Mining shares fall after Duterte threat to tax miners ‘to death’

Posted on July 26, 2017
http://www.bworldonline.com/content.php?section=Corporate&title=mining-shares-fall-after-duterte-threat-to-tax-miners-to-death&id=148792

MINING SHARES dropped on Tuesday, a day after President Rodrigo R. Duterte threatened to ban the export of metal ore, and to impose higher taxes on miners.

Among the day’s biggest losers were Nickel Asia Corp., whose shares fell 8.11%, and Global Ferronickel Holdings, Inc., whose shares slipped 3.1%. Other decliners were Oriental Peninsula Resources Group Inc. (-9.02%) and Manila Mining Corp. (-8.33%).

This pushed the mining index 0.63% lower to close at 12,845.97 on Tuesday, while Philippine Stock Exchange index ended 0.04% higher at 7,966.09.

“Most investors will remain risk averse as long as the mining industry continues to be haunted by regulatory risks,” Astro C. del Castillo, managing director at First Grade Finance, Inc. said in a text message yesterday.

For his part, Regina Capital Development Corp. Managing Director Luis A. Limlingan said the proposed increase in mining taxes “would be a big pinch to the companies’ overall bottom line.”

During his second State of the Nation Address (SONA) on Monday, Mr. Duterte said the national government should “put a stop” to the extraction and exportation of mineral ores, while noting that these must be handled with “extreme care” in order to preserve the environment.

“If possible, we shall put a stop to the extraction and exportation of our mineral resources to foreign nations for processing abroad and importing them back to the Philippines in the form of consumer goods at prices twice or thrice the value of the original raw materials foreign corporations pay for them,” the President said.

“I am holding all mining companies and officials responsible for the full and quick clean-up, restoration... Either spend to restore the virginity [sic] of their source or I will tax you to death,” he added.

The Chamber of Mines of the Philippines (COMP) on Tuesday warned the government against implementing an export ban on mineral resources.

“On domestic processing, the Chamber has always advocated for strengthening the downstream linkages of mining with its counterparts in the processing and manufacturing sectors. Linking these three sectors will enable the Philippines to take full advantage of its mineral wealth for its industrialization push,” Ronald S. Recidoro, COMP’s vice-president for legal and policy, said in a text message yesterday.

At present, the local industry is facing various obstacles to having a sustainable downstream industry, such as high power costs.

“However, that cannot be accomplished with an ore export ban,” Mr. Recidoro added.

Mr. Recidoro noted the government must look for ways to attract players to invest in processing plants.

“If processing is not feasible as a business due to high costs of inputs, then an ore export ban will not accomplish its purpose. Government must address the obstacles, or even consider putting up the processing plants itself like they did with the PASAR (Philippine Associated Smelting and Refining Corp.) copper smelter in the 1970s,” Mr. Recidoro added.

TRANSITION PLAN
Meanwhile, industry regulators should craft comprehensive transition plans that would allow local miners to rebalance their businesses to mineral processing, taking cue from Mr. Duterte’s latest pronouncements, an economist from a global bank said.

Rajiv Biswas, chief economist for Asia Pacific at IHS Markit, said the Philippine government should take the lead in refocusing the mining sector, in order to pave the way for industry players to align their operations with Mr. Duterte’s marching order.

“The Indonesian experience highlights the importance for the Philippines to put in place a well prepared transition plan to allow companies to shift from exporting mineral ores to exporting processed products, to allow time to construct refineries and other necessary infrastructure,” Mr. Biswas said in a market commentary on Tuesday.

Back in February, Former Environment secretary Regina Paz “Gina” L. Lopez announced the closure of 23 of the country’s 41 mines and the suspension of operations in five other sites on environmental grounds. She later on canceled contracts for 75 projects in pre-operation stage for being located in watersheds.

New Environment chief Roy A. Cimatu, who was appointed in May, said he was open to allowing new mining projects as long as these were “responsible.” He previously said a July target to compete its own review of the appeals filed by miners subject to closure or suspension orders by Ms. Lopez.

Mr. Cimatu has said he plans to visit mines in the country to see if they are operating responsibly, following a 10-month crackdown on the industry as ordered by his predecessor.