UNCLAS SECTION 01 OF 05 MANILA 003811

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SENSITIVE

STATE FOR EB/IFD/OIA, EB/ESC, AND EAP/PMBS
DOE FOR TOM CUTLER
USDOC FOR 4430 ITA/MAC/DBISMEE/KBOYD
BANGKOK FOR REO JAMES WALLER
DEPT OF INTERIOR FOR USGS PLEAHY, JMEDLIN, AND GCOAKLEY
STATE PASS USAID FOR JLEWIS

E.O. 12958: N/A
TAGS: EMIN SENV EINV ECON BEXP RP
SUBJECT: USGS DISCUSSES JOINT MINERAL RESOURCES ASSESSMENT

REF: A) MANILA 11

B) MANILA 259
C) MANILA 2678
D) MANILA 2856

Sensitive but Unclassified - Protect Accordingly.

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SUMMARY
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1. (SBU) In meetings in Manila with senior GRP
officials, USGS Acting Director Leahy confirmed the U.S.
Geological Survey's (USGS) intentions to develop a work
plan with the GRP to conduct the first phase of a mineral
resources assessment of the Philippines. Department of
Environment and Natural Resources Secretary Michael
Defensor endorsed the concept and signed a letter to
Interior Secretary Norton to affirm the GRP's plans to
pursue the project and secure funding for a contract with
USGS. Phase one could be accomplished in one year for
about $1 million, according to USGS. Phases two and
three, in which more comprehensive findings would be
generated, would cost about $3-8 million depending on the
scope of work and the GRP's in-kind contributions. There
appears to be broad-based support among the GRP's
agencies, potential investors, and the American Chamber
of Commerce. This multi-year assessment could provide
opportunities and incentives for the national and local
governments to implement reforms that will ensure benefit
sharing, environmental protection, and sustainable
economic progress. End Summary.

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GRP ENDORSES CONCEPT FOR MINERAL RESOURCES ASSESSMENT
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2. (U) U.S. Geological Survey (USGS) Acting Director
Patrick Leahy and USGS Lead Coordinator for Asia and
Pacific Jack Medlin visited Manila August 2 - 6 to
explore prospects for the Department of Environment and
Natural Resources, Mines and Geosciences Bureau
(DENR/MGB), and USGS to jointly conduct a state-of-the-
art inventory of mineral resources in the Philippines

(ref C). DENR Secretary Michael Defensor signed a letter
to Interior Secretary Gale Norton to affirm the GRP's
intentions to proceed with the project and secure funding
to support a contract with USGS (para 15). USGS may
dispatch several experts in the coming weeks to develop a
work plan with DENR's Mines and Geosciences Bureau for
phase one, which involves integrating existing geologic
data and maps in digital format in a publicly-released
report. According to USGS, Secretary Norton will address
a letter to Secretary Defensor in response.


3. (U) USGS Leahy and Medlin met with Board of
Investments Undersecretary Elmer Hernandez; the Inter-
Embassy Mining Group (which includes representatives of
the Australian, British, Canadian, and American embassies
and our respective chambers of commerce); DOE
Undersecretary for Energy Exploration and Development
Balce; NEDA Chief Economic Development Specialist Art
Cebuma; Regional Environmental Officer James Waller; the
American Chamber of Commerce; DENR Assistant
Secretary/MGB Director Jeremias Dolino; the Chambers of

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Mines of the Philippines; post's Economic Policy Group,
which includes the Economic Section, FCS, USAID, FAS, and
other agencies; World Bank Acting Country Director
Christopher Hoban; House Appropriations Committee Vice
Chair Luis Villafuerte, and DENR Secretary Michael
Defensor.

4. (U) The assessment would be the first of its kind. To
date, piecemeal surveys of the archipelago's natural
resources have covered few commodities and perhaps less
than half of the country's area. Data and maps are
available only in paper form. Digitized formats are
required in applying models to predict where large,
recoverable mineral deposits might be discovered. The
Philippines perhaps has untapped mineral wealth of more
than US$840 billion, or ten times the country's gross
domestic product and fifteen times its national debt.
One-third of the country may have recoverable deposits,
although titles and permits have been issued for only a
small percentage of these lands. Whereas the
constitution prohibits foreign nationals from owning
land, the Supreme Court's ruling of December 2004 permits
companies that are up to 100% foreign-owned to enter into
agreements to invest in large-scale exploration,
development, and utilization of minerals, oil, and gas
(ref A). By identifying probable locations of major
deposits of copper, gold, nickel, chromium, and other
minerals, public officials could make informed decisions
in implementing the country's Minerals Action Plan and
allocating mining rights. USGS's policies call for
national governments to publicly release the results of
these collaborative studies.

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WORK PLAN AND FUNDING FOR PHASE ONE
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5. (U) In response to Secretary Defensor's invitation,
USGS expressed intent to follow-up with DENR/MGB to
develop a bilateral work plan for phase one, which would
involve integrating existing data and maps in digital
format. Phase one would require eight scientists
(probably four Americans at USGS and four Filipinos at
DENR) working full-time for one year or more, depending
on the quantity, distribution, and quality of data and
the scale of geologic mapping. Potential sources of
information include the GRP's agencies, USGS and its
archives, universities, third-country governments, and
cooperative commercial enterprises. USGS and DENR/MGB
would publish this material to stimulate interest and
investment. The report, comprising digitized data and
maps on CD/DVD, would be made publicly available,
including on the internet.


6. (U) The GRP would be responsible for all expenses
following initial consultations. The estimated cost for
the first phase is US$1-2 million, or perhaps less if the
GRP maximizes its in-kind contributions of labor and
digitization of data. USGS officials are confident that
DENR/MGB's competent and dedicated scientists have
sufficient expertise to carry out the project.


7. (U) Secretary Defensor said he would seek funds for
this activity in the 2006 budget. Appropriations
Committee Vice Chairman Luis Villafuerte, who was present
at our meeting with Defensor, expressed clear and strong
support. Congressman Villafuerte formerly served as
Governor of Camarines Sur Province. In the neighboring
provinces of Camarines Norte and Albay, there are
deposits of copper, zinc, gold, and silver and several
small- and medium-sized mining operations.

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PHASES TWO AND THREE
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8. (SBU) In phase two, experts could generate new data on
the archipelago's geology, geochemistry, and geophysics
through statistical mapping, sampling, and aeromagnetic
and satellite imaging. Target commodities could include
a dozen or more metallic and non-metallic minerals. If
existing data is sufficient for the scope of the
assessment, wide-ranging sampling might not be required.
However, for a nationwide survey, more data readily is
available on mineral deposits in Luzon and Visayas than
those in Mindanao. In phase three, technology would be
transferred to DENR/MGB as USGS applies and refines its
advanced statistical models to identify probable
locations of large, recoverable deposits. The final
joint product would synthesize their findings and provide
extensive digital information for the public domain at no
expense to end users save minimal fees for producing CDs
or DVDs. The cost estimate for phases two and three is
US$3-8 million over several years, depending on the
scope, the GRP's in-kind contributions, and the extent of
information gathered in phase one.


9. (U) The assessment would not include offshore
resources. Oil and gas, offshore or onshore, also might
not be part of this survey. Department of Energy (DOE)
Undersecretary Balce, however, expressed interest in
assessing coal, coal bed methane, and geothermal energy
resources.

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SUPPORT FROM BOI, DOE, NEDA, AMCHAM, AND CHAMBER OF MINES
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10. (U) In addition to DENR, the Board of Investments,
DOE, and the National Economic and Development Authority
are very interested in pursuing this project. Both
AmCham and the Chamber of Mines of the Philippines
endorsed it. AmCham sent a letter of support to USGS
Leahy, citing the benefits of a revitalized mining sector
for business and investment. Mining interests in other
countries, of course, would have equal access to the data
and their investments also could be expected to increase.


11. (SBU) The Philippines is one of the world's most
highly mineralized countries and ranks among the top five
in copper and gold. Its deposits are key components of
global mineral resources. We understand that the
assessment would help complete the picture for USGS's
study of global mineral reserves. It also would draw in
funds for USGS's partnerships with U.S academic
institutions.


12. (U) Since the GRP initiated its shift in policy from
tolerance to active promotion of mining in 2004 (ref A),
mining companies from Australia, Canada, and China have
shown more interest in the Philippine mining sector than
have their U.S. counterparts (ref D). In addition to
mining itself, however, investment in the sector will
present opportunities for ancillary businesses in which
U.S. companies have certain competitive advantages, such
mining equipment, transportation, information technology,
and environmental planning. Development of the sector
will depend on the GRP's ability to remove significant
barriers to investment and development, including
negative perceptions of the industry due to the mine
waste disaster on Marinduque Island in 1996 (ref B) and
continuing delays in implementing key regulatory reforms
(ref C).

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COMMENT
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13. (SBU) As USGS and DENR/MGB develop a work plan and
negotiate a contract, we should be prepared for
skepticism and perhaps opposition from environmental NGOs
and some Catholic bishops here. Proprietary land rights
remain a controversial issue throughout the Philippines
among disaffected communities (some involved with the
Communist and Muslim insurgencies). The public rollout
of the survey will be important, and we are discussing
with DENR how to proceed. A gradualist approach could
provide time and incentives for the public, private, and
non-profit sectors to implement regulatory reforms that
would ensure benefit sharing, environmental protection,
and sustainable economic progress. Like other
assessments for which USGS has provided technical
assistance, the results would be publicly released and
the host government would be identified as the principal
author. USGS will not attach other conditions to the
project. National, provincial, and local officials will
be responsible for ensuring responsible mining practices
and their track record in this regard is weak. The
minerals assessment, however, will provide opportunities
for the U.S. to engage the GRP constructively in the
direction of reform and liberalization.

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NEXT STEPS
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14. (SBU) Next steps include:

-- USGS dispatches several experts to Manila in late
August or October to develop a work plan with DENR/MGB.

-- The GRP secures funding in its budget.

-- The USG conducts Circular-175 inter-agency review
process.

-- The USG and GRP negotiate an MOU, perhaps within the
framework of the bilateral Science and Technology
Agreement of 2003.

-- Post will continue to report on developments such as
the status of the Minerals Action Plan and potential
technical assistance initiatives that could facilitate
reforms.

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SECRETARY DEFENSOR'S LETTER TO SECRETARY NORTON

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15. (U) Following is the text of DENR Secretary Michael
Defensor's letter of August 5, 2005, to Interior
Secretary Gale Norton, in which Defensor requests that

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USGS develop a work plan with DENR/MGB to conduct a
mineral resources assessment.

Dear Secretary Norton:

We greatly appreciate the discussion-meeting between the
DENR-Mines and Geosciences Bureau and Dr. Patrick Leahy,
Acting Director of the USGS, Dr. Jack Medlin, Chief of
the Asia and Pacific Geology of the USGS, and Mr. Robert
Ludan, Economic Counselor, and Mr. Stephen Thompson,
Economic Officer, both of the Embassy of the United
States of America. We believe that we are on the right
track to the revitalize the Philippine Minerals Industry
especially with the possible joint undertaking of the
mineral resources assessment of the Philippines.

We wish therefore that this undertaking be carried out in
the soonest possible time. Thus, we are respectfully
requesting for two (2) experts from the USGS who would
work closely with our Mines and Geosciences Bureau
counterparts that would prepare the comprehensive plans
for the proposed joint mineral resources assessment. It
is our intention to seek funding to support a contract
with the USGS and this joint planning team will develop
the work plan.

We look forward to your consideration of this matter as
we believe that the information that will be generated
from this project will further boost the revitalization
of the Philippine mining industry.

Thank you.

Very truly yours,

Michael T. Defensor
Secretary

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End text.

JOHNSON