Philippine Resources Issue2 2014, May-July by PaperlessTrail

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Headlines in this issue

Front cover: Women are filling an increasing role in the resources sector, including Marina Bartolome from Delta Earth Moving.

Resources Commentary

8 “Ronnie” Penarroyo says West Philippines Sea dispute jeopardizes petroleum exploration and development 16 Patricia A. O. Bunye reports that for Diwata, every month is Women’s Month. 20 Pacific Strategies also looks at the South China Sea issue

Economic Commentary

24 Our reporter Maria Paula Tolentino talks to Mabuhay Capital’s Raymond Davis on the state of the markets 30 Philippines Government chasing pot of gold from mining asset sale 4 Philippine Resources

Mining News

33 Oceana Gold achieves record gold production at Didipio 36

Philippine Mining Briefs with Jimbo Gulle

46 Key King-King milestones targeting 2015 construction start-up

Energy News

DOE opens up latest petroleum and coal offer

Editor’s Note

Philippine Resources Mining, Petroleum & Energy Journal May - July 2014 Philippine Resources Journal is published independently for executives in Philippine mining, petroleum and energy and associated business sectors. Publisher Elizabeth Galura Charismatic (WA) Pty Limited Consulting Publisher Greg Brimble Editor Colin Sandell-Hay Sales and Marketing Kevin Lewis kevin@philippine-resources.com and Cecilia Pamular cecille@philippine-resources.com Design/Production Elizabeth Galura Journalists Maria Paula Tolentino Jimbo Gulle Kevin Lewis Steve Hill Contributors Mars Buan Patricia A.O. Bunye Fernando Penarroyo ___ Manila publishing office: Lomar Offices Paseo de Roxas Bldg, 3rd Floor 111 Paseo de Roxas Legaspi Village Makati, Metro Manila, Philippines Phone +632 815 8836 or +632 714 0029 ___ Individual contacts Greg Brimble greg@philippine-resources.com Australia: +614 172 20759 Manila: +63949 338 3664 Philippine Resources Journal is printed in Manila by IPrint. Digital online edition www.Philippine-Resources.com

6 Philippine Resources

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China’s maritime push is not the only threat to the Philippines oil and gas sector

here is no doubt that the current disputes over marine boundaries in the South China Sea is a major issue for the Philippine resources sector, particular for the petroleum and fishing industries.

And there is a real fear with China using the veiled threat of its military strength to lay claim on a range of areas contested by many of its Asian neighbours, that this could escalate into a major global issue. The Philippines Government has shown it is not going to back down to China’s aggression, and is using a range of measures to enforce what it believes are its rights under maritime law and to uphold Philippine sovereign rights over its EEZ. And the Philippines has received strong international support for its position, most notably from the USA. Already the country has shown it won’t be passive when it took contol of a Chinese fishing vessel in the Spratly Islands on suspicion its crew was poaching protected turtles species. More recently the Philippines announced to the international petroleum industry that it is offering a number of exploraton opportunities in the disputed areas for oil and gas company bidding through the new PECR5 offer. The nation and industry should support the Government fully in seeking a peaceful and lawful settlement to the dispute with China as it has the potential to significantly dent the country’s attractiveness to international oil and gas investors. However, it is not only the China threat that is a worry for the international oil and gas sector. The country’s global reputation has already taken a major hit after BHP Billiton announced to the world it was pulling out of the SC55 permit off the Palawan coast. While the national government can’t take the blame for the delays in BHP Billiton receiving the Strategic Environmental Plan Clearance (“SEP Clearance”) for SC55 from the Palawan Provincial Council for Sustainable Development (“PCSD”), it is these sorts of occurrences that could potentially have a major impact on the DOE’s marketing of PECR5. In a global marketplace that is skittery around global commodity investment, while at the same time not being convinced in the petroleum prospectivity of the Philippines, we need everyone pulling together to ensure the country doesn’t become left behind.

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Resources Commentary

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West Philippine Sea dispute jeopardizes petroleum exploration and development By Fernando Penarroyo

he West Philippine Sea refers to that part of the South China Sea that President Benigno Simeon C. Aquino III declared as the maritime area on the western side of the Philippine archipelago when he issued on 05 September 2012 Administrative Order No. 29. The area is currently subject to a maritime dispute considered by geopolitical analysts as a key political risk to watch as the Philippines seeks a further credit rating update to attract more foreign direct investments. While the dispute involves six parties (People’s Republic of China, Taiwan, Vietnam, the Philippines, Malaysia and Brunei Darussalam) claiming all or part of the South China Sea, the greatest concern is that the ongoing dispute might break out into armed conflict. Any instability in the region is likely to disrupt economic activities and derail development especially with the involvement of the U.S. if it decides to support its allies against China. Some of the countries involved in the dispute contest each other’s rights to the 200-nautical mile Exclusive Economic Zone (“EEZ”) and an Extended Continental Shelf (“ECS”), citing the United Nations Convention on the Law of the Sea (“UNCLOS”), which took effect in 1994. UNCLOS governs maritime disputes on overlapping maritime zones like overlapping territorial seas, EEZs and ECSs.

Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo Law (fspenarroyo@punopenalaw.com). He specializes in Energy, Resources and Environmental Law, Business Development and Project Finance. 8 Philippine Resources

The Philippines will not surrender claims to its EEZ but it is not capable of confronting China militarily. China demands one-on-one negotiations, but other claimants prefer a multilateral Continued on page 10 >

Resources Commentary < Continued from page 8 approach, which opens the way for an indirect role for the United States, which obviously China doesn’t want. Prior to President Barack Obama’s arrival in Manila on 28 April 2014 for a state visit, the Philippines and the U.S. signed the Enhanced Defense Cooperation Agreement described by both governments as an executive agreement, not a formal treaty and therefore does not require the consent of the Senate in either country. The agreement referred to by President Obama as Washington’s “pivot” to Asia and an “ironclad” commitment to defend the Philippines would provide for U.S. forces to rotate in and out of existing Philippine military bases for missions ranging from narrowly defensive to humanitarian to training of the Philippines’ small, weak military establishment. Both Obama and Aquino, however, were careful not to attribute the agreement directly to China’s claim to the entire South China Sea. 9-Dashed Lines and China’s Historical Rights China officially notified the world of its 9-dashed line claim in 2009 when it submitted the 9-dashed line map to the United Nations Secretary General. Under the so-called 9-dash line map, China claims almost 90% of the South China Sea, which overlaps 80% of the

Philippines’ EEZ and all its ECS in the West Philippine Sea. If China’s claim is upheld, the Philippines will lose the Reed (Recto) Bank and even the strategic Malampaya natural gas field. Manila filed a case to pursue its claims and submitted a 4,000-page memorial seeking a ruling on China’s 9-dashed line from the Permanent Court of Arbitration in The Hague. The case would be the first time international legal experts formally consider the validity of China’s territorial claims in the South China Sea. The Philippines’ arbitration case against China is solely a maritime dispute and does not involve any territorial dispute. Chinese Foreign Ministry spokesman Hong Lei issued a statement on the Philippine request for arbitration and repeated China’s opposition to international arbitration over these issues given China’s preference for “direct negotiations with countries concerned.” Hong argued that, by submitting the case for arbitration, the Philippines was in violation of previous agreements to solve issues bilaterally, including the 2002 ASEAN Declaration on the Conduct of Parties in the South China Sea. China is not expected to submit a counter-claim and participate in the arbitration process making a Philippine victory by default highly probable. However, such a ruling would be nothing but a public relations victory for the Philippines, allowing Manila to claim that its position is internationally sanctioned. Philippine Secretary of Foreign Affairs Albert del Rosario said he does not

May 2014 - July 2014

www.philippine-resources.com May 2014 - July 2014 www.philippine-resources.com expect a ruling on the case before the end of 2015. In an article in the 14 April 2014 issue of Forbes, Singapore senior statesman and former Prime Minister, Lee Kuan Yew doesn’t believe the China will submit its claims, which are based primarily on China’s historical presence in the disputed waters. Lee also believed that China would not allow the dispute to be decided by rules that were defined at a time when China was weak and that it has judged that the U.S. won’t risk its present good relations with China over a dispute between the Philippines and China. Lee added that if historical claims can define jurisdiction over waters and oceans, the Chinese can point to the fact that 600 years ago they sailed these waters unchallenged. Under the general principles and rules of international law, a claim of “historical rights” to internal waters or territorial sea must satisfy four conditions. One, the state must formally announce to the international community such claim to internal waters or territorial sea, clearly specifying the extent and scope of such claim. Two, the state must exercise effective authority, that is, sovereignty, over the waters it claims as its own internal waters or territorial sea. Three, such exercise of effective authority must be continuous over a substantial period of time. Four, other states must recognize, tolerate or acquiesce to the exercise of such authority. China’s defence of its 9-dashed line will entirely depend on how it can convince the international community that it has satisfied these four conditions. Presently, not a single country in the world recognizes or acquiesces to China’s 9-dashed line claim. Petroleum Resources Disputed Areas

the

The ongoing dispute involving among others, the right to explore for and Continued on page 12 > 10 Philippine Resources

Resources Commentary May May2014 2014 --July July 2014

www.philippine-resources.com < Continued from page 10 exploit petroleum, minerals and other marine resources in these zones raises tension in the area, definitely downplaying energy exploration and development interests on the areas currently claimed by the Philippines. The West Philippine Sea is the location of three (3) potential areas where hydrocarbon deposits could be found: Northwest Palawan, Southwest Palawan and Reed (Recto) Bank. Of particular interest is the area of Northwest Palawan, including Reed (Recto) Bank where most of the country’s petroleum production, including the Malampaya natural gas, is sourced from and where the discovery of additional petroleum resources is most likely. According to the Department of Energy (“DOE”) report “Philippine Petroleum Resource Assessment” (2002) the estimated mean volume of the total risked recoverable resources for Northwest Palawan basin is 494 Million bbl (79 Million Sm3) of oil and 9,271 Billion cf (263 Billion Sm3) of gas. Of these total resources, 143 Million bbl (23 Million Sm3) of oil and 3,806 Million cf (108 Billion Sm3) of gas are actually discovered. For the Southwest Palawan basin, the estimated mean volume of the total risked recoverable resources is around

549 Million bbl (87 Million Sm3) of oil, 46% of which comes from mapped structures, and 4,529 Billion cf (128 Billion Sm3) of gas, 24% of which is from mapped structures. For the Reed (Recto) Bank basin, the estimated mean volume of the total risked recoverable resources is around 35 Million bbl (6 Million Sm3) of oil and 2,229 Billion cf (63 Billion Sm3) of gas. The U.S. Geological Survey (“USGS”) came out in 2010 with an assessment of the petroleum potential of the South China Sea including the West Palawan Shelf. According to the “Report on the South China Sea” released by the US Energy Information Agency (“EIA”) on 07 February 2013, the region around the Spratly (Kalayaan) Islands have virtually no proved or probable oil reserves. Industry sources suggest less than 100 billion cubic feet (Bcf) in currently economically viable natural gas reserves exist in surrounding fields. However, the area may contain significant deposits of undiscovered hydrocarbons. USGS assessments estimate anywhere between 0.8 and 5.4 (mean 2.5) billion barrels of oil and between 7.6 and 55.1 (mean 25.5) Tcf of natural gas in undiscovered resources. Most of these undiscovered resources are likely located in the contested Reed

(Recto) Bank, which is also claimed by China, Taiwan, and Vietnam. The Philippines began exploring the area in 1970 and discovered natural gas in 1976. The Philippine government awarded a petroleum service contract to U.S-based Sterling Energy in 2002, which was then acquired by U.K-based Forum Energy in 2005. However, Chinese objections culminating with an incident in the Reed (Recto) Bank on 02 March 2011 when Chinese vessels approached Forum Energy’s ship demanding that it stop all exploration activities and leave the area, prevented the operator from pursuing further activities. Theresa Martelino-Reyes of the VERA Files reported that the state-owned Chinese oil firm, China National Offshore Oil Corp. (“CNOOC”) has rejected the “Farm-in Agreement” proposal of Forum Energy in the disputed Reed (Recto) Bank service contract because of “sovereignty issues” between China and the Philippines. Nevertheless, CNOOC welcomed “innovative” proposals on how it can participate in the service contract. Forum Energy reportedly declared force majeure, which will end on August 2014. Meanwhile, the company released in 2012 its estimate of petroleum resources for the Reed (Recto) Bank. Joint development: An Innovative Proposal? The Arroyo government agreed to a Joint Marine Seismic Undertaking (“JMSU”), which was a tripartite agreement signed on 14 March 2005 between the stateowned oil companies of the Philippines (PNOC), China (CNOOC) and Vietnam (Petrovietnam). Under the JMSU, the parties agreed to conduct a joint seismic survey for three years in an area of the West Philippine Sea including the Spratly (Kalayaan) Islands and Reed (Recto) Bank. However, JMSU did not involve joint development activities. Continued on page 14 >

12 Philippine Resources

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www.philippine-resources.com < Continued from page 12 According to then PNOC President Eduardo Mañalac, JMSU involved “a) a sincere effort on the part of three governments to find common ground for cooperation involving the South China Sea area; b) a desire to materialize this effort in terms of a concrete scientific study, the results of which could be of great value in determining over-all consequences for the region; and, c) a common determination to cement the friendships formed by opening further discussions beyond the JMSU.” Despite the fact that the JMSU agreement provided a provision that maintained that the “signing of this Agreement shall not undermine the basic position held by the Government of each Party on the

South China Sea”, and the DOE issued a “Non-Exclusive Geophysical Permit” on 10 June 2005 to give a legal cover for the other JMSU parties to conduct seismic activities thereby indicating that the Philippine government still continued to exercise jurisdiction over the affected areas, the JMSU was regarded as a “sellout” by the Philippines because it gave China an opportunity to claim access to the Reed (Recto) Bank that had never been disputed before. Intense public opposition to the Arroyo Administration’s role in the JMSU, particularly allegations that tied the JMSU to corruption, caused the agreement to lapse without extension in 2008. (“The West Philippine Sea: The Territorial and Maritime Jurisdiction Disputes from a Filipino Perspective, A Primer”, The

Asian Center and Institute for Maritime Affairs and Law of the Sea, University of the Philippines, 2013) According to Supreme Court Senior Associate Justice Antonio Carpio in his speech given before the Philippine Bar Association on 29 August 2013, China has been dangling to the Philippines and other claimant states its offer for joint development of the disputed areas while shelving the sovereignty issues. However, he mentioned at least three problems to this offer. First, China wants to jointly develop the EEZ of the Philippines but refuses to jointly develop China’s own EEZ. In effect, China is saying to the Philippines,

The waters of the West Philippine Sea are considered to have significant hydrocarbon prospectivity.

14 Philippine Resources

Continued on page 16 >

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Resources Commentary Training May May2014 2014 --July July 2014

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Changing the Game: For Diwata, every month is Women’s Month By Patricia A. O. Bunye

raditionally, International Women’s Day is celebrated on March 8. Its observance is rooted in the efforts of women in the early 20th century to organize themselves to protest low wages, lack of protective legislation and poor working conditions which they were then experiencing. In 1907, women workers in New York City organized demonstrations demanding better pay, shorter working

hours and the right to join a union. In 1909, garment workers in New York went on strike for 13 weeks in what was called “The Rising of the 20,000.” These struggles inspired the German socialist Clara Zetkin to propose the declaration of March 8 as International Women’s Day at the second International Conference of Working Women in 1910. The next year Socialists began organizing marches to commemorate International Women’s Day, which is said to be the inspiration for the general strike which

< Continued from page 14 what is exclusively China’s economic zone is China’s alone, but what is exclusively the Philippines’ economic zone belongs to both China and the Philippines. Second, China’s offer of joint development is subject to the precondition that participating coastal states must first expressly recognize China’s “indisputable sovereignty” under its 9-dashed line claim. This precondition effectively means that once a state agrees to joint development, it must not only vacate any island it possesses in the Spratlys and turn over the same to China, it must also renounce any maritime claim within the 9-dashed line area. This precondition demanded by China is obviously inconsistent with its offer to shelve the sovereignty issue. Third, if the Philippines agrees to China’s joint development offer, the Philippines will in effect give up its exclusive “sovereign rights” to exploit all the living and non-living resources in its own EEZ. The Philippines will also give up its exclusive right to exploit the mineral resources in its own ECS. The bottom line is that China’s joint development offer will negate the maritime entitlements of the Philippines under UNCLOS. This is constitutionally impermissible because our 1987 Constitution mandates the State to “protect the nation’s marine wealth in its xxx exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.” Any joint development with China constitutes a “culpable violation of the Constitution.” For whatever reason the Arroyo government entered into

16 Philippine Resources

began the Russian Revolution in St. Petersburg in 1917 when 10,000 women textile workers demonstrated. In the Philippines, the celebration of International Women’s Day is mandated by: • Proclamation No. 224 s. 1988 declaring the first week of March each year as Women’s Week and March 8 as Women’s Rights and International Peace Day; Continued on page 18 >

the tripartite JMSU agreement, the author believes that it was a major political and diplomatic blunder on the part of the government. I agree with Justice Carpio’s assessment that “the only joint development that is feasible in the Spratlys is for all claimant states to respect each other’s EEZs as guaranteed by UNCLOS and to jointly develop the disputed areas beyond these EEZs.” Conclusion The Western Palawan shelf and the Reed (Recto) Bank are undisputedly part of the Philippine EEZ. In the past, the Philippine government has exercised exclusive “sovereign rights” over the area by awarding petroleum service contracts. In addition to pursuing the arbitration case against China, the government through the DOE should continue offering service contracts in the disputed areas despite opposition from the Chinese government. If the DOE gets intimidated by China and wavers it is a tacit recognition of China’s 9-dashed line historical claim. If needed, the Philippine military should provide protection to contractors while they engage in exploration and development activities in the disputed areas. On the other hand, the energy community must do it share by applying or bidding for service contracts in the West Philippine Sea. While there may be other “commercial” considerations for multinational energy companies when they bid for acreage they should also bear in mind that nothing protects their investment more other than their total support and commitment for the general rules and principles of international law.

Resources Commentary May May2014 2014 --July July 2014

www.philippine-resources.com < Continued from page 16 • Proclamation No. 227 s. 1988 providing for the observance of the Month of March as Women’s Role in History Month; and • Republic Act (RA) 6949 s. 1990 declaring March 8 of every year as National Women’s Day. Diwata-Women in Resource Development, Inc. extended its celebration of Women’s Month to April and May by: (1) co-presenting the Philippine Mining Luncheon on 11 April 2014 with the Philippine Mining Club; and (2) launching its project of the project “Tanging Tanglaw: Turning IP Grandmothers into Solar Engineers” on 08 May 2014. Entitled “Women as Game Changers in Resource Development”, the April 11 luncheon kicked off by recognizing the Daughters of Mining’s “Dirty Dozen”, the first graduates of Mining Engineering from the Mapua Institute of Technology. In November 2013, two of these daughters, Mercedes Suleik and Zorayda Amelia Alonzo, together with Edda Villaluna Henson of the prominent Villaluna mining family, were Diwata’s featured speakers at its forum in Baguio as part of the celebration of the 60th anniversary of the Philippine Mine Safety & Environment Association. This was followed by presentation of the mining primer of TV 5’s multi-episode documentary “Yaman ng Bayan”.

The highlight of the luncheon was a forum featuring three women game changers: Jane Urbanek, Group Community Relations Head, Nickel Asia Corporation; Kathleen Digdigan, Resource Geologist, TVI Resource Development (Phils.) Inc.; and Dr. Geraldine McGuire, Managing Director, Sustainable Solutions Global Pty Ltd, and a member of the Minerals Council of Australia (MCA) Gender Dialogue. Dr. McGuire and was the principal author of the Gender Sensitive Guidelines for Social Investment that MCA produced. Dr. McGuire’s participation marked the first time that a speaker of the Philippine Mining Luncheon appeared, not in person, but via Skype. While the connection was, at times, spotty, Dr. McGuire enthralled her audience with her global perspective. It is envisioned that Diwata will hold more fora with international speakers using Skype and other new technology. On 08 May 2014, Diwata, with its cosponsoring organizations, the Land Rover Club of the Philippines and the Philippine Mine Safety and Environment Association, held a reception to welcome Sanjit “Bunker” Roy, an Indian social activist and educator who founded the Barefoot College and one of Time Magazine’s 100 Most Influential Persons in 2010 for his work in educating illiterate and semi literate rural Indians. The reception served as the launch of the project “Tanging Tanglaw: Turning IP

Grandmothers into Solar Engineers”, which aims to identify illiterate and unskilled rural grandmothers, particularly from indigenous peoples’ communities, for training at the Barefoot College. The policy of the Barefoot College is to take “grandmothers”, from the poorest of villages to teach them skills such as installing, building and repairing solar lamps and water pumps without requiring them to read or write. The training, which lasts 6 months, is fully-funded by the Indian Government under its Indian Technical & Economic Cooperation Programme (ITEC). Bunker explained that grandmothers are targeted for training because they are respected and rooted in the community and “will never leave”. They are also the most committed to caring for and ensuring the wellbeing of their families and communities. More importantly, a grandmother is a mature woman who knows how to get things done. The process of selecting the candidates for the Barefoot College includes visits by Bunker and his team, or by people trained by them, to personally interact with the community. Within thirty minutes of engaging the women, Bunker says they know exactly who is suited to the training. He also relates that when the women leave their communities for the training, it is often “like a funeral” because everyone is sad that they will be parted. However, when the women return, it is like “the resurrection”, not only because the women are reunited with their families, but also because each trainee is profoundly transformed by the experience. With their new skills, the bonds they have formed with women from other countries and cultures (often by just communicating non-verbally and through

Launching project “Tanging Tanglaw”.

18 Philippine Resources

Continued on page 20 >

Resources Commentary May May2014 2014 --July July 2014

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Taking a stand in the South China Sea By Pacific Strategies & Assessments (PSA)

n March 2014, the Philippines submitted its case against China in the South China Sea to a specially appointed arbitration court formed by the United Nations.

The “nine dash line” cuts into the 200mile exclusive economic zones, and in some cases the territorial waters of the Philippines, Vietnam, Malaysia, Brunei, and Indonesia. China has called for oneon-one negotiations with each country, which would give it an advantage due to its size, and economic and political power.

China claims about 90 percent of the South China Sea based on a 1947 map with a series of dashes. This is known as the “nine dash line” and it extends China’s reach to the borders of many of its Southeast Asian neighbors.

Of the affected Southeast Asian countries, only the Philippines has taken its claim to the United Nations for arbitration. China has refused to participate in the United Nations case but it has commented publicly on the proceedings, say-

<Continued from page 18

for Global Strategy and Development of the Barefoot College, and Bunker’s close collaborator, says that the changes are both external and internal.

sign language as they do not have a common language) and the knowledge that they have conquered a world beyond their villages, the women who return are not the same women who left six months before. Meagan Fallone, Head

Not only do the women exude more confidence in themselves, the change is also sometimes physical owing to the work they have had to do. The philosophy of the Barefoot College is anchored on changing world from ground up: one woman at a time, one village at a time. The women selected for the training are exposed to new world of challenges and possibilities and are taught a new technology in practical way, i.e., learning by doing.

Patricia A. O. Bunye is a senior partner at Cruz Marcelo & Tenefrancia and head of its mining and energy practice. She is also President of DiwataWomen in Resource Development, Inc. Questions and comments are welcome at po.bunye@cruzmarcelo.com.

20 Philippine Resources

At the college, they are immersed in a dynamic environment and exposed to many things. Primarily, they learn how to fabricate, install, use, repair and maintain sophisticated solar units through basic knowledge sharing and hands-on practical training. In addition to this, they learn about rainwater harvesting, water testing, candlemaking and other livelihood skills which

ing that the Philippines is being provocative and had previously agreed not to involve third parties in the South China Sea dispute. The case brought by the Philippines states that China is a signatory to United Nations Convention on the Law of the Sea and seeks a ruling that the convention should be applied to the South China Sea. Based on the convention, according to the Philippines, China’s “nine dash line” claim impedes freedom of navigation in international waters and allows Continued on page 22 >

they are expected to teach upon their return to their communities. While the training will be funded by Indian government, the local partners are expected to source funding for the solar equipment for 100 households [which includes a basic package per household of a 40 watt solar panel, 3 LED wall lights, panel frame, wiring, and deep cycle gel sealed battery, 1 large portable lantern with independent charging panel. Each woman trained under the program is expected to be responsible for the installation and maintenance of the solar equipment for 50 households. Judging from the initial response from the audience, which included, among others, industry players, social entrepreneurs, and representatives of government, foundations and NGOs, including the “barefoot doctors” of Sister Eva Fidela Maamo, there is no shortage of candidate communities. The real challenge of funding the local component of this community development model now begins. For more information on this project, please view this link: https://www.ted. com/talks/bunker_roy

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< Continued from page 20 China to exploit marine and other resources in the exclusive economic zones of other countries. The Philippine Department of Foreign Affairs has noted that it will likely take more than a year, and possibly several years, to obtain a ruling from the United Nations arbitration panel. If the Philippines does receive a favorable ruling, the United Nations does not have a mechanism for enforcing its judgment. The South China Sea includes the 15 islands of the Paracel archipelago, 45 islands and numerous reefs and rocks of the Spratly archipelago, the Macclesfield bank and the three islands of the Pratas group, according to the National Security College of The Australian National University. In June 2012, China formally created a new administrative unit under the Province of Hainan, and placed the entire maritime area within the “nine dash line.” In November 2012, Hainan passed a law that requires foreign vessels to obtain China’s permission before entering the waters within the “nine dash line,” and mandates inspection, expulsion and detention of vessels that do not obtain such permission. The law went into effect on January 1, 2013. The “nine dash line” extends to about 50 nautical miles off the northern Philippine island of Luzon and within about 30 nautical miles off the southern island of Palawan, according to the Philippine Department of Foreign Affairs. In total, the South China Sea has about 11 billion barrels of oil and 190 trillion cubic feet of natural gas rated as “proven” or “probable” reserves, according to the US Department of Energy. This is about the amount of proven oil reserves in Mexico and about two-thirds of the proven natural gas reserves in Europe, excluding Russia.

22 Philippine Resources

Most of the proven oil and natural gas fields in the South China Sea are located in uncontested areas close to shorelines, according to the US Department of Energy. Almost no oil and less than 100 billion cubic feet of proven natural gas reserves exist in fields near the disputed areas.

Favorable rulings on these issues could have a broad impact on other claims. If the “nine dash line” is ruled as illegal under international law, it essentially negates China’s claim to most of the South China Sea and pulls its borders back to the 12 mile territorial limit from its coast lines.

The fish catch in the South China Sea has increased from 4.7 million tons in 1994 to 5.6 million tons in 2003, averaging about 5 million tons, according to the University of British Columbia’s Fisheries Center.

Though China will press its claims, other countries will attempt to use the ruling to extract concessions from the Chinese.

The Philippines has taken a far more aggressive position with China over South China Sea territorial disputes than other Southeast Asia claimants. But it has little choice. It arguably has the most to lose among Southeast Asian nations bordering the South China Sea. If China chooses to enforce its “nine dash line,” the Philippines would essentially lose access to the South China Sea and would have to ask the Hainan provincial government for permission to travel more than 30 to 50 miles off its coast. The Philippines does not have the economic power or military might to influence China or its neighbors in negotiations. For now, the United Nations arbitration panel is the Philippines’ best hope, while it works to build its military and grow its economy. The case being made to the United Nations by the Philippines is strategic in that it does not ask the panel to rule on the sovereignty of the disputed areas. It seeks rulings on specific issues, such as whether the United Nations Convention of the Law of the Sea applies in the South China Sea and if the “nine dash line” is valid. It also seeks to establish that the rock outcroppings held by China are not islands and cannot be used to established territorial waters or an exclusive economic zone.

The Philippines is taking a leadership role in Southeast Asia by seeking to clarify these broad legal principles in the South China Sea. It might be doing it due to a lack of other options, but nonetheless it is providing a service to all other claimants in the region. The Philippines might pay a price for taking such a bold stand against China, but the alternative – losing access to vast waters and resources off its western coast – would be worse.

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Economic Commentary May2014 2014 --July July 2014 May

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Market Views: Markets and mining sector insights from a seasoned investment banker By Maria Paula Tolentino

ith the inevitable rise and fall of investment and commodity markets, has the Philippine mining industry taken a turn for the worse? The Philippine Resources Journal sat down with investment banker and Mabuhay Capital Corporation Chairman, Raymond Davis, to discuss his take on the current mining situation and if potential investors should be thinking twice before investing in another mine.

PRJ:Hi Ray,as an intro,can you please tell us a little bit about Mabuhay Capital and your involvement with the mining sector? RD: Mabuhay Capital is a generalist investment bank. The Philippines is such a small country that a firm like ours cannot concentrate on one sector, such as mining. For example, in the past year, we’ve raised money for a thrift bank, we’ve been involved in the acquisition of the Royal Pasta brand on behalf of RFM and

we were active as advisors to certain shareholders in the acquisition by First Pacific of shares of Roxas Holdings. We raised money for Vitarich Corporation to buy out their banks and exit Rehabilitation. We helped Pascual Laboratories restructure their ownership and also worked with the SEC on capital market development under an ADB contract In mining, this past year, we worked to raise money and otherwise represent the controling shareholders of Apex Mining Inc. in Mindanao. We also spent some time looking for a buyer for Brixton Energy Corp, after they had shut down their coal mining operations in Zamboanga Sibugay. In recent years, we have represented some of the nickel mining companies in attempting to raise capital. PRJ: How is the state of the equity market here in the Philippines? RD: Well, the equity market has grown a lot in the Philippines., in terms of both liquidity and value. The market currently has gone up. It reached a peak about a year ago in May and since declined and more recently has recovered substantially. If you look at it in terms of relative performance, the Philippine stock market is one of the best performing markets in Asia and more broadly, in the emerging markets. Hans Sicat, the Chairman of the PSE (Philippine Stock Exchange), has done a very good job of broadening and strengthening the market.

Mabuhay Capital Corporation Chairman Raymond Davis.

24 Philippine Resources

They’ve made some reforms in terms of assisting the underwriters by limiting the response time for the preferential

allocation of IPO shares to small brokers. I met with the SEC (Securities & Exchange Commission) last week and they are adopting one of our recommendations to lengthen the period in which Audited Financial Statements can be used in an underwriting. This will set a standard locally that conforms with those of other ASEAN nations. This is part of our work under the ADB (Asian Development Bank) project where we studied how capital markets regulation and practice differs in The Philippines from other ASEAN nations. PRJ: How is the Philippines capital markets any different from all of the other ASEAN markets? RD: Well, I think the one difference that is quite notable is the listed corporate debt market. As a percentage of total debt, listed corporate debt here is the lowest in Asia. Looking at Malaysia 40% of the issuance of Malaysia is listed corporate debt. In the Philippines, it’s about 13%, although it’s increased a little bit lately. This is partially due to the way debt is taxed differently here depending on the number of holders. But there are some signs of improvement. Trading fees here are high, which reduces liquidity, but the merger of the SEC and PDEx (Philippines Dealer Exchange) will help. There has also been a lengthening of the maturity of corporate debt issues. If you go back even two years ago, we didn’t have issuances that were longer than 10 years, but Philippine Corporates have done some longer term issuances in the last two years. This will benefit infrastructure and some of the other Continued on page 26 >

Economic Commentary May May2014 2014 --July July 2014

www.philippine-resources.com < Continued from page 24

industries with long life assets such as power . PRJ: You mentioned that debt markets can be more important than equity markets, why is that? RD: Once you raise common equity, it’s there forever unless you redeem it for some reason. It’s permanent capital. But debt has a finite life, so you have to replenish your debt. If you have a one year offering or a one year bank loan, a year later you would have to issue new debt or borrow from the bank. So you would have to keep going back to the bank or the bond market for financing. PRJ: What are the 2013 and 2014 trends when it comes to mining and metals? RD: We are not in the kind of bull market for metals we were in seven years ago which has now diminshed. A lot of it was driven by the industrial demand from China. China is in the process of changing its economy over from a manufacturing based, mercantilistic type of economy to more of a service economy. So the earlier policies of building infrastructure, more factories and exporting more stainless steel products to the rest of the world is not how China will grow

in the future. If you go back 10-15 years ago, China was probably 5% of the nickel market in terms of the demand, whereas today, it’s grown to probably 40% but its market share will not continue growing.

monetary policy in 1981 to fight inflation, gold prices suddenly collapsed. We’ve seen gold peak at 1,700 plus per ounce and trend back down, now to the 1,200 range (in rough numbers).

In the last couple of months we’ve seen a little uptick in nickel and copper prices and those have been driven by unrest in Ukraine.

PRJ: Do you think China is a threat to Philippine mining?

And some feel that perhaps, the Western powers are going to put more sanctions on Russia and prohibit the export of nickel and imports to the US and Europe from Russia. In some regards the most important short term factor in price may be how long this whole Russia-Ukraine situation festers. If it worsens it can have a significant, short term impact on at least copper and nickel prices in terms of industrial metal. It can also affect gold prices, although gold is seen differently, more as a stored value. People buy gold when they’re worried about inflation. Right now inflation worldwide is very muted. We have excess capacity in production and labor supply. So the kind of supply side driven inflation that we saw back in the late 70’s that pushed up the price of gold into 1981, is not here today. We should always keep in mind that when the Federal Reserve tightened

RD: Not at all. China will continue to be a large buyer of Philippines ores despite all of the issues over the South China Sea. PRJ: Are your clients in mining seeing this trend between China & Ukraine? RD: The Ukraine unrest is positive in the short run. Actually, the thing that’s benefitted the local nickel industry is that as of January 12, Indonesia has now prohibited exports of unprocessed ores which means that there is more demand from China for laterite ore from the Philippines. So in that sense, the Philippines is the beneficiary of Indonesia’s policy. The Indonesians are trying to force investment in smelters and other processing plants. Hopefully that will not happen here. By the way, the World Bank Economists criticized the Indonesian policy as being misguided. PRJ: Is there a light at the end of the tunnel for mining companies trying to raise capital? RD: I think it’s a function of investors’ outlook for that particular company and both its resources and prospects. I think a well run company that has a low operating cost relative to the current price of its commodity certainly can raise capital. Equity investors tend to look at the future and if they don’t feel that prices are going up in the near turn, then its difficult to sell equity at a full price unless you have positive cash flow in the company and the equity investors are comfortable with the return on invested capital. PRJ: From an investors perspective, how can we recognize value in such volatile conditions? Continued on page 28 >

26 Philippine Resources

Community Resources May May2014 2014 --July July 2014

www.philippine-resources.com

Philippine Resources reaching out to support the local community

hilippine Resources is always proud to publicise the fantastic support the mining and oil and gas sector provides to those in need or affected by natural disaster. This time we very proud to report on a project we have played a lead role in helping to improve the lives of junior school children in a remote area of Cebu. The Bunlan Elementary School in the far south of the Philippine island of Cebu, was hit by super typhoon “Yolanda” and the massive 2013 earthquakes that also

hit the region in close succession, damaging the only school building. Philippine Resources Editor, Colin Sandell-Hay, and his wife Evelyn (who went to the school 30 years earlier) made enquiries into how they could assist ion having the damage repaired. They soon found that the natural disaster damage was just a small part of the problem. Things had not changed a great deal at the school since Evelyn had been there, except that now the teachers were trying to fit around 500 children into that one building. This forced the children to attend school in short shifts, with a number of children not being able to attend at all.

< Continued from page 26 RD: If you have a reasonable spread between your operating cost and the price of the commodity, you can hedge. You can use the exchange in London, The London Metals Exchange (LME) to hedge your production. So you can sell production forward at a specific price and earn a spread return. However, if metal prices suddenly shoot up, you don’t get the benefit of that big uptick. Hedging depends on your appetite for risk and wether your shareholders understand that if the price goes up income remains flat and value remains constant. If you are risk averse and you have a very productive, high quality and low cost mine, you can hedge and you can sleep at night PRJ: What should a mining

28 Philippine Resources

Colin and Evelyn elected to establish a campaign to raise funds to build a new classroom. To say the children, teachers and community in Bunlan were excited at the opportunity this would bring is a major understatement. The target to build the new school building and furniture was $9500 and with generous personal donations from Philippine Resources, Professional Public Relations (PPR) in Perth and PPR clients Muzz Buzz and Titan Energy and media groupsEnergy Publications, a large portion of the funding target had been reached by the time construction began in May. A big village celebration for the 500 children and the local community is scheduled for early June when the new building will be officially opened. It will be attended by Colin and Evelyn.

With strong backing from Philippine Resources Publisher Elizabeth Galura and Consulting Publisher Greg Brimble,

Thanks to the generous support of Philippine Resources and others, these children will really have a chance to improve their future opportunities.

company operator or investor do at this time?

unique characteristics investors.

RD: I think if you are a mining company CEO, you should be focusing on improving your operations and lowering your operating costs while global metals prices are depressed. And if you are really need capital, you should look for a strategic investor that will take a long term view, and expect that your valuation may be a bit low. Which would be the kind of role Mabuhay would perform. Possibly we could also help arrange bank funding for capex that would improve operating costs.

If you are a mining investor, you should be looking for low cost mines. Or mines where the cost can be reduced substantially by new capital relative to the cost of investment.

If you need additional capital and your resource is a long time from production, you probably should consider putting things on hold unless your mine has

attractive

Mr. Raymond Davis, Chairman and Principal of Mabuhay Capital Corporation, is a senior investment banker with international Mergers & Acquisitions and Restructuring expertise and a distinguished track record in completing complextransactions, particularly in situations involving troubled companies. Mr. Davis, a licensed mechanical engineer, has earned his MBA at Temple University and has a Doctorate in Finance from Indiana University Bloomington.

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Community Resources May May2014 2014 --July July 2014

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Philippines Government chasing pot of gold from mining asset sale By Jimbo Gulle

he Philippine Government is keen on raising P2 billion (about $50 million) yearly by selling its land and mining assets this year, according to a Department of Finance (DOF) official, even as the Chamber of Mines of the Philippines (COMP) proposed that mining firms take over abandoned mines to help rehabiliate them.

“The private sector is more than willing to take on the challenge of rehabilitating abandoned mines. Government just needs to allow it to be a viable business proposition” Recidoro said in a Manila Standard Today report. From the 1960s up to the early 1990s, 31 large-scale mines have shut down prematurely, owing largely to poor metals prices. Of the 31 sites, 16 are

New Finance Undersecretary Jose Emmanuel Reverente said the Aquino administration is “embarking on an aggressive privatization program” with at least nine government assets already identified for disposal until 2016, according to a Philippine Star report.

“So once we have proper valuations we can tell the market now we have what we call a reserve price. Our goal is to have the valuation exercise completed at the end of the year,” he added. Reverente said the government may also sell shares in some mining companies, which include Semirara Mining Corp. and the Nonoc Nickel Mine in Surigao City. “We have not made a determination whether we will sell it or not. We have about 0.2 percent, it’s not a market mover,” he said. “In some areas there are informal settlers, but it’s valuable land, so we have to work on that.”

“I’m working with the Privatization Management Office (PMO, under the DOF) to dispose of more government assets this year. We want to support the government’s revenue efforts. We plan to raise P2 billion a year up to the end of President Aquino’s term in 2016,” Reverente said. Although he refused to name the assets, the finance official said they could include military camps and that the DOF was already consulting with the Armed Forces of the Philippines (AFP) and the Bases Conversion Development Authority (BCDA) regarding their possible sale.

under initial assessment, and only one site -- the old Bagacay Mines in Samar -is undergoing actual rehabilitation, Mines and Geosciences Bureau (MGB) Director Leo Jasareno told the congressional committee.

Meanwhile, in hearings of the House of Representatives’ Committee on Natural Resources, COMP vice president for policy Atty. Ronald Recidoro proposed that funding for rehabilitation efforts of the country’s abandoned mines “need not come from public coffers.”

In a GMA News Online report, Reverente said the sale of these government assets hit some snags as they had yet to be properly valued or had no current fair market value, and squatters had occupied some of the properties.

30 Philippine Resources

“Some of the assets, if not all, have outdated valuations. So that’s why we’re working with transaction advisers to determine the value of those assets. And that’s the first step, so this is like the PPP (public-private partnership) center doing a project feasibility,” Reverente said.

Hitting snags

In Congress, before going on recess, the Committee on Natural Resources deliberated on House Resolution Nos. 397 and 627, both calling for an inquiry into the status of abandoned, inactive, and closed mines in the Philippines, with the end view of finding suitable remedial actions to finally rehabilitate these mines and bring them back for other productive uses. Jasareno said the MGB has already spent close to P150 million in rehabilitating the Bagacay mine site, with one-third of the amount coming from a loan from the Australian government. The rest was funded through appropriations, he added. Continued on page 32 >

Mineral Resources

May2014 2014 --July July 2014 May

www.philippine-resources.com

Philippines receives good return from minerals sales in 2013

he production value of Philippine metallic minerals rose about quarter of a percent in 2013 compared to the previous year, as higher production output from new and revived mines offset a drop in world metals prices, the Mines and Geosciences Bureau (MGB) reported in April. Total production value reached P99.33 billion as of end-2013, about P298 million better than the year before, the MGB said.

< Continued from page 30 Many of the abandoned mines, like Bagacay, Batong Buhay Gold and CDCBasay, are under the control of the PMO-taken over when the private contractor defaulted and the banks called on the government’s guarantee. While the PMO has plans to reopen the mines under its control, progress has been slow—to the detriment of the government and the impacted communities, the Standard Today report said. COMP proposals Recidoro recommended to the committee “the immediate cancellation of all prior mining rights or contracts over abandoned mines” and, upon identification and recommendation by the MGB, “reopen these sites for mining application, without prejudice to any legal action for breach of contract or damages that the national government may have against the contractor that abandoned the project.” “The MGB must conduct scoping studies of all abandoned mines and mineral processing impact areas to create an inventory list of abandoned mines, define the costs and risks, and develop a rehabilitation program to mitigate observed and potential threats to human 32 Philippine Resources

The Didipio gold-copper mine run by Oceana Gold Philippines in Nueva Vizcaya, the Teresa Gold Project of Lepanto in Benguet, and Taganito Mining’s High Pressure Acid Leach (HPAL) plant, among others, helped enhance the country’s mineral output last year, it added. Nickel sulphides, gold and copper made up almost 97 percent of minerals produced in the Philippines, with silver, zinc, chromite and iron ore making up the remaining 3.52 percent.

Nickel direct shipping ore and sulfides accounted for 41.31 percent, or P41.04 billion (about US$940 million), of the total production value, the mines bureau Continued on page 34 >

health and the environment,” the COMP official said.

borrow from international lenders to fix the problem, COMP added.

“Mine site rehabilitation plans must aim to establish a land use capability that is functional and proximate to the land use prior to the disturbance of the mine area, unless other more beneficial land uses are predetermined and agreed in partnership with local communities and LGUs,” he added.

The scheme “is essentially a PublicPrivate Partnership for the rehabilitation of abandoned mines,” Recidoro said. “An effective partnership can do a lot in dealing with the difficult issues posed by abandoned mine sites, including pollution/ contamination, land ownership, liability issues, overlapping jurisdictions, and long-term management considerations.”

The challenge for government, COMP said, is to come up with a funding mechanism for a rehabilitation program that can address the environmental and social issues posed by orphaned or abandoned mines. Tapping the mines’ mineral potential remains to be the most practical option. In instances where the abandoned mine still has a viable ore deposit, the remaining minerals from the mine or its waste can be extracted to fund the mine’s final decommissioning and rehabilitation, the Chamber said. A fixed percentage of the mining revenues—agreed upon under a coproduction or joint venture agreement— must be set aside to fund the Final Mine Rehabilitation and Decommissioning Plan (FMRDP). If implemented, government will not need to spend public funds or

So-called PPPs “can also facilitate the design of clean-up and rehabilitation strategies that address the social and environmental concerns raised by government and critics of the mining industry,” the Chamber added. COMP also noted that for all the perceived dangers posed by abandoned mines, “people living in the vicinity of these mines still favor their reopening.” “These mines had provided employment for residents of the host communities when they were in operation, as well as for those in nearby areas. Mining companies were seen as stable sources of income compared to farming and fishing, which were among the more common means of livelihood of towns that also had mining sites,” the Chamber said.

May 2014 2014 -- July July2014 2014 May

Mineral Resources

www.philippine-resources.com

OceanaGold achieves record gold production at Didipio

ceanaGold Corporation has reported record quarterly gold production of 30,480 ounces along with copper production of 6,479 tonnes at its Didipio operations on Luzon. In the first quarter the company made four shipments of copper gold concentrate totalling 30,152 dry metric tonnes to markets in Asia. Debottlenecking of the process plant to achieve the planned 3.5 Mtpa throughput rate is advancing well

and on schedule for completion by the end of the year. The company also reported it had received the support and official consent from the National Commission of Indigenous Peoples (“NCIP”) to conduct exploration activities at the Mayag tenement in northern Mindanao. This was a major milestone for the company as it demonstrated the successful completion of its free and prior informed consent process with the local indigenous groups and brings the Company closer to receiving exploration permits for its Mayag tenement. Mick Wilkes, OceanaGold’s Managing Director and CEO, said the Didipio process plant is well on track to increase throughput rates to 3.5 Mtpa by the end of the year and will continue generating strong free cash flows for the company.

Kevin Lewis (Philippine Resources), Jocelyn Velarde (Resource Advisors), Brad Norman, Country Manager, OceanaGold, and Anthony Weymouth, Austrade. During the quarter OceanGold reported that,the Didipio Proven and Probable reserves have decreased slightly since last year and stand at 45.6 Mt @ 1.09 g/t Au and 0.46% Cu for 1.59 Moz of gold and 0.21 Mt of copper. The decrease Continued on following page >

Philippine Resources 33

Mineral Resources May2014 2014 --July July 2014 May

www.philippine-resources.com

< Continued from page 32 said. Gold made up 32.66 percent, or P32.44 billion (about $740 million), while copper’s slice of the pie came in at 22.51 percent or PhP22.36 billion ($510 million). The collective production values of the other metals reached P3.5 billion (about $80 million), the MGB added. The bureau does not count nonmetallic minerals like coal in its annual report. Copper concentrate output went up 40 percent and gold was up 18 percent from 2012, the bureau added. Nickel sulfides increased by 10 percent but nickel direct shipping ores (DSO) went up just one percent, as output in iron ore decreased 31 percent, as well as chromite (-29 percent), silver (-19 percent) and zinc (-7 percent). MGB credited Oceana Gold’s Didipio project coming onstream in 2013 for the country’s increased gold output. The Nueva Vizcaya mine reported reported an output of 2,069 kilograms with an estimated value of P3.83 billion (about $90 million). Oceana Gold was the first company granted an FTAA (Financial or Technical Assistance Agreement) mining license by the government in June 1994. Didipio, a gold-copper mine, is has an estimated 34.82 million metric tons of ore reserve with a grade of 1.7 grams/ton gold and 0.56 percent copper. MGB also cited the comeback of the Teresa Gold Project of Lepanto Consolidated Mining Corp. in Benguet province to the gold production stream in March last year. Its total production volume grew by 18 percent, from 14,596 kilograms in 2012 to 17,248 kilograms, the bureau added. Nickel output was practically flat despite the debut in October of Taganito’s HPAL plant in Claver, Surigao del Norte. Using limonite as its raw material, the plant can produce 30,000 tons of nickel and 2,640

34 Philippine Resources

tons of cobalt as mixed sulfide annually, MGB noted. Taganito’s saprolite and limonite deposits are suitable for the HPAL process, and its 80 million dry metric tons of reserves are “enough to sustain production at its planned capacity for a period of 26 years,” the bureau said. Some mines did have disruptions or had no operations in 2013, either due to suspended operations, repairs of its tailings storage dams, or weather-related conditions. The MGB said they were: • The Leyte Magnetite Project of Leyte Iron Sand Corp. in Leyte Province; • The Homonhon Nickel Project of Cambayas Mining Corp. in Samar Province;

mineral ores will “push mining companies to build smelters,” which in turn will “have an impact on the global patterns of supply, demand and metal prices, particularly nickel.” “Based on the records of the United States Geological Survey Mineral Commodity Summaries 2013, the top mine producers of nickel in 2012 were Philippines and Indonesia. Both countries export most of their nickel to China,” the MGB said.

• The Paracale Gold Project of Johson Gold Mining Corp. in Camarines Norte; • The Nonoc Nickel Project of Shuley Mines Inc./Pacific Nickel Philippines Inc. in Surigao Del Norte; and • The H.Y. Nickel-Chromite Project of Sinosteel Philippines H.Y. Mining Corp. in Dinagat Island. The bureau did note the “less attractive” metals prices in 2013, as “they all recorded negative movements” during the year. “The average price of gold went down by 15.19 percent, from US$1,669.71 per troy ounce in 2012 to US$1,416.10 per troy ounce in 2013,” its report said. Nickel prices likewise declined by 15.20 percent, from $7.99 per pound to $6.78 per pound. “Analysts say gold will march around the $1,200 per troy ounce level in 2014, and further foresee silver outperforming gold, basically because of the latter’s various industrial uses, which augur well because of the improving global economic activity,” the MGB said. For the bigger picture, the bureau said Indonesia’s recent ban on exporting

< Continued from previous page is mainly due to the depletion from open pit mining as a result of commencement of commercial production during 2013 and the lifting of the open pit cut-off grade from 0.50 g/t AuEq to 0.55g/t AuEq. OceanaGold acquired the Didipio Project located ~270 kilometres in Luzon Island, northern Philippines through the merger with Climax Mining in November 2006. Construction recommenced in June 2011 and commerical production declared as at April 1, 2013. The Didipio FTAA-001 straddles a mountainous region between the provinces of Nueva Vizcaya and Quirino in Northern Luzon ~270km north of Manila. Approximately 30 gold-copper prospects are known within the FTAA which have had varying levels of exploration over past years.

Mining Briefs May May2014 2014 --July July 2014

www.philippine-resources.com

Philippine mining briefs - with Jimbo Gulle MGB tells DENR to cancel 43 MPSAs

prices, but do not actually develop their MPSAs.

The Mines and Geosciences Bureau (MGB) has recommended to the Department of Environment and Natural Resources (DENR) that it cancel 43 mineral production sharing agreements (MPSA) for failure of the mining rights holders to conduct the minimum work requirements in their respective tenements.

The government wants to attract serious investors who would effectively utilize the country’s mineral resources, according to a Philippine Star report.

As it announced on its website, the MGB said some MPSA contractors failed to implement their exploration work programs in their tenements for two consecutive years. The exploration permits for other tenement holders had already expired, some for more than five years. Multi-stakeholder teams (MSTs) under the MGB made the initial performance reviews of all existing mining operations in the country, the bureau said in a statement. MSTs were created based on the provisions of Executive Order No. 79 to review the status of mining tenements in the country. An MST is composed of representatives from the regional offices of the DENR, Department of Labor and Employment (DOLE), Department of Interior and Local Government (DENR), Department of Science and Technology (DOST), Department of Agriculture (DA), Department of Agrarian Reform (DAR), Department of Social Welfare and Development (DSWD), National Commission on Indigenous Peoples, and local government units. EO 79 mandates the review of the performance of existing mining operations for compliance to environmental standards and the “cleansing of nonmoving mining projects.” Since 2013, the MGB has tightened regulations for accepting applications for new mining permits in an effort to weed out speculators and investors who hold on to their permits to influence stock

36 Philippine Resources

wwww Strong mining growth in 2013 Investments in the Philippine mining sector grew 61.4 percent to $1.311 billion in 2013, exceeding government targets, as mining firms continued to spend on existing mining projects and potential big-ticket projects that are still in the pre-development stage, the Mines and Geosciences Bureau (MGB) reported. The total last year was 60 percent higher than the 2013 target of $817.58 million and actual investments of $812.5 million in 2012, the MGB said. “These are all continuing investments, no new investments were made last year,” MGB Director Leo Jasareno said in a Philippine Star report, noting that for 2014, miners are expected to invest a total of $1.324 billion. Bulk of the investments last year went to the Palawan HPAL (High Pressure Acid Leach) nickel processing plant project of Coral Bay Nickel Corp., a joint venture of Japanese firms Sumitomo Metal Mining Co., Mitsui & Co., Sojitz Corp., and Filipino firm Rio Tuba Nickel Mining Corp. Other recipients were the Canatuan silver-gold project of TVI Resource Development Philippines. (TVIRD), the Teresa Gold Project of Lepanto Consolidated Mining, nickel projects of Surigao Integrated Resources Co. in Surigao del Norte, the Philsaga Co-o Gold Project of Philsaga Mining Corp., the Toledo Copper Project of Atlas Mining and Development Corp., and the Didipio copper-gold project of Oceanagold Corp.

Investments in the pre-development work for projects that are in the feasibility stage also continued, such as for the proposed Tampakan copper-gold project of Sagittarius Mines, Inc., the Silangan Copper Project of Philex Mining Corp., Far Southeast Gold Project of Lepanto, King-King copper-gold project of St. Augustine Copper and Gold Ltd., and the Agata copper-gold-nickel project of TVIRD. The moratorium on the granting of new mining contracts remains until a law providing for a new revenue sharing scheme between the government and mining companies is passed. wwww PSE halts trading on Marcventures stock The Philippine Stock Exchange (PSE) halted trading on Marcventures Holdings Inc. stock on April 29 pending its disclosure of additional information on the suspension of its subsidiary’s mining operations in Surigao del Sur. Earlier that day, the PSE imposed a one-hour trading halt on Marcventures’ shares that expired at 10 a.m. The local bourse stopped trades anew at 1:30 p.m. Before the halt, Marcventures shares were trading at P4.25 apiece, down 2.52 percent from its previous close of P4.36 apiece on April 28. The week before that, the Mines and Geosciences Bureau (MGB) ordered Marcventures Mining and Development Corp. (MMDC), a wholly owned unit of the listed firm, to shut down operations for mining outside its approved area, Interaksyon.com reported. MMDC holds a mineral production sharing agreement for a 4,799-hectare tenement located in Cantilan, Surigao del Sur. However, a multi-disciplinary team from the MGB found that the company was mining in Carracas town, which is outside its approved mining area. Continued on opposite page >

May 2014 May 2014 -- July July2014 2014

www.philippine-resources.com < Continued from opposite page Marcventures had asked the PSE to suspend trading on its shares to protect its shareholders while it resolves the issue with MGB. The holding firm’s earnings surged 788 percent to P1.02 billion last year as higher ore shipment volume and improving cost structure offset softer nickel prices. wwww ECR Minerals ends initial drilling at Itogon ECR Minerals announced that the initial phase of reverse circulation (RC) drilling at its Itogon gold-silver project in Benguet province has been completed. Assay results from this phase of drilling are expected to be available by the end of May, along with assay results

from underground sampling “within an extensive exploration tunnel developed by a former operator of the project and referred to in previous announcements,” the company said in a statement. Assay results from surface channel sampling at Itogon are expected to be available early next month. Stephen Clayson, chief executive officer of ECR, said: “The initial phase of drilling at the Itogon project has been completed smoothly and we look forward to receiving the assay results, along with those from the other exploration programmes.” ECR’s operations at Itogon “will soon start to bear fruit in terms of significant data,” Clayson added, which will provide “important indications as to whether the potential of the project is as substantial as we currently believe.”

wwww Surigao del Sur stops issuing small-scale mining permits Surigao del Sur has stopped issuing regular permits for small-scale mining as early as March in line with Executive Order No. 79, but the provincial government is still allowed to issue temporary permits as Minahan ng Bayan applications are being processed. Edgar Valentin, chief of the Provincial Environment and Natural Resources Office (PENRO), told the Philippine Information Agency that all small-scale mining applications will have to comply with Section 11 of EO 79. Section 11 tells local governments to comply to Republic Act 7076 or the Continued on following page >

Philippine Resources 37

Mining Briefs May2014 2014 --July July 2014 May

www.philippine-resources.com < Continued from opposite page People’s Small Scale Mining Act of 1991 and the Environmental Impact Statement System Requirement under Presidential Decree 1586. These laws state that small scale mining can only be done within a Minahan ng Bayan area and only for nonmetallic minerals except gold, silver and chromite. Valentin did note that Provincial Resolution No. 786, series of 2012 states that while the application for Minahan Ng Bayan is under process, the governor is authorized under certain grounds and conditions to issue a temporary permit. Surigao del Sur has only one pending application for the Bongkuan Minahan Ng Katutubo based in San Miguel town, he added. wwww Red Mountain begins Batangas DFS

Drilling for metallurgical bulk samples and geotechnical studies has been completed, with very promising gold intersection assay results, released 6 May 2014. Metallurgical composite samples will be dispatched for further, larger scale testing shortly. The Company also intends to incorporate the results of this drilling into an upgraded mineral resource to be reported in accordance with the JORC Code, 2012 edition.

Inquirer. “Illegal mining operators have been known to ignore environmental regulations and even employ child labor in the most hazardous conditions.”

The DFS follows on from the recent Scoping Study (released 20 March 2014), that demonstrated potential for a strongly viable gold mining and processing project. This was based on open pit mining and carbon in leach (CIL) processing of existing, high grade gold resources, recovering over 90,000 ounces of gold and generating free cash flow after pre-production capital of A$16.7m of approximately A$40m over the initial 4.5 year mine life (assumes gold price of AUD$1,500/oz, A$:US$ 0.90).

“But we are losing this much-needed asset to irresponsible mining practices and smuggling,” David said.

wwww Red Mountain Mining Limited has officially commenced the Definitive Feasibility Study (DFS) on the Batangas Gold Project, located 120km south of Manila. Perth, Western Australia based Como Engineers have been appointed to manage the DFS, the metallurgical program and the process engineering with the objective of completing final design for the construction of a mining and processing operation at the Batangas Gold Project by December 2014. Como Engineers has significant experience in taking gold mining projects through the study phases to final engineered design and construction and specialise in modular gold plants that may be constructed off-site and easily installed. Appointments to complete other aspects of the DFS will be made in consultation with Barry Clout, Managing Director of Como Engineers. These will include metallurgical testing, geotechnical, residue storage systems, mine planning, civil engineering/infrastructure, environmental and financial modelling.

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Review of small-scale mining called for The Government should revise laws governing small-scale mining, particularly Republic Act No. 7076 as better regulations would help the industry develop, a pro-business group said. The Philippine Business for Environmental Stewardship (PBEST), in a statement, said amendments to RA 7076 or the People’s Small Scale Mining Act of 1991 “would also ensure environmental protection and mine safety.” PBEST convenor Carlos Primo David said the small-scale mining industry has a role to play in both subsistence mining and the development of mining as a municipal or village-scale industry. Unregulated small-scale mining also poses dangers to the miners themselves, as well as the broader environment, the statement added. “Rampant illegal small-scale mining activities is a serious environmental risk in areas where these activities are being tolerated,” David told the Philippine Daily

Citing data from the Mines and Geosciences Bureau, the PBEST head said small-scale mining produces about half of the country’s gold output and is the biggest source of gold reserves of the Bangko Sentral ng Pilipinas.

Geologically, mineral resources such as small nickel laterite deposits, thin or boxwork gold veins, alluvial gold panning, clay and gemstones, may only be economically feasible to develop at a smaller scale, he explained. Local communities would directly benefit from a properly regulated mining industry in terms of taxes worth millions of pesos, which could be channeled to infrastructure, health services and education, David said. Leaving small-scale mining to illegal operators “will mean hundreds of millions of pesos in unpaid taxes, the unnecessary loss of lives and permanent damage to the environment,” he added. RA 7076 and its implementing rules and regulations contained the necessary provisions pertaining to small-scale mining, PBEST said. The law also promotes small-scale mining and provides guidelines for environmental protection and mine safety. Certain provisions in RA 7076 can be improved or replaced in order to make small-scale mining operations compliant with the law and ensure environmental protection, the group added. Provincial, municipal or city mining regulatory boards, may not be able to perform the necessary environmental monitoring, PBEST noted. Also, “they may not be empowered with the necessary police powers and enough Continued on page 40 >

Mining Briefs

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www.philippine-resources.com < Continued from page 38 jurisdiction to operations.”

regulate

small-scale

Presidential Decree 1899 granted authority to local government units to issue small-scale mining permits, but the Provincial or City Mining Regulatory Board had the power, under RA 7076, to oversee the operations, David noted. This has led to conflict and confusion, and must be resolved with finality with the repeal of PD 1899, he added. “We shall actively push for these reforms in both houses of Congress and with the relevant government agencies” such as the MGB and the Department of Environment and Natural Resources, David said. PBEST works in partnership with the business sector, academe and civil society to promote developmental policies and advocate good governance to ensure “responsible stewardship” of the environment as a requisite in the operations of all industries. wwww MTD hopeful of sponge iron potential The Philippines Metallurgical Technology Division (MTD) is hoping new studies may lead to the creation and development of downstream industries for the local iron ores where there has been a strong increase in demand foor pre-reduced iron pellets or sponge iron. The initial phase of the study utilizing local iron ores (fine magnetite) in the production of sponge iron, an important input to the steel making sector, was recently successfully conducted by the MTD. The initial phase of the research produced partially reduced iron where about 95% of the magnetite (Fe3O4) content of the samples was converted to hematite (Fe2O3). Further tests are being conducted using electrically operated laboratory kiln to define the right combination of the operating parameters: temperature, mass flow rate and charcoal addition. 40 Philippine Resources

The initial phase of the study involved grinding, screening, magnetic separation, gravity concentration, pelletizing, reduction and Chemical/XRF/XRD analyses. The results of mineral processing tests showed that magnetite ore (16%-35% Fe) can be upgraded to 58% Fe magnetite concentrate using gravity and magnetic separation. The next phase of the research is to subject the pre-reduced hematite pellets to smelting process to produce sponge iron. This will be conducted in collaboration with the Metals Industry Research and Development Center (MIRDC) of the Department of Science and Technology. Direct reduction, the process being adopted in the study, is the most developed technology in the production of sponge iron. It can be adopted locally because of the high melting point titanium dioxide (TiO2) content of Philippine fine magnetite ores where, during smelting, the ores produces a slag that detrimentally blocks conventional blast furnaces in the production of pig iron.

Social Development and Management Program. wwww NPAs storm Apex mine sites in ComVal About 25 New People’s Army (NPA) guerrillas hit two sites of Apex Mining Co. in Compostela Valley in early April, burning four utility vehicles and two drilling equipment. Senior Superintendent Camilo Cascolan, Compostela Valley police chief, said the leftist rebels attacked the Apex operations at the Teresa and Masara villages in Maco town. No injuries or casualties were reported.Cascolan said a certain Rolando Ginelsa (alias Lando) of the NPA’s Pulang Bagani (Red Warrior) Company 3 led the afternoon attacks. The police chief believes it was another NPA attack on foreign-owned mining firms. Malaysian firm Mindanao Gold Ltd. owns over 30 percent of the Manilalisted gold and copper mining company Apex, which is among the largest in the country.

wwww

Surigao Norte,Taganito sign new speech lab project

Pilot plant success for TVI in Manila

The Surigao del Norte provincial government and the Taganito HPAL Mining Corp. recently signed a Memorandum of Agreement for their 2014 Speech Laboratory Project.The agreement aims to establish speech laboratories in all secondary schools in Surigao del Norte and to help students improve their proficiency in oral communication, particularly in public speaking.

TVI Pacific Inc has reported the successful start-up of first nickel production from a pilot plant at Intertek Minerals Philippines in Manila

General Luna National High School in Siargao, Sapao National High School in Sta. Monica, and Pilar Central Elementary School will each receive state-of-the-art speech labs worth P1 million each.

TVI’s Philippine operating affiliate, TVI Resource Development (Phils.), Inc. (TVIRD), chose the hybrid atmospheric/ low pressure autoclave leaching process because it is more suitable to saprolites typical of the Agata laterites and significantly lower in required capital investment as compared to High Pressure Leaching (HPAL) which is more suitable for ore with high iron content.

A subsidiary of Nickel Asia Corp., Taganito HPAL is based in Taganito, Claver, Surigao del Norte. It also funded a Speech Lab project in 2012 under its

“The pilot tests confirm the viability of a two-stage atmospheric leach process in producing NHP containing about 50% Ni or a MHP containing some iron”, said TVI’s Jake Foronda, Vice-President of Operations.

May 2014 May 2014 -- July July2014 2014

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Disservice on service:The dichotomy in the CostRecovery Mechanism of the Service Contract System under the Oil Exploration and Development Act of 1972 By Juan Fidel F. Nograles INTRODUCTION

s a response to the instability of oil prices in the world market, the Philippines further intensified its efforts in tapping the country’s natural basin of rich oil and gas reservoirs. According to the Department of Energy (DOE), these basins are located in different parts of the archipelago, such as the Cagayan Valley, Agusan-Davao, Northwest Palawan, and the Sulu Sea.

The petroleum reserves of the country have attracted numerous oil exploration companies. As early as 1896, Smith & Bell pioneered petroleum exploration activities in the Philippines “with the drilling of the Toledo-1 well in Cebu.” Thereafter, from 1950 to 1970, extensive exploration activities were conducted by various companies under the Concession System of Republic Act (R.A.) No. 387, otherwise known as the Petroleum Act of 1949. In 1973, former President Ferdinand E. Marcos issued Presidential Decree (P.D.) No. 87 entitled the Oil Exploration and Development Act of 1972. In recognition of the advanced technology and superior levels of capital involved in petroleum exploration, P.D. No. 87 introduced the Service Contract System to regulate the conduct of the players in the upstream oil and gas industry. Specifically, this law shall ultimately serve as “the legal basis for the exploration and development of indigenous petroleum resources authorizing the grant of service contracts entered into thr[ough] public bidding, or through negotiations.” Significantly, Section 2, Article XII of the 1987 Philippine Constitution authorizes the President to “enter

into agreements with foreign-owned corporations involving either technical or financial assistance for the largescale exploration, development, and utilization of ... petroleum[.]” According to the DOE, as of January 2013, there are 27 active service contracts between the Government and oil exploration companies.

[t]he cost of subcontractors shall be considered as part of [the] reimbursable operating expenses of the service contractor under [P.D. No. 87] only if it is shown that the contract has been properly registered with the [DOE] and the taxes due under this Decree have been withheld and paid in accordance with the provisions of Section 53 and 54 of the National Internal Revenue Code.

STATEMENT OF THE PROBLEM The Service Contract System under P.D. No. 87 has been considered as “one of the ‘most attractive service contract regime[s]’ in Asia” as it provides an array of fiscal incentives to particularly advanced offshore petroleum exploration in the Philippines. One of its fiscal incentives is the reimbursement of the cost of operating expenses incurred by the service contractor in connection with petroleum exploration activities. Known as the cost-recovery mechanism, Section 8 of P.D. No. 87 imposes on the DOE the obligation to reimburse the service contractor the total amount spent on operating expenses, to wit — On behalf of the Government, [the DOE should] reimburse the Contractor for all operating expenses not exceeding [70%] of the gross proceeds from production in any year; [p]rovided, [t]hat if in any year the operating expenses exceeds [70%] of gross proceeds from production, then the unrecorded expenses shall be recovered from the operations of succeeding years. In 1978, former President Marcos issued P.D. No. 1354, which imposed a final income tax on the subcontractors entering into a contract with a service contractor engaged in petroleum operations under P.D. No. 87. Section 5 of P.D. No. 1354 laid down two conditions in order to recover the cost of subcontractors as part of the reimbursable operating expenses. The Section provides that

In that same year, the Bureau of Internal Revenue (BIR) issued Revenue Regulation No. 15-78 (BIR Rev. Reg. 15-78) in order to implement P.D. No. 1354. Section 6 thereof created a dichotomy between those contracts which are required to be registered with the DOE and those contracts which are merely required to be furnished to the DOE for recording purposes, to wit — [Section] 6. Registration of contracts entered into with sub-contractors. — Every service contractor shall register with the [DOE] — (a) All existing contracts; and (b) Any and all contracts to be entered into relating to oil operations between the service contractor and the subcontractor engaged in petroleum operations. Administrative contracts as defined in Section 2 (f) hereof need not be registered with the [DOE]. However, a copy of each administrative contract shall nonetheless be furnished [to the DOE] for records purposes. Copy of such registered contract shall be kept in the place where the service contractor’s main local office is located and where its books of accounts are kept to be made readily available for inspection. Section 2 (f) of BIR Rev. Reg. 15-78 limits the definition of administrative contracts to those which relate to the Continued on following page > Philippine Resources 41

Community Resources

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www.philippine-resources.com < Continued from previous page administrative operation of the service contractor’s local office in the Philippines. It provides that ‘[a]dministrative contracts’ refer to contracts entered into by the service contractor with domestic entities or individuals relating to the administrative operation of the service contractor’s local office in the Philippines. Examples of administrative contracts are those covering janitorial and messengerial services, lease of office space, staff houses, office cars and office equipment, maintenance service thereof[,] and other contracts of similar nature. Thus, administrative contracts, as defined by BIR Rev. Reg. 15-78, need not be registered by the service contractor. Instead, they must be submitted by the service contractor to the DOE for recording purposes. However, in 1989, the Office of Energy Affairs (now DOE) issued Circular No. 89-01-02, Series of 1989 (Circular) in order to streamline the registration and approval of subcontracts entered into by service contractors under P.D. No. 87. Section 1 thereof mandates the service contractor to register all contracts with subcontractors. It states that “[a]ll contracts or agreements entered into by service contractors with the subcontractors pursuant to the provisions of P.D. 87 must be registered with the [DOE] not later than 60 days from execution thereof.” Failure to comply with the registration requirement under Section 1 will result in the “disallowance of the related expenditures as recoverable cost under the service contracts” as provided by Section 5 of the Circular. In requiring the registration of all contracts or agreements under Section 1, the Circular failed to consider the dichotomy created by BIR Rev. Reg. 15-78 between the registration and submission of contracts. Specifically, the broad language of Section 1 disregarded the exception carved by BIR Rev. Reg. 15-78 in relation to the submission of administrative contracts. As defined by BIR Rev. Reg. 15-78, these 42 Philippine Resources

administrative contracts are exempted from registration, but must be submitted to the DOE for recording purposes. As a result, the scope of the contracts or agreements referred to under Section 1 is tainted with ambiguity. While BIR Rev. Reg. 15-78 does not require the registration of administrative contracts as defined therein, the sweeping tenor of Section 1 of the Circular seems to provide otherwise. Thus, service contractors are puzzled with respect to the proper treatment of administrative contracts for purposes of cost-recovery. This Essay will seek to reconcile the dichotomy created by BIR Rev. Reg. 15-78 between the registration and submission of contracts and the all-embracing requirement of registration imposed by Section 1 of the Circular. This will be accomplished through the proposal of concrete and specific standards to determine the scope and limitations of registration vis-à-vis submission. This is crucial for service contractors because registration is a prerequisite for costrecovery as Section 5 of the Circular enforces the penalty of disallowance of the related expenditure as recoverable cost in case of failure to register the contract. Thus, the service contractor will not be reimbursed the amount of the contract which he failed to register. DICHOTOMY IN THE COST-RECOVERY MECHANISM In 1978, former President Marcos issued P.D. No. 1354 in order to standardize the taxation of both domestic and foreign subcontractors employed by petroleum service contractors. Thus, under Section 1 thereof, all domestic and foreign subcontractors employed by petroleum service contractors are “liable to [pay] a final income tax equivalent to eight percent of [their] gross income[.]” This tax shall be in lieu of any and all taxes. Significantly, P.D. No. 1354 revamped the form and manner of reimbursement of operating expenses by installing condition precedents to the costrecovery mechanism. These refer to the requirement of registration and payment of taxes, thus —

Section 4. Registration of service contracts. All contracts relating to oil operations entered into between the service contractor and a subcontractor engaged in petroleum operations in the Philippines shall be registered with the [DOE]. Section 5. Additional conditions for reimbursement of operating expense. The cost of subcontractors shall be considered as part of reimbursable operating expenses of the service contractor under [P.D. No. 87] only if it is shown that the contract has been properly registered with the [DOE] and the taxes due under this Decree have been withheld and paid in accordance with the provisions of Section[s] 53 and 54 of the National Internal Revenue Code. However, the requirement of registration is limited only to those contracts relating to oil operations. Thus, if the service contractor enters into a contract relating to oil operations with a subcontractor, this particular contract must be registered in order to recover the corresponding cost thereof as part of the reimbursable operating expenses. On the other hand, if the service contractor enters into a contract which does not relate to oil operations, the aforementioned requirement of registration does not apply. In this case, the cost of such subcontract cannot be considered as part of the reimbursable operating expenses. Unfortunately, the law did not provide standards in order to determine whether a contract relates to oil operations. For this reason, it is difficult to determine whether the cost-recovery mechanism applies to a particular contract. It is submitted that the lack of such standards prompted the BIR to issue BIR Rev. Reg. 15-78. Aside from providing a framework for implementing the tax provisions of P.D. No. 1354, BIR Rev. Reg. 15-78 also created a dichotomy in the cost-recovery mechanism. The condition precedents to the costrecovery mechanism installed by P.D. No. 1354 are substantially modified by BIR Rev. Reg. 15-78, to wit — [Section] Continued on page 44 >

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www.philippine-resources.com < Continued from page 42 6. Registration of contracts entered into with sub-contractors. — Every service contractor shall register with the Bureau of Energy Development — (a) All existing contracts; and (b) Any and all contracts to be entered into relating to oil operations between the service contractor and the subcontractor engaged in petroleum operations. Administrative contracts as defined in Section 2 (f) hereof need not be registered with the [DOE]. However, a copy of each administrative contract shall nonetheless be furnished [to] said Office for records purposes.Copy of such registered contract shall be kept in the place where the service contractor’s main local office is located and where its books of accounts are kept to be made readily available for inspection. [Section] 7. Allowability of cost of sub-contract as part of Reimbursable operating expenses. — The cost of subcontracts shall be considered as part of the Reimbursable operating expenses of the service contractor under [P.D. No. 87] only if it is shown that — (a) The contract has been properly registered with the [DOE]; and (b) A l l income taxes that should be withheld under P.D. No. 1354 have been withheld and paid in accordance with the provisions of Sections 53 and 54 of the National Internal Revenue Code. While Section 4 of P.D. No. 1354 categorically directs the registration of all contracts relating to oil operations, its counterpart provision in BIR Rev. Reg. 15-78 creates an exception in favor of administrative contracts. Instead of registering them, administrative contracts must be submitted to the DOE for recording purposes. Thus, as an exception to the rule requiring registration of all contracts relating to oil operations, the submission of administrative contracts implies that these contracts do not involve the conduct of oil exploration activities.

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According to Section 2 of BIR Rev. Reg. 15-78, administrative contracts relate “to the administrative operation of the service contractor’s local office in the Philippines.” Moreover, the same Section expressly provides the following concrete examples of administrative contracts — contracts involving the performance of “janitorial and messengerial services, [contracts of] lease of office space, office equipment, [and] staff houses, [and] maintenance services[.]” Meanwhile, Section 2 defines a subcontractor as “[a] foreign or domestic entity engaged by a service contractor for a specific undertaking in pursuance of a service contract under [P.D. No. 87], excluding administrative contracts defined under sub-paragraph (f) hereof.” This exclusion of administrative contracts from the definition of subcontractor clearly reveals the intent behind BIR Rev. Reg. 15-78 — administrative contracts do not involve oil operations. Thus, these contracts need not be registered with the DOE for purposes of cost-recovery. Instead, these contracts must only be submitted to the DOE for records purposes. Despite the significant exception created by R.R. No.15-78 in favor of administrative contracts, the DOE issued the Circular in 1989 which mandates the sweeping registration of all contracts executed by service contractors with subcontractors within 60 days from their date of execution. Failing to establish any distinction, the Circular is conspicuously silent with respect to the treatment of administrative contracts. Neither does it make any reference to BIR Rev. Reg. 15-78 nor P.D. No. 1354. Lastly, the Circular denies cost-recovery to any service contractor who fails to comply with the registration requirement, stating that “[f]ailure to comply with any of the foregoing requirements shall result to the disallowance of the related expenditure as recoverable cost under the service contracts.” Indeed, service contractors are uncertain as to the scope of the vacillating registration requirement. In fine, P.D. No. 1354 requires the registration of contracts relating to oil operations. On the other hand, while maintaining such registration of contracts relating

to oil operations, BIR Rev. Reg. 1578 creates an exception in favor of administrative contracts which must merely be submitted to the DOE for records purposes. Finally, the Circular indiscriminately compels the registration of all the contracts executed by service contractors with subcontractors without establishing any distinction as to the nature of such contract. ANALYSIS It is submitted that the aforementioned vacillating registration requirement arises from the patent failure of the law to recognize the contractual nature of the cost-recovery mechanism. This means that the relevant provisions of the service contract ultimately determine whether the contract value is recoverable as operating expenses. Consequently, these provisions determine which contracts are required to be registered for purposes of cost-recovery. Thus, the law cannot impose the registration requirement on contracts based on their mere designation or nomenclature. Pertinently, the purpose of the registration requirement is to allow the DOE to determine whether the value of the contract can be recovered as operating expense through its audit process. For example, the model contract provides that the DOE can inspect and audit the books of account of the service contractor for the purpose of affirming the scope of recoverable operating expenses laid down in the service contract. This is provided for in Section 18.02, which states that [t]he [DOE] shall have the right to inspect and audit the [Contractor’s] books of accounts relating to this Contract for any Calendar Year within 24 months following the end of such Calendar Year. Any such audit shall be completed within 12 months after its commencement of such audit. Any exception must be made to the [Contractor] in writing within [90] days following the completion of such audit. If the [DOE] fails to give such written exception within such time, or fails or declines to conduct an audit of the [Contractor’s] books of Continued on opposite page >

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www.philippine-resources.com < Continued from previous page accounts within the time period stated above, then the [Contractor’s] books of accounts and statements of Operating Expenses for such Calendar Year shall be established as correct and final for all purposes including the recovery of Operating Expenses. In the audit process of the DOE, the registered contracts are evaluated in relation to the provisions of the service contract on the scope of operating expenses and the form and manner of their reimbursement. Specifically, in order to be deemed as recoverable operating expense, the subject matter of the registered contracts must be included in the definition of operating expenses as provided by the service contract. Thereafter, the form and manner of cost-recovery shall be governed by the accounting procedures of the service contract. For example, under the model contract, the cost of seismic surveys is included in the definition of operating expenses. Thus, any registered contract which deals with seismic survey shall be considered as recoverable operating expense. In view of the utmost legal significance of the definition of operating expense as provided by the service contract, the law cannot use the designation or nomenclature of the contract as a yardstick for determining whether such contract involves recoverable operating expense which must therefore be registered as a prerequisite for costrecovery, because of the principle that the nature of a contract is determined more by its provisions rather than the designation or title. Ultimately, the scope of operating expenses laid down in the service contract controls the scope of the cost-recovery mechanism. Thus, the scope of operating expenses laid down in the service contract determines which contracts are required to be registered for purposes of costrecovery. For example, when Section 4 of P.D. No. 1354 limited the registration requirement only to “contracts relating to oil operations[,]” the law used the designation or nomenclature of the contract as a yardstick for determining the scope of the cost-recovery. As a result,

P.D. No. 1354 disregarded the definition of operating expenses laid down in the service contract. Thus, if an expenditure not related to oil operations is included in the definition of operating expenses laid down in the service contract, then this expense cannot be recovered since only contracts relating to oil operations are required to be registered. Similarly, BIR Rev. Reg. 15-78 heavily relied on the designation or nomenclature of the contract as a yardstick for determining the scope of the cost-recovery as it created a niche for administrative contracts. Accordingly, if administrative expenses were to be included in the definition of operating expenses laid down in the service contract, then these expenses cannot be recovered because only contracts relating to oil operations are required to be registered. Meanwhile, administrative contracts must be submitted for recording purposes. While P.D. No. 1354 and R.R. No.1578 limited the registration requirement based on the designation or nomenclature of the contract, the Circular significantly expanded such registration requirement. Moreover, failure to comply with this sweeping registration requirement will result in the denial of the claim for cost-recovery. Since only the scope of operating expenses laid down in the service contract determines which contracts are required to be registered for purposes of cost-recovery, the Circular thus includes expenditures which are not deemed recoverable within the ambit of the registration requirement. RECOMMENDATION In view of the contractual nature of the cost-recovery mechanism, the scope of operating expenses as stipulated by the parties in the service contract also determines the scope of the costrecovery mechanism. Specifically, the various items of expenditure listed in the definition of operating expenses identify which contracts are required to be registered for purposes of cost-recovery. The purpose of this registration is to allow the DOE to determine whether the registered contract involves

recoverable expense by examining the scope of the operating expenses in the service contract. Accordingly, the law must be amended to abandon the use of the designation or nomenclature of the contract as basis for the registration requirement. Instead, the law must refer to the scope of operating expenses in order to determine cost-recovery and the registration requirement. Thus, Section 4 of P.D. No. 1354 must be amended in the following manner — “[a]ll contracts ... between the service contractor and a subcontractor which involve recoverable expense based on the scope of operating expenses under the service contract shall be registered with the [DOE].” Meanwhile, the implementing provision under BIR Rev. Reg. 15-78 must also be amended as follows — [Section] 6. Registration of contracts entered into with sub-contractors. — Every service contractor shall register with the [DOE] ... all contracts between the service contractor and a subcontractor which involve recoverable expense based on the scope of operating expenses under the service contract. [A copy] of such registered contract shall be kept in the place where the service contractor’s main local office is located and where its books of accounts are kept to be made readily available for inspection. On the other hand, all contracts between the service contractor and a subcontractor which do not involve recoverable expense based on the scope of operating expenses under the service contract must be submitted to the DOE for records purposes. Finally, the sweeping tenor of Section 1 of the Circular must be limited in the following manner — “all contracts or agreements entered into by service contractors with the subcontractors which involve recoverable expense based on the scope of operating expenses under the service contract must be registered with the [DOE] not later than 60 days from execution thereof.”

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Mining News

May May2014 2014 --July July 2014

www.philippine-resources.com

Key King-King milestones targeting 2015 construction start-up

t. Augustine Gold and Copper Ltd is targeting completion of a number of items to prepare the Kingking Copper-Gold Project for construction start-up in 2015.

• Advance permitting, obtain approval of the Environmental Impact Statement and Declaration of Mining Project Feasibility and receive the Environmental Compliance Certificate; •

Located in Pantukan in the Compostela Valley King-king is forecast to recover 3.16 billion pounds of copper and 5.43 million of ounces of gold over a 25 year mine and process life. According to the Preliminary Feasibility Study completed in late 2013, the project has an attractive pre-tax Net Present Value (NPV) of $2 billion with an Internal Rate of Return (IRR) of 24.8%. The project is currently estimated to have a mineral reserve of 617.9 million tonnes at 0.300% total copper and 0.395 g/t gold.

Secure land acquisitions;

• Structure Project financing arrangement(s) through strategic advisors or engagement of major financial institution(s) in coordination with joint venture partner NADECOR; • Completion of the joint venture restructuring as described in the Project Framework Agreement; • Assisting NADECOR with the steps necessary to transfer the Mineral Production Sharing Agreement (“MPSA”) into the joint Project structure; and, Background

St. Augustine recently reported that its focus in 2014 will be to complete critical project development work that will support the start of construction in 2015. Upcoming milestones include:

Construction of King-king is expected to commence in 2015, with production starting in 2016-2017. On average, the mine will be producing 138 million

pounds of copper, 236,169 ounces gold and 506,504 ounces of silver annually. The King-king tenement is comprised of 184 mining claims that are owned by Nationwide Development Corporation (NADECOR) under Mineral Production Sharing Agreement #009-92-XI (the MPSA), approved by the Government of the Philippines on May 27, 1992, and amended December 11, 2002. The MPSA grants NADECOR the exclusive right to explore, develop and exploit minerals within the area comprising the King-king deposit.The project is listed as one of the top priority projects by the Philippine Mines and Geosciences Bureau and it is a gold-rich porphyry copper deposit spatially related to significant epithermal vein systems that can be potentially exploited by open pit mining methods to produce economic concentrations of gold and copper. King-king’s mineral reserve amounts to 617.9M tonnes at 0.300% total copper and 0.395 g/t gold. The results of the 2013 Preliminary Feasibility Study (PFS) show that the planned operation has favorable economic potential.

The King-king project is already a tremendous supporter of the local community, incuding the critical area of education.

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“The results of this advanced Preliminary Feasibility Study confirm that King-king is an attractive project with robust economics that will bring significant value to our shareholders, our partner and the Philippines,” according to Andrew Russell, St. Augustine’s CEO. Continued on opposite page >

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Philippine unis show innovation

tudents from Philippine universities demonstrated recordbreaking participation in a landmark global competition for innovative methods and ideas on meeting future energy demands related to energy, food and water. “The world’s population is expected to reach nine billion by 2050 so we need to figure out a way to balance the energywater-food nexus so we don’t sacrifice one for the other. This is something that Shell is looking at,” explained Sebastian Quiniones, general manager of Shell Philippines Exploration B.V. (SPEX), during the recent Shell Recruitment Exposition where local universities were also cited for participating in the Shell Ideas360 contest. Shell Ideas360 was launched in the Philippines last year, calling all high-achieving university students to share their ideas in helping tackle the pressures on energy, water and food availability on the theme “People and Planet.”

three key stages. First, participants share and submit their initial idea, which will then be evaluated by a team of Shell experts. Up to only a hundred ideas or entries will be selected to proceed to stage two, where participants will then further develop their ideas with the help of Shell mentors and subject matter experts. In the third and final stage, five chosen teams or individuals will be invited to Shell’s renowned smarter mobility event—the Shell Eco-Marathon Europe in Rotterdam, the Netherlands, in May 2014 to pitch their ideas to a panel of judges, and to go on further in a National Geographic expedition. Ideas360 is one of the latest programs of Shell as a power, energy and gas technology leader that also values youth development and social investment advocacies. Its other projects focus on smarter mobility, road safety, environmental management, developing new energy sources, and many more. Record-breaking participation Worldwide, the Philippines ranked fourth in terms of total number of sub-

missions and sixth in terms of number of participating universities. The University of the Philippines also ranked as the academic institution with the most number of entries to the contest. “Shell Ideas360 showcase the wide talent base in the Philippines,” affirmed Janice Pamplona, country recruitment manager for Shell companies in the Philippines (SciP). For these significant achievements, Shell officials awarded plaques of recognitions to the seven participating local universities during the Shell Recruitment Expo held recently in Makati City, which was attended by more than 1,000 aspiring jobseekers. The job fair and Shell Ideas360 local recognition rites gain increased significance as SciP marks its centennial anniversary this year. Representatives from the University of the Philippines Diliman and Los Baños, De La Salle University, University of Santo Tomas, Palawan State University, Mapua Institute of Technology and Ateneo de Manila University received the citations.

The process for Shell Ideas360 involves < Continued from opposite page “The strong results of the PFS pave the way for St. Augustine and our joint venture partner NADECOR to continue the development of King-king, including the remaining technical work and the advancement of project financing.” The Declaration of Mine Project Feasibility (DMPF) has been submitted to the Philippine Government in May 2012. The final feasibility study will incorporate any required amendments to the DMPF once comments are received from the Government’s final review of the document. Key Project Indicators • The ore delivery and processing rate will be a designed throughput of 100,000 tonnes per day (tpd) split between 40,000 tpd to an on-off heap leach

and 60,000 tpd to a flotation mill with agitated tails leach. The mining rate will be approximately 178,000 tonnes per day for the 22 year mine plan. Production from the heap leach process is expected to start one year prior to commencing mill operations. • Robust project economics are driven in large part by an initial five year higher grade operation with a low strip ratio and tidewater proximity. Average annual production during the first five years of full production (both heap leach and mill in operation) is 270 million pounds of copper (122,487 mt), 360,143 ounces gold (11,202 kg) and 568,958 ounces silver (17,697 kg) with an average gold equivalent t o t a l cost of $454 per ounce. • Life of mine production of 3.16 billion pounds of copper (1.43 million

tonnes), 5.43 million ounces of gold (168,950 kg) and 11.65 million ounces of silver (362,356 kg). • Life of mine average annual production of 138 million pounds of copper (62,374 mt), 236,169 ounces gold (7,346 kg) and 506,504 ounces of silver (15,755 kg) with an average gold equivalent total cost of $621 per ounce. • An estimated initial capital cost of $2.04 billion including the mine, the mill, on-off leach pad, power plant, port facility and $240 million in contingency costs. • The study assumes large scale contract mining will be used during the course of the 22 year mine plan, which reduced project initial capital and increased mine operating cash cost. After tax economic analysis assumes a six-year income tax holiday. Philippine Resources 47

Energy News May May2014 2014 --July July 2014

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DOE seeks international support for latest oil and gas block offer

here is expected to be plenty of interest from local and international energy companies in the recently launched 5th Philippine Energy Contracting Round (PECR5) for the exploration of potential coal and petroleum areas in the country. “Through PECR, we created an equal playing field for all interested parties, in which the government ensures that all service contracts and offered areas are in

accordance with existing Philippine laws and policies,” Energy Secretary Carlos Jericho Petilla said in his opening message at the official launching ceremony held at the Intercontinental Hotel Manila, Makati City. The PECR5 offers 11 areas for petroleum exploration mostly located in Luzon, and 15 areas for coal exploration, largely concentrated in Mindanao.

The Energy Secretary said there were three potential areas for petroleum under the Bangsamoro, but the national government excluded those temporarily and promises to put the areas back in concurrence with the Bangsamoro government once it is duly formed. Website The DOE has also launched its PECR5 website (http://www.doe.gov.ph/pecr5) featuring details of the different areas under offer. The PECR5 website is part of a major marketing campaign that includes international roadshows to encourage more energy players abroad to join the contracting round. The roadshow includes a South East Asia Petroleum Exploration Society (SEAPEX) event on 10-14 June 2014 in Singapore; North America Prospect Expo South (NAPE South) on 20-22 August 2014 in Houston, Texas; and AAPG International Conference and Exhibition on 14-17 September 2014 in Istanbul, Turkey. The DOE will also conduct a series of information, education, and communication (IEC) campaigns in the host communities and areas near the exploration areas starting this month. The IEC for petroleum will be in Palawan, Mindoro, Iloilo, and Sulu, while the IEC for coal will be in Isabela, Albay, Cebu, Davao, and Zamboanga. Submissions for the petroleum applications will start on 02 June 2014 and will end on 27 February 2015. Applications will be opened only after the submission period. Coal applicants may start submitting by 29 May 2014 until 19 September 2014. Endorsement of winning applicants for coal and petroleum is targeted on 21 November 2014 and 04 May 2015, respectively.

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Otto elects to withdraw from SC51 on safety concerns

hilippines oil and gas explorer and developer Otto Energy Limited has highlighted safety issues behind its decision to withdraw from onshore Service Contract 51 (SC51) permit. The Australian said that extensive post-well analysis of the Duhat-2 well drilled on Leyte in July 2013, had led its wholly owned subsidiary Otto Energy Investments Limited to elect to withdraw from the permit. Duhat-2 was drilling ahead at approximately 200 metres when the well started to flow high pressure water at high flow rates. Otto said that upon analysis, the flow was comprised of brackish water with very low trace gas readings. Standard industry safety practice was followed to shut-in the

50 Philippine Resources

well using heavy weight mud and, subsequently, a cement plug. The detailed analysis of the well results (including drill cutting analysis and seismic pressure reviews) led to a conclusion that a well could not be safely drilled at the Duhat-2 well location given the shallow overpressures experienced and the indications of low rock strength above the zone of overpressure. Otto also formed the view that a well cannot with confidence be drilled in accordance with good industry practice elsewhere on the San Isidro anticline given the results observed at the Duhat-2 location. No other drillable prospects have been identified on existing seismic data available in the northern Service Contract area.

“Safety and environment are Otto’s top priorities and it has been concluded that it is not safe to proceed with drilling in the SC51 area,” Otto’s Chief Executive Officer, Matthew Allen, said. “The Duhat-2 well presented a series of very unexpected and potentially dangerous challenges to our drilling team, which were successfully and safely addressed as a result of comprehensive pre-drill planning and preparation. “These potentially dangerous challenges could be expected during future drilling activities in the block. In addition to safety concerns, OEIL has also further reviewed the prospectivity of the SC51 Continued on opposite page >

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North block and elected to withdraw. OEIL sees no further defined exploration targets within this licence.” SC55 extension Otto has had better news elsewhere, with the Philippines Department of Energy (DOE) acknowledging a variation to the work program timing for the offshore SC55 permit. The 14 month extension follows the delayed issuance of the Strategic Environmental Planclearance from the Palawan Council for Sustainable Development in 2012/13. Otto sort the extension as it is several months intoa farm-out process to introduce a new joint venturer to participate in the drilling of the Hawkeye-1 exploration well.

Otto says it is targeting suitably qualified participants with deepwater operations experience to join the exploration program and that several suitable companies with South East Asia operations have commenced technical due diligence reviews of available data. “Securing the Department of Energy acknowledgement for the varied work program timing following the force majeure period in 2012/13 is an important step in progressing our exploration program in this high impact area,” Otto Chief Executive Officer, Matthew Allen, said. “The combination of the excellent prospectivity of SC55 and the funding arrangement secured by Otto means we are able to offer a very attractive exploration opportunity as part of a farm-out campaign. We look forward to The Duhat-1 rig crew inspect equipment during the 2013 securing a new ven- drilling campaign. The presence of a high pressure, water turer by mid- 2014.” bearing, permeable section was not seen in the Duhat-1 well located some 440 m away.

Page 51 2nd pge of Brunel 1/2 page DPS

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Shell calls for more gas industry support

he head of Shell’s exploration arm in the Philippines urged the government in a recent forum to devote more resources to developing the natural gas sector, as the country lagged behind its Southeast Asian neighbors, particularly compared to Indonesia. “The Philippines is behind other Southeast Asian countries in terms of upstream exploration activities for natural gas,” Sebastian Quiñones, managing director of Shell Philippines Exploration B.V. (Spex), said at the Natural Gas Summit 2014 in Makati City. “Only 566 wells have been drilled in the Philippines in the last 100 years, compared to 400 wells drilled in Indonesia in just one year, according to the Petroleum Association of the Philippines,” Quiñones added in a Philippine Daily Inquirer report. The Summit, led by natural gas-powered countries Norway, Russia, Japan, The Netherlands, Great Britain and Spain in collaboration with the Department of Energy (DOE), touted the fuel as an environmentally sustainable means of powering the country’s economic growth.

Government and energy industry leaders discussed the need for a more dynamic natural gas industry in the country to further the country’s robust economic growth, which according to the International Monetary Fund may hit 6.3 percent this year. In particular, the Malampaya deep water gas-to-power project was cited as a model for shaping the future share of natural gas into the country’s energy mix. Quiñones said economic growth called for more investments in unlocking indigenous sources of sustainable power. He noted that the Philippines needs 300,000 barrels of oil per day (BOPD), but local production “only supplies 60,000 BOPD through the Malampaya Project, and about 10,000 BOPD from other smaller projects.” Among the recommendations Quiñones made were: • developing a favorable investment climate through the elimination of bottlenecks, •

•

consistency in policy and regulations,

•

improved infrastructure; and

• strengthened government interagency collaboration through Executive Order 60, or the Philippine Upstream Petroleum Task Force. Former leaders of the DOE discussed the birth and commercialization of Malampaya and the first natural gas policy established for the gas project. Among them were Dr. Francisco Viray, chief executive officer of Trans-Asia Oil and Energy Development Corp., and Jose Victor Emmanuel de Dios, chief executive officer of General Electric. Malampaya currently provides 30 percent of the Philippines’ energy needs. Natural gas is the preferred fuel for sustainable growth and development because it is abundant and cleaner than fossil fuel, the summit asserted. The project is into its next phases of development, with Malampaya Phase 2 and 3 expected to maintain the current level of gas production.

more fiscal incentives,

Pilipinas Shell, Petron bag fuel supply contracts

ilipinas Shell Petroleum Corp and Petron Corp bagged the contracts to supply fuel to government’s contracted power plants and barges. The Power Sector Assets and Liabilities Management Corp (Psalm) awarded the contract for the supply and delivery of industrial diesel oil to the 1,200-megawatt (MW) Ilijan combined cycle power plant run by Kepco Philippines Inc to Shell. Shell topped the bidding for the supply contract after posting the lowest offer

52 Philippine Resources

of P1.23 billion. Psalm also awarded similar contracts to Petron for Southern Philippines Power Corp’s (SPPC) 55MW diesel plant in General Santos City, Western Mindanao Power Corp’s (WMPC) 100-MW diesel plant in Zamboanga and SPC Power Corpoperated 153.1-MW Naga power complex in Cebu. The country’s largest oil refiner submitted the lowest bid of P3.83 million, P1.21 million and P18.94 million for the respective plants’ fuel supply.

Psalm also awarded to Petron the contract to supply diesel to Power Barge (PB) 101 in Iloilo and PB 104 in Davao. The oil firm posted the lowest offer of P11.74 million and P15.90 million for the plants’ fuel supply, respectively. Psalm’s approved budget for the contracts is P1.27 billion for Ilijan, P3.87 million for SPPC, P1.28 million for WMPC, P19.64 million for Naga, P12.59 million for PB 101 and P16.31 million for PB 104.

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Galoc Phase II powers Otto to strong first quarter result

tto Energy Ltd. saw its revenues surge from January to March from the preceding three months, driven by nearly 50 percent higher production from its Galoc oil field in Palawan, the Australian oil and gas company said in a regulatory filing. Otto reported to the Australian Securities Exchange that its first-quarter revenues, driven by oil sales, more than doubled to $28.814 million from $10.305 million in October to December. In the same comparative periods, production from Galoc jumped 49.85 percent to 272,303 barrels (bbl) from 181,721 bbl. The oil field averaged 9,168 barrels of oil per day (bopd) during

the quarter, “in line with the forecast production,” a BusinessWorld report said.

Otto said initial production at the field reached 14,500 bopd but that it expected volume to stabilize at 12,000 bopd.

Meanwhile, Otto’s expenditures fell 46.39 percent to $13.20 million from $24.62 million. The company holds a 33% stake in Service Contract (SC) 14 in waters northwest of Palawan, where Galoc is located.

Other stakeholders of SC 14 are: Galoc Production Company No. 2 Pte. Ltd., with 26.84473 percent; Nido Petroleum Ltd., with 22.87952 percent; Oriental Petroleum & Minerals Corp. and Linapacan Oil & Gas Power Corp., with 7.78505 percent; Philodrill Corp., with 7.21495 percent; and Forum Energy Philippines Corp., with 2.27575 percent.

The stakeholders of SC 14 completed the second phase development of the field last year, leading to increased production from the oil field. The development included two new wells, which were drilled and tested before commercial production and are seen to double Galoc’s production to an average of 12,000 bopd from 4,750 bopd.

Besides SC 14, Otto also holds interests in SC 55 in waters west of Palawan, where it has a 33.18 percent stake; SC 51 in waters northwest of Leyte at an 80 percent stake; and SC 69 in the Camotes Sea in the Visayas at 79 percent.

DOE looking for Chinese renewable investment By Jimbo Gulle

the hydros,” Petilla told the Chinese media specifically in a Manila Bulletin report.

espite the current territorial and diplomatic disputes between the Philippines and China over islands in the West Philippine Sea, the Department of Energy (DOE) is leaving the door open for Chinese investments in renewable energy, especially those involving hydropower installations.

Investors from China could also choose to pour funds into liquefied natural gas (LNG) facilities and upstream oil and gas ventures, the energy chief added.

Energy Secretary Carlos Jericho Petilla, in a recent forum hosted by Shell Philippines for Asian students, said the local energy sector is still “an open field” and that Chinese investors could inject capital “on any new technology that could bring down the cost of power generation on the renewable energy side.”

The DOE chief also remained noncommittal on investments in coal-fired power generation, saying most of the expected additional capacities to the PH grid “are already leaning on that technology.”

“As far as I am concerned, (the projects with) the most potential right now are

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Petilla said the government was still working on the industry road map and regulatory policies for LNG but expected to put this out soon.

China already has a big stake in the local energy sector as the State Grid Corporation of China already owns 40 percent of the National Grid Corporation of the Philippines (NGCP). In 2007, the Chi-

nese firm won a tender for the 25-year concession agreement to operate the nation-wide power transmission grid by offering to pay fees of $3.95 billion (about P174 billion). State Grid of China also functions as the technical partner of NGCP, formerly a spin-off of the government-run National Power Corp. but now a consortium majority-owned by Monte Oro Grid Resources Corp. and Calaca High Power Corp. “with no experience in running electric transmission systems,” according to a Financial Times report. In 2012, the Department of Labor canceled visas and work permits of 28 of State Grid’s technical staff working in the Philippines, leaving the Chinese worried over protecting their investment and fulfilling their obligations to the NGCP.

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Women as Game Changers in Resource Development By Jimbo Gulle

omen were front and center in the 16th Philippine Mining Club’s Mining Luncheon at the Manila Polo Club in Makati City as Engr. Kathleen T. Digdigan, Jane Timbancaya Urbanek, and Dr. Geraldine McGuire discussed women’s role as game-changers in resource development. The April 11 luncheon was a special event co-organized with DIWATAWomen in Resource Development Inc. as the Club extended the celebration of National Women’s Month last March. Before the discussions began, DIWATA also awarded the daughters of the Philippines’ “Dirty Dozen” – the first Filipino graduates of the mining engineering course at the Mapua Institute of Technology and the pioneers of the resource industry in the country – with commemorative plaques. Last November at the Philippine Mine Safety and Environment Conference, the same group of women had also launched

the book “Mining’s Dirty Dozen – The Legacy of the First Mining Engineering Graduates of the Philippines.”

heartily as they marveled at her ability to steer the gigantic truck despite her petite 4-foot-11 frame.

Philex Mining’s Rochelle Hilario, an officer of DIWATA, introduced the documentary series “Yaman ng Bayan” to the Luncheon’s audience. Produced by TV5, which is also headed by Philex chairman Manny V. Pangilinan, the documentary takes viewers to the leading mining countries around the globe and makes the case for mining and resource development in the Philippines.

Moderated by Malyn Molina, the assistant vice president for business development and strategic planning of the public relations firm EON-Edelman, the forum after the luncheon saw a hearty exchange of ideas, especially about the place of women in a mostly-male industry like mining.

Oceana Gold Philippines Inc. also played a video of women playing crucial roles in their operations at the Didipio goldcopper mine in Nueva Vizcaya, such as control room operator Christine Nina Monilla and plant metallurgist Jenalyn Panti. One woman, Marina Bartolome, stole the spotlight after the 30-year-old was revealed in the video driving a 120ton Delta ore hauler at the mine site. Bartolome, a mother of three whose husband was also a bulldozer operator at Didipio, was later introduced to the Luncheon audience, applauding her

Digdigan, nicknamed “Kate” by her peers, expressed her experiences as the resource geologist for TVI Resource Development Inc. at the Canatuan copper-zinc mine. For instance, she said: “In my line of work, the usual industry pick-up line is: ‘What is a woman like you doing in an industry like this?’ I usually encounter this every time I declare that I am a geologist. And whenever people ask me this question, I would jokingly tell them it is because most men are already takingup nursing! So I guess it is fair enough Continued on page 58 >

The Mining Luncheon “Women as Game Changers in Resource Development” event drew a very enthusiastic audience.

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Philippine natural gas potential identified at recent summit

il industry players from the public and private sectors in the country gathered together to discuss and analyze the future share of natural gas in the country’s energy mix recently. Held at New World Hotel, Makati City from March 12-13 2014, legislative and economic frameworks for the development of natural gas in the Philippines were taken up during the event, all of which was co-organized by Leverage International. The robust economic growth of Southeast Asia has driven up energy

< Continued from page 56 that women penetrate and excel in a previously male-dominated profession.” A 10-year veteran of the mining industry, Digdigan acknowledged that mining companies, and the men in them, had to make adjustments for women in terms of separate facilities and other considerations. But women also brought a great deal of “intuition and heart” to the workplace – things that every mining firm needed, the TVI geologist added.

demand. In developing its energy future, the region must balance its economic imperatives with energy security and environmental sustainability. At the forefront of this growth is the Philippines, now considered by the World Bank as the “Rising Tiger of Asia” as the Philippine government’s economic initiatives and political reforms have already begun to bear fruit. “Natural Gas is an important part of the energy life and a key driver of economic growth. Reasons such as low environmental impact, diversification and multiple source options make natural gas a fuel with important relevance in the “Female intuition combines forwardthinking, instinct and character with sympathy, consideration and a meticulous attention to detail,” Digdigan said. “With a little foresight – and a lot of heart – women are able to change the game and change along with it.” She also argued that women in mining “are able to innovate and evolve in a progressive industry where the proverbial glass ceiling is a thing of the past,” pointing to TVI executives Lily Ann Panelo (their chief finance officer) and Yody Marzo (vice president for corporate services and also a member of DIWATA) as proof. The impact of women in mining could not be overstated, Digdigan added, saying that her all-woman team at TVI’s Mines Department managed to boost their copper mill recovery from a low 11 percent to about 95 percent while also being able to convert marginal ore to additional reserves through proper blending. “But most of all – and as a result of this – TVIRD was able to produce and meet its shipping requirement schedule,” she said.

Guests Aireen Quililan, Ana Benignos and Mikki Rosanes enjoying the luncheon. 58 Philippine Resources

Urbanek, the group community relations manager at Nickel Asia Corp. and a

energy use of most of the first economies in the world” - H.E. Ambassador Jorge Domecq of the Embassy of Spain As it soars further to unprecedented economic heights, the Philippines needs to ensure adequate and stable supply of energy to fuel its development. Natural gas is uniquely positioned to address this national goal and aspiration. The Embassies of five major players in the natural gas market were in dialogue with the Philippine Department of Energy Continued on page 61 > frequent speaker at the Luncheon, discussed her experiences dealing with the indigenous tribes of Palawan, Surigao and Leyte. She noted that women could help in bridging the communications gap in mining firms’ efforts at community development and getting their social licenses to operate. To help close that gap, Urbanek is currently hosting two weekly radio talk shows in Palawan – also the hotbed for anti-mining activism in the country -- which addresses the need for people to know more about responsible mining: who these companies are, what they are doing, how they contribute to the alleviation of poverty, and their contributions to local and national economy. Later, McGuire, managing director of the Australia-based environmental consultancy firm Sustainable Solutions, addressed the Luncheon via Skype. She underscored the importance and role of the women in her own team as their North Queensland-based company planned sustainable economic, environmental and social solutionsfor projects in Australia, Indonesia, Papua New Guinea and Laos.

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3rd Arangkada Forum discusses comprehensive PH economic reforms By Maria Paula Tolentino

he Joint Foreign Chambers of the Philippines recently held the Third Anniversary Forum of Arangkada Philippines with the theme More Reforms = More Jobs! last February 26, 2014 at the Makati Shangri-La Hotel. Some two dozen experts from the public and private sectors discussed key policy reforms while only the country’s top news media personalities moderated the panel discussions. For the Philippines to achieve inclusive growth – as President Aquino has declared to be his principal goal for the remainder of his term – strengthening the manufacturing sector is imperative. No country has become a high-income economy without developing a strong industrial sector. “To date, 27 industry Roadmaps have been submitted to BOI (Bureau of Investments), and we are keen on finalizing the Manufacturing Industry Roadmap – the manufacturing industry being one of the major engines of growth and job creation” says Department of Trade & Industry Secretary Gregory Domingo. Recent high Philippine economic growth has been led by consumption, construction, and public sector spending, supported by yet increasing remittances from Filipinos abroad, the purchasing power of a growing middle class and rising exports of business processing and tourism services. In his speech, Former Finance Secretary Dr. Roberto F. de Ocampo says that the “services and industry sectors continue to be the drivers of economic growth. But within that, it is the services sector that contributed the lion’s share of 3.6 percentage points of the real GDP growth. In short, the economy continues 60 Philippine Resources

to be a consumption led one, but with optimistic signs of turning the corner towards being more diversified”. Competition Encouraged De Ocampo stresses that if we are aspiring for a democratic business environment, then we must understand that a democratic business environment’s essence is competition. “A thriving economy rests on initiative, which, in turn, rests on proper incentive. If we take away the incentive of commensurate rewards for one’s efforts, then the initiative to achieve may disappear... “Without the competitive environment and level-playing field, then we end up with oligopolies, with a structure of society that will continue to feature an increasing gap between the very rich and the rich and an even bigger gap between the rich and the poor”. Mining as a Potential Resource With regards to the controversial issue of mining, De Ocampo says that “Yes we are aware that there are opinions about the need to protect the environment, yes the mining sector is aware there were sins from the past, but we have to come to a decision point.

their lifestyle and children’s upbringing. They invest heavily on education, which equip future generations with the knowledge, skills, and values to be more competitive in a global economy. De Ocampo stressed on the “urgent need to continue expanding the Filipino middle class”. He adds that “having a large and influential Filipino middle class is important, for they are the ones who would have adequate knowledge of social issues. “And among others, come election time, they can be counted on to vote for worthy politicians who will do the right things. But, if you don’t have jobs, you don’t have a healthy expanding middle class.” A Heightened Sense of Urgency for 2015 With the ASEAN Economic Community and the Trans – Pacific Partnership just around the corner, De Ocampo urges the administration to be prepared for these important global game changers: “Many of our failures in the past had been traced to our inabilities to undertake meaningful and fundamental reforms that build inherent competitiveness.

Continuous dribbling of the ball does not allow us to tap into a resource that could provide jobs, that could provide growth, and that could provide a basic foundation industry for manufacturing”.

“Now, perhaps if we prepare well we will be able to move our economy based on our need to adhere to our commitments with other nations and as well to ensure our competitive position.

A Stronger Middle Class

“Let us therefore ensure that we are ready. And if we position ourselves well and undertake valuable reforms inherent in our effective participation in these global configurations, we should manage to reap the benefits of creating quality jobs that we are looking for”.

Based on a Nielsen global survey published last year, the middle class has been driving much of the Philippine’s domestic spending. This section is comprised of Filipinos who have discretionary disposable income that allows them to make choices about

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Strong turnout for international geothermal meeting in Makati

he National Geothermal Association of the Philippines (NGAP) hosted the 59th Meeting of the Board of Directors of the International Geothermal Association (IGA BoD) on March 21-22, 2014 at the Shangri-la Hotel, Makati City. The meeting was presided over by IGA President Dr. Juliet Newson and attended by twenty two (22) Directors representing the different IGA member countries.

with the theme: “Pursuing Emerging Technologies.” This technical event was attended by over 170 participants representing resource developers, service companies and government representatives involved in the geothermal sector, including the IGA BoD.

The entire morning session on March 21 was devoted for the presentations of bid proponents to host the World Geothermal Congress in 2020 which included Chile, Iceland, Kenya, Netherlands/Germany, USA, and the Philippines. Each country proponent was given ~20 minute time allotment for presentation, followed by ~10 minute Q and A.

The keynote speaker was DOE Undersecretary Ramon V. Oca who welcomed the IGA BoD and emphasized the DOE’s full support to the Philippine geothermal developers. Three (3) country updates were presented on Kenya, Indonesia, and Philippines by Dr. Peter Omenda, Dr. Surya Darma and DOE Director for Renewable Energy Management Bureau Mario Marasigan, respetively.

Questions included concerns on organization and management of the event, security, government/industry support, finances, fellowship grants. This session was moderated by Paul Quinlivan, who chairs the WGC 2020 Bid Committee. The IGA BoD also visited the Makban Geothermal Field and Aboitiz Green Center on March 23. NGAP also organized the 2014 Geothermal Conference on March 24, 2014 at the Dusit Thani Hotel, Makati City < Continued from page 58 (DOE) regarding Philippine natural gas policy. All guest speakers shared their in-country experiences and national policies on natural gas that resulted in the World Bank’s commissioning by the DOE to develop a master plan for natural gas in the Philippines. The 2014 Summit expanded the original scope of the first policy dialogue that included broadening LNG and the upstream and downstream sections of

Technical presentations followed which consisted of three main sessions with presentations on geophysics, reservoir engineering, HDR/EGS, acidic fluids, permeability enhancements, deep drilling, and low enthalpy resources. Each session was followed by a short Q n A where there was a lively exchange of ideas amongst geoscientists and engineers. IGA President Dr. Newson delivered the closing remarks where she expressed her appreciation for the Filipinos’ warm the Philippine energy industry. Plus, it covered the analysis of business needs and challenges for the development of a dynamic Philippine natural gas industry that includes collaboration with other Southeast Asian countries. Among those in attendance were Vice President of the Republic of the Philippines H.E. Jejomar Binay, H.E. Ambassador Knut Solem of the Royal Norweigan Embassy, H.E. Ambassador Nikolay R. Kudashev of the Russian Federation, H.E. Ambassador Jorge

hospitality in hosting the IGA BoD meeting. The NGAP Annual Meeting was held after the Conference where NGAP President B. Aquino presented the 2013 Annual Report and 2104 Work Program while NGAP Secretary Sylvia Ramos presented NGAP’s 2013 audited financial statement. NGAP Director Atty. Fernando Peńarroyo chaired the meeting. The events were organized by NGAP Trustees and Secretariat with members coming from the Department of Energy, Energy Development Corporation, and Chevron/Philippine Geothermal Production Corporation. These were fully supported by NGAP’s corporate members and other service contractors and providers.

Domecq of the Embassy of Spain, H.E. Ambassador Toshinao Urabe of the Embassy of Japan, Mr. Hero de Boer (Charges de Affairs) of the Embassy of the Kingdom of the Netherlands, and Mr. Stephen Lysaght (1st Secretary, Political) British Embassy of Manila. Philippine Resources Journal was priviledged to be the official media partner of events organizer, Leverage International.

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Cardno opens new office in Manila, sees infra projects driving its local growth By Jimbo Gulle

firm was “dramatically invested” in the Philippines, Renshaw said.

“We are optimistic about the chance to grow a much stronger presence here in this market, and if Ian (Porter) can grow the company faster and do it in the next 12 to 18 months, then I’d be a happy man,” he said.

ardno, the professional services firm that started in Australia but has expanded to over 85 countries and more than 8,300 employees worldwide, formally opened its new Philippine office at 111 Paseo de Roxas Center in Makati City on April 10, underscoring its investment in the country. No less than Cardno chief executive officer Michael Renshaw attended the ceremony, hosted by Cardno Philippines country manager Ian Porter and graced by over 80 clients, partners, suppliers and dignitaries, including Australian Ambassador to the Philippines Bill Tweddell. In an exclusive interview with Philippine Resources Journal, Renshaw said he expected the local office headed by Porter to triple its size in the next few years on the back of the country’s robust economy, particularly the growth of its infrastructure sector. Cardno has been in the Philippines for the last 30 years and has about 80 staff, half of them in the field, working with government agencies like the Department of Public Works and Highways (DPWH) and the Department of Education as well as private companies. But Cardno, which started as a civil engineering consultancy founded by Gerry Cardno and Harold Davies out of Brisbane, only established a permanent office in Makati in 2012. Moving to the fifth floor of the Paseo de Roxas Center showed its clients and partners that the

62 Philippine Resources

New Cardno CEO Michael Renshaw (right) with country manager Ian Porter. Cardno’s Makati office can support up to 100 staff, “so it’s an indication of our commitment to the Philippines, to all of our clients and potential clients, that we’re here with a large, expanding presence and we’re here for the long haul,” added Porter, who is also president of the Australia-New Zealand Chamber of Commerce of the Philippines or ANZCHAM. What Cardno has seen in the Philippines, Renshaw added, is an economy “that is growing at a good record pace, more than 7 percent (GDP growth) a year, but what we see more importantly is the high degree of talent that exists in the Philippines.” At the moment, Cardno is “looking more at the serious infrastructure needs of the country” such as roads, bridges, light rail, ports, airports, urban developments and others, Porter said. “That’s where it’s really going ahead rapidly because the

infrastructure has to.” But with the government increasing its expenditure on infrastructure to 5 percent of GDP (gross domestic product) up to the year 2016, the Philippines is a “market of opportunity,” noted Renshaw, who became CEO of Cardno in March after 11 years of growing its business outside of Australia, including setting up its operations in the United States. “Probably what we’ve anticipated from being here in this market is that we’ve been looking at a lot more support for infrastructure, with the development and growth that’s anticipated here,” Renshaw said. “But that can cover everything from ports and harbors, to airports, to road and rail, and then we get involved in aspects of education, health facilities, things we feel strongly about.” With the help of Filipino talent, Renshaw said Cardno would also expand beyond its core businesses of engineering, environmental consulting, and social infrastructure and community partnership building in emerging markets. “We’re here to support our clients, but also looking to our Filipino staff to help us even with some of our office support and corporate service functions out of this market,” the CEO stressed. “It’s an expertise that can help us deliver projects to local clients in the Philippines, but more importantly we’re very interested in taking the expertise of the Philippines to the world through our network of 290 offices in 85 countries,” Renshaw said. Continued on page 64 >

LOGISTICS, CONSULTANCY AND REPRESENTATIVE SERVICES

LOGISTICS AND MARKETING PHILS., INC. (LOMAR) has been providing quality management and consultancy services in the Phillipines for 35 years. LOMAR is focused on energy and resource related activities particularly in oil and mining exploration industries, oﬀering a range of services including consultancy, logistics and representative services. As the demand for maintenance services increases, LOMAR also provides specialized industrial and mechanical services to the oil, gas and petroleum reﬁneries, chemical, mining and cement utilities. AMC DRILLING FLUIDS

LOMAR SERVICES

LOMAR are proud to be representatives for AMC’s Oil and Gas Division in the Philippines, supplying AMC Drilling Fluids and products to Oil and Gas operations in the area.

LOMAR provides the following services:

AMC is an Australian drilling fluids company specializing in the production of high quality drilling fluids and equipment for the Oil and Gas market. The company has a focus on innovative product development and has an in-house research, development and testing facility, managed by qualified industrial chemists with specialist training in drilling fluid development. AMC’s drilling fluid products are designed to give customers optimum results in diverse and challenging conditions.

• • • • • • • • •

Business development services and support Representative services Logistic services Project management and coordination services Purchasing and procurement services Transport hire, including car, plane, helicopter and vessel hire Equipment import and re-export services Remote site camp installation and management services Specialist maintenance services (Oil, Gas, Petrochemical, Power and Heavy Industries)

CONTACT DETAILS Logistics / Marketing Philippines, Inc. 3F 111 Paseo de Roxas Building Paseo de Roxas cor Legaspi St. Legaspi Village Makati City 1296 Philippines PO Box 1296 MCC 3117 Tel: + 63 2 815 8836 / + 63 2 815 8839 Fax: + 63 2 817 9978 Email: lomar@lomar.com.ph

www.lomar.com.ph

www.lomarsupply.com

www.amcoilandgas.com

Company News

May2014 2014 --July July 2014 May

www.philippine-resources.com < Continued from page 62 “So we’re employing people here to go far and deliver projects across the world, to help us deliver our corporate services support for Australia and our other offices here in Manila. That’s where we see a big opportunity to grow our business here.” Renshaw also touted a Cardno subsidiary, XP Solutions, which creates software used to model the impact of major flooding events. He said: “Now we all know that we have big challenges here in the Philippines, and with their software we can work out the impact of when it really floods where.” Bullish on PH resources Cardno generates about 34 percent of its global revenue from the resources sector and is the primary sector that it serves, said Renshaw. Despite the current mining regime in the Philippines, he remained optimistic about the country’s prospects in this sector for the long term. “When you look globally, what we’re seeing is that markets around the globe continue to expand. We’re seeing emerging economies growing, seeing dramatic demand for infrastructure globally,” the CEO said. “What we see is the demand for resources. And the resources here that exist in the Philippines is sought after and is going to continue to be of demand, particularly as global economic conditions improve. From our perspective, we’re bullish about the resources sector for the long term, and from a Philippines market perspective we have much to look about,” he added. With Cardno covering a wide range of different sectors, Porter said they did not have to pin their hopes on mining or oil and gas industries, which is “outpacing” the former in the Philippines. “We’re not just here because of the mining sector at all – I mean we’re looking at infrastructure, PPPs (public64 Philippine Resources

private partnerships), a whole range of activities,” Porter said. “But in the long run this is a very resource-rich country, it’s the fifth-most resource-rich country in the world.” “If you look at the importance that responsible mining could play for the economy, you open one mine, you add 1 percent to GDP growth for a year for 20odd years,” Porter added. “If you open three of the next four (mining projects in the pipeline), then you’ve got another 1 percent, so you’ve added 2 percent to GDP growth for over 20 years.” As president of ANZCHAM, Porter said he was pleased that the Philippines has accepted the offer of the Australian government to assist in “trying to come to grips with a whole range of issues – people issues, environmental issues, permitting issues, the fiscal regime” in the local mining industry. “That’s about to happen, and it’s very encouraging.” These are the same areas Cardno hopes to get involved in and can help local firm with “because of the experience we can bring to bear, from (the company’s) experience in other countries” and regions such as Australia, Africa, the Middle East and Latin America, Porter added. Australia has an “amazing history of successful development in mining,” Renshaw said, and in terms of Cardno’s expertise, one of its core advantages that can help support the Philippines’ own economic development is that “we can support mining and extractive industries to get the engineering done right.” “It has to be done in a way that is economically viable, and we bring to bear some of the world’s leading expertise in environmental and natural resource management,” applying “first-world principles to environmental assessment of mining projects globally,” the CEO added. Renshaw also touted Cardno’s strength in environmental and natural resources management. “That’s 40 percent of what we do, so where there’s environmental challenges, where there is environmental

opportunity, we have the people to work with you.” Getting the social license Cardno makes it a point to engage host communities in its projects, and is prepared to supply its services “in what we call hard engineering and soft engineering and environmental services and community development,” Porter said. “We want to apply that across the board in the Philippines.” The firm’s ability to work with governments and the private sector to help partner with the local communities and understand their needs is something Renshaw feels Cardno can really offer to the Philippine market. Cardno makes it a point to “work with the government and the miners to actually engage the local community” and ensuring that their clients and partners get the social license to operate their projects, Renshaw added. Part of that, Renshaw said, is understanding the needs of communities, “then actually working with them to build skills, and then they can become active partners in building the project. They’ll be coming away with a true partnership that involves helping build the education sector and whole standards of the communities we’re working in, in partnership with our clients.” Local partners of Cardno would “get opportunities to advance their livelihood, and wealth generation for their local community.” The firm then looks at what sociatic frameworks the stakeholders can put up to support the community, “and how then the mining sector, in partnership with donor agencies, can actually deliver programs that engage their communities and provide opportunities for their children and future generations,” he added. In Australia, Porter said the mining industry is the biggest private-sector employer of indigenous peoples, and Continued on page 67 >

Company News

May May2014 2014 --July July 2014

www.philippine-resources.com

Coffral unveils Ringlock and Staflex

offral Access and Shoring recently held its Annual Open Ware House event at its facility in Malabon City, where the scaffolding and formwork company

showed off its products and services to a sizable audience from the engineering, construction, safety and mining industries. Chief executive officer Jim Goudsmit and general manager Jacqueline Haessig Alleje led Coffral officials in demonstrating their proprietary Ringlock and Staflex scaffolding systems, which can handle challenging and complicated access tasks. With heights that can reach up to 150 meters, using the Ringlock and Staflex systems for construction sites, industrial maintenance and even in petrochemical sites has been the best option for Coffral’s clients, both Filipino and multinational companies, Goudsmit said.

Coffral GM Jacqueline Haessig Alleje explains the new systems.

Alleje also said variants like the façade, mobile and hanging scaffolds as well as access towers and easy access roads for challenging terrain are also available from their warehouse at the Goldendale Industrial Park in Barangay Tinajeros, Malabon City.

Coffral also demonstrated how it conducts its KVL Trench Shoring Installation and over lunch, erected a model scaffold from scratch. Apart from trench shoring, Coffral’s systems are also used for concrete slab Shoring and re-shoring. Challenge The company also challenged its clients to name the parts of a complete scaffold set and played soccer using a KVL shoring set as a goal among the games that entertained guests later in the day. The event wound up with a raffle where Coffral gave away prizes, including an iPad and an iPad mini, as well as other door prizes. Both Goudsmit and Alleje were confident of growing Coffral’s business in the Philippines, citing the growing infrastructure needs of the country as it accelerates economically.

CR Asia building on Philippine successes

ith over 20 years of experience working in the Philippine market CR Asia is looking to bring some of its knowledge and expertise gained elsewhere in Asia. CR Asia Group is a specialist industrial service provider serving the refining, petrochemical and other heavy industries throughout Asia since 1991. Operating Philippines for many years, CR Asia has been working together with LOMAR (Logistics and Marketing Philippines Inc.) to provide industrial services to high profile operators such as Petron Bataan, Shell Tabangao and Shell Philippines Exploration (SPEX). The CR Asia Group of Companies has operational bases in Singapore, Thailand, Malaysia and India and also supports projects in other Asian countries such

66 Philippine Resources

as, Bangladesh, Brunei, China, Indonesia, Korea, Laos, Myanmar, Pakistan, Philippines, Taiwan and Vietnam.

Decoking Technology); Mechanical Engineering; Waste Handling; and Offshore Projects & Maintenance.

Elsewhere, the company’s CR Thailand business has already been successful in working in the mining industry providing industrial cleaning and maintenance solutions during shutdown and turnaround activities in Laos.

Within these core services CR Asia has further developed a range of specialty activities to include; Tubular Reactor Services; Fin Fan Optimisation; and Total Heat Exchanger Maintenance Services, such as; spading and isolation, bundle extraction (using hydraulic bundle pullers); cleaning of shell and tube side; repairs/retubing, etc.; in-situ machining; hydrotesting – all as a turnkey operation. Additionally; On-line Leak Sealing; Hydraulic Bolt Tensioning and Torquing; plus Chimney/Flare Inspection & Repairs are also included in the CR Asia portfolio of services.

CR Asia offers extensive contracting experience in providing catered service packages for a wide range of jobs and/ or turnkey maintenance services during major shutdowns and turnarounds. The specialized maintenance services has been developed to include: Reactor Services & Catalyst Handling; Chemical Cleaning Services; Pipeline Services; Mercury Management Services; High Pressure Water Jetting; CDT (CR Asia

CR Asia is accredited to ISO 9001, 14001 and OHSAS 18001.

Company News

May 2014 May 2014 -- July July2014 2014

www.philippine-resources.com

SGS teams up with Corescan

GS and Corescan Pty Ltd are pleased to announce an agreement that allows SGS to incorporate Corescan´s mineralogical imaging technology into SGS´ global network servicing the minerals exploration and oil and gas industries. The agreement allows for the integration of Corescan’s hyperspectral mineralogical mapping capability with SGS´ comprehensive range of logistics, sample management, analytical and professional services. This added capability, coupled with SGS’ existing mineralogical and geological expertise, will deliver greater understanding in applications from exploration through to

geometallurgical assessment. Corescan’s technology complements SGS´ industry-leading minerals business by providing: • high resolution sample and core photography (60μm); • identification and mapping of alteration minerals and their chemical compositions (4nm); • physical textures and morphology using 3D laser profiling (20μm);

• access to a full range of analytical services from a single provider, via centralised, or on- or near-site facilities. The new service will be available through SGS’ unparalleled network of commercial and on-site facilities that extends to all parts of the globe. Central to this agreement is the two companies’ joint collaboration on future technology and application developments. The relationship with leading hyperspectral technology developer, Corescan, demonstrates SGS’ ongoing commitment to providing leading edge integrated exploration services.

• integrated data management and visualisation (www.coreshed.com); and

Ballard provides power back up

anadian company Ballard Power Systems recently announced that installation of the company’s fuel cell telecom backup power systems is proceeding in the Philippines, with 12 ElectraGenME systems now deployed at key sites in metro Manila. These systems are part of an initial 20-system order received in the third < Continued from page 64 being from Brisbane, Cardno carries this ethic that helps differentiate it from other service companies. “Whether it be a power station or a road or anything, any area that we’re engaged with, we always try to involve the local community as much as possible. Because it’s not just a question of building a mine or a bridge, it’s a question of community and social development, which underpins almost everything we do,” Porter added. Renshaw noted that while Cardno is not doing a lot of work at present in the Philippine resources sector, it has staff in

quarter of 2013 from AECi, Ballard’s channel partner in the Philippines, for deployment in the network of a major full service telecommunications company in that country. Due to the severity of Typhoon Haiyan in November 2013, installation of these methanol-fuelled backup power systems was necessarily delayed. This extreme weather event reinforced Manila working in the resources sector globally, and can tap their expertise and deliver it to the mining, oil and gas, and energy industries here. “But in terms of capability we’re looking at this office to become more wholistic, just like Cardno offices are more wholistic globally,” he said. “There’s more opportunity to extend our engineering capability, opportunity to in particular grow a stronger environmental capability in this office -- at the moment we’re doing a lot of activities for other markets (outside the Philippines) -- and lastly extend the work that we do with local communities.”

the need for reliable, extended duration backup power capability in order to maintain continuity of communications between emergency services personnel as well as the general public during crisis situations. “Our methanol-fuelled systems continue to gain traction in South East Asia, and this new deployment in the Philippines is a further proof point,” said Steve Karaffa, Ballard’s Chief Commercial Officer. Cardno already does a lot of work already for agencies like AusAid (Australian Agency for International Development), ADB (Asian Development Bank), USAID (United States Agency for International Development), and Renshaw said he sees many more opportunities “to provide support for those agencies out of their Manila office. He added: “(Cardno is) a family that’s gone a lot more global, although we are Australian born we are a global firm, and we see the Philippines as a key part of that continuity.”

Philippine Resources 67

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May May2014 2014 --July July 2014

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lobal safety specialist Intertek has expanded its analytical, inspection, auditing and certification services to its new premises in Makati.

In response to growing customer demands, Intertek Makati is now relocated in threestorey premises, occupying a combined area of over 2,900sq meters laboratory and office space. According to Frank Pan, Chief Executive for Intertek South East Asia, the relocation and expansion plan is part of Intertek’s longer term strategy to offer customers an integrated quality solution with state-of-the-art technology complementing its professional local expertise in the Philippines. The new premises will offer testing solutions for softlines, toys, hardlines, textiles, garments, oil and petroleum products, environmental, food and water, agricultural commodities, cosmetics, packaging, Halal and more. Sustainable quality and compliance solutions are also offered through the audit and inspection teams in response to high market demands both locally and regionally. The expanded facilities form part of Intertek’s extensive global network of laboratories and offices that can accommodate higher job volumes and reduce the turnaround time from sample receipt to testing, inspection, auditing and reporting locally. The improvement in service quality benefits our customers as it strengthens our culture of providing a complete customer-oriented experience. Intertek scientists and professional staff have years of accumulated industry experience, supporting customer requests at different stages of the supply chain. The laboratories and inspection activities are duly accredited to ISO/IEC 17025:2005 & ISO/IEC 17020:2004 standards by the Philippines Accreditation Office of the Department of Trade and Industry. Intertek certificates are also well recognized by local regulatory agencies. “This further demonstrates the organisation’s technical competency as a testing laboratory in carrying out compliance product quality, safety and performance testing as well as the effectiveness of a laboratory facility to test for various products and commodities,” Mr. Pan said. Opening Intertek’s new office are, from right, Vissia Marie Aldon, Makati City Personnel Officer; Perla Baje, manager, Philippine Accreditation Office; Craig Ritchie, Intertek GM; and Darren Hosdoll, Intertek GTS Commercial Manager (Dubai).

Indodrill Group of Companies provides specialised contract drilling services to the mining, mineral exploration, coal mining and construction industries in the South East Asia / Pacific regions. Our operations commenced in Indonesia in 1995 and we have steadily expanded into other Asian countries, Australia and Europe, focusing on mining and exploration operations that demand high international standards throughout. All operations are conducted without compromise to the highest standards of safety and environmental protection that can be achieved.

INDODRILL (EMEA) LTD EUROPE MIDDLE EAST AFRICA OFFICE IN SCOTLAND

â&#x20AC;&#x153;Our management and staff are committed to improving the standards of performance in the drilling industries in which we operate in South East Asia, Australia and Europeâ&#x20AC;? INDODRILL PHILIPPINES INC

Berthaphil Building 1 & 2, Berthaphil II South, Bayanihan Street Clark Freeport Zone, Pampanga 2023, Philippines Tel: +63(45) 499 1159 Email: info@indodrill.com