Conference on Mining’s Impact on Philippine Economy and Ecology we tell it like it is Conference on Mining’s Impact on Philippine Economy and Ecology March 2, 2012 (Friday) Grand Ballroom, Inter-Continental Manila Peter Wallace Chairman The Wallace Business Forum

A CV AS A VOLUNTEER PLANTED TREES WORKED ON LAND REGENERATION MASTER OF SCIENCE, CONSERVATION UNIVERSITY COLLEGE LONDON BACHELOR OF SCIENCE, MAJOR IN BIOLOGY AND ECOLOGY, AND HONORS IN ZOOLOGY UNIVERSITY OF NSW, AUSTRALIA INTERNATIONAL BACCALAUREATE DIPLOMA INTERNATIONAL SCHOOL MANILA UNDERTAKEN ENVIRONMENTAL IMPACT ASSESSMENTS FOR INFRASTRUCTURE PROJECTS FOR GOVERNMENT AND THE PRIVATE SECTOR AUTHORED A STUDY TO MINIMIZE IMPACT OF ROAD THROUGH WETLANDS AND MANGROVES, AND EFFECT ON MIGRATORY BIRD SPECIES, AND SIMILAR PROJECTS AS A VOLUNTEER PLANTED TREES WORKED ON LAND REGENERATION TAUGHT UNDERPRIVILEGED KIDS PROJECT TO PROTECT SMALL ANIMALS COMMUNITY SERVICE IN LA CARLOTA ALL BY AGE 28

Mining is Unavoidable This IS a fundamental point that cannot be ignored – and must be taken into account: OUR DAILY LIVES ARE DEPENDENT ON MINED PRODUCTS. Banning mining would take us back to Neanderthal times. IT WOULD ALSO OPEN THE DOOR TO ILLEGAL MINING. It is un-Christian and selfish in the extreme to say “LET SOMEONE ELSE DO IT”.

dr. jose rizal saiD: “Very probably the Philippines will defend with indescribable ardor the liberty she has bought at the cost of so much blood and sacrifice. With the new men that will spring from her bosom and their remembrance of the past , she will perhaps enter openly the road of progress with which a young man returns to cultivate his father’s farmland so long devastated and abandoned due to the negligence of those who have alienated it. Then the mines – gold, iron, copper, lead, coal and other minerals – will be worked again and will help solve the problems of poverty.”

you can dig copper out of the hills.” And even the bible in Deuteronomy Chapter 8 Verses 7-9:   “For the Lord your God is bringing you into a good land—a land with brooks, streams, and deep springs gushing out into the Valleys and hills; a land with wheat and barley, vines and fig trees, pomegranates, olive oil and honey; a land where bread will not be scarce and you will lack nothing; a land where the rocks are iron and you can dig copper out of the hills.” I’M PRO-ENVIRONMENT. I FOUNDED A FOUNDATION FOR WATERSHED PROTECTION. MY DAUGHTER IS AN ENVIRONMENTAL SCIENTIST. BUT I MUST HAVE MINERALS IN MY LIFE.

…Mining is Unavoidable The answer is to control mining – to do the least possible damage to support the local community to rehabilitate the land at the end of the life of the mine The role of everyone should be to ensure those 3 things are done. The solution is:  Responsible MINING NOT BAN MINING.

Mining in our daily lives

Farming and Fishing need Mining Mining in our daily lives Farming and Fishing need Mining

Mining in our daily lives  Radio: copper, gold, iron, petroleum  Toaster: copper, iron, nickel, mica, chromium, petroleum  Electrical Wiring: copper, aluminum, petroleum  Microwave: copper, gold, iron, silica  Stove: aluminum, copper, iron, nickel, silica Refrigerator: aluminum, copper, iron, nickel, petroleum, zinc  Salt: halite  Plates: clay, silica, feldspar  Cutlery: iron, nickel, silver, chromium  Clock: iron, nickel, petroleum, silica ⑪ Sink: iron, nickel

Mining in our daily lives  Computer: gold, silica, nickel, aluminum, zinc, iron, petroleum  Pencil: graphite, clay  Telephone: copper, gold, petroleum  Books: limestone, clay  Pens: limestone, mica, petroleum, clay, silica, talc  Film: petroleum, silver Camera: silica, zinc, copper, aluminum, petroleum  Chair: aluminum, petroleum Television: aluminum, copper, nickel, silica, strontium  Stereo: gold, iron, nickel, beryllium, petroleum ⑪ CD: aluminum, petroleum ⑫ Chest: iron, nickel, copper, zinc ⑬ Floor: limestone ⑭ Wall: gypsum, clay, mica

An average car uses these metals Mining in our daily lives An average car uses these metals 2200 lbs. of iron & steel 240 lbs. of aluminum 50 lbs. of carbon 42 lbs. of copper 41 lbs. of silicon 22 lbs. of zinc 405 lbs. of 30 other minerals including titanium, platinum, and gold

Your tricycle can’t run without these metals Mining in our daily lives Your tricycle can’t run without these metals iron, copper, nickel, lead, zinc, aluminum, manganese, chromium, vanadium, tungsten, platinum, gold, silver

Your TV works because of these metals Mining in our daily lives Your TV works because of these metals IRON: electronics, screws, brackets LEAD & TIN: circuit boards ALUMINUM: brackets, heat sinks COPPER: circuit boards, wires GOLD: Integrated circuits

An average cellphone contains Mining in our daily lives An average cellphone contains 58% plastics made of petroleum 2% silver, gold, palladium, platinum 16% ceramics made of silica 24% copper

Mining in our daily lives WE NEED A METAL SEWING MACHINE WE NEED A METAL CLOTH PRODUCTION MACHINE WEAVING ON A WOODEN WEAVE IS OK IF THERE ARE 100-M PEOPLE IN THE WORLD

The Church uses products of Mining So we must have mining in our lives Mining in our daily lives The Church uses products of Mining So we must have mining in our lives

OVER THE PAST 20 YEARS THE PHILIPPINES HAS BEEN THE POOREST PERFORMER PERFORMANCE IN ASEAN ESTIMATED PROPORTION OF POPULATION LIVING BELOW $1.25/DAY (IN PPP) Philippines WE HARDLY MADE A DENT ON POVERTY UNLIKE OUR NEIGHBORS 2.3 MILLION FAMILIES ALREADY ON CCT BECAUSE THERE ARE NO JOBS INDONESIA EMPLOYS 1.5M IN MINES THE PHILIPPINES ONLY 340,000

THE PHILIPPINES RANKS HIGH IN THE WORLD ON MINERAL RESOURCES RESERVES MINERAL ORE GLOBAL RANK ESTIMATED RESERVES (TONS) GOLD 3RD 5 BILLION COPPER 4TH 8 BILLION NICKEL 5TH 0.8 BILLION CHROMITE 6TH 40 MILLION INVESTMENTS FROM 2011-2017 PROJECTED TO REACH $15-B WILL HAVE 3% SHARE TO GDP BY 2018 MINING CAN PROVIDE THE BOOST THE ECONOMY NEEDS TOTAL REVENUES $43-B, 3% OF GDP BY 2018

SHARE OF MINERAL EXPORTS TO TOTAL ANNUAL EXPORTS (%) Philippines Peru Chile Brazil S. Africa Vietnam India

OVER THE NEXT 5 YEARS WE EXPECT THE PHILIPPINE ECONOMY TO GROW AT AN AVERAGE OF 5.5% GDP GROWTH FOR THE PAST 25 YRS GOV’T CAN EASILY RAISE GDP GROWTH TO AT LEAST 6.5% P.A. BY SPENDING MORE ON INFRA AND SUSTAINING THE ANTI- CORRUPTION STANCE. THAT’S ASSUMING EVERYTHING CONTINUES ON THE CURRENT TRACK. BUT MINING CAN BE A GAME-CHANGER. TAMPAKAN ALONE CAN ADD 1% AGE POINT TO GDP GROWTH

MINING GETS FULL GOVERNMENT SUPPORT AND FAST ACTION ON APPROVALS ETC. WE CAN LOOK AT 2 SCENARIOS AWAITING THE MINING SECTOR: SCENARIO 1 MINING GETS FULL GOVERNMENT SUPPORT AND FAST ACTION ON APPROVALS ETC. WHILE THE OPPOSITION REALIZES THEIR ROLE IS TO HELP CONTROL, NOT BLOCK MINING. INVESTORS PUT REAL MONEY IN

THEN WHAT HAPPENS? SUSTAINABLE, WORLD’S BEST PRACTICE MINING – UNDER CLOSE MONITORING OF FORMIDABLE WATCHDOGS AT LEAST 112,000 MORE DIRECT JOBS FROM $15-B INVESTMENTS: JOBS THAT PAY WELL, GET WORKERS’ KIDS TO SCHOOL, & ENSURES WORKERS’ FAMILIES DON’T GO HUNGRY ROADS, SCHOOLS & HOSPITALS BUILT IN REMOTE AREAS ELECTRICITY AND WATER COME TO THE VILLAGE GDP GROWS AT 7-8% P.A., NOT 5.5% WE BREAK THE POVERTY TRAP

THEN WHAT HAPPENS? GOVERNMENT CONTINUES TO DILLYDALLY & FLIP FLOP SCENARIO 2 GOVERNMENT CONTINUES TO DILLYDALLY & FLIP FLOP OPPOSITION SUCCEEDS IN BLOCKING DEVELOPMENT THE OPEN PIT BAN STAYS, EVEN EXPANDS INVESTORS LEAVE THEN WHAT HAPPENS? INFORMAL, SMALL- SCALE MINING TAKES OVER DISASTERS CONTINUE AND MINING COMMUNITIES REMAIN POVERTY-STRICKEN JOBS AREN’T CREATED, SUPPORT SERVICES DON’T HAPPEN ECONOMY SUFFERS, GDP TRICKLES ALONG AT 3.5-4%

WHY IS RESPONSIBLE MINING BENEFICIAL? CONTRIBUTES TO GROWTH OF LOCAL AND NATIONAL ECONOMY Investing capital and re-investing profit in the country Revenue generation through taxes Utilization of local goods and services Additional employment in rural areas Improvement of infrastructure (roads, power and water systems, buildings)

2. IMPROVES THE QUALITY OF LIFE ESPECIALLY IN RURAL AREAS Provides infrastructure for community dev’t (roads, housing) Provides access to hospitals and other healthcare facilities Brings in quality education in remote areas Implements social management and dev’t programs  

IT’S SMALL SCALE THAT DOESN’T DO ANY OF THIS 3. SUPPORTS THE ENVIRONMENT Implements best and sustainable environmental practices in mining Carries out progressive mine rehabilitation Builds structures that prevent disasters and environmental degradation Fully rehabilitates the area at the mine’s end IT’S SMALL SCALE THAT DOESN’T DO ANY OF THIS

THE PHILIPPINES HAS THE LOWEST LEVEL OF PERSONAL WEALTH COUNTRY 2010 GDP per CAPITA (US$) INDONESIA 4,200 VIETNAM 3,100 PHILIPPINES 2,200 MINING CONTRIBUTION TO GDP (%) Indonesia MINING IS NOT THE ONLY REASON, BUT IT’S CERTAINLY A MAJOR REASON. Vietnam Philippines

MINING WEALTH OF THE COUNTRY IS ESTIMATED TO BE AT $840 BILLION OR P47 TRILLION (4 TIMES THE ANNUAL GDP) BUT THE PHILIPPINES ACCOUNTS FOR LESS THAN 3% OF WORLD MINERAL SUPPLY DESPITE BEING RICHLY ENDOWED WITH RESOURCES. SAUDI ARABIA IS RICH BECAUSE IT HAS OIL AND PUMPS IT OUT OF THE GROUND TO SELL IT. THE PHILIPPINES IS POOR BECAUSE IT HAS GOLD IN THE GROUND – AND LEAVES IT THERE.

THE CONTRIBUTION OF MINING TO THE ECONOMY CAN’T BE DENIED PERCENT SHARE OF MINING TO TOTAL EXPORTS SINCE 1975 IN THE 1970’S, MINERAL EXPORTS PEAKED & CONTRIBUTED 24% TO TOTAL EXPORTS. MINERAL EXPORTS IN 2011 AMOUNTED TO A MERE $2 BILLION IT’S A MERE 5% OF EXPORTS TODAY. IF IT HAD CONTINUED AT 20%, IT WOULD HAVE BEEN $9-B

EMPLOYMENT IN MINING AND QUARRYING (IN THOUSANDS) JUST FOR THE 1ST 3Q OF 2011, LARGE-SCALE METALLIC MINING EMPLOYED 220,000 TOTAL EMPLOYMENT IN METALLIC AND NON-METALLIC MINING IS AROUND 340,000. THEN ADD TO THAT ALL THE EMPLOYEES OF SUPPORT SERVICES AND SUPPLIERS, PROBABLY RUNS TO ≈2 MILLION

MINING EMPLOYS 220,000 ON 60,000 HAS. = 0.2% LAND MASS AGRICULTURE EMPLOYS 12M ON 9.6M HAS. = 32% LAND MASS ON A PER HECTARE BASIS: MINING EMPLOYS 4 PERSONS/HA. WHILE AGRICULTURE EMPLOYS 1 PERSON/HA. AVE. MINING WAGE (rank and file)* : P550/day = P2,200/ha. VS. AVERAGE FARMER INCOME**: P260/day = P260/ha. PEOPLE-WISE WHICH IS THE BETTER LAND USE? *data from a responsible mining firm **from National Wages and Productivity Commission; ave. among regions

No Operating Mines are located in these Provinces! 10 Largest Rice Producers in the Philippines (in tons): Nueva Ecija - 1, 356, 161 Isabela - 1, 036, 917 Pangasinan - 1, 011, 115 Iloilo - 823, 376 Cagayan - 702, 561 Leyte - 582, 890 Camarines Sur - 560, 889 Tarlac - 557, 943 North Cotabato - 449, 202 Maguindanao - 433, 766 No Operating Mines are located in these Provinces! Operating Mines Major Rice Producers

A TYPICAL MPSA COMPANY OR PROJECT ALREADY CONTRIBUTES ABOUT 43 A TYPICAL MPSA COMPANY OR PROJECT ALREADY CONTRIBUTES ABOUT 43.7% OF ITS REVENUES TO THE PUBLIC SECTOR AND WITH ROYALTIES, IT CAN GO AS HIGH AS 52.8% ASIDE FROM TAXES, THE PUBLIC SECTOR ALSO BENEFITS FROM OTHER FORMS OF CONTRIBUTIONS OF RESPONSIBLE MINING COMPANIES TO THE ECONOMY

THE MUNICIPALITY OF SIOCON HAS GONE FROM CLASS 4 TO CLASS 1 FOR EXAMPLE:  CONTRIBUTIONS OF TVI PACIFIC INC. Million (PHP) Roads 94 Employment 413 Property Rights of Subanen 40 Water 1 Education 23 Training-capacity, agriculture, crafts, apprenticeship, on-the-job 14 Health facilities and medical personnel, ambulance 37 Transportation-to market, work 10 Environmental cleanup 2003 (pre-project)-SSM mercury, cyanide 24 Taxes and royalties - municipal, excise, royalty to Subanen, royalties to rights owner 537   TOTAL 1.2 BILLION THE MUNICIPALITY OF SIOCON HAS GONE FROM CLASS 4 TO CLASS 1

TOTAL TAX RATE BY REGION TOTAL TAXES AS % NET INCOME FURTHER RAISING TAX RATES WILL RENDER THE COUNTRY EVEN LESS COMPETITIVE THAN IT IS NOW Data for Philippines are based on an actual MPSA company Source: Data on OECD, Africa & Latin America were sourced from PWC Global Study on Total Tax Contribution of Mining

PH VS. INDONESIA (MINING TAXES)   PHILIPPINES INDONESIA (1) Type of Metal All Copper Gold Nickel (2) 1) Income Tax 30% 25% Taxes/Fees/Royalties (3) Excise Tax (4) 2.0% 4.0% 3.75% 5.0% Business Tax (5) 1.5% N/A  In Mineral Reserve Add: Mineral Reserve Royalty  In Ancestral Land Add: Royalty to IPs 1.0% 2) Total 9.5% Notes: 1. Assumes publicly listed company; royalty rates following approval of Regulation No. 9, 2012. 2. Royalty is applicable to Nickel Ore; Nickel Matte is taxed at 4%. 3. Based on Gross Output. 4. Royalty in the case of Indonesia. 5. Assumes municipalities charge at the maximum allowable rate of 70% of 2% as per Sec. 143 (h) of the Local Gov't Code; the 30% balance is charged at the rate applicable in Makati.

THE TAMPAKAN PROJECT ONE OF THE LARGEST UNDERDEVELOPED COPPER-GOLD PROJECTS IN THE WORLD A $5.9 BILLION INVESTMENT – LARGEST EVER FDI WE ONLY ATTRACTED ABOUT $1.7 BILLION IN 2010 AND UNDER $1-B LAST YEAR! OVER 5 YEARS IT WOULD PAY: P250B IN NATIONAL TAXES P95B IN LOCAL TAXES IT WOULD ADD 10.4% TO RGDP OVER 20-YEAR LIFE, PAY $7.2-B TO GOVERNMENT =P15 BILION PER YEAR

THE TAMPAKAN PROJECT REGIONAL INCOME WILL INCREASE FROM ADDITIONAL EMPLOYMENT ABOUT 10,000 JOBS DURING PEAK OF CONSTRUCTION PHASE AND 2,000 JOBS DURING OPERATIONS PHASE BETWEEN 12% AND 130% INCREASE IN AVERAGE PER CAPITA INCOME IN HOST VILLAGES UP TO P250-M P.A. IN HOST VILLAGES UP TO P120-M IN OTHER VILLAGES IN HOST MUNICIPALITIES UP TO P265-M IN OTHER MUNICIPALITIES IN HOST PROVINCES Source: David Pearce Centre for International Economics

IN THE FRASER INSTITUTE ANNUAL SURVEY OF MINING COMPANIES, PHILIPPINES IS IN THE BOTTOM 10 HOWEVER THE COUNTRY WOULD PLACE 7TH – FROM THE TOP – ASSUMING A “BEST PRACTICES” POLICY REGIME   2008/2009 2009/2010 2010/2011 2011/2012 OVERALL RANK AS DESTINATION OF MINING INVESTMENTS 59 70 66 88 NO. OF COUNTRIES SURVEYED 71 72 79 93 RANK BASED ON PURE MINERAL POTENTIAL(ASSUMES A “BEST PRACTICES” POLICY REGIME) 11 33 19 7 THUS, INVESTMENTS WOULD COME IN IF THE GOV’T ADOPTED MARKET-ENABLING POLICIES

RESPONSIBLE MINING, NOT BAN MINING. AGAIN, THE SOLUTION: RESPONSIBLE MINING, NOT BAN MINING. WHAT IS NEEDED IS REGULATORY CHANGES THAT WILL ADDRESS THE REAL PROBLEMS IN THE INDUSTRY. AND EFFECTIVE IMPLEMENTATION OF THEM. PUT SMALL SCALE MINING UNDER NATIONAL CONTROL. ENSURE THEY ACT RESPONSIBLY SO AS TO MINIMIZE HARM TO THE ENVIRONMENT STOP THEIR USE OF MERCURY REQUIRE THEM TO PAY TAXES SELL THEIR GOLD TO THE BSP – AS MANDATED STOP ILLEGAL EXPORT

2. STRENGTHEN THE CAPABILITY OF DENR AND MGB TO PROPERLY AND FULLY MANAGE MINERALS DEV’T – BY BOTH SMALL AND LARGE-SCALE MINES. AND FUND IT ADEQUATELY. 3. LOCAL LAWS CANNOT BE ALLOWED TO OVERRULE NATIONAL LAW. ANY BAN OR CONTROL IN A PARTICULAR AREA MUST COME FROM THE NATIONAL GOV’T AND BE IN LINE WITH NATIONAL LAW. 4. SHARE OF REVENUES TO GOV’T MUST BE FAIR. BUT MUST KEEP THE COUNTRY COMPETITIVE WITH OTHERS TO MAINTAIN INVESTOR CONFIDENCE & INTEREST.

5. ANY CHANGE CANNOT BE RETRO-ACTIVE, AND MUST RESPECT INTERNATIONAL TREATIES. GRANTED AGREEMENTS MUST BE HONORED. 6. THE ENVIRONMENT MUST BE PROTECTED – BUT IN A REALISTIC FASHION. MINES MUST PROGRESSIVELY RESTORE THE LAND AND DO A FULL REHABILITATION AT THE END OF THE MINE’S LIFE. RESPONSIBLE COMPANIES WILL.

Mining is Unavoidable THANK YOU. This is a fundamental point that cannot be ignored – and must be taken into account: OUR DAILY LIVES ARE DEPENDENT ON MINED PRODUCTS. SO WE HAVE TO CONTROL, NOT BAN. LET US WORK TOGETHER ON CONTROL. THANK YOU.