The Mettle of the Metal: First Class Mining in the Philippines

"FIRST CLASS" DESIGNATION SUSPENDED: See comment thread for pertinent information.  01/20/2013 

The First Class Philippines is not a place of rabid glow-eyed priests and ever-spinning drooling politicians or skinny, unhealthy kids crawling in the dirt. It is place of compassionate and reflective priests and leaders who put their jobs and the Philippines first and freshly showered kids off to school to learn something new today.

It is not mining companies derelict in their duty to preserve Philippine resources and beauty or government agents taking payoffs to permit illegal log-cutting. It is disciplined, thoughtful companies who recognize that making a profit is not their sole reason for being. They must also be stewards of good Philippine behavior. 

I find mining in the Philippines to be an interesting subject. I opined some months ago that the Philippines ought to nationalize all mining companies because resources are so valuable. Ores represent long-term assets that, once sold, are gone. And today the Philippines is selling its earth on the cheap, thereby robbing its future generations of the wealth that they need and deserve.

It is fascinating that a nation mired in poverty would manage its resources so poorly.

Well, the recent Philex mining disaster, a flood of poisons released downstream by a broken dam, has focused attention on mining. That and the deaths from soil erosion and floods caused by unregulated small scale  gold mining. Philex got fined P1.034 billion for the company's negligence. Furthermore, three pieces of legislation are in the pipeline to "fix" Philippine mining. That the legislative effort is so fractionalized is itself a reflection of a nation that simply has no common idea of what mining ought to be about.

The industry, too, is fractionalized. Thirty three mines operate under special agreement that allows extraction of minerals upon paying a small 2 percent excise fee. President Aquino recently issued Executive Order 79 that called on Congress to raise this fee to 5 percent. Most companies qualifying for the low fee are foreign owned.

Why oh why does the poor Philippines sell itself so cheaply?

Short term revenue seems to be the driving goal, and one wonders what bank accounts of public officials got cash injections to enable such foreign rape to take place in broad daylight.

Mining is managed by DENR, an organization that seems to stand for corruption.  So my personal confidence in State oversight of the mining industry is negligible.

Here is Time Magazine's recent scathing description of how the Philippines manages its 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.

That said, I have changed my mind about nationalization. All it took was a look at one responsible company to change my perspective. The company is Nickel Asia, which came up in an article on Rappler citing their record ore shipments last year. I was upset that Rappler provided no information about the company and popped off a snide remark in the comment box.

To myself I exclaimed! "Damn. Probably another foreign company ripping off the Philippines."

So I dug some information up myself, going back to those horrid days when I actually used to work for a living and analyze this business or that.

I was very wrong about Nickel Asia.

Nickel Asia  went public in 2010 and is now listed on the Philippine Stock Exchange. It is Filipino through and through. Here is a summary of the company's performance from 2009 to 2011 (the 2012 Annual Report is not out).

Thousands

Measure	2009	2010	2012
Sales (Wet Metric Tons)	6,459	8,339	10,387
Sales Value (Pesos)	4,333,208	8,074,298	12,230,278
Price (WMT; Pesos)	12.7	18.2	24.5
Salaries & Ben (Pesos)	598,575	779,060	879,688
Net Income (Pesos)	460,519	2,371,928	5,465,557
Taxes Paid (Pesos)	549,835	1,078,810	1,666,737
Taxes to Ore Sales (%)	13.6%	13.3%	12.6%
Dividend (Pesos)	572,212	3,765,000	1,428,424

The Company has stated that 2012 financial performance would decline slightly due to a drop in nickel prices.  The company shiped a record 11,700 thousand wet metric tons of ore last year but lower prices produced a 7.4% drop in revenue from those sales. (Rappler)

Nickel Asia operates eight subsidiaries, most different mines in Luzon and the Visayas, with a modest presence in Mindanao. Nickel mines are shallow and the company has an aggressive program of rehabilitation to return the land to its natural state, plus proactive programs working with local residents.  The Board Of Directors is made up of wealthy Philippine businessmen led by Chairman Manuel B. Zamora, Jr., Vice Chairman Philip T. Ang  and President Gerard H. Brimo.

The Annual Report is thorough, of the American tradition, and financials are audited by Ernst & Young.  Nickel Asia emphasizes "sustainability", which means caretaking the earth and working with local communities. You can link over if you'd like to familiarize yourself with the particulars.

Here are some important takeaways from the above table:

1. The company is growing well.

2. The value of its product doubled from 2009 to 2012.

3. The company pumps P879 million worth of salaries and benefits into the Philippine economy. That's called JOBS folks. A lot of them. Good jobs. Career jobs. With corporate benefits like a pension plan.

4. Net income has shot up.

5. Taxes are about 13% of the value of ores sold. Compare that to the puny 2% the Philippines gets from ores shipped out by foreign companies. IT'S ENOUGH TO MAKE A BLOGGER SEE RED! What do politicians see???

6. The company has generated P 6 billion in wealth for investors during the past three years, in the form of dividends. This is the wealth creation that, in foreign owned mines, ends up overseas. Presumably most of this money is spent or invested in the Philippines.

7. The company has pumped P4.5 billion of net income the past three years, above dividends, back into the company to grow the business and multiply job opportunities and wealth-creation.

The advantages of Philippine mining over foreign mining are: (1) Better caretaking of the land, hypothetically, (2) income taxes generated, (3) jobs generated, (4) dividends paid within the Philippines, and (5) reinvestment for growth in the Philippines. Why in the world the Philippines would give this away for even a 5% excise tax is beyond me.

I would also acknowledge that Nickel Asia's mines have met with protests from local citizens who don't want their land dug up. I think that is a natural conflict that will arise with any mining activities. It is important for Nickel Asia to be sensitive to local concerns, and important for local concerns to understand that the principle of NIMBY ("Not In My Back Yard!"), if applied across the nation, is a certain path to poverty. The national government (gag, DENR) needs to adjudicate matters responsibly. Not for payola.

From my perspective, mining is a strategic business. It is the wealth of future generations. It ought not be sold to foreigners on the cheap for a quick buck. Or for payoffs that go into private pockets. It ought to be managed responsibily.

It is interesting to me that Philex, a bigger mining company than Nickel Asia focused on gold and copper mining, seems to run sloppy. Not first class. The annual reports prior to 2011 were plain paper, like a mom and pop shop. The 2011 version on the web site won't download because of a damaged file.  Like, maybe this company runs on the cheap, on the cheat.

It is interesting that the big fine has caused the company to recast its mission.  Here's how it reads now:

• Our New Mission: A Responsible Mining Company: Philex Mining Corporation is a responsible mining company that discovers and processes minerals and energy resources for the use of society. Our new mission clearly defines our reason for being and captures the essence of our mandate as a Company.  Our utmost priority at every stage of mine life is to take care of our environment while harnessing the mineral resources for the good of society.

Well, I hope so.

Here is what I would hope politicians would do as they look at new mining regulations:

• Make it unattractive for foreign companies to mine here. Establish an excise tax of at least 12% on ores shipped from the Philippines by foreign firms.

• Mandate return of the lands to a natural state.

• Ban unregulated small scale mining. Don't ban small scale mines; but expect them to comply with responsible guidelines that protect the people and the land.

And I hope Nickel Asia prospers as an example of a first class, capable Philippine corporation.

When Commies Speak in the School Yard . . .

I have a background rich with communism. Strange, given that I am a middle of the road American, raised on a small family farm, educated in a progressive and normal suburb of the healthy American metropolis, Denver Colorado, educated at an agricultural college, Colorado State University, pulling down a decent 3.2 grade average, and dutifully serving my country as an artilleryman in Viet Nam.

It all went bizarre in Viet Nam, as I reflect on it. Uncle Sam kindly introduced me to Asian cultures, and my Meyers Briggs INFJ personality, a rather wayward spirit knowing no chains, enticed me toward the exotica I found in peoples who live very differently than the peoples of my Denver suburb. And especially toward the women peoples found looking stylish and pretty, always with smiles and lively humor.

So I became a rather common-man's Somerset Maugham, sitting in the corner of the Raffles Hotel in Singapore under a palm tree and slowly spinning ceiling fan, watching half-naked dancers leap between and over snapping bamboo sticks at risk of losing an ankle or two, sipping a beer (not a girlie drink like a Singapore Sling), and making notes for a new story in a bound notebook largely full of empty pages.

When I returned to the States, I fled my roots for good, moving to California and whatever was waiting there. Well, I discovered the joys of a Murphy Bed waiting there, swinging down from its storage space in the wall, in my dumpy little apartment in Hollywood just off Melrose. Down to my last $120, I moved in with my girlfriend, a pert and pretty Chinese girl from Singapore, schooled in London, legs from heaven, mind from Mensa with an IQ around 170.

Protesting K+12. Are these our teachers?

That was my first brush with communism, for her father was a dedicated commie, having fled from his capitalist wife early in his marriage, going to China, and writing commie writings. My girl friend, soon to become my first wife, indoctrinated me in the challenges Chairman Mao faced to unify a huge, very poor country split into a bazillion fighting factions. So if he was a little ruthless, it was for the greater good.

I became a long-haired rebel and earned my FBI file by attending anti-war protests, the war being in Viet Nam. The trend line went something like this. Drive to rally. Have car license plate recorded by FBI. Watch non-descript brown van show up across the street off and on for several weeks with a funny antenna sticking up from the back. Make sure sex is loud and untoward anti-American comments are not.

My second brush with communism came between marriages 1 and 2 when I was continuing to explore other cultures, and the women thereof. This time I was dating  a Mexican labor union organizer. Well, I learned that basically labor organizers and communism in the U.S. were rather like soul brothers. Both are inclined to see corporations and capitalists as evil, greedy, self-serving bastards. Never quite catching on that corporations are the reasons jobs exist in the first place, and if the capitalists were not out there innovating and getting efficient, the laborers would still be hauling coal out of deadly dust-filled mines in buckets rather than cruising to the very clean Aircraft manufacturing plant in used but quite serviceable Chevrolets

So I can spot a good commie when I read one, and so I quote from people representing teachers in the Philippines:

• Mr. Roger Soluta, KMU secretary-general, of labor center Kilusang Mayo Uno, protesting the expansion of school grades: "K+12 seeks to systematically produce contractuals who receive lower wages and are denied of benefits, job security, and other rights. K+12 will give away diplomas for entry into severe exploitation by big capitalists."

• Mr. Benjie Valbuena, Vice-chairperson of the Alliance of Concerned Teachers (ACT): “Pnoy must prioritize education in a genuine way – in the current budget call and planning, address long standing deficiencies, shortages and call for a higher Salary Grade for teachers in particular. Job creation and poverty reduction will not happen if the same failed globalization policies of previous administrations are retained. There must instead be more democratic income, asset and wealth reform and greater assertions of economic sovereignty in the country’s international trade and investment relations."

• Ms. France Castro, Head of the Alliance of Concerned Teachers (ACT):  “If President Aquino is genuinely concerned on the quality of our education, he should not blindly follow the dictates of monopoly-capitalists."

This kind of blame-the-other-guy mentality, wrapped up in some ideological statement that takes capitalism as a swear word, makes me want to puke.

Well, fortunately, these people are the warts, not even the nose, and certainly not the mind and body of education.

I'm all for teachers organizing and getting a unified voice. But how about an intelligent one? And one that takes one's self-responsibility as the primary charter, and what others do as a secondary interest. Not one that is always out looking for someone else to do the good, hard work to make education and teaching whole. Do it your damned self. There is nothing worse than an educated whiner who pretends to teach values to our children, thereby teaching children how to whine. Meanwhile doing nothing to promote innovation and efficiency in teaching.

• Capitalists are the reason for failure of education in the Philippines? I don't think so. They are the solution, if you'd look up from your painting of simplistic commie slogans on cardboard and notice things like the internet. The internet is a beautiful capitalist tool.

• How about the Catholic Church being one very big reason by virtue of a morality that promotes overbirthing in a poor nation that can't provide that many well-paying jobs?

I get sick of a "solution" that keeps asking for more money, like beggars in graduation gowns groveling for jobs because the beggars exist, not because they are talented and ambitious and can make the capitalist employer wealthy enough to pay them big wages.

End of rant.

I was led to this verbal binge by a comment on my blog from the good Angel C. de Dios, Ph.D. at Georgetown University in the U.S. With a name like that, how can you go wrong? His web site is at:

http://philbasiceducation.blogspot.com/

I believe Dr. de Dios is sincerely interested in the well-being of education in the Philippines. He has done some thoughtful articles about curriculum issues and, of course, represented the pro-teachers (as labor) groups I have quoted.

I disagree with educators blaming President Aquino or the budget. I believe they ought to focus on how shrill and disorganized they are. How un-unified. How unimaginative. And how they look past the issues of morality (overbirthing) and culture (over-blaming, with little self-responsibility). And kindly lose the commie ideology and words; they were hot in the 1950's but read "imbecile" in 2012.

Two busted institutions in the Philippines are education and the courts.

It is not really a budget issue in either case. It is a case of the subject institutions being disorganized, inept and in denial as to their own failure to stand up.