Mining Law

Recent Trends in the Mining

Industry
Global Environmental Problems
Stratospheric ozone depletion
Greenhouse climate change
Biodiversity loss
Land use competition
Bio-fuels

Recent Trends in the Mining
Industry
Impacts
Corporate
consolidation
Financial market
pressure
International reporting
standards (JORC)
Demand for
professionals in the
resources industry
Increased focus on
sustainability
Create sustainable
communities
Appropriate
environmental
management
Communication with
civil society/NGOs
Sound governance
corporate social
responsibility

Environmental Economics
Mining as a Major Industry
Located in the Pacific "Ring of Fire",
the Philippines rank as one of the
most highly mineralized countries:
- third in gold, fifth in nickel, and
sixth in chromite
- untapped mineral wealth estimated
at US$840 billion (NEDA)
Mining as a Major Industry
Tremendous remaining potential for
additional discoveries, since, despite
it's vast mineral wealth, the
Philippines has seen little modern
exploration.
The Philippines provides a natural
gateway to other Asia Pacific
economies, particularly China, with
its voracious demand for metals.
Developments in the Philippine
Mining Industry
A change in government policy from
tolerance to active promotion of mining
(EO 270, Jan. 2004, setting the National
Policy Agenda on Revitalizing Mining in the
Philippines).
100% foreign ownership allowed following
the December 2004, Supreme Court
decision abolishing all legal obstacles to
the implementation of the Philippine
Mining Act of 1995.


Developments in the Philippine
Mining Industry
Rapu-rapu mine accident
Conflict between national and local
governments over taxation
Insurgency
small-scale mining


Mining Laws and other Regulations
Philippine Constitution of 1987
(Constitution)
Philippine Mining Act of 1995
(Mining Act)
Mining Act Revised Implementing
Rules and Regulations
Other Laws
Constitution
All lands of the public domain, water,
minerals, coal, petroleum, and other
mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora
and other natural resources are owned by
the state.
The exploration, development and
utilization of these natural resources are
under the full control and supervision of
the State.
Constitution
The State has the option of entering
into co-production, joint venture or
production sharing agreements with
Philippine citizens of Philippine
corporations or associations.
At least 60% of the capital of a
corporation or association must be
owned by Phil. Citizen to qualify as a
Philippine corporation or association.
Constitution
Exception to the nationality
requirement: The Constitution
authorizes the President to enter into
agreements with foreign-owned
corporations involving either financial
or technical assistance, for large-
scale exploration, development and
utilization of minerals, petroleum and
other mineral oils.
Constitution
Ownership of natural resources
(Regalian doctrine) if an investor
wishes to acquire the right to extract
or develop natural resources, he
must enter into an agreement with
State
TYPES OF MINING PERMITS/CONTRACTS
1. Mining Lease Contracts (MLCs)
2. Exploration Permits (EPs)
3. Mineral Agreements
4. Financial or Technical Assistance
Agreement
5. Mineral Processing Permit
6. Quarry Permit
7. Small-Scale Mining Permits
8. Sand and Gravel Permits
9. Ore Transport Permits
TYPES OF MINING PERMITS/CONTRACTS
(under Presidential Decree No. 463)
Declaration of Location (DOLs)
Document attesting to the filing of a mining claim
Allows the claimowner (mining applicant) to enter, occupy
and conduct mineral exploration within the claimed area;
Given the priority right to apply for any of the new modes of
permits/agreements under Mining Act of 1995.
Mining Lease Contracts
Contract allowing the lesee to explore, develop, extract and
utilize minerals from the contract area;
Respected up to the end of term under the Mining Act of
1995; lessee is given the preferential right to apply for a
Mineral Agreement.
TYPES OF MAJOR MINING TENEMENTS
(under the Mining Act of 1995)
A. TENEMENTS ISSUED BY DENR-MGB
1. Exploration Permit
2. Mineral Agreement
Mineral Production Sharing Agreement
Joint Venture Agreement
Co-Production Agreement
3. Financial or Technical Assistance Agreement
4. Mineral Processing Permit
5. Industrial Sand and Gravel Permit (>5 to 20
hectares)
B. PERMITS ISSUED BY LOCAL GOVT
1. Quarry Permit
2. Small-Scale Mining Permits
3. Sand and Gravel Permits (5 hectares & below)
EXPLORATION PERMIT (EPs)
Allows the permittee to conduct exploration work
for a limited period only.

Two (2) years, renewable for like periods up to
6/8 yrs;
Maximum area: 16,200 hectares/Province;
32,000 hectares in entire the
country
Area relinquishment: 25% for the first 2 years;
10% /year, thereafter
Open to companies with up to 100% foreign
ownership;
Priority to enter into either an MPSA or FTAA after
submission and approval of Declaration of Mining
Project Feasibility;
Can be transferred or assigned to other qualified
individuals/corporations.
MINERAL AGREEMENTS (MAs)
a. Mineral Production Sharing Agreement
(MPSA)
Exclusive right to conduct mining operations w/in a
contract area
Limited to Filipinos or Filipino-owned corporations
(Foreign equity not to exceed 40%)
Minimum authorized capital of PhP 10 M and paid-up of
PhP 2.5 M
Maximum area for juridical entity: 8,100 Has./Province;
16,200 Has. for the entire country
Contract period of 25 yrs; renewable for another 25
yrs;
Two (2) years Exploration Period; renewable for like
periods up to 6/8 yrs; three (3) years Construction
and Development Period; the rest for production
Can be assigned to any qualified individuals/
corporations
Can be converted into an FTAA
MINERAL AGREEMENTS (MAs)
b. Co-Production Sharing Agreement
An agreement between the Government and the
Contractor wherein the former shall provide inputs to the
mining operations other than the mineral resource.
c. Joint Venture Agreement
An Agreement where a joint venture company is
organized by the Government and the Contractor with
both parties having equity share. Aside from the
earnings in equity, the Government shall be entitled to a
share in the Gross Output.
* These two modes of agreement have not been made
operational due inability of government to input needed equity
shares.
Other Permits:
MINERAL PROCESSING PERMITS
A 5-year Term, renewable for like periods, up to a
maximum of 25 years;
Allows both local and 100% foreign-owned corporations;
Requirement to submit adequate ore supply contract to
justify the establishment of the processing plant;
Can be granted for cement plants, smelting and refining;
beneficiation plants; marble cutting and processing plants,
and others of similar nature;
Issued by the Secretary for projects with cost of more than
PhP 500 Million, by the MGB Director for projects with cost
of more than PhP 200 Million but less than PhP 500
Million, and by the MGB Regional Director for projects with
cost of PhP 200 Million or lesser.

EXISTING MINING PERMITS/
CONTRACTS
Tenement Type Number
Exploration Permits (EP) 28
Mineral Production Sharing
Agreements (MPSA)
228

Financial or Technical Assistance
Agreements (FTAA)
2

Mineral Processing Permits (MPP) 26
Mining Lease Contracts/Patents 312
6 sets of application and
mandatory requirements
Filing of Application in
Regional Office
Area Status and Clearance/ Consent
by MGB, DENR Sectors and/or other
Govt. Offices
Publication, Posting and Radio
Announcement
Clearance By DENR
EP APPLICATION PROCESS FLOW
Evaluation
Approval by MGB CO
Registration and Releasing
By MGB Regional Office
Proof of Sanggunian
Consultation/Approval

Certification of Publication/
Posting/Radio Announcement
NCIP Certification
Pre-condition
Certification By Panel Of Arbitrators
6 sets of application and
mandatory requirements
Filing of Application in
Regional Office
Area Status and Clearance/ Consent
by MGB, DENR Sectors and/or other
Govt. Offices
Publication, Posting and Radio
Announcement
Final Review By MGB CO
MPSA APPLICATION PROCESS FLOW
Evaluation
Approval by DENR Secretary
Numbering of MPSA by MGB
Central Office
Registration and Releasing
By MGB Regional Office
Proof of Sanggunian
Consultation/Approval

Certification of Publication/
Posting/Radio Announcement
NCIP Certification
Pre-condition
Certification By Panel Of Arbitrators
6 sets of application and
mandatory requirements
Filing of Application in
Regional Office
Area Status and Clearance/ Consent
by MGB, DENR Sectors and/or other
Govt. Offices
Publication, Posting and Radio
Announcement
Final Review By MGB CO /
Negotiating Panel
FTAA APPLICATION PROCESS FLOW
Certification of Publication/
Posting/Radio Announcement
Evaluation
Endorsement by DENR Secretary
Numbering of MPSA by MGB CO
Registration & Releasing By MGB RO
NCIP Certification Pre-condition
Certification By Panel Of Arbitrators
Review / Approval by the President
Proof of Sanggunian
Consultation/Approval

Certification of Publication/
Posting/Radio Announcement
NCIP Certification
Pre-condition
Certification By Panel Of Arbitrators
GOVERNMENT SHARE FROM MINING
National Government

Income Tax = 35 % of Taxable Income;
Excise Tax = 2 % of actual value of minerals extracted;
Customs Duties and Fees= prescribed under Tariff and Customs Code
Value Added Tax = 10 % of Purchase Value of Goods/Services;
Capital Gains Tax = 10-20 % of the gain;
Tax on Interest Payments to Foreign Loans = 15 % of Interest;
Tax on Foreign Stockholders Dividends = 15 % of dividend
Royalties, if extracted from government Mineral Reservation = 5% of
market value;
Documentary Stamp Tax = graduated, depending on type of business
transaction

Local Government

Local Business Tax: usually minimal, rate depends on LGU;
Real Property Tax: Max. of 2 % on Fair Market Value of Property;
Occupation Fee: PhP 100.00/hectare/year;
Community Tax: Approx PhP 15,000
FISCAL REGIME OF FTAA
Entitled to a 5-Year Cost Recovery
Period

Exemption from payment of various national
taxes to enable the company to recover its
investments;
After recovery of investments, or at the end of the
5-year period, whichever comes first, the
company pays the usual taxes and fees, plus the
additional Government Share.
FISCAL REGIME OF FTAA
Basic Government Share
National Taxes, i.e., Excise Tac, Income Tax,
Customs Duties and Fees, etc.
Local Taxes, i.e., Business Tax, Real Property
Tax, etc.,
Additional Government Share to
achieve a cumulative Government
share equal to 50% of the Net-
Mining Revenue
In 1997, group of NGOs petitioned the
Supreme Court to invalidate Mining Act on
the ground that foreign control over mining is
unconstitutional:

Nullification of the Mining Act of 1995 and its
implementing rules and regulations
Cancellation of the Financial or Technical
Assistance Agreement (FTAA) of WMC
SUPREME COURT DECISION
ON THE MINING ACT
Nature of the Case:
January 27, 2004 SC Decision:
SC declared the following provisions as
unconstitutional & void:

All provisions of the Mining Act on the
FTAA
All provisions on Exploration Permits and
Mineral Processing Permits allowing the
participation of foreign corporations
Provision on incentives to the FTAA &
Mineral Agreements (MPSAs,Co-
Production & Joint-Venture Agreements)
SUPREME COURT DECISION
December 1, 2004 SC Resolution on the
Motion for Reconsideration:
New judgment declared Mining Act, IRR
and WMC FTAA as Constitutional
Reversed and set aside the January 27,
2004 Decision and dismissed the Petition
Affirmed Presidents prerogative to enter
into FTAA with foreign corporations to
explore, develop and utilize mineral
resources
SUPREME COURT DECISION
Highlights of the SC Resolution:
The Constitution allows the continued use of
service contracts with foreign corporations,
which are similar to FTAAs
Mining Act contains enough safeguards to
regulate contractors
FTAA fiscal regime is not disadvantageous to
the State and to the Filipino people
Foreigners are not prohibited from earning
profits from businesses involving natural
resources extraction
SUPREME COURT DECISION
Important Laws Related to Mining
Environmental Impact Statement
(EIS) System
Indigenous Peoples Rights Act
(IPRA)
Local Government Code of 1991
Small Scale Mining Act
EIS System
Project proponent of environmentally
critical projects and projects within
environmentally critical areas must
obtain an environmental compliance
certificate prior to commencement
Environmental Management Bureau
as lead agency
ENVIRONMENTAL PROVISIONS
Environmental Impact Assessment
All mining projects considered environmentally
critical;
Subject to Environmental Impact Assessment
(EIA) and to secure the necessary Environmental
Clearance Certificate (ECC) from the
Environmental Management Bureau (EMB); and
Activities during the exploration period exempted
from the EIA/ECC requirement.

Environmental Work Program
In lieu of the ECC during the exploration period;
Program to address environmental impact; and
Defines financial commitment to be included in the
annual exploration budget.
Environmental Protection and Enhancement
Program (EPEP)
Provides specific annual plans, programs and
activities to institute environmental protection
measures and/or rehabilitate mining-affected
areas, during development and production
stages; and
Gives support in attaining the objectives of the
Environmental Clearance Cerrtificate granted.
Final Mine Rehabilitation/Decommissioning Plan
Provides activities to achieve mine closure, i.e.,
decommissioning, rehabilitation, residual care,
etc.
Establishment of a Fund to be deposited during
early years of the mine life.


ENVIRONMENTAL PROVISIONS. . .
Contingent Liability and Rehabilitation Fund (CLRF)
Fund to be deposited in a government bank;
For the just and timely compensation of
damages;
For progressive and sustainable rehabilitation;
Has two components:
Monitoring Trust Fund (MTF):
Replenishable fund with a minimum of PhP 150,000.00
For exclusive use of the monitoring program by the
multi-sectoral Multi-Partite Monitoring Team (composed
of national and local government, non-government
organization or NGO, and company representatives) in
the conduct of regular environmental monitoring;
Rehabilitation Cash Fund (RCF):
Replenishable fund with a minimum of PhP 5,000,000.00
or 10% of EPEP budget, whichever is lower;
For the conduct of environmental protection and
rehabilitation measures.


ENVIRONMENTAL PROVISIONS. . .
Mine Waste and Tailings Fees
Based on PD No. 1251
PhP 5.00 per Metric Ton of mine waste materials
PhP 10.00 per MT of mill tailings not utilized
within a 2-year period;
PhP 50.00 per MT for any discharge of solid
materials for tailings not properly discharged into
areas other than the duly approved tailings
disposal area
Initial environment-related capital expenditures
10% of the total capital/project costs
Annual environmental protection and enhancement
activities
3-5% of annual direct mining and milling cost
ENVIRONMENTAL PROVISIONS. . .
Other Laws Related to Mining
National Integrated Protected Area
System Law
Ecological Solid Waste Management Act
Toxic Substances and Hazardous and
Nuclear Wastes Control Act
Clean Air Act
Clean Water Act
Pollution Control Law
Water Code
National Environmental Users Fee of 2002

Sustainable Development
Is mining inherently inconsistent with
sustainable development?
Does it mean different things to
different people?
Does it mean something different in
developed than in undeveloped
countries?
Is it site specific?
Is it a process or a product?
Is it possible to have sustainable
development, sustainable economic
growth, sustainable communities and a
sustainable society without mining?

Brundtland Definition of SD
Current generations meeting their needs
without compromising the ability of future
generations to meet their needs

IMPLIES:
Future generations have rights over resources
Current generation has a duty to include future
generations needs in its decision-making
An accounting of social and environmental
impacts
Who makes the call? Government, industry
or the free market?
Business Case for SD
What is Responsible Mining
Financially viable mining
development that takes place in an
environmentally and socially
responsible manner with sound
governance that provides lasting
benefits to the community.
Regional/Local Issues
Social and Community-Related
Issues
- Disclosure and information sharing
- Community development plans
- Consultation throughout a projects
lifecycle
- Compensation and resettlement
- Local economic development
- Mine closure
Regional/Local Issues
Environmental
- Legacy issues
- No-go zones for environmental impact
projects
- No-go technologies
Small-scale mining
- Legal tenure
- Technical including safety and
environmental
- Conflict resolution (with commercial
mining)
National Global Level Issues
Governance
- Transparency
- Revenue management
Others
- Human rights
- Indigenous people
- Impact on global climate change

Sustainable Development in the Context of
Mineral and Energy Development
Encompasses:

Economic Responsibility -- shareholders,
employees, community, society
Environmental Responsibility -- society is more
concerned with minings impacts and behavior
than its products
Resource Stewardship -- wise and efficient use
Community Engagement -- shared objectives
Product Stewardship
Social License and Public Accountability Miners
mine with the consent of the public


IPRA
Grants to indigenous cultural
communities or indigenous peoples
certain preferential rights to their
ancestral domains and all resources
found therein.
Royalty and right to benefits

IPRA
No mineral agreement shall be
approved unless:
- There is prior certification from NCIP
that area does not overlap ancestral
domain or
- Prior free and informed consent has
been obtained from the ICC/IP
concerned
Development of host and neighboring communities
through the Social Development and Management
Program;
Provision of alternative livelihood, health and
nutrition, education, peace and order,
infrastructure, etc.
Budget of 90% of the 1% of the direct mining and
milling costs;
Preferential employment of majority from host
communities and ensure technology transfer;
Preferential use of indigenous products, services
and technologies as well as local construction
enterprises;
Payment of royalties to surface owners
SOCIAL PROVISIONS
Protection of rights of IPs/ICCs
Secure Free and Prior Informed Consent of
IPs/ICCs
IPs entitled to minimum 1% of annual gross
revenue for the implementation of Ancestral
Domain Sustainable Development and Protection
Plan
Respect and preserve the culture and tradition of
IPs/ICCs
SOCIAL PROVISIONS. . .
Benefits/Obligations to LGUs
LGUs entitled to 40% of the excise tax (Barangay
- 35%; Municipal - 45%; and Province - 20%)
Endorsement from LGUs required for mining
operations
Beneficiaries of social development projects
SOCIAL PROVISIONS. . .
Local Government Code
Proponents applying for mining
applications intended for exploration
activities are required to conduct
consultation with all LGUs concerned,
or the legislative councils
(sanggunian) at the provincial,
city/municipal, and barangay levels.
Lessons Learned
Consultation and relationship
building between the mine and
affected people starting at
exploration, based on respect for
local community culture and land
Mine closure planning with strong
focus on post-closure sustainability
Local economic development plan
and agreements hiring
preferences, training, small
businesses support, joint ventures
Lessons Learned
Revenue sharing framework with
specific benefits for local
communities
Environmental and social protection
plans and agreements and
independent verification
What Mining Companies Has to Do
Obey the law
Pay proper taxes
Be civic minded, actively financially
support local communities and adapt
to grassroots businesses
Have Filipino staff
Build relationships national and
local
Identify tribal leaders and real IPs
From Anglo American
To secure a continuing license to operate, the
mining and resources industry will have to
frame its future in economically viable,
socially beneficial and environmentally sound
practices that are negotiated with communities
within which it works.

From Rio Tinto
"We believe we can only continue to generate
value for our shareholders over the long run if
we excel in our performance on environmental
and social issues. Sustainable development
manages all the business risks to earn a
license to operate from all stakeholders."

PHILIPPINE MINING ACT
60
1987 CONSTITUTION (Article XII, Sec. 2)
National Economy and Patrimony
All lands of the public domains, waters,
minerals, coal, petroleum, and other
mineral oils, all forces of potential
energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural
resources are owned by the State. x x x
The exploration, development, and
utilization of natural resources shall be
under the full control and supervision of
the State.
61
REPUBLIC ACT NO. 7942
MINING ACT OF 1995
Approved on 20 February 1995 by Congress
and consequently by President Fidel V.
Ramos on 03 March 1995
Espoused the principle of responsible
mining
Revised Implementing Rules and
Regulations approved on 19 December 1996
- DAO No. 96-40 by Secretary Victor O.
Ramos
62
DECLARATION OF POLICY (RA 7942)
All mineral resources in public and
private lands within the territory and
exclusive economic zone of the Republic of
the Philippines are owned by the State. It
shall be the responsibility of the State to
promote their rational exploration,
development, utilization and conservation
through the combined efforts of the
Government and private sector in order to
enhance national growth in a way that
effectively safeguards the environment and
protects the rights of affected communities.
63
NEW PARADIGM
ON MINING
Promotion of responsible mining as an
engine for economic growth and
alleviation of poverty in the
countryside;
Strict adherence to the principles of
sustainable development economic
development, environmental protection
& social equity
64
Issued on 16 J anuary 2004
Strengthened Mining Act of
1995
Provides 12 guiding
principles for responsible
mining = economic
development,
environmental protection &
social equity
Executive Order No. 270/270A
National Policy Agenda on
Revitalizing Mining in the Philippines
66
1995 Mining Act vis--vis Old Law
1995 Mining Act

EP, MPSA, FTAA
Adequate environmental
provisions (Chapter XI)
EWP during exploration
EPEP during operation
FMRDP during mine closure
Funds deposited for EPEP
and FMRDP
Recognition and protection
of IPs/ICCs (Sec. 16)
Sufficient social provisions
(Chapter X)
Mandatory SDMP
Endorsement of LGU
required (Sec. 70)
Old Laws (PD No. 463)
Mining leases and claims
Inadequate environmental
provisions
No EWP during exploration
No EPEP during operation
Unrealistic mine closure
requirement
No funds deposited for
environmental works
No provision on recognition
and protection of IPs/ICCs
Insufficient social
provisions
Voluntary social programs
Endorsement of LGU not
required
Government Management
Mineral Reservations established
by the President; mining operations
may be undertaken by the DENR or
through a contractor.
Other Reservations mining in
reserved lands other than mineral
reservations may be undertaken by
DENR or through a qualified person;
awarded by the President
Areas Open to Mining
Subject to existing rights
Mineral resources in public or private
lands including timber or forestlands
shall be open to mining permit
applications
Areas Closed to Mining
Military & other government reservations
except upon prior written clearance from
government agency concerned
Built up areas, including plantations or
valuable crops except upon written
consent of govt agency or private entity
concerned
Areas covered by valid and existing
mining rights
Areas closed to Mining
Areas prohibited by law
Areas covered by small scale miners
unless with prior consent of SSMs
Old growth or virgin forests,
proclaimed watershed forest
reserves, mangrove forests, mossy
forests, national parks under NIPAS
Small Scale Mining
Governed by RA 7076 (small Scale
Mining Act)
Managed through the P/CMRB
Maximum 20 hectares
Includes Quarry Permits, permits for
sand and gravel, guano, gemstone
gathering; government gratuitous
permit; private gratuitous permit
Transport, Sale & Processing of
Minerals
Ore Transport Permit specifies
origin & quantity
Mineral Trading Registration
registered by DTI and accredited by
DENR
Minerals Processing Permit
Auxiliary Mining Rights
Timber rights subject to forestry
laws, rules and regulations
Water rights approval by
concerned agency
Right to possess explosives
Easement rights
Entry into private lands and
concession areas
Settlement of Conflicts
Regional Panel of Arbitrators two
members of the Philippine Bar and
one licensed mining engineer or
professional in a related field.
Mines Adjudication Board DENR
Secretary as Chair, USEC for Field
Operations & MGB Director as
members
Taxes and Fees
Income taxes
Excise tax on mineral products 2%
Mine wastes and tailings fees semi-
annual 0.05 / MT; 0.10/ MT
Occupation fees EP = P10 /ha;
MPSA = P100/ha; 30% to the
province and 70% to the municiplaity

Grounds for Cancellation
Late or Non-filing of requirements
Violation of the terms and conditions
of Permits or Agreements
Non-payment of taxes and fees
Falsehood or omission of facts in the
Statement
Penal Provisions
False statements P10,000
Illegal Exploration P50,000
Theft of Minerals 6 months to 6
years imprisonment and/or fine of
P10,000 to P20,000
Destruction of mine structures
imprisonment not to exceed 5 years
plus compensation for damages

Penal Provisions
Mines arson revised Penal Code
plus compensation for damages
Wilfull damage to a mine
imprisonment not to exceed 5 years
and compensation for damages
Illegal obstruction to permittees or
contractors P5,000 or
imprisonment not exceeding 1 year
or both

Penal Provisions
Violation of the terms and conditions
of the ECC 6 months to 6 years
imprisonemtn or a fine of P50,000 to
P200,000 or both at the discretion of
the court
Illegal obstruction to (DENR)
government officials P5,000 fine or
imprisonment not exceeding 1 year
or both