BMI View: The mid-2014 exit of Glencore Xstrata from the USD 5.9bn Tampakan copper-gold project reflects continuing challenges for mining investment in the Philippines, largely due to subdued metal prices . Moreover, resource nationalism will remain a threat as the Philippine government continues to consider raising taxes on the mining sector.
Falling metal prices and fading attraction of frontier mining will continue to dampen investment into the Philippines' mining space over the coming years. As spotlighted by the exit of Glencore Xstrata from the USD5.9bn Tampakan project in South Cotabato, which announced its decision to sell its stake in the mine in a bid to prune its portfolio and focus on the development of brownfield projects, we expect the majority of international miners to focus on brownfield investment rather than costlier and riskier greenfield projects. Indeed, we believe frontier regions will suffer the brunt of cutbacks in investment given the inherent risks and huge capital commitment associated with immature regulatory frameworks and a paucity of sound infrastructure. However, domestic players will continue to expand their footprint and develop deposits deemed economical. Average annual sector growth will come in at 5.3% in 2015-2019, though this will be from a low base. Moreover, the mining sector will continue to make up a minor part of the wide Philippine economy.
|Source: Mines and Geosciences Bureau. Note: *As of Q314.|
|Copper (with gold)||-||-||-||1||1|
|Copper (with gold & silver)||3||3||3||2||3|
|Copper (with gold, silver, & zinc)||1||1||1||2||1|
|Gold (with silver)||8||5||6||6||6|
|Total Operating Metallic Mines||28||30||36||41||46|
Despite Mineral Resources, Operational Challenges For Global Miners
While the Philippines possesses significant mineral reserves, various operational challenges will limit the mining sector's growth potential. These challenges include terrorism, bureaucratic corruption, inefficient transport networks, and high labour costs. Compared to some regional peers, the country has fairly low foreign direct investment (FDI) levels. This is partly linked to provisions which restrict foreign ownership in companies to only 40% for a wide variety of sectors, limiting the overall level of interest. Further, regulatory inconsistency, lack of transparency, and the aforementioned corruption are often cited by foreign businesses as being a serious drag on investment, particularly while regulatory authority remains weak or ambiguous.
Resource Nationalism To Remain Concern
Despite subdued metal prices, the Philippine government may seek to raise taxes on the mining sector. In particular, the Mining Industry Coordinating Council was established in January 2014 to review all existing mining-related laws and regulations, with a draft bill expected to be filed in Congress. According to the Department of Environment and Natural Resources (DENR), the draft bill is expected to increase the government's take from the mining sector by over ten-fold. Furthermore, there will also be a provision for windfall tax in order to enable the government to extract a greater share from mining companies during times of higher commodity prices.
Indonesian Ban Provides Upside
The country's nickel sector will continue to outperform given the ongoing Indonesian export ban on unprocessed ore. While Philippine nickel ore is of lower grade, exports to China have increased significantly given the latter's need to supply its nickel pig iron (NPI) operations. Nickel Asia, the country's top nickel producer, saw its profits increase significantly in H114 on the back of higher shipments. However, we forecast the country's copper and gold sectors will see slower output growth on the back of weak global prices.
|Modest Growth Ahead|
|Philippines - Select Minerals Production (% chg y-o-y)|
The Philippines Mining Report has been researched at source and features BMI Research's mining and commodity forecasts for metals, minerals and gems, covering all major indicators including reserves, production, exports and values. The report also analyses trends and prospects, national and multinational companies and changes in the regulatory environment.
BMI's Philippines Mining Report provides industry strategists, service companies, company analysts and consultants, government departments, trade associations and regulatory bodies with BMI's independent forecasts and competitive intelligence on the mining industry in Philippines.
- Use BMI's independent industry forecasts on Philippines to test other views - a key input for successful budgeting and planning in this mining market.
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BMI Industry View
Summary of BMI’s key forecasts and industry analysis, covering mining reserves, supply, demand and prices, plus analysis of landmark company developments and key changes in the regulatory environment.
Industry SWOT analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the mining sector and within the broader political, economic and business environment.
BMI Industry Forecasts
Historic data series (2009-2013) and forecasts to end-2019 for key industry and economic indicators, supported by explicit assumptions, plus analysis of key risks to the main forecasts. Indicators include:
- Mining industry: Industry size (USDmn), real growth (%), % of GDP, employment (‘000), workforce as % of total workforce, average wage (USD).
- Output: Production volumes (‘000 tonnes, carats etc.) for all major metals, minerals, ores and gems mined in each state, including bauxite, copper, gold, coal, lead, silver, tin, titanium, uranium, zinc etc.
- Exports: Value of exports (USDmn) for all major metals, minerals, ores and gems mined in each state.
- Commodity markets: Global demand, supply, stocks and benchmark prices (USD) for aluminium, copper, lead, nickel, tin, zinc, gold and steel.
BMI’s Mining Risk Reward Index
BMI’s Risk Reward Indices provide investors (mining companies and support service providers) looking for opportunities in the region with a clear country-comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide indices of highest to lowest appeal to investors, with each position explained.
Competitive Landscape Tables & Analysis
Comparative company analyses and tables detailing USD sales, % share of total sales, number of employees, year established, market cap/NAV, ownership structure, production and % market share.
Details and analysis of all current and planned developments (new ventures, capacity expansion and other investments) across the sector broken down by metal/ore.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
The Mining reports are based on an extensive network of primary sources, such as multilateral organisations (UN, WB, IMF), national chambers of commerce and industry, national statistical offices, government ministries and central banks, and multinational companies.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.