July 31, 2008 / 9:07 AM / 12 years ago

INTERVIEW-Philippines still on mining radar; patience required

* Still sticking to mining investment goal despite paltry inflows so far

* Chinese, Japanese firms joining others in exploration

* Important for foreign firms to have a local partner

By Carmel Crimmins

MANILA, July 31 (Reuters) - Mining groups from Brazil to Australia are combing the Philippines for copper, nickel and gold but patience is required to see a return on investment, a top official said on Thursday.

Disagreement over contracts, communist rebel attacks, financial difficulties and local opposition have stalled some existing mining projects in the Philippines but with metal prices still high, overseas and local investors remain attracted to the Asian country’s resources.

“The trend is going up,” Horacio Ramos, director of the Mines and Geosciences Bureau (MGB), which issues exploration and mining permits, told Reuters in an interview.

Although only $68 million worth of investments were recorded in the first quarter, bringing total private funding in the minerals sector to around $1 billion since late 2004, Ramos said Manila was sticking to its goal of attracting $837 million worth of investments this year and $10.4 billion by 2011.

He pointed to plans by China’s largest listed gold producer Zijin (2899.HK) to raise its investment in a cold-copper project in the north to 60 percent and Ramon Ang, the president of food and drinks giant San Miguel SMCB.PS, aiming to develop an iron ore deposit on the central island of Mindoro.

Both Zijin and Ramon Ang will receive financial and technical assistance agreements (FTAA) from the government, underlining that these will be large-scale projects.

Only two FTAAs have so far been issued in the Philippines. The last one was in 1995 for the Tampakan copper prospect, possibly one of the world’s richest, held jointly by Xstrata Copper XTA.L and Australia-listed Indophil Resources IRN.AX.

He said the government planned to alter the FTAAs this year to double the minimum level of investment to $100 million.

Ramos said China’s CITIC Resources (1205.HK) was interested in the Nonoc nickel mine in the south and Japanese companies, conscious of Chinese competition, were also on the prowl.

Pacific Metals (5541.T), Japan’s top ferronickel maker, has set up an office in the Philippines, Ramos said.

“I think the Japanese are worried if they do not invest in exploration then most of the minerals will go to China.”

PATIENT

There are over 30 foreign companies with investments in the Philippines mining sector, including Brazil’s Vale (RIO.N), world No.1 BHP Billiton (BHP.AX) and Anglo American (AAL.L).

Most of the projects are still at the exploration or feasibility stage and it will be years before production starts.

Manila was hoping that the Didipio gold-copper project, run by Australia’s OceanaGold (OGC.TO)(OGC.AX), would be up and running in the first half of 2009 but that has been delayed to the second half, at the earliest, due to rising costs and following a disagreement with the local government over payment for a quarrying permit.

BHP Billiton, meanwhile, is at loggerheads with its local partner Asiaticus, which has accused the larger group of moving too slowly in the development of their nickel project. The national government is trying to resolve the conflict.

“Those are part of the occurrences that accompany the development of the mining industry,” said Ramos.

“If there are increasing investments on the ground there is always an increase in conflict.”

One of the biggest challenges facing foreign mineral groups is overcoming local opposition to mining, often supported by a vocal network of NGOs and, in some cases, by powerful Catholic bishops.

Ramos said overcoming this opposition often required retaining a local equity partner.

“Companies have to be patient, they have to understand the cultural approach to the Philippines. My suggestion is that they should not go 100 percent foreign.

“They should go maybe 90 percent foreign, 10 percent Filipino to take care of the cultural approach. To take care of the political aspects.” (Reporting by Carmel Crimmins; Editing by Michael Urquhart)

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