Mining in Mindanao: Not Meeting Its Potential

UNCLAS SECTION 01 OF 03 MANILA 001886

SENSITIVE BUT UNCLASSIFIED

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
STATE PASS DEPT OF INTERIOR FOR USGS
STATE PASS USAID

E.O. 12958: N/A
TAGS: EMIN SENV ECON EINV PGOV RP CM
SUBJECT: Mining in Mindanao: Not Meeting Its Potential

REF: A) Manila 1610 B) Manila 1790, C) Manila 1677


1. (SBU) Summary: The mining sector holds great promise for the
economic development of Mindanao. However, reputable mining
companies currently operating in this region face many challenges,
including lawlessness, insurgent violence, encroachments by
small-scale miners, populist resistance, corrupt local officials,
and banditry. Working with, rather than around, local interest
groups would do much towards reducing violence and increasing the
industry's ability to contribute to the prosperity of Mindanao and
peace in the region. This is one in a series of cables on the
economic challenges of Mindanao, a region often associated with
poverty and instability (Ref A). End Summary.

Large-scale is Better
--------------


2. (SBU) While the Philippines as a whole is rich in mineral
resources, Mindanao is particularly well-endowed with 46% of the
country's chromite deposits, 41% of its nickel, 34% of its gold, and
29% of its copper. However, extracting these reserves in a way
acceptable to the people of the region has proven difficult. The
mining sector's greatest potential contribution to Mindanao's
development lies in its ability to attract large-scale mining firms,
many of which are foreign. Only these firms have the technical and
financial capacity to undertake mining operations that benefit host
communities in an environmentally and socially responsible way.
These large-scale mining firms secure permits from the national
government, which requires them to obtain environmental impact
statements, commitments to required labor standards, and detailed
operational plans before work can begin. However, these permits do
not address the other challenges that these mining firms will face
once in Mindanao.

Encroachment
--------------


3. (SBU) One of the most significant challenges facing large-scale
mining operations is dealing with the current residents of the lands
to which they have obtained mineral rights. These residents could
be squatters who are recent arrivals seeking to exploit mineral
riches for their own gain without permission from Manila, or they
could be indigenous people with ancestral, albeit unrecognized by
the legal system, claims to the mineral-rich areas. The absence of
clear, uncontested land titles in Mindanao has made it almost
impossible to clearly distinguish between the two groups. In some
cases, squatters and/or indigenous people may even be working for
local political or commercial power brokers intent on exploiting
mineral deposits for their own gain.


4. (SBU) Squatters often occupy mineral-rich lands before the lands
are contracted to large-scale mining firms, extracting minerals
without the permission or knowledge of the national government.
Small-scale mining, as is done by squatters and indigenous folk
alike, is generally not subject to environmental regulation and uses
methods that result in greater environmental damage, dangerous
working conditions, and relatively inefficient mineral production.
Yet, local power brokers may prefer these small-scale operators
because they are easier to squeeze for a share of the earnings.


5. (SBU) Different regulatory treatment between large and
small-scale miners is a problem as well. Small-scale miners pay
local, not national, taxes. Large-scale miners pay royalties and
taxes to the national government, which then, in theory, returns 40%
to the local government unit responsible for the mining area in
question. Such transfers are reportedly often delayed or
conveniently forgotten. As a result, local officials have
additional strong incentives to favor small-scale miners at the
expense of large-scale miners. According to Embassy contacts in the
mining industry, local officials often collude with small-scale
miners and ignore their presence on lands contracted to large-scale
companies.


6. (SBU) Near Canadian-owned TVI Pacific's mine in the Zamboanga
Peninsula of Western Mindanao, small-scale miners have banded
together to exploit the richest gold and silver reserves of TVI's
exploration area. Furthermore, local government officials have
attempted to undermine TVI's contract with the national government
by declaring the area in question a "people's mining area," open
only to small-scale miners.

MANILA 00001886 002 OF 003



Popular Resistance
--------------


7. (SBU) Large-scale miners also face resistance from local
Catholic Church leaders, leftist politicians, insurgent groups, and
sometimes the broader population. Catholic bishops in Mindanao
recently reiterated their opposition to all large-scale mining on
the grounds that "mining can never be sustainable." The influence
of the Catholic Church on Filipino culture magnifies these views
among the broader population. Environmental damage at mining
operations in the late 1990s drives much of this negative sentiment
to this day. Some bishops in South Cotabato Province of southern
Mindanao have called for a provincial ban on all open-pit mining,
which would close the national government-approved Swiss and
Australian-owned Tampakan project in one of the world's largest gold
and copper areas.


8. (U) Insurgent elements, such as the Moro Islamic Liberation
Front (MILF),also oppose large-scale mining because they feel that
the Moro (read Muslim) people pay all the costs in terms of
environmental damage and social disruption, but receive none of the
benefits. In a press release recently published on its website
"Luwaran", the MILF said, "Spare the remaining natural resources for
our people and not for the benefits of those huge multinational
companies and their local contacts whose interests do not
necessarily jibe with the masses of our people."

Banditry
--------------


9. (SBU) Insurgent groups, such as the MILF, the New People's Army,
and others, run banditry operations near mining concessions. Since
law enforcement in rural areas of Mindanao is spotty, both large and
small-scale miners frequently operate under "protection rackets."
Miners privately admit to paying fees or "revolutionary taxes" to
bandit groups on a regular basis to avoid trouble, or even for
protection. The Filipino owner of a gravel mine in a
conflict-affected area near Iligan City told Embassy officers that
every truckload of gravel that leaves his mine is forced to stop and
pay an unofficial tax.

Pay Up, or Suffer the Consequences
--------------


10. (U) One company that did not succumb to this extortion was Apex
Mines, partly owned by UK-based Crew Gold Corporation. Apex
operates a gold mine in the Compostela Valley of southern Mindanao.
In March 2008, members of the New People's Army (NPA) disarmed the
mine's guards and set fire to buildings and mining equipment. The
local police chief attributed the attack to the company's
unwillingness to pay the extortion money demanded. This was the
third time NPA rebels had attacked the mine, burning mining
equipment each time.


11. (SBU) Revolutionary taxes and small-scale mining at Mount
Diwalwal, one of the country's largest gold fields, allegedly fund
NPA operations in the area. Rivalry among small-scale miners and
among local politicians at the site has caused two decades of
continuing conflict, leaving hundreds dead. Unsustainable mining on
the mountain left the area at risk for massive landslides as well.
Between the political instability and environmental damage at the
mountain, few reputable companies are willing to risk developing its
gold reserves. In April 2008, the Philippine Supreme Court ruled in
favor of an agreement between the national government and the ZTE
Company of China that granted exclusive mining rights in the
Diwalwal fields to ZTE. However, local officials have told Embassy
officers that the agreement will be impossible to implement because
locals, including themselves, do not support it.


12. (SBU) Comment: Development of mining in Mindanao also suffers
from the same problems as it does in the rest of the Philippines
(reported in ref C). However, the greater level of violence and the
less effective governance and rule of law in Mindanao makes these
problems more serious there. The potential of the mineral sector to
truly contribute to economic development in the region will only be
reached if violence is curbed, rule of law becomes effective,
environmental regulations are effectively implemented, and public
confidence in mining and in the government's environmental
protection efforts are restored. Given these enormous obstacles,

MANILA 00001886 003 OF 003


post does not plan on prioritizing mining in its policy reform
efforts until at least the security situation in Mindanao improves.
End Comment.

KENNEY