The Philippines is one of the most highly endowed mineralized countries in the world by virtue of its location. However, while other mineralized countries such as Chile, Mexico, Peru, Indonesia, USA and Australia have steadily increased their copper and gold production, the country moved in the opposite direction. Despite its rich mineral resources, the country’s mining industry is in such a moribund state, contributing no more than one percent to GDP and two percent to exports.

From a Tax Raise
This was not the case in the 1980s when the industry was at its peak. There were then about 25 “large-scale” mines in operation, contributing 21% to exports and approximately 13% to government taxes. The decline of the industry started shortly after the government increased excise taxes (formerly ad valorem taxes) on minerals from two to five percent of gross revenues. This was further aggravated by a cyclical low in metal prices.

Soon enough, the industry went into a financial tailspin, in turn resulting in less cash outlay for exploration activities. The cut in exploration meant deposits on existing mines are being depleted without brisk search for replacements. These definitely put a break on the growth of the industry.

These traumatic experiences of the industry in the early 80s drove home the point that mining is a risky business – a “feast or famine” industry. The industry’s speculative nature is particularly made difficult by the fact that significant capital is required for exploration, the so-called lifeblood of the industry, with the odds of a discovery never good. Mine development requires an equally substantial capital. Worse, many things can also go wrong during actual mining operations, besides the cyclical nature of metal prices.

Liberalization
The local ownership rule further facilitated the depletion of capital for mining exploration. After all, there are other much less risky destination for investments such as real estate and manufacturing. As such, liberalization of the industry was seen as the only solution to the waning local capital going mining’s way.

Timely enough, the 1987 Constitution scrapped the constitutional limitation on the maximum 40% foreign equity in some sectors including mining, thus allowing foreign companies 100% ownership of mining projects through the so-called Financial or Technical Assistance Agreement (FTAA). Furthermore, in 1995, a new mining law (Republic Act 7942) further carried out the constitutional provision and included social and environmental provisions as well.

The liberalization of the industry and the reduction of excise taxes back to two percent set the stage for the industry’s eventual recovery. In response to these positive developments, foreign companies came in droves to invest in exploration. But it was not long before the entry of foreign mining companies created a backlash. Anti-mining groups found a battle cry – that allowing 100% foreign ownership of mining projects is tantamount to the sell-out of national patrimony. Mining was even brought up as an issue in the government’s peace talks with the National Democratic Front.

Bad Press
This fire of negative publicity razed further in 1996 with the Marcopper disaster in Marinduque, nearly an isolated case which resulted in further condemnation of the entire industry. The Marinduque incident, which was technical in nature, licensed environmental groups to deride the whole industry to the point where nothing good can come out of mining. As a result, the church, local governments, and other sectors of society turned against the industry all the more. One anti-mining NGO even went out of its way to challenge the constitutionality of the FTAA and the Mining Act before the Supreme Court, where the decision is still pending up to this day.

Faced with the legal uncertainty and a generally hostile environment, the bulk of the foreign mining firms have left the country in the late 90s while some adopted a wait-and-see stance. This largely explains today’s largely untapped mining sector and its anemic contribution to the economy relative to other sectors.

Sins of the Past
A lot of work has been carried out by the large-scale mining industry to mitigate the bad publicity on the sector, but it has been tedious and the progress slow. For one, large-scale mining companies are not using mercury in their operations. The said element is being used in small-scale and/or fly-by-night mining operations (like the ones in Mt. Diwalwal) to amalgamate gold from the ores. And yet, the adverse effects of mercury to miners and environment are being added to the crimes that formal large-scale mining companies are being accused of.

The Mt. Diwalwal gold mining area in Monkayo, Compostela Valley is definitely one example of a predominantly small-scale mining operation turned awry. There were 40,000 small-scale miners and their families dependent on the Diwalwal mines before the government placed the area under “direct state utilization.” The government had to take over the 8,100 hectare gold-rush area in July 2002 to resolve pollution (arising from lack of mining waste disposal system) and ownership issues (resulting in violence) hounding it. Small-scale operations that persisted in Diwalwal for a time were not regulated by the 1995 Mining Act, and are generally considered by large mining companies as mining operations “tolerated” by the government.

Nevertheless, prior to the implementation of the 1995 Mining Act, large-scale mining operators had also been guilty of environmental neglect. And for that, there were no legal retributions since there were then inadequate and incomplete laws to protect the environment. The environmental prescriptions of the 1995 Mining Act hope to address these “sins of the past.”

As a result, the industry is now more socially and environmentally responsible. In fact, in some of today’s mining communities, one can find good examples of poverty alleviation, countryside development, and nation building. Even with a grain of salt, these indeed warrant praises for the battered mining industry.