conduct mining operations within, but not

title over, the contract area and shares in the production whether in kind or in value as owner

o the minerals therein. Te Contractor shall provide the necessary nancing, technology,

management and personnel.


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agreements (JVAs),6 co-production agreements (CPAs),7 and nancial or technicalassistance agreements (FAAs).8 As o 31 August 2012, the Mines and GeosciencesBureau (the MGB) reports that there are 340 MPSAs in place covering a total area o602,630 hectares while there are six FAAs over a total area o 108,872 hectares. Small-

scale mining permits are granted only to Filipino citizens or cooperatives composed oFilipino citizens.

Based on the mining industry statistics9 released by the MGB on 2 August2012, total mining investment in 2011 was $618.5 million and the aggregate mininginvestment rom 2004 to 2011 has been more than $4 billion.10 Also, the total taxes, ees,royalties and charges collected rom the mining industry as o 2010 amount to around13 billion pesos.11 Clearly, the mining industry has made signicant contributions to thePhilippine economy.

However, with the current policy and pending legislation involving mining,such gures will denitely change, presumably with an increased contribution romraised revenue schemes. Te Philippine mining industry will remain unsettled until alluncertainty is resolved by the implementation o new mining policy and legislation.

II LeGAL FrAMewOrK

i Mining legislation

Tere are three laws governing mining in the Philippines:a Republic Act No. 7042, otherwise known as the Philippine Mining Act o 1995

(the Mining Act) and its Implementing Rules and Regulations embodied inDepartment o Environment and Natural Resources (DENR) AdministrativeOrder (AO) No. 2010-21 (the Mining Act IRR);

b Republic Act No. 7076 or the Peoples Small-Scale Mining Act o 1991 (theSmall-Scale Mining Act);12 and

6 Section 31 o the Mining Act IRR denes a JVA as an agreement where a joint venture

company is organised by the Government and the Contractor with both parties having equity

shares. Aside rom earnings in equity, the Government shall be entitled to a share in the gross

output.

7 Section 31 o the Mining Act IRR denes a CPA as an agreement between the Government

and the Contractor wherein the Government shall provide inputs to the mining operations

other than the mineral resources.

8 Section 5(ak) o the Mining Act IRR denes an FAA as a contract involving nancial or

technical assistance or large-scale exploration, development and utilisation o mineralresources.

9 http://mgb.gov.ph/Files/Statistics/MineralIndustryStatistics.pd.

10 http://mgb.gov.ph/Files/ItemLinks/TePhilippineMineralsIndustryAtAGlance.jpg.

11 $319 million at the current exchange rate.

12 Presidential Decree (PD) No. 1899 approved in 1984 establishing a small-scale mining as a

new dimension in mineral development also remains in orce albeit at a much reduced level o

implementation.


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c Executive Order No. 79 entitled Institutionalising and Implementing Reormsin the Philippine Mining Sector, Providing Policies and Guidelines to EnsureEnvironmental Protection and Responsible Mining in the Utilization o MineralResources (the Mining Policy) and its Implementing Rules and Regulations

embodied in DENR Administrative Order No. 2012-07 (the Mining PolicyIRR).13

Te Mining Act is the main mining legislation in the Philippines and governs large-scaleexploration, development and utilisation o mineral resources; the Small-Scale Mining

Act, as its title suggests, regulates small-scale mining and limits the same to Filipinocitizens. Te Mining Policy is an executive at recently enacted on 6 July 2012. It makesseveral innovations on the Mining Act, specically in the ollowing areas: expansion oareas closed to mining applications, establishment o mineral reservations, competitivepublic bidding or areas open to mining, and compliance with the social acceptabilityrequirement o the communities aected. It also calls or the strict implementation o theprovisions o the Small-Scale Mining Act and prohibits the use o mercury in small-scalemining activities.

Along with the mining laws, the DENR also strictly enorces variousenvironmental laws through its Environmental Management Bureau (the EMB) toensure that the mining industry adheres to the protection o the environment. Someo the other environmental laws that would have application to the mining industry

relate to the Philippine environmental policy, pollution control, environmental impactstatement (EIS) system and environmental compliance certicate (ECC) system, cleanair policies, and water environmental policies.

Te Philippines has not entered into any international treaty involving mining.

ii Regulatory body

Te MGB under the DENR is the agency tasked with implementing the Mining Actand its IRR. It accepts, evaluates, reviews and recommends to the DENR Secretary theapproval o applications or exploration permits and mineral agreements.14

Te environmental laws and standards are implemented by the EMB.Te Mining Policy also created a Mining Industry Coordinating Council (the

MICC), which is an interagency body15 tasked, inter alia, with implementing theMining Policy and conducting an assessment and review o all mining-related laws, rulesand regulations, issuances and agreements, so as to be able to make recommendationsto improve the allocation o revenues and risk between the government and the miningsector.16

13 Te MICC revised Sections 3, 7 and 9 o the Mining Policy IRR and released the revised

versions o said provisions on 24 September 2012. Such revisions, as o this writing, are pending

approval by the President o the Philippines.

14 Section 9 o the Mining Act.

15 Section 9 o the Mining Policy.



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iii Mineral reporting requirements

Te Philippine Mineral Reporting Code (the PMRC) was recently adopted by the MGBand the Philippine Stock Exchange in setting the minimum standards and requirementsor reporting exploration results, mineral resources and ore reserves. Te PMRC

imposes a mandatory system or classication o tonnage and grade estimates accordingto geological condence and technical and economic considerations. Te PMRC isbased on the JORC Code (2004) o Australasia and is likewise compatible with theinternational codes o Australia, South Arica, the European Union and Canada, neitheris it incompatible with the international reporting template (2006) ormulated by theCommittee or Mineral Reserves International Reporting Standard (CRIRSCO).

III MINING rIGHTS AND reQUIreD LICeNCeS AND PerMITS

i itle

Te Philippines ollows the Regalian Doctrine. Under Section 2, Article XII o the 1987Constitution, all natural resources, including minerals, are owned by the state. Te statemay however, enter into agreements such as MPSAs, FAAs, CPAs and JVAs or theexploration, development and utilisation o natural resources.

itle to minerals cannot be transerred to private parties, specically the permitholders and mineral agreement grantees. Te permits and agreements contain a

stipulation that the grant thereo does not bestow benecial ownership o the mineralsto the holder or grantee.17

Also, pursuant to the Regalian Doctrine, the state owns all mineral lands that areconsidered inalienable.18 Tus, a private individual or entity, whether a Filipino citizen orotherwise, cannot own mineral lands. Patented titles to mineral lands perected under thePhilippine Bill o 1902 shall, however, continue to be owned by the grantees thereo.19

ii Surface and mining rights

Acquisition of mining and surface rights

Te procedures or acquisition o mining rights depends upon the type o permit oragreement applied or.20

EP

o apply or an EP, certain documentary requirements should be submitted to theMGB regional oce (RO). Upon submission o the documentary requirements to theMGB RO concerned, the application must be evaluated and the area applied or willbe plotted to determine i it conficts with other mining areas or is within areas closed

17 Sections 22(p) and 39(a) o the Mining Act IRR.

18 Section 3, Article XII o the 1987 Constitution.

19 Atok Big-Wedge Mining Company v. Hon Intermediate Appellate Court and Saingan, G.R. No.

63528, 9 September 1996.

20 MGB primers or EP, MPP, MPSA and FAA.


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to mining applications. Should there be no confict on the area applied or, the MGBissues an area status clearance, and a notice o application. Upon issuance thereo, theapplicant must secure a certication precondition or certicate o non-overlap rom theNCIP and publish, post or announce the notice o application on the radio. Ater this

period o publication, the applicant must secure a certication rom the DENR Panelo Arbitrators as to whether any opposition has been led against the application or anadverse claim on the area applied or. Should there have been no claim or opposition,the MGB RO will again evaluate the application and endorse the same to the MGBCentral Oce (CO), which will make a nal evaluation o the application and approveor deny the same. Upon approval o the application by the MGB RO ater clearanceby the MGB CO, the EP will be numbered, registered and released by the MGB ROto the applicant, now holder, thereo. Section 7 o the Mining Policy IRR directs theMGB to issue an approval or disapproval o an EP application within six months romthe date o acceptance thereo. Further, it stated that requirements such as area statusclearance, certicate o non-overlap or certication precondition, certicate o postingand certicate o (no) adverse claim or protest shall be deemed waived i the governmentagency concerned are not able to issue them within the prescribed deadlines.21

MPP

Upon ling o an MPP application by the mining company, the MGB RO makes apreliminary evaluation o the requirements supporting the application or MPP. I the

project costs less than 200 million pesos, the application will be evaluated and approvedby the MGB RO. I it costs more than 200 million pesos, the application shall beorwarded to the MGB CO within ve days or review. I the MGB CO nds thatthe project costs more than 500 million pesos, it will endorse the same to the DENRSecretary or his or her nal evaluation, and approval or denial. Te MPP application

will otherwise be evaluated, and approved or denied by the MGB Director. Te approvedMPP shall be numbered by the MGB CO and registered with and released by the MGBRO to the grantee thereo.

MPSATe MPSA application is carried out in much the same way as that or the EP. Once theMGB RO has endorsed the application to the MGB CO, however, this body will thenendorse the application to the DENR Secretary or nal evaluation and approval ordenial thereo. Upon approval o the application, the MPSA shall be numbered by theMGB CO and registered and released by the MGB RO to the contractor.

21 Area status clearance should be issued within one month rom the date o acceptance; certicate

o non-overlap within three months rom date o ling o the application or certication

precondition within six months rom date o ling o the application; certicate o posting

within one week o the last day o completion o posting; certicate o (no) adverse claim or

protest within one week rom the date o ling o the request.


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However, the Mining Policy has suspended the grant o new mineral agreementssuch as the MPSA until legislation rationalising existing revenue-sharing schemes andmechanisms has taken eect.22

FTAATe initial application process is again identical to that o EPs and MPSAs. Ater theMGB CO has endorsed the application to the DENR Secretary or nal review, theNegotiating Panel23 and the FAA applicant will then negotiate the terms o the FAA.Once the Negotiating Panel is satised with the terms and conditions o the proposedFAA, it shall recommend its execution and approval to the President. Te President willthen approve the FAA and notiy the Congress o such within 30 calendar days. Teapproved FAA will be transmitted to the MGB CO or numbering, and registered andreleased by the MGB RO to the contractor.

Te new Mining Policy does not include the acceptance o applications orFAAs in the moratorium that is presently in place in the Philippines. Te new MiningPolicy IRR allows national government-owned mining assets to be the subject o FAAapplications, which will be awarded through competitive public bidding.24

Validity or term of mining and surface rightsAn EP is valid or a period o two years rom the date o issuance, but is renewable orurther similar periods, not exceeding a total term o our years or non-metallic mineral

exploration or six years or metallic mineral exploration.25

During the term o the EP,the easibility study must be conducted and a declaration o mining project easibility(DMPF) led. I these are not completed in the six-year term, a urther extension otwo years may be applied or and granted or the specic purpose o completing theDMPF.

Te term o an MPP is ve years rom the date o issuance, renewable or urthersimilar periods but not exceeding a total term o 25 years.26

Both the MPSA and the FAA have terms not exceeding 25 years rom the dateo execution, and are renewable or another term not exceeding 25 years.27

Should the parties ail to agree on the terms o renewal in accordance with theprovisions o the Mining Act, the MPSA or the FAA will be considered an expiredmining tenement and the grant thereo will be subject to competitive public bidding.Mining contractors with tenements expiring rom 1 September 2012 to 30 April 2013 are


23 Te Negotiating Panel is composed o representatives o the DENR, MGB, Board oInvestments or Department o rade and Industry; National Economic Development

Authority; Department o Finance; DENRs Field Operations Oce; DENRs Legal and

Legislative Aairs Oce; and MGB RO concerned (Section 58 o the Mining Act IRR).

24 Section 7 o the Mining Policy IRR (as revised).

25 Section 21 o the Mining Act and Section 18 o the Mining Act IRR.

26 Section 109 o the Mining Act IRR.

27 Sections 32 and 38 o the Mining Act and Sections 34 and 52 o the Mining Act IRR.


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required to le their renewal applications within 30 calendar days rom the eectivenesso the Mining Policy IRR, whereas mining contractors with tenements expiring ater 30

April 2013 are required to le their renewal applications at least six months prior to theexpiry o their mining contracts or agreements.28

How mining rights are protected

During the term o the permits and mineral agreements, the holder or grantee has theright to conduct the activities allowed therein without intererence as long as it complies

with the terms and conditions o the permit or mineral agreement. EP holders aregiven the right o rst reusal to develop and utilise minerals in their exploration areaupon approval o their declaration o mining project easibility and eectiveness o newlegislation on mining. Failure to put the area into operation within the period providedin the EP shall result in automatic loss o the priority right, and the government can openthe areas or bids.29

Restrictions on the surace or mining rights that may be acquired by oreign parties

Only qualied persons are allowed to hold and be granted permits and mineralagreements. Te Mining Act and its IRR denes qualied person as:30

[] any Filipino citizen o legal age and with capacity to contract; or a corporation, partnership,

association or cooperative organised or authorised or the purpose o engaging in mining, with

technical and fnancial capability to undertake mineral resources development and duly registered

in accordance with law, at least sixty percent (60 per cent) o the capital o which is owned byFilipino citizens: Provided, that a legally organized oreign-owned corporation shall be deemed

a Qualifed Person or purposes o granting an Exploration Permit, FTAA or Mineral Processing

Permit only.

Tus, only Filipino citizens or corporations, partnerships, associations or cooperatives 60per cent o the capital o which is owned by Filipino citizens are qualied to be grantedan MPSA; however, legally organised oreign-owned corporations are qualied to holdand be granted EPs, MPPs and FAAs (see Section V.i and iii, inra).

Maximum allowable areas

For an EP, the maximum area that mining companies may apply or or hold is as ollows:a onshore, in any one province 200 blocks or approximately 16,200 hectares;b onshore, in the entire Philippines 400 blocks or approximately 32,400 hectares;

orc oshore, in the entire Philippines, beyond 500 metres rom the mean low tide

level or corporations, 1,000 blocks or approximately 81,000 hectares.31

28 Section 3 in relation to Section 9 o the Mining Policy IRR (as revised).

29 Section 7 o the Mining Policy IRR.

30 Section 3(aq) o the Mining Act and Section 5(cg) o the Mining Act IRR.



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Te maximum area or an MPSA, however, is:a onshore, in any one province 5,000 hectares or metallic minerals and 2,000

hectares or non-metallic minerals per nal mining area;b onshore, in the entire Philippines 5,000 hectares per nal mining area; or

c oshore, in the entire Philippines, beyond 500m rom mean low tide level 500blocks or approximately 40,500 hectares, and or the Exclusive Economic Zone,a larger area to be determined by the DENR Secretary upon the recommendationo the MGB Director.32

Te maximum FAA contract area that may be applied or by or granted to a qualiedperson in the whole o the Philippines is:a 1,000 meridional blocks or approximately 81,000 hectares onshore;b 4,000 meridional blocks or approximately 324,000 hectares oshore; orc a combination o 1,000 meridional blocks onshore and 4,000 meridional blocks

oshore.

Capitalisation

Te minimum capitalisation requirement or an EP or an MPSA applicant or holder is2.5 million pesos.33 Te applicant or holder o an FAA is required to have authorisedcapital in the amount o $4 million or its Philippine peso equivalent.34 Note also thatan FAA contractor is required to invest at least $50 million or the inrastructure and

development o the mining area.

iii Additional permits and licences

Under Section 7 o the Department o Finance Local Finance Circular No. 02-09, inrelation to Sections 147 and 151 o the Local Government Code, an individual or entitymust secure a business permit rom the relevant local government unit prior to thecommencement o mining operation.

Further, MPSA and FAA contractors or grantees are required to obtain anECC,35 a permit to operate air pollution control equipment,36 a wastewater dischargepermit,37 a permit to operate electrical and mechanical installation,38 a licence to use andpurchase cyanide,39 a permit to purchase and use explosives,40 a tree-cutting permit and


33 Sections 19(d) and 35 o the Mining Act IRR.

34 Section 53(c) o the Mining Act IRR.35 Sections 35 and 56 o the Mining Act IRR.

36 DENR AO No. 2000-81.

37 DENR AO No. 2005-10, 16 May 2005.


39 DENR AO No. 1997-39, 23 December 1997.

40 Executive Order No. 58, 1 January 1987 entitled Rationalising Fees and Other Charges on

Firearms, Explosives and Explosive Ingredients, Security Agencies and Security Guards


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water permit and such other relevant permits as may be required by specic laws relevantto the nature o the mining project.41

iv Closure and remediation of mining projects

Te contractor or permit holder is required to ormulate a nal mine rehabilitation(FMR) or decommissioning plan (DP) or a mine closure plan, which will beintegrated to its environmental protection and enhancement programme. Te FMR/DP will consider all possible mine closure scenarios and contain cost estimates or theimplementation o each, taking into consideration expected infation, technologicaladvances and the unique circumstances aced by the mining operation. Te estimatesshall cover the ull extent o work necessary to achieve the objectives o mine closure,such as decommissioning, rehabilitation, maintenance and monitoring, and employee

and other social costs, including residual care, i necessary, over a 10-year period.42

A Final Mine Rehabilitation and Decommissioning Fund is required to beestablished by each operating contractor or permit holder and must be deposited as atrust und in a government depository bank and be used solely or the implementationo the approved FMR or DP.43

Iv eNvIrONMeNTAL AND SOCIAL CONSIDerATIONS

i Environmental, health and safety regulations

Holders o permits and grantees o mineral agreements are required to strictly complywith all the rules and regulations relating to mine saety and health standards embodiedunder DENR Administrative Order No. 2000-98.44

Te MGB regional director concerned must conduct a saety inspection o allinstallations in mining operations and monitor the saety and health programme o acontractor or permit holder.

ii Environmental compliance

Mining contractors, prior to the development stage o the MPSA or FAA are requiredto obtain an ECC and go through an environmental impact assessment (EIA).45

41 Presidential Decree No. 1067, Water Code o the Philippines.


43 Section 187-B o the Mining Act IRR.

44 Section 142 o the Mining Act IRR.45 Section 3(h), DENR Administrative Order No. 2003-30: Environmental Impact Assessment

(EIA) process that involves evaluating and predicting the likely impact o a project (including

cumulative impact) on the environment during construction, commissioning, operation and

abandonment. It also includes designing appropriate preventive, mitigating and enhancement

measures addressing these consequences to protect the environment and the communitys

welare. Te process is undertaken by, among others, the project proponent and/or EIA

Consultant, EMB, a Review Committee, aected communities and other stakeholders.


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Upon completion o the documentary requirements, the contractor must submitthese to the EMB, which will determine the completeness o the documents. I thedocuments are complete, the ECC applicant or contractor will be required to pay theling and processing ee and review und. Tereater, the application will be reerred to a

case ocer who will convene the Environmental Impact Assessment Review Committee(the EIARC) or substantive review, including site inspection. Te EIARC will thenprepare and submit its report and recommendation to the EIA chie, who will review itas well as the process documentation. Te EIA chie will endorse the matter to the EMBdirector, who will approve or deny the same. I the application is approved, the EIADivision o the EMB will release the ECC. Alternatively, i the application is denied, thematter is reerred to the DENR Secretary or review and nal decision on ECC issuanceor reusal.46

Te ECC must be processed within a period o 120 working days rom the timeo payment o ling and processing ee.47 Te ECC application is deemed automaticallyapproved i the EMB ails to render a decision on the ECC application within thisperiod.48

Failure to commence the mining project within ve years rom issuance o theECC will result in its automatic expiration.49

Mining tenement applicants or owners and, in the case o corporations applying oror holding mining tenements, the ocials thereo shall be permanently disqualied romacquiring mining rights and operating mining projects i they have a record o violation

o environmental standards and have ailed to implement remediation measures.50

iii Tird-party rights

Prior to the issuance o any permit or mineral agreement, the mining applicant shallundergo the ree and prior inormed consent (FPIC) process.51

Te FPIC process starts with the endorsement o the project by the MGB to theNCIP Regional Oce concerned, which will then conduct a eld-based investigation(FBI) to ascertain whether the area applied or alls within an ancestral domain. I thisis not the case, the NCIP will issue a certicate o non-overlap, provided that the miningapplicant executes an undertaking or the conduct o FPIC should it later be discoveredthat the area does in act overlap with an ancestral domain.

In the event that an area does overlap with an ancestral domain, the NCIP mustconduct two community assemblies.

During the rst, the ollowing matters shall be taken up:a orientation on IPRA and FPIC process;b validation o the FBI report and the areas aected;

46 Ibid.

47 Ibid.

48 Section 8.2, DENR Administrative Order No. 2003-30.

49 Section 5.4.3, DENR Administrative Order No. 2003-30.

50 Section 5 o the Mining Policy IRR.

51 Section 59, Indigenous Peoples Rights Act (IPRA).


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c census o IPs, migrant IPs or non-IPs;d identication and validation o IP elders and leaders;e determination o the decision-making or consensus-building processes; consensus on the involvement o non-government organisations;

g validation o the members o the FPIC team representing the community;h presentation o the agreed work and nancial plan;i option, selection and invitation o independent experts to conduct EIA or give

their expert opinions;j arrangements or confict or dispute resolution mechanisms by the chosen or

elected IP elders or leaders;k date and place o second community assembly; andl other matters that may be necessary and pertinent.

Tereater, a second community assembly will be held to discuss the project and theconcerns o the IPs.

Following the second community assembly, the ICCs and IPs concerned willdiscuss the advantages and disadvantages o the proposed mining project. Ater this, theduly authorised elders or leaders will communicate their decision to the FPIC team. Ithey are amenable to the project, the mining applicant and the ICCs and IPs concerned,through their community representatives, will negotiate the terms and conditions o theirmemorandum o agreement, the provisions o which will be explained to the community

by the FPIC team in a language they speak and understand.Once the memorandum o agreement is nalised, the ICCs and IPs will issue a

resolution o consent and the applicant will post a bond with the NCIP to answer ordamages that the ICCs and IPs may suer on account o any violation o the terms andconditions o the agreement. Te NCIP will then issue a certication precondition inavour o the mining applicant.

Should the project not be acceptable to the ICCs and IPs concerned, a resolutiono non-consent will be prepared, signed and released. Te applicant can le or areconsideration o this resolution within 15 days o its receipt. I the ICCs and IPs

arm the resolution o non-consent, no FPIC process or any similar proposal may beundertaken within six months rom its issuance.

Unless specically stated in the memorandum o agreement with the ICCs andIPs concerned, the FPIC process is required to be complied with or every stage o themining project (i.e., exploration, development and operational stages).52

iv Additional considerations

Republic Act No. 7160, otherwise known as the Local Government Code o 1991 (the

Local Government Code), requires prior consultation with or approval o the localsanggunian 53concerned prior to implementation o any project or programme that may

52 AO No. 3-2012, Revised Guidelines on FPIC and Related Processes o 2012, which took eect

on May 31, 2012.

53 Legislative body o local government units in the Philippines.


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cause pollution, climate change, depletion o non-renewable resources, loss o crop land,rangeland, or orest cover and extinction o animal or plant species.

In compliance with the aoresaid provisions o the Local Government Code,DENR Memorandum Order No. 2004-09 requires mining applicants to present proo

o consultation or project presentation.Prior approval or endorsement in the orm o a resolution or certication by at

least a majority o the local government units concerned is required in support o miningapplication or immediate development or utilisation activities and o applications orapproval o the DMPF under the development and construction or operating periodso mineral agreements such as an MPSA or FAA. Tus, prior to the development andoperation stages o a mining project, the contractor is required to submit to the MGBavourable resolutions o the project rom a majority o the local government unitsconcerned.54

v OPerATIONS, PrOCeSSING AND SALe OF MINerALS

i Processing and operations

Import of equipment and machineryWhile the Mining Act and its IRR do not prohibit the importation o equipmentand machinery to be used in mining, a contractor or permit holder is required to givepreerence to products, services and technologies produced and oered in the Philippineso comparable quality; specically, contractors and permit holders are required topurchase Philippine household equipment, urniture and ood.55

Processing of extracted mineralsTere is no law requiring mining contractors to process extracted minerals in thePhilippines only. Individuals or entities that plan to engage in mineral processing apartrom mineral development should, however, be in possession o an MPP.56

Te new Mining Policy directs the DENR and other relevant government agencies

to develop a national programme and roadmap, based on the Philippine DevelopmentPlan and a National Industrialisation Plan, or the development o value-adding activitiesand downstream industries or strategic metallic ores with an aim o discouraging directshipping o ore.57

54 So, i there are three local government units (e.g., province, municipality or barangay(barrio))

aected by the mining activity, the avourable resolutions o two local government units will be

deemed sucient compliance with the requirements o the Local Government Code.


56 Section 5(be) o the Mining Act IRR.

57 Section 8, EO 79 o the Mining Policy.


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Use of foreign labour and servicesA mining contractor is required to give preerence to Filipinos in all types o miningemployment or which they are qualied.58 Employment o oreigners must be limited totechnologies requiring highly specialised training and experience. Foreign executives may

also be employed, provided that a Filipino understudy can be trained or such position.59Foreigners can hold the positions o mine manager, vice-president or operations orother equivalent managerial position in charge o mining, milling, quarrying or drillingoperations.60 Te MGB Director may also allow oreigners to be employed in miningoperations or a period o no more than one year.61

Te oregoing notwithstanding, a mining company holding an MPSA may electoreigners to its board o directors in proportion to the oreign equity participationtherein.62 Tis limitation is not applicable to mining companies holding EPs, MPPsand FAAs, as they are allowed to have 100 per cent oreign equity, unlike in miningcompanies holding MPSAs where only 40 per cent oreign equity is allowed sinceactivities conducted under an MPSA are considered partly nationalised.

ii Sale, import and export of extracted or processed minerals

For minerals extracted pursuant to an MPSA or FAA, the Mining Act and its IRRallow the sale o the minerals locally and their exportation, provided that the mineralsand by-products produced are sold at the highest market price and lowest commerciallyachievable commissions and related ees under market conditions, and to negotiate or

sales terms and conditions compatible with world market conditions. Te contractor mayenter into long-term sales and marketing contracts or oreign exchange and commodity-hedging contracts or its minerals and mineral products. Marketing contracts and salesagreements with oreign or local buyers involving commercial disposition o minerals andby-products shall be subject or approval by the DENR Secretary upon recommendationo the MGB Director. Te approved marketing contracts and sales agreements shall beregistered with the MGB, and must remain condential.63

Te Philippine mining laws do not have a provision regarding the importationo minerals.

iii Foreign investment

Foreign Investment is dened as an equity investment made by a non-Philippine national.I the oreign investment consists o at least 40 per cent o the outstanding capital o adomestic mining company, this should be registered with the Securities and ExchangeCommission. Further, or oreign investments in the orm o oreign exchange or assets

58 Section 39(h) and 56(j) o the Mining Act IRR.

59 Section 39(o) and (p); Section 56(q) and (r) o the Mining Act IRR.


61 Section 141, Mining Act IRR.

62 Section 2-A o Commonwealth Act No. 108 otherwise known as the Anti-Dummy Law.

63 Sections 33(l) and 56(n) o the Mining Act IRR; Stipulations in standard MPSA and FAA

contracts.


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actually transerred to the Philippines to be repatriated, it should be registered with theCentral Bank o the Philippines (the BSP).64 Only oreign investments registered withthe BSP are entitled to ull repatriation o capital and remittance o dividends or protsusing oreign exchange sources or the local banking system.

Repatriated oreign investment is not subject to tax. In addition, one o theinvestment guarantees o the Mining Act to oreign investors is the right to repatriatethe entire proceeds o the liquidation o the oreign investment in the currency in whichthe investment was originally made and at the exchange rate prevailing at the time o therepatriation.65

Earnings rom oreign investment may also be remitted in the currency in whichthe investment was originally made and at the exchange rate prevailing at the time oremittance.66 Tese earnings, which will be in the orm o dividends, whether cash orproperty, will, however, be subject to tax.

Foreign investments in mining companies are entitled to the ollowing protection:a reedom rom expropriation except or public use or in the interest o national

welare or deence and upon payment o just compensation;b reedom rom requisition o investment except in the event o war or national

emergency and only or the duration thereo, provided that any just compensationpaid may be remitted in the currency in which the investment was originallymade and at the exchange rate prevailing at the time o remittance; and

c inormation that is agreed as condential by the government and the contractor

shall be treated as such during the term o the project.

Te Philippines has entered into 30 bilateral investment treaties (BIs) with variouscountries, thus obliging it to protect oreign investments including those in miningprojects.67 BIs normally apply to investments brought into, derived rom or directlyconnected with investments brought into the territory o a contracting state by nationalsor companies o the other contracting state, which are qualied or registration and areduly registered.68

64 Section 1(e) o Implementing Rules and Regulations o the Foreign Investments Act.

65 Section 229(a) o the Mining Act IRR.

66 Section 229(b) o the Mining Act IRR.

67 www.unctadxi.org/templates; In the list maintained by the United Nations Conerence on rade

and Development (UNCAD) in its website, the 29 countries with which the Philippines has

entered into BIs are Argentina, Australia, Austria, Bangladesh, Belgium, Cambodia, Canada,Chile, China, the Czech Republic, Denmark, Finland, France, Germany, Italy, Myanmar, the

Netherlands, Pakistan, Portugal, the Republic o Korea, Romania, the Russian Federation,

Spain, Sweden, Switzerland, Tailand, urkey and the United Kingdom. Saudi Arabia also lists

the Philippines as among the countries with which it has entered into a BI.

68 See, or instance, Article II o the Agreement between the United Kingdom and the Republic

o the Philippines or the Promotion and Protection o Investments entered into orce on

2 January 1981.


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vI CHArGeS

i Royalties, taxes, duties and other fees

Te Mining Act imposes a royalty o at least 5 per cent o the market value o the gross

output o the minerals or mineral products extracted or produced rom the mineralreservations, exclusive o all other taxes. Tus, those holding mineral agreements outsideo mineral reservations are not required to pay royalties to the Philippine government.

MPSA contractors pay the 2 per cent excise tax on mineral products based on theactual market value o its gross output at the time o removal, where they were locallyextracted or produced.69

Te other taxes and duties payable by mining companies are the ollowing:a contractors income tax 32 per cent o taxable income derived during each

taxable year rom all sources within and without the Philippines;

b customs duties and ees on imported capital equipment rates vary as providedor under the ari and Customs Code;

c value-added tax on imported goods and services 12 per cent o value added;d withholding tax on interest payments on oreign loans 15 per cent o interest

payment;e withholding tax on dividends to oreign stockholders 15 per cent o a dividend

subject to tax treaty rates, i applicable; documentary stamps taxes rates vary depending on the type o transaction;

g capital gains tax or stocks not publicly traded, 5 per cent on the rst 100,000peso gain and 10 per cent on the excess gain over 100,000 pesos, or real property,6 per cent o the selling price or air market value, whichever is higher;

h royalties to indigenous peoples, i in ancestral lands minimum o 1 per cent othe gross output rom minerals;

i special allowance and royalty to ICCs and IPs granted pursuant to agreementsentered into by the contractor and concerned parties;

j local business tax the rates or this vary depending on the local governmentconcerned;

k real property tax 2 per cent o the air market value o the property;l community tax;m occupation ees 50 pesos or 100 pesos per hectare per year, depending on

whether the mining area is in a mineral reservation;n registration and permit ees depending on the licence or permit applied or; ando all other national and local government taxes, royalties and ees as o the eective

date o the FAA.

Further, an FAA contractor or grantee is required to pay a basic government shareconsisting o all the aoresaid taxes paid or by an MPSA holder and an additionalgovernment share. Te additional government share shall be payable ater the recoveryperiod and i the basic government share is less than 50 per cent o the net mining

69 Section 217 o the Mining Act and Section 151 o the National Internal Revenue Code.


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revenue. Te additional government share shall be the dierence o 50 per cent o the netmining revenue and the basic government share during the calendar year.70

Te EMB may also impose nes and penalty in case o violation o the terms andconditions o the ECC covering the operations o an MPSA or FAA. It can also issue

cease-and-desist orders to prevent serious or irreparable damage to the environment.71

vII OUTLOOK AND TreNDS

With the recent passing o the Mining Policy, the Philippine mining industry isundergoing changes. Te Mining Policy directed the adoption o legislation rationalisingrevenue-sharing schemes and mechanisms. Tus, mining companies should expectan increase in government share as stated above and some variation in the extent o

economic incentives that may be given and availed o. In the meantime, a moratoriumon the acceptance o applications and grant o mineral agreements is in place, except orFAAs and permits.

Further, the Mining Policy has added areas that are considered closed tomining applications given the governments increasing concern or the protection othe environment and the shit in concentration to other industries to be developed.Moreover, it required the review o existing mining operations and o existing miningcontracts and agreements or possible renegotiation o the terms and conditions thereo.

Notably, the Mining Policy granted reprieves to mining companies aected by

local government legislation prohibiting the conduct o mining activities, as it enjoinedlocal government units to exercise their powers and unctions in a manner consistent withregulations, decisions and policies promulgated by the national government, particularlythe Mining Act and its IRR, with respect to the management, development and properutilisation o natural resources.

Given the seemingly stringent provisions o the Mining Policy, the miningindustry is anxiously anticipating how the Mining Policy will nally be implemented.

70 DENR AO No. 2007-12, 20 June 2007. Net mining revenue reers to the gross output less

deductible expenses. On the other hand, recovery period is dened as a maximum period o

ve years or at a date when the aggregate o the net cash fows rom the mining operations is

equal to the aggregate o its pre-operating expenses, reckoned rom the date o commencement

o commercial production, whichever comes rst.

71 Section 16 o DENR AO No. 2003-30.


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Appx 1

about the authors

RodeRick R c SAlAzAR iii

Fortun Narvasa & Salazar

Roderick R C Salazar obtained his bachelor o arts in economics and bachelor o lawdegrees at the University o the Philippines, Diliman, and was admitted to the PhilippineBar in 1988. With a law practice spanning 25 years, he counsels oreign and domesticclients and specialises in corporate law, commercial law, mining law, taxation, realestate law, securities and alternative dispute resolution. He is a member o the Law

Association or Asia and the Pacifc, the International Bar Association, the Inter-PacifcBar Association, the Philippine Bar Association, Intellectual Property Law Association othe Philippines, Canadian Chamber o Commerce. He serves as the corporate secretaryo the Australian-New Zealand Chamber o Commerce (Phils.) and the chairman o theLegal Committee o the Chamber o Mines o the Philippines. He was also included in

the 2010 edition o the International Whos Who o Mining Lawyersor the Philippines.He was ranked as a leading lawyer in natural resources and mining byChambers Global

2011 and is highly recommended as a leading lawyer in projects, energy and naturalresources byChambers Asia-Pacifc 2012. He is a lecturer on corporation law, propertylaw, partnership, agency and trust in three Philippine law schools.

GeRAldine MeneSeS-TeRRible

Fortun Narvasa & Salazar

Geraldine Meneses-Terrible completed her bachelor o arts in public administration at

the University o the Philippines, Diliman and bachelor o law at San Beda College. Shewas admitted to the Philippine Bar in 2008. She specialises in corporate law, litigationand mining.


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About the Authors

FoRTun nARvASA & SAlAzAR

23rd Floor Multinational Bancorporation Centre6805 Ayala AvenueMakati City

Philippines 1227Tel: +632 812 8670Fax: +632 812 [email protected]@nslaw.com.ph

www.nslaw.com.ph

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