Sitting on a Gold Mine: Will Mining Make or Break the Philippines?

The Philippine government believes bolstering extractive industries will drive growth. But religious leaders and environmentalists wonder about the cost

  • Share
  • Read Later
Catherine Traywick

Runoff from a nearby gold mine has degraded the Kingking River in Compostela Valley, a Philippine province where tension between small-scale miners and a foreign mining company underscores a national debate over the future of extractive industries

In Compostela Valley, in the southern Philippines, a river streaked many shades of brown cuts through farmland and jungle brush to release its muck into the sea. The slurry swells around the coastline, muddying the emerald waters. The source of the blight is an eroded mountainside peppered with blue tarps and tiny shacks, a gold mine nestled among green hills. About 600 families reside on its steep slope, eking out a living by half-grams of gold.

They are, technically, squatters. An American company, St. Augustine Gold & Copper, holds the rights to this mountain and those surrounding it. In their place, the company wants to build massive pits to get at the estimated 962 million tons of precious metals beneath. They also promise to clean the river, plant trees and create jobs. It is a massive undertaking that will dramatically alter the landscape and displace the thousands of workers who have been mining in the area, and fueling the local economy, since the 1980s.

The Philippine government, for its part, is rooting for the American firm, grounded in the belief that large-scale mining can be a golden engine of economic growth. Corporate mining permits have multiplied under President Benigno Aquino III, and new mining rules filed by his administration this week will place new restrictions on where and what small-scale miners can mine. But many Filipinos, especially those from mining communities, are wary of his plans. They want an overhaul of current mining laws. They also want a bigger piece of the profit.

(MORE: 10 Questions for Benigno ‘Noynoy’ Aquino III)

What’s happening in the Philippines is echoing across a region where fast-growing economies are weighing the costs and benefits of extractive industries. Indonesia this year imposed a whopping 20% tax on mineral exports and, in an effort to foster domestic downstream industries, now limits shipments of raw materials. Mining companies are, naturally, critical of the turn, saying it discourages foreign investment. What good are high taxes, after all, if there are no investors to pay them? There’s a flip side to that: What good are investors if there is nothing to mine?

The Philippines, of course, has plenty to mine. Loaded with mineral wealth (worth about $840 billion), it boasts some of the largest untapped gold and copper deposits in the region. Unfortunately, it has not always been the friendliest place to do this kind of business. In Mindanao, which holds more than a third of the country’s gold and houses all its insurgencies, mining operations are susceptible to attacks and extortion from rebel groups. Noncomplying companies have lost millions of dollars’ worth of equipment to vandalism and arson. The government has long offered generous incentives — extremely low taxes, state-funded security, low accountability — to entice foreign investment.

With adequate taxation, big mining could indeed fuel the economic growth the country needs. But environmentalists, local leaders and even the influential Catholic Bishops’ Conference of the Philippines have taken a stand against large-scale mineral extraction. Besides obvious environmental concerns, they fear that big mining will displace indigenous tribes and squelch the small-scale industry that has historically contributed the bulk of mining tax revenues. On top of that, they argue, bureaucratic inefficiencies — and likely graft and corruption — prevents what little mining revenue is collected from making its way back to communities. As a result, at least 20 governors have banned some form of large-scale mining in their provinces.

(MORE: Asia to Lead the World’s ‘Rich List’)

The tension unfolding around St. Augustine’s Compostela Valley project underscores what’s at stake nationally. Just 1½ years old, the project has received endorsements from every level of government, a requirement under the 1995 mining law. It stands to be the largest single mining operation in the country’s history (if a mining ban halting the nearby Tampakan Gold-Copper Project holds up). Its executives say it’s setting a new standard of socially responsible mining: hiring from the local population, planning postmine rehabilitation and promoting reforestation. It also spends about $20,000 per month on community-development efforts, according to Clyde Gillespie, the company’s environmental and permitting director, who also pointed out that no law requires them to do so. “What we’re doing now in the community is totally voluntary,” he says. “We think it’s the right thing to do.”

But local leaders from affected barangaysor villages, remain skeptical. “I have 100% doubts,” says Captain Ferdinand Dultra, a leader of Barangay Magnaga, which endorsed the project after the company reportedly donated 500,000 pesos to the construction of a barangay hall. (Officials say the donation did not affect their decision.) While several leaders said that they appreciate the company’s investment in the community, they also point out that mining reform might secure similar community benefits while guaranteeing corporate accountability. “It is very risky for us to support large-scale mining,” says Elvie Baliar, a local leader from Barangay Tambangon who also endorsed the company’s exploration bid. “Six hundred households will be affected. They are in the area since 1987.”

Under the 1995 law, small miners with a historical claim to an area can petition for Minahang Bayan, or “People’s Mining,” permits. The miners from this area began applying for such permits in the 1980s, without success. Then, in 1992, the Mines and Geosciences Bureau (MGB) granted a permit to Nationwide Development Corp., a Philippine logging company that is now partnered with St. Augustine. From that point on, every miner on the mountain has been “illegal.”

(MORE: Dynastic Duel: It’s Arroyo Vs. Aquino in the Philippines’ Latest Political Battle)

Alexander Josol is one of those miners. He used to be a farmer, but now operates his own tunnel, for which he pays royalties to the local indigenous council. The work is more dangerous than farming (a mining-related landslide in January killed 40 people), but the pay is decent. With his experience, he’s the sort of miner that St. Augustine might hire. But Josol says he doesn’t have the mechanical skill to work in an open-pit and would also earn less as an employee than as an independent miner, as the latter pays by the gold gram rather than by the hour. He is working with about two dozen small-scale-mining leaders to oppose St. Augustine’s project and secure the right to remain on the mountain. They want the government to back off of large-scale projects and instead invest in the small-scale industry, helping artisanal miners work more safely and efficiently.

Others just want better regulation of big mines. Under the 1995 mining law, foreign companies typically pay no income tax, no export tax and just 2% excise tax — which is in large part why mining takes up less than 2% of the country’s GDP. That taxes are determined by self-reported production figures presents another obvious problem: underreporting of production. From 2000 to 2008, reported mineral production was between 17% and 45% lower than actual mineral exports, according to a 2010 study commissioned by Action for Economic Reforms. The lack of oversight behind such a discrepancy is a major criticism of the existing mining law. Father Edwin Gariguez, who won the 2012 Goldman Prize, a prestigious international environmental award, for his work on mining, argues that Aquino gives too much weight to the regulatory power of government agencies. He says most agencies don’t have the capacity or the will to enforce the law.

The IMF, which once called for the cheap privatization of the country’s natural resources, now recommends that the Philippines revise its mining tax scheme. Executives at St. Augustine acknowledge that the Philippines’ liberal mining laws and low taxation are part of what attracted the company to the region, but Gillespie argues that stricter regulation and “reasonably” higher taxes wouldn’t necessarily turn them off. The payoff is too huge. “If you can get in here and get established, you’ll be in pretty good shape in the long term,” says St. Augustine chief operating officer Tom Henderson, of the country’s mineral potential.

The President, who has long promised to reform the industry, this week filed the implementing rules for his new executive order on mining. They do not include provisions on revenue sharing, protected habitats or ecotourism zones. Other stakeholders have taken matters into their own hands, introducing three alternative mining bills at the Philippine Congress (House bills 43796342 and 4315), each more radical than the next in their attempt to reform the industry. These alternatives are supported by the Catholic Bishops’ Conference, environmental groups and indigenous rights organizations, who feel that any one of these measures would add teeth to the President’s plan.

Whether Aquino will respond favorably to the popular call, or uphold the decades-long status quo, remains to be seen. But what happens in the Philippines could set a new standard for extractive industries in other parts of the world.

Produced in association with the Investigative Reporting Program