Bloomberg News

Xstrata $60 Billion Philippine Mine May Stall at Church Door

May 16, 2012

Xstrata Plc (XTA), the world’s fourth- biggest copper producer, risks missing a 2016 target to begin extracting about $60 billion of minerals from its project in the Philippines because of opposition from the Catholic Church.

The central government in January rejected the company’s request for an environmental compliance certificate for the $5.9 billion Tampakan copper and gold project, citing a ban by regional lawmakers on open-pit mining. With local polls due next year, South Cotabato legislators are reluctant to amend the law because they risk the ire of the Church, said Arthur Pingoy, the region’s governor.

“There are petitions and resolutions to amend the local law pending,” Pingoy said in an interview. “No one dares touch them because they fear a backlash from the Church, with priests campaigning against their re-election next year.”

Xstrata is running short of time to bring the copper project in Mindanao on line by its 2016 target, a feat that would help ease global shortages of the metal used in power transmission, plumbing and autos, as well as boost economic growth. Opposition from the Church and other groups on environmental grounds is compounded by threat of attack against mines and workers by armed communist and Islamic rebels.

“The issues that this project face are illustrative of intensifying political, social and environmental challenges that miners are facing in growing production,” Gayle Berry, a London-based metals analyst at Barclays Plc (BARC), said in a May 8 e- mailed response to questions. “There is now a long list of projects that have been delayed or faced big increases in capital costs as a result.”

Copper Tight

Copper futures traded on the London Metal Exchange have gained 18 percent in the past two years to $7,650 a metric ton, as global production failed to keep up with demand for a third straight year. Worldwide copper stockpiles have fallen to 463,618 metric tons as of May 15, the lowest since Sept. 10, 2009, according to data from exchanges tracked by Bloomberg.

Shares in Xstrata fell for a fifth day, losing 3.5 percent to 964.9 pence at 9:57 a.m. London time, set for the lowest close since Dec. 28. Indophil Resources NL, a partner in the Philippine venture, lost 5.1 percent to 37 Australian cents, the biggest decline since March 1.

“We will surely vote against those who favor this project,” said Dinualdo Gutierrez, a bishop who leads the Catholic Church in South Cotabato and Saranggani, two of the provinces that need to approve the mine. The local elections are set for May 13.

Voter Base

There are about 400,000 Catholics in South Cotabato alone, Gutierrez said by phone yesterday. That compares with 736,884 registered voters in the province, according to the Commission on Elections. The Church has also gathered 106,000 signatures calling on President Benigno Aquino not to allow Xstrata to start mining in Tampakan, he said.

“What we’re concentrating on at the moment is the part of the consultation process” that may help the company gain national and local government approvals, Mark Williams, general manager for Xstrata-controlled Sagittarius Mines Inc., said in an interview in the town of Kiblawan in Mindanao.

The permits are required before Xstrata can begin construction of infrastructure that would support mining operations, John Arnaldo, the company’s Philippine spokesman, said in an interview in General Santos City in Mindanao. The construction would take three years to complete, he said.

Zug, Switzerland-based Xstrata estimates the mine may produce an annual average of 375,000 tons of copper in concentrate for at least 17 years from 2016. Global demand for concentrate may exceed supply by 59,400 tons in 2016, widening to 62,000 tons by 2017, Morgan Stanley (MS:US) predicted in a March 27 report.

‘Takes Time’

One of the reasons that the copper price is so high, is that “it takes time to develop new sources of supply, both from permits and community issues,” Richard C. Adkerson, chief executive officer of Freeport-McMoRan Copper & Gold Inc. (FCX:US), the world’s biggest publicly traded copper miner, said on an April 19 earnings teleconference call.

The Philippines is set to introduce a mining policy that would allow Xstrata’s project to proceed, while boosting the government’s take from resources contracts and identifying protected areas, Aquino said in a May 4 interview.

“We’ve very heartened by President Aquino’s statements that he thinks the new mining policy will let the Tampakan project proceed,” said Williams of Sagittarius, a venture with Australia’s Indophil Resources NL. (IRN)

GDP Boost

The project’s investment of $5.9 billion will make it the biggest in the Philippines, adding about 1 percentage point to the nation’s annual growth in gross domestic product over 20 years, Xstrata said. Total revenue from the mine’s output, which includes gold, is estimated at $60 billion, based on current metal prices, said Justin Hillier, finance manager at the local venture.

Delaying the project would mean unrealized employment potential for the people of Kiblawan, where Xstrata plans to hire 2,000 workers to construct infrastructure to support the Tampakan mine, Mayor Marivic Diamante said in an interview.

About 68 percent of the 50,000 people in Kiblawan live on less than $1.25 a day, and 27 percent of households have no toilets, Diamante said.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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