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 largescale 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.
2.
3.
4.

5.
6.
7.
8.
9.

Mining Lease Contracts (MLCs)

Exploration Permits (EPs)
Mineral Agreements
Financial
or
Technical
Assistance
Agreement
Mineral Processing Permit
Quarry Permit
Small-Scale Mining Permits
Sand and Gravel Permits
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.
2.

Exploration Permit
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
hectares)
B.

to

PERMITS ISSUED BY LOCAL GOVT

1.
2.
3.

Quarry Permit
Small-Scale Mining Permits
Sand and Gravel Permits (5 hectares & below)

20

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

c.

An agreement between the Government and the

Contractor wherein the former shall provide inputs
to the mining operations other than the mineral
resource.
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
Exploration Permits (EP)
Mineral Production Sharing
Agreements (MPSA)

Number
28
228

Financial or Technical Assistance

Agreements (FTAA)

Mineral Processing Permits (MPP)

26

Mining Lease Contracts/Patents

312

EP APPLICATION PROCESS FLOW

6 sets of application and
mandatory requirements

Proof of Sanggunian
Consultation/Approval

NCIP
Certification
Pre-condition

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

Certification By Panel Of Arbitrators

Certification of Publication/
Posting/Radio Announcement

Evaluatio
n
Clearance By DENR

Registration and Releasing

By MGB Regional Office

Approval by MGB CO

MPSA APPLICATION PROCESS FLOW

6 sets of application and
mandatory requirements

Proof of Sanggunian
Consultation/Approval

NCIP
Certification
Pre-condition
Certification By Panel Of Arbitrators

Certification of Publication/
Posting/Radio Announcement

Registration and Releasing

By MGB Regional Office

Numbering of MPSA by MGB

Central Office

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

Evaluatio
n
Final Review By MGB CO

Approval by DENR Secretary

FTAA APPLICATION PROCESS FLOW

6 sets of application and
mandatory requirements
Proof of Sanggunian
Consultation/Approval

NCIP
NCIP
Certification
PreCertification
condition
Pre-condition
Certification By Panel Of Arbitrators
Certification By Panel Of Arbitrators

Certification of Publication/
Posting/Radio
Announcement
Certification of
Publication/
Posting/Radio Announcement

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

Evaluatio
n

Registration & Releasing By MGB RO

Final Review By MGB CO /
Negotiating Panel
Numbering of MPSA by MGB CO

Review / Approval by the President

Endorsement by DENR Secretary

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 NetMining Revenue

SUPREME COURT DECISION

ON THE MINING ACT
Nature of the Case:

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

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,CoProduction & 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

Mineral Processing Permits

Under the Mining Act, mineral

processing means the milling,
beneficiation or upgrading of ores or
minerals and rocks or by similar
means to convert the same into
marketable products.
Valid for 5 yrs, renewable for like
periods up to 25 yrs

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 PROVISIONS. . .

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 multisectoral 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

Initial environment-related capital expenditures

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
10% of the total capital/project costs

Annual environmental protection and enhancement

activities

3-5% of annual direct mining and milling cost

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
Economic Responsibility
-- shareholders,
Encompasses:

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
Cruz v. DENR Sec.

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

SOCIAL PROVISIONS

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

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

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

64

sustainable development economic

development, environmental protection
& social equity

Executive Order No. 270/270A

National Policy Agenda on
Revitalizing Mining in the Philippines

Issued on 16 January 2004

Strengthened Mining Act of
1995
Provides 12 guiding
principles for responsible
mining = economic
development,
environmental protection &
social equity
65

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)

67

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 semiannual 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