USGS PREPARES WORK PLAN FOR SURVEY OF MINERALS

UNCLAS SECTION 01 OF 03 MANILA 005457

SIPDIS

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 PREPARES WORK PLAN FOR SURVEY OF MINERALS

REF: A) MANILA 3811
B) MANILA 2856
C) MANILA 2678
D) MANILA 259
E) MANILA 11

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SUMMARY
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1. In meetings in Manila with the GRP's senior
geologists, a team of experts from the U.S. Geological
Survey (USGS) drafted a work plan for the first phase of
a mineral resources assessment of the Philippines. Phase
one involves gathering existing data in digital format
for release to the public domain. The estimated cost to
the GRP for the first phase is US$1 million. The
Australian Development Agency (AusAID) concurrently is
planning a feasibility study to provide US$18 million in
grants to the GRP to conduct aeromagnetic imaging of
selected areas of Northern Luzon and Mindanao. These
prospective studies might present timely opportunities
for scientific and diplomatic cooperation between the
U.S. and Australia to support the implementation of
reforms that will ensure benefit sharing, environmental
protection, and sustainable economic progress. End
Summary.

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WORK PLAN FOR PHASE ONE
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2. U.S. Geological Survey (USGS) Lead Coordinator for
Asia and Pacific Jack Medlin, Don Singer, and Barney
Berger visited Manila November 5 - 12 to prepare a work
plan for the Department of Environment and Natural
Resources Mines and Geosciences Bureau (DENR/MGB) and
USGS to jointly conduct the first phase of a state-of-the-
art inventory of mineral resources in the Philippines
(ref A). During USGS Acting Director Patrick Leahy's
visit in August, 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. In September,
Acting Director Leahy responded favorably on Secretary
Norton's behalf and the team's visit was scheduled for
November.


3. USGS's team met with DENR Assistant Secretary/MGB
Director Jeremias Dolino and MGB's senior geologists
assigned to the project. In addition, Medlin met with
Australian Development Agency (AusAID) Counselor Angus
Macdonald; Department of Energy (DOE) Undersecretary for
Energy Exploration and Development Balce; and the Inter-
Embassy Mining Group (which includes representatives of
the Australian, British, Canadian, and American embassies
and our respective chambers of commerce).


4. The first phase (one year) involves integrating
existing geologic data and maps in digital format in a
publicly-released report. In the second phase (one to
two years),new geologic, geochemical, and geophysical
data would be gathered. In the third phase (one year or
less),USGS would apply models to determine probable
locations of large, recoverable deposits of copper, gold,
nickel, chromium, and other minerals.


5. The scope of work for phase one is embodied in a
draft letter of agreement which would be signed by USGS
Acting Director Leahy and DENR Secretary Michael
Defensor. The principal tasks include creating a digital
geologic map of the Philippines, establishing digital
databases of stream sediment data and aeromagnetic data,
and training.

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FUNDING FOR PHASE ONE
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6. The estimated cost to the GRP for phase one is US$1
million, although the GRP has not identified its source
of funding. The GRP would be obliged to commit an
additional US$4 - 9 million for the second and third
phases. Initiating the first phase requires a letter of
agreement, but the second and third phases require a
bilateral memorandum of understanding (MOU). (USGS plans
to send post a final draft of the letter of agreement in
early December.) The Circular-175 U.S. inter-agency
review process for an MOU could be facilitated through
the U.S.-GRP Science and Technology Agreement of 2003.
Circular-175 would provide a forum for more comprehensive
review of our economic and geopolitical interests in
advancing to phases two and three.


7. The GRP would allocate approximately US$300,000 of
its US$1 million contribution to pay for digitization of
data in the Philippines and new equipment for DENR/MGB.

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AUSTRALIA CONSIDERS FUNDING AEROMAGNETIC IMAGING
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8. The Australian Development Agency (AusAID) is eager
to support the rebirth of the mining sector. AusAID
Counselor Macdonald confirmed that Canberra is reviewing
DENR/MGB's proposal for AusAID to provide US$18 million
in grants to the GRP to conduct aeromagnetic imaging of
selected areas of Northern Luzon and Mindanao and a
request from the Chamber of Mines to help establish a new
code for listing mining companies on the stock exchange.
For the aeromagnetic survey, the GRP would be obliged to
match AusAID's contribution with US$900,000. Although
Canberra has not formally committed to the aeromagnetic
survey, AusAID intends to send two experts to Manila in
early 2006 to conduct a feasibility study. While
DENR/MGB's proposal suggests that the GOA and GRP would
have proprietary rights, a visiting Australian desk
officer assured econoff that the data probably would be
released to the public domain. Australia and the GRP
have discussed the possibility of doing an aeromagnetic
survey for ten years, but negotiations were derailed in
1998 primarily due to infighting between DENR and MGB
over control of data.


9. Aeromagnetic data gathered by the Australians via
helicopter or airplane could be incorporated into the
second and third phases of a mineral resources assessment
as new geophysical data. In phase one, USGS and DENR/MGB
plan to digitize aeromagnetic data that is on file with
the GRP's DOE. Much of the existing data is piecemeal
and dates from the Marcos era. In phase two, USGS could
gather geophysical data on the entire country via
satellite. The enhanced precision of scale that would be
generated by AusAID's project could add considerable
value to a mineral resources assessment in identifying
probable locations of large, recoverable deposits in
selected areas of Northern Luzon and Mindanao. USGS has
collaborated with its counterpart, Australia Geoscience,
on other projects and will explore possible joint efforts
here.

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COAL, COAL BED METHANANE, AND GEOTHERMAL ENERGY
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10. Although DOE Undersecretary for Energy Exploration
and Development Balce said he hopes that the assessment
can be expanded in the future to include coal, coal bed
methane, and geothermal energy, he noted that DOE's
budget for 2006 has little room for adjustment.

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WORLD BANK LOAN FOR DENR
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11. The World Bank is considering providing a US$40
million loan to the GRP over four years to support the
DENR's priorities, including land use planning,
environmental policy, water management, and mining.
Econoff met with Christopher Sheldon, Mining Policy and
Reform Division, who said the program could include
assistance for geologic mapping and mining-related
reforms. The Bank is reviewing whether general or
specific goals for continued funding should be used for
this loan. Sheldon plans to visit Manila again in
February or March 2006 to discuss next steps with the
GRP. Technical assistance initiatives could play a key
role in encouraging sound practices, however, considering
the GRP's track record the loan should be linked to
explicit targets.

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COMMENT
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12. Development of the mining sector is a top priority
for President Arroyo. Embassy believes USGS's mineral
resources assessment and AusAID's aeromagnetic survey
could help to "level the playing field" for potential
investors. USGS requires national governments to
publicly release the results of collaborative studies and
AusAID likely would follow suit. However, the history of
mining in the Philippines is marred by corruption and
mismanagement. To ensure that history does not repeat
itself and to foster sustainable development, we should
create incentives for the GRP to implement proper
regulatory reforms and environmental safeguards as it
liberalizes the mining sector and attracts foreign
investment. USGS's team said it would welcome Australia
Geoscience as full partners in a joint mineral resources
assessment with DENR/MGB. Post will continue to report
on prospects for scientific and diplomatic cooperation.

JONES