I. SUMMARY

Metallic mineral production value rose by 47% from PhP27.66 billion in 2005 to PhP40.67 billion during the period in review. This impressive performance can be largely attributed to the much higher price levels of metallic commodities in the world market. The prime movers were gold, copper and nickel sub-sectors.

Price patterns of leading minerals like gold, silver, copper and nickel remained on the upward trend as demand for these metals continue to outpace supply. Copper exhibited the highest growth at 90%, from an average of $1.57/lb in 2005 to almost $3.00/lb during the period in review. Silver price, on the other hand, was up by 59%, while both gold and nickel enjoyed a 38% gain. Mineral analysts noted that global demand for copper and nickel is increasing rapidly mainly because of the tremendous amounts of these key metals required as the result of the industrialization in Asia.

Foreign exchange value of the Philippine Peso appreciated against the United States Dollar by 6% from PhP55.15 in 2005 to PhP51.66 in 2006.

II. COPPER

In terms of mine production, the local copper sub-sector suffered an 8% setback from 56,403 dry metric tons in 2005 to 52,058 dry metric tons during the period in review. Padcal Copper Project of Philex Mining Corporation has been the sole producer of copper since the closure of Placer Copper Project of Manila Mining Corporation and Sipalay Copper Project of Maricalum Mining Corporation in June and July, 2001, respectively. In the pipeline is the Padcal (Sto. Tomas II) Copper Expansion Project of Philex Mining Corporation. Once in operation the Project is estimated to have a potential gross sales of US$50 million per year. Investment and employment as of 2005 reached US$17 million and 498, respectively.

Notwithstanding the production shortfall of 4,345 dry metric tons during the review period, production value jumped by as much as 75% from PhP2.35 billion in 2005 to PhP4.10 billion in 2006. This was basically due to the dramatic price increases of the red metal throughout the year. Prices continued to climb higher, reaching a peak of $3.65/lb in May 2006. This is more than five times higher than the price in September 2001 when copper was sold for only $0.65/lb. Average price during the period in review was $3.00/lb vis-à-vis $1.58/lb in 2005.

Many analysts say that although copper is neither a precious nor an investment mineral commodity, it has become the dark horse champion of the on going commodities bull-run. Copper prices, they say, were so low for so long that few incentives existed for miners to keep exploring for new copper projects. And even with miners trying to bring new copper mines online today, it will take many years for supply to catch up with surging demand.

III. GOLD

Although production output went down by 3%, output value managed to moved ahead by 27%, from PhP20.78 billion in 2005 to PhP26.34 billion this review period. Gold prices continue to escalate during the period. Compared to the same period last year, prices have never reached the $600/troy oz level mark. The highest price registered then was $455/troy oz. in September 2005. During the period in review, the yellow metal has been trading between $546/ troy oz to $676/ troy oz.

In the local scene, producers who reported output deficit were Teresa Gold Project of Lepanto Consolidated Mining Corporation (30%) and Acupan Contract Mining Project of Benguet Corporation (10%). Gold purchase of the Bangko Sentral Ng Pilipinas (BSP) from small-scale mines also showed a decline of 9%. Furthermore, Diwalwal State Utilization Project of Natural Resources Development Corporation (NRDC) registered no output during the period.

Of the five (5) BSP buying stations, Quezon City (Mint and Refinery Operations Department) accounted for 13,516 kilograms, followed by Davao buying station with 4,889 kilograms, Baguio with 2,426 kilograms, while Naga and Zamboanga buying stations contributed a measly 920 kilograms and 692 kilograms, respectively of the total purchases from various small scale mines.

Annual demand for gold comes in three (3) main sources, the largest of which is the jewelry industry at around 68%. Investment demand account 18% while the demand for industrial and dental shares 14%. Gold price is expected to go up further as the year ends. In terms of consumption demand, India tops the list, as the world’s largest gold jewelry market, followed by the United States, China, Middle East, Turkey and Italy. Jewelry demand is seasonal and the fourth quarter is the strongest quarter due to Christmas and other end-of-year festivals when jewelry gifts are most common. The World Gold Council supports the marketing of gold jewelry through partnerships with retailers, manufacturers and distributors in the world’s leading markets.

IV. SILVER

Production volume and value of the white metal remained upbeat with 32% and 86%, increases, respectively. Total output reached 17,449 kilograms worth PhP304 million. The upward movement was principally attributed to the substantial production of Canatuan Gold Project of TVI Resources Development Phil. Inc. in Zamboanga del Norte. Of the country’s total silver production , TVI contributed 13,714 kilograms or 79%. Average price of silver for the first nine months moved up by as much as 59% from $7.04/troy oz to $11.2/troy oz.

According to Gold Fields Mineral Services (GFMS), the main growth areas for silver in the world market in the last few years have been in health, electronics and in the renewable energy fields, all of which rely on silver’s properties as a catalyst for conducting and storing electricity. Silver has been competing strongly with other low cost gold substitutes, such as copper and aluminum for use in electronic products.

V. NICKEL

Nickel direct shipping ore made a positive comeback as four (4) of the nickel producers reported positive growth rates. This was mainly due to the favorable weather conditions that prevailed in the area allowing the companies to operate more days during the period in review. The entry of Tagana-an Project of Hinatuan Mining Corporation last February 2006 spelled the big difference in the overall performance of this sub-sector as it contributed 56% to total nickel production Production volume recorded a 158% gain from 1.03 million dry metric tons of direct shipping ore in 2005 to 2.67 million dry metric tons of direct shipping ore in 2006. On the production value side, the 38% increase in nickel price from an average of $7.00/lb in 2005 to $9.66/lb this year boosted production value from PhP3.06 billion in 2005 to PhP5.46 billion this year, a 78% increase.

In addition, nickel concentrate continued to make headway as production output and value of Coral Bay’s High Pressure Acid Leach (HPAL) Project located in Palawan were up by 187% and 252% from 3,694 dry metric tons of nickel concentrates in 2005 to 10,602 dry metric tons of nickel concentrates in 2006 valued at PhP1.24 billion and PhP4.38 billion, respectively, during the period in review.

During the last six years, nickel prices just kept rising, the highest of which was set last August 2006 at $13.95/lb while the lowest recorded price was in October 2001 at $2.19/lb. According to some analysts, the fast breaking pace can be attributed to two major factors: (a) the slow growth of primary nickel supply and; (b) tremendous rise in Chinese consumption. Demand for this metal by China is more likely to expand further this year. Asia now accounts 47% of global primary nickel use. By first use, 61% of nickel that is produced each year is apportioned to stainless steel. In terms of end use, nickel is used in thousand of applications in virtually every industry from electronics, transportation, metal goods, building and construction to engineering.

VI. CHROMITE

Production volume and value of chromite sub-sector grew by 27% and 35%, from, 27,287 dry metric tons in 2005 to 34,666 dry metric tons during the period in review worth PhP62.35 million to PhP84.44 million, respectively. This is with the exception of Heritage Resources and Mining Corporation’s Homonhon Chromite Project in Homonhon Island, Guiuan, Eastern Samar, which incurred a loss of 11% in output and 16% in value. Both refractory and metallurgical chromite outputs experienced growths.

VII. OTHER MAJOR INDUSTRY DEVELOPMENTS

The Philippine government is confident that, because of its sustained efforts at revitalizing the local minerals industry, foreign investments from Australia, Canada, Africa and the other countries shall continue to come in. However, it remains steadfast in ensuring that mining operations in the country adhere to the principles of responsible mining that can provide for the social and environmental requirements as provided for by law. The government, in coordination with the private sector, is determined to transform the country’s mineral wealth into economic benefits to propel the national economy and develop local communities for the benefit of people especially those in the countryside.

VIII. OUTLOOK

The amazing surge of metal prices in the world market is a testament of the power of the laws of supply and demand. The enormous demand for copper and nickel was due to the industrialization of Asia particularly in China and India. Strong growth of cable production in China is the principal reason for the increase in copper demand, increasing amounts of copper have been used in buildings, electrical equipment and brass fitting as well as cable. While more recently, Indian consumption has started to pick up due to the increasing demand in the Indian auto & construction industries. As long as global supplies remain constrained and demand remains bullish, analysts foresee prices of metals to be on the upswing still in the coming years.

December 20 , 2006