Metallic mineral production value up by 48%

1. SUMMARY

Production value of the Philippine metallic minerals sector posted a 48% growth from PhP16.84 billion during the first semester in 2005 to PhP24.86 billion during the same period this year. Major players were gold, silver and nickel sub-sectors. Although copper enjoyed a 65% increase in production value, its quantity encountered a 7% setback. Chemical grade chromite remained on the negative.

Prices of major minerals like gold, silver, copper and nickel remained high and strong in the world market. Copper price alone displayed an 82% gain from $1.51/lb to $2.75/lb during the period in review. The rest of the metals like gold, silver and nickel also exhibited growths of 38%, 56% and 9%, respectively. Favorable levels of metal prices during the period in review contributed significantly to the sectors growth.

The 5.56% decline in the foreign exchange value of the Philippine Peso vis-à-vis the United States Dollar in a way also affected the production values by pushing up the local production costs.

2. COPPER

Philippine copper production dropped in volume by 7% but enjoyed a 65% increase in production value. Philex Mining Corporation (Padcal Copper – Gold Project) reported a total production of 34,660 dry metric tons, down by 2,431 dry metric tons from the 37,091 dry metric tons reported during the same period in 2005. The whopping 82% increase in copper price from $1.51/lb to $2.75/lb during the period boosted production value to increase by as much as PhP950 million from last year’s PhP1.46 billion to close at PhP2.41 billion during the period in review. The metal rose to a record high in May 2006 at $3.65/lb, the highest recorded monthly price since 2000.

Although production of Philex Mining Corporation was down for the first two quarters this year compared to 2005, its performance is expected to improve with the expected completion of its Padcal expansion project. The development of the expansion Project is on stream, and mining at this level is expected to start soon.

Due to copper’s indispensable industrial and technological uses and the growing global economy led by economies of China and India, copper prices have soared to new heights in the first-half of this year. In 2006, copper has been trading from $2.14/lb to as high as $3.64/lb. According to some mineral analysts, industrial development and growth in manufacturing and high technology have kicked up demand for this nonferrous commodity, causing global inventories to sharply decline in order to keep up with this new-found demand. Copper is used heavily in construction, transportation, electrical, automotive and in telecommunications. New technology like mobile phones, iPods, game consoles and electrical goods have also come into play having copper as its key material.

3. GOLD & SILVER

Sustaining its favorable trend, both production volume and value of gold grew by 9% and 42%, respectively. Covering January to June 2006, production volume went up to 18,949 kilograms from 17,315 kilograms during the same period in 2005. In terms of production value, the yellow metal was up by 42% from PhP12.69 billion in 2005 to PhP18.05 billion in 2006. Gold price ranged from US$546.63/troy oz. to a high of US$676.34/ troy oz. during the six months review period. Average price grew by 38% from US$427.43/troy ounce in 2005 to US$590.31/troy ounce in 2006. Analysts believe that sentiments remain high , with gold prices still likely to move up towards the upper end of the range as tensions in the Middle East are still extremely high.

The 9% increase in production quantity can be attributed to the increase in mine productions of Lepanto Consolidated Mining Corp. (Victoria Gold Project) and Philex Mining Corporation (Padcal Copper Project), both located in Benguet Province, and TVI Resources Development Phil. Inc. (Canatuan Gold Project) in Zamboanga Del Norte. Central Bank Gold Purchases from small-scale mines also posted an increase of 6% in quantity and 37% in value.

Breakdown of gold purchases of the Bangko Sentral ng Pilipinas buying stations are as follows: the Mint and Refinery Operations Department (MROD) in Quezon City accounted for 9,800 kilograms of its total purchases, followed by its Davao buying station with 3,217 kilograms; Baguio with 1,739 kilograms; Naga buying station with 608 kilograms and Zamboanga station with 523 kilograms.

Silver is a co-product of gold mining in the Philippines. Production volume and value of the white metal continued to rise at 86% and 186%, respectively. The upbeat movement was spearheaded by the impressive showing of TVI Resources Development Phil. Inc. (Canatuan Gold Project) in Zamboanga del Norte. It accounted for 77% of the country’s silver production. The country’s silver production increased from 6,116 kilograms in 2005 to 11,398 kilograms during the first semester in 2006.

Average price of silver for the first six months rose by as much as 56% during that span from $7.04/troy oz to $10.97/troy oz. Silver has the luxury of being both an industrial and an investment metal and is a key ingredient in many industrial applications. Analysts also expect an increase in jewelry and silverware demand this year.

4. NICKEL

Despite the general increase in the production volume and value of nickel direct shipping ore by 127% and 6%, respectively, the following producers reported decrease in their production, namely, Cagdianao Mining Corporation (Cagdianao Nickel Project), Hinatuan Mining Corporation (South Dinagat Project), Rio Tuba Nickel Mining Corporation (Rio Tuba Nickel Project) and Taganito Mining Corporation (Taganito Project). The re-entry of Tagana-an Nickel Project of Hinatuan Mining Corporation to the production-stream last February 2006 was the sole reason for the overall positive turn-out during the period in review.

Coral Bay Nickel Corporation with its Hydrometallugical Processing Plant (HPP) located in Rio Tuba, Bataraza, Palawan was able to process 6,247 dry metric tons of nickel sulfides concentrates, amounting to PhP2.00 billion in the first semester of 2006. The plant started its commercial operation in April 2005. This project of Coral Bay Nickel Corporation is using the High Pressure Acid Leach (HPAL) technology to process the low grade nickel ores of Rio Tuba Mining Corporation. This pioneering technology will have a tremendous impact on the development of low-grade laterite deposits in the Philippines. The HPAL plant has a projected operating mine life of sixteen (16) years.
Price of nickel during the period in review hovered from a peak of $US9.56 a pound to a low of around $US6.60 a pound. While the average for this six-month period was reported to be at $US 7.88 per pound as against the $US 7.20 per pound in 2005, displaying a 9% increase. Experts are in consensus, that the growing nickel market will continue, at least, over the next few years and that demand for primary nickel will continue to outstrip supply, largely due to the rapidly increasing demand for stainless steel in China. Stainless steel accounts for 67% nickel. Stainless steel consumption is growing at 5.7% per annum and may increase to 9% with effects of increased demand in China. Demand is also up in the US, Europe and Asian region.

5. CHROMITE

Chromite ore production increased in volume and value by 30% and 42%, respectively. Said growth was due to increase in production volume and value of refractory and metallurgical chromite ores. Total chromite production value during the period in review in 2005 and 2006 were PhP40 million and PhP57 million, respectively. Both Benguet Mining Corporation (Masinloc Chromite Project) and Krominco Inc. (Dinagat Chromite Project) exhibited growth in their respective production. While CRAU Minerals Resources Corporation (Dinagat Chrome Project) and Heritage Resources & Mng. Corp. (Homonhon Chromite Project) suffered production deficits.

6. OTHER MAJOR INDUSTRY DEVELOPMENTS

After the Supreme Court’s dismissal of the suit that sought to stop Climax-Arimco Mining Corporation from proceeding with its Didipio Project last April 2006, and with the closure of legal issues against the Philippine Mining Act of 1995, a new generation of mining projects that adhere to environmental protection, social responsibility, protection of the rights of indigenous people, transparency in operations, tax payments, and creation of jobs and livelihood in the rural communities will be developed within the few years. The government is confident in aiming for 1.5 billion dollars in new mining investments this year and 6.5 billion dollars over the next five years. Part of it include the plan of Coral Bay Nickel Corporation to double its capacity that requires $285 million in fresh capital, the infusion of $100 million in the Climax-Arimco Project, and the $171 million capital needed to restart the Atlas Mining – Carmen Copper Project in Cebu.

7. OUTLOOK

On the international scene, general outlook for the metallic sector remains bright and solid, as gold, silver, copper and nickel prices are peaking to all time highs This was attributed to the global economic expansion and political conflicts that have been taking place over the last few years. In times of crisis, gold has always been the ultimate investment haven. In addition, the great demand for nickel and copper alone by China for its growing economy/industrialization program has almost single-handedly created a supply and demand imbalance for these commodities, causing inventories to sharply decline vis-à-vis the new-found demand. Analysts are optimistic that metal prices will still sustain this increasing trend for a number of years.

October 5, 2006

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Mineral Economics, Information & Publication Division
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