philippine resources june-july 2011

Philippine ResourcesMining, Petroleum & Energy Journal Issue 2 2011, May-July

Is Philippinemining still

competitive?

Where doesFukushimaleave RE?

Go-ahead forBHP farm-in

with Otto

Debut forPhilippine

Mining Club

Chinese bending

the ‘smallminer’ rules

Headlines in this issue

Current Resources

Resources Viewpoint6 Gina Lopez vs Mining Inc.

Mineral Resources8 The China factor: Bending the ‘small-scale’ mining rules18 Philex, Manila Mining, Lepanto team up20 Milestones targeted for King-King20 Cascade acquiring Nalesbitan project 21 Taysan getting its own port22 MBMI fighting for canceled permits22 Atlas to reopen Berong Nickel operation23 Philippine Metals blocked at Dilong24 Mining people on the move24 Cadan excited about Comval24 Davao deal for MRC allied

Resources Events25 Successful debut for new mining club

Renewable Resources26 Ayala widens its renewable energy focus27 New venture targets small rural biomass plants27 Oil firm eyeing biomass power28 Where does Fukushima leave RE?

Legal Resources30 Is Philippine mining still competitive?

8

26

25

28

40

Oil and Gas Resources32 After spudding Gindara, Nido now eyes Pawikan32 Trans-Asia in China deal32 Philex sees new revenue in oil34 Go-ahead for BHP farm-in with Otto38 New permits promised – plus security38 PNOC doing very well out of Malampaya

Supply Resources40 Environmental solutions specialists restructure ownership, operations40 Integration and new people for QED42 Supply specialist ‘excited about growth’

International Resources43 Regulation of offshore oil rigs is still only a ‘work in progress’

4 Philippine Resources

May - July 2011www.philippine-resources.com

The coming weeks promise to be in-teresting for both miners and anti-miners. There are threatened new

royalties and other fees which are await-ing President Ninoy Aquino’s finalization and signature as an Executive Order, and the widening network of provincial gov-ernments who have unilaterally imposed bans or tight restrictions on mining, par-ticularly open pit mining, within their turfs. Now we have the escalation of the case Gina Lopez vs Mining Inc. Lopez is trying to elevate her case to the “People’s Court,” so to speak, with her 10 Million Signatures campaign. As of mid-May, she had about 1.1 million signatures after several months of campaigning, which is still a long way short of the 10 million she needs to block mining in Palawan. But she is a feisty prosecutor and not one to give up easily. After canvassing the social network-ing catchment area with her pass-on email campaign, Lopez is now going the face-to-face campaign route, crisscrossing the country meeting people affecting by mining. She is organizing discussions and forums trying to swing public opinion. She has been mobilizing the substan-tial Lopez resources in TV and media to generate favorable publicity for her anti-mining cause. There was that aborted at-tempt at a panel discussion “forum” on mining in Palawan to be broadcast live on Lopez-controlled ABS-CBN TV – aborted by Lopez at the last minute when she ar-rived at the studio to find her fellow panel-ists would be Leo Jasareno of the Mining and Geosciences Bureau and Carlo Ar-cillo of the University of the Philippines National Institute of Geological Sciences – two real experts on mining who may not have lent their expertise to Lopez’s cause. Undeterred, Lopez has followed up with more meetings, seminars and forums. In the meantime, she has learned from experience, garnered more knowledge of the subject and fine-tuned her prosecution arguments. She now focuses specifically on large-scale mining in Palawan and limits her anti-mining arguments to those involving the effects of deforestation on biodiversity, the economics of min-ing compared to other sectors, and its effects on food security. Some of her

arguments and her evidence are per-suasive. Lopez is intelligent, can be charming, she is persuasive and she has consider-able resources to call on. She is a driven lady who has done good work for good causes through the ABS-CBN Founda-tion, including trying to clean up Manila’s Pasig River. She appears to thrive on dif-ficult causes. I enjoyed the opportunity recently of hearing and watching her in action at a “forum” on “Mining: Its adverse effects on biodiversity, economy and food security” held at the Asian Institute of Management Center for Development Management in Makati. It wasn’t really a forum, more a presentation by Lopez with very limited participation allowed by her audience members. Although it was open to all in-terested, the event was sparsely attended by AIM people and a handful of miners. A couple of them – one an Australian miner and the other from one of the Pala-wan mines she criticized – questioned aspects of her presentation. She reacted very sharply and emotionally, in fact al-most lost her temper in her rebuttal. Gina Lopez clearly does not like being queried and is used to getting her way. Interestingly, the Chamber of Mines of the Philippines – the bastion of Min-ers Inc. – was not officially present, in contrast to its strong presence at Lopez’s previous presentation a few weeks earlier where there were 30-40 chamber mem-bers. According to the AIM associate dean who moderated the event, the cham-ber did ask to attend to make its rebuttal, then declined an invitation to attend if the forum was switched to a debate format. Now the chamber is making its case at a subsequent separate forum at the AIM, to be followed by a full-scale debate between the pro- and anti-mining factions planned for the third week of June. That may be one of the “People’s Court” opportunities that the chief prose-cutor is waiting for in the case Gina Lopez vs Mining Inc. ■

Gina Lopez vs Mining Inc.

Philippine Resources Journal is published independently for

executives in the Philippine mining and petroleum industry and associated business sectors.

PublisherElizabeth GaluraCharismatic (WA) Pty Limited

Consulting PublisherGreg Brimble

Consulting EditorSimon Halley

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Design/ProductionEdrick Bruel

ContributorsMars BuanPatricia A.O. BunyeFernando Penarroyo___

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Philippine Resources Journal is printed in Manila by IPrint.

Digital online editionwww.Philippine-Resources.com Simon Halley

Consulting Editor

Resources Viewpoint

PhilippineResources

Mining, Petroleum& Energy Journal

Issue 2 2011, May-July



China continues to scan the globe for the minerals needed to fuel its dra-matic economic growth and most

believe the country will only become more aggressive in its pursuit of mining deals. Due largely to the Philippines’ proximity to the mainland as well as its estimated US$1 trillion in untapped mineral reserves, there has been an observable spike in Chinese mining investments across the country. The incursion of Chinese mining firms in the mineral-rich Philippines thus pres-ents significant challenges for a govern-ment trying desperately to attract foreign investment. While few are surprised over the assertiveness and penetration of Chi-nese mining investors, there is substantial evidence of unaccountability, misconduct and corruption in many Chinese mining deals which have created an unfair playing field. Specifically, Chinese firms continue to exploit and abuse the People’s Small-Scale Mining Act of 1991 by hiding under the cover of domestic small-scale miners, so to bypass Philippine mining laws and protocols as well as avoid the large capital requirements, fees and taxes associated with large-scale mining. Very simply, many Chinese firms circumvent the enormous expense and time of complying with large-scale mining requirements by co-opting a

Philippine proxy and purchasing a small-scale mining permit directly from local gov-ernment units for a minimal fee that can be US$227 or less. Environmental permits can be purchased similarly at the provincial level for US$340. The sheer amount of minerals being exported from the Philippines to China is further evidence of this exploitation and abuse. Indeed, while small-scale mining regulations restrict certain methods and equipment used in large-scale mining and place caps on the amount of ore extracted from designated small-scale sites, there is substantial evidence that Chinese firms commonly use explosives and heavy equip-ment and drastically exceed the extracted mineral volumes permitted by law. Small-scale mining regulations in the Philippines are designed for small local mining operations using small crushers, hand picks and shovels incapable of achiev-ing the economies of scale required to meet China’s gargantuan mineral needs. The Philippines is already the largest provider of nickel ore imported into China and few experts believe this volume of nickel ore could be achieved by legitimate small scale mining operations. These activities can also lead to major environmental degradation as Chinese firms rarely acknowledge or enforce global environmental protection standards. Chinese mining firms are also exploit-ing corruptible local politicians, which

commonly results in illegal exportation and misdeclaration of minerals. Indeed, Chinese firms offering the right price and with the right local connections in place are able to avoid paying essential taxes and operate with utter disregard for mining tax provisions. The local governments justify these deals by contending that little or none of the tax and permit revenue paid by large Western mining firms to the national gov-ernment is ever remitted to local govern-ment units in violation of the law. The massive export smuggling of min-erals to China results in major tax losses to the cash-strapped Philippine treasury. In 2008, the government Department of Envi-ronment and Natural Resources disclosed that an estimated three million metric tons of Philippines mineral ores processed in China were unaccounted for by the Philip-pines, which deprived the national and lo-cal governments of billions of pesos in tax revenues. The reality is Chinese mining firms are not playing by the same business eth-ics, rules, and practices which Western mining firms are expected to follow, nor is the Philippine government holding China to the same benchmarks chiseled into law and applied to Western firms. At the same time, and largely due to local protection, the Catholic Church, environmentalists and other activists choose to direct little ire at Chinese mining practices in the Philip-pines. The dynamics do not bode well for a sector already damaged by shortsighted-ness, local government rapaciousness and overall inconsistent policies. There is no denying that China has become one of the world’s most aggres-sive mineral buyers and consumers as the country continues to forge mining deals globally. Reportedly, China closes approxi-mately 75 percent of the large-scale mineral deals it pursues each year. Global industry statistics show that China accounted for 33 percent of the total value of all cross-border mining mergers and acquisitions in 2009, up from just 7.4 percent in 2007 and less than one percent in 2004. In 2010, Chinese firms participated in

The China factor: Bending the‘small-scale’ mining rulesAn investigative report by

Philippine Strategies & Assessments

Small-scale mining regulations are designed for small local mining operations using hand picks, shovels and small crushers incapable of achieving the economies of scale required to meet China’s gargantuan mineral needs.

Mineral Resources

Continued on page 10 >



Mineral Resources

$12 billion worth of mining deals and ac-counted for 10.6 percent of the mining deals across the globe which totaled $113 billion. Unsurprisingly, China has become the world’s largest consumer of copper, second in aluminum, third in nickel and fourth in gold. China is also among the world’s top consumers of tin, zinc, petroleum, steel and iron ore. The country’s consumption pat-terns show no sign of abatement. PricewaterhouseCoopers released a report in March this year projecting China to be more aggressive in its foreign mining investment in 2011. China Iron and Steel Association vice chairman Luo Bingsheng confirmed this at a recent industry confer-ence, saying China aims to derive 40 percent of its ore imports from overseas investment by 2015. With China’s seemingly insatiable hunger for metals and minerals, the nation is expected to invest approximately US$100 billion in overseas mines per year through 2014. Bank of China International, the in-vestment arm of the state-owned Bank of China, attributes China’s foreign invest-ment success to more creative business strategies and deals. At the same time, China is often cited as among the world’s worst violators of oc-cupational health and safety standards in mining, amidst regular instances of worker deaths across Chinese mine sites. In fact, Chinese mines are now considered the most dangerous in the world. Recent fig-ures show that accidents in Chinese mines killed 2,631 people, compared to just 34 mine site deaths in the United States, in 2009. China’s acquisition of a large stake in Africa’s mining industry exacerbated China’s negative global reputation for low safety standards, corruption, illicit practic-es, and environmental degradation, result-ing in community-based protests in several Chinese mine sites across Africa and other parts of the developing world. China has targeted mine sites in the Philippines to help guarantee its stock of mineral resources. With the Philippines’ estimated $1 trillion worth of unexplored copper, gold, nickel and zinc reserves and located relatively close to the mainland, there is little surprise that China would look to the Philippines to meet its mineral

needs. For the Philippines, Chinese money has been a welcome respite for a deterio-rating mining industry impacted by fleeing Western mining giants and frozen proj-ects. Zijin Mining Group Company, one of China’s largest gold producers, has signed a deal with the Philippine government to invest $1 billion in gold and cooper explo-ration in the Philippines over the next five years. Other recent major Chinese mining deals include Wei-Wei Group’s $100 million nickel processing plant in Masinloc, Zam-bales province, and Jiangxi Rare Earth and Rare Metals Tungsten Group Company’s US$150 million nickel exploration and co-balt processing project in Botolan, also in Zambales province. Officials with the government’s Mines and Geosciences Bureau, MGB, have con-firmed that there has been an observable spike in Chinese mining investments across

the Philippines. The investment comes in various forms. For example, the MGB ad-mits that some Chinese investors are buy-ing local companies with mines still in their early stages of development. Chinese com-panies are also increasingly partnering with other Chinese firms which want to invest in the same mine site, thus eliminating the competition and bringing more resources to bear to accelerate the project. While 100 percent foreign-owned companies are allowed to obtain mineral processing permits (MPPs), mineral explo-ration permits (MEPs) and financial techni-cal assistance agreements (FTAAs), mineral production sharing agreements (MPSAs) must adhere to the constitutional require-ment of 60-40 percent ownership in favor of a Filipino company. Juxtaposing the table above with MGB data, only two Chinese firms have MPPs, two have MEPs and five

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China one of worst safety violators


< Continued from page 8

magnetite

iron, gold



Mineral Resources

have MPSAs. No Chinese companies have FTAAs with the Philippine government. Industry sources both within and out-side the Philippines contend there are more Chinese mining investors in the Philippines than have been formally recognized by the Philippine government via official permits and licenses. In some cases, Chinese min-ing firms operate under the names and licenses of their Filipino counterparts or subsidiaries. For instance, Oriental Synergy has its own MPSA in Surigao del Norte, but has also partnered with another Chinese firm, Macao Quanta, in a separate MPSA assigned to Filipino partner Minahang Bayan ng Mamamayang ng Dinagat Island Cooperative. Jiangxi’s mining venture in Zambales province is in cooperation with Filipino-owned Nihao Mineral Resources, which in turn is operating under the MPSA of Mina Tierra Gracia. Nihao has appar-ently bought 100 percent of Mina Tierra Gracia. The MGB asserts that permits are non-transferable, but large mining companies have learned to co-opt domestic small-scale miners to serve as the official claimants. Meanwhile, the better resourced Chinese firm serves as the actual mine site operator. In other cases, a small-scale mining permit holder totally surrenders its site to a major mining company for a fixed fee. There are allegations that a number of mining proj-ects, particularly small-scale mining proj-ects, are being operated entirely by Chinese firms in violation of Philippine mining laws and regulations. Two such examples are the

chromite mining operations of Cam-bayas Mining in Eastern Samar and the magnetite min-ing operations of Vincent Tan Tiong in Leyte. Both have their own MPSAs, but there are me-dia reports that the Chinese firm Peng Cheng Metallic Resources is actu-ally wholly operat-ing the Cambayas

project, while Nicua Mining Corporation will reportedly soon operate Vincent Tan Tiong’s project in Leyte. Small-scale mining takes place in more than 30 provinces across the Philip-pines and many have begun to question the participation of Chinese firms in these activities. Indeed, MGB officials have also confirmed that recent Chinese investments were mostly in small-scale mining, as op-posed to the large-scale mining operations of most Western mining firms in the coun-try. According to the People’s Small-Scale Mining Act of 1991, small-scale mining re-fers to mining activities which rely heavily on manual labor, using simple implements and methods. The use of explosive, heavy or sophisticated equipment, such as drill-ing machines, payloaders and excavators, is absolutely prohibited. A small-scale mining contract can be obtained through a Mineral Production Sharing Agreement between the contractors and state for the small-scale utilization of a plot of mineral land at a maximum of 50,000 tons of ore. More importantly, small-scale miners refer to Filipino citizens who, individually or in the company of other Filipino citizens, vol-untarily form a duly licensed local coopera-tive to engage in mining within the mem-bers’ local community. Chinese firms reportedly engage in small-scale mining in order to circumvent circuitous Philippine mining laws, strin-gent safety and environmental standards, large capital and operating fund require-ments, and the costly fees and taxes that come with large-scale mining in the Philip-

pines. Operating under a Filipino partner’s name or as a small-scale miner helps avoid the scrutiny of the country’s vigorous and media savvy anti-mining community that includes the influential Catholic Church, leftists groups, communist insurgents, in-digenous peoples and foreign and local en-vironmental NGOs, and even national and local politicians. Moreover, while on average it takes at least five to 10 years before the state grants a foreign mining firm the rights, via an official permit, to merely explore a designated large-scale mining area, permits for small-scale mining are easily obtained from a pro-mining local government unit for a mere 10,000 pesos. One local mayor admitted that there have been several cases in which small-scale miners bypass the mayor’s office and go directly to the local barangay (village) to obtain a mining per-mit. Consequently, there are cases of over-lapping claims between large-scale mining companies with permits issued by the na-tional government and small-scale miners whose permits were issued by the local government. Industry sources claim there is no shortage of anecdotal evidence to invali-date the small-scale claims of Chinese mining firms in the Philippines, suggest-ing instead that these firms are engaged in larger-scale projects. There is information that some Chinese mining firms operat-ing in Zambales, the Zamboanga penin-sula and Camarines Sur province are using heavy equipment and explosives to extract ore from the ground contrary to national mining laws. Particularly in Camarines Sur, author-ities are investigating the death in February 2011 of a Chinese national at a mine site. Chinese national Chen Te Hao, an engi-neer for Chinese firm Prime Rock Mining, was killed after a huge boulder crushed his head during a clearing operation at the mine site. Prior to the accident, Prime Rock was accused of using explosives in its mine operations which is prohibited under small-scale mining laws. The local government of Camarines Sur issued Prime Rock a small-scale mining permit, but under the name of Benito Salandanan of Bicol Chromite. The MGB maintains that Prime Rock’s

Farmers and fishermen complain that chemicals used at nearby mines, especially at inadequately supervised operations, are poisoning their crops and killing their harvests.

Chinese firms violate mining laws





Mineral Resources

operations were illegal since the company did not obtain a permit directly from the government. Authorities are also allegedly investigating health and safety violations at the mine site. There are corresponding allegations that these small-scale miners go beyond the tonnage and land area limits of the law. Philippine Strategies & Assessments sources assert that in some cases small-scale miners haul off 50,000 tons of ore in one-month from a five-hectare area, after which they simply renew their small-scale mining permit issued by the local govern-ment. After the second renewal, the small-scale miner simply needs to show proof of active extraction in order to secure a longer-term permit. Indeed, these types of permit have apparently become a venue for larger firms which simply want to speed up mineral collection. With mining practices such as these, it is no surprise that opera-tions leave the land scarred with ecological

devastation. Chinese mining companies have a reputation for poor adherence to environment standards, especially with re-gard to small-scale mining projects. There have been reports of fast-rising floods dur-ing heavy rains, landslides, poisoned water bodies, soil erosion, deforestation and even a decline in farm output in areas where there has been a surge in ques-tionable small-scale mining projects in the Philippines. Locals in Zambales province, where the Chinese firms Wei-Wei, Jiangxi and Nihao operate more than three small-scale mines, have complained of “blood-colored” water breaching riverbanks and inundating rice fields since mining began in the area. They claim that once the contaminated wa-ter reached their crops, no grains are pro-duced. Stained water suggests that mining upstream is being carried out without the required safety engineering. Locals also ac-cuse mining firms of denuding their forests and operating in watersheds, adding that some of those supposed small-scale miners even bulldozed their way through govern-ment restricted community forest manage-ment areas. In another instance, one min-ing firm reportedly leveled a portion of the hill for a road and disposed of boulders and dirt in the reservoir. In Eastern Samar, hundreds of resi-dents raided Cambayas Mining Corpora-tion, which is actually reportedly owned by Chinese mining firm Peng Cheng Me-tallic Resources. The farmers claimed the company was illegally operating on land awarded to them by the Department of En-vironment and Natural Resources through a certificate of stewardship agreement that is effective through 2017. The mining firm prevailed, and now runs extractive opera-tions on 3,516.2 hectares involving chromite and other associated mineral deposits. Technically, all miners are required to secure a DENR clearance prior to op-erating a mine site. There are reports that in some provinces, however, small-scale miners can easily avail themselves of a pro-vincial environmental clearance certificate for approximately 15,000 pesos. With just a handful of local staff at the DENR offices, rarely are applicant claims checked for compliance with mining rules and regu-lations. Compared to large-scale miners,

small-scale miners also tend to be isolated from one another and harder to locate. And because small-scale miners are granted as short as a one-month permit, it is very dif-ficult for authorities to investigate and hold them accountable for any environmental damage. The DENR has admitted that the Phil-ippine mining business is plagued with rampant undervaluation, misdeclaration and illegal exportation of minerals from the Philippines to China. Department officials acknowledge that large-scale operators have been hiding under small-scale mining permits to skirt paying their full tax obliga-tions. In 2008, DENR disclosed that an esti-mated three million metric tons of mineral ores processed in China were unaccounted for by the Philippines which deprived the national and local governments of billions of pesos in tax revenues. Furthermore, with the huge amount of Philippine mineral ex-ports going to China, there are valid con-cerns that Chinese firms are increasingly setting the price trends in the sale of miner-als in the country. Philippine exports to China posted a 94.32 percent increase from 2009 to 2010 to reach $5.7 billion. Foreign trade statis-tics for 2010 also show that China has be-come the Philippines’ fourth largest export market, accounting for 11.09 percent of the country’s total exports. The surge was largely attributed to China’s increasing de-mand for minerals and metals such as iron ore, copper and nickel, from the Philip-pines. Notably, while approximately 65-70 percent of Philippine exports to China are typically electronic products, refined cop-per, cooper concentrates and various metal components account for 10-11 percent of the total exports. Mineral import-export data from the China’s General Administration of Customs show that in 2010 China imported a total of 12,338,221 metric tons of nickel ore from the Philippines, making the country its top source of nickel ore. The figure represented a 41.5 percent increase from 2009. Philip-pine exports of copper ore and concentrate to China also surged by 99.22 percent to 244,186 metric tons in 2010, making the Philippines its 7th leading source of cop-per ore and concentrate. The Philippines is

Zambales pollution is killing crops

Locals in Zambales province have complained of “blood-colored” water breaching riverbanks and inundating rice fields since mining began in the area, killing their crops. Stained water suggests that mining upstream is being carried out without the required safety engineering.

Rescuers dig frantically searching for victims of the landslide which hit a mining area in Pantukan, Compostela Valley, in April. The tragedy is being blamed on the small-scale miners who operate in the area, usually without proper equipment and inadequate safety precautions.





Mineral Resources

also one of China’s top ten source countries for refined cooper, exporting 69,398 metric tons in 2010, and a major source for scrap copper with 33,028 metric tons. There are now Filipino mining com-panies, such as Nihao Mineral Resources, which make no secret of their goal to export all of their mined metals and minerals to China. Nihao, backed by its major Chinese partners, has become one of the country’s top mining firms. At the end of 2010, the company was operating in five provinces – North Cotabato, Antique, Misamis Ori-ental, Isabela and Zambales. Its operations cover 20,841 hectares. Its main buyers are trading companies and smelter operations in China. It also has long-term supply con-tracts through joint venture partnerships with Chinese nickel smelting and refining companies. Chinese mining investors are generally met with suspicion in the Philippines. Sev-eral botched deals with China and alleged corruption charges have plagued invest-ment activity between the two countries in the past years. The most notorious example to date has been the ZTE national broad-band network fiasco, which implicated both former Philippine president Gloria Arroyo and her husband. The $329 million deal was reportedly overpriced by $200 million with the excess funds allegedly diverted to serve Arroyo’s personal interests. The contro-versy resulted in the cancellation of other corruption-tainted projects with China. An insider from the contractor China National Machinery and Equipment Group asserted that the $150 million advance payment for the project served almost solely as a bribe to Filipino officials. The influx of Chinese mining firms in the mineral-rich Philippines thus presents a delicate challenge and balancing act for a government desperate for foreign invest-ment. In the absence of any real responsi-bility to comply with anti-corruption laws similar to the United States Foreign Cor-rupt Practices Act, Chinese firms certainly have the opportunity to exploit a poorly governed and corruptible country such as the Philippines. Considering the regulatory implications and licensing requirements for conducting mining operations, corrupt

officials view the mining industry as an op-portunity to advance special interests. Specifically, there are reports that local government officials and known po-litical heavyweights with interests and in-vestments in mining have helped Chinese firms win contracts and obtain permits. For example, former president Gloria Arroyo’s presence at the 2008 private contract-sign-ing between Nihao Mineral Resources International-Geograce and the Chinese firm Jiangxi Rare Earth and Rare Metals Tungsten Group triggered speculation of another shady government deal. Further fueling rumors of illegal facilitation is the fact that Nihao’s chairman is Michael De-fensor, former Philippine senator and cabinet secretary and one of Arroyo’s most trusted acolytes. Critics of the deal questioned how Defensor’s small company, which had no track record in mining at that time, could easily back multi-million mining deals with a big foreign mining firm. Arroyo’s connec-tions to Nihao and Geograce do not stop there. Nihao president Jerry Angping is the brother of Arroyo-appointed Philippines Special Envoy to China for Trade and In-vestments Harry Angping, while Geograce chairman Renato Puno is the brother of for-mer interior secretary Ronaldo Puno. Both Puno and Angping are also well-known Arroyo allies. Even the most basic analysis of how Nihao and Geograce reached their current standing in the Philippines mining industry suggests impropriety.

Local officials admit there is indeed a tendency to dodge non-compliance or even infractions of small-scale miners, especially if local government chief executives are pro-mining in general. This has resulted in abusive mining practices whereby mine firms offering the right price and with the right connections are able to operate with utter disregard for Philippine mining, labor and environmental laws and regulations. In other cases, pro-mining local politicians brazenly enact local mining policies and regulations that directly contradict national mining laws. Former Zambales governor Amor Deloso, criticized for wanton issuance of small-scale mining permits in Zambales during his term, argued that nobody could stop a governor from giving a special per-mit in any line of business. Deloso said mining was akin to a battleground between big and small interests as well as national against local officials. Local governments tend to favor ap-plicants for small-scale mining, in which it exercises influence and authority, and whose fee permits are remitted to the lo-cal government coffers, over large-scale mining which is directly contracted and supervised by the national authorities. Cor-ruption and the manipulation of the laws has rendered agencies such as the DENR inutile, with provincial mining and regula-tory bodies becoming rubber stamp insti-tutions of local politicians in cahoots with unscrupulous mining companies. ■

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Officials are helping with permits< Continued from page 14



Mineral Resources

Philex Mining is acquiring 60 percent of a copper and gold exploration project in Mindanao through a joint

venture deal with Manila Mining that in-volves Lepanto Consolidated Mining. In separate disclosures to the Philip-pine Stock Exchange, Philex and Manila Mining confirmed they have agreed to explore and jointly develop the Kalayaan copper and gold project in Placer, Surigao del Norte. The project is covered by an ex-ploration permit issued to Manila Mining’s unit Kalayaan Copper Gold Resources. Philex has bought 125,000 shares of Kalayaan Copper for US$25 million, representing a five percent interest in the project. It will get an additional 55 percent interest in Kalayaan when it pays for all pre-development expenses, including a fi-nal feasibility study. The 280-hectare Kalayaan property (also known as Bayugo) has already been drilled by Anglo American and is contigu-ous to the Boyongan property which Philex has already drilled. In early May, Philex, which partly owned by the Hong Kong-based First Pa-cific group, acquired a five percent interest in Lepanto for 1.43 billion pesos, giving it an indirect interest in the Far Southeast Gold Project in the northern province of Benguet, where Lepanto has a 40 percent stake. Lepanto in turn has a 20 percent in-terest in Manila Mining. •Financially,meanwhile,2011looks

like it will be a good year for Philex. After healthy first-quarter results, the company “is on its way potentially to generating re-cord earnings for the year,” forecast Philex chairman Manuel V. Pangilinan. Its net in-come for the first quarter of the year rose 151 percent to 1.31 billion pesos from 521.3 million pesos in the same 2010 quarter. First quarter core net income reached 1.33 billion pesos, up 156 percent from 520.1 million pesos a year earlier. Pangilinan attributed the boost to higher price levels and metal output as well as improved grades from its Padcal mine. Gold revenue rose 88 percent to 2.1 billion pesos from 1.11 billion pesos. Copper reve-nue improved by 31 percent to 1.65 billion pesos from 1.26 billion pesos. Gold ac-counted for 54 percent of total revenue, with copper accounting for 43 percent with the balance of three percent coming from silver, petroleum and coal. Realized prices for the company’s metal production output last quarter av-eraged US$1,315 per ounce for gold and $4.13 per pound for copper, compared with $1,003 per ounce and $3.37 per pound respectively a year ago. In the northern Philippines, the high metal prices are encouraging Philex to extend by another three years opera-tions at its Padcal copper-gold mine in Tuba, Benguet. “Seven years ago, Padcal’s mine life was only until 2011, but it was extended

until 2014 in 2007. This was further ex-tended to 2017, and now we’re looking at possibly extending Padcal operations until 2020,” explained Philex president Jose Ernesto Villaluna. The investment budget for this extension program would be between 700 million pesos and one bil-lion pesos, most of which is earmarked for waste handling. Philex is also heading for the opera-tion of its 100 percent owned Silangan project in northern Surigao in 2016, with a target of starting the development pro-gram there by the end of 2012. Company estimates put the potential of Silangan at least equal to and probably greater than to the existing Padcal. Forecasts for Silangan are about 30,000 tons a day of ore with target annual production in the range of 107 million pounds of copper and 165,000 ounces of gold for the next 20 years. Capital expenditure for the develop-ment phase of the project would be in the range of $600 million to $800 million. • Lepanto Consolidated Mininghas posted a net income of 29 million pesos in the first quarter of 2011, which it attributes to high gold prices and im-proved output from its Victoria mine in Benguet. This is a turnaround from a net loss of 110.9 million pesos reported for the same 2010 period last year. The company produced 7,000 ounces of gold and 12,000 ounces of silver in the first quarter of 2011, compared to 6,176 ounces of gold and 10,278 ounces of silver. For full year 2011, Lepanto now ex-pects to produce 25,000 ounces of gold. This should translate into net income of 100 million pesos compared to a loss of 21 million pesos a year ago, forecasts com-pany president and chief operating officer Bryan U. Yap. Upcoming expansion by Lepanto centers on production for the next two years on the upper levels of the Victoria ore body, which has given better gold grades than the lower levels. The mine has remaining gold reserves of about 400,000 ounces. Yap said Lepanto is prepared to spend 700 million pesos on mine development and other capital expenditure for 2011 us-ing proceeds from its stock rights offering and operating revenue. ■

Philex, Manila Mining, Lepanto team up

Manila Mining’s Kalayaan property has already been drilled by Anglo American and is contiguous to the Boyongan property which Philex has itself already drilled.



Mineral Resources

The Nalesbitan gold-copper proj-ect in Camarines Norte, Bicol, is being acquired by Cascade Re-

sources. The deal involves an initial 80 percent interest with an option on the remaining 20 percent, and 100 percent of the ore processing arrangements. The Nalesbitan project combines a shallow epithermal gold deposit with a large copper-gold porphyry target at depth. The gold deposit has a well-defined core of measured, indicated and inferred resources, combined with numerous advanced exploration tar-gets nearby. The related copper-gold porphyry mineralization at depth is at an earlier stage, but Cascade believes it provides an “attractive bulk-tonnage target.” Under the terms of the deal, Van-couver-listed Cascade acquires an 80 percent interest by funding C$1 mil-lion of development capital and issu-ing C$5 million in new shares. Cascade has an option to acquire the remaining 20 percent interest by

spending C$2 million in direct project costs within three years; as well ob-taining an independent estimate of the project’s net present value and issuing shares at the then market price equiva-lent to 20 percent of this value subject to a minimum value of C$5 million. Upon closing, Timothy E. Collver will be appointed president and chief operating officer of the company. Col-lver has 33 years of professional ex-perience in the natural resource and banking industries in North America, Australia and the South-east Asian and Pacific region both as a geologist and investment banker and advisor. The Nalesbitan property encom-passes 14 mining claims that cover 1,134 hectares in all. Its main features are a surface epithermal gold system that has been mined previously and an associated, deeper copper-gold por-phyry target. The Cascade acquisition comes after completion of mineral resource studies by Simon Gatehouse of Hell-

man & Schofield and Crystal Sun Con-sulting. Cascade Resources president Peter Russell-Jones said the Nalesbi-tan project is at an accelerated stage with clearly defined advancement milestones identified. Increasing the quantity of gold resources will be an early task. The discovery of a large porphyry copper-gold system, which is postulated by a number of leading international geologists and indicated by geophysical surveys to underlay the project, is also an obvious goal. “By acquiring this project, Cas-cade also obtains an experienced management team that is well equipped to rapidly achieve the ad-vancement milestones. This is a technically robust and world class exploration project, with substan-tial upside potential on a number of fronts, and we look forward to work-ing with the Philippine management team to greatly enhance its potential and value,” Russell-Jones said. ■

Cascade acquiring Nalesbitan project

Key upcoming milestones targeted for the King-King copper and gold mine project in Mindanao have

been set by its developer, St Augustine Gold and Copper. King-King, currently in its feasibility stage of development, is already shaping up as one of the world’s largest undeveloped, advanced stage cop-per-gold deposits. The specific stages programmed for the coming 12 months include the prelim-inary economic assessment earmarked for the 2011 third quarter, application for declaration of mine project feasibility in the 2012 first quarter, application for en-vironmental compliance certificate in the 2012 first quarter, and completion of fea-sibility study in the 2012 second quarter. The important feasibility study has already been a work in progress for about five months, worked on by a team including M3 Engineering and Technol-ogy of Tucson, AMEC Engineering of Australia, Independent Mining Consul-tants of Tucson and AATA International

of Denver. United States-headquartered St Augustine has an exclusive 60 percent earn-in option for the King-king proj-ect, which is a gold-rich, copper-gold porphyry deposit located about 92 ki-lometers northwest of Davao City. King-King has a measured and in-dicated copper-gold resource of 791.5 Mt at 0.28 percent copper and 0.37 g/t gold. The cur-rent plan is to mine 100,000 tonnes of ore per day by open pit methods and process it through concentration by flotation producing copper concentrate

containing gold for outside smelting. The mine life is projected to be 22 years. ■

Milestones targeted for King-King



Mineral Resources

C razy Horse Resources, which is developing the Taysan copper gold project in Batangas, has

finalized the purchase of a full-scale port facility nearby. The company is buying the 16-hectare port terminal next to the Shell Malampaya onshore gas plant for 600 million pesos. The facility comprises a 6m x 147m T-pier with two dolphins, licensed foreshore lease, administrative build-ings, security fencing and site services including power and water. Access from Crazy Horse’s Taysan project is via a 20 kilometer paved road. According to Crazy Horse presi-dent Johan Raadsma, its advantages are that it is “well positioned near a substantial gas supply for power re-quirements, with existing port facili-ties to ship the Taysan copper/gold/

silver concentrate as well as magnetite product and ample room for construc-tion and operating logistics.” Under the port sale and purchase agreement, Crazy Horse has already paid 150 million pesos of the purchase price with the balance of 450 million payable by October 27, 2012 deferra-ble for six months at an interest rate of 8 percent on any balance. At Taysan, the company has com-pleted a SEDAR filing of a technical re-port on the mineral resource estimate and preliminary economic assessment of the project. The 18-months com-bined pre-feasibility and bankable feasibility study has commenced and is ahead of schedule. The preliminary economic assess-ment managed by AMEC Minproc of Australia indicates the Taysan Project

has a net present value at a 10 percent discount rate of US$526 million for the base case of US$3/lb copper and US$1,000/oz gold – not including any credit for silver or magnetite. The project is estimated to pro-duce payable 3,100 Mlb copper and 1.5 M oz gold over the 24-year mine life. Annual average production for years 1-4 is estimated at 173 Mlb cop-per and 79,400 oz gold. Average an-nual payable production over the life of mine is 129 Mlb copper and 62,000 oz gold. The current capital cost estimate of US$1.01 billion is slightly higher than originally estimated $914 mil-lion, which the company attributes to an aggressive pre-strip plan, addition-al mining fleet and a general increase in cost of materials. ■

Taysan getting its own port

Philippine Resources 21


Mineral Resources

MBMI Resources is to “vigor-ously fight” the recent cancel-lation of mining Financial and

Technical Assistance Agreements issued a year ago to the company and its affili-ates for projects in Palawan. MBMI’s legal team in the Philip-pines was notified by the Office of the President about the cancellation of the FTAAs just on a year after the permits were signed in April 2010 by the author-ity of the President. They were then reg-istered with the Department of Environ-ment and Natural Resources on May 31, 2010, and formally issued on June 2, 2010, to affiliates of MBMI – Narra Nickel Mining & Development, Tesoro Mining and Development and McArthur Nickel Mining. MBMI notes that “this decision is in connection with a case filed by Redmont Consolidated Mines” which apparently questioned the basis for the granting of the FTAAs. Following the cancellation, MBMI quickly issued an announcement that, on advice of its legal counsel, it believes that the decision is not in accordance with le-gal actions of a similar nature previously settled by the Supreme Court of the Phil-ippines. A company announcement said MBMI has instructed its legal counsel to immediately file a Motion for Reconsid-eration with the Office of the President. “The company will also file immediate actions with the appropriate courts seek-

ing to overturn the decision. MBMI will vigorously fight this decision and defend the company’s affiliates legally issued FTAAs,” it said. MBMI president and chief execu-tive Michael T. Mason said the company has begun curtailing non-essential activi-ties but “will continue activities that con-form to Philippine law while defending its rights and legally issued permits.” The company operates the Rio Tuba nickel project in Palawan in partnership with Olympic Mines and Development. The FTAAs in question cover the Alpha, Bethlehem and Rio Tuba mining proper-ties. FTAAs allow full foreign owner-ship of large-scale mining projects and are designed to attract investors to the capital intensive business. In this case, the company said, they allow MBMI and its partners “to progress toward develop-ment of full-scale operational programs at each property.” The cancellation of the FTAAs came shortly after MBMI announced that it had started a drilling program at its Al-pha property in Palawan to confirm data needed to expand and define priority ar-eas for continued mining. “This first phase of drilling is de-signed as an intensive and systematic ex-ploration program to develop and con-firm results to expand the independent mineral resource on Alpha,” Mason had said in a report on the drilling program. “In addition, the grade control drilling

will provide the company and our part-ners with the required data to continue mining and development of this proj-ect.” Earlier exploration activities identi-fied accessible high grade, exposed nick-el and chrome zones within the 3,200-hectare property. MBMI is focused on the explora-tion and development of nickel min-eral properties and with its Philippine partners maintained FTAAs with the Philippine government with respect to the Alpha, Bethlehem and Rio Tuba properties. MBMI and its partners have inter-ests in nine nickel laterite projects in the Philippines, covering a total area of over 22,000 hectares. The company aims to become a major supplier of high-grade nickel products to indus-trial customers in Asia. ■

Atlas Consolidated Mining and Development will go ahead with reopening of its subsidiary

Berong Nickel mine in Palawan. Berong will fund the reopening with money it is raising from the sale of its existing nickel ore stockpile. “Berong will use the proceeds from the sale of the stockpile to provide work-ing capital to support the resumption of operations at the Berong nickel mine,” Atlas said in a stock exchange disclosure. “The main aspects of the mining plan have already been determined by Atlas

and its joint venture partners.” Berong is a unit of London-based Toledo Mining. Atlas, Toledo’s local partner, has a 25 percent interest in the nickel project, which was put on care and maintenance in 2009 in the face of then depressed metal prices. The Berong nickel ore stockpile – about 150,000 wet metric tons with an average grade of 1.45 percent nickel – is being shipped to Shaanxi Energy Metals and Minerals Resources in China. Meanwhile, Atlas Consolidated has reported consolidated net income for the

2011 first quarter of 1.34 billion pesos, soaring 5.7 times the 233 million pesos it made in the same period last year. The company attributes the boost to the performance of its 54.46 percent owned subsidiary Carmen Copper, which in turn reported a first quarter net income of 1.37 billion pesos, near-ly 5.3 times its net income during the same period last year. Carmen Copper reported how higher metal prices in the first quarter enabled the company to sell copper at an average US$9,190 per ton. ■

MBMI fighting for canceled permits

Atlas to reopen Berong Nickel operation

Cancellation of MBMI’s FTAA permits may have been linked to legal issues, but Palawan’s hard-line environmentalists are seeing it as a victory in their battle against mining.



Mineral Resources

C opper and gold specialist Philippine Metals is adopting a conciliatory approach in its

bid to overturn the recent cancel-lation of its Exploration Permit Ap-plication at Dilong in Abra, northern Philippines. While asserting that its EPA “has not been cancelled legally,” the com-pany is focusing its efforts to over-turn the cancellation on winning the support of local communities in the area, as well as the government’s Mines and Geosciences Bureau. “Since the date of the local elec-tions in Tubo, Abra last October, the company has accelerated its con-structive efforts to work with the new local government and community leaders to gain their support for its Exploration Permit Application at Dilong,” Philippine Metals chief ex-ecutive Feisal Somji said in a state-ment on the issue.

“Negotiations with the rightful indigenous peoples to acquire free and prior informed consent have been initiated and are progressing positively and consultation with the local government unit’s Sanggunian has been ongoing, both key aspects of the EPA process.” But Somji continued: “As a result of the Philippine government Mines and Geosciences Bureau’s ‘use it or lose it policy,’ which it has now taken steps to enforce, the company has recently received formal notification from the MGB that its Dilong EPA has been cancelled. The company believes that its permit has not been cancelled legally and it is currently in discussions with the MGB to resolve this matter and has filed with the MGB central of-fice the appropriate objection notice, supported by documentation already filed with the MGB regional office

demonstrating that the company has been actively progressing its permit application and complying with all of the requirements set by the govern-ment, as described above. “In addition, the company notes that in its case, the MGB appears not to have observed its ‘three-letter-pol-icy’ of notification in exacting com-pliance in respect of its Dilong EPA. Somji said Philippine Metals “will continue to engage with the MBG to rectify this situation and ex-pects that its Dilong EPA will be re-instated in due course. The company is supportive of the MGB’s efforts to drive reform in the Philippines mining industry and will continue to engage with and support the govern-ment in its efforts to implement its reform program.” In addition to Dilong, Canada-listed Philippine Metals also has projects at Taurus and Malitao. ■

Philippine Metals blocked at Dilong



Mineral Resources

CHARLEnT JOInS TOLEdO

Pierre Charlent has been appointed chief operating officer at Toledo Mining.

Based in Manila, Charlent is responsible for managing the company’s assets in the Phil-ippines effective June 1 and reports to chief executive officer Victor Kolesnikov. At To-ledo, he takes over from Ken Stein who has returned to Australia for personal reasons. Charlent, aged 51, is a geologist and mining engineer with over 25 years of ex-perience in the business including 14 years’ involvement with nickel laterite explora-tion, mine development and mining in New Caledonia. He joins Toledo from Austral Re-sources where he was managing director for five years. He is a member of the Australasian Institute of Mining & Metallurgy and a mem-ber of the Society of Economic Geologists in the United States. He is a competent person for reporting to the Joint Ore Reserves Com-mittee standard. Charlent joins Toledo at a time when the joint venture partners of Berong Nickel are moving towards recommencing full-scale

mining at Berong and Ipilan Nickel enters the final stages in the permitting process to develop the Ipilan deposit.

TVI SIGnS MCKIBBEn

TVI Pacific has named Joseph Paul McKib-ben as the company’s new head of explo-

ration. He heads up TVI’s exploration team from the company’s Manila office. McKibben has over 40 years’ experience in mineral exploration in Australia, South-east Asia, New Zealand, Fiji, Vanuatu, and Papua New Guinea. About 36 of those years have been spent in exploration in the Philip-pines, where he has lived about 27 years. His work has involved mainly the search for porphyry copper-gold and epithermal gold - mainly as regional ex-ploration manager for RGC Exploration, the exploration subsidiary of Renison Goldfields Consolidated. In the Philip-pines, he was a consulting economic ge-ologist, served as president of a Manila-based contract core drilling company, and worked on a nickel laterite project in

Palawan and exploration of a copper-gold deposit in Luzon. Paul was a trustee of the Philippine Mineral Exploration Association for 10 years and currently serves as PMEA’s ex-ecutive director in an honorary capacity. He is a 35-year member of the Geological Society of the Philippines.

PASTORInO VP AT MBMI

MBMI Resources has appointed Frank Pastorino vice president op-

erations. Pastorino, a graduate of the Uni-versity of Louisville, has worked in senior administrative and operational positions with mining projects in the former Soviet Union and the Philippines. His responsibilities at MBMI now include the resolution of matters involv-ing recent licensing issues as well over-sight of strategic plans and implementa-tion of corporate initiatives focusing on the transition from small scale explora-tion and development towards full scale and efficient mining and processing.id. ■

Mining people on the move

Davao deal for MRC alliedMRC Allied has acquired its fourth

gold and copper project. The Manila-listed firm told the stock

exchange it has signed a mining operations agreement with Alberto Mining and Pen-sons Mining, which own the rights to the 9,720-hectare Boston-Cateel property in Davao Oriental, for a price tag of 620 mil-lion pesos. MRC Allied, which is owned by a group led by businessmen Benjamin Bi-

tanga and Lucio Tan Jr, already has mine projects in Sultan Kudarat, Davao del Sur and Surigao del Sur. In the new contract, MRC Allied has agreed to undertake the exploration and development of Boston-Cateel. MRC aims to raise 1.5 billion pesos via private placement and also plans to undertake an initial public offering for subsidiary MRC Tampakan Mines late this year. ■

Cadan Resources is “very excited” about its Comval copper-gold property in eastern Mindanao, fol-

lowing completion of resource definition drilling at its Tagpura porphyry skarn on the property. “The Comval property continues to deliver great exploration results,” said Cadan president and chief executive Rob-ert Butchart. “The Tagpura porphyry lo-cated on the eastern portion of the prop-erty becomes more attractive with the continued gold and copper assays we are

receiving on the skarn.” The company will now increase drilling on the Tagpura porphyry and also follow up with a district-sized exploration strategy on Comval, Butchart said. The drilling program is within the zone where a potential tonnage of 10 to 15 million tonnes has been reported. Completion of this program, together with previous drill-ing and open pit bench sampling, provide a data base of sufficient density to allow the upgrading of the potential tonnage to that of a measured resource, he said.

Cadan excited about Comval Cadan currently has two properties in Mindanao – its 9,000 hectare Comval property as well as the T’Boli gold and sil-ver mine currently in final development of small-scale production. At T’boli, underground development continues with the North Vein A Lode struc-ture having been intersected in the advanc-ing decline. Mapping and sampling have defined a vein width of 10 meters, assaying 12.5 grams/tonne of gold. Lateral development on North Vein A is proceeding westward to define stoping blocks for mill feed. Surface gold values extend 300 meters west of the decline inter-section point. Decline advance is now pro-gressing at a more satisfactory rate, and a crosscut to intersect the South Vein System is under way. The company says the capital expen-diture on lateral development is more than offset by the gold inventory being created in the development material stockpile. About 4,000 tonnes of diluted development material is surface stockpiled. This stockpile has an es-timated grade of 3 grams/tonne gold and will be used for commissioning the CIP plant. ■



Alan Blackley of Quest Exploration Drilling (left) and Damien Blyth of GXD Supply.

Guest speaker Fernando Moya of Vale Exploration Philippines.

People in the mining business in the Philippines have a new forum for sharing knowledge and ideas

as well as networking, in the shape of the Philippine Mining Club. The club made its debut in Manila in early April with a well attended lunch at the Makati Shan-gri-La hotel. Participants heard from guest speaker Fernando Moya, explo-ration manager with Vale Exploration Philippines, together with stock market expert Sandy Gilles and mining consul-tant Leo Dominguez. The club has been organized by Kevin Lewis and focuses on providing access to leaders in the minerals busi-ness and organizing regular lunches and other events as knowledge sharing and networking opportunities. It will also use funds generated from events and functions help the scholarships scheme of the Philippine-Australian Resources Education Excellence Program. The club is an affiliate of the big Melbourne Min-ing Club in Australia. The club’s next lunch is scheduled for June 10 at the Makati Shangri-La. Guest speaker there will be Ian Holzberger, ex-ecutive chairman of Metals Exploration and project director for the Runruno gold and molybdenum project. ■

Successful debut for new mining club

Resources Events

The Philippine Mining Club’s debut event was a full house.

Philippine Mining Club’s Kevin Lewis.

Stock market expert Sandy Gilles of First Metro Securities Brokerage.

Orica’s Ian Winter (second from left) with Philippine Resources Journal’s Cora A. Laureano, Greg Brimble and Elizabeth Galura.

Lawyer and mining consultant Leo Dominguez.

John Cuthbertson (left) of Infratex and Simon Halley of Philippine Resources Journal.

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The Ayala group is expanding into hydroelectric power in partnership with Santa Clara Power, an indepen-

dent power producer specializing in “run-of-the-river” hydroelectric power plants. The move is the latest in Ayala’s program of planned power generation operations that will include both renewable and conven-tional power generation. It follows the company’s recent part-nership deal with the Mitsubishi subsidiary Diamond Generating Asia involving solar power, as well as its acquisition of 50 per-cent of the Ilocos Norte wind farm specialist NorthWind Power Development. Ayala’s ambition to provide total ca-pacity of about 1,000 megawatts over the next five years. “These are all in line with Ayala’s campaign to augment the country’s power supply primarily through renewable and clean energy,” said Ayala managing di-rector John Eric Francia. The new hydroelectric power venture is through its subsidiary Michigan Power and is envisaged as including “mini-hydro power” projects across the Philippines. “Mini-hydro” operations generally involve plants with capacity of under 100 MW. Michigan Power has a 70 percent stake in the venture and has committed an initial equity infusion of 600 million pesos. Santa Clara Power is majority owned by Santa Clara International, a construction company with local and overseas projects. Santa Clara Power’s current projects include the 1.2 MW Loboc hydropower plant in Bo-hol and the 0.8 MW Amlan hydro plant in Negros Oriental.

“Santa Clara Power is one of the few companies with the expertise and focus on run-of-the-river hydropower,” Francia said. “Its mother company is one of the few con-struction companies in the country experi-enced in building hydro power infrastruc-ture,” he said. Run-of-the-river hydroelectric power plant operation involves “borrowing” river water and converting its kinetic energy into electricity before returning the same unpol-luted water back into the river. “It is consid-ered as green because it does not produce harmful emissions. Like other renewable power technologies, it is economical as it de-pends on the free energy of nature as fuel,” Francia said. The Ayala group, which has so far shied away from businesses where pricing involves regulatory risks, now sees pow-er generation as a an important area for growth. It is focusing on establishing part-nerships with companies that already have expertise in their operations. •Ayala’ssubsidiaryMichiganPoweracquired a 50 percent stake in NorthWind for just on 512 million pesos. NorthWind operates the 33 megawatt Bangui wind farm in Ilocos Norte with 20 wind turbines in op-eration. Bangui is understood to be the big-gest wind farm in South-east Asia and cost about US$50 million to put into operation.NorthWind hopes Ayala’s infusion will al-low it to go ahead with plans for two more wind farms in the Philippines – a 40 MW farm in Aparri earmarked for a 2013 debut and a 40 MW operation in Pamplona in the Cagayan Valley scheduled for about 2015.

The envisaged structure is that NorthWind’s sub-sidiary Northpoint Wind Power will develop the Ap-arri wind farm with 20 to 25 turbines costing about $95 million; while the Pamplona farm will be built by another subsidiary, North-East Wind Systems, with about 16 tur-bines generating 1.65 MW each.

However, NorthWind Power is having problems with revenue and is seeking the government’s permission to charge higher fees for its electricity. The company’s financial records “would readily show that it is difficult to generate positive cash flows even under an energy sales agreement regime with the Ilo-cos Norte Electric Cooperative,” NorthWind said in a recent petition to the government Energy Regulatory Commission. It noted that it had to restructure its mixed credit facility in 2009 because it could not generate sufficient cash flow to service its debt, and had to borrow additional loans for working capital amounting to 100 mil-lion pesos to cover “the shortfall from the unpaid billing invoices… that have remained unpaid to date.” NorthWind has asked for a specific feed-in tariff of 9.30 pesos per kilowatt-hour instead of the 5.20 pesos per kilowatt hour it has collected on average from the Ilocos Norte Electric Cooperative. • TheAyala-LEDelectronicsmanu-facturing firm Integrated Micro-Electronics is expanding into renewable energy with mass production of solar panels planned to start within 2011. The venture will base its units on pro-totypes made by IMI Energy Solutions, a company set up a year ago by IMI in Fre-mont, California. IMI last year developed a grid-con-nected solar panel inverter platform. De-signed for high reliability and efficiency, the inverter is suitable for homes and small establishments in a variety of locations, the company says. ■

Ayala widens its renewable energy focus

Renewable Resources

Ayala’s partner northWind Power has 20 wind-powered turbines in operation at its Bangui wind farm in Ilocos Norte, where it wants government approval to increase power rates.

Ayala partner Santa Clara Power is a pioneer in run-of-the-river mini-hydropower operations like the 1.2 MW Loboc plant.



The biomass energy specialist firm Clenergen Philippines is teaming up with PowerSource Philippines

in a bid to install up to 30 megawatts of rural “off grid” renewable electricity to Philippine island communities and mining companies over the next three years. Powersource has been granted a 10-15 year exclusive franchise to gen-erate and distribute power in specified rural areas, and is the first Qualified Third Party certified under the Philip-pine Power Industry Reform Act. The venture hopes to fill a gap wherein the majority of island commu-nities are currently supplied electricity from diesel generators at an average cost of 23 cents per kilowatt hour and in some areas are facing up to 12-hour blackouts. PowerSource says it enjoys strong

financial support from Credit Suisse with US$25 million already invested, the US private equity fund E+Co with $3.35 million in project financing fa-cilities, and the Overseas Private Invest-ment Corporation of the United States government. Clenergen and PowerSource proj-ect income in excess of $35 million per year from their biomass operations in the Philippines. The partnership will combine Clen-ergen’s proprietary plant science for the cultivation of energy crops to supply small biomass power plants that will be financed by PowerSource and then distributed through PowerSource’s

transmission network. The partners will share the revenue generated from the cultivation of biomass and from each party’s sale of electricity to both captive end users and the Philippine govern-ment. Clenergen Philippines non-execu-tive chairman Miguel Patolot said the partnership “will bring into synergy the extensive experience of off-grid power generation of PowerSource and the cut-ting edge plant science technology of Clenergen. This partnership will provide infrastructure and equipment financing to support the commercial rollout of energy crop plantations throughout the island communities.” ■

The oil company Eastern Petro-leum plans to expand into the renewable energy sector in the

Philippines through acquisition of a biomass power plant. The United King-dom-based company looking at a 40 megawatt capacity operation in Nueva Ecija. However the plan depends on the Philippine government’s Renewable En-ergy Board setting the applicable feed-in tariff (FiT) rates, according Eastern Petroleum chairman and chief executive Fernando Martinez. “We are exploring renewable en-ergy but we are still studying the entry point and reliability, especially the FiT,” Martinez said. “We are looking at bio-mass. Biomass has promise. The ques-tion is the feedstock. How fast can it grow?” Eastern Petroleum is also consid-ering investment in a coal-fired power plant in Bataan. At this stage the capac-ity is still under study but the envisaged range is. between 200 and 300 MW. “Eastern Petroleum is thinking of crossing over to the power sector. We are now looking to be a total energy company,” Martinez said. ■

Renewable Resources

New venture targets small rural biomass plants

Oil firm eyeingbiomass power



In the aftermath of Japan’s nuclear cri-sis, investor confidence in renewable energy rose as the public and inves-

tors recoiled from nuclear power. Public perception of the events has tainted the reputation of nuclear energy and signifi-cant investments in nuclear plants are ex-pected to be deferred. The tragedy came on top of rising oil prices amidst indus-trialization in China and India, the BP disaster in the Gulf of Mexico and unrest in the Middle East and North Africa— all of which have made renewable energy more attractive. But doubts remain whether the ac-cident in Japan will really benefit RE. In her recent analysis, Scotiabank econo-mist Patricia Mohr suggested the “more lasting impact of the incident at the Fukushima-Daiichi nuclear power plant ... will be to trigger a re-examination of nuclear safety procedures and reactor technologies around the world and to slow the development of nuclear power.” Over the medium term, Mohr anticipates some shift from nuclear energy to im-ported liquefied natural gas in Japan and gas-fired power generation in the United

States and parts of Europe, “Wind and solar power (alone) are not viable choic-es for large-scale base-load electricity generation,” she commented. Japan’s nuclear disaster will make nuclear power politically unacceptable for many and intensify the global race for fossil fuels, with most future energy research and development going into nuclear safety. European governments are already stepping up efforts to assess nuclear safety and agreeing in principle to “stress tests” for nuclear power sta-tions. Nuclear power may be hit hardest by rising safety and insurance costs after Fukushima. In early April, the New York Times newspaper published an article about the new pragmatism that is influencing energy policy. The report cited Richard Heinberg’s theory of “peak everything,” which suggests that the world is running short of vital assets like clean water, car-bon-free air, some minerals, fish stocks and the cheap fossil fuels that have pow-ered the world economy and helped rein in the price of food. However, alterna-tive energy sources, as well as renewable energy, are more expensive and would force the world into a more frugal future

according to Hei-nberg. The 2007-2035 Philippine Energy Plan of the govern-ment Department of Energy urges the reconsidera-tion of a nuclear power program amidst rising oil prices. The Philip-pines has gained a new record – that of having the most expensive elec-tricity in Asia as reported by the Manila Electric Company to the power and energy committee of the Philippine Cham-ber of Commerce and Industry in

February this year. With an average re-tail rate of electricity of 18.1 US cents per kilowatt hour, the Philippines tops Japan where the average rate is 17.9 US cents per kilowatt hour. The high price of elec-tricity is blamed on the fact that all costs – from producing power to distribution and taxes – are passed on to consumers in the absence of state subsidies. DoE Secretary Rene Almendras has commissioned a study to assess the ben-efits of the mothballed Bataan Nuclear Power Plant. For Almendras, the big-gest issue has always involved seismic considerations and lessons learned from the disaster in Japan are to incorporated into any policy decision. While the di-saster will not stop the ongoing Bataan technical study, Malacañang insists it is standing firm on its decision to sideline the revival of the nuclear plant. On the renewable energy front, reg-ulators grapple with commercial viabili-ty issues affecting the sector, as wind and solar power remain prohibitively expen-sive to produce. Environmental advo-cates and RE developers are pushing the government to expedite the implemen-tation of the mandated regulations on renewable portfolio standards and feed-in tariff (FiT) rates. The developers are proposing an installation target totaling 1,482 megawatts from 442 MW biomass plants, 420 MW solar power plants, 340 MW for wind power plants, 30 MW for ocean and 250 MW hydropower plants. The DoE Renewable Energy Man-agement Bureau, however, can confirm only a total of 790 megawatts of gener-ating capacity from 170 MW run-of-river hydropower plants, 370 MW biomass, 20 MW solar photovoltaic systems, 220 MW of wind generating capacity and 10 MW of ocean power generation. Power plant investments targeted for RE projects could only reach 830 MW in the next three years, as the National Renewable Energy Board (NREB) has set a cap to meet the national grid’s absorp-tive capacity. According to the NREB, ap-proval of the 830 MW installation targets is also conditional and could be adjusted depending on a grid impact study to be

Where does Fukushima leave RE?

Fernando Penarroyo is the managing partner of Puno and Penarroyo Law Offices (www.punopenalaw.com). He specializes in energy and resources law, project finance and business development.

By Fernando Penarroyo

Renewable Resources




submitted by the National Grid Corpo-ration of the Philippines. The grid must have enough buffers to absorb and cover any sudden losses of power supply from RE sources, and thus the NREB cannot recommend installation targets that are beyond the grid’s absorptive capacity. Power consumers in the Philippines may have to bear an additional charge of 11.38 centavos per kilowatt hour from the use of RE sources once the Energy Regulatory Commission approves the proposed FiT rates. The proposed FiT allowance of 11.38 centavos per kilowatt hour is actually lower than the industry proposal of 16.45 centavos. Once ap-proved, the FiT allowance will be imple-mented by 2014 when all the expected RE facilities that would generate a combined 830 MW would have started operations. Meanwhile, the Energy Regulatory Commission is also mulling over ap-proval of FiT rates for each RE source

separately, some earlier than others, to allow developers to move forward and get financial closing for their proposed projects. The FiT measure is the most awaited mechanism under the RE Law because this will determine the basic economic and financial viability of RE projects. The FiTs intend to mitigate de-mand-side risks in the face of inherent production variability by ensuring pur-chase by all grid-connected consumers at a guaranteed long-term fixed price. However, the Philippine Chamber of Commerce and Industry is urging the government to ensure that the costs of renewable energy will not be too restric-tive for consumers. Injecting RE into the grid could jack up already high electric-ity prices and further reduce the Philip-pines’ international competitiveness. The chamber believes that in careful plan-ning of the country’s renewable portfolio standards, the government should take into consideration the possible impact of renewable energy on both overall gen-

eration and transmission costs, as well as the high initial cost of RE and the associ-ated developmental costs. A high FiT rate would tie consumers for the duration of its implementation while the consequence of low FiT rates is that the Energy Regulatory Commission can fine-tune the pricing in subsequent years. The lack of takers should have no consequence on power supply since RE is not expected to be part of base-load. The costs of RE technologies are expect-ed to decline over time as more efficient technologies emerge. Perhaps it would be prudent on the part of regulators not to rush FiT rates or consumers may face another backlash similar to the outcome of the take-or-pay provisions entered into by the Phil-ippine government with independent power producers in the early 1990s. In the meantime, environment advocates, RE developers and consumer groups are eagerly anticipating how the government will address the issue. ■

Renewable Resources

RE at the crossroads after Japan’s near-meltdown< Continued from page 28

It would be prudent on the part of regulators not to rush FiT rates or consumers may face another backlash.



One thing that struck me as a participant at the Asia Min-ing Congress in Singapore last

April was how presentations on projects in Indonesia and Mongolia appeared to dominate the three-day program. While the Philippines had several well-received presentations – by SMI, CGA, Crazy Horse, TVI Pacific, Intex Resources, Mindoro Resources and OceanaGold – I could not help but feel that we have suffered by comparison in terms of our country’s competitiveness as an invest-ment destination, due to challenges that our mining industry continues to battle. Indonesia, for example, passed its new mining law in 2009 to encourage foreign mining investment, derive maxi-mum benefit from mining investments and introduce greater control, order and transparency to the mining sector. Al-though the implementing rules issued about a year later were viewed negative-ly by some, the Indonesian government’s initiative in abolishing the Contract of Work and Kuasa Pertembangan system was seen as calculated to improve the in-vestment climate in that country. There is even greater optimism for Mongolia’s mining sector, if we are to go by the number of Mongolia-focused investment bankers present at the con-gress. Such are expectations for this

country that many believe it could have a world class mining industry in the next five to ten years that will rival those of Chile and Brazil. The enthusiasm is evi-dent in recent mega-deals in Mongolia, including Ivanhoe Mines’ Oyu Tolgoi project. These are attributed to the Mon-golian government’s efforts to offer a favorable investment environment by

reducing red tape, concentrating on min-ing-related infrastructure and striving to ensure transparency and international standards. While our competitors on the world mining stage, particularly Indonesia and Mongolia, appear to be taking steps to be more investor-friendly, the Philip-pines seems to be doing the reverse. It is disheartening to see proposals now being made affecting mining that have the potential of raising the cost of doing business here and shaking investor con-fidence. Earlier this year we saw the proposal by government’s Mines and Geosciences Bureau to establish mineral reservations and to impose a five percent royalty on gross revenue of mining operations, on top of the existing two percent excise tax. This proposal is covered by a draft Executive Order that is currently being considered. Now an expanded Executive Or-der is being considered that not only includes this proposal but also has ad-ditional provisions covering full enforce-ment of environmental standards in min-

Legal Resources

Is Philippine mining still competitive?By Patricia A. O. Bunye

Atty Patricia A. O. Bunye is a senior partner at Villaraza Cruz Marcelo & Angangco (website www.cvclaw.com). Her areas of specialization are mining and natural resources, power and energy and intellectual property (particularly IP commercialization). She may be reached at [email protected].


Our competitors on the world mining stage are getting ever more investor-friendly – for instance Mongolia has warmly welcomed Ivanhoe’s Oyu Tolgoi venture, the world’s biggest undeveloped copper-gold project. But the Philippines seems to be doing the reverse.



Philippines slipping behindinternational competitors

Legal Resources

ing, increasing revenue collection through higher or additional fees and taxes, and opening of areas for mining through public bidding. Even without the looming expanded Executive Order, mining companies already face issues such as the ban by the South Cotabato local government on open pit mining which has emboldened other local government units (LGUs) to follow suit. The actions taken by these LGUs plainly contravene na-tional law, but there has yet to be decisive action to address the antagonism between mining companies and LGUs as a result of these bans. Projects continue to hang in the balance in areas affected by these LGU bans. As a result of these continuing uncertainties and the threat of further shifts in policy, the Philippines ranks only 66th out of 79 countries in the Policy Potential Index of the Fraser In-stitute Survey of Mining Companies for 2010/2011. This annual survey ranks the overall policy attractiveness of each country/jurisdiction. In particular, the Policy Potential Index is consid-ered a “report card” to governments on the attractiveness of their mining policies on: administration, interpretation and en-forcement of existing regulations; environmental regulations; regulatory duplication and inconsistencies; taxation; uncertain-ty about native land claims and protected areas; infrastructure; socioeconomic agreements; political stability; labor issues; geo-logical data bases; security; and reliability of legal systems, i.e. “legal processes that are fair, transparent, non-corrupt, timely, efficiently administered.” In the 2008/2009 Fraser Institute Survey, just as Philippine mining was gaining momentum a few years after the constitu-tionality of the Mining Act was settled, and due in large part to the government’s shift from a policy of mere tolerance to active promotion of mining, the country managed to climb to a rating of 59th out of 71. Unfortunately, due to a seeming change in direction in policy, our rating has declined since then. The basic principle underlying mineral investments al-lowed by the Philippine constitution is that the government and the private sector are partners, and it is presumed that the government has the same interest as the private sector in ensuring the success of mining projects. More than just being a regulator and crafter of policies, government must also be mindful that investors will not remain in the country simply because of the attractiveness of our mineral deposits. Due re-gard must be given to the impact of proposed policies on these investors’ bottom lines, and ultimately their willingness to risk their capital investment here. It is therefore imperative that genuine consultations, with the opportunity to participate in their actual drafting, are conducted before any new policies are introduced and implemented in order to gain understanding of, and more importantly, support for, these initiatives. Otherwise, all ef-forts to promote mining investments in the Philippines will be overshadowed by the lack of stability or predictability of our investment environment. ■




nido Petroleum believes its latest analysis of vintage 2D seismic data has identified a preliminary

lead portfolio which includes a large Nido limestone lead that could match or better its important Gindara prospect. The company says the lead, called Pawikan, is about 53 square kilometers in size and has a vertical relief of about 300 meters which is comparable to or larger in size than Gindara. “The large Pawikan lead is an in-teresting structure as it lies to the south and on trend with the Gindara prospect,” said Nido’s head of exploration, Jon Pat-tillo. “While further work is required to mature the structure to prospect level, Pawikan could offer an excellent large scale follow-up drilling opportunity.” Nido now plans to further mature its lead portfolio and carry out test re-processing of selected vintage 2D data over the coming months to improve seismic image quality over the Pawikan lead. Australia-based Nido holds a 33 percent stake and is operator of Service Contract 54B along with joint venture partners Shell and Kairiki Energy which hold a 45 percent and 22 percent interest respectively. The Pakiwan news follows Nido’s spudding of the Gindara-1 wildcat in Ser-vice Contract 54B in mid-May. For this, mobilization activities included the load-out of the drilling materials moved from the Loyang offshore base in Singapore to Labuan in Malaysia using the Voss Sig-nal workboat. The materials were then loaded onto Atwood Oceanics’ deep-water semi-submersible Atwood Falcon headed for Gindara. Exploration head Jon Pattillo said the rig is well-suited to operate offshore Philippines, having drilled two deep-wa-ter wells last year for Shell in the coun-try. Nido has estimated the Gindara-1 well to hold mean in-place oil reserves of 634 million barrels. The Gindara-1 project is the first drilling project under the Service Con-

tract 54B joint venture. It is also the first well under Nido Petroleum’s planned five-well program. Gindara lies about 50 kilometers south of the largest oil discovery made in the Philippines to date, the Malampaya gas field under SC38. ■

Trans-Asia Oil and Energy Devel-opment is acquiring 25 percent eq-uity participation in a subsidiary

of Frontier Gasfields of Australia via an option agreement that will get it involved in the Shengli oil field venture in China. The subject of equity acquisition will be Frontier Gasfield’s equity in a Singa-porean subsidiary, the company has in-dicated in its disclosure to the Philippine Stock Exchange. No further details of the agreement were provided. Frontier Gas has a joint venture agreement with Shengli Oil Field Petro-leum Company for the Shengli oil field development in China. Shengli Oil has secured a letter of mandate from the Sin-opec group (China Petroleum Corpora-tion) for the “comprehensive utilization of Shengli oil field resources.” The Shengli oil field, which lies along the Yellow River delta in the north of Shandong province and bordering the Bohai Sea, has been rated the second largest oil field in China with daily pro-duction rate of 650,000 barrels. Discovery of the field dates back to the early 1960s and development started in 1964. The field’s accumulated proven oil reserves have been estimated at 4.63 billion tonnes. ■

The Philippine mining major Philex is getting increasingly optimistic about its latest venture into oil

and gas exploration. A Philex affiliate, Pitkin Petroleum, has reported encour-aging results from a second appraisal well at its petroleum exploration block in Vietnam. In a disclosure to the Philippine Stock Exchange, Philex said the well was drilled to test a section of the Ca Rong Do prospect which a previous drilling failed to evaluate. “We are encouraged by the hydro-carbon flow rates from the Oligocene section in Ca Rong Do, which, in addition to the previously proven Miocene reser-voirs, provide further exploration upside across the area,” said Simon Lockett, chief executive of Premier Oil Vietnam

South, operator of the petroleum block. Philex owns 21.1 percent of Pitkin, an international upstream oil and gas exploration and production company focused mainly on the Pacific Rim re-gion with operations in Vietnam, the Philippines, Peru and the United States. Pitkin has a 40 percent interest in the block, while Premier Oil holds 30 per-cent, Pearl Oil (Ophiolite) 15 percent, and Pan Pacific Petroleum (Vietnam) 15 percent. Philex hopes the Vietnam invest-ment may provide the company with a new revenue stream on top of its copper and gold sales in the Philippines. Philex also has small interests through Petro-Enery Resources in the Galoc field off Palawan and in Abouma field in Gabon, which are both in production. ■

After spudding Gindara, Nido now eyes Pawikan

Philex sees new revenue in oil

Trans-Asia in China deal

The deep-water semi-submersible rig Atwood Falcon is well-suited to operate offshore Philippines, having drilled two deep-water wells last year for Shell in the country.

Oil & Gas Resources



Oil & Gas Resources

Go-ahead for BHP farm-in with OttoBHP Billiton is taking over opera-

tions and getting a participating interest of up to 60 percent in

a major oil prospect off Palawan. In separate stock exchange disclosures, Philippine-listed Trans-Asia Oil and En-ergy Development and its partner Otto Energy of Australia confirmed BHP is exercising an option to farm-in to Ser-vice Contract 55, taking a majority of the interest of NorAsian Energy, a unit of Otto. Otto Energy’s interest in the oil prospect falls to 33.2 percent following BHP’s farm-in. Trans-Asia has an inter-est of about seven percent. BHP’s entry into the prospect is subject to approvals of the joint venture and the Philippine government’ Department of Energy. Under the farm-in agreement, BHP assumes operations of the service con-tract by reimbursing Otto’s past costs and funding one offshore deepwater well next year, with an option to drill a second deepwater well in 2013. The farm-in option held by BHP Billiton was signed in January 2010. Otto has explored the prospect since early 2010 and says it has acquired extensive 3D seismic data over an area covering 1,800 square kilometers which indicates “an active petroleum system with a series of large to very large Nido carbonate structures that supplement the Hawkeye prospect.” “We are looking forward to continu-ing to work with BHP Billiton in Service Contract 55 as we move into the drilling phase of exploration activities,” com-mented Otto managing director Paul Moore. “The past 16 months has been a very busy period for Otto as we have acquired, processed and interpreted a large volume of seismic data to identi-fy a portfolio of significant oil and gas prospects. We have benefited from the co-operation shown by our joint venture partner, Trans-Asia, and also BHP Bil-liton. “We now look forward to participat-ing in this exciting offshore deepwater exploration program which will provide exposure for Otto’s shareholders to ma-terial exploration in highly prospective, large structure opportunities.” Otto Energy shares quickly surged

18 per cent after the announcement by the Perth-based oil and gas junior. BHP’s farm-in into Service Contract 55 ends almost three years of attempts by Otto to secure a senior partner to help fund the costly exploration program. BHP was originally lined up as the farm-in partner in late 2008, following a five-month search. It agreed then to fund up

to US$200 million of exploration, includ-ing 3D seismic work and two wells. However, the proposed deal fell through before being revised in Janu-ary last year, when BHP agreed to fund the seismic work if Otto arranged for the seismic services. In return, BHP was


The production, storage and offtake vessel Rubicon Intrepid has been hard at work at Otto Energy’s Galoc field and projections of reserves there now suggest there is a lot more work ahead.



Oil & Gas Resources

Go-ahead for BHP farm-in with Ottogranted exclusivity to review the com-pleted seismic work before deciding whether to push ahead with the farm-in. The seismic data identified several prospects within SC55, including Cinco, which has an estimated gross recover-able resource of up to 3.8 trillion cubic feet of gas and 132 million barrels of con-densate. • OttoEnergyhasupdateditsre-maining oil reserves balance at the Ga-loc field off Palawan and now reports proven reserves have jumped 78 percent to 0.69 MMboe while proven plus prob-able reserves have increased 52 percent to 1.38 MMboe.

The operator and 59.84 percent par-ticipant in the project, Galoc Production Company, in which Otto is a 31.38 per-cent shareholder, annually commissions a review on behalf of the Galoc joint venture of the remaining oil reserves balance, conducted by independent firm RISC. RISC has reviewed the Galoc field reserves as at January 1, 2011, in accor-dance with the SPE/WPC /AAPG/SPEE Petroleum Resource Management Sys-tem definitions, guidelines and auditing standards. The increases in reserves are attrib-utable to better than expected reservoir performance to date and an extension of field life due to higher prevailing oil

prices. The Galoc field is expected to continue producing until approximately 2014 to 2018 on the basis of the existing two wells alone. Contingent resources of 0.85 MM-boe (Otto share) at 2C level are attribut-able to the Galoc Phase 2 development currently under consideration by the joint venture. Announcing the increases, Otto’s Paul Moore said: “The increased confi-dence in the Galoc field performance and underpinning reserves is supporting the efforts of the joint venture in progress-ing towards sanctioning a Phase 2 devel-opment, potentially comprising between one and three new wells, in the field.” Production at the Galoc oil field reached 6.92 million barrels as at end-March 2011. The company has delivered a total of 20 shipments of Palawan light crude to its refinery customers since it began production in October 2008. In the first quarter of 2011, Galoc produced 651,551 barrels, for which Otto Energy received US$5.93 million from operator Galoc Production Company, af-ter deducting operating and lifting costs.Otto Energy holds a 31.38 percent inter-est in Galoc Production Company, which in turn has a 59.84 percent interest in the service contract license. Nido Petroleum has a 22.28 percent stake in the SC 14C license. Other stakeholders are Philo-drill, Oriental Petroleum and Minerals/Linapacan Oil Gas & Power, and Forum Energy Philippines. • Meanwhile, Otto Energy hasspud its Duhat-1 wildcat project to 1,000 meters on the San Isidro anticline on Leyte island. The well targets oil in Mio-cene Tagnocot sandstones. DESCO Rig 1 is on site. Accord-ing to the company, Duhat-1 is the only modern deep exploration well in north-west Leyte. The company says hydro-carbon shows in several shallow wells drilled in the block and the presence of numerous oil seeps indicate the presence of an active petroleum system. Duhat-1, if successful, could be followed by more exploratory drilling on nearby look-alike structures. Otto Energy’s NorAsian Energy


BHP Billiton’s farm-in deal with Otto Energy promotes Service Contract 55 well up the importance chart of the various service areas where Otto has a stake. Continued on page 38 >



Oil & Gas Resources

New permits promised – plus security

PNOC doing very well out of Malampaya

The Philippine government is promising to ramp up oil and gas exploration with up to 15

contracts to be auctioned off by July. Energy Secretary Jose Rene Almendras hopes to coax hundreds of millions of dollars from prospective investors in the projects. “We have a situation where the Philippines has not found oil but we have found gas. We have a situation wherein more than ever, in the history of exploration in the Philippines, there is so much interest,” he said. Almendras also promised the gov-ernment will contribute to security at the exploration areas. In March, the Philippines com-plained to China over alleged harass-ment by Chinese gunboats of a Philip-pine oil survey vessel in disputed seas near the Spratly islands in the South

China Sea. Almendras said a survey for that project has been completed but it will take two years to process the seis-mic data gathered. “We need security because there’s going to be hundreds of millions of dol-lars, and even billions of dollars, of new equipment in new exploration areas,” he said. Almendras said part of royalties owed the government from the Malam-paya offshore gas field run by a unit of Royal Dutch Shell Group will be used to buy security equipment for the new projects. Noting that a presidential executive order is needed for the release of the money, he said Malampaya funds have been used in the past even in matters not related to energy. “We are looking at using the Malampaya fund for the se-curity of multinational companies, and

the President wants the Department of Energy to play a role in that,” he said. Almendras said people in the ener-gy sector have been complaining about losing people and equipment because of the growing interest in oil and gas exploration. “One of the exploration companies came to me and was com-plaining – they were running out of equipment and men with exploration experience because projects are going on all at the same time,” Almendras said. “There’s a need to strengthen se-curity because companies exploring the area are bringing in equipment and investing billions of dollars.” He said the Department of Na-tional Defense has drawn up a security blueprint and will now determine the number of radar stations, boats and helicopters that would be needed. ■

With an ongoing favorable rev-enue stream coming in from the Malampaya gas field

off Palawan, first quarter 2011 income of Philippine National Oil Company-Exploration Corporation, PNOC-EC, jumped 360 percent to 680.86 million pesos from 186.46 million pesos in the same period last year. “The income is driven mainly by the company’s share in the Malampaya gas project with the disciplined trading of coal and the intensified operations at the company’s Batangas port,” the firm said in a financial disclosure to the Phil-ippine Stock Exchange.

With the likelihood of higher in-come this year, PNOC-EC says it should be able “to remit (as dividends to na-tional government) a significant amount in the second quarter of 2011 once the audit of the company’s financial records for 2010 is completed.” The latest dividends declared by the state-run firm stood at 3 billion pesos in March this year. This is on top of the 559 million pesos in dividends declared by the company last November. The company is optimistic about additional projects, including pros-pects of increasing its share in the sec-ond phase of the Malampaya gas field,

which is requires an investment of US$1 billion. Through PNOC-EC’s take in the gas field project, Philippine Energy Sec-retary Rene D. Almendras said: “We will go very aggressive in Malampaya. We want to make more investments to tap more gas.” The capital infusion will cover de-velopments to ensure continuous gas production to meet Malampaya’s com-mitment under the sale and purchase agreements with the gas takers – primar-ily as fuel for the 1,200 MW Ilijan and 1,500 MW Santa Rita and San Lorenzo power plants. ■

subsidiary is operator of the 3,320 sq.km Service Contract 51 with a 40 percent interest. Estimated cost of the exploration is about U$2.5 million to $3 million. The current drilling operation in Duhat-I exploratory site has been extended by the Department of Energy until July.

Otto unit NorAsian Energy is also cur-rently conducting a seismic survey in the waters off Camotes island in north Cebu, looking for oil and gas deposits in the area. This survey covers 464 square ki-lometers of the Camotes Sea across five municipalities. It mainly covers the municipal waters of Palompon in Leyte province and San Francisco

town, Camotes. The 3D survey is a follow-up to last year’s 2D survey of the area. The survey vessel BGP Explorer is towing four 4.5-kilometer cables that send sound waves to the sea floor to be captured by microphones on a four-kilometer cable attached to buoys. The signals are read by a computer in the vessel. ■


After BHP deal, Otto exploring more contract areas



Supply Resources

Environmental solutions specialistsrestructure ownership, operations

Integration and new people for QED

The environmental solutions special-ists Maccaferri and Infratex have completed a restructuring of their

ownership, management and operations. The overhaul results in two new entities – Maccaferri Philippines Inc (MPI) and In-fratex Environmental Services Inc (IESI) – under the Maccaferri umbrella, while the existing Infratex Philippines Inc (IPI) con-tinues as a separate entity. MPI is a 100 percent foreign-owned subsidiary of the big international Officine Maccaferri group. After the restructuring, IESI is a wholly-owned subsidiary of MPI. The Philippine Gabions operation that was previously under the Maccaferri umbrella is being absorbed by MPI. IESI has taken over the HDPE liner and pipes design, dis-tribution and installation range from IPI. IESI is managed by MPI headed by Thomas Wintermahr. IPI remains headed by Peter Heilveil with mining veteran John Cuthbertson as a consultant for IPI and IESI. MPI is a distribution company special-izing in providing products and solutions for the preservation of the environment. –We are not merely a materials supplier but rather a complete solution provider in the areas of erosion control, river bank protec-tion, retaining structures, channel lining, rock fall protection, sludge dewatering and many more. These are supported by our wide range of double-twist wire mesh and geosynthetic products,– says Thomas Win-termahr. In addition to its civil engineering ap-plications, Maccaferri products and services includes a variety of solutions for miners. For underground or closed mines, its appli-

cations focus on reinforcement of support structures for underground galleries and also for tunnel lining using Wirand steel fibers to reinforce concrete. For open-cast mines, Maccaferri concentrates on provid-ing stability and protection of cut slopes with applications including BioMac, Mac-Mat, gabions, System Terramesh, MacTube, MacTex and MacCell. Wintermahr said Maccaferri and Infra-tex solutions have been used at many recent mining projects in the Philippines, includ-ing Masbate, Taganito, Berong Nickel and Didipio. IESI has taken over from IPI the ex-clusive distributorship of the leading HDPE lining supplier, GSE Lining Technology – which currently has over one million square meters of GSE liner installed in the Philip-pines – and of Vinidex. Applications of GSE HDPE geomem-branes and Maccaferri product lines in-clude tailing dams, heap leach pads and so-lution pads in the mining business, as well

as other applications including municipal and industry sanitary landfills, waste water lagoons, reservoirs, canal linings, tank lin-ings, petrochemical secondary containment, power sector environmental containment, aquaculture, agriculture and animal waste containment.IESI can now also provide liner integrity surveys using advanced geoelectric leak de-tection methodology for critical HDPE liner containment systems. Peter Heilveil says it is the only company in the Philippines providing this service, which give mining companies and their local communities the assurance that liners installed are without leaks. IPI’s range of equipment for the min-ing industry includes the product lines of David Brown Gears, Acoustica noise abate-ment, Tru conveyor belts, Worldpoly butt welding, Lightning Protection International and J&B underground utility conduit sys-tems. It plans to add soon fleet fuel manage-ment system.. ■

The Quest Exploration Drilling group has completed the legali-ties required for restructuring the

group to bring its five regional operating companies under the QED umbrella. As a result, QED now has a single corporate identity in the Philippines, Indonesia, Papua New Guinea, the Solomon Islands and Cambodia.

QED managing director Alan Black-ley said the single entity strategy enables clients who work across the region to deal with a company that has a single manage-ment structure with common practices and a known reputation for delivery. “Like a number of other contractors across the region, we are seeing a return to pre-crisis activity levels” Blackley said.

“Our challenge now is to ensure we can meet the expectation of our clients through the availability of equipment, but more im-portantly personnel.” QED sees its biggest challenge to growth in the coming years as the availabil-ity of skilled personnel and the company’s


Maccaferri gabions and MacTex geotextile solutions are used in the Taganito Mines river realignment project in Surigao del Norte.



ability to attract the right people to support an expanding management team. In terms of equipment supply, QED recently took delivery of two Atlas Copco track-mounted CS14 drills, which come with remote tramming controls and ad-vanced safety features. The rigs are the first of a planned upgrade of capability in the Philippines. To help tackle the skills shortage, QED has appointed Sean Fitzgerald as its new Philippine country manager, starting July 1. This appointment is one of a number of senior positions that have been created to

manage QED’s growth across the region. It follows the recruitment of Mick Premus as Philippine operations manager – Premus is currently understudy to Ted Maszniew who will shortly retire after 10 years with the company. “Having sufficient people in place to manage the day-to-day business now al-lows us to concentrate on what I consider to be the most critical issue we face – and that is people” Blackley said. QED is going ahead with plans to cre-ate dedicated training facilities for its staff across the region, with Blackley reiterating his belief that “the drillers of the future are going to come from the region in which

QED works. The future of QED as a suc-cessful company depends on the availabil-ity of skilled personnel who are more than lever pullers, but are people who embrace today’s standards based on safety, quality and productivity.”. ■

Supply Resources

Optimism about growth in the mining business – with metal prices rising because of in-

creasing demand and supply shortfalls – has come from a major supplier in the field. The generally rosy outlook is spelled out in latest forecasts from Met-so, the big global supplier of technology and services for mining, construction, power generation, automation and oth-er sectors. “I am especially excited about the growth – in both new orders and in net sales,” said Metso president and chief executive Matti Kähkönen in his recent review and outlook summary for 2011. Kähkönen – who took over as president and CEO on March 1 with the installation of the new Metso ex-ecutive team – said demand in most of the company’s customer industries is back to “a relatively normal level” with some variations by customer industry and geographic area, although he noted “uncertainties related to fragility of eco-nomic recovery, inflationary pressures as well as high oil price.” “On the positive side, the operating environment is estimated to continue strong in the emerging markets and the outlook in the mining business is good.“Metal prices have been at a high level primarily due to strong demand in Chi-na and India and the general upswing in the global economy. At the same time,

copper and iron ore production has fallen short of demand. The number of quotations for equipment and projects from mining companies has strongly in-creased,” he said. “This has already had a clearly pos-itive impact on our orders and we ex-pect demand to be good this year. Since the industry players have confirmed significant capital investment programs for the coming years, we expect strong activity in larger projects this year. Due to the strengthening demand for miner-als and our large installed equipment base, we expect demand for our mining services to be excellent.” In the automation products sec-tor, Kähkönen believes demand will continue strong, as the oil, gas and petrochemical industries increase their investments amidst improvement in en-ergy prices and demand. Overall, with the favorable fore-cast in market environment and order intake, Metso has upgraded its financial estimate for 2011 and now projects net sales will grow about 15 percent com-pared to 2010 while profitability will also improve. In the first quarter of 2011, Metso received new orders worth 1,847 million euros, 35 percent more than in the 2010 first quarter. Net sales increased 23 per-cent quarter-over-quarter to 1.444 bil-lion euros.

• Metsohas reinforced its know-how in process optimization services to the mining and construction industries by acquiring the remaining interest in the joint venture company Metso CISA. Metso and its joint venture partner BRGM in France signed the acquisition agreement that makes Metso CISA now 100 percent owned by Metso. CISA was created in 1990 as a joint venture company between SERGAP, a subsidiary of BRGM (49 percent) and ARMCO (51 percent). Its business focus remains in advanced control and sens-ing as well as specialized column flota-tion. Metso acquired ARMCO’s shares in 1998 and in 2009 increased its owner-ship to 67 percent. Headquartered in Orléans, France, Metso CISA specializes in advanced process control of mineral processing systems using the company’s Optimiz-ing Control System platform. In the early 2000s Metso CISA launched its first sensing system, Visio-Froth, which now has a large installed base in mining. It also developed sev-eral new machine vision tools such as VisioRock, VisioTruck, VisioBall and VisioPellet, as well as applications for detecting oversize and other foreign ob-jects on conveyor belts. Helsinki-based Metso currently has about 28,500 employees in more than 50 countries. ■

Supply specialist ‘excited about growth’

QEd chief Alan Blackley: We need more good people.

Integration and new people for QED< Continued from page 40



A year after BP’s Macondo well blew out, killing 11 men and spewing millions of barrels of oil

into the Gulf of Mexico, the much-ma-ligned US federal agency responsible for policing offshore drilling has been re-made, with a tough new director, an awk-ward new name and a sheaf of stricter safety rules. It is also trying to put some distance between itself and the industry it regulates. But is it fixed? The simple answer is no. In interviews with the International Herald Tribune newspaper, even those who run the agency formerly known as the Minerals Management Service con-cede that it will be years before they can establish a robust regulatory regime able to minimize the risks to workers and the environment while still allowing explo-ration offshore. “We are much safer today than we were a year ago,” said US Interior Sec-retary Ken Salazar, who oversees the agency, “but we know we have more to do.” Oil industry executives and their al-lies in Congress say the Obama adminis-tration, in its zeal to overhaul the agency, has lost sight of what they believe the agency’s fundamental mission should be — promoting the development of the nation’s offshore oil and gas resources. Environmentalists say the agency, now known as the Bureau of Ocean Energy Management, Regulation and Enforce-

ment, has made only cosmetic changes and remains too close to the people it is supposed to regulate. Even the officials who run it, Sala-zar and the new director Michael R. Bro-mwich, admit that they have a long way to go before government can provide the kind of rigorous oversight demanded by the complex, highly technical and deeply risky business of drilling for oil beneath the sea. The blowout preventers in use to-day remain incapable of handling a well rupture of the force of the BP blast. The containment system developed by the industry to respond to another blowout has not been tested in real-life conditions and, by the industry’s own estimate, could still allow hundreds of thousands of barrels of oil to spew before a run-away well could be capped. The seven-member commission named by President Obama to investi-gate the BP accident looked at the regu-latory failures that contributed to it, and its conclusions were blunt. “MMS became an agency system-atically lacking the resources, techni-cal training or experience in petroleum engineering that is absolutely critical to ensuring that offshore drilling is be-ing conducted in a safe and responsible manner,” the panel said in its final re-port, issued in January. “For a regulatory agency to fall so short of its essential safety mission is inexcusable.” Many of those flaws remain, accord-ing to William K. Reilly, a former Envi-ronmental Protection Agency admin-istrator who was one of two chairmen of the commission. He told the IHT he believes Bromwich is doing a creditable job, but the agency still lacks the techni-cal expertise needed to oversee such a specialized industry. “They changed the name, but all the people are the same,” Reilly said. “It’s embarrassing.” The job of repairing the agency has fallen to Bromwich, a former federal prosecutor and US Justice Department inspector general who was pressured into leading the agency by Obama. While defending the employees of the agency,

Bromwich, who took over last June, made no excuses for its past misbehav-ior, including a scandal at the Denver office that involved agency officials and oil company employees having sex and sharing drugs. Bromwich acknowledged accident rates for offshore drilling are several times higher in the United States than in Australia, Canada, Norway and the United Kingdom, in part because those countries imposed effective new rules af-ter major accidents. After the Deepwater Horizon spill, the regulatory agency was broken into parts, dividing the revenue collection office from the oversight division to eliminate conflicts of interest. A series of new rules involving well design, spill re-sponse and environmental review were imposed. Permitting and production were set back months while the industry absorbed the changes. But Bromwich says his agency still lacks the resources, personnel, training, technology, enforcement tools, regula-tions and legislation it needs to do its job properly. He lays a large part of the blame on insufficient financing. The bureau’s budget has been basically flat since it was created in 1982, even as drill-ing activity in the deep-water gulf has drastically increased and the technology has grown more complicated. “Without more resources, we can keep doing what we’re doing, but we can’t grow,” Bromwich said in an inter-view with the IHT during a recruiting trip to nine US West Coast universities, where he was trying to lure young scien-tists and engineers to apply for relatively low-paying government jobs. “We need more people, and we need new people.” Bromwich has asked the Office of Personnel Management to adjust pay schedules so his office can compete with oil companies, which in some cases are paying twice the government salary for petroleum engineers. Obama has asked for an increase of more than US$100 mil-lion to the agency’s roughly $250 million

Regulation of offshore oil rigsis still only a ‘work in progress’

International Resources

By John M. Broder & Clifford Kraus


It’s almost as if the Deepwater Horizon-Macondo well disaster never happened.



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annual budget. Congress provided about half that amount in the short-term bud-get deal reached recently, but discussions have not begun on next year’s budget. The House is considering three bills that would force the agency to move more quickly on drilling permits, to open vast new areas along the Atlantic and Pacific Coasts to drilling and to reopen lease sales that were canceled after the Deepwater Horizon spill. A separate bill would ease environmental rules for drill-ing off the shores of Alaska. “Much of the legislation that I have seen being bandied about, especially with the House Republicans, is almost as if the Deepwater Horizon-Macondo well incident never happened,” Salazar said. “If another Macondo happened and we didn’t have the ability to contain it, it would probably mean the death of ener-gy development in the nation’s oceans.” Employees of the remade agency are candid about its persistent shortcom-ings. At a recent industry-government forum in New Orleans, officials from the Bureau of Ocean Energy Management repeatedly admitted that they could not answer many of the questions and could not account for many of the delays in re-sponding to applications. Valerie Land, regulatory supervi-sor at W & T Offshore, complained that agency officials send back permit plans with questions that have been answered in the applications. Even some simple questions, like whether a blowout pre-

venter would be above or below water, seem to flummox some officials, she said. Michael Tolbert, a senior engineer with the bureau, shrugged and said: “We have a lot of new people looking at the plans.” Randall B. Luthi, a Wyoming ranch-er who was once a congressional aide to Dick Cheney, served as head of the Min-erals Management Service for two years in the administration of then president George W. Bush. He said morale in his former agency is low because of the con-stant charges of corruption and coziness with industry, accusations echoed last year by Obama. Luthi, who now leads an industry group representing offshore drilling contractors, said the new leader-ship has centralized much of the decision making in Washington. The offshore operators Luthi repre-sents are frustrated with the moratorium on deep-water drilling that has only re-cently begun to ease, saying companies which had nothing to do with the BP di-saster believe they ware being indiscrim-inately punished. Although he refrained from criticizing Bromwich directly, Luthi suggested that the new director has been making decisions based on inadequate knowledge and experience. “They have instituted a lot of chang-es that would ordinarily require a year of research,” he said. “Here, Interior was forced to announce the changes and then do the legwork.” The oil and gas industry has, mostly, been cooperating in the regulator’s ef-

forts. Two industry groups helped create systems for capping out-of-control wells like BP’s Macondo, which spewed nearly five million barrels of oil into the gulf over 87 days. The US Interior Department held off granting new deep-water permits until new systems are in place; 10 have been issued since the moratorium was formally lifted in October. An additional 15 deep-water permits are pending. Representative Edward J. Markey, Democrat of Massachusetts, has been equally critical of industry and govern-ment regulators. “We should be requir-ing more of the oil companies to con-tinue deep-water drilling than passable response plans, unreliable blowout pre-venters and a containment system that has only been used once and can’t be deployed past 8,000 feet,” Markey said. Rig inspectors, most of whom are from the same towns and culture as the industry employees they are supposed to police, are trying to adopt a more profes-sional stance and no longer accept free transportation and meals from the rig operators. “They’re bringing their own lunches when they make visits,” said Mark Shus-ter, Shell’s manager for Gulf operations. He described inspections as more ef-fective and comprehensive, but said the agency remains woefully understaffed and apparently lacking in resources to hire enough qualified new talent. “They need experienced people who really do know what they are doing,” he told the IHT. ■

Enforcement agency lacks basic resources< Continued from page 43

International Resources

AMC 9Austhai Geophysical Consultants 13Black Pearl Consultancy 17Blue Cross 2Brunel Technical Services 21, 23Geotech Airborne Geophysical Surveys 25GXD Supply 15

iPrint 29JCL International 19LOMAR – Logistics & Marketing Philippines 31Lycopodium 5McConnell Dowell Back coverMetso 3Monark Equipment 1NZ Oil & Gas Exhibition & Conference 39

Orion Project Services 7Paperless Trail 41Philippine Mining Club 35Philippine Resources Journal 33PNG Resources 37QED – Quest Exploration Drilling Inside front coverSGS – Inside back coverSurtech International 11



philippine resources june-july 2011

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