Investors continue to mine trouble in the Philippines
Tributes to Gina Lopez, the late Philippine environmentalist, underline anti-mining sentiment.
The death of Gina Lopez, the Philippine environmentalist and one-time Environment and Natural Resources Secretary, has renewed scrutiny of the country’s beleaguered mining sector, particularly where foreign investment is involved. Investors exposed to Philippine mining and commodities should prepare for regulatory volatility, and will need to choose their local partners carefully.
Lopez in office – A short, sharp shock
Lopez was appointed by President Rodrigo Duterte to be the interim head of the Department of Environment and Natural Resources in 2016. During her contentious ten months in the role Lopez closed 23 mines, suspended the licences of several mining companies and banned open-pit mining.
Lopez was forced to step down in 2017 after a congressional committee rejected her permanent appointment, and the job went to the more conciliatory figure of Roy Cimatu. Many of the mines she closed have since resumed operations, but the industry is still reeling from Lopez’s uncompromisingly pro-environmental approach.
Post-Lopez – No reprieve in sight
Although Cimatu is a less polarising individual than Lopez, his appointment did not represent a reprieve for the mining industry. Lopez’s anti-mining stance is widely shared by the public, and – crucially – by the populist president. Duterte has personally spearheaded several mining reforms since 2017, and in a speech that year he told Philippine miners that he would "tax you to death". True to his word, Duterte doubled the excise tax on mining companies in 2017, tried to pass a 5% royalty tax on all mining operations in March 2019, and also upheld a 2011 freeze on new mining licences. Other reforms Duterte is currently exploring include capping mine leases to 15 years, and even banning foreign ownership.
Despite these measures, the Philippine mining industry has continued to grow, posting a 1.3% increase in output in 2018. But investment in the sector remains high risk; in April 2019, UK research firm Fitch Solutions placed Philippines last out of 13 countries in its Asian mining investment risk/reward index, due to the uncertainty surrounding government regulations and the prevalent corruption in the industry. This challenging environment for the country’s mining sector seems likely to last at least until the end of Duterte's presidency in 2020, and the current president’s tough stance towards the industry may well be continued by his successor.
Local mining associations are pushing the government to revisit the ban on open-pit mining and to relax the moratorium on issuing new mining licences. However, mining firms are losing the battle for public opinion, with one association leader complaining that the industry has been “demonised by Gina.” This spells trouble for a sector that brought in USD 4.26 billion in revenue for the country last year, employs 212,000 Filipinos, and has made the country a major exporter of copper and gold to Asia-Pacific hubs like Japan, China and Singapore.
The future for Philippine mining
In the face of negative public sentiment, increasing government regulation and meagre returns, the Philippine mining industry must renew efforts to engage positively with local regulators and public stakeholders. Investors would also be well-advised to choose their local mining partners carefully – the crackdown has not been enforced randomly, and ethically run mines have fared far better than those that have flouted environmental and labour norms.
International partners of Philippine miners should present themselves as part of the solution to environmental and social issues, or risk being seen as part of the problem. Those who fail to navigate this new environment run the risk of seeing Duterte finish what Lopez started.